An odd REDD project in Aitape Lumi

Almost daily, now, I am being sent documents from Papua New Guinea that are worrying and mystifying in equal parts.

The latest comes with regards to a REDD pilot project for Aitape Lumi, which is in West Sepik Province, the north-westernmost province of Papua New Guinea. (Number 19 on the map to the left, and with thanks to Wikipedia.)

This latest letter is from Theo Yasause, executive director of the Office of Climate Change, and is addressed to the managing director of Carbon (PNG) Dev. Corporation on March 24th of this year and says that the Office of Climate Change has no objections to the company developing a pilot REDD project in the area.

The letter, reproduced below, continues “your request to be allocated 50 million voluntary credits (CERs) can be granted subject to the development of the PDD [project documentation] by a third party..”



This is somewhat unexpected as, according to a Reuters report, the Office of Climate Change "suspended in January all plans to sell rights to the carbon stored in its rainforests after deals sparked land ownership disputes". Mr Yasause went on, "All projects are suspended while we get some experience".

I guess Mr Yasause forgot about this one. He also seems to have forgotten something else. The letter continues, “If you agree, I will request South Pole Ltd Carbon Trading Company based in Zurick Switzerland to assist you develop the project to have the credits ready for sale”.

Lets make one thing clear, senior industry figures tell me that South Pole is a very reputable Swiss based firm. So I showed this latest letter to Christian Dannecker, at South Pole, and he said they had never seen this letter, had never heard of Carbon (PNG) Dev. Corporation, and knew nothing about these projects.

Mr Dannecker has some observations and questions of his own. Why does does the letter refer to CER credits? This is a good question, voluntary credits go under the term Verified Emissions Reduction or VER. Where does the value of 50m voluntary credits come from? Another good question, the value of the carbon in any forest is not down to the government to decide. Finally, Mr Dannecker observes that merely a letter of support or approval is satisfactory in such circumstances.

South Pole Carbon is already formulating a complaint to the Office of Climate Change about the use of his company’s name in this context. He adds, “we appreciate that he thinks of us but would like to be informed beforehand”.

April Salome

April Salome is a forest of about 521,000 hectares in East Sepik Province, of Papua New Guinea (PNG). The roughly 20,000 people who live there would like to find some way of living sustainably with their forest, without cutting it down.

Kevin Conrad, PNG's climate ambassador, says that a Dutch project in the area was abandoned quite suddenly, leaving the locals high and dry. Schools had no teachers, and clinics had no nurses. And so now the area is a pilot project for REDD. This means that it hopes to meet the eventual qualifications for a project that avoids carbon emissions, and can thus generate credits that can be traded on the anticipated global mandatory market.

In short, the rich world will pay April Salome to keep its forest intact in order to reduce carbon emissions and the landowners will be a little less poor than they are. (For more background on the REDD project read The Economist's green.view column this week)

There are plenty of questions about whether April Salome will qualify for REDD. But lets not get ahead of ourselves, that isn't a question anyone can really answer right now because everyone is still arguing how REDD will work. What is clear is that there is an active voluntary market for carbon credits, and South Pole Carbon, based in Zurich, are working to qualify the forest against the Voluntary Carbon Standard (or VCS). Borrowing words from the VCS standard website, it is intended to provide a... robust, new global standard for voluntary offset projects. It ensures that carbon offsets that businesses and consumers buy can be trusted and have real environmental benefits. So April Salome has two possible ways to sell credits, through the voluntary market which already exists and through the mandatory REDD market if this materialises.

If I as a customer, wanted to buy an option right now on the delivery of future certified credits from April Salome forest right now would that make me criminal or clever? It might be unwisely hasty but it would be legitimate. It might also be a good deal because the options I buy now could be worth a great deal more down the line. The only point at which it becomes a problem is if I pretend my stake is something that it isn't, i.e. I say I own REDD credits. Another possible issue is if I buy into a project like this, and also at the same time am financially involved in the qualification of the credits. The problem here is that there is a conflict of interests. My only incentive would be to qualify the credits and thus increase the value of my options. (N.B. I am not suggesting that either of these things are happening)

The other thing to know about April Salome is the locals want their forest developed this way. This isn't being imposed. South Pole Carbon say that four public stakeholder consultations took place between 4 and 15 May 2009 in Sepik Center of Hope, Wewak, and three villages within the April Salome Area with valuable assistance from the World Wildlife Fund’s (WWF) Sepik River Programme. The entities inviting for this event were The National Office for Climate Change and Environmental Sustainability, the landowner group and Earthsky Ltd.

A Charitable Foundation has been established known as the April Salome Sustainable Forest Management Project Foundation, (ASSFMPF) managed with DNA involvement to distribute the benefits from utilising the UNFCCC (REDD) programme with April Salome Forestry Assets. For more information check out the new website.

That website explains: "South Pole, in cooperation with the PNG DNA [Designated National Authority] office, the landowner groups and the above NGOs, is currently working to address any question or issue raised during that consultation. The stakeholder consultation report, to be published in June, will be available to anyone interested. The project has been endorsed in writing by 163 landowner groups living in the April Salome Forest Management Area. A Benefit Sharing Agreement has been signed where the landowner groups will directly receive the largest share of the net proceeds from this project, while 2% of the proceeds will be donated to the UNFCCC Adaptation Fund and aditional funding will be made available from the project owners to the PNG government in form of project funding (with no cash being disbursed to the government). South Pole is not involved in this revenue sharing agreement and is not responsible for its distribution.

South Pole is contributing to the development of April Salome Sustainable Forest Management project in hope that this and other projects will contribute to further development of the REDD carbon market in order to significantly and reliably contribute to climate change mitigation while generating sustainable development benefits in some of the poorest countries on earth."


Hostage to fortune
Jun 8th 2009
Trading carbon credits based on avoided deforestation

The Kamula Doso credit

This is a piece of paper that I refer to as the Kamula Doso REDD credit, which is part of a "B" series of credits issued from the Office of Climate Change in Papua New Guinea.

To everyday folk, it looks like it might represent that a certain amount of carbon had been verified as having been stored and verified by the government. Of course, it is well known that all sorts of odd carbon credits are traded on the voluntary market these days, what is peculiar about this certificate is that it claims to have been produced for what is intended to be the mandatory market. It says "pursuant to the United Nations Framework Convention on Climate Change under Reduced Emissions from Deforestation and Degradation (REDD) Initiative".

One problem with this piece of paper is that there is no legal framework for an actual REDD credit to exist. Anyone who knows anything about carbon trading says that this credit cannot possibly exist, because nobody has agreed a framework for this particular type of trade. But then there are many things about this document which are irregular.

I emailed Theo Yasause, executive director of the Office of Climate Change and one of those whose signature appears on the credit (and whose email address in the header). He wrote back:

"Kirks Roberst of NUPAN PNG have been working with the landowners of Kumula Doso and made representation to my Office.

We issued an Interim copy of the Certificate dated 3 Nov 08 on the basis that they will undertake wide stakeholder consultation covering all landowners, provincial and local government before such project can be entertained. The Original Certificate was kept in my Office but someone took that out and leaked it out on circulation. No documentation were submitted with proof that consultation were undertaken and the people are happy with possible carbon trade.

We have since ceased dealing with NUPAN as all landowners are not involved nor does the provincial and local governments in that area. We have stop any direct links with NUPAN since 3rd February. Forestry and ourselves were stoped by Court no to log or undertake carbon trade.

The credits in question were not sold or given to anyone as yet. This is because no Project Documentation were submitted to my satisfaction which would than be submitted to VCS for verifying.

Furthermore, there is a Court Injunction, in place and any dealing will be in contempt of court. Therefore, we have ceased dealing at this stage. from my side no credits were sold nor bought by anyone. Nor have the Office benefited in anyway. "

Mr Yasause mentions another reason why the Kamula Doso credit caused such outrage. The forest is the subject of a court injunction. Until a long-running ownership dispute is settled, nobody can buy or sell anything to do with the forest.

I have not been able to speak with Kirk Roberts, as he is travelling in Indonesia. But for a brief period, Kirk Roberts permitted the Australian carbon management company Carbon Planet to respond to questions about Carbon Planet's role with the Kamula Doso project, and a number of other similar projects.

Jim Johnson, of Carbon Planet, said, "there are in existence a group of certificates issued by OCC to Nupan for Kamula Doso. They are not real certificates. They are symbolic to the fact that Nupan is recognised by OCC as rightful developer to the landowners of Kamula Doso".

Carbon Planet's job is to help develop the Kamula Doso forest into a REDD carbon trade project for Nupan. Over $1.2m (AUS) in project finance was provided for this, and a number of other similar projects, around Papua New Guinea.

This is not unusual. All over the tropical forests of the world, entrepreneurs are doing deals with landowners over the rights to the carbon in their trees. They are speculating that a REDD deal will be done in Copenhagen, and that the value of the carbon will increase when it can become part of the global mandatory market.

Indeed, it is even possible to buy and sell promises to deliver REDD credits in the future. Again, this is perfectly standard. Fourteen percent of the forest carbon traded on voluntary markets right now are based on promises to deliver REDD credits. But an actual credit cannot exist. Its a small and technical detail. But an important one. A promise of something in the future is very different from saying that one already has it.

Has this Kamula Doso REDD credit been sold? No. Mr Johnson said, "there has been no purchasing of carbon credits under any agreement, they have not been put forward for sale or traded". He concluded, "Carbon Planet is putting forward carbon credits for sale from its contracted portfolio, but only subject to certification by one or more of the recognised standards bodies".

So there it is. The Kamula Doso credit was an "interim" or "symbolic" credit. Which raises the question, why were there at least 40 of these symbolic certificates issued? And how many projects these 40 credits represent around the country. Based on Carbon Planet's investment of $1.2m (AUS) into forest projects in Papua New Guinea, with $100,000 for each programme, there could be up to 12. And where are they? It would be great to find out more. And also to find out how it came to pass that the Kamula Doso project got to such an advanced stage with so many unhappy landowners.

Unfortunately, Carbon Planet tells me that it is no longer authorised to speak to me by Nupan, and is bound by a confidentiality agreement. I've asked if I might communicate with Mr Roberts by email or telephone but have not received any reply.

Mr Roberts, you know how to find me if you want to tell me more about these REDD credits.

* updated June 15th: Kamula Duso changed to Kamula Doso throughout.

The carbon credits that should not exist

For the last three weeks I've been working on the most difficult story of my career. Difficult in many ways. Information that is hidden and wants to stay that way. Information that is financially complex and easy to get wrong, and information that is legally difficult to publish.

Today we publish a story about carbon credits that should not exist. Nonetheless they were produced by someone in the government of Papua New Guinea. Reading it now, what strikes me most is of what we could not write rather than what we could.

This is an important story for a number of reasons. A carbon credit puports to represent something real, in other words that carbon has been removed from the atmosphere by some activity. In this case, the activity in question was avoided deforestation. The problem is that it is very easy to print a piece of paper saying something has happened. It is much harder, and takes far longer, to actually do it. And these carbon credits that have materialised in Papua New Guinea very much seem to be claiming they are something they are not, and could not be.

But the fact that they do exist underscores something very crucial, as the world negotiates a deal to formalise the process of avoided deforestation, something called REDD. We need to be careful that we do not spend trillions of dollars on a technology that does not work to lower greenhouse gases. Trees are a carbon removal technology.

And the main problem with them is that those who are eager to sell rights to carbon, whether this is indigenous groups or governments, may not actually have full control of whether or not the trees are cut down. If you cannot defend property, then a property right is meaningless.

There is much more to tell. It is not easy but I will try. If you want to tell me more about this story, please get in touch via The Economist's media directory.


Papua New Guinea and carbon trading
Money grows on trees

Jun 6th 2009
From Economist.com
Irregular carbon credits cause upheaval in the government of Papua New Guinea

How green is your sushi?

Check out the latest issue of Intelligent Life magazine, the Economist's glossy quarterly magazine, for an article about trying to eat sustainable sushi in London's famous Nobu restaurant.

Trees for sale

Around the world trees are busily going about their business sucking up carbon. They do a good job at it. So good, in fact, their loss through deforestation contributes to about 20% of the overall greenhouse gases entering the atmosphere. Bright minds around the world are focused on avoiding this deforestation as a way of lowering the world’s carbon emissions.

So far so good. But avoiding deforestation means that many landowners must forego their rights to sell timber in order that the world has the benefit of the services that these trees provide when they are not used make tables. So it has been suggested that reducing deforestation and degradation (known by the acronym REDD) become a formalised international process that will lower carbon emissions. The crucial point, though, is that money should exchange hands from those who are providing the carbon storage, i.e. the landowners, to those who emit it, i.e. all of us.

The “all of us” bit actually means governments, corporations and of course individuals if we decide to make such payments. And the currency of such negotiations is the carbon credit. Thus, if I own an acre of forest that I decide not to chop down but to keep, then I will be paid for the amount of carbon that this forest stores. Each tonne of carbon my forest stores will be equal to one carbon credit. These carbon credits can then be sold by me, to someone else, who may decide to sell them on to someone else again. Thus there is a market for carbon credits based on avoided deforestation, and an incentive to landowners not to cut down trees.

One of the things that the world is negotiating at the moment is how this system will operate, and what rules will govern it. The international negotiators at meetings around the world, the next of which is Bonn in June, need to settle issues such as “additionality”.

This is an idea that is important for any payment for avoided deforestation. Say my forest had planning controls on it that prevented me from chopping the trees down. I owned the forest, and the trees, but my use of it was constrained to basically walking through it and enjoying it. If this is the case, then nobody should be able to pay carbon credits to me, for the simple reason that there is no avoided deforestation because I would never have been allowed to cut them down in the first place.

But there is sufficient deforestation around the world to make this potentially very big business indeed. If the international community agrees to REDD during Copenhagen, it will jump-start a very big market. The thing is, that many companies are not content to wait for official rules and regulations, they want to get in on the action early and sew up a good deal. Fortunes may well be made in this race, but they may also be lost. Because, and going back to the example of the forest, in some countries in the world it would be very easy for me to lie and say that I have the right to sell the carbon in my trees because I have the right to chop the trees down and sell them. And if I did have the right to chop down my trees, it would be even easier to sell the rights to the carbon in them, even if I had no intention to do so.

Over the next few weeks, I want to write in this blog about this business of REDD. Because of the concise nature of the publication that I write for, The Economist, its not possible for me to write everything that I have learned about this industry so far in its pages. Instead, I’ll use this blog to write about what I have discovered. There is an urgent need for clarity and transparency about the trade of carbon credits for avoided deforestation. If you want to email me with questions, or answers, please do so by filling out this form.

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