Weathervane: A Climate Policy Blog from Resources for the Future

Apr16

Does Money Grow on Trees After All?

Consumers. Households. Citizens. Loyal subjects. The American people. The emergence of cap and dividend as a key piece of the Senate climate debate—either as a stand-alone bill or more likely a core principle of the Kerry-Graham-Lieberman process—can be directly traced to increasing awareness of how climate policy impacts the U.S. economy and the average “Joe Coal.”

However, direct rebate checks are not the only way to make climate policy more economically-friendly. Sens. Cantwell and Collins have acknowledged this by devoting 25 percent of the auction revenues in their bill to clean technology development and other purposes. It does not take a Ph.D. in economics to understand that lowering the cost of key emissions reduction technologies makes it less costly for companies to comply with climate regulations, savings which are then passed on to the broader economy and households in the form of lower allowance prices. Any U.S. government analysis of climate policy that assumes higher costs or delayed implementation of clean technologies shows higher allowance prices and more substantial economic impacts.

Climate policy, costs and international offsets

In bills like the House-passed Waxman-Markey, this is equally if not more true for the supply of international emissions offsets, a majority of which are expected to come from reducing tropical deforestation in developing nations. Indeed, EPA analysis of the House bill shows that average annual allowance prices would be 89 percent higher and average annual net present value costs of climate policy to households would be 75 percent higher without international offsets. In part to help ensure these offsets would be available, policy makers set aside 5 percent of allowance auction revenues to reduce emissions from deforestation and help developing nations prepare for U.S. offset programs.

Since it is such a key driver of costs, why shouldn’t policy makers think of international offsets as just another “technology” that is essential to bring on line in order to manage the costs of climate policy?

While early rumors indicate that the Kerry-Lieberman-Graham bill will allow companies to purchase international offsets for compliance purposes—at least in the electric utility and manufacturing sector cap-and-trade program—the push for returning revenues to households directly is squeezing down the space for a 5 percent set-aside of auction revenues for tropical forests. Removing this set-aside is likely to reduce the supply of international offsets because, without funding to develop measurement, monitoring and verification systems and reform institutions, fewer nations will be prepared to meet U.S. compliance standards.

This raises a number of interesting economic (and political) questions. First, because of a more limited supply of offsets, what would be the impact on allowance prices of removing this set-aside? Second, would the higher allowance prices caused by removing this set-aside make the U.S. economy and households worse off than the benefit they would receive from a direct rebate of auction revenues?

Saving households money by investing in tropical forests

We set out to answer both questions using Resources for the Future and Climate Advisers’ Forest Carbon Index (FCI) model and EPA modeling scenarios of the House climate bill (which can be used as a rough proxy for the electricity and manufacturing sector emissions trading program in the Kerry-Lieberman-Graham “hybrid” bill).

The first step was determining how international offset supply would respond to a reduction in new public funding. Making a qualitative assessment based on the FCI and other studies, we analyzed three possibilities: that reducing public funding would lead to small initial drop in supply and delay in reaching full capacity (“Optimistic” case), that reducing public funding would lead to a large initial drop and longer delay in reducing public funding (“Medium” case), and that reducing public funding would lead to about a ten-year delay in any forest sector offset availability and a slow ramp-up thereafter to full capacity (“Pessimistic” case). These scenarios were intended to be illustrative of a range of possible responses and were based on political and economic judgments about key countries including Brazil and Indonesia.

Across these scenarios, in our analysis eliminating the set-aside could lead to a cumulative reduction in international offset supply of between 6 and 32 percent, which the proportional relationship between international offset supply and allowance prices in EPA scenarios indicates could increase average annual allowance prices by 4 to 27 percent.

Using the proportional relationship between allowance prices and GDP impacts shown by EPA’s modeling scenarios this would lead to a 3 to 24 percent increase in the annual average net present value costs of climate policy (2012-2050). In more concrete terms, even when accounting for the cost of the set-aside, net savings from setting aside new public revenues for tropical forests (in terms of GDP impacts) could range from $317 million to $18 billion per year. This means that under all scenarios each $1 in set-aside spent could yield greater than $1 in savings.

The picture with households is more mixed, and overall the impacts are less significant. Net changes in the average annual net present value cost of climate policy per household range from a $9 per-year increase in costs from eliminating the set-aside under a “Pessimistic” offset supply response case to a $5 per-year reduction in costs under an “Optimistic” scenario. Under a “Medium” scenario households would face roughly the same costs whether the set-aside for forests or a rebate is provided.

Overall, these findings highlight the potential risk to the U.S. economy of not providing a new public funding set-aside for tropical forests. If offset supply is sharply reduced by not providing the set-aside, the economic impacts of climate policy could be much more severe. If offset supply is only reduced a small amount, the annual GDP savings could still exceed the cost of the set-aside. Under either scenario, in economic terms households would be largely indifferent whether they receive these cost savings in the form of a rebate check or in the form of lower allowance prices.

Returning revenues to households or supporting technology development is not the only way to make the American people better off in a cap-and-trade program. Even beyond the vast environmental and foreign policy benefits of investing public revenues in reducing tropical deforestation, it appears to be a winning economic strategy as well.

Read the technical report The Economic Benefits of Public Investments in Tropical Forest Conservation (PDF) here. Andrew Stevenson is a research assistant at Resources for the Future and regular contributor to Common Tragedies.

Published: Apr-16-10 | 0 Comments

Feb11

Running the Numbers on REDD

Forests, REDD

In the latest installment of RFF's Weekly Policy Commentary Series RFF Senior Fellow Allen Blackman examines whether programs to incentivize avoiding deforestation and forest degredation will be the cost-effective emission reduction tool many are counting on:

An international system that enables countries to earn carbon credits by reducing emissions from deforestation and degradation (REDD) will almost certainly be a prominent feature of whatever post-2012 international climate architecture emerges from ongoing negotiations.

One of the main arguments for creating such a system is that REDD will be inexpensive compared to fuel switching, carbon capture and storage, and other greenhouse gas abatement options. As a result, allowing countries to sell REDD credits will cut the total global cost of combating climate change. This argument underpins numerous high-profile reports and white papers—including the 2007 Intergovernmental Panel on Climate Change Fourth Assessment Report and the 2006 Stern Review—and has even inspired widespread concern about, and research on, a coming deluge of low-cost REDD credits.

Yet the scientific foundation for the hypothesis that REDD credits will be cost effective is thin, is contradicted by emerging evidence on the effectiveness of forest conservation policies in developing countries, and deserves serious scrutiny before critical REDD policy decisions are made.

Read the rest of Blackman's “Will REDD Really Be Cheap?” here.

Published: Feb-11-10 | 0 Comments

Dec11

Forests and Climate? Just Google it

Forest Carbon, Forests

COPENHAGEN -- Yesterday at the COP, Google was in the air (if you’re wondering, Google in the air smells faintly like mint). First, Copenhagen managed to conquer the most frequently search term list. Tiger Woods is no longer no.1, on the Internet or in our hearts. Second, Google threw delightful side events where they unveiled a new tool that could be a game changer for monitoring the world’s forests and could put Google on the map in the climate change philanthropy world.

Since its inception in 2004, Google.org has been using 1 percent of Google’s total revenues to address issues like global health, but it has concentrated mainly on investing in products to reduce energy usage and commercialize electric vehicles, all the while challenging the world to create renewable energy that costs less than coal.

These seeds have yet to blossom, because as powerful as Google is, its engineers haven’t yet figured out how to completely redesign the world’s energy systems. Google is not an energy company, it is an information company. If they are incredibly innovative in the information business, it stands to reason they might have a better chance of being innovative in information philanthropy than in other things.

But yesterday Google finally accepted what we knew all along: that they’re not an engineering firm, an automaker, a public health center, or a policymaker. They’re facilitators. The business model for the profitable arm of Google is based on a superior ability to facilitate the transfer of information. They’re finally applying this skill set to climate change in the form of a new forest monitoring tool. Utilizing the amazing capability of the “Google cloud,” scientists can use an online platform to take satellite imagery data compiled over time and use it to track changes in forests. This tool is a major step forward in identifying areas of deforestation and reforestation, and may help solve some of the current problems with forest monitoring and measurement. A full rundown of the tool is here. See what happens when Google tries to do something it’s good at?

Thanks to Virginia Kromm for her insights into the inner workings of Google.

Daniel F. Morris is a Research Associate with Resources for the Future and a regular contributor to Common Tragedies.

Published: Dec-11-09 | 0 Comments

Dec03

RFF and Climate Advisers Unveil Forest Carbon Index

Forest Carbon, Forests, International

From RFF Press Release:

Brazil, Indonesia, and nations in the Amazon-Andes and Central America are poised to be key players in an emerging market for forest carbon that could reach $20 billion annually through 2020 according to a detailed analysis released today by Resources for the Future and Climate Advisers.

The Forest Carbon Index provides governments, development agencies, NGOs, and private investors with geospatial data on global, national, and local forest carbon supply, explicitly taking into account country-specific economic, biological, and risk factors—such as governance and ease of doing business.

Deforestation and forest degradation, mostly in tropical areas, account for up to 17 percent of global greenhouse gas emissions—more than the world’s transport sector. Using the Index, policymakers and businesses can estimate each nation’s potential to contribute to climate solutions through its forest carbon assets. The data are essential to understand the likely supply of international offsets, almost 90 percent of which are expected to come from tropical forests. For land managers and project developers, the Index illustrates which locations can most cost-effectively participate in forest carbon programs and global carbon markets. The Index also demonstrates the need for public financing, illustrating the areas with large standing forests and low deforestation rates, which would not be able to participate in a carbon market but need to build capacity to protect existing forests and avoid future deforestation.

Head over to www.forestcarbonindex.org to see the index in action, complete with interactive maps and this Summary for Policymakers (PDF) that boils down the data into nine easy-to-digest recommendations.

Published: Dec-03-09 | 0 Comments

Nov09

Making Sense of Lowered Deforestation Emissions Projections

Forests, REDD

Image courtesy certified su via Flickr Research published this month in Nature Geoscience indicates that downward revisions to estimates of past deforestation rates (a smaller numerator) and an increase in overall global greenhouse gas emissions (a larger denominator) may have squeezed the percentage of global greenhouse gas (GHG) emissions from deforestation down from 20 percent to about 12 percent. The report also highlights the central role of less-widely known peatland degradation in this total — suggesting that a more comprehensive land management approach building on the UN’s REDD program should be the focus of international forest policy negotiations.

The study — carried out by a global group of researchers led by Vrije Universiteit in Amsterdam — addresses each of the three estimates of global deforestation rates included in the Intergovernmental Panel on Climate Change’s 2007 Fourth Assessment Report, the source of the oft-cited 20 percent figure. First, country-level UN Food and Agriculture Organization (FAO) deforestation surveys used for estimates have recently been revised downward. Second, global satellite monitoring data used in other estimates has been extended outward to 2005 and its projections remain below those based on FAO data. Third, estimates of carbon emissions from forest fires, primarily concentrated in Southeast Asia, have also been lowered. Combine these trends with a bump in energy-related fossil fuel emissions, and voila, deforestation suddenly seems to be a smaller piece of the greenhouse gas pie.

The authors say reducing fossil fuel emissions remains the key to global climate stabilization, although they concede that in specific countries where deforestation is the primary driver of emissions, focusing on reductions from that sector may be appropriate. It remains to be seen what impact this revision will have on efforts to agree on a global REDD framework under the UNFCCC, or the substantial tropical forest offset and set-aside provisions in U.S. climate legislation.

However, it would also be easy to draw several false conclusions from this report:

1) Global efforts to reduce deforestation have been successful, or adequate to address the scale of the emissions problem. As the authors clearly state, these changes are the product of revisions to past estimates of deforestation and increasing total emissions, not of actual declines in recent deforestation or degradation rates.

2) Estimates are too uncertain and resources devoted to this area should be reduced. Although this is an easy target for those who oppose these programs in general, it would be equally valid to draw the conclusion that the uncertainty revealed by this estimate, and highlighted by recent RFF work, is actually a call for additional resources to be devoted to this area in order to get a better handle on the scale of the problem and the right solutions. In addition, whether emissions are 12 percent or 20 percent there is wide agreement, cited in the report, that these are 12 percent of the most cost-effective reduction opportunities out there and thus may merit special attention in the short-term even with existing uncertainties.

3) Effective mechanisms for reducing emissions from land-use change are somehow secondary to or less important than transforming energy and manufacturing. Several recent papers published in Science indicate that emissions accounting policies as they relate to bioenergy may place substantial additional pressure on the world’s forests in the coming years. Increasing demand for food driven by population growth and rising affluence will also put additional pressure on the land, not to mention the impacts of climate change on agriculture or water resources. Developing a comprehensive approach to climate change and land management must be a central priority right up there with transforming the global energy sector.

Andrew Stevenson is a research assistant at Resources for the Future and regular contributor to Common Tragedies.

Published: Nov-09-09 | 0 Comments

Oct08

Curbing Deforestation Emissions: A REDD Primer

REDD, Forests, Forest Carbon, International, Congress

Forest image courtesy Certified Su via Flickr A bipartisan group of government, business, and NGO leaders—boasting D.C. star power like John Podesta and Lincoln Chafee—is urging Congress to make tropical forest conservation a key facet of its climate and energy legislation.

According to The Commission on Climate and Tropical Forests’ Protecting the Climate Forests, the deforestation and degradation of tropical forests accounts for some 17 percent of annual global greenhouse gas (GHG) emissions. Halting deforestation could be a cost-effective way to quickly slow the growth of emissions rates.

The commission says the United States should lead a global partnership to halve GHG emissions from tropical deforestation by 2020 and reach zero net emissions from deforestation by 2030. The authors suggest investing at least $1 billion in public funding prior to 2012 and mobilizing roughly $9 billion annually by 2020 from the private sector to reduce tropical forest emissions.

REDD

Investment from developed nations for tropical forest conservation in developing countries is the basic framework of a United Nations program known as REDD. REDD is expected to play a key role in upcoming international climate treaty negotiations.

Below, RFF Program Fellow Erin Myers Madeira answers some questions about what REDD is, who could be involved, and how—with the creation of a compliance market—it could work.

What is REDD and how does it work?

REDD stands for Reducing Emissions from Deforestation and Degradation. REDD is a mechanism that uses market/financial incentives to reduce the emission of greenhouse gases from deforestation and forest degradation in a measurable and verifiable way.

REDD credits offer the opportunity to utilize funding from developed countries to reduce deforestation in developing countries. REDD puts a value on forests for the services they provide by keeping carbon out of the atmosphere. At relatively low carbon prices, REDD can make standing forests more valuable than the timber or plantation revenues that would result from clearing forests.

REDD can refer to policies and measures—such as strategic road planning, implementing best practices for timber practices or restricting activities that degrade peatlands—that reduce emissions from deforestation and degradation across a landscape. REDD can also refer to pilot projects or demonstration activities that have a clear objective to directly reduce emissions from deforestation and degradation in a specific geographic area.

You said that there are market incentives for REDD; who are buying and selling REDD?

Land owners, concession holders, traditional forest people, and governments in developing countries can take actions to prevent forest loss or forest degradation. By proving that their actions measurably reduced the rate of deforestation and degradation compared to a reference scenario (where no action would be taken), they can generate REDD credits.

Currently REDD credits can be sold on the voluntary market where individuals, companies, and even towns or counties buy carbon credits to offset their carbon footprint. However, a compliance market for REDD credits could be created by inclusion of REDD in domestic climate change policy or international post-Kyoto climate agreements. In a compliance market, companies and other entities facing an obligation to reduce their emissions could buy REDD credits to offset their emissions and meet their legal emissions requirements.

Who stands to benefit from a compliance market for REDD?

If REDD credits are included in a compliance market, the benefits are widespread. The sellers of REDD credits benefit because they are able to generate value by protecting their forests, making them better off doing that than finding any alternative forest use. The buyers benefit because they are able to reduce the cost of complying to emissions regulations. And greater society benefits from the biodiversity and watershed benefits that forests provide in addition to their carbon storage

What are some of the major concerns in the design and implementation of a compliance market for REDD?

Many of the concerns with REDD have to do with the technical ability to measure and monitor emissions reductions from forests as well as environmental integrity issues about leakage and permanence—meaning that if you sell a credit based on protecting forests in one place at one time, it’s not guaranteed you can be sure that forests are not cut down somewhere else or in the future. The good news is that the technical capabilities for REDD have improved tremendously in recent years, and the attention on environmental integrity has spurred innovative thinking in how to minimize and monitor these risks.

There are also concerns that the developing countries that are expected to generate REDD credits have weak institutional and governance capacities, which would inhibit the success of REDD programs.

It is certainly true that many countries have a poor track record when it comes to governance in the forestry sector. However, REDD has created an incentive to improve governance conditions as they work towards national REDD program. Further, there are a number of activities that can be undertaken in the existing conditions that will result in real, measurable reductions in deforestation and degradation. Find a more in-depth discussion of issues surrounding REDD here.

What is REDD+?

REDD+ expands the scope of REDD beyond avoided deforestation and degradation activities to include forest restoration, rehabilitation, sustainable management and/or af/reforestation. However, it is not yet decided which specific activities will be included in REDD+. Expanding the scope of REDD means that countries that have low rates of deforestation and degradation, or have increasing forests will be able to participate in a REDD+ program where they might not be able to with a narrower definition of REDD.

Erin Myers Madeira is a program fellow at Resources for the Future. She’s written extensively about REDD both in this 2008 RFF report and online at the Katoomba Group’s Ecosystem Marketplace.

Tiffany Clements is managing editor of Weathervane.

Published: Oct-08-09 | 0 Comments

Sep14

Counting Forests: Not Quite as Easy as 1,2,3

Forests, Forest Carbon, Offsets

If you’ve recently had a conversation about the world’s forests and climate change, then you’ve probably heard the figure "20 percent" thrown around. That number represents the amount of worldwide emissions currently attributed to deforestation and forest degradation.

If tropical rainforests have been a frequent topic of discussion in your social circles, maybe someone told you that more than 10 million hectares of rainforest were permanently logged or destroyed every year from 2000 to 2005. These figures represent important metrics for policymakers to understand the role forests play in environmental policy issues. Their widespread use is partially based on the assumption that scientists have accurate and consistent measurements of forest attributes from which they can derive such figures.

Forest measures and inventories, however, may not be as accurate and precise as scientists and policymakers would like. In his RFF discussion paper, Paul Waggoner highlights such discrepancies and uncertainties embedded in current forest measures. “Without accuracy, appraisals of timber will be discredited, assays of biomass will be deceptive, and claims of sequestered carbon may be fraudulent,” he writes in “Forest Inventories: Discrepancies and Uncertainties.”

His analysis comes at an opportune time as the Senate gears up to consider climate legislation and agencies like the Commodity Futures Trading Commission look to more closely regulate the nation’s carbon markets. As a major component of H.R. 2454, forest offsets will face more scrutiny about their veracity and quality in the coming months.

Waggoner showcases eleven different cases of major discrepancies in forest measures across the globe, including some within IPCC forest carbon accounting guidelines. One of the reasons for such uncertainty, he writes, is related to how forests are defined. The definition Waggoner cites—the Forest Identity—consists of four measures: area, growing stock density, biomass, and carbon. Uncertainties exist in each of these attributes and as they are combined to form the Forest Identity, their uncertainties aggregate and can result in significantly inaccurate final numbers.

So what’s the solution? Forest measures will never be perfect, nor will they have 0 percent uncertainty, but that is not why it is worthwhile to point out discrepancies. The point is to push toward acceptable levels of uncertainty in forest measures. As Waggoner points out:

Although perfect accuracy might seem the goal, it is not—at least not in the real world of affairs. Rather, the cost of improving accuracy makes good enough the goal. If the costs of surveying, monitoring, and verification exceed the consequent benefit or profit, regulation will fail and transactions abort in the long run…Thus the discrepancies and uncertainties in forest surveys must next be evaluated against standards of good enough for, say, scientific debates, timber sales, or carbon credits. Then economical methods for meeting those standards must be established.

In the mad rush toward using forest offsets to solve the world’s climate problems, voices of warning like Waggoner’s should not get lost in the din.

Daniel F. Morris is a research assistant at Resources for the Future and regular contributor to Common Tragedies.

Published: Sep-14-09 | 0 Comments

Aug03

Ecosystem Service Stacking: Can Money Grow on Trees?

Carbon Market, Congress, Forests, Offsets

Future commodity traders may look back on June 26, 2009 as the day that the Congress officially backed ecosystem service markets as the prominent vehicle of environmental conservation in the 21^st Century. It was then that the sweeping American Clean Energy and Security Act of 2009 (H.R. 2454)—legislation in which carbon offset markets play a huge role—passed the House 219-212. Estimates from the EPA suggest by 2030, the U.S. offset market could be worth $4 billion. Forest offsets will likely constitute a large portion of the total market but agricultural lands will also have some significance.

While the ultimate fate of the bill remains uncertain, H.R. 2454 indicates that ecosystem service markets have a critical role in both the fight to slow climate change and the future of ecosystem conservation. In fact, reduced emissions from deforestation and degradation (REDD) and other forestry issues will likely be integral to an eventual agreement at the COP negotiations in Copenhagen this December.

Ecosystem Service Markets

While carbon markets are currently dominating discussions, they are certainly not the only type of ecosystem service market being utilized for environmental benefits. Other examples include water quality or nutrient trading, conservation easements, and habitat banking for endangered species. Section 404 of the Clean Water Act led to the establishment of wetland mitigation banks, which proved to be a successful conservation device. By 2005, 450 wetland banks had been established, with 59 selling out of credits completely.

Current ecosystem service markets have just scratched the surface. Robert Costanza and others estimated the global annual value of ecosystem services was $33 trillion. The voluntary carbon market in 2008 was estimated to be worth about $705 million. The forest carbon offset markets in H.R. 2454 provide an opportunity to expand and refine ecosystem service markets aggressively and incorporate them into the larger economic system domestically and worldwide.

Stacking

Widespread acceptance of carbon-related ecosystem services may present a vehicle for the expanded usage of other types of ecosystem services. Combining the value of these different services is called bundling or stacking, and it allows landowners and indigenous communities expanded opportunities to be compensated for maintaining and enhancing ecosystem functions. It is important to note that services will be stacked or bundled in a single ecosystem, but must be well-defined enough to separate into autonomous markets. The markets themselves will not necessarily be stacked.

One can imagine eventually linking carbon offsets with water quality credits or habitat credits. With a network of robust, functional ecosystem service markets a landowner could manage an entire portfolio on his/her land, balancing forest offsets with increased stream buffers that generate water quality market credits, understory clearing to generate endangered species habitat credits, and other types of natural capital. Such opportunities are a prospective avenue for alleviating poverty among rural or indigenous populations.

Oversight

Stacked but separate ecosystem service markets could possibly create incentives (though not guarantees) for landowners to take a more holistic management approach, looking at the functionality of entire natural systems rather than one specific usage. A fully integrated and functional ecosystem marketplace is currently far from becoming a reality, however. There are a number of issues that must be addressed to ensure the markets are robust and effective. Major concerns include:

Valuation: One advantage carbon has over other ecosystem services is that there are straightforward mechanisms for valuing tons of CO2. Determining accurate values for endangered species habitat credits or water filtration on a chunk of land will require better research and better valuation techniques than are currently available. Significant investments in scientific assessments and monitoring are needed before these markets can be established effectively.

Additionality: One of the major questions carbon markets must answer is how they can establish additionality, or proof that sequestration activities would not have occurred in the absence of the offset project investment. If other ecosystem markets link up with the carbon market on a piece of land, the landowners will likely need to show that actions that can earn other types of credits would not have occurred without additional investment.

Double-counting: If landowners hope to obtain multiple revenue streams, then they must manage for multiple ecosystem services. Selling water quality credits from land that is only being managed for carbon will not generate the correct incentives for landowners and will undercut the effectiveness of the water quality market. Added value of different services must be well-established enough to avoid multiple payments go to one specific type of action.

Capacity-building: International forest carbon offsets will be a sizable chunk of the total offset market, the vast majority of which will come from developing countries that currently lack the capacity to effectively establish, monitor, and certify offset projects. To ensure the veracity and efficacy of the market, massive capacity-building efforts are needed in places like the Congo Basin, Indonesia, and Central America. Other ecosystem service markets will also need similar building efforts, though they may be able to piggyback on the efforts to establish carbon-related infrastructure.

Permanence: What is the value of an ecosystem service credit if the ecosystem is damaged or destroyed soon after investment? This question will need a solid answer for markets to work properly. While permanence is currently a big concern in carbon markets, it will correspondingly affect other ecosystem markets. In order for these markets to grow and thrive, solid governance structures will be needed to establish appropriate risk premiums and other tools that can mitigate the problems related to permanence.

Stacked ecosystem services could prove to be a powerful conservation tool, but are not a silver bullet for protecting natural systems. They are designed to create incentives for people to manage land carefully. If carbon, water quality, endangered species, and other services simply morph into commodities to be traded back and forth without any robustness checks or on-the-ground coordination, then the transformative power of stacked ecosystem services will be lost. Moreover, regional issues will play a key role in determining which markets work and how. Carbon is a global good that can be traded across countries and continents; water quality and species habitat are very region-specific and will require smaller-scale markets that may or may not be trans-national.

Despite these challenges, ecosystem service markets are an innovative and potentially useful approach to conserving and restoring damaged and sensitive parts of the biosphere. The emphasis on forest carbon in H.R. 2454 may provide an opportunity to refine and expand these markets to the benefit of both ecosystems and the people who depend on them.

Daniel F. Morris is a research assistant at Resources for the Future and regular contributor to Common Tragedies.

Published: Aug-03-09 | 0 Comments

Jul22

Green Power? The Limits of Cellulosic Biofuel

Congress, Biofuels, Forests, Waxman-Markey

As the Senate Agriculture Committee considers The American Clean Energy and Security Act of 2009, Roger Sedjo takes a closer look at the importance of carefully-crafted biofuels policies in this commentary originally published in the July 22, 2009 edition of The Energy Daily.

Concerns about energy independence and global warming have generated careless and counterproductive thinking on Capitol Hill. One glaring example? Efforts to increase the use of cellulosic biofuels—mandated in the Energy Act of 2007—that could well result in significantly higher prices and imports for timber. Here’s why.

To promote the greater production and use of liquid biofuels for transportation, the Energy Act sets a production goal of 9 billion gallons of renewable fuel in 2008 that rises to 36 billion gallons by 2022. It also calls for a changing composition of biofuel use over time, with a total of 16 billion gallons of cellulosic biofuel required by 2022. Besides these mandates, the act creates incentives, providing a $1.04/gallon subsidy for cellulosic biofuel, while decreasing the corn ethanol subsidy from 51 cents to 45 cents.

While fuel from grasses may prove to be a viable long-range alternative, the near-term onus of meeting the mandated targets will fall on timber. The wood required for the targeted 2022 biofuel feedstock would need to equal to 348 million cubic meters—fully 71 percent of the U.S. 2005 harvest.

America currently produces about one-quarter of the world’s industrial wood. Could U.S. forests sustain a sharp increase in the physical harvest? The pressures and dislocations would be substantial. If the cellulosic mandates of the Energy Act are met solely by wood, U.S. and world raw wood prices would be about 15 percent higher in 2015, and 20 percent higher in the early 2020s, than they would be without the increased demand for wood for mandated ethanol production. There will be adverse effects on the U.S. trade balance as well, because higher priced wood means U.S. forest processing will be driven offshore and imports of wood-based products will increase.

It’s worth considering the lesson provided by an earlier example—the mandates and generous subsidization of corn-based ethanol in the U.S. to reduce both dependence on foreign oil and greenhouse gas (GHG) emissions. Corn, of course, has traditionally been used as feed for animals and for humans but it can also produce alcohol and ethanol. An unanticipated consequence of the use of corn for biofuels has been the strong upward surge in global grain prices, although now somewhat abated by the global recession.

Many analysts now believe that corn ethanol is not viable as a major long-term energy source due to its limited potential for expansion as well as the financial stresses it generates in food markets. Furthermore, concerns have been raised that a global corn biofuel approach could be self-defeating since land-use conversion to produce more corn would generate GHG emissions offsetting much of the positive effect of any reduced consumption of petroleum.

These tradeoffs have forced a rethinking of the U.S. corn ethanol strategy. The Energy Independence and Security Act of 2007 mandates the use of a mix of feedstocks, including wood cellulose. But recent research suggests that, as with corn, the Congress may not have fully considered the unintended consequences of the cellulosic strategy.

In seeking to promote cellulosic biofuels, the Energy Act is guilty of gross ambiguity. For example, it severely restricts the sources of wood feedstock that can be used to meet the goals of the Renewable Fuel Standard. No biomass from forests on federal lands is allowed. Moreover, only “planted” trees are allowed as feedstock, thus eliminating naturally regenerated private forests, even in areas of active management. Who at the mill can determine if a log is from a 30-year-old tree that was planted or regenerated naturally? Since only wood from non-federal private planted forests is allowed, much of the U.S. forest estate is not available for biofuels. The pressures on the eligible lands could become intense. Does Congress really want to try to micromanage wood sources through legislation?

Today, in the Waxman-Markey bill, Congress is considering a bonus for green power, in which wood will get a large subsidy when used for electrical power generation. The subsidy being considered—together with the price pressures likely to be generated by mandated cellulosic ethanol—are large enough to disrupt wood markets by making energy use of wood competitive with traditional industrial wood uses. Furthermore, severely limiting which wood may be used for energy will add distortions, further constrain supply and add to price pressures. There is little question but that these subsidies would result in a spike in wood prices. This is not a plea to avoid wood in dealing with energy problems. It is, however, a plea for the careful development of the comprehensive overall strategy reflecting underlying economics and thereby avoid the serious overreaching that is now occurring.

Roger Sedjo is a senior fellow at Resources for the Future. His research interests include forests and global environmental problems, climate change and biodiversity, long-term sustainability of forests, industrial forestry and demand, timber supply modeling, international forestry, global forest trade, and land use change.

Published: Jul-22-09 | 2 Comments