Is the Amazon more valuable for carbon offsets than cattle or soy?
Rhett A. Butler, mongabay.com
October 17, 2007
While drivers of Amazon deforestation are stronger than ever, mounting concerns over climate change and the effort to reign in greenhouse gas emissions may provide new economic incentives for landowners to preserve forest lands through a concept known as "avoided deforestation".
Given the possibility that carbon finance through avoided deforestation could become a reality, does it make economic sense for Amazon landowners to start protecting forest for carbon offsets rather than clearing it for cattle pasture, soybean farms, or board-feet of timber? Preliminary analysis suggest that yes, "carbon conservation" could be an attractive alternative to other uses of Amazon forest. Further, because standing forest confers ancillary benefits -- including option value, biodiversity preservation, and other ecosystem services -- avoided deforestation would do more than help mitigate climate change.
The following is a rough comparison of carbon offsets to other forest uses -- specifically industrial agriculture, cattle ranching, logging, timber plantations, and the harvest of sustainable forest products (which could continue to be conducted under "avoided deforestation" schemes). Please note that these figures will be updated as more data becomes available.
A word of caution: These figures are speculative. Many details need to be worked out before carbon finance through avoided deforestation (AD) becomes a reality. The fate of avoided deforestation will be determined at the December climate meeting in Bali.
Because carbon offsets from avoided deforestation are not currently part of any legal emissions framework, it is difficult to anticipate pricing. For this exercise a range of prices are presented. These are based on 2006 real-world figures for various mechanisms -- legally binding and voluntary; allowances and project-based transactions.
Under the scenario presented, the cost of carbon offsets are assumed to be 25 percent of the proceeds in order to account for management feeds and funds held in escrow (to safeguard in the event of forest degradation or destruction).
Breakeven Analysis: Assuming a carbon offset of 550 MtCO2e/ha of forest, the breakeven point for cattle ranching would be $2.00-5.38 per MtCO2e.
Returns from logging vary depending on how timber is extracted and what species are present. Typically, the high diversity of rainforest trees conspires to keep logging yields low: while hundreds of trees may be found in a single hectare, only a few will be of commercial interest. Estimates range from $156 to $1081 per hectare for reduced impact logging techniques to $600 per hectare using conventional logging (Almeida and Uhl 1995).
Breakeven Analysis: Assuming a carbon offset of 550 MtCO2e/ha of forest, the breakeven point for logging would be $0.28-1.97 per MtCO2e.
Peters et al. (1989) estimate the net present value of a Gmelina plantation at $3184 per hectare.
Breakeven Analysis: Assuming a carbon offset of 550 MtCO2e/ha of forest, the breakeven point for a Gmelina plantation would be $5.79 per MtCO2e.
Breakeven Analysis: Assuming a carbon offset of 550 MtCO2e/ha of forest, the breakeven point for agriculture would be $2.55-6.12 per MtCO2e.
According to a local cattle rancher, prices for pasture land in Mato Grosso was around $450 per hectare in early 2007.
Breakeven Analysis: Assuming a carbon offset of 550 MtCO2e/ha of forest, the breakeven point for cattle ranching would be $0.82 per MtCO2e.
Sustainable forest products
Two widely-cited studies claim that the sustainable harvest of fruit, latex (rubber), timber, and other forest products can generate high returns for forest users. Grimes et al. (1994) found that non-timber forest products (NTFPs) at Jatun Sacha Biological Station in Ecuador could yield $1257 to $2939 per hectare. Peters et al. (1989) came up with a higher figure for a site on the Rio Nanay in Peru: a net present value of $6330 to $6820 per hectare.
Breakeven Analysis: Assuming a carbon offset of 550 MtCO2e/ha of forest, the breakeven point for cattle ranching would be $2.29-12.40 per MtCO2e.
These calculations suggest that from an economic standpoint, avoided deforestation could be a favorable use of land in the Amazon basin. Large-scale forest conservation for carbon offsets, combined with agricultural expansion on Brazil's more than 50 million acres of degraded pasture, could pay dividends for forest stakeholders, the Brazilian economy and the global environment.
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Indonesia's peatlands may offer U.S. firms global warming offsets
(8/29/2007) The following is modified version of a letter I've used to pitch U.S. companies on the concept of carbon finance in Indonesia's peatlands. Discussions are slow and the critical December U.N. climate meeting is fast approaching, so I'm posting this as a tool to help you get American firms interested in avoided deforestation offsets. Please feel free to use, modify, and distribute this letter widely.
Low deforestation countries to see least benefit from carbon trading
(8/13/2007) Countries that have done the best job protecting their tropical forests stand to gain the least from proposed incentives to combat global warming through carbon offsets, warns a new study published in Tuesday in the journal Public Library of Science Biology (PLoS). The authors say that "high forest cover with low rates of deforestation" (HFLD) nations "could become the most vulnerable targets for deforestation if the Kyoto Protocol and upcoming negotiations on carbon trading fail to include intact standing forest."
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(8/29/2007) The emerging carbon market for avoided deforestation presents unprecedented opportunities for private equity to make profitable investments that also help protect the environment. Indeed, for the first time, conservation may be associated with positive financial returns. Here's a brief look at how private equity and other investors can capitalize on this opportunity to earn attractive returns while fighting climate change, protecting ecosystem services, and safeguarding endangered species like orangutans.
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