According to the International Institute for Sustainable Development, Natural Capital “is the land, air, water, living organisms and all formations of the Earth’s biosphere that provide us with ecosystem goods and services imperative for survival and well-being. Furthermore, it is the basis for all human economic activity.”

It is astounding that the economic performance of nations and of corporations is judged by the (evidently imperfect) markets without any regard to their usage of our collective natural capital. As a result, some “profitable” companies and “growing” economies may in fact be monsters greedily ignoring the needs of future generations, instead of the success stories they are commonly thought to be.

It doesn’t have to be this way.

Every day, we are aiming to show that responsible businesses can in fact make more money (not less) when they correctly price natural capital into their activities, and contribute to safeguarding the interests of future generations.

Here are two examples of how we can approach natural capital, drawn from our current activities.

Most coconut growers place no value on their coco-husks and leave them behind as waste.  By buying the coco-husks from growers and paying a fair price, we provide income and employment in poor communities.  By productively using coco-husks, we produce coco-peat and coco-fibre, sustainable products that displace very harmful alternatives from a greenhouse gas (GHG) perspective (such as natural peat from peat bogs). We (and local communities) are making money from a starting point of zero.  At the same time, we are removing waste which may generate more GHGs and, in this particular case, could also harbour pests, become a fire risk and take up valuable growing space.

Timber businesses or integrated pulp and paper manufacturers in the emerging markets generally ignore most of the waste they generate as well as their impact on the environment.  Upstream, they ignore the waste from cutting the trees, the impact of cutting trees on soil erosion, water storage, biodiversity, the flood control role of land, and the water pollution associated with their activities.  What’s more, no effort is generally made to enhance any of the beneficial services and other natural values of the forests (by for example storing and filtering excess water flows, or hosting non-timber forest products such as medicinal plants).  Even if they wanted to preserve natural capital, they would be ill-equipped. Why? Because of their focus on their core business; because of a possible shortage of capital and/ or human resources; because of the possible lack of reputation risk as a deterrent; and because of listed businesses worry about quarterly earnings.

By approaching natural capital correctly, we take the same types of businesses (e.g. timber), examine their impact on their environment, minimize their waste, gather it and sell it in multiple forms of sustainable resources. We recycle revenues from the sale of sustainable resources to cut less trees and increase conservation areas, therefore contributing to cleaner water supply, protecting and even enhancing the future value of the forest as a source of raw materials and providing more employment to local people.  We also seek to generate revenues from whichever tool is available to price natural capital in the country we are operating in, for example carbon credits, water credits markets and renewable energy credits.

What we do should make more money, not less.

From a macro-investment stance, we are not investing in India, China, Thailand, Indonesia or the Philippines because of the “potential” and “growth prospects” of these markets.  In fact, because natural capital is being rapidly depleted in these countries, and because no price mechanism exists (to speak of) to force businesses to protect this natural capital by pricing clean air, clean water or biodiversity, we worry:  Water scarcity is going to increase, health problems will increase, populations and energy demand will increase, but neither the land, the water supply nor clean air will increase.  The economic growth could turn out to have been a bygone period of relative prosperity where past generations ignored the needs of future ones for natural capital, aided and abetted by the markets and politicians.

It is ironic that large segments of public opinion in industrialized countries are concerned about the rise of China, India and other developing Asian countries when in fact this “rise” is built on the export of water demand, air pollution and biodiversity loss there.

One of our current initiatives is investing in bagasse co-generation in India.  We focussed on a sector which provides a profitable rate of return while defensively positioning us against the ongoing destruction of natural capital worldwide (India will need more energy and its demand for sugar is unlikely to abate, especially with a rising population and increasing standards of living).  India’s “growth” potential doesn’t figure in our investment strategy because it doesn’t have to. If we are wrong about the systemic risks due to the destruction of nature underway worldwide, our projects (provided we execute correctly) should still realize the returns we are counting on.  If however we are right that we are in the midst of an unsustainable plunder of the planet, then our projects at some point over their life will generate higher returns from the sale of clean energy, sustainable commodities and water and air credits (however the fashion of the moment refers to them) through the utilization of waste and the proper pricing of natural resources.

Pricing natural capital makes more money, not less, and stops us robbing future generations.

Durban was a success (indeed a miracle from the perspective of what the world expected – i.e. very little – a few weeks before).  But why have carbon prices continued to slide?  The conventional response to this is that the financial crisis in Europe is overshadowing the market and until macro economic conditions improve carbon prices will continue to correlate with manufacturing output. This was the case before Durban but I do not think it is the case now.

The unconventional response to this question is that the analysts are mis-reading the situation.

There are a number of actions that are now significantly more likely to occur following Durban and taken together I believe that they will add up to a significant change in the supply demand balance. If the market does not recognize these points sooner, then I think we will see this starting to happen by May 2012 at the latest:

1)  Parties are asked to enter their commitments (QELROs) into Annex B to the second commitment of the Kyoto Protocol (KP2) by 1st May 2012. This means that by this date at the latest the EU must declare whether it will set a target of -20% or -30%. The EU’s position was that it would move to -30% if other parties took similar commitments; The EU proposed the 2015 / 2020 roadmap and parties accepted it (i.e. the Durban Platform). While Parties have not rushed to sign up to KP2, it is hugely significant that they have accepted a truly multilateral agreement in place of the KP from 2020. So for this reason alone I would expect the EU to move to -30% (or -25% at worst). There are also other factors: the EU Council of Ministers voted last year on moving to -30%. 26 out of 27 were in favor with only Poland against. Poland held the Presidency at that time. From January, Denmark takes over and can likely find a way of “compensating” Poland for changing their position. MEPs held a non-binding debate and voted overwhelmingly in favor of a move away from -20%.  While the EU was effectively going it alone pre-Durban, one could understand why the European Commission was hesitating to really get behind the EU ETS (their flagship policy). Now that the sentiment of the Parties has changed so dramatically, there is everything to be gained from pushing the EU ETS to the fore. So, I expect EU to announce a move to -30% (or -25%) before 1st May 2012 and this makes up the first part of the shift in demand.

2) The second part of the shift in demand comes through the potential implementation of a set-aside mechanism whereby the Commission would set-aside and ideally cancel a proportion of EU Allowances (EUAs) in recognition of the fact that the drop in economic output has created an excess of allowances and that a number of other un-related European Directives (notably the Energy Efficiency Directive and the auctioning of 300 million allowances from the New Entrant Reserve) have the potential create even more over-supply. While the set-aside would have been difficult pre-Durban, post Durban it would be likely to receive greater support.

The supply side is impacted by a number of different factors:

3) A new round of comitology, one of the processes by which the EU introduces new legislation, is likely to take place in the first half of 2012. The Commission has said they would complete supply-related comitology by the end of the 2012 and they are under pressure from the greens and particularly CDM Watch, to act. MEPs are now more aware of their potential to impact upon the kind of CERs which they allow into the EU ETS (we met the MEP delegation in Durban and discussed this with them) and there are several categories of supply that are “at risk”: I would highlight Russian Track 1 ERUs (apologies for the jargon) – these are effectively Russian hot air units which are laundered through the domestic JI approval process. These have zero environmental integrity and since Russia is not signing up to KP2, there is no reason to continue to allow them into the EU ETS. CERs from large hydro could be selected – CDM Watch and the International Rivers Association have mounted a very successful campaign against these projects on the grounds of additionality concerns and social and environmental impacts. Like it or not, this is one class of projects which is large enough to have an impact upon CER supply. There are 5 large super and ultra-super critical coal fired projects which were registered before the methodology was put on hold by the EB – the baseline calculations in the meth were found to be flawed, meaning that additionality concerns aside, the CER calculation is simply incorrect. It would be very damaging to the credibility of the EU ETS to allow CERs with known errors to be used to offset real emissions. And finally the EC has noted that CPAs added to non-LDC PoAs post 2012 are contrary to the spirit of the directive (I am not going to explain these acronyms!) which will reduce supply from some types of projects.

4) Others have questioned whether the move to -30% would also come with a relaxation of qualitative restrictions. In my opinion this is unlikely. There will be a relaxation on quantitative restrictions, meaning more CERs can be surrendered but I do not see the EC backing down from their desire to move towards sectoral mechanisms.

5)  The supply side is further impacted by the likely development of domestic schemes in many of the CER supply countries, particularly China. China is currently developing pilot internal ETS and plans to have a national or at least regional scheme starting 2015. It is likely that the scope of this would cover many of the facilities that are currently supplying CERs. China would have two choices: Annex the CDM participating facilities out of the internal scheme (as was done with JI projects in facilities in EU accession states which were also captured under the EU ETS) or internalize the projects and use them within the ETS. Given the Chinese Government’s current  posturing on LoAs for CDM projects, the latter course of action is more likely. This could take out a large proportion of CER supply from 2015 onwards. Because the Durban Platform expects an outcome with legal force (i.e. some form of cap), the other BASIC countries are also likely to face the same issue, although they may not be as advanced as China. So, the days of unconditional access to CERs from non-annex 1 countries are now numbered. Such actions would overlap with the impact of EU comitology under item 3 above.

6)  And then there is the USA. Their objection to the KP was that BASIC countries were not taking caps. This is no longer the case and therefore we would expect the US to start to re-engage in the process. Eight years is not that long to design and implement an emissions trading scheme, especially in an economy that seems so averse to the concept it invented! Irrespective of what they do, their presence in the Durban Platform negotiations as a signatory (rather than as an observer to the KP)  is bound to have an impact on market sentiment.

So, while the conventional response for price drivers may hold sway for a little longer, my analysis is that this will change within the next 6 months.

On Friday December 9^th a group of us went for dinner at a sushi bar in Durban. We were quite subdued and when a table at the other side of the restaurant started cheering, I said “I’ll bet they’re not part of the Durban crowd”. Little did we know then that we did have something to cheer about:  The climate change negotiators made very significant progress over the weekend to conclude a truly historic agreement and had I been watching the negotiations instead of the in-flight entertainment on Sunday, I would have been cheering too!

So, what’s there to cheer about?

Continuation of the Kyoto Protocol – pretty much everyone except the EU and Japan wanted the KP to stop at the end of 2012 unless Parties agreed to a second commitment period and we certainly did not expect that a second commitment period would actually be agreed. KP2 (more correctly CP2, but it doesn’t have the same ring to it) has several significant impacts:

1) It secures the continuation of the CDM. Many argued that this was a foregone conclusion but there is no substitute for seeing it in black and white.

2) Several Parties have already submitted their intentions on “quantified emission reduction limitation obligations”. The EU has indicated -20% to -30% below 1990 levels. The biggest remaining question is if and when they will confirm a -30% target (more on this below). Australia should join. Perhaps even Japan could have a change of heart. Targets are to be submitted to UNFCCC by 1^st May 2012, so not long to wait.

3) Continuation to 2017 or 2020, to be agreed next year in Qatar. Continuation to 2017 is already a good result and with the Durban Platform starting in 2020, a gap in activity is unlikely – continuation would be simplest, otherwise a 3 year KP3 would make sense.

4) Overall, the continuation of the KP is a huge morale boost for the climate sector. The KP has been the driver of almost all significant actions to date and, through the CDM, has reached out to both Annex 1 and Non-Annex 1 countries. The KP has galvanized real action in many countries and crucially contains the basis for common accounting unit – an alphabet soup of acronyms including AAUs, CERs, RMUs, ERUs and others.  By securing the future of the KP, we secure the continuation of the accounting framework and of fungibility, with every likelihood that the AAU can continue to be the accounting standard in the long term.

Good-bye Annex 1 Non Annex 1, Hello Durban. The Annex 1 / Non-annex 1 split has well and truly spoilt the party to date. It has been impossible to get the US and BASIC to talk seriously about climate change because of the built-in assumption of guilt and the belief that the Annex 1 Parties should do all the work to atone for their past excesses. The Durban Platform has erased this fundamental divisor. Eight years to 1^st Jan 2020 seems like a long way away but in climate change negotiation terms, it’s short.  Quite alarmingly in fact, the nature of the protocol, legal instrument or agreed outcome with legal force must be agreed in 2015 –only 3 COPs away!!

Against this time scale, Parties must start to act, and soon. China’s experimental internal Emission Trading Schemes look well timed. If China starts a nationwide scheme in 2015 or even after that, we can expect that they will look to start consuming their own CERs. Australia’s CPL gets real in mid-2015. The question is, what will the USA do?

Furthermore, the Durban Platform undermines the Japanese Bilateral Offset Mechanism. I guess Japan may be wondering now about the future of a bilateral scheme at a time when the multilateral process has just gotten back on track (the failure of the multilateral process was their main reason for trying to abandon the Kyoto Protocol in the first place).

Post 2012 CERs now look likely to be fungible across a wide range of schemes in the run-up to 2020 and with that should come increased demand and increased value. This could also lead to interesting developments regarding whether all CERs are equal, and how CERs from industrial gas projects, “green” CERs, large scale renewable energy CERs etc. should be priced and where they should be sold, not to mention the fate of hot air AAUs from Russia and Russian Track 1 ERUs.

EU move to -30%? This really would be a crowd pleaser and would cause cheering all around. Even capped industry would be pleased to get a clear signal that the European Commission is really behind this flagship EU policy. It should happen, because the EC was clear that they would move to -30% if other parties took on commitments, which is what they did at Durban.

There is already significant momentum behind the shift to -30%; 26 out of 27 Member States voted in favor and the European Parliament came out strongly in favor in a non-binding debate. Plus, as analysis has shown, the cost is only marginally greater than the predicted cost of moving to – 20% and we are practically there already. This move should also be accompanied by several other steps including a transparent mechanism to cancel excess allowances and a clear and final statement on qualitative restrictions on CERs. Now is not the time to hesitate.

It would be unfair to describe the rest of the decisions in Durban as side shows. Perhaps better to think of them as trailers for what’s to come. On the basis of the Durban Platform, a wide range of topics which seemed homeless now have a focus – NAMAs, REDD+, the Green Climate Fund, the Technology Executive Committee, new market based mechanisms etc. With the certainty of a truly multilateral program, all of these now look set to mature into fully functioning initiatives, each of which will provide loads of jobs for … oh sorry, new opportunities to tackle GHG emissions!

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2011 Flood: Near us

The floods in Thailand continue to create havoc for many Thai people.

Luckily to date our sites in near Bangkok and our Bangkok office have stayed safe from the flood waters. However the same cannot be said for many other surrounding areas…One of Sindicatum Sustainable Resource’s objectives is sustainability in all its aspects. With this in mind we were keen to immediately provide assistance to the flood victims. We decided to focus on nearby areas where we were provide immediate support. To establish what was most needed, the Local Authorities advised that food, water, boats and fuel were high on the list of requirements.

Preparation of the relief packs

The Sindicatum Thailand team promptly obtained supplies and prepared flood relief packs for 1,000 households. The team coordinated by Kanittha Pinkasorn had the packs made up and ready for distribution in one day.

Loaded up

Our first port of call was an area approximately 30 km from our site that has been flooded with up 1.5 m of water in places.

During our trip to this area, we were able to distribute approximately 600 packs at a makeshift campsite setup for local residents who were homeless as a result of the flooding.

We then continued our journey by boat to reach more communities cut off by the flood waters.

Flooding extensive throughout area

At one location, we had to deliver the packs to the people in other boats as there was no dry land available to moor the boats.

Distribution of food packs

Our intention was to distribute further aid to Srasilum district some 15 km from our site. We distributed approximately 300 packs, 2 boats and fuel to the people affected in this area.

Campsite for homeless flood victims

We gave approximately 100 packs to a temporary camp for flood victims which were set up in the grounds of the local campus at Katsersart University.

The Sindicatum Climate Change Foundation donated a large percentage of our flood relief, with the balance being funded by Sindicatum Thailand.

The Thai Sindicatum staff were humbled to be given the opportunity to help the flood victims.  It will take a long time for things to return to normal (it could take up to 2 months for the waters to recede).   Further assistance will be needed to rebuild homes, schools and hospitals in the near future.

We are continuously considering how we can assist, and what short term assistance we could provide in the near future.

Who would want to be on the supply side of CERs these days? Prices are at an all time low and for sure, some suppliers are going to suffer, but there are a few twists still to be unraveled.

The new regulations from the Chinese NDRC relating to the issuance of post 2012 CERs could turn around to bite Chinese suppliers, and at the same time, could curtail supply and provide a boost to the market. Released in August this year, the new regulations state that CERs post 2012 will not be issued without a new letter of approval. The terms for the issuance of new Chinese LoAs include submission of an ERPA to buy Emission Reductions (not just CERs), to the end of the project lifetime (not just to the end of the crediting period), at a floor price €8 – 9 and, apparently, without any get out clauses. Who would sign an ERPA under these terms today? Could this precipitate a significant drop in the Chinese supply of CERs post 2012?

The European Commission published a set of FAQs and highlighted the fact they were monitoring the use of PoAs. Until this publication, in an acronym filled world, CPAs added to pre-2012 registered PoAs in non-LDCs were expected to be eligible to supply CERs into the EU ETS. The fact that the EC is monitoring this “loophole” which does not comply with the spirit of the EU ETS Directive, may  be taken as fair warning that access will be curtailed at some time in the future. With such oversupply in the market, the EC has nothing to lose. Who then, today, would continue to invest in a PoA in a non-LDC? This leaves PoA in LDCs as the main source for scaling up the CDM. Good luck with that.

And the EC’s knives are out for large hydro entering the EU ETS as well.

Having approved a methodology which encourages the construction of super-critical and ultra-super-critical coal fired power plants, the CDM EB’s Methodologies Panel have now, twice, recommended that the meth be suspended. This will stop progress on the registration of a long list of new projects planning to claim a total of around 450 million CERs and leaving just six registered projects. The Meth Panel’s recommendation is made on the basis that the meth over-credits the projects and thus the EC will be under even more pressure to exclude CERs from the registered projects from the EU ETS.

These twists, and in particular the EC’s aversion to large hydro and China’s new LoA rules, are likely to materially impact upon the supply of CERs post 2012.  It is not immediately obvious how to estimate what proportion of the market might be affected but I wouldn’t be surprised if current projections for CER issuance over the next few years end up being materially overstated.

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On Thursday 10 November 2011, I spoke at an OECD / IEA workshop in Paris entitled “Expert workshop on tracking climate finance flows from the private sector and multilateral development banks.” Despite the dry title, the topic is of great significance: Developed countries have a collective commitment under the December 2010 Cancun agreements to “mobilize” USD 100 billion per annum by 2020 of “climate finance” for developing countries; and a predictable argument is ongoing about what “mobilize” means; what qualifies as “climate finance” and whether this aspirational USD 100 billion is on top of the capital flows which might currently qualify as “climate finance” from rich (even if some are a bit less rich than they thought they were a few months ago) to poor countries.

There are no existing frameworks to have an argument within, and the OECD, the IEA and others are therefore trying to build such a framework, hence the workshop I attended, and its attendance: OECD government representatives, IEA representatives, statisticians and data gatherers, policy wonks, representatives of the multilateral development banks and consultants. Participants at workshops like this one are trying to do the right thing: Establish a common definition of “climate finance;” attempt to harmonize relevant reporting methodologies; identify weaknesses in data gathering and try to do something about them, etc. –because the less rigorous the framework one applies to what is the USD 100 billion and how it is computed, the more the scope for disagreements between developed and developing, and the scope to wriggle out of doing anything additional.

Into the ring steps the Soros-backed think tank Climate Policy Initiative or CPI (http://climatepolicyinitiative.org/) which released last month a report entitled “The Landscape of Climate Finance,” concluding that its “research suggests that at least USD 97 billion per annum of climate finance is currently being provided to support low-carbon, climate-resilient development activities” (http://climatepolicyinitiative.org/generic_datas/view/publication/117, page i). Miraculous! USD 97 billion is almost USD 100 billion, so there: we’re done, ahead of schedule! Even better, CPI has already figured it all out: “out of the estimated USD 97 billion in global climate funding, on average USD 55 billion is provided by the private sector, while at least USD 21 billion is provided by public budgets … [and] bilateral and multilateral agencies and banks also contribute another USD 20 billion by leveraging the public funding they receive” (see page iii).

The report is 101 pages. I read them all before the workshop because at Sindicatum we are investing USD 300 million in climate finance, we think we can invest billions profitably and therefore I hoped the report would help me find these providers of USD 97 billion per annum to talk shop. What I found instead is that most of the CPI report actually shows that the numbers cannot be trusted; and highlights where improvements need to be made in how we track data and which methodologies we should apply, in order to arrive at sound numbers. Indeed the USD 55 billion provided by the private sector appears to be a CPI estimate provided notwithstanding the fact that the “real scale and details of private finance are hard to grasp”, “much of the information collected is not publicly available”, “the OECD also tracks ‘net private grants’ provided internationally, but little is known about the objectives and recipient countries of these grants” etc. and by the OECD’s own admission, it doesn’t have this data. Furthermore, it seems to me that most of the USD 97 billion in the CPI report, even if it had no double-counting, which I doubt, is littered with “business as usual” loans and investments. In my comments at the Workshop, I said that very little commercial lending into renewable energy projects in developing countries is genuinely non-recourse finance (I cited a few examples) and this lending must therefore logically be excluded from any computation of “climate finance” because its non-recourse nature simply means that it isn’t climate finance at all.

CPI somehow nonetheless manages to hit the magic number, even though most readers of their report should conclude, as I did, that the USD 97 billion is not a sound number at all. It is hard not to think that CPI just thought it would be politically convenient to arrive at a number which, what a coincidence, was approximately USD 100 billion. Contrast this to my on-the-ground experience that there is enormous exaggeration by multilateral institutions, bilateral institutions, banks and private sector participants in relation to how much they are actually investing in “climate finance” and the only reliable numbers we can find are for grants and concessional loans. As I argued in a previous piece (http://www.sindicatum.com/2011/10/green-climate-fund-road-to-nowhere/), our experience is that investment is declining in the very same field where ambitious USD 100 billion proposals (which probably will never see the light of day) are using up precious time and resources: The CPI report is a perfect example of time and resources being utilized to seemingly engineer the right answer because that’s easier than actually doing the investment work.

Nowhere near USD 97 billion is flowing per annum from developed countries to developing countries and it’s neither needed in that form nor to that extent. Far more powerful would be to encourage developing countries (via limited grants and concession finance) to put policies in place which the private sector can then leverage to mobilize the necessary investments (see my colleague Gareth Philips’ blog for an example, here: http://www.sindicatum.com/2011/11/what-could-1bn-buy-in-indonesias-forestry-sector/). These would be clearly additional investments, i.e. not business as usual, and one could quantify them. I would guess that most of the money would be sourced locally, with foreign investors like us acting as catalysts and sponsors. The UNFCCC already provides a framework to capture this type of approach under its emerging Nationally Appropriate Mitigation Actions (NAMAs) efforts, or domestic initiatives such as ETS (the EU, New Zealand, Australia, California etc) or bilateral offset mechanisms (Japan)). By way of example, if a Government were to declare that new policies to reduce and ultimately remove fossil fuel subsidies was a NAMA and register this with the UNFCCC, then they could also monitor investment into the resulting actions. Grant aid and concession finance can be targeted towards this goal and even CPI would be hard pressed not to compute the figures correctly. In the meantime, I think it is quite dangerous to issue reports purporting that zillions are already being invested in climate finance when most of these investment are in fact business-as-usual: We are obfuscating the need to invest billions to deal with climate change by conveniently fudging the numbers instead of making sure that the price of carbon-intensive energy increases through policy initiatives which mobilize increasing amounts of private sector investments.

The Norway – Indonesia REDD+ Partnership is a courageous move by one of the world’s wealthiest nations to put their money where their mouth is, possibly motivating others in the process, but have they bitten off more than they can chew?

The Indonesian moratorium on handing out new concessions was delayed and is weaker than many would have wished: It neglected to include 46 million ha of secondary forests; though we hear the funds are to be managed by a ‘special agency’, the underlying assets are managed by the Ministry of Forests, not an altogether trusted institution. Also, there is currently no role for the private sector, which is a major weakness considering that many concessions are owned and operated by privately owned companies with very few reporting obligations.

The only way forward for Indonesian forests, and the vast carbon and biodiversity reserves they hold, is to join the modern world of commerce. USD1bn would be a good start, but not if it ends up in the hands of the wrong people.

Indonesia’s President Yudhoyono has committed to reduce GHG emissions by 26% and is relying on significant savings from the forestry and land-use sector, notably from REDD+ projects. The first stage of the Partnership was to establish a moratorium on the award of new concessions. This was five months late in arriving, allowing oil palm companies to load up on concessions to tide them over the two year “famine”; excludes secondary forests (which constitute a large proportion of Indonesia’s forests and contain vast amounts of carbon and biodiversity) and fails to reference two key ministries involved in land use decisions – the Ministries responsible for agriculture and mining. Could the Indonesian Government have done better?  Definitely.

Subsequent phases of the Partnership involve capacity building, developing an infrastructure for monitoring and reporting, and finally actual payments for verified reductions in emissions of CO2 coming from changes in forest management. Chances of success? Well, I am sure many things will be achieved but I doubt whether it will hit the 26% reduction target.

The reason for my pessimism is that the Partnership excludes any direct involvement with the private sector, or at least the right part of the private sector, thereby relying entirely on the commitment and competency of the Government. Recent past experience with the Clean Development Mechanism, where Indonesia ranks alongside Cambodia indicates the Government’s poor record at getting the best value from international commitments. The poor start on the moratorium suggests a similar weakness.

The scope for foreign investment into forestry in Indonesia, and hence transparency is limited by three factors: (1) the historical issues around how concessions were obtained (often in complete ignorance of or deliberate denial of existing land tenure rights); (2) unsustainable harvesting practices and (3) the regulations which restrict foreign investments in concessions to listed vehicles or Indonesian companies.

Until these issues are addressed, forest management in Indonesia will remain in the hands of domestic private companies without reporting obligations and immune to international pressures to reform.

If some of this money were available in the form of grant funding to a) compensate investors for settling land tenure issues; b) convert existing management practices to sustainable management and c) help re-capitalize forestry companies via a change of ownership and listing on a stock exchange, then foreign investment would enter the sector bringing new and enhanced management standards. REDD+ markets have a role, but much can also be achieved through simply improving the management of assets.

So while Norway is to be commended for its brave efforts, the private sector must be brought into play.  Houston, Houston, Do You Read?

As country negotiators head off to the 17th Conference of Parties (“COP”) in Durban later this month there is little to suggest that a global climate change agreement can be concluded anytime soon. At the international level countries seem to have taken their ‘eyes off the ball’ – in terms of keeping average global temperatures from rising above 2 degrees – and reverted to thinking about it more in domestic and local terms only.

There is plenty of momentum at the moment, but it’s all at a local and national level: The recently announced cap-and-trade schemes in California, New Zealand and Australia, together with a forthcoming cap-and-trade scheme in South Korea are accompanied by plenty of efforts in developing  countries: China recently initiated the building of a national registry as a basis for domestic emissions trading, India’s energy efficiency certificate trading scheme is live, and countries such as Indonesia, Thailand and South Africa are designing what are called nationally appropriate mitigation actions (NAMAs) to reduce emissions through waste and water management, clean energy, energy efficiency and forestry management. These initiatives all have the potential at some point to be recognized under a global climate change deal which may see some linking of schemes beyond 2015.

It’s at the international and global level that climate change mitigation really counts however.  The international rules have ONLY taken 20 years to negotiate and the challenge will only get harder if put off for another few years.  The planet doesn’t need defeatism:  Negotiators must solve the current impasse and engage in this COP with a real focus on the goal rather than a resignation that there will be a gap of a number of years between the current global pact and any future one. Significant developments in technology, know-how and financing have taken place over the last decade largely through the domestic measures and initiatives spreading to other countries through knowledge-transfer, entrepreneurial vigor and the awareness-raising of international schemes such as the CDM.

If given long term certainty and the right signals, the private sector is willing and waiting to deliver at the kind of scale which will have a real impact on global climate change and must be kept involved in international negotiations in order to contribute its significant experience, capital and know-how. In the meantime, domestic schemes with broader economic goals, such as the renewable energy certificates, feed-in tariffs, tax-credits etc., offer the kind of certainty needed for serious private investment but on their own will contribute only a little to the overall climate change goal.

According to a recent report by the EU’s Joint Research Centre[i], global CO₂ emissions increased by 45% between 1990 and 2010, reaching an all-time high of 33 billion tons. If a reduction in global emissions on the scale of 50% below 1990 levels by 2050 is needed to meet the 2 degree objective, then it’s clear that globally we’re way off track.  In Durban, negotiators need to shift from a starting position that suggests “well were doing a bit and we’ll do more if you do” to “we’re going to do everything we can and we’re going to help you do everything you can”.