Friday, August 21, 2009

Call in the consultants

The story so far: Papua New Guinea has been leading the way in international negotiations over avoided deforestation in the hope of curbing greenhouse gas emissions, an objective known as REDD (Reducing Emissions from Deforestation and Degradation). But during 2009, a scandal erupted over the appearance of carbon credits that appeared to have been endorsed by senior figures in the government. Following complaints by the state governors, legal moves in the court in Port Moresby, and media reports, the head of the Office of Climate Change (OCC; sometimes also referred to as OCC&ES), Theo Yasause, was suspended pending investigation.

The scandal in Papua New Guinea has happened at a difficult time for the country. While it should be working on national legislation for REDD, and preparing for Copenhagen, it has to waste time and resources on investigating its own office of climate change. But it is all much needed work. It would have been far worse to let the situation in the OCC fester.

The government is also having to handle an increasingly enraged opposition. In late July, angry scenes erupted in the parliament after the government narrowly avoided a motion of no confidence by adjourning the session until November for "much needed refurbishments" to parliament house. Yes, you did read correctly. The government survived the motion by closing parliament and calling in the decorators. Chaos ensued. Ilya Gridneff from AP writes, "MPs hurled abuse at each other across the chamber and security officers had to restrain members of the public who voiced their frustration when the government won the adjournment vote on Wednesday." See Canberra Times.

Improvements in governance and transparency, in any country, are often hard to win. The challenge for Somare's government is to complete this investigation, figure out what went wrong, and when the paint is dry on Parliament House, to publish its findings. If necessary, further legal action should be taken. It seems difficult to see how the report could fail to find fault in some places. For example, the evaporation of the office's budget is highly worrisome.

However, before government critics get too over-excited, it should be pointed out that not all of the things that have happened in the name of the government, were necessarily officially endorsed. Indeed, legal proceeding are under way in Australia in relation to the A series of carbon credits.

The acting executive director of OCC, Wari Iamo, wants the investigation and review to be completed by late October, so that everything is in place for the climate change meeting in Copenhagen this December. The investigation wants to find out whether any policies or laws were beached over carbon trading arrangements made by any public officer. It is also going to look into OCC's finances and how they have come to be so poorly managed that it has run out of money for 2009. Basic errors in financial management have resulted in substantial and unrecognised liabilities being incurred.

At the same time, the OCC needs to get on with developing its Interim Low Carbon Development Strategy, which emphasises the REDD policy agenda. Part of this involves looking at securing land for REDD and for benefit sharing. Another part of this strategy involves looking at the drivers of deforestation and degradation in the country. Again, much needed work. You can't just buy up a few blocks of forest in a country, slap a REDD sticker on them and hope that deforestation will go away. Finally, an economic analysis of REDD costs is also needed in the country, and will use the methodology developed for Guyana's low carbon development strategy.

So much work, so little time. So how is Papua going to do it? It is probably going to call in the consultants. Guyana did it. Brazil and Indonesia did it. So did Mexico. And the climate consultants du jour are McKinsey. If Papua can find a mere $2m, McKinsey will load up its crack team of climate consultants into the Batplane, fill it up with biofuel, and send it swooping down on Port Moresby to help the country prepare itself for Copenhagen by developing the national REDD and climate change plan, deploying cost-abatement curves from their utility belts... and all just in time for Papua's cabinet meeting in November.

Now I can guess what some of you are probably wondering, shouldn't Papua be doing this all for itself rather than calling in the western consultants? Well in an ideal world, which this isn't, perhaps--and only if it had all the expertise it needed. Remember that there are stacks of people fretting about whether Papua (and many other countries) are going to manage to get this all right.

How will leakage be avoided? How can REDD truly address the drivers of deforestation? How can Papua manage forest conservation at the same time as promoting a sustainable low-carbon development path? How can Papua increase agricultural productivity as a way of reducing pressure on forestry? Well, guess what? This is exactly the sort of thing that McKinsey consultants know all about.

Of course they don't come cheap, and they are not without their problems. Guyana's response to its McKinsey REDD report backfired a bit in some quarters. But Papua is a different country with a different set of problems, and a low baseline of deforestation is not one of them. So it will certainly be interesting to see what McKinsey comes up with. Where to find the money? Well UN-REDD is likely to be asked, and all the usual government donors. The Australians, in particular, might be a good source to tap. The country's entire carbon strategy seems to be to buy carbon offsets abroad, whether or not these are produced by the rules and regulations of a mandatory market.

Wednesday, August 19, 2009

Consenting adults

In recent weeks, a number of fascinating discussions have been held across several websites that have helped to further unravel the story of forest carbon deals in Papua New Guinea. This has helped to throw some light onto a process that had formerly been going on behind the scenes, and at least allow some level of public scrutiny. See "Carbon trading under more scrutiny", and check out the comments. What is so informative about this discussion is that involves a discussion between some of the main players in private forest carbon projects in Papua New Guinea: Carbon Planet, local journalist Ilya Gridneff and at least one of the representatives of the landowners involved in a carbon deal in Kamula Doso. This conversation is also picked up by Chris Lang of REDD Monitor.

Most of those involved in negotiating over the scheme known as Reducing Emissions from Deforestation and Degradation (REDD)
say that rules and regulations should be properly set before a market for these forest carbon credits is introduced and traded. But holding back the private sector from doing deals in advance of Copenhagen is impossible.

While REDD policy wonks debate about whether it should work at a project level or a national level, the private sector is busy answering this question buying up projects all over the place. Instead of a national baseline for deforestation that the government tries to minimise, bits of forest here-and-there are being tied up in deals. And you can't simply blame 'carbon cowboys'... charities and environmental NGOs are all doing project level deals as well. How will these project level forests avoid 'leakage' and the movement of forest destruction to other areas of the country? They probably won't, which makes them a concern and which is why people argue about whether REDD should work at a project or national level.

One question that crops up again and again in forums discussing carbon trading in Papua is the question of how such trading is possible and what laws allow it? The answer appears to be quite deceptively simple. The laws that allow forest carbon trading are as simple as those that allow me to sell you any piece of property that I own. Indeed, I could sell you the spirits in the trees, if you were convinced I had the ownership rights to them and could transfer this ownership to you. And this is in essence what is going on in Papua right now, as well as in a number of countries around the world. For all the talk of REDD and carbon markets in the future between nations, the deals done right now and carbon being traded, seems to involve just a voluntary market between individuals and corporations. The market that offers you ways of offsetting your aeroplane flights, or car journeys.

Where does REDD come in? Well the idea is that when Copenhagen arrives, a deal over REDD would create a large and valuable mandatory market. A highly regulated market where governments would be obliged to buy forest carbon credits in order to offset their pollution--mostly from power generation. It seems there is an expectation that these voluntary agreements being done right now could somehow be turned into some kind of REDD credits and traded on that market. (The term of art is that they would be 'fungible'.) And even if official trading doesn't begin for years, just the creation of REDD at Copenhagen would stimulate the market to produce options to deliver REDD credits. (There is also Waxman-Markey bill in the US, which will allow forest carbon to be traded a lot sooner.)

So the point about these deals is that entrepreneurs are betting that the voluntary credits they are developing today will be transferable to forest carbon credits that can be upgraded and traded on the grown-up markets for more money later down the line. And while that speculation might be unhelpful at this stage, far bigger risks have been taken in business for far less potential reward. So it isn't unexpected. Furthermore there is the attraction of potentially huge profits. In some countries, in some parts of the world, the cost of conserving an acre of rainforest is ludicrously low compared with even low estimates of the vale of the carbon per acre. That is sort of the point of a market, is that the private sector finds the cheapest ways to conserve carbon. The trouble is that this is never going to be a normal market, its a highly regulated market created by national and international legislation in order to achieve a public good. The public will simply not be comfortable with massive windfall profits for a few entrepreneurs, or even the landowners themselves. There is already an idea floating around that such profits need to be taxed, and put into other carbon avoiding projects.

Although it is hard to know exactly what is going on, I think it might be valuable to conduct a thought experiment. Lets imagine that I've got a couple of thousand dollars I want to invest in Papua New Guinea forestry in a credit project. How might I go about doing this? Well for a start, I don't actually want to buy anything physical like a forest. I want to buy the rights to trade. And I want to part with as little money as possible initially, because I want to buy as many rights as possible.

I start a whirlwind tour of the provinces, the further the better. I make friends with the landowners and sweeten them up with cash and gifts. I explain that the world needs to conserve forests because of something that has been put in the atmosphere, and that I'll act as a broker for them to make sure they get the best deal. I'll take a percentage, and maybe a fee.

I sign deals with the landowners that gives me the sole rights to negotiate and sell carbon on their behalf. All I have to do now is hire a few consultants to boff out a few reports about how big the trees are and how happy all the locals are, and I'd be very nicely set up to do a massive post-Copenhagen deal. What is more, if the consultant's reports look particularly convincing, I might even be able to recoup my initial investment at a very early stage by getting further infusions of investment by selling off a portion of my rights to someone else, perhaps in the form of some kind of option for REDD credits. With more cash in hand, I go off again in search of more rights to buy.

What makes all this even more fabulous a proposal is that if anyone complains about what I am doing, or questions its transparency or processes, I can cite commercial confidentiality and then complain to all and sundry about how all I am trying to do is save the world and give local people some kind of way of surviving without cutting down their trees. I'm a good person and all these horrid people just want to make me out to look like I'm doing something wrong.

Some of these deals may be absolutely fine, we just don't know. What we need in Papua, and elsewhere, is some way of publicly notifying these deals. A simple way of doing this would be government-backed project deal webpages, lots of them. Proposed forest carbon deals should be published on them, so that if any landowners feel there is something awry, or there are competing claims, this should be immediately apparent, and these claims should be published. Kamula Doso is a legal nightmare. We don't want more of these cases. This is not simply private business. All these companies want to sell credits on the mandatory markets. Its going to be our money that is buying these credits. We have a right to more information. If companies want privacy over their deals, they have to guarantee that these credits will not be traded on mandatory markets. Its a small price to pay for access to a billion dollar public market that is ultimately paid for by higher taxes and fuel prices in developed nations.

Finally, given that there is a legitimate public interest, we really do need to know what the landowners understand by these deals and what they've been told.
In medical research a concept that has developed is "informed consent", it isn't just enough for a subject to say yes to an experiment or procedure, you have to be able to provide proof that the people who have agreed have sufficient understanding of what they have agreed to.

I wonder if this might be a useful concept for these environmental deals with local landowners. Here is a standard web definition:

"Informed consent is a legal procedure to ensure that a patient or client knows all of the risks and costs involved in a treatment. The elements of informed consents include informing the client of the nature of the treatment, possible alternative treatments, and the potential risks and benefits of the treatment. In order for informed consent to be considered valid, the client must be competent and the consent should be given voluntarily"

In conclusion: More transparency over deals. Where they are being done, what financial arrangements and promises have been made, and what the landowners really understand and have been told.

I'm all in favour of markets for environmental services. But lets recall that this is a special market, created entirely by legislation, for a policy outcome--which is less carbon in the atmosphere for the least cost. While the private sector must be given the incentives the world needs to invest money, this market will never sit comfortably with massive windfall profits, whomever they fall to. That is just one of the current unresolved debates underway over REDD.