Major accounting flaw in Kyoto Protocol uncovered

Jerry Melillo. Photo: MBLFix needed to reduce future large-scale land conversion and resultant greenhouse gas emissions

An international team of top climate scientists has found a critical, but fixable, error in the accounting method used to measure compliance with carbon limits. The flaw, which centers on the measurement of CO2 emissions from the use of bioenergy, could undermine greenhouse gas reduction goals if not addressed.

Current carbon accounting, used in the Kyoto Protocol and other climate legislation including the European Union's cap-and-trade law and the American Clean Energy and Security Act, does not factor CO2 released from tailpipes and smokestacks utilising bioenergy nor does it count emissions resulting from land use changes when biomass is harvested or grown. This, the scientists say, erroneously treats all uses of bioenergy as carbon neutral, regardless of the source of the biomass, and could create strong economic incentives for large-scale land conversion as countries around the world tighten carbon caps.

In a paper published in the October 23 issue of Science magazine, Marine Biological Laboratory (MBL) senior scientist Jerry Melillo and a dozen co-authors contend that across-the-board exemption of CO2 emissions from bioenergy is improper in greenhouse gas regulations if emissions due to land-use changes are also not included. "The potential of bioenergy to reduce greenhouse gas emissions inherently depends on the source of the biomass and its net land-use effects," the authors write.

Land-use emissions stemming from bioenergy use vary widely. Clearing established forests to burn wood or grow energy crops results in large releases of CO2 while converting unproductive land to support, for example, fast-growing grasses, may result in net carbon reduction. Under the current carbon accounting system, both scenarios are counted as a 100 per cent reduction in energy emissions.

"When forests or other plants are harvested for bioenergy, the resulting carbon release must be counted either as land-use emissions or energy emissions," says Melillo. "If this is not done, the use of bioenergy will contribute to our greenhouse gas problem rather than help to solve it."

Melillo and his colleagues say the accounting flaw is fixable and call for a system that would track the actual flow of carbon and count all CO2 emissions, whether from fossil fuels or bioenergy. They further recommend that any crediting system for assessing bioenergy consider changes in carbon reserves; emissions of other damaging greenhouse gases other than CO2, such as nitrous oxide; as well as land-use emissions.

"Bioenergy has the potential to provide a substantial amount of energy and help nations meet greenhouse caps, but correct accounting must be in place to prevent unintended consequences of unsustainable bioenergy production," says Melillo.

War of words by US, China threaten to derail climate deal

War of words between negotiators of the US and China appear to derail efforts to arrive at a deal on climate change in Copenhagen in December

The insistence for a new climate deal by the US has caused polarisation among developed and developing countries with rich countries being pitted against developing countries led by China.

While expressing deep opposition to the existing Kyoto protocol, Jonathan Pershing, the chief US negotiator, said that industrialised countries alone can't reduce emissions so as to prevent the impacts of climate change. He wanted other developed countries to join it in setting up a new agreement which would, unlike Kyoto, force all countries to reduce emissions.

"We are not going to be in the Kyoto protocol. We are not going to be part of an agreement that we cannot meet. We say a new agreement has to be signed by all countries. Things have changed since Kyoto. Where countries were in 1990 and today is very different. We cannot be stuck with an agreement 20 years old."

While strongly supporting America's demand for a new agreement, the EU wanted to retain the "best elements" of Kyoto.

The EU spokesman Karl Falkenberg said: "We look at the Kyoto protocol, but since it came into force we have seen emissions increase. It has not decreased emissions. It's not enough and we need more."

Falkenberg pointed out that nothing would be gained by focusing on per capita emissions. "Every country is a polluter and that the atmosphere does not really care where these emissions are coming from."

This infuriated developing countries, which are convinced it is impossible to negotiate Kyoto protocol, the only available legally binding commitment to get countries to reduce emissions.

China's Yu Qingtai blamed developed countries for centuries of pollution. He said that China's per capita emissions are only a third of those in rich countries, even though it is the world's top polluter.

Yu Qingtai said rich countries should not desert the Kyoto agreement, which was ratified by all developed countries except the US.

"In all fairness, we cannot sit here today and talk about everybody making an effort. We want Kyoto protocol to be strengthened. We don't want to kill Kyoto. We really want a revival, a strengthening of the treaty. That can only be done by countries having a target of 40 per cent cuts by 2020," added Yu.

China was supported by the G77 group of 130 countries and the Alliance of Small Island States (Aosis), consisting of Caribbean and Pacific countries which are threatened being marooned and thus are clamouring for a climate deal, which would force countries to cut emissions.

How can Africa benefit from CDM fruitfully?

An African farmlandClimate change threatens the world as a whole – and Africa in particular, because increases in droughts and floods mean more on a continent where the population is already struggling to make ends meet. The continent therefore has more than most to gain from financing schemes that promote sustainable development and slow climate change – but will Africa be in a position to benefit?

The Kyoto Protocol's Clean Development Mechanism (CDM) offers an opportunity for projects in developing countries with the potential to reduce greenhouse gases compared to the baseline situation (i.e. business-as-usual situation ex ante to the project implementation) to secure extra revenues from Certified Emission Reductions (CERs; or commonly called carbon credits) which they receive in proportion to greenhouse gas emissions that they have reduced. Governments and companies in developed countries buy these credits, as they can use them as part of their greenhouse gas emissions reduction commitments under the Kyoto Protocol.

Since the Kyoto Protocol came into force, over 4,000 CDM projects have reached different stages of their CDM development, with around 1,800 already generating carbon credits. On average these projects reduce more than 300 million tons of greenhouse gases per year. With estimated prices of around EUR 10 paid per carbon credit, a basic math calculation shows revenues of over EUR 3 billion transferred annually to developing countries in support of these climate protection projects.

Africa, however, is trailing – we are tempted to say as usual – behind the rapidly growing market for project-based carbon credits and is host to a meager 2 per cent share of the global CDM pipeline. The main reason for this unfortunate situation lies in the difficulties associated with finding conventional project finance in Africa – and not so much in an often-debated lack of (CDM) capacity on the continent.

Why is Africa trailing?

According to World Bank estimates, Africa has the potential for more than 3,200 clean energy projects which could provide more than 170GW of additional power generation capacity and thereby reduce about 740 million tons of greenhouse gases per year. Even greater emission reductions can be gained in the agriculture and forestry sectors, or by gas flaring and waste management technologies.

Despite this great emission-reduction potential, African countries have so far failed to benefit much from the CDM. Currently, there are 33 CDM projects registered on the continent, which constitute only 2 per cent of the global total. The lion's share of global projects are hosted by China (32 per cent), followed by India (27 per cent) and Brazil (10 per cent).

South Africa leads the continent with 16 projects, followed by Egypt with five and Morocco with four.

These statistics show that CDM projects currently go first to those countries where the underlying project financing is easily available. Is project finance then the main hurdle hindering the success of CDM in Africa?

Carbon finance is no panacea

Africa suffers no shortage of great project ideas that expect financing from the CDM, but project developers need to understand that carbon credit revenue itself accounts for just 20 per cent of the underlying financing of CDM projects on average.

That means the project has to be somewhat viable financially before the carbon revenue tops it off.

Let's, for example, examine the conventional financial calculations for a biomass-to-energy project in Nigeria.

Let's assume the math gives you an internal rate of return (IRR) of 12 per cent, which you then find isn't luring potential investors. So you investigate carbon finance, and that brings your IRR to 17 per cent, and they bite.

This is the logic behind the CDM: that carbon finance can turn borderline projects into viable ones because their greenhouse gas reductions and subsequent carbon credits revenue make them worthwhile to investors. This also highlights the fact that the CDM is neither a panacea for projects that make no financial sense at all – nor an added bonus for projects that are profitable without carbon finance.

CDM finance is meant to tip the balance in favor of climate-protection projects that would just miss the profitability threshold without them – and therefore not be implemented.

The cost of CDM registration

Project developers often balk at paying for CDM registration, but that cost is insignificant compared to the revenue that one can expect – especially when you consider that a project that is bankable and has reached financial closure is unlikely to face further hurdles.

In fact, it costs just EUR 80,000 or so to bring a simple project under the CDM process to the point of registration by the CDM Executive Board, and complex projects like afforestation and reforestation top out at EUR 120,000. When you consider that an average CDM project generates around 30,000 to 50,000 carbon credits per year for up to 21 years at a price of roughly EUR 10 per carbon credit in mind, it's worth the cost.

But while costs related to the CDM process are low, it is unlikely that a conventional project would not require several million Euros to be implemented. A reasonable renewable energy project, for example, a biomass-to-energy project with just 5MW of installed capacity, will need an investment of at least EUR 10 million, which will rise to EUR 15 million and even more for solar photovoltaic. A composting plant that is taking only 500 tons of waste per day – an amount any small city in Africa is easily producing – will require at least EUR5 million to be implemented. The list of examples could be continued. If this financing is organised – complete with a feasibility study, a business plan, and financial closure – the CDM is unlikely to be a problem.

The need for capacity building?

As we saw above, Africa's meager slice of the global CDM pie is concentrated in three countries – South Africa, Egypt and Morocco – and all three are clearly emerging countries or even wealthy countries compared to the likes of Chad, Somalia or Rwanda. This fact supports the thesis that the CDM is growing in countries that have easy access to conventional financing.

We draw from here another seemingly straightforward conclusion: namely, that spending time and money on building capacity in Africa for the development of CDM projects is secondary. There is no question that the CDM development process is very complex, but its complexity is easily overcome if there is a bankable project that can be accepted as a CDM project.

Plenty of demand for African projects

Our experience, especially in Africa, shows that there are many CDM project developers that will never go beyond the great ideas that they have. But we have never come across a bankable project with CDM potential that has not been developed as a CDM because of its complexity or the lack of a maximum of EUR 120,000 to finance the CDM process.

In fact, as soon as there is any bankable project with CDM potential in Africa, all the players in the carbon market are literally fighting to contract the project. In many cases consultants, brokers and buyers of carbon credits even take up all the cost of CDM development when they contract in advance carbon credits that will be delivered in years to come.

International institutions and development organisations supporting capacity building for the CDM in Africa should instead concentrate their efforts on finding solutions to make conventional project financing work for Africa. Africa has an almost eternal problem with national and foreign direct investment. But we are sure if a potential CDM project can be financed, its CDM part can easily and successfully be developed.

Here is the money; where are the projects?

The appetite to invest in Africa is increasing – with funds, development agencies, banks and even private individuals willing to take comprehensive shares in CDM projects in Africa.

Although this is much appreciated, many of those interested investors are looking for bankable projects, i.e. projects with comprehensive feasibility study and business plans developed with at least a minimum equity financing already in place. Such projects are coming more and more from Africa, but the lion's share is still idling at development stage, with developers lacking money to take projects to a comprehensive stage. We believe there is a strong need for seed money in Africa.

Many development agencies – especially those spending a lot on supporting CDM capacity building – should perhaps think more in the direction of providing project developers with the seed money, which in most cases is far below EUR 100,000. Investors will be more attracted when a comprehensive project is presented to them, not just a great idea with no basic studies done. More venture investment is needed for Africa to tap the huge CDM potential.

This emphasis on project finance may seem naïve. However, for us, while we are aware that many other African-related barriers to the CDM exist, or at least are widely discussed, project finance is of prime importance to the success of CDM development in Africa. Of the other barriers, however, the prevalent risk perception of Africa by foreign investors is worthwhile considering.

Isn't Africa too risky for investors?

CDM-specific discussion papers or forums and conferences present Africa's risk as perceived by international investors as a serious hurdle to the success of CDM in Africa.

It is clear that many outsiders still perceive Africa as a risky field for investment, even if this might be decreasing. In terms of the CDM, however, the CDM-related revenues account at best for just about 20 per cent of the overall revenue.

This means that 80 per cent of the overall financial risks are related to the actual project itself.

In fact, we saw that in most cases the CDM is taking an insignificant share of the overall financial risk of any project. As mentioned earlier, the CDM development costs rarely go above EUR 100,000, but on the other side, the revenue to be expected from the CDM ranges on average from EUR 300,000 to EUR 500,000 per year. This is based on the assumption of an average annual generation of between 30,000 and 50,000 carbon credits at a price of EUR 10 each.

The pure CDM return for a project is, therefore, extremely attractive.

If we add to this the fact that the investment for the implementation of the physical project is always in the order of millions of Euros, we see that when a project can exist, the CDM part of it cannot fail to be tapped. Thus even if the risk perception that many investors have for Africa is true, there will be the CDM development, when there is a project implemented with a CDM potential.

Redirecting the debate

There are efforts at the international level to help Africa benefit from the CDM, a concept that proves to be one of the best sustainable development tools for the least advanced economies.

The ruling body of the CDM, for instance, is working hard to reshape the concept to make it more beneficial for African countries.

Concepts like Programme of Activities (PoA) and Reducing Emissions from Deforestation and Degradation (REDD) are very advanced in their development and are being tested already in the market. The PoA is to make the typically small size of CDM projects in Africa more attractive by combining many small projects in different locations into one large project. The REDD concept is to include avoided deforestation as a CDM activity. REDD will particularly benefit Africa where more than 70 per cent of emissions are based on forestry and agricultural activities.

On a more political level, the European Union Emissions Trading Scheme (EU ETS) has clearly expressed its interest in accepting carbon credits from Africa beyond 2012, and this independently of what international negotiations about the future of the Kyoto Protocol post-2012 will lead to.

Thinking beyond Kyoto

On the market side, few organisations are committing themselves to purchasing carbon credits beyond 2012, when the Kyoto Protocol expires. The most important organisation currently buying those carbon credits is the Post 2012 Carbon Credit Fund advised by First Climate. The Fund was established by five leading European public financing institutions, all with Aaa ratings – the European Investment Bank (EIB), Caisse des Dépots, Instituto de Crédito Oficial, KfW Bankengruppe and the Nordic Investment Bank – with the express intention of providing certainty to the carbon credit market beyond 2012.

Launched in March 2008 as the first of its kind, the Fund is in the process of investing EUR 125 million in carbon credits generated in the period 2013-2020. Already the Fund has invested in a composting and landfill project in Lagos, Nigeria and continues to look for further opportunities in Africa.

All these efforts are very important now and for the future of CDM in Africa. But they will only be helpful if the conventional financing of projects is working for Africa. We strongly recommend that the debate be redirected to finding solutions for making conventional project finance work for Africa. The CDM is the icing on top of the cake. No matter how much icing there may be, it cannot be enjoyed if there is no cake to hold it.

Author: Durando Ndongsok, First Climate
Ecosystemmarketplace

Indigenous peoples seek greater recognition in successor to Kyoto agreement

Indigenous peoples at world summit to share climate change observations, coping techniques

With the first climate change-related relocation of an Inuit village already underway, some 400 Indigenous People and observers from 80 nations are convening in Alaska for a UN-affiliated conference April 20-24 to discuss ways in which traditional knowledge can be used to both mitigate and adapt to climate change.

Hosted by the Inuit Circumpolar Council, the Indigenous Peoples' Global Summit on Climate Change is also designed to help strengthen the communities' participation in and articulate messages and recommendations to the December UN climate change conference in Copenhagen, at which a successor agreement to the Kyoto protocol will be negotiated. The Summit will conclude Fri. April 24 with a declaration and action plan, and a call for world governments to fully include Indigenous Peoples in any post-Kyoto climate change regime adopted in Copenhagen.

The Summit takes place in Anchorage, about 800 km east of the Alaskan village of Newtok, where intensifying river flow and melting permafrost are destroying homes and infrastructure, forcing 320 residents to relocate to a higher site 15 km west, at an expected financial cost in the tens of millions of dollars.

While the move will be financed in part with government funds that would have been spent maintaining the existing village and on periodic emergency evacuations, NGOs say the relocation of Newtok marks an Arctic milestone – the first official casualty among six Alaskan Inuit settlements in urgent need of relocation, including Shishmaref (pop. 560), Kivalina (pop. 377), where autumn storm waves are no longer contained by shore-fast ice, which used to form in September but in recent years has appeared only in December or even January. Dozens of similar settlements are considered threatened.

At the Summit, Indigenous Peoples from every world region will share observations and experiences of early impacts in their part of the planet, as well as traditional practices that could both ease climate change and help all humanity adapt to its anticipated consequences.

With scientific experts now predicting that the effects of climate change will be more severe and appear even faster than previously believed, Indigenous Peoples will present the Summit with new observations of changes, including:

Papua New Guinea: Indigenous People are being forced to relocate due to a combination of population growth and the inundation of coastal land due to sea level rise.

Borneo: The Dayak have documented climate variations based on observations of bird species, rising water levels, and the loss of traditional medicinal plants;

Mexico: Highland Mayan milpa farmers have a shortened rain season, unseasonal frost and unusually large daytime temperature changes, forcing them to find alternative sources of irrigation and crop variations;

Andean Region: Temperature changes in the Andean region have had a drastic impact on agriculture, health and biodiversity, evidenced by an increase in respiratory illnesses, a decrease in alpaca farming and a shortened growing season. In some areas where Indigenous People depend on Alpine flora for medicines, grazing and food, the growing season could be cut in half should the loss of glaciers continue and agriculture become dependent solely on rainfall;

Kenya: Protracted droughts are killing livestock on which the Samburu People depend for food and economic survival;

Nepal: Intense rainfall and droughts have become common, having severe crop effects.

"Indigenous Peoples have contributed the least to the global problem of climate change but will almost certainly bear the greatest brunt of its impact," says Patricia Cochran, Chair of both the Inuit Circumpolar Council and the April Summit.

"Indigenous Peoples are on the front lines of this global problem at a time when their cultures and livelihoods in traditional lands are already threatened by such trends as accelerating natural resource development stimulated by trade liberalization and globalization."

Says Sam Johnston of Tokyo-based United Nations University, a Summit co-sponsor: "The rich and detailed insights of Indigenous Peoples reflects and embodies a cultural and spiritual relationship with the land, ocean and wildlife. The world owes it to both the Indigenous Peoples and itself to pay greater heed to the opinions of these communities and to the wisdom of ages-old traditional knowledge."

At least 5,000 distinct groups of Indigenous Peoples have been identified in more than 70 countries, with a combined global population estimated at 300-350 million, representing about 6% of humanity.

Their traditional knowledge contributes to understanding climate change – observations and interpretations by Indigenous Peoples of changing Arctic sea ice, for example, has proven important across a wide range of economic and scientific interests. Traditional knowledge of fire, meanwhile, is helping to create more effective strategies for year round forest management and reducing the risk of killer wild fires.

Interestingly, in a world first, the aborigines of Western Arnhem Land have used traditional fire practices to reduce greenhouse gas emissions. As a result, they have sold $17 million worth of carbon credits to industry, generating significant new income for the local community.

Over millennia, Indigenous Peoples have developed a large arsenal of practices of potential benefit in the climate change context, including:

* Traditional methods of shoreline reinforcement, land stabilization and reclamation;
* Protecting watersheds with Indigenous farming techniques; and
* Fostering biodiversity and the growth of useful species through planting, transplantation, and weeding techniques, the benefits of which have often gone unappreciated outside Indigenous communities until traditional peoples are relocated or their practices restricted.

Traditional drought-related practices used to hedge against normal climate variation include:

* Sophisticated small dam systems to capture and store rainfall;
* Temporary migration;
* Planting diverse varieties of crops simultaneously; and
* Using alternative agricultural lands, food preservation techniques, hunting and gathering periods and wild food sources as required.

Among new Indigenous climate change adaptation efforts to be presented at the Summit:

Honduras: With increasing hurricane strikes and drastic weather changes, the Quezungal people have developed a farming method which involves planting crops under trees so the roots anchor the soil and reduce the loss of crops during natural disasters.

East Cameroon and Congo: The Baka Pygmies of South East Cameroon and the Bambendzele of Congo have developed new fishing and hunting methods to adapt to a decrease in precipitation and an increase in forest fires;

Guyana: Indigenous peoples have adopted a nomadic lifestyle, moving to more forested zones in the dry season, and are now planting manioc, their main staple, in alluvial plains where, previously, it was too moist to plant crops.

Indigenous Peoples most at risk

According to the International Union for the Conservation of Nature, the number of Indigenous Peoples most likely to be impacted to climate change requires additional research. However, those at greatest risk from expected extreme climate change-induced events such as sea level rise and crop-damaging droughts reside in:

# The Arctic,
# The Caribbean
# The Amazon
# Southern Chile and Argentina,
# Southern Africa,
# Pacific islands and other island states,
# Along the Asian coastline
# Across Australia

Beyond temperature flux, climate change is expected to alter the timing, frequency and intensity of precipitation, the direction and intensity of winds, waves, ocean currents and storm circulations, the volume of rivers, and the ranges of plants and animals.

UNU researchers say the greatest number of people will be affected by climate change through more frequent drought and spreading desertification, by rising sea levels that inundate coastal communities, through the expanded range of diseases like malaria and dengue fever, and by the disappearance of glaciers, which will stunt the usual supply of water in areas such as the Indian subcontinent, where more than 2 billion people will reside by 2050.

Dr. Anthony Oliver-Smith of the University of Florida and UNU's Institute for the Environment and Human Security, who researches the link between the environment and migration, says the impact of climate change on Indigenous Peoples will be particularly severe because most practice subsistence lifestyles and share a deep connection with ancestral lands.

Says Prof. Oliver-Smith: "Climate change will make things significantly worse for people with difficult lives already due to discrimination, poor nutrition and health conditions. Most Indigenous Peoples today live oppressed existences as minority groups within states. Climate change for them layers another potentially crushing pressure on top of many others."

Human rights regime proposed to protect victims of forced "climigration"

Alaskan human rights lawyer and Summit participant Robin Bronen is part of a growing group of experts calling for an international legal regime to protect the rights of people uprooted by the creeping effects of climate change.

She coined the term "climigration" to describe forced, permanent migration of communities due to severe climate change impacts on infrastructure such as health clinics and schools, and on livelihoods and well-being.

"Communities forced to relocate must participate throughout the process, including the decision to relocate in the first place," says Ms. Bronen. "Obvious as it may seem through common sense, such rights could be easily trampled in many places and should be defined and protected internationally."

"Climigration differs from migration caused by catastrophic environmental events such as hurricanes, where disaster relief and the temporary relocation of individuals and communities is the humanitarian response," she says. "Climigration means no possibility to return home."

Says UN Under-Secretary-General Konrad Osterwalder, Rector of UN University: "The fires in Australia last summer that killed 240 people graphically demonstrated the devastating potential of extreme weather events, which are expected with increasing frequency as climate change progresses.

"Indigenous people worldwide are recognizing dramatic shifts in local environmental patterns. Like the canary in the mine whose condition warned of danger, many Indigenous Peoples are starting to confront dire circumstances in terms of access to food, fresh water and natural resources needed for the survival of themselves, their unique cultures and their spiritual wellbeing.

"The clear voice of Indigenous Peoples needs to be heard by rest of the world community and their insights honoured in critically important climate change discussions now underway. When it comes to implementing mitigation and adaptation strategies, the world would gain greatly from proven ancient approaches built on profound respect for the Earth."