We’re all familiar with the riddle about a tree falling in the forest and making or not making a sound. Starting this weekend in Scotland, world leaders, diplomats and climate activists will be wrestling with their own version of the riddle: What does it mean when a tree does not fall in the forest?
A tree that does not fall in the forest continues to sequester carbon dioxide from the atmosphere, helping protect humanity from climate change. The riddle is who, if anyone, should get credit for the tree’s survival. To answer that question, you need to know whether the tree was going to be cut down in the first place. If it wasn’t, it seems dishonest to claim to have saved it. Yet people will be tempted to take credit anyway.
If you understand this problem, you will understand one of the main debates at the 26th United Nations Climate Change Conference of the Parties, or COP26, a meeting to combat global warming taking place in Glasgow from Oct. 31 through Nov. 12.
Economists like the idea of using markets to control carbon emissions because markets provide lots of bang for the buck. For example, Switzerland recently reached agreements with Georgia, Ghana, Peru and Senegal in which it will effectively pay those countries to reduce their emissions and then claim the reductions for itself to help meet its national target for emissions reductions under the Paris Agreement of 2015. It’s more efficient to cut emissions in those lower-income countries, where there’s plenty of low-hanging fruit (like replacing inefficient cook stoves), than in Switzerland itself, which has run short of cheap and easy ways to reduce emissions.
But governments need to make sure the markets are doing what they’re supposed to. Otherwise you run into the tree-in-the-forest problem: countries claiming credits for saving trees that didn’t need saving. That’s an issue in rich nations as well as poor ones. The San Francisco-based environmental group CarbonPlan said this year that forest protection efforts in California were over-credited by about $400 million. An investigation last year by Bloomberg Green found that the Nature Conservancy, the world’s biggest environmental group, was helping big U.S. corporations claim credit for the preservation of forests that were already well preserved. (In June, the Nature Conservancy said that an internal review did not discover irregularities but “found opportunities to improve our approach.”)
Negotiators in Glasgow will be wrestling with how to implement Article 6 of the Paris Agreement, the last part of the accord to be finalized. Article 6 governs the international trading of emission credits. The problem? “Article 6 is one of the least accessible and complex concepts of the global accord,” the World Resources Institute wrote in 2019. It added that “without the right rules in place, Article 6 could actually weaken” countries’ commitments to reduce emissions and increase global emissions.
One way Article 6 could fail is if it allows so-called double counting. A project to protect the Amazon, for instance, could be claimed by both Brazil and the rich nation that funded it.
Another form of failure would be the lack of “additionality,” as in the tree example. Let’s say a country decided to build a wind farm instead of a coal plant because the economics were better. It probably shouldn’t get credit toward its national goal for not burning coal that it didn’t intend to burn anyway.
“Leakage” is a related concern: If you pay one landowner not to cut down trees, that could cause prices of trees to go up and induce other landowners to cut down trees, leaving no net improvement.
Another conundrum: How much credit should countries get for emissions-reductions projects that were launched in the past, under the so-called Clean Development Mechanism, which is defunct?
No wonder expectations for a breakthrough in Scotland are low. Carsten Warnecke, a founding partner of the NewClimate Institute in Cologne, Germany, told me he’s lost faith in global trading of emissions credits as a solution to climate change. He says rich countries should focus on reducing emissions at home while giving money to poor countries to help them achieve reductions. (Under the Paris Agreement, rich countries are supposed to give $100 billion a year, but they haven’t so far.)
Others share Warnecke’s pessimism. “If there are large financial flows across borders, you’re creating constituents in developing countries that depend on financial flows and will lie and cheat and do everything they can to maintain these flows,” says Gernot Wagner, a climate economist at New York University. And he says rich countries would like to save money by claiming credit for cheap, low-quality credits abroad. “It’s in nobody’s interest to enforce these rules,” he says.
Some are more hopeful. “There are clear benefits to having channels of climate finance to do things that otherwise wouldn’t happen,” says Roman Kramarchuk, head of future energy analytics for S&P Global Platts. Zack Parisa, a founder and the chief executive of Natural Capital Exchange, a forest carbon marketplace based in San Francisco, says his company has developed standards and technology to guarantee that forest protection credits are legitimate. But even Parisa says that protecting trees is only a partial fix. “We shouldn’t make the mistake of thinking forests are an infinite sponge,” he says. “They’re the ambulance ride to the hospital.”
Today there are two categories of emissions trading. There’s one mandated by governments, known as compliance markets, where countries or companies are given limits on emissions. Emitters can buy credits or allowances to cover their excess emissions and can sell credits or allowances to make some money if they’re comfortably below their ceilings. And there’s a voluntary carbon market, which is the one where companies like Delta Air Lines and JPMorgan Chase buy credits to achieve their own emission-reduction targets. Under negotiation in Glasgow is how to account for emissions trading across borders and how these efforts can count toward national targets.
I interviewed Sonja Gibbs, the head of sustainable finance at the Institute of International Finance. She said that she and others have spent the past 18 months developing rules for the voluntary carbon market as part of an organization called the Taskforce on Scaling Voluntary Carbon Markets. She’s optimistic that when it comes to emission reduction credits, there will be a race to the top in quality, not a race to the bottom. “Once you have a standard, there will be tremendous demand for it,” she says. “There won’t be demand for credits that don’t have that recognition.”
Eventually, Gibbs says, there will be a single global carbon market that combines today’s compliance and voluntary markets: “What happens at COP26 will affect how the demand for credits will evolve. If countries set more ambitious targets, there will be more demand for credits.”
And not just for trees that don’t fall in the forest.
The readers write
I was an engineer for over 30 years, and I agree that systems thinking and systems engineering are required to adequately address complex systems. One of the problems with applying these practices is that they are complex in and of themselves, and too often management systems are not aligned to reward this area of expertise. Especially when multiple layers of managers get involved, there is a tendency to simplify messages, which is in direct conflict with systems engineering. Unless executives get behind systems engineering, it will just be another initiative that fails to gain traction within companies.
Quote of the day
“I don’t want you to be hopeful. I want you to panic. I want you to feel the fear I feel every day. And then I want you to act. I want you to act as you would in a crisis. I want you to act as if the house was on fire — because it is.”
— Greta Thunberg, climate activist, at the World Economic Forum, Jan. 25, 2019
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