[Senate Hearing 110-652]
[From the U.S. Government Publishing Office]
S. Hrg. 110-652
INTERNATIONAL DEFORESTATION AND CLIMATE CHANGE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT AND
FOREIGN ASSISTANCE, ECONOMIC AFFAIRS, AND
INTERNATIONAL ENVIRONMENTAL PROTECTION
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
APRIL 22, 2008
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
U.S. GOVERNMENT PRINTING OFFICE
45-735 PDF WASHINGTON DC: 2008
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON FOREIGN RELATIONS
JOSEPH R. BIDEN, Jr., Delaware, Chairman
CHRISTOPHER J. DODD, Connecticut RICHARD G. LUGAR, Indiana
JOHN F. KERRY, Massachusetts CHUCK HAGEL, Nebraska
RUSSELL D. FEINGOLD, Wisconsin NORM COLEMAN, Minnesota
BARBARA BOXER, California BOB CORKER, Tennessee
BILL NELSON, Florida GEORGE V. VOINOVICH, Ohio
BARACK OBAMA, Illinois LISA MURKOWSKI, Alaska
ROBERT MENENDEZ, New Jersey JIM DeMINT, South Carolina
BENJAMIN L. CARDIN, Maryland JOHNNY ISAKSON, Georgia
ROBERT P. CASEY, Jr., Pennsylvania DAVID VITTER, Louisiana
JIM WEBB, Virginia JOHN BARRASSO, Wyoming
Antony J. Blinken, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
------
SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT AND FOREIGN ASSISTANCE,
ECONOMIC AFFAIRS, AND INTERNATIONAL ENVIRONMENTAL PROTECTION
ROBERT MENENDEZ, New Jersey, Chairman
JOHN F. KERRY, Massachusetts CHUCK HAGEL, Nebraska
BARBARA BOXER, California BOB CORKER, Tennessee
BARACK OBAMA, Illinois LISA MURKOWSKI, Alaska
ROBERT P. CASEY, Jr., Pennsylvania JIM DeMINT, South Carolina
(ii)
?
C O N T E N T S
----------
Page
Barrasso, Hon. John, U.S. Senator from Wyoming, statement........ 5
Eizenstat, Ambassador Stuart E., partner, Covington & Burling
LLP, Washington, DC............................................ 7
Prepared statement........................................... 9
Forrister, Dirk, managing director, Natsource LLC, Washington, DC 30
Prepared statement........................................... 33
Gurney, Dr. Kevin, associate director, Purdue Climate Change
Research Center (PCCRC), Purdue University, West Lafayette, IN. 22
Prepared statement........................................... 24
Hayes, David J., former Deputy Secretary, Department of the
Interior; senior fellow, World Wildlife Fund, Washington, DC... 13
Prepared statement........................................... 15
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening
statement...................................................... 3
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening
statement...................................................... 1
Article from New York Times ``With Guns and Fines, Brazil
Takes On Loggers''--Apr. 19, 2008.......................... 53
Additional Statements Submitted for the Record
Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware, prepared
statement...................................................... 54
Hagel, Hon. Chuck, U.S. Senator from Nebraska, prepared statement 55
Schafer, Jacqueline, Assistant Administrator for Economic Growth,
Agriculture and Trade, U.S. Agency for International
Development, Washington, DC, prepared statement................ 56
(iii)
INTERNATIONAL DEFORESTATION AND CLIMATE CHANGE
----------
TUESDAY, APRIL 22, 2008
U.S. Senate, Subcommittee on International
Development and Foreign Assistance, Economic
Affairs, and International Environmental
Protection, Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:01 a.m., in
room SD-419, Dirksen Senate Office Building, Hon. Robert
Menendez, chairman of the subcommittee, presiding.
Present: Senators Menendez, Kerry, Lugar, and Barrasso.
OPENING STATEMENT OF HON. ROBERT MENENDEZ,
U.S. SENATOR FROM NEW JERSEY
Senator Menendez. Good morning everyone. This hearing of
the Subcommittee on International Development and Foreign
Assistance on the international deforestation and climate
change hearing is now in order.
Let me welcome our panelists. We appreciate you being here.
I will introduce you formally in a moment.
Let me wish everyone a happy Earth Day. It is an
appropriate day to be having this hearing.
I will start off with an opening statement and we will
recognize other members as they come.
Let me thank Chairman Biden and Ranking Member Lugar for
their continued strong leadership on climate change. Recently
they sent a letter to committee members reaffirming the
committee's commitment to closely monitor international climate
change negotiations and ensure that the Senate is intimately
involved in this process. They also indicated that this
subcommittee would play a key role in holding hearings and
building a record so that the Senate is ready to ratify a
multilateral climate change treaty within the next 2 years.
There is little doubt that addressing deforestation and
degradation would be a critical part of any post-Kyoto climate
change treaty, and I think it is fitting that we are holding
this hearing on Earth Day. Thirty-eight years ago today, the
first Earth Day was observed. It has become a day to spark
awareness and a day to remember the vast gifts this planet has
given us. This global perspective is essential if we hope to
solve our planet's climate crisis.
In negotiating the post-Kyoto treaty, we must all be
cognizant of the challenges and opportunities different
countries face in lowering their greenhouse gas emissions.
There is no doubt that we must all protect U.S. interests, but
our planet is in peril and we are all going to have to work
together to fix it.
But what does working together look like in the context of
a multilateral climate treaty? In my mind, it means at least
three essential things.
First, working together means the United States must be
respectful of the fact that different countries face different
circumstances. Therefore, we cannot expect every country to
commit to the same constraints on carbon that we do.
Second, we must be prepared to help developing nations
create the capacity needed to reduce their emissions and grow
along a greener and cleaner path.
And third, we must hold every nation, including major
emitting developing nations, accountable for implementing
strong policies that will result in emissions reductions.
Only through such a cooperative framework will we
successfully negotiate a treaty that achieves the emissions
reductions we need but is able to be signed and ratified by
developed and developing countries alike.
Efforts to slow the rates of deforestation and degradation
of tropical rainforests could prove to be the critical linchpin
in this cooperative process.
As Ambassador Eizenstat will explore in more detail in his
testimony, avoided-deforestation was not covered by the Kyoto
treaty. Deforestation was not addressed, in part, because there
was a real distrust in the capacity of forested nations to
effectively enforce policies designed to protect tropical
rainforests. This distrust was not unfounded. In 1990, there
was an international effort to provide $1.5 billion to help
Brazil reduce deforestation. Yet, from 1990 to 2004, the rate
of deforestation doubled.
Another reason Kyoto did not give credit for avoided-
deforestation was because it was nearly impossible at the time
to monitor rates of deforestation.
Fast forward to Bali, Indonesia. Avoided deforestation of
tropical rainforests has become a major part of the framework
for a post-Kyoto climate treaty.
So what has changed?
One thing that has changed is technology. As Dr. Gurney
will testify, satellite technology has now advanced to the
point where rates of deforestation can be measured more
accurately and more quickly. However, this is an evolving field
and we need to be careful that our policy mechanisms do not get
out in front of the technology needed to implement them.
The world is also more committed to stopping deforestation
because we have a fuller understanding of just how critical
rainforests are to regulate the climate. We now understand that
rainforest destruction accounts for 20 percent of global
greenhouse gas emissions and that the world's forests contain
50 percent more carbon than the entire atmosphere.
Another reason attitudes have changed about including
avoided-deforestation in a climate treaty is the sense of
opportunity. Billions of dollars are now flowing to help
developing nations clean up their energy infrastructures in
order to reduce greenhouse gas emissions. As Mr. Forrister will
testify in more detail, developing nations with rainforests are
now asking why they cannot enjoy the same sort of financial
support to reduce rates of deforestation.
Simultaneously, many companies in developed nations are
looking for ways to lower future compliance costs under a
carbon-constrained economy. Tropical rainforest protection is
seen as one of the cheapest ways to reduce greenhouse gas
emissions. So perhaps market-based mechanisms where companies
can gain carbon credits for investing in avoided-deforestation
projects could be part of a solution to our climate crisis.
That said, there are many obstacles to creating a market-
based forest protection system that will work. On Saturday, the
New York Times had a piece that described quite well how
difficult it has been for Brazil to protect large swaths of
rainforests even when they commit tens of millions of dollars
and hundreds of officials to the endeavor.
Mr. Hayes will discuss some of these challenges in his
testimony, including the challenge of leakage. If we allow
companies to invest in an avoided-deforestation project in a
particular region, what prevents loggers from just moving to
another section of the forest? The answer has to be that
baselines of deforestation must be made for any country that
hosts international deforestation projects and that these
nations and the holders of credits from projects in this nation
must be held accountable for results. A market in carbon
credits is only as strong as the market's confidence that the
credits actually correspond to real carbon reductions.
Finally, while these rainforests may be located within the
boundaries of a given country, the consequences of their
destruction are global.
I look forward to hearing from the distinguished panel on
all of these topics, and I hope we can all develop a deeper
understanding of what must be done to protect the world's
rainforests and what must be done to protect all of us from the
destructive consequences of climate change.
With that, I am pleased to recognize the distinguished
ranking member of the full committee, Senator Lugar.
OPENING STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR FROM
INDIANA
Senator Lugar. Well, thank you very much, Mr. Chairman. I
thank you for holding this important hearing.
A year ago today, I was on my farm in Marion County,
Indiana, for an Earth Day ceremony recognizing the role of
agriculture and forestry in mitigating the social, economic,
and political threats posed by climate change. I was joined by
Richard Sandor, chairman and CEO of the Chicago Climate
Exchange, and Tom Buis, president of the National Farmers
Union, to promote how certain no tillage agricultural practices
and forestry can sequester carbon dioxide and help offset the
environmental threats from excessive carbon emissions.
For a number of years now, we have dedicated about a third
of the 604-acre Lugar farm to growing black walnut and other
hardwood trees. As these majestic trees grow, they absorb and
store carbon from the air around Indianapolis. To highlight the
opportunities of participating in the markets for carbon
sequestration, the Lugar stock farm has entered into a binding
contract with the Chicago Climate Exchange to provide offset
credits to entities that may want to use them to mitigate the
greenhouse gases they produce. These markets can be an
important tool in our broader climate change policy. And this
has given us an opportunity to discuss the subject more broadly
in Indiana.
I believe carbon sequestration and many other innovative
ideas can change the dynamic of the political debate on climate
change, both in the United States and internationally. The
debate should be about more than constraints. It should be
about how we can use economic incentives and opportunities to
change behavior and to influence the personal and societal
choices that we make.
Clearly, there are economic opportunities in clean energy
sources, solar, wind, and biofuels, and carbon sequestration
and storage technologies. But improvements in farming and
forestry practice may be among the lowest hanging fruit in the
quest to deal with climate change.
During the global climate change discussions in the late
1990s in Kyoto, the concept of carbon sinks provided by
forestry and agriculture was taken off the table. But last year
during the Bali discussions, the topic of carbon sequestration
through forestry and agriculture practices was revived. Now,
this is an important development in my judgment. It should be
embraced by the United States.
I mentioned the celebration at my farm last year with the
Chicago Climate Exchange. More than 20 years ago, we had a
similar celebration at my farm when Secretary of Agriculture
John Block announced the Conservation Reserve Program. This
program has encouraged thousands of American farmers to grow
trees on marginal lands, especially along watersheds. Many
American farmers participate in this program, but many more
should do so because almost every American farm has a back-40
of unused land. Native trees should be planted on this land,
and this practice provides income for farmers and climate
change mitigation for the world.
I also want to note that 10 years ago, Senator Joe Biden
and I passed the Tropical Forest Conservation Act. Since then,
more than 47 million acres of tropical forests around the world
have been conserved through ``debt for nature swaps'' in 12
countries. Recently the Foreign Relations Committee passed a
reauthorization of this bill, which I am hopeful will be
approved soon by the full Senate. This program has given the
United States a cost-effective tool with which to promote the
preservation of tropical forests, but much more needs to be
done, obviously, on a global scale.
All these activities could serve as parts of the foundation
for any cap-and-trade system that arises out of legislation in
this country or international agreements under the United
Nations Framework Convention on Climate Change. A critical
element of any cap-and-trade system is the accountability and
transparency of the carbon that is being mitigated,
sequestered, and stored.
The Chicago Climate Exchange requires me to conduct an
annual accounting of my trees, and that is not difficult for
only 200 acres of hardwood trees. But how do we analyze tens of
thousands of acres of trees in remote areas of the world?
Now, this is one of the questions at the heart of Project
Vulcan at Purdue University. I am particularly pleased
Professor Kevin Gurney, who leads Project Vulcan, is here to
testify today.
Last week, I sent a Dear Colleague letter to Senators
depicting one of a series of maps produced by Purdue, along
with NASA and the Department of Energy, showing carbon
emissions in the United States. This type of mapping technology
will be critical to a vibrant carbon trading market in the
future and to efforts to quantify the benefits of preserving
forest lands.
I welcome all of our distinguished witnesses and look
forward, along with you, Mr. Chairman, to their testimony.
Senator Menendez. Thank you, Senator Lugar.
Senator Barrasso.
STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR FROM WYOMING
Senator Barrasso. Thank you very much, Mr. Chairman. Thank
you for holding this important hearing.
I welcome this opportunity to address the climate change
issue in the Foreign Relations Committee. I have been an active
participant in the Environment and Public Works Committee on
this very issue.
I agree with you, Mr. Chairman. Climate change is an
international issue, and the United States is a major emitter
of greenhouse gases. Yet, China and India are surpassing our
country with emissions, and they are the international actors
that must be at the heart of any agreement to address carbon
releases.
We here in the Senate can pass legislation to provide the
incentives to develop the technology we need to be more carbon-
neutral. I recently introduced a bill, the GEAR Act, and this
legislation seeks technology to remove the excess greenhouse
gases already in the atmosphere. It makes sense to me that we
explore proposals to remove and permanently sequester those
greenhouse gases from the atmosphere to slow or reverse climate
change.
And to me the best way to develop the technology we need to
achieve this is through a system of financial awards or prizes
for achieving technological goals established by Congress.
Technology incentives do work. Many will have a beneficial
impact on climate change just as they have 500 years ago for us
finding a solution to the issue of understanding longitude and
how to sail the seas. Charles Lindbergh was competing for a
prize at the time that he flew across the Atlantic Ocean. So
those are the things that I am working on with the GEAR Act.
I believe Congress must not pass legislation that places
caps on our emissions while other countries like China and
India are exempt. We risk passing legislation that is long on
sacrifice by Americans but short on progress globally.
So I welcome the opportunity to hear the discussion today
regarding the role that forests play in cleaning our air.
Forests are essentially a carbon sink. They make up the largest
portion of carbon stored in terrestrial land masses. That is
because trees and plants absorb carbon for growth. Carbon
dioxide is released into the atmosphere when these trees and
plants are destroyed by things such as wild fires.
In my home State of Wyoming and across the West, we have
long been concerned about the release of carbon into the
atmosphere from out-of-control blazes. According to one source,
the annual worldwide burning of forests, including the fires in
the Western United States, release about 2 billion metric tons
of carbon dioxide into the atmosphere.
That is one of the reasons that I and many of my Western
colleagues have long supported forest health activities such as
thinning and removal of fuel loads on the forest floor. It is
my hope that that issue is addressed in the upcoming Lieberman-
Warner climate change debate that we are holding now in the
Senate.
Maintaining the planet's existing tropical forests will
store a vast amount of carbon. Up to 30 percent of the carbon
dioxide added to our atmosphere over the past 150 years has
come from deforestation. The vast majority of carbon stores in
these forests has still not been released. So they must be
protected. The vast majority of these forests are outside of
the United States boundaries. So to preserve these areas, we
will need international cooperation and one such tool has been
the Tropical Forest Conservation Act that our ranking member,
Senator Lugar, has mentioned. A reauthorization bill on this
important program has been introduced and I hope that
legislation will soon be considered on the Senate floor.
I look forward to working with the members of this
committee on this important issue.
Thank you, Mr. Chairman.
Senator Menendez. Thank you, Senator Barrasso.
Before I turn to our panel, let me say that Senator Hagel
has a statement for the record, and without objection, we will
include it in its entirety.
Let me turn to our witnesses. Let me welcome Ambassador
Stuart Eizenstat who is our first witness this morning. He
heads the law firm of Covington & Burling's international law
practice and is formerly the Deputy Secretary of Treasury
during the Clinton administration in which he led the U.S.
delegation at the negotiation of the Kyoto Protocol.
Our second witness is David Hayes, he is the global chair
of the Environment, Land and Resources Department at Latham and
Watkins and will be testifying in his role as the senior fellow
at the World Wildlife Fund. Mr. Hayes has extensive expertise
on carbon trading, as well as a multitude of forestry and land
management issues.
Dr. Kevin Gurney is the associate director of the Purdue
Climate Change Research Center and has valuable insights on the
role deforestation plays in climate change, as well as the
latest technology for monitoring rates of deforestation.
And Dirk Forrister is the managing director of Natsource
and has extensive experience with carbon markets. And I am also
pleased to see that Mr. Forrister has his J.D. from Rutgers Law
School, one of the premier law schools in the world, a school
that happens to be in my home State of New Jersey and where I
got my law degree as well.
Anyhow, welcome to all of you. In the interest of time, we
ask that you keep your testimony to about 7 minutes. We will
include your entire testimony for the record, and with that,
Ambassador Eizenstat, if you would start.
STATEMENT OF AMBASSADOR STUART E. EIZENSTAT, PARTNER, COVINGTON
& BURLING LLP, WASHINGTON, DC
Ambassador Eizenstat. On a personal note, first, Mr.
Chairman, may I say how much it is a pleasure to call you
Senator, and for the ranking member, I have had the privilege
of knowing him since he was the mayor of Indianapolis. He has
had such a distinguished career. It is always a pleasure to be
before him.
I am very pleased that you are holding this hearing because
the Senate Foreign Relations Committee can help bridge the gap
between domestic U.S. climate legislation and the international
effort dealing with forests necessary to deal with one of the
great challenges of our time.
I have been working with the Environmental Defense Fund,
the Nature Conservancy, Conservation International, Defenders
of Wildlife, the Wildlife Conservation Society, and major
corporations, including Shell, AIG, PG&E, AEP, and Duke Energy,
to make sure that in any U.S. legislation dealing with climate
change that domestic and international forest carbon
initiatives are included.
Two important observations at the beginning. First, the
forest sector is critical to dealing with climate change. As
you have all recognized, it accounts for 20 percent of global
greenhouse gas emissions. But to put that in context, that
means it is the second largest source of carbon emissions,
second only to actual burning of fossil fuels, and it is more
than the entire global transportation sector combined.
If one looks at the world's top emitters, such as Indonesia
and Brazil, they have achieved that rank not because of their
industrialization, but largely because of the emissions
associated with deforestation. We cannot solve the climate
change problem if forests are not included.
The scientific case is unmistakable. We cannot stabilize
the atmosphere, anything remotely close to what scientists
believe is necessary, if we leave 20 percent of global
emissions out of the effort. But there is also a secondary
benefit, and that is, by protecting forests, we also conserve
biodiversity. Tropical forests are home to half of the world's
terrestrial species and also are important to the livelihood of
the world's rural poor.
The political case is equally strong. As I will discuss in
a moment, one of the ways to break the logjam that Senator
Barrasso mentioned, for example, with China and India, is to
incentivize developing countries to break out of the lockstep
that I confronted in Kyoto that China and India had by giving
developing countries who have forests an incentive through
avoided-deforestation credits to protect their forests. That is
their contribution and can serve as a central model for
electric power and transportation.
Bringing climate change policy through deforestation would
also provide linkages between any ultimate U.S. cap-and-trade
program that we may have and countries that are already part of
Kyoto or a post-Kyoto treaty. I believe, unfortunately, that in
the near term, we are not going to have two-thirds in the
Senate to pass a treaty, and therefore, we have to find
linkages between an ultimate U.S. piece of legislation and
international trading markets. Recognizing credits for reduced
emissions from deforestation can bridge the divide with our
international partners.
The economic case is absolutely compelling because this is
a low-cost mitigation option. It is a way that regulated
companies in the United States can cheaply reduce their costs
of compliance. It is flexible, and by putting it in our cap-
and-trade system and providing international trading in
forestry credits, it will mean both incentivizing developing
countries to participate but also lowering the cost of
compliance.
Permit me to suggest that there are two ways in which to
finance efforts to reduce emissions from deforestation. One is
to create an international fund, a government-to-government
fund. This would be, in effect, foreign assistance provided by
a number of countries. The second would be market-based
mechanisms to channel private sector capital to developing
countries to protect their forests.
Now, frankly, I think we need both, but it is sophistry to
expect that we can get a fund large enough. Sir Nicholas Stern,
for example, feels we will need up to $10 billion per year to
provide adequate incentives for developing countries to protect
their forests. To do that alone by foreign assistance--we need
to harness the carbon market, which last year was some $60
billion, to deliver capital on a scale needed to have an impact
on the problem. And, Senator Lugar, I am on the board of the
Chicago Climate Exchange, and they much appreciate what you are
doing. But we need to harness that kind of market.
Now, what Bali did, Mr. Chairman, as you alluded to, in the
forest area it is recognized for the first time, which we did
not fully do at Kyoto, that any climate change regime following
Kyoto has to include provisions for what they called reduced
emissions from deforestation and forest degradation, or REDD.
The Bali Action Plan specifically references incentives to
reduce emissions from deforestation and forest degradation in
developing countries. And that is a huge step forward because
now the international community is clearly recognizing that
efforts to conserve the world's tropical and subtropical
forests have to be part of any long-term global effort for
climate change mitigation.
This is in no small part due to the remarkable efforts of a
group of over a dozen developing countries in the Coalition for
Rainforest Nations. These are countries who are themselves the
stewards of tropical and subtropical forests where most of the
emissions of CO2 are coming from in the forest area. They are
saying their part in dealing with climate change will be to
take specific measurable commitments to avoid deforestation, if
they are provided in an international regime with sufficient
incentives to do so. And hopefully, as we will discuss in the
question period, with the tremendous pressures on commodity
prices, the tremendous pressures to cut those forests down and
grow soybeans and other products, we have got to provide a
counterweight so that they do not have an incentive to cut the
forests down and leave it all to agriculture.
Now, the opportunities for U.S. leadership--and this will
be my close--to take a lead on deforestation is to do the
following, and that is, that any cap-and-trade legislation,
Lieberman-Warner or any variation thereof, should include
provisions to recognize credits from reduced emissions from
deforestation in developing countries. Congress can design
legislation to allow credits for reduced emissions from
deforestation to be traded in a U.S. cap-and-trade system in a
manner ensuring environmental integrity three ways, and then I
will close.
First, in the current version of Lieberman-Warner, it
allocates 2.5 percent of total emission allowances to
international forest carbon activities. That percentage could
be even increased more.
Second and even more important, the current Lieberman-
Warner bill allows regulated entities to satisfy 15 percent of
their compliance obligations with allowances from foreign
greenhouse gas trading markets. This should be expanded beyond
15 percent, but even more critical is I urge this committee in
the strongest terms to include in that provision expressly
allowing forestry credits to be counted in that 15 percent or
whatever ultimate percentage is selected.
And third is to include provisions in a U.S. cap-and-trade
bill that provide incentives to developing countries to move
toward what you have suggested, Mr. Chairman, which is a
national accounting baseline system so we can measure forests,
and if they do so, they should not be subject to any
quantitative limitations in their ability to trade credits for
avoided-deforestation.
The long and the short of it is this is a win-win situation
for everybody. It lowers the costs of compliance by regulated
companies in the United States; it provides incentives for
developing countries to take actual specific obligations; and
it will provide a huge boost in dealing with climate change,
reducing our costs in the United States and incentivizing
countries abroad to participate.
Thank you again for the opportunity, and I look forward to
your questions when the panel has the opportunity to fully give
their testimony.
[The prepared statement of Ambassador Eizenstat follows:]
Prepared Statement of Stuart E. Eizenstat, Partner, Covington & Burling
LLP, Washington, DC
Good morning, Mr. Chairman and members of the subcommittee. Thank
you very much for holding this hearing and for the opportunity to
testify on international deforestation and climate policy. This is one
of the most important aspects of the climate change problem and I
commend you for your attention to it. The Senate Foreign Relations
Committee can help create the bridge between domestic U.S. climate
change legislation and the international effort necessary to deal with
one of the greatest challenges of the 21st century. During my tenure as
Under Secretary of State in the Clinton administration, I led the U.S.
delegation in the negotiation of the Kyoto Protocol. Forests were a
major source of contention in those negotiations, and although we were
able to get credits for afforestation and reforestation projects in
developing countries, emissions from tropical deforestation were
ultimately excluded from the Kyoto regime. But much has changed since
Kyoto was negotiated, and the recent meetings in Bali put the
deforestation issue squarely on the agenda of international climate
policy--providing a critical boost to efforts to fill the gap left open
by Kyoto by bringing deforestation into the international climate
regime. I believe that the U.S. has a significant opportunity to lead
on this issue--in the international process but also, importantly, in
the way that we design our domestic cap-and-trade system.
I currently serve on the advisory board of Sustainable Forestry
Management and we have been working with the Environmental Defense
Fund, the Nature Conservancy, Conservation International, Defenders of
Wildlife, and the Wildlife Conservation Society as well as a number of
major companies, including Shell, AIG, PG&E, AEP, and Duke Energy, to
develop a Forest Carbon Dialogue that seeks to include domestic and
international forest carbon provisions in U.S. climate legislation.
I. DEFORESTATION AND CLIMATE POLICY
There are two important observations that must be kept in mind as
we explore options for including deforestation in international and
domestic climate policy.
1. The forest sector is a key part of the climate change problem.
As some of you may know, deforestation--almost all of which occurs in
the tropics--accounts for about 20 percent of global greenhouse gas
emissions. That is more than the entire global transportation sector.
Deforestation is the largest source of emissions in many developing
countries--accounting for over 90 percent of the emissions from some
key developing countries. Some of the world's top emitters, such as
Indonesia and Brazil, have achieved their rank largely because of
emissions associated with deforestation.
2. We cannot solve the climate problem if we do not include
forests. Despite its massive contribution to global climate change,
deforestation in developing countries is currently excluded from the
international climate regime by the rules governing the first
commitment period (2008-2012) under the Kyoto Protocol. This makes no
sense scientifically, and it makes no sense politically or
economically.
The scientific case for including deforestation in the effort to
address global climate change is very strong, as articulated by the
recent reports by Sir Nicholas Stern of the U.K. Government and the
Intergovernmental Panel on Climate Change, among others. We simply
cannot stabilize the composition of the atmosphere at anything remotely
close to what scientists consider a prudent level if we leave 20
percent of global emissions out of the effort. In addition to the
obvious climate protection benefits that come from reducing emissions
from deforestation, protection of tropical and subtropical forests also
generates significant social and environmental cobenefits, including
the conservation of biodiversity (tropical forests are home to half of
the world's terrestrial species), the maintenance of critical ecosystem
services, and the protection of livelihoods for many of the world's
rural poor.
The political case is equally strong: Finding a way to bring
deforestation and forest restoration into the climate regime offers the
only meaningful path for many developing countries to participate in
international efforts to deal with climate change, since regrettably
they are opposed to economywide targets, even growth reduction targets,
as we learned at Kyoto. And without developing country participation,
there will not be an effective post-2012 international climate regime.
Put another way, the forests issue provides a possible way to break the
logjam plaguing the Kyoto process by creating opportunities for certain
developing countries to receive tradable credits for reducing their
emissions from deforestation. This, in turn, could serve as a model for
similar approaches in other sectors, such as electric power or
transportation, allowing developing countries to take important steps
without having to embrace Kyoto-like economywide commitments from the
start, which is highly unlikely in the short term.
Bringing deforestation into climate policy also provides a possible
linkage between a U.S. cap-and-trade program and trading systems in
nations that are part of the Kyoto and post-Kyoto process. I believe it
is unlikely in the near term that the U.S. Senate will ratify a climate
change treaty without specific commitments from China and India, which
they are unlikely to provide. Recognizing credits for reduced emissions
from deforestation in evolving compliance regimes can therefore help
bridge the divide with our international partners.
And, of course, the economic case for including deforestation in
the climate regime is compelling given that this is a low-cost
mitigation option that is available now, as both the Stern Report and
the IPCC have noted. Accordingly, we should be developing mechanisms to
take advantage of these reductions as we work toward the fundamental
transformation of our energy system. From the U.S. domestic
perspective, recognizing credits for reduced emissions from
deforestation in our own cap-and-trade system could therefore provide
significant cost-control benefits and much needed flexibility to
regulated entities in the U.S., as they move toward adoption of low and
no carbon technologies. Allowing regulated entities in the U.S. to
satisfy part of their compliance obligations with international forest
credits is like allowing them to design their supply chains in a manner
that takes advantage of cheaper inputs. A key beneficiary is the U.S.
consumer, who pays lower prices for the goods and services produced by
these U.S. companies. Forest carbon is a critical part of the effort to
control compliance costs in a U.S. cap-and-trade system.
Finally, efforts to bring international deforestation into the
climate regime also have important synergies with efforts to promote
and enhance adaptation to climate change in developing countries. Given
the vital role of forests in providing environmental goods and
services, recognition of credits for international forest carbon
activities would generate numerous environmental cobenefits, including
restoration of degraded lands and watersheds, improved habitat, reduced
erosion, clean water, and enhanced ecosystem services--all of which
enhance the adaptive capacity of rural communities. Efforts to protect
forests and promote sustainable forestry are also critical components
of an effective strategy to reduce migration and conflict among
vulnerable rural populations, thereby promoting environmental security.
By channeling much-needed capital to the rural poor and providing
incentives for them to sustainably manage their landscape, forest
carbon credits could reduce pressures that lead to migration and
conflict. Indeed, forest carbon credits provide one of the only means
by which many of the rural poor in the developing world can stabilize
their local forested environments and themselves adapt to climate
change.
Simply put, we believe that reduced emissions from deforestation,
together with efforts to plant new trees and restore forests, must be
part of the solution to global climate change. It is certainly not the
solution by itself, but we cannot achieve real climate protection
without including forests.
II. POLICY OPTIONS AT THE INTERNATIONAL LEVEL FOR FINANCING EFFORTS TO
PREVENT DEFORESTATION
The current international policy debate has identified two main
options for financing efforts to reduce emissions from deforestation:
1. An international fund (or collection of funds) that channels
money to developing countries in order to finance forest protection
efforts. This money could come from a variety of sources, including
Overseas Development Assistance (ODA), carbon taxes, emissions
allowance auction revenues, or debt-for-nature transactions. The
important point is that this would depend on public sector, government-
to-government financing.
2. Market-based mechanisms that channel private sector capital to
developing countries in order to fund forest protection efforts. The
basic idea here is that existing and emerging cap-and-trade systems
could be designed to recognize credits for efforts to reduce emissions
from deforestation and thereby leverage potentially significant flows
of private sector capital for efforts to reduce emissions from
deforestation.
In evaluating these two options, several key points should be kept
in mind:
First, in order to have a meaningful impact on the problem,
significant and sustainable flows of capital must be mobilized. The
Stern Review, for example, estimates that it would take between $5 and
$10 billion per year to significantly reduce deforestation in
developing countries. It is highly unlikely that ODA or some other type
of public financing could realistically provide this level of
investment on a consistent and sustainable basis over time. My view is
that it cannot. Although multilateral and bilateral funding sources
have an important role to play in this effort, we must harness the
carbon market--which doubled in size in 2007 to $60 billion--as a
vehicle for delivering capital on the scale needed to have an impact on
the problem. Having a fund is not inconsistent with using market-based
mechanisms. Both can play a role, but market-based mechanisms are far
more powerful in leveraging private sector investment.
Second, regardless of which policy instrument (or combination of
instruments) is put in place to deal with the problem, careful
attention must be given to monitoring and quantifying changes in forest
cover and forest carbon and to the development of appropriate
accounting frameworks for measuring progress and ensuring environmental
integrity. Without environmental integrity, the whole effort will
collapse. In contrast to the situation prevailing a decade ago at
Kyoto, significant progress has been made, particularly in the
development of remote sensing capabilities and accounting
methodologies, and in our ability to quantify changes in land cover and
forest carbon stocks with confidence.
Third, deforestation cannot be considered in a vacuum and there is
no one-size-fits-all recipe for solving the problem. Regardless of how
the financing for reduced emissions from deforestation is ultimately
designed, careful attention must be given to the promotion of policies
and projects that will address the fundamental drivers of
deforestation--drivers that vary within and among countries. Integrated
approaches will be necessary to provide meaningful and economically
rational alternatives to deforestation, which means that we must look
at afforestation and reforestation projects in addition to and as
complements of avoided-deforestation efforts.
III. THE CURRENT STATE OF INTERNATIONAL NEGOTIATIONS TO CREATE
MECHANISMS TO PREVENT DEFORESTATION
The 13th Conference of the Parties to the United Nations Framework
Convention on Climate Change, held last December in Bali, Indonesia
(COP-13), produced three major outcomes:
First, COP-13 defined a path forward for the negotiation of a
comprehensive agreement to take effect when the Kyoto Protocol's first
commitment period ends in 2012. This is the so-called ``Bali Action
Plan.'' Notably, the United States joined the global consensus to
launch this negotiation process.
Second, the developing countries assumed at least some qualified
responsibility for reducing their own greenhouse gas emissions, within
the context of their own economic development and with the assistance
of wealthier countries. This is a significant development. It opens the
door to an eventual agreement that will in some manner address the
critical role of China, India, and certain other G-77 countries that
already are--and will be with further economic growth--major
contributors to climate change in the decades to come.
Third, and most significant for our purposes here, was the
recognition by all countries that whatever climate change regime
emerges in the next round of negotiations, it should include provisions
for Reduced Emissions from Deforestation and forest Degradation (known
as ``REDD''). To that effect, the Bali Action Plan specifically
references the importance of addressing, in the context of the post-
2012 agreement, ``policy approaches and positive incentives on . . .
reducing emissions from deforestation and forest degradation in
developing countries.'' This represents an important step in the
direction of filling the gap left open by Kyoto and including
deforestation in international climate policy.
Concurrently with the Bali Action Plan, COP-13 adopted a decision
specifically on REDD, focusing on ``approaches to stimulate action.''
This additional decision, which I will refer to as the ``REDD
Decision,'' calls for countries to undertake immediate efforts,
including demonstration projects and activities, to begin to address
the drivers of deforestation and to determine the efficacy of various
different approaches. Those early efforts are meant to be taken into
consideration--and, presumably, credited in a post-2012 regime--when
the eventual framework on ``policy approaches and positive incentives''
is ultimately agreed.
Attached to the REDD decision is a set of principles meant to
provide ``indicative guidance'' with respect to the nature and goal of
these demonstration activities. Of particular interest is the question
of precisely how these demonstration activities, if conducted at a
subnational level, will contribute ultimately to the development of
``national approaches, reference levels and estimates [of
deforestation].'' This, like many other methodological issues, will be
addressed over the course of the next 2 years.
What is critical here is that the international community, as
represented by the Parties to the Framework Convention, now clearly
recognizes that efforts to conserve the world's tropical and
subtropical forests must be part of any long-term global framework for
climate change mitigation. This is due in no small part to the
remarkable efforts of the Coalition for Rainforest Nations and their
allies in putting this issue on the agenda. It is now clear that the
developing countries that are the stewards of these tropical and
subtropical forests are offering to take real and measurable action to
reduce deforestation, provided that the international regime is
designed to offer the right incentives for action. It is essential,
therefore, that we provide these incentives, including in the United
States in forthcoming climate change legislation.
With regard to specific policy instruments, the REDD Decision does
not expressly endorse any particular approach and certain countries
have thus far insisted that this decision be pushed to future meetings.
It is also important to recognize that different countries and blocks
of countries have endorsed different instruments for dealing with REDD.
In our view, market-based approaches offer the most realistic
opportunity for generating the scale of capital flows needed to make a
significant dent in the rate of deforestation--let alone the amounts
required to actually reverse the overall trends and eventually to halt
deforestation altogether. And the Bali Action Plan expressly calls for
considering ``[v]arious approaches, including opportunities for using
markets, to enhance the cost-effectiveness of, and to promote,
mitigation actions.'' Many participants in the negotiations have noted
that the term ``positive incentives'' is generally viewed as
encompassing market mechanisms. My view is that markets must play a
fundamental role in developing an effective policy for reducing
emissions from deforestation.
For the reasons that I have outlined, the Parties to the Framework
Convention will almost certainly include efforts to reduce emissions
from deforestation in the global climate change strategy that emerges
over the next couple of years. I submit to you that this will be a very
good thing, for the following reasons:
First, the enormous environmental significance of preserving the
world's forests, from the standpoint of the avoided carbon emissions
and the protection of the Earth's climate system as well as the
conservation of irreplaceable biological diversity and protection of
vital ecosystem services;
Second, the importance of having--for the first time--the active
participation by developing countries, such as those of the Coalition
for Rainforest Nations, in the global effort to mitigate climate
change;
Third, the importance of an avoided-deforestation regime as a model
for other developing countries to take targets in other sectors, such
as electric power or transportation, if they refuse to take Kyoto-like,
economywide commitments, which many will refuse to do in the near term;
Fourth, the contribution that this will make to the willingness of
the United States and other developed countries to take on ambitious
targets or goals--knowing that all cost-effective alternatives are
being explored and will eventually be available so long as they have
environmental integrity; and
Last, but decidedly not least, the opportunities created by such an
effort, if properly designed and implemented, for developing countries
to forge an economic development path that is sustainable and
consistent with the preservation of these vital natural assets.
Significant incentives must be put in place to counter the existing
pressures to cut and burn forests for agricultural expansion and other
economic development.
IV. OPPORTUNITIES FOR U.S. LEADERSHIP
The U.S. has a real opportunity--in our domestic climate
legislation--to lead on the deforestation issue by including provisions
that recognize credits for reduced emissions from deforestation in
developing countries. Such forest carbon credits would provide much-
needed flexibility and cost reductions for regulated entities under a
U.S. cap-and-trade system, while incentivizing developing countries to
take action to reduce emissions from the forest sector.
And this does not have to wait--indeed it should not wait--until a
post-2012 agreement is negotiated and in place. My view is that
Congress can design legislation that allows credits for reduced
emissions from deforestation and other international forest carbon
activities to be traded in a U.S. cap-and-trade system in a manner that
ensures environmental integrity without imposing massive transactions
costs on the whole effort.
To that effect, we are encouraged by the provisions in the current
version of the Lieberman-Warner bill which allocate 2.5 percent of
total emissions allowances to international forest carbon activities.
We would like to see that percentage increase. But we also believe that
the current provision that allows regulated entities to satisfy 15
percent of their compliance obligations with allowances from foreign
greenhouse gas emissions trading markets should be expanded and opened
up to explicitly include credits for international forest carbon
activities. And we believe that there should be provisions in the bill
that incentivize developing countries to move toward national
accounting frameworks for forest carbon, and that credits from
countries that adopt national accounting frameworks should not be
subject to quantitative limitation. These provisions would give a huge
boost to the whole effort to protect and restore tropical forests in
developing countries and encourage those countries to participate in a
global climate protection effort. They would also allow regulated
entities in the U.S. to tap into the cost-control benefits of these
activities, thereby reducing the overall costs of a cap-and-trade
program to the U.S. economy.
We hope, therefore, that the members of this important subcommittee
will recognize the importance of incorporating reduced emissions from
deforestation in U.S. cap-and-trade legislation in a manner that
comports with the ongoing effort to bring deforestation into the
international climate regime.
Senator Menendez. Thank you, Ambassador.
Mr. Hayes.
STATEMENT OF DAVID J. HAYES, FORMER DEPUTY SECRETARY,
DEPARTMENT OF THE INTERIOR; SENIOR FELLOW, WORLD WILDLIFE FUND,
WASHINGTON, DC
Mr. Hayes. Thank you, Mr. Chairman, Mr. Ranking Member, and
members of the subcommittee, for the opportunity to testify
this morning on this incredibly important topic, international
deforestation and climate change, particularly on Earth Day. I
can think of no better way for all of us collectively to spend
our time than to deal with this very important issue.
I am testifying this morning on behalf of the World
Wildlife Fund where I am a senior fellow. In addition to my
work at WWF, I have had a longstanding interest in this issue
dating back to my time as Deputy Secretary of Interior in the
Clinton administration.
I would like to say at the outset that WWF which, of
course, has a broad mandate to protect biodiversity on this
planet, is very encouraged by the promising first steps that
the international community is taking with regard to global
deforestation. The Bali discussions that Ambassador Eizenstat
just referenced, kick off, I think, a very, very strongly
promising new chapter here.
I should mention historically, as discussed in my
testimony, that WWF was quite skeptical back in Kyoto days, as
the Ambassador will confirm, about inclusion of forestry as
part of the Kyoto compact. We think times have changed now that
the industrial world is focused on reducing industrial
emissions, and we must also deal with deforestation, which is,
by all accounts, responsible for at least 20 percent of global
greenhouse gas emissions.
We are also encouraged at WWF about the Lieberman-Warner
bill and the fact that, in addition to a U.S.-based constraint
on carbon emissions, it includes an international forestry
title, which recognizes that the United States needs to play a
leadership role in reducing emissions from deforestation and
degradation abroad.
However, unlike conventional sources of greenhouse gas
emissions, deforestation, and forest degradation present very
difficult, multifaceted challenges that cannot be easily
tackled. We think it is important to look at the root causes of
deforestation and degradation if we are going to really deal
with this issue comprehensively. It is going to require the
cooperation of governments who are losing their forestry
resources. Importantly, it is going to require the cooperation
of the United States and our trading partners whose practices
are influencing how forestry resources are being used and the
participation of indigenous peoples and others who are most
impacted by land choices made in their homelands.
As a result, we think that the international discussions
and U.S. legislation should focus first on promoting economic
models that will address these root causes of deforestation and
degradation and which will involve the coordinated effort of
the international community.
That is one reason why the discussions made this morning
about Senator Lugar's work on the Tropical Forest Conservation
Act are absolutely apropos. We cannot look at establishing a
credit market for carbon from protected forests without looking
at other tools that we can bring to the table to help protect
forests and certainly the Tropical Forest Conservation Act is
one.
Another, which this committee also is looking at, is
amending the Lacey Act to prohibit imports into the United
States of timber products comprised of illegal timber. Again,
we cannot look at this issue through blinders and assume that
creating a credit market that will attempt to protect forests
will be enough to solve this problem without dealing with the
realities that were highlighted in the New York Times on
Saturday about illegal logging in many of these countries.
In that regard, I should mention that, as you know, the
World Bank has reported that many tropical forested countries
are losing billions and billions of dollars from illegal
logging. These are countries that typically outlaw this logging
but do not have the institutional capability to deal with it.
I would like to finally--I believe my time is up--explain
that we are very encouraged by the notion of using carbon
markets as a key element here to deal with the deforestation
efforts, but we need to put a warning sign out there. The
deforestation issue presents special challenges.
First, in terms of the local capacity of developing
countries to measure and monitor and validate the reductions
that are needed if we are going to use these credits as though
they were emissions reductions that have compliance impacts in
a U.S.-based system.
And second, we have to recognize the fact, in addition to
this problem of capacity, the special challenges of measurement
that we are going to hear from Professor Gurney about. This is
a very difficult area in which to precisely measure emissions
reductions and the ``leakage'' issue--the problem of
potentially having deforestation simply moved to another area.
This is not something we can do on a project-by-project basis.
Because of these challenges, some skepticism is important,
but we also think that optimism is essential. We have to solve
this problem. We can solve this problem. It is going to take a
concerted effort. The World Wildlife Fund and many others in
the conservation community look forward to working with this
committee toward that end.
Thank you very much.
[The prepared statement of Mr. Hayes follows:]
Prepared Statement of David J. Hayes, Senior Fellow, World Wildlife
Fund, Washington, DC
Thank you Mr. Chairman, Mr. Ranking Member, and members of the
subcommittee, for the opportunity to testify this morning on the
important topic of international deforestation and climate change. I am
testifying today in my capacity as a Senior Fellow at the World
Wildlife Fund (``WWF''). In addition to my work with WWF, I have had a
longstanding personal and professional interest in forestry issues,
having served as Deputy Secretary of the Interior in the Clinton
administration. Given the importance of this issue to the global
environment, it is particularly fitting that the subcommittee is
holding this hearing on Earth Day.
SUMMARY
WWF is encouraged by the promising first steps that the
international community is taking to address global deforestation and
degradation as part of the United Nations framework convention on
climate change, as evidenced in the recent Conference of the Parties in
Bali, Indonesia, and in discussions leading toward Copenhagen, when a
new treaty is expected to be completed. WWF also is encouraged that S.
2191, America's Climate Security Act, introduced by Senators Lieberman
and Warner, which would establish a U.S.-based program to constrain
greenhouse gas emissions, also includes an international forestry title
which recognizes that the U.S. must play an active role in ``reduced
emissions from deforestation and degradation'' or ``REDD,'' working in
tandem with affected nations and the entire international community.
The attention on deforestation is both appropriate and necessary,
given the fact that the on-going loss of forestry resources accounts
for approximately 20 percent of all greenhouse gas emissions,
worldwide. Simply put, we cannot make progress in battling climate
change unless we reduce the alarming rate of deforestation that is
occurring on an on-going basis in a number of developing nations.
Unlike conventional sources of greenhouse emissions, however,
deforestation and forest degradation present multifaceted challenges
that are particularly difficult to tackle. Sustainable progress will
only be made by addressing the complex root causes of deforestation and
forest degradation. This will require the cooperation of the
governments who are losing their forestry resources; the cooperation of
the U.S. and other developed nations whose trade practices are
influencing how forestry resources are being used (and/or abused); and,
importantly, the active participation of indigenous people and others
who are most impacted by land use choices made in their home lands.
WWF believes that international climate change discussions and U.S.
legislation should focus, first, on promoting economic models that
address the root causes of deforestation and degradation and which
involve the coordinated effort of the international community. Economic
initiatives that encourage trade in sustainable forestry resources and
products, and which penalize forest degradation and the loss of
valuable forest resources, for example, must be actively promoted. The
development of international carbon markets that will recognize and
reward the financial value of maintaining tropical forests and reducing
rates of deforestation also should be the subject of active
consideration. To lay the groundwork for developing such a market, a
significant investment must be made in building local capacity to
measure and monitor the carbon stocks in developing countries' forestry
resources.
In this regard, WWF supports the Lieberman-Warner bill's
establishment of an Emission Allowance Account ``for use in carrying
out forest carbon activities in countries other than the United
States.'' Such an allocation would generate funding needed to help
local citizens and institutions develop and proliferate the
technologies and methodologies that will reliably measure and track the
carbon content of forests and forest products, and to undertake the
training needed to generate and validate the data used for this
purpose. As discussed further below, these are essential prerequisites
of any effort to establish a credible and viable carbon market in those
countries.
As a corollary, WWF also supports the Lieberman-Warner bill's
general expression of interest in developing and promoting a carbon
market that could generate financial support for protecting forests.
WWF believes that the U.S. should proceed deliberately in this area,
however, in close cooperation with the international community. A
carbon market that effectively generates financial incentives to reduce
tropical deforestation should not be presumed to operate in the same
way as today's voluntary market for carbon offsets from forests, or the
Kyoto Protocol's project-based Clean Development Mechanism. A different
approach will be needed if credit is to be given to avoiding
deforestation and to the on-going conservation of forestry resources.
A deliberate approach also is needed due to the significant
concerns that have been raised about the environmental integrity of
some offset projects that have been developed under existing
frameworks. Similar concerns will apply to forest-based credits.
Indeed, forestry credits are likely to generate special scrutiny, given
the large number of credits that potentially could be generated from
avoided-deforestation projects and the special challenges of
quantifying and verifying emissions reductions from improved forestry
practices, particularly with regard to ``leakage,'' ``permanence'' and
``additionality,'' as discussed below. In addition, a carbon market
that credits forestry-based ``offsets'' must not enable industrialized
nations to avoid investments in their own emissions reductions.
Despite these challenges, WWF is optimistic that the U.S., working
with the international community, can identify and implement a
comprehensive program that tackles the root causes of deforestation.
This effort can and must include the development of financial
mechanisms that will sustainably protect forestry resources and
complement commitments by developed countries to reduce their
greenhouse gas emissions.
WWF and Forest Conservation
For more than 45 years, WWF has been protecting the future of
nature. Today WWF is the largest multinational conservation
organization in the world. WWF's unique way of working combines global
reach with a foundation in science, involves action at every level from
local to global, and ensures the delivery of innovative solutions that
meet the needs of both people and nature. WWF currently sponsors
conservation programs in more than 100 countries, thanks to the support
of 1.2 million members in the United States and more than 5 million
members worldwide.
WWF is actively engaged in the protection and sound management of
forestry resources around the world. By way of example, WWF is involved
in: (1) The Congo Basin Forest Partnership (CBFN), a Presidential
Initiative with 34 partners worldwide, which seeks to reform forestry
practices, promote economic development, and improve governance, by
supporting a network of national parks, protected areas, and well-
managed forestry concessions; implementing sustainable, community-based
natural resource management; promoting ecotourism; helping to enforce
antipoaching and forestry laws; and working with the regional Forestry
Commission; (2) the Heart of Borneo Initiative, which seeks to protect
the highland forests on the island of Borneo, shared by Indonesia,
Malaysia, and Brunei Darussalam, by improving transboundary
cooperation, expanding the protected area network, emphasizing
responsible resource use across multiple extractive industries, such as
pulp and paper and palm oil production, and developing long-term
sustainable and equitable financing mechanisms; and (3) the Amazon
Initiative, which includes work through the Amazon Region Protected
Areas Program (ARPA), and the Amazon Headwaters Program, as well as
efforts to engage major corporations in Europe and the U.S. to build
commitments to purchase of sustainably managed wood from this region.
Transcending our work in specific regions such as the Congo Basin,
Borneo, or the Amazon, WWF also works directly with global forestry
markets. WWF is a partner in the Global Forest and Trade Network
(GFTN), supported by the Sustainable Forest Products Global Alliance
(Global Alliance)--a U.S. AID--funded public/private partnership that
catalyzes businesses, public agencies, and nongovernmental
organizations to promote responsible management of forest resources,
reduce illegal logging and improve the well-being of local communities.
The GFTN seeks to provide committed companies with tools and technical
assistance to achieve responsible forestry through their management and
purchasing practices. It has established regional Forest Trade Networks
in key producer and consumer countries and regions covering over 30
countries, with a total of 361 separate legal entities around the
world. GFTN Participants and Applicants produce or trade in an
estimated volume of 222 million cubic meters of round wood equivalent,
representing 12.3 percent of the global total traded, estimated at
1.799 billion cubic meters in 2005 by FAO. In terms of value, GFTN
Participants and Applicants produce or trade in an estimated $49
billion or approximately 13.6 percent of the global total ($360 billion
estimated by WRI). In addition, GFTN Participants and Applicants employ
over 150,000 people, or approximately 1.2 percent of the global total
based on the FAO estimate (in 2000) of 12.9 million forest workers
globally.
Through its work, WWF has come to understand the complex factors
that play a key role in maintaining healthy forests. WWF works on
different aspects of forestry management--governance, trade, logging,
conversion, finance, supply chain, etc.--giving us a unique holistic
view of how to address forestry management in the context of carbon
management.
Tropical Deforestation and Its Impact on the Global Carbon Cycle
Forests play a key role in the global carbon cycle, and they must
play a central role in efforts to slow and eventually halt human
contributions to climate change. Forty to sixty percent of the world's
land-based carbon is stored in forest reservoirs, and these natural
resources provide a critically important line of defense against carbon
emissions. Just when we need the world's forests the most--to remove as
much carbon dioxide from the atmosphere as they possibly can--our
forests are disappearing. Over the last 8,000 years, the world has lost
about half of its forest cover: \1\ the current rate of forest
destruction is estimated to be 32 million acres each year.\2\ In the
next 24 hours, deforestation at rates of about 100 acres a minute will
release as much CO2 into the atmosphere as would 8 million people
flying from London to New York.\3\ In recent years, forestry-sourced
emissions have accounted for about 20 percent of total global
emissions.\4\ The Intergovernmental Panel on Climate Change (IPCC)
estimates that land use change emissions, mostly from tropical
deforestation, released between 800 million and 2.4 billion metric tons
of carbon per year during the 1990s, and currently releases an
estimated 1,700 million tons per year.\5\ In the past, these emissions
represented anywhere from 10-25 percent of all global human-induced
emissions.\6\
---------------------------------------------------------------------------
\1\ Submission by the Governments of Papua New Guinea & Costa Rica,
``Reducing Emissions From Deforestation in Developing Countries:
Approaches to Stimulate Action,'' COP 11; available at http://
www.rainforestcoalition.org/documents/COP-11AgendaItem6-
Misc.Doc.FINAL.pdf.
\2\ Bryan Walsh, ``Getting Credit for Saving Trees,'' Time
Magazine; available at: http://www.time.com/time/magazine/article/
0,9171,1642887,00.html.
\3\ Cool Earth Action, http://www.coolearth.org.
\4\ Blue Climate, ``Expand Kyoto Clean Development Mechanism to
Include Deforestation?''; available at :http://www.blueclimate.com/
blueclimate/2006/11/expand_kyoto_cl.html.
\5\ Center for International Forestry Research, ``Reducing
Emissions from Deforestation''; available at: http://
www.cifor.cgiar.org/carbofor/highlights/reduce-emission.htm.
\6\ Submission by the Governments of Papua New Guinea and Costa
Rica, ``Reducing Emissions From Deforestation in Developing Countries:
Approaches to Stimulate Action,'' COP 11; available at http://
www.rainforestcoalition.org/documents/COP-11AgendaItem6-
Misc.Doc.FINAL.pdf; ``IPCC Special Report on Land Use, Land Use Change
and Forestry''; available at: http://www.grida.no/climate/ipcc/
land_use/index.htm.
---------------------------------------------------------------------------
When we lose our forests, the global environment takes a double
hit. First, the carbon that was being stored in forests is vented to
the atmosphere, adding to the man-induced increases in carbon emissions
that are causing climate change. This makes emissions from
deforestation and other land use changes comparable to global emissions
from petroleum, coal, or natural gas,\7\ and almost equal to all U.S.
emissions.\8\ Emissions from deforestation in Brazil and Indonesia
alone are equal to the entire reduction commitments of the Annex 1
countries of Kyoto Protocol during the Protocol's first commitment
period.\9\
---------------------------------------------------------------------------
\7\ Submission by the Governments of Papua New Guinea and Costa
Rica, ``Reducing Emissions From Deforestation in Developing Countries:
Approaches to Stimulate Action,'' COP 11; available at http://
www.rainforestcoalition.org/documents/COP-11AgendaItem6-
Misc.Doc.FINAL.pdf; ``IPCC Special Report on Land Use, Land Use Change
and Forestry''; available at: http://www.grida.no/climate/ipcc/
land_use/index.htm.
\8\ Katherine Ellison, ``Shopping for Carbon Credits,'' Salon.com;
available at: http://www.salon.com/news/feature/2007/07/02/
carbon_credits/index_np.html.
\9\ Center for International Forestry Research, ``Reducing
Emissions from Deforestation''; available at: http://
www.cifor.cgiar.org/carbofor/highlights/reduce-emission.htm.
---------------------------------------------------------------------------
Second, in addition to directly burdening the atmosphere with large
volumes of new carbon emissions, deforestation impairs or destroys many
of the goods and services that forests provide to both the environment
and to people. The Natural Capital Project, a joint project sponsored
by WWF, the Nature Conservancy and Stanford University's Woods
Institute for the Environment, has identified and is quantifying many
of these services, including protection of water supplies, the
generation of a wide variety of forest-related products, and the
promotion of recreation and tourism and cultural and aesthetic
values.\10\
---------------------------------------------------------------------------
\10\ See, e.g., http://naturalcapitalproject.org/toolbox.html#Life.
---------------------------------------------------------------------------
Reduced Emissions From Deforestation and Degradation Should and Will Be
Addressed as Part of the International Framework Convention on
Climate Change
Although forests play a central role in the carbon cycle, forestry
issues have played a limited role to date under the Kyoto Protocol.
There are sound, historical reasons why forestry is not a primary focus
of the existing Protocol. Specifically, in the leadup to the Kyoto
agreement, a number of countries, including the United States, were
arguing that the absorptive capacity of their carbon ``sinks'' should
reduce their obligations to mitigate emissions from other sources. WWF
objected to countries relying on existing forestry resources as a means
of avoiding having to reduce emissions from industrial sources, and WWF
played a significant role in limiting the role of forestry and land use
in establishing baselines under the Kyoto Protocol and in meeting
carbon emissions reductions required under the Protocol.
But the times and circumstances have changed and, WWF strongly
believes that forestry issues--particularly tropical deforestation and
degradation--must now be incorporated into the international framework
on climate change. The debate on forestry has moved from a discussion
revolving around the tactical use of forests to define emissions
reductions obligations to a recognition that deforestation is a major
source of carbon emissions that must be reduced in the first instance.
The science on this issue also has advanced significantly in the years
since Kyoto. Remote sensing technology and other scientific tools
enable us to better understand and calibrate the impact of the
deforestation and degradation that is occurring around the world.
Finally, unlike the Kyoto negotiations, developing countries are now
engaged in this issue and are asking that forestry resources be
incorporated into the international climate framework. As you know, the
Coalition for Rainforest Nations and other developing world nations
have advanced serious proposals which prompted the international
community, in the recent Bali discussions, to launch a new initiative
to integrate forestry issues into the international framework
convention on climate change.
Special Challenges Associated With Effectively Reducing the Rate of
Tropical Deforestation and Degradation
Although a consensus is emerging that tropical deforestation issues
must be addressed as a part of the international framework convention
on climate change, there are special challenges in designing an
initiative that will avoid tropical deforestation and in folding such a
plan into an international agreement and/or into domestic legislation.
First, the causes of deforestation and the degradation of forests
in developing countries are complex, and are not easily addressed
through financial transfers or short-term conservation efforts. The
problems of deforestation and forest degradation can only be
effectively addressed by acknowledging and systematically confronting
their underlying causes. The economic pressures to clear forests in
some developing countries are enormous. The short-term gains from
overharvesting can be irresistible, particularly when the economic
advantages of conducting sustainable forestry practices and the
marketing of forestry products may not be appreciated or, in some
cases, may not be feasible. Indigenous and forest-dependent people have
an enormous stake in these issues, and strategies to protect forests
cannot go forward without the full participation of the people who live
and work in forested areas. Indeed, the only forest protection strategy
that is likely to have long-term success is a strategy that
acknowledges the economic drivers at work and which promotes the
introduction of sustainable forestry practices on a global basis--work
that WWF has been pioneering for many years.\11\
---------------------------------------------------------------------------
\11\ See generally, the Center for International Forestry Research
Web site, http://www.cifor.cgiar.org/Research/ENV/Themes/SUF.
---------------------------------------------------------------------------
Second, while the science has improved, there remain serious
technical and methodological issues associated with monitoring and
measuring emissions from forestry resources. Measuring carbon stocks in
forestry resources is a complex undertaking. It is not amenable to the
same type of precision that can be achieved when documenting emissions
from point sources.\12\ Also, forests raise special challenges
regarding the ``permanence'' of carbon sequestration, given the dynamic
nature of forests, including different rates of tree growth and death,
periodic fires, etc. ``Leakage'' also is a special concern that poses
perhaps the most significant challenge in the forestry sector. If
deforestation is avoided in one area due, for example, to a project-
based investment in maintaining a particular forest, there may be a
risk that deforestation will simply occur in another, unprotected area.
Finally, the concept of avoided-deforestation--which is based on the
need to protect existing forestry resources--does not comport with the
usual test for demonstrating progress in reducing emissions--the
``additionality'' test which customarily measures ``additional''
reductions that would not otherwise have occurred against a preexisting
baseline.\13\
---------------------------------------------------------------------------
\12\ See, e.g., Zach Willey and Bill Chameides (ed.), ``Harnessing
Farms and Forests in the Low-Carbon Economy: How to Create, Measure,
and Verify Greenhouse Gas Offsets'' (Duke University Press 2007).
\13\ See generally, Mark Trexler, Derik Broekhoff and Laura
Kosloff, ``A Statistically-Driven Approach to Offset-Based GHG
Additionality Determinations: What Can We Learn?'' Sustainable
Development Law and Policy (Winter 2006).
---------------------------------------------------------------------------
WWF does not believe that any of these technical and methodological
issues are insurmountable. National baselines for deforestation rates,
for example, provide a promising means to address leakage and
permanence. Nonetheless, all of these issues present difficult
challenges in the forestry context; they must not be brushed aside. It
will take a large, well-organized, and concerted effort on these
technical issues to earn the credibility that must underpin major
investments in protecting the world's forests.
Third, as a related point, there is limited institutional capacity
in many developing countries to apply the type of new technologies and
methodologies that are needed to track and calibrate progress in
limiting deforestation and degradation. There is an enormous gap
between what is theoretically possible and on-the-ground capabilities
in many of the concerned nations, which are grappling with severe
economic and social challenges on many fronts.
The combination of these special challenges means that the
traditional approach for reducing greenhouse gas emissions is not
easily and readily applied in the tropical deforestation context. When
seeking to reduce emissions from other types of sources, financial
capital is typically invested in specific projects that generate
measurable and verifiable reductions in greenhouse gas emissions that
otherwise would not have occurred. These demonstrated reductions are
then traded on the carbon markets that have emerged under the Kyoto
scheme, and through the voluntary marketplace.
As explained above, concerns about measurement error, leakage,
additionality and permanence on a project-by-project basis can be acute
in the forestry context. Moreover, the typical notion of rewarding
efforts to reduce emissions that would otherwise occur does not fit
with the compelling need to maintain the status quo in terms of
protecting tropical forests that are threatened by conversion to
agriculture or other land uses. We must find ways for tropical forested
countries that have current low rates of deforestation and forests that
engage in sustainable forest management practices to participate in
future carbon markets. In addition to these forestry-specific
challenges, the broader questions about the environmental integrity of
``offset'' schemes, and their relationship with other emissions
reductions commitments, must be squarely confronted and addressed.\14\
---------------------------------------------------------------------------
\14\ See generally, David J. Hayes, ``Getting Credit for Going
Green: Making Sense of Carbon `Offsets' In a Carbon Constrained
World,'' Center for American Progress (March 2008). See also WWF
analysis of the operation of the CDM mechanism, http://
assets.panda.org/downloads/cdm_report_wwf_background_paper.pdf.
---------------------------------------------------------------------------
For all of these reasons, WWF believes that it is not appropriate
to simply assume that the model of investing in carbon reduction
projects, as implemented through the Clean Development Mechanism under
the Kyoto Protocol and other ``offset'' models, can or should be
applied in the international forestry context. WWF will be an active
participant in the international discussions following Bali, in which
alternative approaches will be discussed for how best to bring
forestry, and the deforestation and degradation issue in particular,
into the international climate framework. Concurrently, WWF will be
developing a portfolio of pilot projects within tropical forested
countries with current high rates of deforestation that will address
capacity building and the technical and methodological needs that have
been discussed in this testimony.
RECOMMENDATIONS
Multilateral Negotiations
Although the discussions on this subject remain in their early
stages in the international arena, a few observations that may be
helpful to this committee's consideration of this issue are in order--
particularly with regard to U.S. engagement on the tropical
deforestation problem.
First, the United States must be actively involved in post-Bali
efforts to address the tropical deforestation issue. Good ideas are
being put on the table. The Tropical Rainforest Coalition, for example,
has asked for the assistance of developed nations to ``support [forest
protection efforts] through capacity-building, research and
development, [and the] transfer of appropriate environmentally sound
technologies.'' The coalition also has expressed an openness to
consider a variety of alternative financing mechanisms to address the
deforestation issue.
A number of proposals are being floated, including the
Environmental Defense Fund's notion of ``compensated reduction'' under
which tropical countries would receive emissions allowances tradable in
the global carbon market based on a showing of ``real reductions'' that
have been proven to have taken place. EDF's proposed focus is on ``a
nation's entire forest system, not just individual projects, thereby
avoiding problems that have hindered consensus on forest issues.''
Also, some NGOs have suggested that the U.N. adopt a ``dual markets
approach'' under which a separate carbon market would be created in
which developed countries could invest in reducing deforestation in
developing countries in order to achieve a portion of their national
Annex I post-2012 carbon reduction targets.
Creating a dual market would address the concern that avoided-
deforestation credits could be given out too generously and without
adequate safeguards, thereby potentially disrupting the more carefully
constrained carbon market.\15\
---------------------------------------------------------------------------
\15\ See, e.g., Center for Clean Air Policy, ``Reducing Emissions
from Deforestation and Degradation: The Dual Markets Approach'' (August
2007), http://www.ccap.org/international/FINAL%20REDD%20report.pdf. See
also, Greenpeace, ``Tropical Deforestation Emission Reduction
Mechanism: A Discussion Paper'' (December 2007), http://
www.greenpeace.org.uk/files/pdfs/forests/tderm-funding-mechanism.pdf.
---------------------------------------------------------------------------
Other proposals focus on the creation of a global avoided-
deforestation fund or funds, financed by governments and/or the private
market, which would be applied toward avoided-deforestation and
sustainable forestry initiatives, including capacity building and the
development of a technical information needed to assess progress.
The United States should be an active participant in the
international discussions addressing all of these approaches.
U.S. Legislative Proposals Addressing Forestry and Climate
Capacity-building; Technical and methodological support
As noted above, WWF supports the Lieberman-Warner bill's
establishment of an Emission Allowance Account ``for use in carrying
out forest carbon activities in countries other than the United
States.'' This allocation can generate some of the funding that is
needed to address the technical and methodological gaps, and the
institutional limitations, discussed above. Such funding should be
coordinated with the work of other governments and NGOs who are
actively engaged in addressing these issues.
In addition to the proposed Lieberman-Warner funding mechanism, WWF
urges this subcommittee to consider providing foreign assistance
funding from other programs that are under its jurisdiction (including
USAID program assistance, for example) to address urgent needs
presented by global deforestation. Many agencies of the United States
Government are involved in trade and development issues that directly
or indirectly affect tropical deforestation. WWF urges the subcommittee
to request the administration to identify and coordinate these
activities, so that the U.S. can maximize its efforts to reduce the
massive greenhouse gas emissions that are being caused by
deforestation.
Application of carbon markets and other financial
INCENTIVES TO FORESTRY RESOURCES
As discussed above, WWF also believes that there is an important
role for the carbon market to play in addressing this issue. For the
reasons discussed above, however, it is important not to prejudge the
nature and scope of that involvement. Neither the U.S. nor any other
developed nation should presume what type of approach will be
acceptable and/or desirable from the perspective of the developing
nations that are facing the on-going challenge of deforestation and
forest degradation.
In that regard, the Lieberman-Warner international forestry title's
indication that EPA should ``recognize credits from forest carbon
activities,'' while also encouraging EPA ``to identify other
incentives, including economic and market-based incentives, to
encourage developing countries with largely intact native forests to
protect those forests'' leans in an appropriate direction. The
legislation, however, would benefit from more explicit instructions to
EPA to develop options for crediting forest protection activities in
coordination with post-Bali discussions that are occurring on an
international level. EPA should be directed to work with interested
parties, including scientists, industry representatives, NGOs, and
others, to identify and/or develop workable technical and
methodological approaches for measuring carbon stocks in various types
of forests, and in defining and accounting for carbon impacts
associated with engaging in sustainable forestry practices in tropical
forests. Guidance also should be developed for addressing the
permanence, leakage additionality issues discussed above.
Other policy initiatives to address international
DEFORESTATION AND CLIMATE CHANGE
While much of the discussion on forestry and climate change
currently taking place among policymakers centers on a post-Kyoto
multilateral framework and specific U.S. cap-and-trade legislation such
as S. 2191, it is important to recognize the multitude of other efforts
taking place to address forestry conservation, and their role in
addressing climate change.
Legislatively, for example, Congress can and should reauthorize the
Tropical Forest Conservation Act, which provides for debt-for-nature
swaps for certain countries and eligible debt, and which is under the
jurisdiction of the Foreign Relations Committee. This program can play
an important role in forest conservation as it relates to climate
change through the development of a debt-for-carbon program for
forestry conservation. Congress also is considering amendments to the
Lacey Act to prohibit imports into the U.S. of timber products
comprised of illegal timber. Prohibitions like this, which address the
demand side, provide an implement complement to conservation efforts
that focus on supply side. Likewise, a number of Free Trade Agreements
with developing countries rich with tropical forests--including Peru,
Columbia, and Malaysia--may soon come before the Senate. How forestry
conservation and technology are handled in those FTAs may have a strong
bearing on forestry conservation in the context of climate change.
The U.S. also can take additional steps administratively to promote
forestry conservation practices. The U.S. recently entered into a
bilateral agreement with Indonesia on forestry conservation, and is
currently negotiating a Memorandum of Understanding with China, through
the Strategic Economic Dialogue, on timber trade. These agreements can
create important opportunities for collaboration to address
deforestation and forest degradation. USAID also can and should explore
its financial assistance framework and funding priorities in the
context of climate change. Much of its biodiversity work ($195 million
in FY 2009) focuses on forestry conservation. These activities should
be evaluated with an eye toward mitigating greenhouse gas emissions,
and adapting to a changing climate.\16\ In sum, WWF encourages this
subcommittee to utilize its full jurisdiction in exploring ways to
address deforestation and climate change.
---------------------------------------------------------------------------
\16\ In August 2007, USAID published ``Adapting to Climate
Variability and Change: A Guidance Manual for Development Planning,''
which also can be used in considering how best to fund forestry
conservation projects for climate change.
---------------------------------------------------------------------------
CONCLUSION
WWF thanks the subcommittee for holding a hearing on the critically
important topic of reducing emissions from deforestation and
degradation, and for inviting WWF to testify on the subject. WWF looks
forward to continuing to work with the subcommittee, and with the full
Committee on Foreign Relations, on this vitally set of important
issues.
Senator Menendez. Thank you, Mr. Hayes.
Dr. Gurney.
STATEMENT OF DR. KEVIN GURNEY, ASSOCIATE DIRECTOR, PURDUE
CLIMATE CHANGE RESEARCH CENTER (PCCRC), PURDUE UNIVERSITY, WEST
LAFAYETTE, IN
Dr. Gurney. I would like to thank Senator Menendez and
other members of the Senate subcommittee for inviting me here
today to testify on matters of deforestation and climate change
within the context of U.S. domestic policy and the
international policy regime. I particularly thank Senator Lugar
for his opening statement and including the Vulcan Project in
his comments. It was an unexpected but pleasant surprise.
The topic of deforestation within the broader umbrella of
climate change policy intersects in complex ways with a number
of scientific disciplines, including climate science,
biogeochemistry, and ecological sciences. My written submission
and comments today are an attempt to clarify some of these key
intersections and, in doing so, assist the policy process as it
considers deforestation as an element in greenhouse gas
mitigation strategies.
Deforestation is one of many carbon fluxes or transfers
between the earth's surface and the atmosphere. After
accounting for fossil fuel incident production emissions of CO2
into the atmosphere and taking into account the now well-
quantified removal of CO2 from atmosphere by the oceans, the
net exchange with the land-based biosphere remains a poorly
understood portion of the overall budget. When satellite remote
sensing is combined with ground-based observations and
biosphere models, it is estimated that land use change,
currently dominated by tropical deforestation, emits an amount
of CO2 equivalent to one-quarter of that emitted by fossil fuel
sources alone. This estimate, however, is not well quantified.
It varies by almost 69 percent.
Furthermore, in order to complete the atmospheric budget,
the total of which is well constrained by precise atmospheric
measurements, a large removal process must be at work. This
removal process, which you can think of as sequestration or
uptake, is understood to be occurring in the land-based
biosphere and is removing almost one-third of the combined
fossil and deforestation emissions. Originally referred to as
the missing sink, which is a play on the phrase ``the missing
link,'' this removal is now generally referred to as the
residual flux.
The reason I bring up this seemingly arcane piece of
biogeochemistry is that this uptake is at work in many places,
even in intact, mature tropical forests, the same forest
regions that are under threat from deforestation.
From the atmosphere's point of view, which is the point of
view central to climate change, the total net flux emerging
from tropical forests, which is the sum of deforestation and
atmospheric removals, is what climate science ultimately must
know. The distinction between these two fluxes is, therefore,
somewhat misleading in that the estimated magnitude of one--
deforestation, for example--is actually dependent upon the
estimated magnitude of the other.
From the ecological perspective, however, the distinction
between deforestation and residual flux uptake is crucial, as
deforestation is distinct in its implications for biodiversity,
regional climate, regional hydrology, and habitat. Tropical
deforestation has emerged within the climate change policy
discussions for a number of reinforcing reasons. It is a
significant component of the overall net land-atmospheric flux
and it is often the dominant source of greenhouse gas emissions
for many tropical developing countries. For example, 84 percent
of Indonesian greenhouse gas emissions in 2000 were due to
deforestation. For Brazil, this number was 62 percent; for
Malaysia, 81 percent. In terms of strict mitigation
considerations, the deforestation flux is the first point of
consideration for these and many other tropical countries.
Deforestation has gained added momentum within the
international negotiations due to the importance this topic
holds for many other stakeholder communities such as those
focused on biodiversity, cultural concerns, and socioeconomic
interests. A number of proposals have been put forth on how to
structure deforestation emission reduction targets within the
international regime, and pending domestic legislation reflects
this structure, for example, Senate bill 2191. Many suggest a
baseline against which progress can be measured, recognize the
need to create incentives for deforestation reductions, and
have varying degrees of financial reward for selling credits
accrued through deforestation rate reductions.
The most obvious scientific question that emerges as these
policy options are considered is the ability to accurately
measure and monitor deforestation fluxes. Attempts have been
made to quantify the level of uncertainty associated with
deforestation carbon emissions. At the regional scale, such as
for the Brazilian Amazon, these estimates are conservatively
estimated to be on the order of 50 percent. Attempts to project
what these uncertainties may be in a few years suggest a
lowering to 16 percent. However, there are key caveats to these
values and these caveats could, indeed, increase the present
and future values of uncertainty in significant ways.
It is important to note that the satellite measurement
component of these uncertainties is typically the most
accurate. Biomass estimation, forest structure, and other
ground-based elements are the most uncertain and the most
difficult to improve.
The measurement difficulty emerges again when considering
the establishment of baselines to measure deforestation
progress because historical data is less comprehensive and
accurate and current measurements establishing historical
baselines is potentially error-prone. A series of additional
difficulties emerge such as the considerable variations in
deforestation fluxes from year to year, some initiated by
processes beyond human control, the difficulties associated
with additionality, the continuing concern over leakage, the
recognition of forest degradation as a significant contributor
to the total deforestation flux, and the challenges of
verifying reported fluxes using independent techniques.
These difficulties should not be construed as either
insurmountable or a reason to delay consideration of policy
options for crediting deforestation reductions. It is merely to
establish what the current capabilities and knowledge are on
this topic so that prudent policy choices can be made and
policies structured with designed flexibility to progress as
scientific knowledge improves.
Whether or not current scientific knowledge is sufficient
to support the current policy goals under discussion rests to a
great degree on the implicit policy priorities. If the net
radiative forcing of deforestation emission reduction is
paramount, the current science on the net impact of
deforestation on the atmosphere may be too limited and too
uncertain to adequately support the aims of current proposals.
If primacy is placed on tropical forest preservation, the
potential cobenefit of lowered greenhouse gas emissions may not
require a high level of scientific certainty and emphasis
should be placed on those aspects that assess the phenomenon of
deforestation with perhaps less emphasis on the net associated
greenhouse gas emissions.
Thank you very much, Mr. Chairman. That concludes my verbal
testimony to this subcommittee.
[The prepared statement of Dr. Gurney follows:]
Prepared Statement of Dr. Kevin Robert Gurney, Associate Director,
Purdue Climate Change Research Center (PCCRC), Purdue University, West
Lafayette, IN
This statement presents an overview of tropical deforestation
within global carbon cycle science and how this science intersects with
current and future policy. It begins by setting the large-scale
features of carbon exchange followed by a more specific treatment of
tropical deforestation. This scientific understanding is then placed
within the context of current international policy discussions on
deforestation reduction credits and potential U.S. policy with similar
aims. I will review the relevant scientific knowledge in support of the
proposed policy goals, highlighting uncertainties and scientific
challenges.
THE CONTEXT
The Global Carbon Cycle
The current budget of carbon dioxide (CO2) within the Earth's
atmosphere continues to present challenges to quantification,
particularly the portion that involves exchange between the terrestrial
biosphere and the atmosphere. Table 1 presents the Intergovernmental
Panel on Climate Change's (IPCC) recent review of the global carbon
budget for the decade of the 1990s.1,2 The most precise
budget element is the increase in atmospheric carbon. This increase
amounts to 3.2 billion tonnes of carbon each year or 3.2 ``GtC/y.'' \3\
The emission of fossil fuel-derived carbon and that due to cement
production is also relatively well-known at 6.4 GtC/y. Recent research
into ocean exchange has improved that portion of the budget (an uptake
of -2.2 GtC/y), leaving a final term in the budget: The net land-
atmosphere exchange which amounts to global net uptake of -1.0 GtC/y.
You will note that the confidence regarding the magnitude of these
large net fluxes around the planet increases, with the last term having
an uncertainty of over 50 percent (a one sigma uncertainty).
TABLE 1.--IPCC REVIEW OF THE GLOBAL CARBON BUDGET IN UNITS OF GtC/YEAR WITH ONE SIGMA UNCERTAINTY ESTIMATES
--------------------------------------------------------------------------------------------------------------------------------------------------------
1980s 1990s
---------------------------------------------------------------------------- 2000-2005
TAR TAR revised TAR AR4 AR4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Atmospheric increase.......................................... 3.3 3.3 3.2 3.2 4.1 0.1
Emissions (fossil+cement)..................................... 5.4 5.4 6.4 6.4 7.2 0.3
Net ocean-to-atmosphere flux.................................. -1.9 -1.8 -1.7 -2.2 -2.2 0.5
Net land-to-atmosphere flux................................... -0.2 -0.3 -1.4 -1.0 -0.9 0.6
Partitioned as follows:
Land use change flux........................................ 1.7 1.4 n.a. 1.6 n.a.
(0.6 to 2.5) (0.4 to 2.3) (0.5 to 2.7)
Residual terrestrial sink................................... -1.9 -1.7 n.a. -2.6 n.a.
(-3.8 to -0.3) (-3.4 to 0.2) (-4.3 to -0.9)
--------------------------------------------------------------------------------------------------------------------------------------------------------
It is this last term, the net exchange between the global
terrestrial biosphere and the atmosphere, that is of particular
relevance to tropical deforestation, climate change and policies aimed
at their amelioration.
The net land-atmosphere exchange is commonly defined as having two
very important parts:
(1) The ``land-use change'' flux, and
(2) The ``residual'' flux.
The first is an amount of carbon emission that is associated with
readily observable phenomena at the surface and is nearly synonymous
(in modern times) with tropical deforestation. This emission has an
estimated magnitude for the 1990s of 1.6 GtC/y but with a large,
uncertain range (0.5 to 2.7 GtC/y). This value is at the core of the
oft-cited comment that tropical deforestation accounts for
approximately 20 percent of global carbon emissions. However, it is
worth noting that this is a poorly known quantity and more correctly
ranges from 6 percent to 32 percent of global emissions.
The residual flux, as it's name implies, is the uptake necessary to
balance the well-constrained total budget. It is a phenomenon of
considerable scientific research and profound importance to climate
change and climate change policy.\4\ It is a very uncertain flux
ranging from -4.3 to -0.9 GtC/y and it's magnitude is directly tied to
the estimated magnitude of tropical deforestation. Were the estimated
tropical deforestation to increase, the residual uptake would also
increase (a larger net uptake value) in order to maintain the same
total global budget.
A series of hypotheses have been posited to explain this residual
flux and include a combination of CO2 fertilization, nitrogen
fertilization, climate variability/change, and human management with
the mixture differing from place to place. It must be remembered that
all net terrestrial biosphere fluxes are the balance of very large
gross fluxes of over 100 GtC/y, due to the seasonal ``give and take''
of photosynthesis and respiration. Hence, isolating this residual flux
is akin to searching for a ``needle in the haystack.''
The separation of the net land-atmosphere exchange (into parts (1)
and (2) above) is, in some ways, an intellectual convenience. Many of
the processes in (2) above are thought to occur simultaneously with
those in (1). For example, there is research that suggests net carbon
uptake is occurring in mature, intact tropical forests. The implication
is that countries with large tropical forests may have both
deforestation and net uptake (CO2 fertilization, N fertilization, etc.)
occurring within national boundaries.
This distinction goes beyond simple academic curiosity. The
atmosphere ``sees'' the total net flux--this is what drives the
additional greenhouse gas forcing due to this large component of the
atmospheric carbon budget. A portion of climate change forcing is due
to deforestation. However, it appears that there are countervailing
processes ameliorating the full carbon impact of the deforestation
emissions.
In addition to carbon emissions from tropical deforestation and the
resulting addition to atmospheric CO2, tropical forests have a number
of key interactions with the climate system that are poorly understood
but recognized as being important at the large scale. For example,
tropical forests act as crucial mediators of radiation transfer and
water exchange between the tropical land regions and the atmosphere.
Recent research has shown that large-scale deforestation/afforestation
can have a cooling/warming influence of measurable magnitude relative
to projected climate change.\5\ Furthermore, the impact of
afforestation in the tropics is one of cooling while high latitude
afforestation exacerbates climate warming.
There is also research that indicates potential feedbacks between
climate and forest function.\6\ For example, changes in forest cover
could cause changes in local climate, particularly drying and warming
resulting in a shift toward savannah or grassland ecosystems. This
shift would transfer potentially large amounts of carbon to the
atmosphere and act as a positive feedback between climate change and
tropical forest integrity.
It is important to keep in mind that this is a view of tropical
forests that is necessarily from the climate science perspective.
Tropical forests have additional importance when viewed from
ecological, social, and economic perspectives. Policy options may
include these other perspectives.
Tropical Deforestation
The current estimates for tropical deforestation at the regional
scale are arrived at through a variety of techniques such as satellite
remote sensing, ground surveys, aircraft, flux towers, model estimation
and inverse approaches. Many of these are used in combination, with
each having particular strengths and weaknesses. When ordered by their
carbon emissions magnitude (for the decade of the 1990s), the IPCC
estimates the large tropical regions as follows:
Tropical Asia: 0.8 GtC/y (0.4 to 1.1)
Tropical America: 0.7 GtC/y (0.4 to 0.9)
Tropical Africa: 0.3 GtC/y (0.2 to 0.4)
When viewed next to the decade of the 1980s, all regions have
exhibited increases in total deforestation carbon emission, though
uncertainty is large. When examined as a year-to-year phenomenon,
large-scale deforestation emissions exhibit considerable variability.
For example, the Brazilian space agency has estimated the year-to-year
variations in deforestation emissions to be as high as 30 percent.\7\
At the individual country-level, the importance of deforestation as
a share of total national emissions varies substantially among tropical
countries. Table 2 lists many of the top greenhouse gas (GHG) emitting
countries with the land-use, land-use change share quantified
separately. Tropical countries are shown in italic.
TABLE 2.--RANKED GHG EMISSIONS FOR THE YEAR 2000 WITH THE LULUCF
COMPONENT ISOLATED \8\
------------------------------------------------------------------------
LULUCF LULUCF Percent
(MtC eq) a (MtC eq) b LULUCF
------------------------------------------------------------------------
USA.............................. 1779.7 -110.0 6
China............................ 1336 -12.9 1
EU (25).......................... 1280.8 -5.7 0.4
Indonesia........................ 834.5 699.5 84
Brazil........................... 604.4 374.5 62
Russia........................... 538.4 14.7 3
India............................ 490.5 -11.0 2.2
Japan............................ 365.1 1.2 0.3
Malaysia......................... 237 190.8 81
Canada........................... 201.9 17.6 9
Mexico........................... 165.8 26.4 16
South Korea...................... 143.7 0.4 0.3
Ukraine x........................ 141 0.0 0.0
Myanmar.......................... 138.6 116.1 84
Australia........................ 135.3 1.2 0.9
Iran............................. 122 2.3 1.9
South Africa..................... 113.1 0.5 0.4
Venezuela........................ 104 39.3 38
Turkey........................... 102.8 5.7 5.5
Dem. Rep Congo................... 100.7 86.6 86
Zambia........................... 69.1 64.3 93
------------------------------------------------------------------------
a ``MtC eq''--million metric tons of carbon equivalent.
b Negative numbers indicate net uptake.
x No CH4 or N2O.
The majority of the tropical countries have deforestation (which is
nearly identical to LULUCF in these countries) as the dominant source
of overall greenhouse gas emissions to the atmosphere. These numerical
facts indicate why tropical deforestation has emerged as a top priority
within the climate policy regime: Deforestation is large in the
absolute global sense and it is often the dominant form of greenhouse
gas emissions for many developing countries.
Current Policy Consideration
The current emphasis within the international climate change policy
realm is on constructing a post-2012 commitment structure in which all
countries, including those in the developing world, would enter into
some form of emission mitigation agreement. Because of the preceding
analysis, the renewed interest in incorporating the developing world in
future agreements, and the many dimensions of tropical forests,
tropical deforestation has figured prominently in this discussion and
is now taking a central role in international negotiations.
Furthermore, because of lengthy discussion of deforestation in the
negotiations around the first commitment period of the Kyoto Protocol,
there is broad interest in structuring deforestation mitigation targets
at the national level as opposed to the project or plot-scale.\9\
A number of proposals have been put forth on how to structure
deforestation emission reduction targets. All of these proposals, with
one exception (to be discussed later), require determining some form of
baseline for deforestation against which a target can be compared.
These baselines can be constructed as historical averages or as
projections into the future along a ``business as usual'' trajectory.
Therefore, effort at reducing deforestation, below either the
historical or projected baselines, constitute legitimate reduction
effort.
Many of the proposals also recognize the need to create incentives
for deforestation reductions and have varying degrees of financial
reward for selling credits when countries exceed certain mitigation
thresholds. The supply of financing for these reductions are expected
to come under a trading regime in which countries that face high
mitigation costs purchase lower cost deforestation credits and thereby
meet emission reduction goals.
Similarly, Senate bill 2191 (America's Climate Security Act of
2007), proposes mechanisms whereby the United States would allow a
certain percentage of domestic mitigation to be met by ``carrying out
forest carbon activities in countries other than the United States.''
Both the international proposals and S. 2191 intersect in critical
ways with the current scientific knowledge on deforestation and the
carbon cycle.
CRITICAL SCIENTIFIC ISSUES
Measurement Uncertainties
A recent study attempted a review of deforestation uncertainties
when combining a cluster of measurement techniques at the national
level.\10\ The authors conclude that current quantification of
deforestation credits at scales approaching the national level (the
estimate was prepared for the Brazilian Amazon), to be almost 50
percent (2 sigma interval). This uncertainty accounted for current
satellite capabilities, above-ground biomass, dead biomass, and below-
ground biomass estimation. The authors note that though seemingly
large, this level of uncertainty is not fundamentally different from
those recognized for the non-CO2 greenhouse gases, methane, and nitrous
oxide, within current Annex I accounting.
It is also important to note that this estimate does not explicitly
include the difficulties associated with forest degradation and the
spatial variability of biomass. Forest degradation is the loss of
biomass and carbon within a forest system while still maintaining a
sufficient forest canopy such that an area does not fall into a
deforested category. Degradation is notoriously difficult to measure
remotely and is estimated to constitute, for example, 2-25 percent of
deforestation in the Brazilian Amazon. The variability of biomass is
also a poorly quantified component of tropical forest inventories and
similarly could increase this uncertainty should variation occur at the
regional scale.
The same study attempted to estimate future improvements in this
uncertainty estimate and came to the conclusion that expected
improvements in remote sensing and an anticipated halving of
uncertainty in ground-level survey data would bring this uncertainty
down to 16 percent. Once again, however, degradation and the spatial
variability of biomass could potentially increase this uncertainty
depending upon how much degradation occurs.
Baselines
Many of the current international proposals under consideration in
addition to S. 2191, borrow the precedent established in the first
commitment period of the Kyoto Protocol for industrial emissions:
Recommending deforestation reductions relative to a historical
baseline. Some proposals suggest that deforestation mitigation be
measured against a projected business as usual trajectory. From a
scientific perspective, the biggest challenge is the establishment of a
historical level of deforestation emissions given the fact that data
availability and quality decreases as one moves back through the decade
of the nineties and the eighties. The uncertainty associated with
establishing a historical baseline can have implications for the
functioning of an international trading regime. Should a baseline be
set at a level mistakenly higher than actual deforestation levels,
deforestation levels could potentially increase while at the same time
offering up undeserved credits and leading to a net increase in
atmospheric CO2. Should a level be set lower than actual deforestation,
developing countries could find themselves having to purchase credits
to cover their shortfall.
Isolating Deforestation or Not?
Many of the techniques used to assess tropical deforestation are
better suited, or result in less uncertainty, when used to estimate the
total net flux between regional forest and the atmosphere. Inverse
techniques, flux towers, and modeling efforts are less robust at
isolating the deforestation component of the total net land-atmosphere
exchange. Furthermore, as highlighted in the opening section of this
paper, assessment of the total net land-atmosphere flux avails of the
large-scale mass constraint of the global budget.
Furthermore, the recognition that there is significant net uptake
occurring in intact mature tropical forests will raise the possibility
that developing tropical countries may wish to include that uptake in a
national baseline estimate or target. There is precedent within the
Kyoto Protocol for such net accounting and there is no reason to
believe that it will not be an expectation for accounting in the
tropical forest regions.
This will raise a series of additional scientific/technical
questions, however. An attempt to fulfill a ``full carbon accounting''
system requires significant institutional and technical capacity in
addition to placing pressure on fundamental improvements in
understanding the current residual flux.
Unforeseen Events/Interannual Variability
Related to the previous issue of whether to isolate deforestation
reductions as the creditable component or include other forest
processes, is the issue of what constitutes a direct anthropogenic
deforestation activity. For example, observational evidence indicates
that strong El Nino/Southern Oscillation (ENSO) events are associated
with biospheric carbon loss in many tropical land regions. In the 1997/
1998 ENSO event, much of this carbon loss in Tropical Asia was
associated with fire. Estimates indicate that roughly 0.8 to 2.6 GtC/
year were emitted during the ENSO period due to fires, initiated by
human activity, that in normal years would not cause significant carbon
emissions. In the dry ENSO time period, these normally controllable
fires grew to significant size, burning through deep peat forest land.
This event also highlights the fact that both deforestation and the
total net tropical land-atmosphere flux has significant variability.
These variations can occur on timescales of a few years and remain a
topic of considerable scientific research, as alluded to in the
introductory section of this paper.
Permanence, Additionality, Leakage, Verification
Both the international and domestic policy discussions raise a
series of methodological issues that have direct scientific
implications. All recognize the need for any biospheric crediting
mechanism to attend to each of these important issues. They were
discussed at length during the negotiations leading up to the
finalization of the Marrakech Accords and have continued to be
important issues as the negotiations consider a post-2012 policy and
U.S. domestic legislation considers including tropical deforestation
credits as a component of national greenhouse gas mitigation targets. A
short definition of each is as follows:
Permanence: The need to maintain and continuously guarantee the
integrity of sequestered or set-aside carbon stocks.
Additionality: The need to ascertain what is considered an activity
(altered deforestation trajectory, sequestering carbon activity, etc.)
additional to what would have occurred without climate policy.
Leakage: The movement of deforestation from an area or country with
a deforestation mitigation target to an area or country without such a
limit. National targets are a recognized improvement over project or
plot-level efforts but may still exhibit leakage should policies not
apply across the tropical forest countries.
Verification: Given the current measurement and monitoring
challenges, what viable verification opportunities are there for
deforestation?
Degradation: An important, but difficult to quantify, portion of
tropical forest demise.
CONCLUSIONS
The quantification of tropical deforestation carbon emissions is
intricately tied to the global carbon cycle due to the fact that it
remains closely linked to the overall net land-atmosphere flux. The
scientific understanding of tropical deforestation carbon emissions
over scales larger than the plot level continues to evolve. Research
has shown that in addition to tropical deforestation emissions,
tropical forest regions are also likely sequestering carbon in intact,
mature forests. This has significant implications for policy approaches
that link reduced deforestation to an international carbon market.
Measurement and monitoring uncertainties remain substantial and
have been estimated to be almost 50 percent at the scale of the
Brazilian Amazon. Degradation and the spatial variability of biomass
content may further increase this estimation uncertainty. Though there
is an expectation that this uncertainty will fall due to improvements
in satellite remote sensing capabilities and better ground surveys,
whether or not these uncertainty reductions are sufficient to support
policy goals remains difficult to assess.
A series of additional difficulties persist in the scientific
discussions on this topic. These include the ability to establish
unbiased baselines, the difficulties of large interannual variability
and unforeseen events, biospheric carbon permanence, additionality,
leakage, verification, and the challenges of including forest
degradation.
Whether or not current scientific knowledge is sufficient to
support the policy goals being discussed for international policy and
U.S. legislation, rests to a great degree on the implicit policy
priorities. If the net radiative forcing of emission mitigation, be
they industrial or biospheric, is paramount, the current science on the
net impact of deforestation on the atmosphere may be too limited and
too uncertain to adequately support the aims of current proposals. If
tropical forest preservation is a priority, the potential cobenefit of
lowered greenhouse gas emissions may not require a high level of
scientific certainty and emphasis should be placed on those aspects
that assess the phenomenon of deforestation with less emphasis on the
net associated greenhouse has emissions.
----------------
References
\1\ Denman, K.L. et al., Couplings Between Changes in the ``Climate
System and Biogeochemistry in Climate Change 2007,'' The Physical
Science Basis, contribution of Working Group I to the Fourth Assessment
Report of the IPCC, 2007.
\2\ ``Carbon'' as opposed to ``carbon dioxide (CO2)'' is the common
unit used by biogeochemists in tracing the many parts of the earth
system that influence atmospheric levels of CO2. A unit of carbon is
equivalent to a unit of CO2 x (12/44).
\3\ The atmosphere currently holds roughly 760 GtC of which roughly
200 have been added since the onset of industrialization.
\4\ The mechanisms responsible for the residual flux and their
evolution in the future is a first-order uncertainty in climate change
projections.
\5\ See recent research by Bala, G. et al., Proceedings of the
National Academy of Sciences, 104 (16): 655-6555.
\6\ See Oyama M.D. and C. Nobre (2003), Geophysical Research
Letters, 30 (23).
\7\ Instituto Nacional de Pesquisas Espaciais (INPE) (2005)
Monitoring deforestation in the Amazon from space, available at
www.obt.inpe.br/prodes/.
\8\ This data comes from World Resources Institute's Climate
Analysis Indicators Tool
(http://cait.wri.org. While the absolute magnitudes contain
uncertainty, the purpose here is to establish relative magnitudes and
an ordinal relationship.
\9\ Papua New Guinea and Costa Rica proposed to include addressing
emissions from deforestation under the Climate Convention using a
national emissions approach.
\10\ Persson U. and C. Azar (2007), ``Mitig Adapt Strat Glob
Change,'' 12:1277-1304.
______
APPENDIX A: THE ``PRESERVATION PATHWAY'' APPROACH
A recent proposal attempts to avoid some of the aforementioned
technical difficulties, particularly those associated with estimating
baselines.\1\ The approach, called ``Preservation Pathway'' combines
the desire for forest preservation with the need to reduce emissions
associated with forest loss by focusing on the relative rate of change
of forest cover as the criteria by which countries gain access to
trading preserved forest carbon stocks. This approach avoids the
technically challenging task of quantifying historical or future
deforestation emission baselines. Rather, it places emphasis on
improving quantification of contemporary stocks and the relative
decline in deforestation rates necessary to preserve those stocks. This
approach places emphasis on the complete emissions trajectory necessary
to attain an agreed-upon preserved forest and as such, meets both
forest conservation and climate goals simultaneously.
---------------------------------------------------------------------------
\1\ Gurney, K.R. and L. Raymond (2008), ``Carbon Balance and
Management,'' 3(2), doi:10.1186/1750-0680-3-2. A copy is included as an
attachment.
[Editor's note.--The publication mentioned above could not be
reproduced in this printed hearing. It will be retained in the
permanent record of the committee. It can also be obtained at http://
---------------------------------------------------------------------------
www.cbmjournal.com/content/3/1/2.]
Senator Menendez. Well, thank you, Dr. Gurney.
Mr. Forrister.
STATEMENT OF DIRK FORRISTER, MANAGING DIRECTOR, NATSOURCE LLC,
WASHINGTON, DC
Mr. Forrister. Mr. Chairman and distinguished members of
the subcommittee, it is a pleasure to join you today to discuss
the potential for the emerging greenhouse gas markets to play a
role in addressing the problem of deforestation.
I am speaking to you today from a long history of
involvement in the climate change policy debate. Earlier in my
career, I served as counsel over on the House side to
Congressman Jim Cooper of Tennessee who became interested in
carbon trading policies in the late 1980s. He believed that a
market-based approach to climate mitigation could attract
bipartisan support in favor of legislation. Unfortunately, it
has taken a little longer than we envisioned at that time.
Back in the early 1990s, the primary examples of carbon
offset activity were forest offset projects in the
international arena that were sponsored by companies like AES,
New England Electric, and the Los Angeles Department of Water
and Power. It is interesting to me that these pioneering
efforts have since been overtaken by a much larger global
industry that has focused much more on other forms of carbon
abatement than forestry. I recently returned to the United
States after spending 5 years in my company's London office
where I watched firsthand, as the global carbon market took
off, and participated in the development of that market.
So today I am appearing before you as a businessman on
behalf of 179 members of the International Emissions Trading
Association. These companies are all active in the
international carbon market. The association includes industry
and industrial giants like AEP, Duke, PG&E, AES, Shell,
Chevron, DuPont, and Dow. It also includes many of the world's
leading financial institutions like Merrill Lynch, Citibank,
Goldman Sachs, J.P. Morgan, and Morgan Stanley. There are also
a few of the smaller firms like the Chicago Climate Exchange
and Natsource--my company--who participate as a part of this
membership. And I do think the IETA membership is the backbone
of today's carbon market.
My company, Natsource, is active in this market as a fund
manager. We are relatively small. We manage approximately $1.2
billion in assets. These assets are entrusted to us on behalf
of companies that are seeking compliance with laws for whom we
build portfolios of credits from the clean development
mechanism and the joint implementation mechanism of the Kyoto
Protocol, and we also work on behalf of investors who seek
financial returns from these markets.
My company has invested in both U.S. and international
forestry projects, but these investments are quite small. They
represent less than 1 percent of the purchases we have made. I
describe these projects in my written testimony. One of them is
an afforestation project in Chile, and the other is an avoided-
deforestation project in California that we are investing in,
believing that it may comply with the California emissions
trading law.
So what I am here to discuss today is how we could tilt our
investment so that we could potentially invest even more in
carbon sequestration. We and other members of IETA believe that
the market should be able to invest in a much larger degree in
this sector, but the reasons we do not are quite sensible. It
is because the policy environment is not favorable enough to
encourage us to go into forestry investments.
And I will describe precisely why that is. Maybe I will
start with the grounding of the type of policy that IETA
supports in the emissions trading arena.
First of all, the membership is united in our belief that
markets are the most efficient way to address climate change
and that free markets will ensure that scarce resources are
deployed in a way that achieves the maximum amount of emission
reductions at the lowest possible cost. We support policies
that use allowance trading for covered sources but also allow
the import of project-based offsets from facilities outside the
capped entities. And we believe that the use of these offsets
should be free and unlimited and that this could deliver
significant cost savings to the U.S. economy in particular.
We are already watching as in the international arena it is
reducing compliance costs. The most recent numbers I could get
my hands on were from 2006. We should have full 2007 data soon.
But in 2006, European allowance prices averaged right around
$22 a ton, and during that same period you could buy
international offsets for less than $11 a ton. So it does
demonstrate a pretty dramatic cost savings that is evident from
use of offsets.
I think EPA's recent analysis of the Lieberman-Warner
legislation also bears this out. They have estimated that
unlimited use of international and domestic offsets could
reduce allowance prices by over 70 percent below the prices in
the current bill. Our industry thinks those kind of savings are
worth fighting for.
We also believe that given the magnitude of the challenge
posed by climate change, that a full range of policy tools
should be used and that greenhouse gas markets are just one
tool among many that could be valuable in this fight. That
said, it is the most successful tool used on the globe to date
for mobilizing capital into climate protection.
We do believe that environmental integrity matters on
offset projects but that there are rules that can be utilized
to ensure environmental integrity and offsets, particularly in
the area of sequestration.
The way this market has developed, I think you all know
that it has been largely driven by the Kyoto Protocol and the
European emissions trading system. That scheme allows limited
use of offsets, but it has a restriction on the use of
forestry-related offsets. Avoided deforestation, as Ambassador
Eizenstat noted, is not a project category allowed under the
Kyoto Protocol at all, but there are two small slivers of
forest protection that are allowed. One is afforestation, and
the other is reforestation.
Unfortunately, those types of projects are not allowed in
the European emissions trading system. The national governments
from Europe can purchase those types of reductions, but they
have not done so in a very large way. So as a result, if you
look at the databases of available credit supplies from various
types of abatement strategies, forestry-related projects
represent less than 1 percent of the total credits transacted.
This sector could do a whole lot more if the credits were
permitted to be used more fungibly with other types of
commodities in the global carbon market.
Just to give you a sense of the size, Natsource's advisory
research unit took a look at it, and in looking at the
literature available on this, it looks like somewhere between
15 and 75 gigatons of additional supply could be brought to the
market from avoided-deforestation, if those units were allowed
to be fungible in the international market. Those could reduce
the overall compliance costs by 40 percent.
Just to give you some flavor of the international carbon
market, it has been growing rapidly in the last few years. In
my written testimony, you will find three charts that sort of
sum it up. Last year that market globally was worth just under
$60 billion. I think our estimate is $59 billion in total.
United States companies, I should say, are active in this
market, as a number of United States companies have assets in
Europe where they are forced to comply with the European law.
There are also numerous U.S. financial, legal, and service
firms active in this market.
It trades mostly in European allowances, the primary
instrument traded, and of the $59 billion that I mentioned,
roughly $41 billion of that represented EU allowance trades.
The balance of the investment mobilized by that market was in
clean development mechanism projects worth over $17 billion
last year. There was a little bit of investment also in a type
of credit that can be created in the countries of the former
Soviet Union, but they were less than $1 billion in investment
last year. I expect that segment will grow.
In terms of policy recommendations going forward, I have
already described the limitations on use of forestry-related
offsets in Europe has really caused a chilling effect on this
particular market segment, and the shortcomings of the Kyoto
Protocol, an area of avoided-deforestation, has also chilled
investment in those types of assets.
So looking at that policy framework, we would have three
recommendations for your consideration in the policy arena.
First of all, a major goal of the design of the post-2012
project-based mechanisms internationally should be to
significantly increase investment in forestry-related
activities and avoided-deforestation in particular. In addition
to its environmental importance, forest sequestration could be
a particularly important category for countries and regions of
the world that are currently not attracting very much
investment from the CDM, such as sub-Saharan Africa. Designing
the mechanisms to increase the level of forest sequestration
projects is one way to improve the global and regional
distribution of investment.
Second, U.S. Federal policy should authorize the use of
international carbon offsets and forestry-related offsets in
particular as a key tool to control costs of complying with
emissions targets here. Proposals that include quantitative
limits or restrictions on the use of forestry-related credits
for compliance would only increase the costs of the program and
create market distortions.
Third, U.S. policy should also support reforms in the
project-based mechanisms so that they work better. It is not
easy to get projects approved through the clean development
mechanism. It is quite a rigorous regime. It is a confusing
regime, and it could be improved so that it works swiftly and
efficiently and reliably in producing these assets.
In the future, we hope that these markets continue to grow,
and we in the international emissions trading community stand
ready to assist you as you consider policy alternatives
involving our sector and the global fight against deforestation
and climate change.
Thank you very much.
[The prepared statement of Mr. Forrister follows:]
Prepared Statement of Dirk Forrister, Managing Director, Natsource LLC,
Washington, DC
Good morning, Mr. Chairman and members of the committee. Thank you
for inviting me to testify on this important subject. My name is Dirk
Forrister, and I am managing director of Natsource LLC, an
environmental asset management company headquartered in New York City
with offices in Washington, DC, South America, Europe, Japan, and
Canada. My testimony will address the potential for greenhouse gas
emissions trading markets to help combat the problem of deforestation.
In my remarks today, I will discuss Natsource's experience with:
Forestry-related carbon offsets;
The context of today's international carbon markets;
The minor role that forestry projects currently play in that
market;
The barriers that limit the role of forestry in the effort
to address climate change; and
The potential for improving policy in the future
international policy regime to enhance forest protection.
NATSOURCE
Natsource is deeply involved in the international carbon markets on
behalf of our clients. We are a leading environmental asset management
firm and currently have approximately $1.2 billion in assets under
management. This capital is used to purchase greenhouse gas (GHG)
compliance instruments on behalf of industrial emitters that are
required to reduce their GHG emissions, and GHG reductions and other
environmental commodities on behalf of return investors. Natsource
Asset Management LLC is a registered investment advisor with the
Securities and Exchange Commission. Our staff is comprised of experts
that have helped to develop the policies that created emissions markets
and others that have participated in some of the first and largest
transactions in the GHG market. New Energy Finance, a leading
independent analytical service recently ranked Natsource as the largest
purchaser of carbon credits (on a risk adjusted basis) in the world. We
attach a press release that communicates this award for the record. We
have entered into contracts of over $1 billion for these assets.
INTERNATIONAL EMISSIONS TRADING ASSOCIATION
I am also testifying today as a representative of the International
Emissions Trading Association (IETA), a trade association representing
179 industrial, financial, and service companies who are active in
emissions markets and greenhouse gas emissions trading policy
development around the world. IETA is the leading international
organization that has participated in the development of GHG markets.
Natsource is a longstanding member of IETA, and I currently serve as
the chairman of IETA's Clean Development Mechanism (CDM) Working Group
as well as its Market Oversight Committee. Jack Cogen, Natsource CEO
currently serves as IETA's chairman.
MARKETS ARE THE MOST EFFICIENT POLICY TOOL TO ACHIEVE CLIMATE POLICY
OBJECTIVES
Natsource and IETA support the use of emissions trading to address
the problem of climate change. We are united in our belief that markets
are the most efficient way to address climate change. Free markets will
ensure that scarce resources are deployed to achieve the maximum amount
of emission reductions at the lowest possible cost. We support policies
that authorize allowance trading for covered sources, the creation of
project-based reductions (sometimes called ``offsets'') from uncapped
facilities, and the use of offsets by regulated firms to comply with
emissions targets. Natsource and IETA members believe that these
policies will reduce the cost of climate protection. There should be no
quantitative or qualitative limits imposed on the use of these markets
for compliance. Such arbitrary limits only increase costs, diverting
resources from investment necessary to achieve other societal
objectives. Given the magnitude of the challenge posed by climate
change, we believe that all policy tools should be used. Ultimately, a
portfolio of actions is required to achieve long-term climate
protection. We do not believe that greenhouse gas emissions markets are
an end unto themselves, but are a key tool to mobilize capital required
to assist and facilitate a cost-effective transformation to a lower
carbon emitting economy.
We believe that policies can be developed that ensure the
environmental integrity of carbon offset projects. Specifically,
offsets created by forestry are a key asset in the effort to mitigate
climate change. As you know, stabilizing concentrations of GHGs in the
atmosphere at levels under discussion will cost trillions of dollars
through the 21st century and ultimately requires the transformation of
the energy system. Sequestration of carbon dioxide from the atmosphere
in the near term is essential while society is attempting to create the
advanced energy technologies which are not yet economically competitive
but which are essential to achieving the steeper reductions later in
the century to achieve long-term climate policy objectives. We also
believe that policies can be designed to guard against potential events
which would reverse the benefits of forestry offsets. These are events
such as fires or floods.
Finally--and of particular importance to today's discussion--as
governments find ways to strengthen and improve the international
policy regime to address climate change, IETA's members strongly
support broadening the carbon offset market to include new asset
classes, such as those that would award credits for avoided-
deforestation.
DEFORESTATION
Deforestation in developing countries is currently the second
largest source of human greenhouse gases, representing about 20-25
percent of global GHG emissions.\1\ According to the Food and
Agriculture Organization, global deforestation was estimated to be 7.3
million hectares per year in the period 2000-2005.\2\ However, because
of concerns about additionality, permanence, and leakage, avoided-
deforestation was excluded from the CDM.
---------------------------------------------------------------------------
\1\ Skutsch et. al, ``Clearing the Way for Reducing Emissions From
Tropical Deforestation,'' Environmental Science & Policy, 10 2007, p.1.
\2\ http://www.fao.org/forestry/foris/data/fra2005/kf/common/
GlobalForestA4-ENsmall.pdf.
---------------------------------------------------------------------------
We are following with interest proposals that would authorize the
creation of offsets from avoided-deforestation, such as Reduced
Emissions from Deforestation and Degradation (REDD) championed by Papua
New Guinea. We believe that credible, verifiable, and environmentally
effective rules can be established to govern the creation of emissions
offsets from avoided-deforestation projects. These projects would
provide major benefits to host countries and investors in addition to
benefiting the climate system.
Natsource's Experience With International Forestry Offsets
Natsource believes that offsets created by forestry are a key
policy tool in the portfolio of actions to address climate change.
Natsource Asset Management LLC (NAM) has invested in both domestic U.S.
forestry offsets and international offset projects on behalf of its
investors as part of its portfolio of GHG assets. NAM is making these
investments because we believe that they are good investments but also
to provide policymakers with the confidence that such projects will
provide permanent and enduring benefits. Ultimately, investment is
required to build such confidence. However, forestry-related reductions
comprise less than 1 percent of NAM's portfolio, due to policy
restrictions on their use. We have not invested in avoided-
deforestation projects because they are not currently usable for
compliance in any governmentally sanctioned emissions trading system.
In Chile, NAM invested in the Nerquihue afforestation project,
where open land will be converted into a forest by planting trees to
sequester carbon. The project is comprised of 12 small-scale
afforestation projects. The project developer has partnered with the
individual landowners at the project sites and will act as the project
entity.
This project includes the use of advanced forestry technology.
Until the 1990s, the project site land was used for intense agriculture
and pasture. It is relatively remote and hilly, which hinders the use
of mechanized land tending and planting. In addition, the project area
for the plantings is extremely dry and lacks natural seed sources.
Forest establishment using traditional planting techniques has a high
chance of failure due to these dry conditions, and is expensive due to
typical mechanized planting techniques. As a result, the project
developer will use advanced North American tree inoculation technology
that will improve the likelihood that the seedlings will prosper. It is
expected to generate around 470,000 Temporary CERs (tCERs) from
inception until 2012. This type of unit can be produced under the Kyoto
Protocol through reforestation or afforestation projects, but is of
less compliance value because the credits must be replaced in the
following compliance period.
In February 2008, Natsource purchased 60,000 tons of carbon
emissions reductions on behalf of its clients from a private forest
owner represented by the Pacific Forest Trust. The emissions reductions
were created through sustainable forestry on a permanently conserved
property in California. This project illustrates the significant role
that management of existing forests in the United States can play in
addressing climate change. The transaction is the first commercial
delivery of certified emissions reductions under the Forest Protocols
adopted last fall by the California Air Resources Board (CARB). The
Protocols are the first rigorous governmental accounting standards in
the U.S. for climate projects embracing forest management and avoided-
deforestation, while ensuring emissions reductions are real, permanent,
additional and verifiable. We have attached the press release
announcing this transaction for the record.
We view these domestic and international transactions as small
initial steps in what we hope to be more vibrant involvement in
forestry-related offset projects in the future. For that to occur, a
more favorable market and regulatory climate is urgently needed.
International Market Context
Greenhouse gas markets or the ``carbon market'' as it is known to
some are evolving and will continue to mature over the next several
years. We believe that capital is available to finance activities that
reduce deforestation if clear rules are put in place that govern the
creation and use of offsets from such activities.
Driven by companies seeking to comply with greenhouse gas emissions
targets in Europe and Japan, the international carbon market grew to
$59 billion in size last year. (The graphic below illustrates market
growth since 2005 and provides data sources.) This market includes
trading in several types of compliance instruments, which can be
categorized generally as either allowances or project-based reductions.
The latter category includes Certified Emission Reductions (CERs)
created by the Kyoto Protocol's Clean Development Mechanism (CDM)
projects as well as Emissions Reduction Units (ERUs) created by its
Joint Implementation (JI) provisions. Within the CDM, two other types
of offset can be created for afforestation and reforestation projects
(sometimes referenced as ``Land Use and Land Use Change and
Forestry''--or LULUCF). However, these mechanisms do not award CERs for
avoided-deforestation. Allowance transactions comprised $41 billion of
this traded value and offsets accounted for the remaining $18 billion.
Although the CDM has been criticized by some from the environmental
and investor community, it has stimulated billions of dollars in
investments that reduce GHG emissions in developing countries and
reduced regulated firms' costs to comply with emissions targets. CERs
and ERUs are generally available at much lower prices than EU
allowances, given the lower cost abatement opportunities in developing
countries and economies in transition. In 2006, the average price of an
EU allowance was approximately $22.10 per tonne, while the average
price of a CER was $10.90 per tonne. Given this price differential,
many European companies have used CERs and ERUs as important components
of their strategy to comply with emissions targets. In addition, Japan
has been a large buyer of these assets given that they are cheaper than
the cost of reductions that can be achieved in Japan. Many of the U.S.
members of IETA with installations regulated in Europe have purchased
these assets in recognition of the important role that offsets play in
controlling the costs to comply with emissions targets in Europe's
trading system. IETA supports the inclusion of provisions in U.S.
climate legislation that would authorize the use of international
offsets to comply with emissions targets. Compliance costs will be far
higher without the use of such assets.
Recent analysis by EPA of the Lieberman-Warner legislative proposal
concludes that ``the use or limitation of offsets and international
credits has a larger impact on allowance prices than the modeled
availability or constraint of key technologies.'' \3\ The analysis
assumes that international offsets (rather than international
allowances) will be allowed up to a 15-percent cap. It finds that
eliminating the use of international credits, while still allowing
domestic offsets up to the 15-percent cap, would increase allowance
prices increase by 34 percent. If domestic offsets and international
credits are not allowed, then allowance prices would increase by 93
percent. This translates into additional costs to GDP of $314 billion
in 2020. Analysis by New Carbon Finance--which assumes that the bill
will only allow use of international allowances, and not international
credits--obtained similar results. It estimates that if the Lieberman
Warner legislation was modified to allow international offsets up to 15
percent of the allocated amounts, prices would decrease by 60 percent
in the period up to 2015 and by 44 percent by 2020.\4\
---------------------------------------------------------------------------
\3\ U.S. Environmental Protection Agency, ``EPA Analysis of the
Lieberman-Warner Climate Security Act, S. 2191 in 110th Congress,''
March 14, 2008, http://www.epa.gov/climatechange/downloads/
s2191_EPA_Analysis.pdf.
\4\ New Carbon Finance, ``North America White Paper--February
2008.''
---------------------------------------------------------------------------
As mentioned previously, the global carbon market includes trade in
both allowances and project-based offsets. In 2007, the $17.1 billion
in traded offset value consisted of CERs, created by CDM projects. (It
does not include additional, but much smaller, trade in ERUs created
from JI projects in countries with economies in transition--Russia,
Ukraine, and countries in Eastern and Central Europe.) Given policy
restrictions on the use of forestry-related offsets, the World Bank
identified that only 1 percent of the traded volumes of offsets in 2006
occurred in agriculture and forestry projects.\5\ As of March 5, 2008,
there were 3,082 projects in the CDM pipeline, with a headline volume
of over 2.5 billion tonnes through 2012.\6\ In the Afforestation and
Reforestation catagories, there are 17 projects identified, which in
turn are expected to produce under 7 million tonnes through 2012.\7\
---------------------------------------------------------------------------
\5\ World Bank, ``State and Trends of the Carbon Market 2007,'' May
2007.
\6\ UNEP RISO Center, http://www.uneprisoe.org.
\7\ Ibid.
---------------------------------------------------------------------------
The reason for the lower degree of market interest in forestry-
related offset projects is the restrictive policy environment that
exists for such projects.
Policy Drivers for International Carbon Markets
The international carbon market was created by a set of policies
that formed the essential elements of supply and demand, which are
discussed below. The market demand is driven primarily by compliance
requirements of the group of developed countries that ratified the
Kyoto Protocol and the programs they put in place to implement
compliance with their obligations. The supply of and demand for
forestry-related credits is driven by rules as to whether they can be
used for compliance and others governing their creation.
The Kyoto Protocol authorized the creation of two main types of
project-based offsets, CERs and ERUs. It incorporated these mechanisms
to enhance sustainable development, to transfer technology, capital and
services from developed to developing countries and transition
economies, and to reduce compliance costs for developed country
governments and private firms required to meet GHG emission reduction
targets. Under the CDM, developed countries and firms invest in
project-based activities in developing countries and use the carbon
offsets created by these investments to comply with their GHG emissions
targets. With limited exceptions, CERs of 2000-2012 vintage can be used
for compliance with emissions targets in countries that are parties to
the Kyoto Protocol. This gave companies the ability to generate and
transact early reductions in advance of the Kyoto Compliance period and
provided an incentive for developing countries to participate in the
global effort to address climate change. Natsource Advisory and
Research estimates that there are 2.9 billion tonnes of demand from
Japan, the European Union and New Zealand.
The European Union adopted the Emissions Trading Scheme (EU ETS) in
2004 as a key element of its strategy to comply with its Kyoto
obligations. It requires emissions cuts from over 10,000 large emitting
installations across Europe--including heat and power plants, steel
mills, oil refineries, chemical plants, paper mills and other heavy
industries. Reductions are required in two phases and cover
approximately 45 percent of the continent's CO2 emissions. Regulated
installations can meet their targets by tendering allowances or
project-based offsets with limited exceptions to Member States.
Companies in the ETS face stiff penalties if they fail to comply. In
order to provide a disincentive for noncompliance, installations will
be fined EUR 100 per tonne for emissions in excess of their targets, in
addition to having to pay back each tonne of overage.
The European Union adopted the ``Linking Directive'' in 2005. It
allows installations in the ETS to use CERs and ERUs for compliance up
to quantitative limits set by Member States (so called
``Supplementarity Limits''). It prohibits use of forestry-related
offsets and restricts use of credits from large hydropower projects.
Despite the restrictions on use of forestry-related credits in the
ETS, there is some market potential for these instruments in Europe
from national purchasing programs. In order to meet the Kyoto targets,
a number of EU Member State governments have adopted purchasing
programs for CERs and ERUs that may include forestry-related
instruments. To give a sense of the potential scale of purchasing by
these sovereigns, Natsource Advisory and Research estimates that EU
Member State governments will need to reduce emissions by about 0.55-
0.95 billion tonnes over the Kyoto period based on current emissions
trends and measures that are already in place. These reductions must be
achieved through national purchases or other policies and measures for
noncovered sectors (transportation, commercial and residential
emissions).
The other primary source of demand for CERs and ERUs is Japan.
Natsource Advisory and Research estimates that Japan is approximately
740 million tonnes short of its Kyoto targets over the 5-year Kyoto
period based on current emissions trends and measures in place. At
present, 40 key emitting economic sectors in Japan have entered into a
set of voluntary agreements with the Government to cut emissions, and
they are allowed to use CERs and ERUs to meet those commitments.
Japanese industry is allowed to import forestry-related CERs, which has
stimulated some Japanese private sector interest in this asset class.
In addition to these demand considerations, the Kyoto Protocol and
the CDM Executive Board have influenced the development of supply of
forestry-related carbon offsets. The parties to the Kyoto Protocol
struggled for several years to develop guidelines for LULUCF projects
under the CDM, ultimately reaching agreement in Milan at the 9th
Conference of the Parties to the U.N. Framework Convention on Climate
Change in 2003. The COP 9 Decision created two types of temporary
credits that address concerns about impermanence of the reductions.
However, the rules governing the creation and use of these offsets are
difficult to understand, and they create units that must be replaced in
the next compliance regime. The complexity of these systems and the
limited compliance value of the offsets have created limited market
interest in them.
Even apart from its treatment of forestry-related projects, the CDM
can be characterized as a complex system. IETA is developing a proposal
for improving the overall regulatory approach to the CDM for the post-
2012 period. We believe that the CDM's current approach to ensuring
environmental integrity imposes significant costs and uncertainty on
investors, which in turn has adversely limited the mechanism's
potential to mobilize the volumes of capital that will be ultimately
required to address climate change. IETA members recognize that the CDM
has made a significant contribution to learning and has created major
benefits. However, we do believe the mechanism can be reformed to
influence an even greater level of investment in the future. We believe
that improvements are needed to influence trillions of dollars of
large-scale investments in the future that are needed to meet global
energy demand, and that will determine in large part whether long-term
atmospheric GHG concentration targets can be achieved. We are also
interested in providing our views on how the U.S. can learn from CDM in
the development of domestic legislation.
Policy Improvements to Tap Carbon Markets to Avoid Deforestation
Forest sequestration--particularly avoided-deforestation--is
potentially an important contributor to GHG reductions and to
controlling costs of achieving atmospheric concentration targets.
Carbon markets could assist in achieving forest-related reductions, if
policies in the U.S., Europe, Japan, Canada, and others were crafted to
permit use of this asset class in compliance with emissions limits.
Avoided deforestation projects could provide a substantial share of
supply for the international market, if policies were more favorable.
Of the two models cited in the IPCC report that consider forest sinks
as a category, one model (IMAGE) estimates that they will make the
second-largest contribution to cumulative emission reductions in the
short-term, from 2000-2030, with approximately 15 GtCO2e. Another study
focusing on forest sequestration concludes that forest sequestration
can account for an even larger share of global abatement--one that is
in proportion to tropical deforestation's large (25%) share of global
anthropogenic GHG emissions. The study estimates that forests can
sequester as much as 75 GtC (i.e., 275 GtCO2e) cumulative to 2050, or
approximately one-third of total abatement.\8\ This would result in an
estimated reduction in the price of carbon of 40 percent by 2050.\9\
---------------------------------------------------------------------------
\8\ ``Forestry and the Carbon Market Response to Stabilize
Climate,'' M. Tavoni, et al., Fondazione Eni Enrico Mattei, Working
Paper 2007.15, 2007, http://ideas.repec.org/p/fem/femwpa/2007.15.html.
As a source for the 25-percent figure, the report cites Houghton, R.A.,
2005. ``Tropical Deforestation as a Source of Greenhouse Gas
Emissions,'' in: Mountinho, P., Schwartzman, S. (Eds.), ``Tropical
Deforestation and Climate Change.'' IPAM: Belem, Brazil and
Environmental Defense: Washington, DC, pp. 13-21.
\9\ Ibid.
---------------------------------------------------------------------------
In light of the importance of forest sequestration for achieving
environmental and economic objectives, we would make the following
recommendations for your consideration:
1. In the international arena, a major goal of the design of the
post-2012 project-based mechanisms should be to significantly increase
investment in forestry-related activities and avoided-deforestation in
particular. In addition to its environmental importance, forest
sequestration could be a particularly important category for countries
and regions that currently are attracting less CDM investment, such as
sub-Saharan Africa. Designing the mechanisms to increase the level of
forest sequestration projects is one way to improve the regional
distribution of investment.
2. U.S. federal policy should authorize the use of international
carbon markets, and forestry-related offsets in particular, as a key
tool to control costs of complying with emissions targets. Proposals
that impose quantitative and qualitative limits on the use of markets
for compliance will increase costs and create market distortions.
3. U.S. policy should support reforms to the project-based
mechanisms in the international negotiations to develop a successor
agreement to the Kyoto Protocol designed to ensure environmental
integrity while attempting to mobilize larger volumes of capital. This
system should provide a more reliable, predictable approach to asset
creation that will help stimulate greater amounts of investment in
emissions mitigation projects around the world.
In the future, we expect that international carbon markets will
continue to grow as the international community negotiates a successor
agreement to Kyoto and as nations implement policies to achieve their
climate goals. IETA members believe that international emissions
markets must play a key role to assist governments in meeting their
emissions targets in a cost-effective manner. In order for the market
to truly realize this ambition, it is important to include the widest
range of emission reduction and sequestration strategies in the set of
eligible activities for offset creation.
In conclusion, Mr. Chairman, we appreciate the opportunity to
testify about the potential for emissions markets to be tapped for
protecting the world's forests. As you consider policy alternatives for
advancing this objective, we stand ready to assist you.
______
Press Release of The Pacific Forest Trust and Natsource Announce
Landmark Transaction of First Forest-Based CO2 Emission Reductions
Certified Under California Rules--February 11, 2008
New York, NY, and San Francisco, CA.--The Pacific Forest Trust
(PFT) and Natsource Asset Management LLC (Natsource) announced today
the completion of a landmark transaction of certified forest
carbondioxide (CO2) emissions reductions. Natsource, a leading
emissions and renewable energy asset manager, bought 60,000 tons of
carbon emissions reductions on behalf of its clients from a private
forest owner represented by PFT. The emissions reductions were created
through sustainable forestry on a permanently conserved property in
California. This deal illustrates the significant role that management
of existing forests can play in addressing climate change. The
transaction is the first commercial delivery of certified emissions
reductions under the Forest Protocols adopted last fall by the
California Air Resources Board (CARB). The Protocols are the first
rigorous governmental accounting standards in the U.S. for climate
projects embracing forest management and avoided-deforestation, while
ensuring emissions reductions are real, permanent, additional and
verifiable.
``Today marks a significant milestone for the recognition of the
real benefits of conserving and managing U.S. forests to enhance their
climate contributions,'' announced PFT president Laurie Wayburn.
``Investing in the power of forests to protect our climate is a
practical action that can and should be taken now to reduce CO2 in our
atmosphere. We are hoping that deals like this will provide
policymakers around the world with the confidence they need to ensure
that forestry becomes part of the solution to address climate change.''
CARB's leadership in adopting the Forest Protocols is helping to
stimulate a new asset class in global GHG emissions markets, validating
forests as a cost-effective means to achieve real GHG reductions. The
Forest Protocols, which are administered by the nonprofit California
Climate Action Registry (CCAR), can be used as a model to ensure that
forests be used to achieve enduring benefits and become a solution in
the fight against climate change.
``Until now, forest sequestration has been an untapped asset in the
effort to address climate change,'' said Jack Cogen, Chief Executive
Officer of Natsource. ``Forestry can and should be an important part of
the portfolio of climate change solutions moving forward. This deal
illustrates that when rigorous, clear rules are adopted, these
investments can reduce costs for our compliance customers and provide
what we believe are attractive investment opportunities. Natsource
participated in this transaction because it complied with California's
rigorous standards, and we believe that this will ensure that the
sequestration will provide enduring environmental and economic
benefits.''
The CO2 emissions reductions purchased by Natsource clients were
created by PFT's Van Eck Forest Project, in Humboldt County, CA, that
uses the CO2 storage capabilities of a working redwood forest. Owned by
the Fred M. Van Eck Forest Foundation, the 2,200-acre forest is
permanently protected by a conservation easement. It is managed by the
Pacific Forest Trust to increase carbon stores, restore biodiversity
and produce sustainable timber supplies.
The revenue from the purchase of some of the emissions reductions
already generated by this project will help finance the ongoing forest
stewardship activities that will enable the forest to remove an
estimated 500,000 more tons of CO2 from the atmosphere than would
otherwise occur over the next 100 years--all while still supplying
substantially the same volume of wood products from the property that
would have been harvested under conventional management. Carbon
sequestration is enhanced on the Van Eck Forest by preventing business-
as-usual logging of all the substantial volume of standing timber on
the property and by ensuring that selective harvest practices remove
less timber volume than is grown, allowing carbon stores to permanently
increase.
The project's emissions reductions are calculated using the
scientific accounting standards of the Forest Protocols, based on a
detailed inventory of the forest and the effects of management
parameters secured by the permanent conservation easement. These
calculations have been registered with CCAR after independent third
party certification by SGS, the world's leading inspection,
verification, testing and certification company, working with
Scientific Certification Systems, the leading U.S. forestry
certification company. Project data is available to the public from
CCAR.
``Dangerous levels of CO2 in our atmosphere are the result of
fossil fuel combustion and forest loss,''continued Wayburn. ``To
successfully stabilize our climate, we must address both sources.
Preventing forest loss and increasing net sequestration through
projects that meet rigorous standards, such as those in California, can
secure lasting emissions reductions.''
As the first asset manager to purchase Van Eck Forest emissions
reductions, Natsource joins an impressive group of climate leaders that
have invested in the power of working forests through the Van Eck
Forest Project, including U.S. House Speaker Nancy Pelosi, California
Governor Arnold Schwarzenegger, California Assembly Speaker Fabian
Nunez (D) and California Environmental Protection Agency Secretary
Linda Adams.
``I applaud Natsource for investing in the long-term climate
benefits of California's forests. Natsource's leadership shows that
global capital will flow to projects that meet rigorous international
standards reducing emissions of CO2,'' commented Mary Nichols, Chairman
of the California Air Resources Board, the lead agency for implementing
the state's Global Warming Solutions Act.
______
Natsource Recognized as World's Largest Purchaser of Carbon Credits by
Leading Investor Research Firm
ANNUAL MARKET SURVEY BY NEW ENERGY FINANCE CITES NATSOURCE COMMITMENT
IN LARGE TRANSACTIONS
New York, NY, March 6, 2008.--Natsource, a leading environmental
asset manager, today announced it was named the largest buyer of
contracted carbon credits by New Energy Finance in its annual survey of
activity in the renewable energy and low-carbon sectors. Natsource
acted as a principal on behalf of its clients. The report noted that
Natsource has contracted for over 100 million credits from Clean
Development Mechanism (CDM) and Joint Implementation (JI) projects.
These credits were contracted for in Emission Reduction Purchase
Agreements in excess of $1 billion.
``We are pleased to be recognized for the work we have done in the
growing carbon market on behalf our compliance customers and return
investors,'' said Richard Rosenzweig, Chief Operating Officer of
Natsource. ``Natsource will continue to be a leader in the EU and Kyoto
markets and we look forward to bringing our expertise to the evolving
U.S. market.''
New Energy Finance, based in London, is a leading independent
provider of research to investors in renewable energy, biofuels, low-
carbon technologies and the carbon markets. Its annual survey on
activity in the carbon markets has been published since 2005. The
ranking methodology used by New Energy Finance includes only those
projects for which credits have been contractually committed for
purchase by the principal.
Natsource's Asset Management Unit is a leading environmental asset
manager, with a principal emphasis on greenhouse gas markets. It is
comprised of the Greenhouse Gas Credit Aggregation Pool (GG-CAP),
private investment vehicles and a series of managed accounts. GG-CAP,
whose participants include some of the largest power, energy and
manufacturing firms, uses its participants' capital to purchase and
manage delivery of a large pool of Certified Emissions Reductions
(CERs) created by CDM projects and Emission Reduction Units (ERUs)
created by JI projects that participants can use to comply with GHG
emissions targets from 2005-2012.
Natsource Asset Management LLC manages private investment vehicles
and a series of managed accounts. These investment oriented vehicles
pursue a strategy designed to take advantage of significant
opportunities that exist in global emission and renewable energy
markets.
Senator Menendez. Thank you all for your testimony. There
are a lot of insights, also it sounds like some challenges
along the way.
So let us start with 7-minute rounds, and we will recognize
myself.
Let me ask you all: Does it make sense to allow companies
to earn emission credits for funding subnational avoided-
deforestation projects before we require those host countries
to be accountable for national benchmarks on lowering
deforestation rates? I heard some of the challenges associated
with that.
But it seems to me that we have to start off knowing where
the commencement is in order to understand where we are going.
And the flip side of that is given the scope of the problem,
would waiting cause too much in terms of delay?
And finally, on the other hand, are we pouring money into a
problem when we might not have the adequate benchmarks to
figure out whether or not the funding is achieving the
purported goal?
I am very interested in this and believe in it, but I also
see the challenges here. I invite the panel's responses to
those questions, anyone who wishes to.
Mr. Hayes.
Mr. Hayes. Thank you, Mr. Chairman.
I think you have hit a very key question, Mr. Chairman,
because the challenges that Mr. Forrister just talked about in
terms of the clean development mechanism and how it is
operating under the Kyoto system are squared or cubed when it
comes to forestry conservation. Under the CDM, there are
understandings about ``additionality''--about showing that a
project would not have occurred anyway--which is a prerequisite
for it. There is an established understanding of how to measure
the reductions for specific projects in specific sectors. There
is an understanding of how to deal with permanence, et cetera.
And it is done on a project-by-project basis. The projects have
four corners to them and they can be tested and evaluated.
When you move into the tropical forestry context, you lose
a lot of those moorings in terms of, for example, whether you
can proceed on a project basis, which is the first part of your
question, because of the leakage concerns and the concern that
we would protect this forest here, but the folks who would
otherwise have deforested that will simply move over there. I
think there is a strong view that we need national baselines,
and that we cannot test for progress on a project-by-project
basis. That is an important concept that is in the Lieberman-
Warner bill; we should only be working with countries that are
willing to put those national baselines into effect. And I
think that makes perfect sense because the problem of leakage
is so critical.
The other issues and challenges that I mentioned, including
the permanence concept and the additionality concept also must
be dealt with differently because we are talking about, almost
by definition, protecting forests as opposed to afforestation,
planting forests. So we are going to have to have a new
concept.
I think my bottom line, Mr. Chairman, is that we should be
focusing lots of attention and finances on pilot projects in
tropical countries. We certainly should not wait until all of
the infrastructure is in place, but we should simultaneously
work on putting that infrastructure in place, as we do pilot
projects to help get at some of the issues of capacity-
building, of measurement technology, of verification
approaches, et cetera.
Senator Menendez. Ambassador Eizenstat.
Ambassador Eizenstat. I would like to take a slightly
different view if I may, and that is the question of where
relative risks are. There is no question, as we have all
indicated, that establishing a national baseline for countries
is absolutely critical. That will do a great deal to avoid the
problem of leakage and to give us a better monitoring device.
There are mechanisms. The World Bank has a fund to do this.
Norway is providing assistance to do it. We could do the same.
But--and here is where I perhaps differ in terms of
emphasis from David--I think that the risks of cutting forests
and the pressures are so great with particularly rising
commodity prices that if we do not take the leap early, while
we are building that capacity, while we are seeking to have a
more perfect system, we are going to make the perfect the enemy
of the good, really.
That is to say, it is going to take time for Congress to
pass legislation. It is going to take time for that to be
implemented. If we do not include in that legislation now,
provisions to allow this kind of international trading in
forestry credits while we are building the capacity and we say,
well, let us wait 4 or 5 years to see if it goes, we will have
deforested whole areas of the Amazon, Indonesia, and other
tropical and subtropical forests, which we will never get back.
So there are risks to doing this without having a perfect
national baseline system.
But we have, which we did not have at the time of Kyoto--
and one of the reasons I was not able to get that in is we did
not have the kind of telemetry by satellites that we have now.
Brazil has a very good system. They are willing to put the data
on the Internet free of charge. There are ways to measure this
so that by the time we get the legislation passed and
implemented in the United States and we develop this
international credit system, hopefully the baseline that we all
hope will be there.
But again, I do not want to make the perfect the enemy of
the good and feel that we have to wait until we have everything
done before we deal with this area, or we are going to have
whole areas deforested which we will never get back.
Senator Menendez. But countries like Indonesia and Brazil,
are they willing to go with a market-based approach alone, or
are they looking for international----
Ambassador Eizenstat. Well, that is a very good question.
Brazil, until recently, has been looking at having an
international fund of ODA assistance. But again, as we have all
suggested, you cannot get enough money together on a consistent
basis to provide the kind of incentives you need to avoid the
deforestation with the tremendous pressures of rising commodity
prices to cut and then to plant. You simply cannot do it. You
have to have a combination.
I was on a panel recently with the Governor of Amazonia,
and he is saying--and now his national government is beginning
to come along--that you cannot do it through a national fund
alone. You have to have carbon credits, harness this $60
billion market and combine those.
Second, the rainforest nations, which have taken the lead,
are themselves indicating that they will try to establish, with
the help of developed countries, this national baseline system
we all want. So they want to have a system that has integrity.
They realize, over the long term, if they do not, that the
system will not work. So we are pushing against a more open
door than we might think because the countries that are pushing
hardest for this in the rainforest coalition want to have the
kind of national baseline system that we are talking about.
Senator Menendez. I have some other questions, but I will
wait for the next round. With that, I recognize Senator Lugar.
Senator Lugar. Thank you very much, Mr. Chairman.
In your testimony collectively, you have illustrated that
most of the carbon released in the atmosphere from countries
like Indonesia and Brazil--and these are very large countries
with growing industrial power--still comes from the cutting of
trees. Apparently there is recognition in both of those
countries that this is so, and you have implied, without making
it explicit, that they must surely appreciate that given the
current discussions we are having, those trees have value to
the international community in terms of international
negotiations, an extraordinary amount of value.
You have illustrated examples in which baselines are
discussed on a national basis. Just out of curiosity, with
Brazil is there an estimate by the Brazilian Government of how
much carbon are in all the trees of Brazil, or can any of you
quantify a little bit more precisely what is meant by these
national baselines?
Dr. Gurney.
Dr. Gurney. Sure. Yes, I mean, there are certainly
estimates. I could not tell you off the top of my head what the
estimate is for Brazil, but certainly it has been done both by
national entities within Brazil and, of course, by members of
the scientific community outside of Brazil.
The topic of baselines--and sort of maybe somewhat segueing
with the answers to the last question, since they are revolving
around a similar topic, the idea of baselines and monitoring
and measurement. I just want to touch on one thing about
satellite remote sensing since it is going to come up and it is
going to come up repeatedly. Satellites are very good at
looking down at the surface and ascertaining what the canopy
cover is and have gotten much better at elucidating places
where deforestation has occurred.
The big problem--the difficulty is actually figuring out
how much carbon that represents and, when a canopy changes, how
much carbon goes from the land surface into the atmosphere.
That is actually in many ways becoming the hardest part of the
problem because it is something that is much more difficult to
do from space, although there are actually techniques emerging
to actually partly do that estimation from space. Satellites
cannot see below the canopy, so if forest degradation occurs,
whereby vegetation is manipulated below the canopy, it is very
difficult to see from space. Soil carbon, dead biomatter, all
those components of forests are difficult to see from space.
And that is why, in many ways, establishing baselines,
though it can be done--the forest cover can be established and
forest cover change can be established. The amount of carbon
forests hold and the amount of emissions associated with the
changing forests is really the difficult part of the problem.
And that is why, in many ways, baselines have become tough,
particularly at the national scale. On an individual plot
level, you can send a lot of human beings into a plot, spend an
awful lot of effort, and get good estimates of how much carbon
is resident in a system and how much carbon is coming out of
the system when things change. But to do an extrapolation
across a nation like something the size of Brazil brings up a
variety of other difficulties. The landscape is heterogeneous.
It changes from one place to the next. Some areas like the
Brazilian Amazon are little studied and large and variable.
So baselines, particularly when you go back in time, become
even harder, obviously, because going back to the 1980s, for
example, satellite remote sensing was not as sophisticated as
it is now. Survey work was much more limited than it is now.
And hence, trying to determine baselines or trying to create
baselines that are historical in nature is much more difficult.
Senator Lugar. But given all those qualifications, though,
I think Mr. Eizenstat was pointing out that still some interim
tries may be necessary if we are to make some progress. I think
we all would recognize with common sense how difficult this is.
But let me just take a micro example. I have touched upon
our farm in Indiana. Other farmers in Indiana have come to me--
and this is why Chicago Climate Exchange was hopeful I might be
a member, and I said, how do I get into this business? Well,
not easy. The initial idea has to be these are new increments
of trees. No measurements right now, as I understand it, of
trees that are already on the farms.
When we are talking about the specifics of commodity
changes in a State like Indiana, this is a crucial question.
People are prepared to get out of the Conservation Reserve
Program. Those who never got into it are certainly not going to
sign up. This is going to be a big issue for Brazil, but it is
a big issue in the United States. Unless there is at least some
way to jump-start of how you evaluate the trees that we have
and keep them alive, some problems are going to occur.
Now, this is a jump over those who are ready to recognize
treaties to begin with, but I just want to extrapolate out of
the foreign experience that which is domestic. And that will be
true, as we know of other countries in the world. The world
food crisis will not go away. This is not simply a first-year
process. We now have people that are eating better, thank
goodness, all over the world, and we have demands for greater
food, and inequality of the ability of people to get to it.
So this is a crucial question that, just getting back to
your discussion, requires a lot faster timeline. It may be
these are rough and ready calculations, and international
negotiations among Brazil, Indonesia, the Europeans, and the
United States to roughly estimate what have you got, and how
much is it worth to the world, in order to be able to sequester
this carbon and keep it in the trees.
Any of you think of how you get into this kind of massive
international negotiation?
Mr. Hayes. Senator, if I could. I agree with you that we
need, to some extent, jump off the cliff and do a lot of
experimenting, et cetera. Part of the contextual challenge is
that the assumption that a lot of folks have is that we are
talking about a system like the clean development mechanism
under the Kyoto Protocol that will generate pound-for-pound
reductions that U.S. companies, for example, industrial
companies, can credit against their account and use in the same
way that they would use a reduction in their own emissions, by
investing and reducing their own emissions. That puts an
enormous amount of pressure on the credibility that we put to
that offset, if you will. And at this point, I do not think the
forestry sector can take that pressure because of these issues.
Now, there are a lot of creative ideas out there about
potentially having a dual market approach where, instead of
directly putting pound for pound those carbon reductions from
forestry offsets into the account of a U.S. regulated company,
perhaps there is an overall pool of expected reductions that we
are going to get out of the forestry sector, maybe with some
discounting mechanisms, some other creative efforts to get the
program underway, but to assure folks that there will not be a
flood of these credits coming onto the market, that U.S.
companies will not be able to use these kinds of credits too
cheaply to avoid choices that need to be made if we are going
to really reduce reductions. I think there is a lot of room
there. But I think, Senator, that assuming we are in this box
that an offset credit from Brazil gets credited pound for pound
in the United States like any other United-States-based
reduction is the source of a lot of the difficulty.
Senator Lugar. Thank you very much.
Mr. Forrister. From a market standpoint, I would just add
that in the clean development mechanism, there are many project
types that have measurement challenges. That does not mean we
do not do them. It means that the CDM executive board has set
strict rules for conservative application of measurement and
verification techniques so that they do not print too much
money, if you will. So it has been pretty conservative in the
application. And I think those same types of systems can work
in the avoided-deforestation universe.
I personally totally agree with Ambassador Eizenstat that
you do not want to let the perfect be the enemy of the good,
and to us in the market, the holy grail is always a national
baseline. That is where we would like things to move because it
is very simple to measure against.
But realistically speaking, there are a lot of smaller
countries involved in the Kyoto process that have not been
participants in the market yet. Probably the only type of
projects they have that might make sense would be forestry-
related projects, and if you burden them with a national
baseline right away, it would be very difficult for them to
participate.
So I think this is an area where maybe one size does not
fit all. Larger, wealthier countries could be positioned to
work toward national baselines more quickly than smaller,
poorer countries, so perhaps we should create a graduated
approach. Countries taking national baselines could get in
early, as an incentive for them to get involved.
Senator Lugar. Thank you.
Ambassador Eizenstat. I also think that this notion of
flooding the market with forest credits is not a valid concern.
If compensation for reduced deforestation is phased to
correspond with actual annual emissions reduced--that is, it
would be no higher than the annual deforestation baseline--then
the amount of credits available in any given year would be
limited.
In addition, the cost of assuring credits meet quality
standards, companies' concerns with country risk and
constraints on the ability of forest protection efforts to
mitigate climate change beyond a certain point--for example, if
all deforestation could be halted, it would only account for 20
percent of current emissions--place inherent limits on the
ability of credits to flood the market.
So again, I think it is very important not to throw out--it
is fine to be cautious. We want to do the right thing. We want
to have national baselines, but I think if we raise these kinds
of red flags, it can scare us away from doing what is
absolutely essential to reduce costs at home and incentivize
countries abroad not to cut down their forests.
Again, I just come back again and again to the notion. We
are running out of time on this. The pressures to cut these
forests are immense. It is almost an exact parallel. The
higher, for example, soybean prices are, the more forests get
cut down in Amazonia. And with commodity prices soaring for the
medium term and perhaps long term, if we do not have a
counterweight to offer these countries, then by the time we
come around to the perfect solution, there will not be anything
to save.
Senator Menendez. I appreciate the discussion because I
also think valuation does not have to be static. We can have a
more conservative estimate at the beginning and as science
continues to move in the direction of greater exactitude, we
can raise the valuations along the way.
Senator Kerry has done a lot work in this field.
Senator Kerry. Mr. Chairman, thank you very much. Thank you
for having this hearing.
I welcome all of you here. I particularly want to welcome
Ambassador Eizenstat who I had the pleasure of being with in
Kyoto and watched him pull together what had really been an
inadequate preparatory runup to the meeting and, frankly,
salvage what he could in what I thought was a superb job of
negotiating. And I really applaud you for what you achieved
there, which was very, very difficult.
Listening to this, I think a lot of interesting and
appropriate questions have been asked. But we can measure
forest carbon, and we can price it. I mean, all of those things
are achievable. What I am not sure we can do--and I would like
you all to comment on it a little bit--is find the political
willpower and define the economic reality of how we are going
to make this transition.
I have had the pleasure, through my service on this
committee, of flying over or spending time on the ground in
these forests in the Philippines, in Laos, Cambodia, Burma,
Indonesia, the Amazon, and it is shocking. Five and ten years
ago, the amount of illegal clear-cutting that I saw, flying
over that Laotian triple canopy, was astounding. The
enforcement piece of this has not been talked about--and that
is perhaps one of the most significant pieces of this.
I was just recently in Indonesia. When I was in Bali, I met
with the Indonesian Environment Minister and his staff to
discuss this. And they sort of look at you with a wink and a
nod and a smile. But the fact is everybody knows what is
happening under the table and around the corner. The pressures
economically to continue to illegally harvest timber are just
going to be gigantic.
Time magazine a couple weeks ago had a superb photograph
that showed the Amazonian deforestation--you just see miles
upon miles of lush green soybean growing and this one little
patch left of triple canopy. It makes you cry when you look at
what is happening. The latest satellite shots portray the level
of deforestation. The percentage is just enormous and growing.
Ambassador Eizenstat is absolutely correct about the time
imperative here.
And the economic pressures just grow. Take Brazil as an
example. Cattle ranching and soybean production is causing most
of the deforestation there. You have to provide an alternative
source of income for people. I mean, the economic realities in
most of these countries is that if these folks do not have an
alternative job and place to earn a living, this is all pie-in-
the-sky talk.
None of those issues are being adequately addressed even as
we talk about putting the credits in place, because underneath
the market structure is this illicit trade that is going to
take place because the economics push it so imperatively.
So we have to get an enforcement mechanism in place that
goes along with the measuring and the transparency. And these
countries are going to have to sign up and be part of this
because we cannot go in there and enforce for them, obviously.
So there is a huge task to accomplish.
Eighty-five percent of Indonesia's greenhouse gases come
from deforestation now, and they are in the top 20 of the
world's countries contributing as a result of deforestation.
Ambassador Eizenstat. The top five.
Senator Kerry. The top five. And particularly in the last
year or two, it has been massive. I mean, as you fly over these
tropical forests, you see these massive burns taking place, all
of which contributes to climate change.
So I would like you to address that. I know we can measure
deforestation. I know we can establish a price for carbon. I
know we can put in place a trading mechanism. The question is,
Can we get these countries to sign on and what will be the
economic reality of the transformation of their economies so
they do not have a revolution, so they do not lose their
governing capacity? I would like you to address that.
Ambassador.
Ambassador Eizenstat. I could just start. First of all, the
fact that we had a treaty was significantly due to the fact
that Senator Kerry was there. He was a virtual part of our
negotiating team, and without his day-and-night support and
lobbying of the EU, we would never have gotten a treaty.
I think that the political will is there, and I cite two
examples. One, which I mentioned in my testimony, is there are
some 15 to 17 countries in the rainforest coalition of nations
who are saying to the world and said at Bali, provide us
incentives, and our contribution will be to take specific
commitments not to cut our forests down. Now, is that perfect?
Of course, it is not, but neither are any other----
Senator Kerry. We have to go beyond the fund and the
credits.
Ambassador Eizenstat. Absolutely. What they are saying is
give us incentives and this is our contribution.
Now, we have been looking. I mean, you know at Kyoto--and
Mr. Chairman, the terrible problem we had--we had two major
problems. One was dealing with the EU, which wanted to exact as
much pain and suffering on their companies as they could
without offsets, sinks, and so forth. I mean, I was Ambassador
to the EU and that is another story.
But the second problem was China and India had a choke hold
on countries like Argentina and others who wanted to take
commitments. They would not allow it. It was written into
Kyoto.
Now we have got a group of countries who are saying, look,
we are not going to take economywide emission. It does not make
sense for Papua-New Guinea and countries like that to do it.
But our contribution--just exactly what you said in your really
brilliant opening statement about the fact that every country
has an obligation but some have different obligations depending
on their level of--they are saying, our obligation, our
commitment, our participation will be not to cut our forests
down if you provide those incentives. And they have the
political will. They formed a coalition, and they are lobbying
for this.
In addition, Brazil is in fact beginning to change its
policy. People mentioned the New York Times story on Sunday.
The flip side of that, the positive side, is, for goodness
sakes, they are now committing resources to stop the logging,
to stop the cutting. I mean, yes, there is leakage and there
are problems, but the fact is they are now taking steps
themselves to make sure that those soybeans that you saw do not
grow. And if we do not provide them incentives to do that, then
we are going to find that the pressures from farmers and others
will be overwhelming.
Senator Kerry. Well, I think that is well said. One hopes
it will happen.
Do you see a sufficient level of global leadership within
the developed countries to try to put those incentives on the
table?
Ambassador Eizenstat. I think that is why it has to start
with our legislation. In June this is going to be debated, and
the best way, Senator Kerry, for us to show we are serious on
the forest issue is for someone, either the chairman's mark
with Lieberman-Warner or one of you on this committee, to
introduce--in the 15-percent allowance that the bill permits
for international trading, to specifically say that forestry
credits are permitted as part of that 15 percent. That will
send a signal to these developing countries. It is the single
most important thing that could be done when this comes up for
debate.
Senator Kerry. I agree completely. Senator Menendez and I
will try to get it in the mark.
Did you want to comment, Mr. Forrister.
Mr. Forrister. Just to say that--I guess in a way stating
the obvious that you are right that the Europeans have, up
until this point, not had a great appetite for forestry-related
carbon products coming into their market. But I do think, as
they look toward the increased level of stringency going out
into the future and the potential demand from the United States
and Japan and other countries, as they ratchet down further on
their commitments, additional tools are going to be needed to
supply the growing market. I do think there is value in
providing the incentive from the financial side, so that there
is a pull on these types of forestry credits. This would mean
that there is value in keeping your forests standing, which
would tend to create an alliance with the landowner to try to
protect that forest and keep it standing because, otherwise,
they do not get the reward of the money for the forestry
offset. So I do think that this fundamental design element is
what is core to the policy.
There does need to be enforcement locally. That is a very
important component of making the policy work. But at the same
time, the financial value reinforces it: They just do not get
their money unless the forest continues to produce the carbon
benefit.
Senator Kerry. Absolutely. I could not agree more.
Mr. Hayes.
Mr. Hayes. I just want to make one related point, Senator.
Your point is very well taken in terms of the local politics
needing to work for these countries.
And I think it is important to put sustainable forestry
into this mix here. I do not think we can have a situation
where you simply have large cash payments going to countries
that are avoiding deforestation and think that that is going to
change the economic drivers here. There are tremendous advances
that are being made in terms of sustainable forestry, of
keeping forests that are producing forest products that are
sequestering carbon in those products, that are protecting
canopies with those products, and that is another place where
the United States can lead through amending the Lacey Act, for
example, and requiring that there not be products coming into
the United States that are illegal, and more importantly
probably, putting a forward push on demand by asking for
certification that products are coming from forests that meet
sustainable standards. I think these practical, on-the-ground
things are extremely important.
Senator Kerry. My time is up. But to accomplish all of
these things, I think you will agree you really have to have a
robust international transparent and accountable enforcement
mechanism. And those countries are going to have to sign up to
that line. We have not yet achieved this, but I think we are
moving in the right direction. You give it enough economic
value without creating allowances that are just giveaways for
bad practices or that encourage leakage, et cetera. You have
got to have a comprehensive piece here. If we do that--and I
think it is doable--then, hopefully, we can encourage a
sufficiently robust effort on the enforcement piece.
I was chairman of the Fisheries Subcommittee on Commerce
for years, and we have been struggling with too much money
chasing too few fish. And we do not have enough monitors. We do
not have people out there who are enforcing across the board.
And I think the same thing will be true in this sector as the
demand grows for those hardwoods, for the mahogany and the
teak--you are going to have tough enforcement.
Senator Menendez. Dr. Gurney, I saw you----
Dr. Gurney. No. Just a very quick comment just to emphasize
that there is, obviously, a linkage between the financial
incentive and the mechanisms those take and the magnitudes and
this monitoring measurement question.
Just to go back to the previous comment, again, some of the
largest sources of uncertainty are, in fact, the in-country
capacity, technical capacity, human capacity, infrastructure.
That is actually where probably the biggest difficulty is faced
from the scientific point of view.
So certainly, again, there is a linkage between--with a
sufficient price signal, there is a coevolution between the
ability to improve measuring and monitoring and the power and
strength of that price signal. So it is important to recognize
the two will most likely coevolve since the weakest part is, in
fact, probably the in-country technical capacity component.
Senator Menendez. So clearly there would be an incentive
for the greater the ability for the evaluation to take place,
the greater the value that may rise in terms of the credit.
Ambassador Eizenstat. And I think what I would say to
supplement the professor, which is certainly true about the
capacity, you have to have both satellite capacity above and
you have the in-country capacity on the ground. The in-country
capacity in countries like Brazil is improving. It is not where
it needs to be.
But my point is twofold. No. 1, while we are building that
capacity, let us put the legislation in effect. And No. 2,
there are mechanisms. The World Bank Forest Carbon Partnership
facility is trying to provide assistance for just that purpose.
The Norwegians just announced an aid package for forests. We
could do the same. So we need to build that capacity on the
ground. There are mechanisms to already do that, and by the
time the legislation passes the Senate and gets implemented, we
will be much further along not with just the satellite
telemetry but with on-the-ground capacity-building in the
countries themselves.
Senator Menendez. Let me follow up. I thank Senator Kerry
for his intervention. Let me follow up with two last questions,
and then we will let you go.
One is along the lines of something I thought Senator Kerry
was mentioning, and I wanted to pursue it in my second round
which is the whole sustainable development aspect of this. Just
like when we were dealing with Plan Colombia in a different
context, one thing was to do the enforcement, but if you do not
give a poor coca farmer an alternative to sustain his family,
he is going to continue to grow coca and that is not in our
interest. Similarly, here there are obviously consequences as
well. Logging is not necessarily the only action that is being
taken here.
And the question is, Should part of the inducement be how
we create sustainable development alternatives, be to create
incentives toward sustainable development in these countries
that have the rainforests?
Ambassador Eizenstat. Absolutely. I, 100 percent, agree
with what David said. I think we should strengthen the
Conservation Act, the Leahy amendment, exactly as David said.
We ought to make it increasingly difficult to import logs from
countries that do not have sustainable development programs,
and the kind of certification program I think which David
mentioned makes all sorts of sense.
So this has to be attacked from a variety of ways. We need
ODA for funds. We need a carbon market to include forestry
credits. We need sustainable development programs. All of these
together have to be considered as part of a whole.
Senator Menendez. This subcommittee, which also holds
jurisdiction over all of our foreign assistance--it seems to me
that one of the marriages we want to be looking at here,
particularly as it relates to these countries, is what are we
doing in these countries in terms of USAID and other related
development assistance projects to marry some of that together.
Would that be something that is desirable?
Mr. Hayes. Absolutely, Mr. Chairman. I mention that in my
written testimony as well.
And to make a related point, there can be unintended
consequences here if we do not design the program correctly.
For example, the problem of palm oil plantations in Southeast
Asia has been well documented. We want to make sure that not
only do we have sound economic architecture here for such a
program, but that it be environmentally sound, that it preserve
biodiversity principles, et cetera. We are encountering some of
those same issues here at home, and we need to just be aware
that they should be part of our design for any international
program.
Senator Menendez. Mr. Forrister.
Mr. Forrister. I think there are ways that aid programs
could be tremendously beneficial in helping with local
capacity-building and helping to train the scientists and the
local verifiers, et cetera about how to operate these types of
projects. As I think about it, in the business that I have been
in over the last several years, a lot of us in the carbon
business have benefited by work that USAID was doing in the
late 1990s helping through training exercises on how carbon
markets would work.
I have personally gone on missions to places, faraway
places, like Colombia and Ecuador, where I sat down with a
group of people that have a spark of interest in this market,
largely because of those programs that were in place back in
the 1990s. I particularly remember going into those two
countries--this is 2 or 3 years ago--and probably two out of
three of the project proposals that local companies brought
forward were forestry projects, which we could not buy because
we could not resell them in the European carbon market.
It is a great thing to create that capacity, but it really
only works, as again Ambassador Eizenstat has set forth, if
there is a clear policy signal that these credits are going to
be good for compliance in a carbon market somewhere. Therefore,
go forth and multiply. And I really do hope that the U.S.
Federal legislation has an openness to forest protection
projects, because I think it can stimulate a huge amount of
activity globally.
Senator Menendez. Last two questions. Dr. Gurney, if I gave
you a magic wand and you could move the science forward, what
would it take? Give me some sense of magnitude of what it would
take for a greater ability to be able to quantify the values
here. I know that is very unscientific, but I wanted to draw
you out of the box for a moment and see if I----
Dr. Gurney. The thing that is probably the most effective
place to expand resources at this point is, again, probably in-
country capacity. By that, I mean country exchanges of
scientific knowledge. The tropical forested countries are in
some ways relatively unknown in terms of biomass content,
spatial variability. There has been work in the last few years
that more and more is going into tropical forest countries from
the industrial scientific community, but we need partners in-
country. That has probably been one of the biggest barriers to
doing effective work there.
Consistency. Of course, a lot of this goes back to things
like governance, which I am not an expert at, but I can
certainly, as an observer from the outside, recognize that that
is often a difficulty. I will give you a quick anecdote. One of
the problems we have had in doing work in some tropical
countries is just simply getting instruments in-country.
Bringing them across the border effectively becomes an enormous
barrier sometimes and a big slowdown.
So probably the first thing I would do is probably build up
in-country capacity, scientific exchange, development of
infrastructure within countries like Brazil, Indonesia,
Malaysia, places where tropical deforestation is moving forward
at a rapid pace, install more monitoring and measurement
equipment, the ability to fly aircraft over countries. As I
said, satellite remote sensing technology is moving forward
because it is mainly pushed by the industrial world, although
we need in-country capacity to be able to use and analyze that
satellite information.
Senator Menendez. That is very helpful.
I have a vote going on and we have to get to the floor.
You have all referred to commodity prices. Certainly there
has been in recent months reports of soaring food prices
worldwide, and many place the blame on biofuel mandates and
some have said that biofuel demand has been blamed for
increased rates of deforestation in Indonesia and Brazil. And
some studies have concluded that even incredibly efficient
biofuel such as ethanol from sugar cane could actually be worse
for global warming because of the emissions growth associated
with deforestation.
Is this a cause for concern; something to look at? Is it a
time for a pause, or do we just let this ride?
Ambassador Eizenstat. It is an excellent question. First of
all, on the magic wand, my magic wand would be to get 60 votes
for Lieberman-Warner with forestry credits.
Ag conversion is one of the key drivers of deforestation,
and as I have mentioned, with rising commodity prices, there is
increasing pressure to convert land. On the biofuels mandate
that is in both the U.S. and EU legislation, it does put
additional pressure on prices. It is estimated that about 15 to
20 percent of rising food prices come from this and therefore
increased pressure for conversion or tropical forests for ag
production.
This is, again, another reason, however, to place the value
on the carbon stored in tropical forests so there is a
counterweight against the economic forces of rising ag
commodity prices.
On biofuels policy, it should include full carbon
accounting, taking account of the carbon emissions associated
with land conversion. The renewable fuels standard, which is
part of the 2007 Energy Independence and Security Act, does
require the administrator to take into account carbon emissions
associated with land use in the production of biofuels to
determine whether specific biofuels meet the mission reduction
thresholds. I think this is important so that we have a real
picture of what actually is being produced in terms of emission
reductions or, indeed, increases by biofuels mandates. So I
think Congress has taken that step and we need to get those
results as quickly as possible.
Senator Menendez. Thank you all for your testimony today. I
think it is a great opening to what will be a series of
hearings that the committee and the subcommittee will be
holding on a post-2012 climate change treaty and the things
that we need to consider, particularly in this case, tropical
forests.
The record will remain open for 2 days so that committee
members may submit additional questions to the witnesses.
Certainly if you receive those, we would ask you to respond
expeditiously to them. We thank you again for your insights.
Much reference has been made to the New York Times article.
I ask unanimous consent that it be included in the record.
Without objection, so ordered.
[The Times article referred to follows:]
[From the New York Times, Apr. 19, 2008]
With Guns and Fines, Brazil Takes On Loggers
(By Alexei Barrionuevo)
Alta Floresta, Brazil.--A convoy of six black sport utility
vehicles pulled into a lumberyard unannounced here one recent morning.
Out popped about two dozen members of Brazil's security and police
forces, packing sidearms and rifles. But the weapon the foreman feared
most was carried by a separate group of agents of Brazil's national
environmental agency: Bright yellow tape measures.
``Thirty-eight! Seventy!'' the agents shouted from the logs
clustered in the thick mud as they quickly went to work. One agent,
Mario Rubbo, jotted down the volume of each log for comparison with
what the lumberyard had declared to state authorities. Discrepancies
could mean fines or criminal charges.
This is Operation Arc of Fire, the Brazilian government's tough
campaign to deter illegal destruction of the Amazon forest. It is
intended to send a message that the government is serious about
protecting the world's largest remaining rain forest, but so far it has
stirred controversy for its militaristic approach to saving trees, and
the initial results have been less than promising.
The operation began in February after new satellite data showed
that deforestation had spiked in the second half of 2007 after three
consecutive years of declines. The new data rattled the government of
President Luiz Inacio Lula da Silva, which has been trying to play a
bigger role in discussions about global climate change amid mounting
scientific evidence that some 20 percent of annual global greenhouse
emissions come from the clearing of tropical forests, including the
burning, decay and decomposition of the land.
The government says it will now spend $118 million over at least
the next year to crack down on illegal loggers. It has mobilized some
600 officials in three states--Mato Grosso, Para and Rondonia--as well
as 175 cars and trucks and four airplanes. In the operation's first few
days, the police discovered hidden troves of wood, sometimes
underground and invisible from the air.
Already, the authorities have issued $25.9 million in fines, made
19 arrests and seized more than 51,140 cubic yards of wood, which has
been transferred to local governments, said Kezia Macedo, an analyst
with the federal environmental agency, known as Ibama, in Brasilia.
But the challenges are daunting. The Amazon is vast, with some 1.3
million square miles still forested. The 48 police officers and two
dozen environmental agents involved in Arc of Fire here seem minuscule
for the territory in northern Mato Grosso.
That is one reason the agents are mostly concentrating on
bottlenecks where the wood must be transported, catching loggers coming
in and out of Alta Floresta, a city of about 50,000 people in northern
Mato Grosso.
The federal government has tried such police operations before,
notably in early 2005. But those efforts were only sporadic. This time
government officials say they plan to establish permanent operations in
the region to control the exit of wood from the forest, and keep
pressure on the loggers.
Tensions were high in the first few days of the program in
Tailandia, a city in Para State, where loggers joined local officials
to protest and harass agents involved in the operations.
Here in Mato Grosso, Brazil's giant agricultural state where the
most deforestation has occurred, Ibama agents are confronting a
powerful governor, Blairo Maggi, the world's largest soybean producer,
known in Brazil simply as the ``King of Soy.'' While Governor Maggi has
softened his public stance the past few years on deforestation, he
remains a forceful advocate for agricultural expansion.
He has reportedly sought meetings with Mr. da Silva in recent days
to discuss Arc of Fire. Ibama agents privately suggest that Governor
Maggi exerts a strong influence over Mato Grosso's state environmental
agency. The state officials have successfully challenged Ibama's method
of measuring wood volumes and criticized the deforestation-detection
system of Brazil's National Institute for Space Research.
Both the federal and state environmental agencies have struggled
with accusations of corruption. In 2005, Governor Maggi fired his
environmental secretary after he was charged with bribery, though the
charges were never proved. In Alta Floresta, the Ibama agents are led
by Rodrigo Almeida, a former travel agent who has been with Ibama for
14 years. They try to maintain a low profile and declined to have their
faces photographed for fear of being singled out for intimidation.
``For sure, there are a lot of interests involved in these
operations,'' said Glauco Saraiva, the Federal Police chief who is in
charge of Arc of Fire here.
After averaging 7,700 square miles a year in the 1990s,
deforestation in Brazil had slowed to 4,200 square miles a year in
2006, before increasing again last year. From August to February an
average of 270 square miles was deforested a month, according to the
National Institute for Space Research.
It is tough to say if the agents are managing yet to turn back the
trend. In the operation's first month, February, deforestation in
Brazil rose another 13 percent over January, some 88 percent of it in
Mato Grosso, the space research institute reported.
Mr. Almeida, 35, said the alarming increase underscored the need
for the government's campaign. In Alta Floresta, Lindomar Della
Justina, the president of the local logging syndicate, said Ibama
agents were waging a losing battle. ``If you paralyze activity here,
will that stop the deforestation?'' he asked. ``It won't stop it.''
Mr. Rubbo, the Ibama agent, essentially agreed. ``I am playing a
game we are fated to lose,'' he said one afternoon. ``The game is 12 to
1 against us and there are two minutes to turn it around. But I just
try to do my part here.''
Local industry officials like Mr. Justina are not happy. They say
Arc of Fire is stifling commerce in an industrious town that answered
the call of the military government in the 1970s for Brazilians to
colonize the Amazon before foreigners did. ``This strategy to put
handcuffs on us is killing our morale,'' said Vicente da Riva, the
president of Alta Floresta's rural association.
At the Ibama headquarters here, agents study satellite data from
the space institute and Google Earth on computers. A large green parrot
occasionally squawks from the roof next to the dining table where
agents are briefed on their missions.
A call came one morning at 9. A truck suspected of carrying illegal
wood was caught on the road into town. Three Ibama agents were
dispatched to the Federal Police headquarters where the truck had been
impounded.
Once there, one agent, Otaciano Matos, pulled a tape measure from
his burgundy briefcase. He quickly declared it an open-and-shut matter:
The truck had no license plate and the driver had no documentation
proving the wood's origin or destination. ``Illegal wood,'' he said
simply.
Later that night a group of five Ibama agents drove eight miles out
of town on a midnight ``blitz.'' Mr. Almeida, the Ibama leader, wearing
a knit ski cap to guard against mosquitoes, explained that agents had
caught several trucks at this spot where two dirt roads merge into the
main highway into town.
Illegal loggers prefer to travel deep in the night, he said. With
moonlight forcing its way through the clouds, the agents gathered in a
circle and smoked cigarettes and traded stories about their hometowns.
``Rodrigo, are we are doing the right thing?'' asked Paulo
Iribarrem, a burly 17-year Ibama veteran, breaking a momentary silence.
``Don't worry, pal, this is just the first stage of the
operation,'' Mr. Almeida replied. ``There is more to come.''
The agents stopped one passenger car, and a motorcycle or two
passed by. But after nearly two hours, with no trucks hauling wood,
they called it quits and headed home.
[Mery Galanternick contributed reporting from Rio de Janeiro.]
Senator Menendez. And with that, the hearing is adjourned.
[Whereupon, at 12:07 p.m., the hearing was adjourned.]
----------
Additional Statements Submitted for the Record
Prepared Statement of Hon. Joseph R. Biden, Jr., U.S. Senator From
Delaware
I thank Senator Menendez for convening this important hearing on
deforestation issues. It is through forests that our planet breathes.
Over their life cycles, trees absorb carbon dioxide; when they die,
they release it. Preserving and adding to our forest cover can
compensate for our industrial carbon dioxide emissions. Cutting forests
removes that protection and adds to the global buildup of greenhouse
gases that are the driving force of climate change.
That is why forests are now a key feature of international climate
change negotiations. Nations with significant forest cover have an
asset that helps the whole planet in the long-term fight against global
warming. But those same forest assets are worth money today. For many
of those nations, with tens of millions of people to feed, the
economics are compelling--cutting and selling those trees for short
term economic gain beats preserving them for long-term global benefits.
We must change that equation. We must make preserving and restoring
forests profitable--not just for the rest of the world, but for those
countries, too. The basics of the tradeoff are clear. In the simplest
case, protecting forests can offset emissions from industrial
activities. If we make it costly for industries to emit carbon dioxide,
we can make it profitable for them to pay for the protection of forests
that help to compensate for those emissions.
But we have a long way to go before that simple transaction can
become part of the global effort to slow, stop, and reverse the
increase in the concentration of greenhouse gases that threaten our
climate. We will need a domestic cap-and-trade system that is part of a
wider global carbon trading system. We will need an international
system of measurement and verification for that trading system to work.
We will need to build the technical capacity in developing countries,
and the financial markets in developed countries, to bring buyers and
sellers together.
If we succeed, there will be many additional benefits. Tropical
rainforests--our richest carbon sinks--are also our richest harbors of
biodiversity. They are the sources of life-saving drugs, they protect
against floods and the erosion of agricultural lands, and they are
crucial to both fresh and saltwater fishing. I'm proud to have
authored, with Senator Lugar, debt-for-nature swaps through the
Tropical Forest Conservation Act. We have written a reauthorization of
that successful program again this year, and I hope we can finally get
it passed and signed into law. In the past 10 years, this legislation
has protected 47 million acres of vital tropical habitat.
This hearing is exactly what I hoped to see when Senator Lugar and
I encouraged committee members to focus their energies and attention on
climate change. The United States continues to participate in
international negotiations on a post-2012 climate agreement. As those
discussions go forward, this committee must keep pace with those
discussions. We must make sure that the Senate itself will be prepared
to give informed consideration to any international agreement that may
be reached. The United States, the largest historical source of the
greenhouse gases now in the atmosphere, is essential to that process.
We, as a nation, must be prepared to lead in the search for a global
response.
Today's witnesses bring broad expertise. Ambassador Eizenstat has a
distinguished career in public service, and today in private practice
continues to contribute to important international debates, from
climate change to Holocaust reparations. He was the lead U.S.
negotiator in Kyoto and thus knows the process and the policy
intimately. He is joined today by former Deputy Secretary Hayes who
spent his time at the Department of Interior working on many closely
related issues. Dr. Kevin Gurney from Purdue University is a leader on
the measurement and verification that will prove essential to make any
deforestation deal work. Dirk Forrister represents the carbon traders
who deal with carbon on trading markets day in and day out and has also
been part of our country's official climate change negotiating team.
I hope that this hearing will bring some much needed focus to
questions of deforestation. As much as one-fifth of human carbon
emissions are from deforestation and land use changes--more than the
entire global transportation sector. That means every car, bus, train,
airplane in the world. We can't solve this problem without taking into
account the role of forests.
Again, I thank Senator Menendez for convening this hearing and for
his intention to hold a series of hearings exploring the challenges and
opportunities of a post-2012 climate framework. The science is clear
that climate change must be addressed, and that it must be addressed
now, and I hope these hearings and other committee efforts will advance
our understanding of the role that the United States can and will play
in the coming years.
______
Prepared Statement of Hon. Chuck Hagel, U.S. Senator From Nebraska
Chairman Menendez, thank you for holding this hearing on the
important issue of preventing deforestation as part of an international
climate change agreement. Thank you also to our witnesses: My friend,
former Ambassador Stuart E. Eizenstat, on behalf of Sustainable
Forestry Management; Professor Kevin Gurney, Associate Director of the
Purdue Climate Change Research Center; David Hayes, former Deputy
Secretary of Interior in the Clinton administration; and Dirk
Forrister, Managing Director of Natsource LLC.
This year, both Congress and the International Community are
working to craft a realistic approach to mitigating climate change that
is truly global in nature. A workable international treaty for dealing
with climate change must be a diplomatic priority.
The ``Bali Roadmap'' on climate change negotiations has provided
the outline for negotiations on a successor treaty to the flawed Kyoto
Protocol. I am encouraged that the roadmap calls for a truly global
treaty that will ask for commitments from all nations, which is
consistent with the Byrd-Hagel Senate resolution that passed by a vote
of 95-0 in 1997.
Global climate change concerns us all. It does not recognize
national boundaries. It does not discriminate between rich and poor
people or industrialized and developing nations. Dealing with it is a
shared responsibility for all people and all nations. Today's hearing
focuses on an often overlooked source of greenhouse gas emissions: The
carbon released by the clearing and burning of tropical forests.
Today, tropical forest is vanishing at a rate of 5 percent a
decade, wrecking habitats, harming biodiversity, and releasing
approximately 3 billion tons of carbon dioxide a year. The destruction
of tropical forests has been estimated to cause 20 percent of the
yearly global release of greenhouse emissions. We cannot simply ignore
these emissions and pretend that all greenhouse gas emissions come from
power plants--a global treaty must comprehensively deal with all
sources of emissions.
If international greenhouse gas emissions statistics included
emissions from deforestation, Indonesia and Brazil would become the
world's third- and fourth-largest emitters (behind the United States
and China), respectively. Together, Brazil and Indonesia contain almost
35 percent of the world's tropical forests. Since 1990, these nations
have lost 11 percent of their forest cover.
Protecting tropical forests is an issue that affects the
environmental and economic health of nations around the world, not only
those in the tropics. We must responsibly address climate change with a
comprehensive international strategy that incorporates economic,
environmental, and energy priorities. Efforts to protect the world's
forests are an important part of the Bali Roadmap, and a global
agreement should recognize the environmental and economic benefit these
forests hold, when they remain intact.
The Kyoto Protocol created perverse incentives regarding the
protection of forests that a new treaty will have to correct. For
example, under Kyoto, there are financial rewards for capturing and
storing carbon in forests--but only if nations plant new forests, or
regrow old forests that have been clear-cut. There is no mechanism to
protect old-growth forests--which science has shown sequester the
greatest amounts of carbon.
Global climate policy will require a level of diplomatic intensity
and coordination worthy of the magnitude of the challenge. America has
an opportunity and a responsibility for global climate policy
leadership. But it is a responsibility to be shared by all nations. If
we address forestry protection in a rational, manageable, and
verifiable way, this will help bring a comprehensive U.N. sponsored
international deal closer to reality.
Thank you again, and I look forward to the testimony of our
witnesses.
______
Prepared Statement of Jacqueline Schafer, Assistant Administrator for
Economic Growth, Agriculture and Trade, U.S. Agency for International
Development, Washington, DC
Mr. Chairman, I appreciate the opportunity to submit a statement
for the record on this important topic. We are eager to highlight how
our Government and our team at the U.S. Agency for International
Development (USAID) work to address international deforestation and
climate change. This cross-cutting issue brings together collaboration
of many offices in the Bureau for Economic Growth, Agriculture and
Trade, which I head as Assistant Administrator. I am proud of the work
of the United States on this issue and honored that the many people
around the world working for USAID contribute to addressing
international deforestation and climate change.
Tropical forests are critical to the survival and well-being of
people around the world. For example, many people depend on forests for
food, shelter, income, medicine, and clean water. In addition, tropical
forests harbor some of the world's unique and critically endangered
biodiversity, for example at least 120 important drugs currently in use
were originally derived from naturally occurring plant species. Forests
help mitigate climate change by storing carbon in vegetation and soils.
Forests also provide other services, such as regulating water quality
and quantity by slowing the runoff of rainwater, improving infiltration
of water into soils, and filtering water as it flows to streams and
aquifers. This helps provide safe and reliable water sources to
surrounding communities. Healthy forests enable surrounding communities
to be resilient to economic and environmental shocks such as drought.
Forests and biodiversity are also important to many people for their
spiritual and aesthetic values.
Unfortunately, tropical forests face a number of threats, including
conversion to agriculture, illegal logging, unsustainable extraction of
timber and other forest resources, climate change, pollution, and
policies that subsidize forest conversion to other uses. Deforestation
is a significant contributor to climate change: Scientific studies have
estimated that 20 percent of global greenhouse gas emissions are
attributable to deforestation. Each year, approximately 10.4 million
hectares of forest are lost. To put this into perspective, that is
equivalent to losing an area roughly the size of Virginia each year.
The World Bank estimates that illegal logging represents a loss of $10-
$15 billion per year to developing countries. Illegal logging also
fuels corruption and in some countries finances conflict. Loss of
forest cover, riparian buffers and mangroves also represent a
significant increase in regional and local vulnerability to climate
variability and climate change.
To address these concerns and to ensure that forests and
biodiversity continue to play an important role in sustainable
development, USAID supports programs around the globe that aim to
improve the conservation and sustainable management of forests and
biodiversity.
In order to address the societal context in which deforestation
occurs, it is important to have an integrated response that includes
promoting sustainable economic development, alleviating poverty,
strengthening forest governance, and conserving biodiversity. USAID
works in partnership with recipient countries, NGOs, and other partners
on many fronts. The goal is to first empower local communities. Local
populations are the most immediate custodians in the management of
tropical forests, and USAID recognizes that engaging these users is
critical to sustainably managing and protecting those forests. Second,
we aim to improve forest policy. We work with host country governments
to establish favorable forest management laws and policies, ensure
transparency and stakeholder participation, and build capacity to
implement those policies. Third we promote sustainable practices. We
help establish sustainable forest management practices in forest
enterprises. Fourth, we coordinate efforts across borders. Important
tropical forests often cross political boundaries; we support programs
that work across borders to promote effective large-scale forest
conservation. And finally, we make it a priority to involve the private
sector. Through public private partnerships, USAID successfully
leverages private sector financing and commitments to facilitate legal
and transparent trade of forest products derived from legitimate
operators and well managed forests. By forging partnerships that
function at local, national, and international levels, the U.S.
Government is implementing a wide range of effective initiatives and
programs that reduce deforestation and associated greenhouse gas
emissions while also supporting sustainable development goals.
I would like to highlight for the committee some of the key U.S.
efforts in this area. As reported in our most recent performance
report, USAID supports sustainable forest management and conservation
around the globe, investing approximately $85 million in tropical
forest activities from all funding accounts in FY 2006.\1\ These
investments led to significant accomplishments in Africa, Asia, the
Near East, Latin America, and the Caribbean. In addition, the Tropical
Forest Conservation Act program receives an annual budget of $20
million per year allocated to the Debt Restructuring Account (DR) in
Treasury in which USAID plays a key management role. In 2006, $27
million from this account leveraged $42.7 million for forest
conservation through local NGOs and community groups.
---------------------------------------------------------------------------
\1\ This testimony contains performance results from the report:
``Foreign Assistance Act Section 118: Tropical Forests, FY 2006.''
Results from FY 2007 are currently being collected and will be
presented in the FY 2007 Section 118 report.
---------------------------------------------------------------------------
Activities I would like to highlight include:
The President's Initiative Against Illegal Logging (PIAIL) assists
developing countries in their efforts to combat illegal logging in the
key tropical forest regions of the Congo Basin, the Amazon Basin and
Central America, and South and Southeast Asia. In Africa, PIAIL works
through the Congo Basin Forest Partnership (CBFP) and USAID's Central
African Regional Program for the Environment (CARPE) to reduce the rate
of forest degradation and biodiversity loss in Cameroon, Central
African Republic, the Democratic Republic of the Congo, Equatorial
Guinea, Gabon, the Republic of Congo, Burundi, Rwanda, and Sao Tome.
CARPE supports a network of national parks and protected areas,
improves management of forestry concessions, and assists forest
communities. Residents of the Lac Tele Community Reserve in the
Republic of Congo created natural resource management committees who
mapped development, buffer, and protected areas, and mounted community
patrols in protected areas. By allowing local communities to make their
own resource use decisions, the communities were able to return to the
customs of their ancestors, regulate use by nonlocals, and resolve
conflicts between both families and villages. In February 2005, Central
African heads of state signed a treaty to coordinate protection and
management of the regional tropical forest resources. The treaty was
followed by a Presidential decree to regulate logging concessions in
the DRC and an agreement between Cameroon, Gabon, and the Republic of
Congo to implement landscape and wildlife management plans for the Dja-
Minkebe-Odzala Tri-National Landscape. The CARPE program will improve
the management of over 200 million hectares of forest.
Tropical Forest Conservation Act (TFCA) agreements are offered to
eligible developing countries to relieve certain forms of official debt
owed to the United States Government while simultaneously generating
funds for forest conservation activities. The TFCA is an interagency
program led and jointly managed by State, USAID, and Treasury. As of
December 2007, approximately $95 million in congressionally
appropriated funds have been used to conclude TFCA agreements with
Bangladesh, Belize, Botswana, Colombia, Costa Rica, El Salvador,
Guatemala, Jamaica, Panama (two agreements), Paraguay, Peru, and the
Philippines. The local funds created under these programs will together
generate more than $163 million for grants and projects over time to
help protect and sustainably manage tropical forests in beneficiary
countries.
The Liberia Forest Initiative (LFI) was created in early 2004 to
support the rehabilitation and reform of the Liberian forestry sector
and to ensure forest resources are used for the benefit of the Liberian
people. Programs under LFI are jointly implemented by the U.S. State
Department, U.S. Forest Service, USAID and the U.S. Treasury Department
together with nongovernmental organizations such as Conservation
International and the Environmental Law Institute. The initial 2 years
of LFI focused on helping Liberia reform the process of allocating and
managing forest concessions so that the U.N. would remove timber
sanctions. Sanctions were lifted in early 2006 after the new
democratically elected government developed and initiated a transparent
concession process. The Liberian Parliament has passed a new forestry
law supporting a policy of increased transparency in forest management,
greater community involvement, more equitable access to forest
resources, and improved forest conservation. Successful implementation
of these policies promises to reduce illegal and unsustainable logging
and improve management of Liberia's approximately 4 million hectares of
forests.
For the past 15 years, USAID has worked closely with Madagascar to
protect its exceptional biodiversity and forest ecosystems while
addressing its significant poverty though our Madagascar Environment
and Rural Development program. In 2005, the President of Madagascar
announced his goal of tripling the size of the country's protected area
network. Working with the Government of Madagascar, USAID helped to
achieve this goal by assisting in the development of a framework and a
participatory process that guided the creation of 13 new protected
areas. The U.S. Government also helped to ensure the long-term
viability of the protected areas by establishing the Protected Areas
and Biodiversity Trust Fund with an initial capital investment of $4
million from three founding donors--the Government of Madagascar, WWF,
and Conservation International. To reduce slash-and-burn agriculture
and to address rural poverty, USAID continues its work to introduce
improved agricultural techniques, to encourage the transfer of natural
resources management to local communities and to link producers to
markets. In addition, USAID and the U.S. Forest Service have helped the
Malagasy Forest Service develop a far-reaching strategy for
institutional reforms, a competitive forest permit bidding system, and
a forest zoning process that balances conservation and production
needs. U.S. Government investments benefit over 13 million hectares of
forest in Madagascar.
In Indonesia USAID works through The Nature Conservancy (TNC)--
World Wildlife Fund (WWF) Alliance to Promote Forest Certification and
Control Illegal Logging. This Alliance has created a comprehensive
legality standard and timber-tracking system for wood products,
allowing purchasers to differentiate legal and illegal timber. In
addition, the Alliance has helped directly improve forest management.
For example, WWF helped two new companies carry out baseline
assessments and devise an action plan to achieve forest certification.
As a result, over 200,000 hectares of forest will be under improved
management. Through this Alliance, USAID has helped improve the
management of nearly 1.2 million hectares of forest in Indonesia. USAID
also protects endangered orangutans and their habitat through community
and local government participation. Grants have been given to the
Orangutan Foundation International, The Nature Conservancy, World
Education and Conservation International to work on the islands of
Borneo and Sumatra. A major focus includes conducting forest patrols,
training park officials, and using Geographic Information Systems (GIS)
to help monitor and manage Tanjung Puting National Park. Additionally a
38,000 hectare former logging concession has been handed over to and
managed by indigenous Dayak communities for forest and orangutan
conservation.
Leveraging expertise and funding from private sector partners like
Johnson & Johnson, TetraPak, Home Depot, Gibson Guitars, and Ikea, the
Sustainable Forest Products Global Alliance (SFPGA) between USAID,
Metafore, WWF and the worldwide membership of the Global Forest Trade
Network is working as a public-private partnership to increase the
demand for products made from sustainably managed forests. This is
improving the economic viability of sustainable forestry. In Africa,
SFPGA works in a number of countries to foster sustainable forest
management. In Cameroon, WWF's Central Africa Forest & Trade Network
obtained commitments from logging companies to help develop sustainable
forestry systems by assisting the formation of village forest
committees to provide input into local forest concession management. In
Ghana, the Forest and Trade Network has achieved similar participation
from the forest industry, leading to a recent conference that developed
management prescriptions for High Conservation Value Forests, a key
step in obtaining forest certification.
The long-term goal of USAID's forestry program in Brazil is to
significantly increase the area of the Brazilian Amazon under
sustainable forest management, reconciling the desire for economic
growth with the need for healthy, working forests. USAID's partners
provide training in forest auditing procedures and forest management
techniques and a major opportunity exists to support the newly
established Brazilian Forest Service by expanding on the longstanding
relationship between USAID, the Brazilian Ministry of Environment, and
the USDA Forest Service. USAID has helped place an additional 1.4
million hectares of natural forest under sustainable management in the
Brazilian Amazon. With technical assistance from USAID partners,
Conservation International and Instituto Raoni, Brazil also achieved
the largest area of certified tropical forest in the world: An area of
1.5 million hectares of Amazonian forest has been certified for
sustainable extraction of Brazil nuts by Kayapo indigenous communities
in southern Para State. To date, nearly 3 million hectares of forest
are under management plans or are certified for sustainable extraction.
Nearly 3,900 people were trained in sound forest management techniques
in FY 2006 and nearly 10,000 more were taught best practices, including
fire management and land use planning.
Mr. Chairman, USAID is dedicated to applying our experience in the
design of programs going forward. The long-term success of USAID's
development programs will depend upon how climate change is considered
in planning and implementation. We will work with nations to adapt to
the impacts of climate change, strengthen resilience, disseminate tools
and methodologies to improve vulnerability and adaptation assessments,
and integrate adaptation into development. By incorporating--
mainstreaming--climate change into existing priority programs,
development success becomes more robust when viewed in the long term.
In response to the May 31, 2007, speech by President Bush on
climate change, USAID requested an increase in climate change specific
funding in the President's FY09 budget. The bulk of these efforts will
add to the extensive forest conservation and biodiversity programs at
the Agency, and will create new efforts to support adaptation efforts
in development assistance. The activities will contribute to an
improved global environment through climate change mitigation and
adaptation while at the same time contributing to poverty alleviation
and economic growth in countries USAID serves.
Activities in the forest sector address forests and climate change
strategically. Our programs work to reduce CO2 emissions from
deforestation, promoting sustainable forest management and forest
conservation, and increase CO2 sequestration through reforestation.
Activities seek the significant cobenefits of economic development and
improved livelihoods that come from local economies that are
diversified through productive integration of trees in agricultural
lands, and sustainable use of existing forests. Reforestation is a way
to accomplish economic development, increase food security, meet energy
needs, provide environmental services like improved water supply, and
reduce sources of conflict.
Healthy forests also help buffer against future climate changes and
increased weather variability. Sustainable forest management can help
communities' resilience to changing temperature regimes, precipitation
patterns and runoff. Sustainable forests help maintain water table
levels, continue local precipitation patterns, provide buffers for
flooding, and absorb heavy rains. There are a number of key elements to
USAID's proposed FY09 program. USAID will manage four regional forest
conservation/sustainable forest management programs (CBFP, ICAA, Asia,
West Africa) covering heavily forested areas of the tropics and
subtropics in the developing world. We will continue country-based
biodiversity programs addressing the identified biodiversity hotspots,
their relationship as habitat for endangered species, and alternative
livelihoods and economic growth for the local people. USAID will create
targeted reforestation programs to increase forest cover in areas
concerned with degraded lands, impacts from extreme weather events,
desertification, water harvesting, and drought resilience. And finally
USAID will invest in sustainable efforts that help developing countries
meet their own energy demands domestically while providing for food
security and improved livelihoods of people.
In closing, Mr. Chairman, forests were once seen simply as an
important economic asset: A source of timber and game, or land for
conversion to agriculture. Now we know the importance of forests and
biodiversity in other roles. They regulate water supplies; they provide
nontimber assets including tourism, biodiversity, and culture; and they
influence the global climate and carbon cycles.
Deforestation is understood to be a threat to biodiversity and also
to watersheds, livelihoods, and indigenous people--illegal logging
represents a significant lost asset to the country. We now know that
deforestation is a significant contributor to global GHG emissions,
thus reducing deforestation is essential for reducing or offsetting
emissions. Deforestation also increases vulnerability to climate
change, at the site and downstream--changing precipitation patterns,
water retention, water quality, increasing run off especially in
extreme events--but also results in a lost economic backstop, the
``supermarket of last resort.''
As such, USAID will continue to address forests and biodiversity
management as part of an integrated response to address the drivers of
deforestation. This response includes promoting sustainable economic
development, alleviating poverty, strengthening forest governance, and
conserving biodiversity, while incorporating climate change mitigation
and adaptation approaches to apply science to reach sustainable and
enduring development outcomes.