It has been a momentous week in climate news: President Obama’s announcement of his plan to cut carbon emissions from coal-fired power plants 30% by 2030 came on the heels of this New York Times analysis of California’s cap-and-trade program.
We asked our climate program director, Jeff Hayward, to help us make sense of two of the more complex—and controversial—elements of both President Obama’s new plan and the California system: cap-and-trade and the carbon market.
Q: What is a cap-and-trade system?
A: A cap-and-trade system sets a limit on greenhouse gas (GHG) emission levels for companies in industries that create pollution. Companies can bring their pollution levels below the cap by reducing their emissions—through technology improvements, for example. Those that do not bring their levels below the cap can purchase “allowances”—basically permission to pollute a certain amount—sold by more efficient companies that have reduced their levels well below the cap. In some cap-and-trade systems, companies can purchase carbon “offsets” (also known as credits) to cancel out some portion of their emissions.
Cap-and-trade is an appealing policy option for many reasons, most importantly because the cap on emissions produces a guaranteed climate benefit—and it can be ratcheted down over time. The system also creates a powerful financial incentive for companies to cut pollution through innovation; the sales of allowances can generate significant revenues. States can use the revenues generated by fines and the sale of permits to invest in low-carbon technology or provide relief for impacted industries, businesses or households. And those cap-and-trade systems that allow companies to purchase offsets stimulate the market for climate projects that avoid emissions or sequester carbon, such as this Rainforest Alliance agroforestry-based carbon project:
A: What do you think of California’s climate change regulations and its cap-and-trade program?
A: California is already seeing some early successes. As noted in the recent Times article, "hundreds of industrial facilities have been brought under the plan, prompting businesses to study how to use less energy." The state is expected to "collect about $5 billion a year in permit fees, with the bulk of the money being recycled into clean-energy projects."
In California, polluters also have the option to offset eight percent of their emissions through the purchase of carbon credits from verified carbon projects, including those that support sustainable forest management. The state is thus helping to spur increased interest and investment in climate projects that generate carbon credits. These projects, in turn, conserve natural resources and biodiversity.
Given the size of California’s economy, the state’s cap-and-trade system could have a truly global impact if future rules allow crediting to award conservation of tropical rainforests through projects that stop deforestation, such as REDD+ projects. Beyond reducing CO2 emissions, REDD+ projects also promote sustainable management of forest and agriculture landscapes, helping communities that depend on the land to generate additional income streams.
" As we move to a more carbon-constrained economy—which really must be the way of the future if we are to address the impacts of global warming—a market price on carbon is essential.”Jeff Hayward, Rainforest Alliance
Q: What’s your response to skeptics who suggest the voluntary carbon market isn’t effective?
A: Markets develop over time. Particularly markets for environmental services, which value natural capital. The emerging carbon markets of today are led by voluntary initiatives, but California is testing the compliance measures that will drive the carbon markets of the future.
As with any market, the trade for emissions reductions can be volatile, the price for allowances will fluctuate and there may be unintended consequences. As we move to a more carbon-constrained economy—which really must be the way of the future if we are to address the impacts of global warming—a market price on carbon is essential.
At this stage, the benefits of voluntary markets are clear to those who are taking action to mitigate climate change. In terms of forest conservation, the rewards to communities that are protecting ecosystems and generating credits for sale on the market should not be undervalued. Income generated through investment in carbon projects, globally, has helped conserve more than 14 million hectares (an area about the size of Nicaragua), while helping to fund community development.
Q: What role has the Rainforest Alliance played in helping to shape carbon markets?
A: As an ISO 14065 accredited verification body, the Rainforest Alliance conducts independent audits of forestry projects designed to sequester carbon dioxide and reduce GHG emissions. This means that we verify the accuracy of a project’s emission reductions and carbon credits claims.
As of May 2014, we have conducted validations (of project design) or verifications (of actual emissions sequestered) for more than 50 different carbon projects, spanning 23 countries and representing more than 4 million hectares of land under conservation/ improved forest management. The Rainforest Alliance has also validated that these projects have the potential to result in 170,013,495 tCO2e from avoided emissions or sequestration.
The Rainforest Alliance also provides technical support to carbon standards, project developers and businesses and is actively involved in facilitating the development of REDD+ and zero deforestation projects in countries like Mexico, Ecuador, and Peru. Our aim is to foster sustainable forest management and land-use practices as building blocks for creating high-value forest carbon credits. Much of this work focuses on building the capacities of communities to implement REDD, through training and technical assistance, and working to shape REDD+ and climate policies in such a way that ultimately helps countries better prepare for global warming.