Carbon finance could mean millions for Kenya
Carbon finance could mean millions for Kenya
mongabay.com
November 5, 2006
Kenya could earn millions of dollars for reducing its deforestation rate through a carbon trading mechanism under consideration this week at U.N. climate negotiations in Nairobi.
The initiative, put forth a year ago by a coalition that now includes 15 developing countries, calls for compensation from industrialized nations in exchange for tropical forest conservation. The plan relies on the concept of “avoided deforestation” whereby developing countries are paid to prevent deforestation that would otherwise occur. The principal is based on the carbon storage capabilities of tropical forests: when trees are cut and burned, carbon is released into the atmosphere contributing to global warming. Worldwide about 20 percent of greenhouse gas emissions are produced by deforestation. By “avoiding” or preventing deforestation, developing countries can effectively cut global emissions of heat-trapping gases. These “carbon credits” can be sold to industrialized countries that fail to meet emissions limits imposed under international agreements like the Kyoto Protocol.
In recent months, carbon finance has been widely praised, including endorsements from the U.N., the World Bank, and even the United States. Policymakers and environmentalists alike find the idea attractive because it could help fight climate change at a low cost while improving living standards for some of the world’s poorest people and preserving biodiversity and other ecosystem services.
Mongabay.com analysis of U.N. deforestation data suggests that an avoided deforestation initiative could be worth $4-36 million per year to Kenya, depending on how much deforestation it could “avoid” and the market price for carbon offsets.
Between 2000 and 2005 Kenya lost an average of 12,000 hectares of forest per year according to figures from the Food and Agriculture Organization of the United Nations (FAO). How much carbon does this represent? At the low end, FAO estimates that each hectare of Kenyan forest stores an average of 76 metric tons of carbon in above-ground biomass (more exists in below-ground biomass, dead wood, vegetation litter, and soil) that would be otherwise released by deforestation and subsequent land conversion for agriculture or pasture. Other research suggests that net carbon released from deforestation of secondary and primary tropical forest, allowing for the carbon fixed by subsequent land use, is of the order of 100-200 metric tons per hectare. So deforestation in Kenya releases on the order of 76-150 metric tons of carbon for each hectare of cleared or converted for agriculture. As such, Kenya’s annual deforestation rate of 12,000 hectares may produce 912,000-1,800,000 tons of carbon emissions per year.
Assuming a market rate of $4 per metric ton of carbon dioxide — the current trading price of CCX Carbon Financial Instrument contracts on the Chicago Climate Exchange, but higher in Europe — Kenya’s avoided deforestation could be worth at minimum $3.6-$9 million per year, using a simplified model for calculating carbon values. At the higher end, using studies that show “carbon damage” is closer to $20 per ton, avoided deforestation could be valued from $18.2-36 million per year. Of course determining what constitutes “avoided deforestation” is a matter of definitions but nonetheless funds from avoided deforestation could make an important economic contribution.
What is the opportunity cost to Kenya of reducing its deforestation rate? Well, this is a bit more difficult to calculate but a recent World Bank study said that land worth $200-500 per hectare as pasture could be worth $1,500-$10,000 if left as intact forest and used to offset carbon emissions from industrialized countries. Using this figure, avoided deforestation could be a net economic benefit to Kenya in addition to the ecological payoffs afforded by leaving forest intact.
This paper is based on an earlier mongabay.com article: Avoided deforestation could help fight third world poverty under global warming pact
