Examination of Witnesses (Questions 105-119)
MR ERIC
BETTELHEIM
11 MARCH 2008
Q105 Chairman: Good morning and welcome
to the Committee. Thank you for coming in at relatively short
notice.
Mr Bettelheim: My pleasure.
Q106 Chairman: Would you just like
to introduce yourself—we do not all know you—and tell
us a little bit about your background.
Mr Bettelheim: Yes, of course,
Mr Chairman. My name is Eric Bettelheim and I am the Executive
Chairman of a company called Sustainable Forestry Management,
which was established about nine years ago. My co-founder in that
effort was Richard Sandor, who is now the Executive Chairman of
Chicago Climate Exchange and I think widely regarded as the father
of emissions trading, particularly having established the efficacy
of emissions markets through the sulphur dioxide market, which
solved the acid rain problem in the United States. Our company
is focused entirely on forestry in the tropics and subtropics,
particularly on the environmental services they provide, the key
one of which, I suppose, for current purposes is carbon sequestration
and storage. I think the regime that we have had to operate under
has not exactly been the most encouraging and I would like to
say, if I may—I know the Committee has a number of questions
but just by way of opening remarks—that I think this topic
that the Committee is now addressing could not be more important
and could not be more timely. What is clear is that over the nine
or ten years of experience that we have had in this is that the
architecture for the post-Kyoto world has to be very different
from that which has prevailed up until now, if we are really to
solve the problem of climate change over the next few decades.
I have asked that your staff hand up to you a document which I
would like to refer you to. I would like to commend this to the
Committee. It is a working paper—not my testimony—prepared
by your colleague, Stephen Byers MP, in his capacity as Chairman
of the Working Party on Market Mechanisms for Globe 8. This came
out following their recent meeting in Rio. If I can just draw
the Committee's attention to a few of its recommendations, if
you would turn to the third page in the document, there are four
recommendations which I think are of the utmost salience in this
discussion. The first—and this is recommendation number
one at the bottom of page 3—is to start any new regime with
a level playing field. In our context what I would emphasise is
that it is a level playing field between the developed world and
the developing world. The Kyoto Protocol, as I think the written
evidence which I submitted demonstrates, is biased against the
developing world, certainly against that part of the developing
world which is not rapidly industrialising. Almost all the benefits
of the Clean Development Mechanism have accrued to just a handful
of countries, basically, China, India and Brazil, and the rest
of the developing world, and in particular the least developed
countries, have received virtually nothing and are outside of
the system and do not benefit from it. Of course, that has significant
implications for any new treaty which needs their support as we
look forward into those negotiations. So I think the bias against
the South needs to be removed. The second of the recommendations
is to set clear long-term targets for carbon dioxide emissions
or greenhouse gas emissions reductions. The systems now in place,
particularly EUETS and the Kyoto Protocol process, have a little
bit of the old Soviet five-year planning approach to this. Investments
that are to pay off over decades cannot possibly be made if there
is regulatory and political interference every five years, changing
the goalposts, moving the target. I think in the next round of
negotiations it is critical that the world set long-term targets,
hopefully 30 years or 40 years into the future. Of course, those
targets could be revised, made more stringent, as time goes on
but it would at least give a clear, simple direction to the market
which investors can rely on. The third item is number four in
the document, which I think is very important to change for any
new architecture if a treaty is to be successful, and that is
to move from prescriptive regulation to principles-based regulation.
This is the evolution which I am sure members of this Committee
have seen in the Financial Services Authority over the last ten
years or so. This has made a significant difference; indeed, the
United States financial regulatory system is now seeking to imitate
the development towards principles-based as opposed to prescriptive
regulation in financial markets. The fourth item is number five
in the document, which I think is absolutely essential for any
new architecture, which is the creation of a new independent regulatory
body for the carbon markets. The Prime Minister, as you know,
has suggested this and I think it is an opinion increasingly shared
by those of us in the markets that the Clean Development Mechanism
is not functioning as an effective regulator, that it is unrealistic
to expect the United Nations to serve as a regulator of what is
essentially a financial market, and that there are other bodies,
like the European Central Bank in the case of EUETS, and like
securities regulators and central bankers, who are more appropriate
regulators for such a market and are experienced in that. There
are two last items I would add, and then I will finish my introductory
remarks. Although they are implied in this, they are also dealt
with in other papers published by Globe 8 at the same time, in
particular Lord Jay's report. One is to create a multilateral
fund of some sort, whether run by the World Bank or otherwise,
which will build capacity in those countries, particularly in
the developing world, in the least developed countries, which
do not have the infrastructure necessary for private sector investment
and participation in the carbon markets. They need help with measuring,
monitoring and verifying their carbon and their emissions; they
need help with administration and so on. These are not particularly
expensive items but they are essential to the countries, many
of whom cannot afford this capacity. That is a vital area, I think,
for public sector involvement. Finally—and this, I suppose,
leads on to my particular focus, which is carbon sequestration—it
seems to me essential that the developing world be given credit
for their biomass if we are to have a successful negotiation.
I notice that very recently India and China have made it clear
that they will demand that increases in their biomass through
reforestation and afforestation be included. By the same token,
those countries that have existing forests that are being degraded
or deforested will also demand such compensation if they are to
participate in the market, all of which I happen to think would
be a very good thing. In conclusion I would say—and I know
this may sound heretical—that I think we have our priorities
wrong. I think we are trying to force technological change before
it can happen and we are not taking up the biological mechanisms
which are available now. We seem to have got that inverted. We
are delaying in dealing with the one system we know works, which
is photosynthesis, and trying to force an early transition technologically.
It is probably more logical at least, even if politically difficult,
to take up the opportunity which the forests of the South offer
us in terms of mitigation of climate change while industry makes
the adjustments which the investments over time that it can to
take up the running thereafter. Mr Chairman, thank you for that.
I am sorry if I have overstayed in my initial remarks but I thought
it was very important for this Committee and for political leaders
generally to start focusing on a new regime and not simply an
extension or modification of the old regime.
Q107 Chairman: Thank you. We would
like particularly to focus on forestry and forestry-related issues
this morning but, just responding to a couple of things you said,
I am interested in your view—I think I have got this right—that
you think central bankers might be better regulators than the
UN of a new system. That I find interesting given your concern
about recognising the importance of developing countries. I did
not realise that central bankers were particularly expert in that
area, or indeed that developing countries would necessarily see
them as a better holder of the ring than the UN. In relation to
long-term targets, the question that arises in my mind is that
since the science is changing steadily, long-term targets that
might have been set five years ago are clearly going to be grossly
inadequate in the light of our present knowledge, and it seems
to me that what we actually want is tougher short-term targets.
The problem is we set all these targets for 2050 and keep making
them tougher, and actually that ignores the fact that we may use
up the whole of our budget by 2030 in terms of emissions, and
even if we had a 100% cut by 2050, it might be too late. I would
slightly take issue with this prescription.
Mr Bettelheim: Let me respond
to the second point first. As I said, I think if you set a long-term
target, that does not mean you cannot make it more stringent over
time as science improves and as urgency may become more manifest.
Climate effects may come faster than we expect them to; they also
may be delayed longer than we expect. I think what is important
for business is to know that there is at least a minimum line,
if I can put it that way, which is a trajectory which will not
be changed. It may be to make more stringent but it is not going
to be relaxed, and that gives integrity to planning. As for the
point about central bankers and the United Nations, I was not
suggesting that central bankers understand the developing world.
I think the rules, the principles, need to be set by a United
Nations-type negotiation and discussion. That would be the principles
base, but when it comes to implementation of those principles,
it seems to me firstly, we should be able to allow nation states
to regulate their own affairs in meeting their national targets,
whatever those are, as agreed under a new treaty. Secondly, that
when it comes to the detailed, day-to-day management of the market
place, of the regulation of the market place, that should be in
the hands of financially trained and market-trained individuals
as opposed to those who do not have that kind of background. One
of the fundamental flaws has been that regulations have been impossible
to comply with, at least, certainly in my sector.
Q108 Joan Walley: May I just follow
that up? I was interested in what you are saying about an independent
regulatory body for the carbon markets and, just adding to what
the Chairman has just said really, how that would fit in. I would
not see bankers as the right people to do that but presumably
you would have to work out very clearly as well how that sits
with the WTO specifically. I was interested in your thoughts on
the interface with the WTO.
Mr Bettelheim: Let me take that
in two parts, if I may. The first is the reality that there is
not going to be a single global market called Kyoto or anything
else. The reality is that there are regional and national markets
emerging all over the world: in Australia, New Zealand, the United
States, and Europe of course, and that will continue. It will
be just like other commodity and financial markets. It is like
that now. It increasingly means that different countries are taking
different trajectories to reaching whatever targets they set themselves
or which will be set in a treaty context. Therefore, you have
to look at any international oversight or any international role
in that as being one essentially of connecting those things up
in a fungible way, that is, creating a common standard against
which they will measure themselves. Some credits will meet that
standard and some will not. I think it is naive to continue a
debate on the basis that the entire world is going to sign up
to a single carbon market run by the United Nations. That is not
going to happen. It is not happening. If you accept that, then
you have to look at how those national regimes should be regulated
and how there should be common principles of regulation for those
regimes. I am suggesting that the common principles should be
established by, say, the United Nations international treaty obligations,
but that the implementation of those should be left to national
regimes which are capable of handling those issues. That includes,
by the way, adding other expertise, not just financial expertise.
I did not mean to exclude other participants. Right now we have
the reverse situation, where no financial expertise and very little
private sector expertise is being brought to bear within the regulatory
system. As for the WTO, I think there are some very serious issues
as to how that will integrate, particularly if you are talking
about carbon being a commodity that is available to everyone.
You are talking about affecting the fundamentals of each country's
economy—you cannot escape that—and you start to get
into debates such as the one in the European Union, which I find
extremely troubling, where the view is taken that "If we
have a high price for carbon and other countries have a low price
or no price for carbon, we will impose a tariff law; we will create
a trade barrier." As I mention in my written submissions[72],
that is the kind of thinking that I would have thought became
obsolete in about 1935, but it has reared its head again because
the European view seems to be that a high carbon price is the
solution. My view—and I understand people may think that
that will work—is that whether it will work or not, it is
not going to work in the real world, that the rest of the world
is not going to impose a high carbon price, is certainly not going
to enforce €40 or €50 or €60, which is what the
European Union is now suggesting by its recent stance, on carbon.
If you look at what is being proposed in Australia or the United
States, you are talking about $10 or $15, which I appreciate has
depreciated somewhat recently. There is no chance that the rest
of the world is going to go the extremely high carbon price route.
Therefore, you do end up with very serious potential trade issues
and I think you will find debates which could be extremely destructive,
not just about climate but about international trade generally,
which would naturally be something the WTO would become involved
in, and there would be a very complex series of disputes as a
result.
Q109 Chairman: Do you not think that
one consequence of a lower carbon price might be to delay or deter
investment in low carbon technologies?
Mr Bettelheim: On the contrary,
I think that everyone realises that markets have a tendency to
take the low-hanging fruit first but, once they know they can
calculate that, they also know what is coming further out and
they take steps to anticipate that. In the example I mentioned
to you, in the sulphur dioxide market experience, which is the
precedent for carbon trading, the predictions by all the think-tanks—Harvard
and others—was that what companies would do when they were
given a trajectory of reduced emissions over a decade or so was
to track just below that line, to just meet compliance obligations.
In fact, they did nothing of the kind. The curve of compliance
went like this (indicating). In other words, they over-achieved
by having a lower price of compliance. I have a feeling that,
if you look at the global situation and the global demand for
this under potentially a new treaty and a world in which the Americans—which
I believe they will—will have a carbon programme, I think
you will find that what business will do is it will over-achieve;
it will anticipate what is coming five or ten years from now,
even if the low-hanging fruit helps them cope in the short term,
which I think is the right approach to market economics. To create
a spike in the price now does nothing except encourage business
to seek evasion, and even the European Commission in its recent
recommendation says, "If we do this, industry is going to
leave." All right, it will leave. Where will it go? It will
go to those places where they are effectively unregulated. I think
it is wiser to have industry stay and innovate under a current
low but gradually increasing cost, because the low-hanging fruit
is being exhausted, than to have it effectively being told "If
you stay here, you are uncompetitive." I think that is foolish
and I do not think it stimulates the kind of investment that you
consider worthwhile. Businessmen are not as short-sighted as they
sometimes are depicted. In the sulphur dioxide market they over-achieved
dramatically. Once they knew what the cost was going to be over
a decade, they knew how to cope with it and they cut costs much
faster, because that is what businessmen are very good at, than
anyone ever predicted and I think you will find the same thing
in the carbon market.
Q110 Mark Lazarowicz: On that point
the Chairman has raised, do you really think, for example, technologies
like carbon capture and storage are really going to be driven
forward without a fairly high carbon price to encourage investment,
one in which there is a fair degree of certainty behind a relatively
high carbon price fairly soon and which will stay at a high level
over a period of time?
Mr Bettelheim: There is a lot
of debate about carbon capture and storage. I am not a technology
expert but those in the energy industry who have been involved
in it are pretty much of the opinion that this is 15 to 20 years
away in terms of commercialisation. In that ten, 15 or 20 years
that it takes not only to develop into a commercial product that
can be distributed but actually to distribute it, which also takes
enormous investment, I think you are going to waste a lot of time
waiting for it, and the price is not what is going to drive it.
What is going to drive it is the expectation of a rising price,
the expectation that coal is going to be used until the end of
the century. They know that; we all know, if we are rational,
if you look at the International Energy Agency predictions, that
coal is going to have to be used by mankind to meet its energy
needs for as far as anyone can see. There may, of course, be a
technological breakthrough of some kind—fusion or what have
you—but if you are not betting on that, if you are betting
on relatively gradual increases in efficiency and introduction
of technology over the coming decades, you know that coal has
to be dealt with, whether you call it clean coal or you call it
carbon capture and storage, but in both cases that technology
is not going to happen tomorrow, no matter how high the price
is.
Q111 Mark Lazarowicz: It is going
to take even longer to start, is it not, if the price is low?
Mr Bettelheim: No, I disagree.
Businessmen and financial markets anticipate what the price is
going to do. They know it is going to rise. They know this is
coming, so they will invest now to be prepared in ten or 15 years
to roll out that technology. I think it is unwise to try and force
technological change by a price mechanism. What you are doing
is you are inverting the priorities of businessmen to look for
low-cost solutions. Carbon capture and storage in coal-fired power
plants may not be a good solution. It may sound like it now but
it may not be. What you really want people to do—and this
is what I find rather odd about this debate—the purposes
of markets, the reason emissions trading has been adopted by everyone
is to drive down the cost of compliance, not to increase it. This
is somehow being lost in this debate, particularly in Europe.
If there is a better technology, a cheaper technology than carbon
capture and storage, we should adopt that, not carbon capture
and storage. This kind of debate smacks very much of picking industrial
winners. We have had a long track record of governments betting
on this or that technology and finding out, lo and behold, that
there is someone in a garage in California who wipes the floor
with IBM. I think that impulse should be resisted. In the last
ten years in which I have been deeply engaged in this I have seen
a fashion for about a dozen different technological solutions
and if you really examine them, if you really examine how fast
they can develop, how much they will cost to distribute, you find
out that there are enormous difficulties and they are very unexpected.
A recent study by Berkeley University Department of Economics
showed that solar power in California, where the sun does shine,
is 600 times more expensive to distribute to households than natural
gas-fired power plants. That is not intuitively obvious, and a
lot of the solutions that people find fashionable at any particular
time in the debate—solar, wind, tidal, carbon capture and
storage—will not be the technologies that actually solve
this problem, and in fact innovation will occur because people
anticipate that steady price rise over time and will adjust themselves
to that. Trying to force this or that technology as the solution
I think would be a bad mistake. It will be a mistake for any economy
that adopts it.
Q112 Chairman: Let us get back on
to forestry, if we may. Do you think it is getting the attention
that it should have in relation to the negotiations on post 2012?
Mr Bettelheim: I think, Mr Chairman,
since Bali—and Bali was quite a turning point when it comes
to forestry, and tropical forestry in particular—it is attracting
much more attention than it had prior to that. Whether or not
some of the proposed solutions or approaches to dealing with it
will be effective I think remains to be seen. Certainly I am very
sceptical of some of the approaches that have been floated of
parallel markets and separate treaties and so on and so forth.
As far as forests are concerned, it is really very simple. You
just need to integrate them into the market place, where they
have been excluded previously by regulation, and once that happens,
you will find they are credited and that the benefits of tropical
and subtropical forests accrue not only in terms of carbon sequestration
but in all of the other co-benefits, not least of all adaptation
by poor people, who are dependent on those forests. When their
environment deteriorates, they become migrants. They become internal
migrants and also international migrants. When the soil has gone,
you do not eat; when the fresh water has gone, you do not drink.
Those are pretty fundamental needs, and I think that is beginning
to be appreciated, but again, we seem, in the Kyoto context at
least, to be drifting into a CDM-like negotiation of detailed
prescriptive rules, of the same sort of approach to regulation
which I am afraid will probably have the same effect: it will
kill the investment in that sector and we will again have a broken
promise to the developing world, particularly that part of the
world which is not rapidly industrialising, and I think you probably
will not have a treaty at all because it will become obvious that
no-one is going to invest in the sector. I think it is relatively
common ground that private sector investment is essential and
that the public sector is not going to pick up the burden of $15-$30
billion a year of investment in this one area.
Q113 Chairman: Even before Bali,
of course, Nick Stern had highlighted the contribution that curbing
deforestation could make in part of the solution.
Mr Bettelheim: Indeed he did.
Q114 Chairman: Given that we have
pretty broad agreement that global emissions are going to have
to be reduced to half 1990 levels by 2050, do you have any sense
of what contribution avoiding deforestation could make to that?
Mr Bettelheim: Yes. Mr Chairman,
you may recall the last submissions I made to this Committee when
it considered the voluntary market[73].
The McKinsey cost curve and the Stern report are more or less
aligned and subsequent studies confirm that it is about 20-25%
of emissions reductions which can be contributed and it is about
a 50-50 split between afforestation and reforestation on the one
hand, growing new trees, and avoiding deforestation and forest
degradation on the other. It is about 3 billion gigatons per annum
by each sector, so 6 billion tonnes altogether, and that roughly
accumulates to the percentage reduction in emissions that forestry
can contribute.
Q115 Dr Turner: You are in a particularly
good position to assess the costs involved in achieving the reduction
and elimination of deforestation, and reforestation as well preferably.
Have you any handle on what the global cost of doing this really
effectively, achieving the sort of carbon reductions that you
have just been talking about, are and how they can be raised and
delivered?
Mr Bettelheim: Yes. I think you
will find in recent research done by the Woods Hole Institute
in the United States on what is essentially the opportunity costs
for avoiding deforestation and forest degradation, prices vary
but I think, to be conservative, and our experience would verify
this, you have to anticipate an opportunity cost of $5 a tonne.
So you have to pay forest owners, whether they are public or private
or communal owners, about $5 a tonne to avoid converting tropical
forest into agricultural or timber use. If you take the three
billion tonnes that is probably available per year—and that
is, of course, the maximum, which is probably not achievable in
the real world—the Woods Hole analysis in Brazil shows that
you can probably get 90% of deforestation compensated at $5 a
tonne. The remaining 10%, of course, is the area which has a much
higher marginal cost because it has much higher value uses, maybe
in an urban area, for example, that will have development opportunities,
so you get a 90-10 return, and if you assume it is $5 a tonne,
you are something in the order of three billion tonnes, $15 billion
for avoided deforestation and reduced degradation of forests.
That is consistent with Nick Stern's analysis of that subject.
When you come on to afforestation and reforestation, of course,
that is more expensive because it is much cheaper to hold something
intact than it is to actually prepare land, to plant it and so
on, which is a significant part of our business. Even under the
best circumstances, you have to assume that the minimum cost of
that is about $10 a tonne, so if you take that multiple times
three billion, you are at $30 billion for the other half of the
six billion tonnes per year of avoided deforestation and re-absorption
of carbon that is potentially possible. You can make some more
sophisticated analysis of what land can be used in spatial terms
and so on, but I think the order of magnitude is something north
of $30 billion a year, and that has to be maintained. It is very
important to understand that it is not a one-off payment; it is
an annual payment, it is a rent, because as soon as the rent stops
being paid, the land is going to be converted again or the investments
are not going to be made. Certainly, in most terms of international
aid flows, you are talking about quite a significant flow and
of course, it has to be managed into these economies, many of
which do suffer governance problems, do have high political risk
and so on, and some of them are in extremely remote areas. That
having been said, it should be calculated that you are looking
at something north of $30 billion, probably closer to $40 billion
a year flow of capital from North to South essentially in order
to make forests make that contribution of 20-25% to emissions
reduction. In my view, and I think that of most objective observers,
there is no source for that kind of payment and, more importantly
perhaps, no more efficient source, than the private sector, and
that means carbon markets. Generally speaking, businessmen are
better at allocating capital than governments to this kind of
investment, and they are more likely not to get involved in activities
which are opaque, because they cannot deliver opaque credits.
If the credit is from bad land, if it is illegal, if it is not
traceable back to its source and to a property register and so
on, it cannot be sold; it is worthless. If you want the inefficiency
of that $30-$40 billion a year to be at its highest, it needs
to come from the private sector. With the proviso I mentioned
in my opening remarks, many of these countries do need capacity
building in order to get private sector investment. They do need
land registration systems, they do need administrative systems
and so on, which the private sector is not good at implementing.
You have a free rider problem that the private company that pays
for that benefits everybody, so this is a public sector issue.
There is a transitional period. This is one of the points I would
like to make that I think is very important. When I was at law
school I was always taught by my trial practice seminar that when
your opponent gets to the "floodgates" argument, you
know you have won. The floodgates are not going to open because
it is going to take five to 10 years to prepare many of these
countries to the point where they can actually measure, monitor,
verify, and reliably deliver to the carbon market credits from
their forests because there are serious infrastructure issues
that have to be addressed, so this is going to be a gradual process.
Even if you agreed that everything will be credited today in the
forests, only a very small proportion of that would actually be
available over the next five to ten years.
Q116 Dr Turner: So you think that
basically this will be delivered through market mechanisms. Which
market mechanisms in particular? Do you see this as a function
of an international emissions trading scheme? Can you be more
specific?
Mr Bettelheim: Yes, I do, but
not a scheme. This is what I was trying to explain. We
are participants in these debates and in these developments around
the world. National and regional markets are developing independently
of Kyoto. The countries may or may not be an annex one country
already bound by Kyoto. I am absolutely confident, working closely
with Congress, that the United States will have a carbon trading
system under the next administration. My bet is 2010. Maybe it
will be delayed by politics or maybe accelerated by politics.
I do not know, but, in one form or another, the Lieberman Bill
will be adopted, and I do not think there is much doubt about
that when you review any of the presidential candidates. That
system will not be Kyoto but it will include forestry, both domestic
and international forestry. The precise rules as to that are still
being worked out and are being debated by Congress and by regulatory
authorities but I have absolutely no doubt that that is the case.
In Australia and in New Zealand it is already clear that forestry
will take the lead position in their trading markets. You may
have observed that Australia is only meeting its Kyoto target
because of forestry. It is way over its industrial emissions.
The reason it is meeting its somewhat increased cap—I think
of 103% over 1990—is because of forestry. These countries
understand the enormous impact that forests can have in meeting
whatever targets they have set themselves or which they have agreed
to under the Kyoto process. So yes, I think those markets will
be the place at which money will be generated and transferred
for the preservation and restoration of forests around the world.
That is where the demand will come from.
Q117 Dr Turner: But clearly, regulation
of this activity is going to be absolutely crucial, otherwise
somebody will make a lot of money and nothing will actually happen.
Mr Bettelheim: That is absolutely
right.
Q118 Dr Turner: Mechanisms like the
Clean Development Mechanism do not seem to be adequate to this
task. Greenpeace suggests that a brand new stand-alone mechanism
should be set up to regulate this process. What are your thoughts
on how it should be regulated?
Mr Bettelheim: The reason I am
smiling, sir, is that I am delighted that Greenpeace has come
to the view that these forests are important. Greenpeace is one
of the organisations that has spent the last decade fighting tooth
and nail to keep them out of the Kyoto system and to keep them
out of the European Union system, so I am delighted that they
have joined in our opinion that these forests are worth preserving
and restoring. Secondly, I am also pleased, reading their position
paper and their proposal that they realise that the markets have
some role to play in this. However, if you go on and look at their
proposal, you will see that they are going over the same ground
yet again that we had with the CDM, a whole list of issues which
have been resolved long ago, some of them under CDM analysis but
most of them independently but, even worse, you are creating another
unaccountable body like the CDM which will go through a CDM-like
process and stifle just this kind of activity. I am afraid that
creating things out of whole cloth at this stage in the game is
too late. It is 2008. We have 40 years. If you are going to get
this kind of investment, $30-$35 billion moving every single year
for the next three decades to these countries, we do not have
time for another five years of negotiating what is a forest: is
it additional, and will it be permanent? All of this mediaeval
theology that has developed under this process needs to be done
away with. Let us get rid of it and let us move on. That is why
I think it is so important that the next treaty, if it is to be
acceptable and if it is not to be immediately obsolete, does approach
this in a much simpler fashion: set long-term targets, admit biomass
as long as it is verified, let national governments and nation
states make their own decisions about the sovereign use of their
land, and allow the capital markets and the financial markets
to finally start spending money where it is really needed and
where you get a very quick return on the money in terms of climate
mitigation. You do not have to wait ten years for a forest to
do its work.
Q119 Dr Turner: How would you audit
this process?
Mr Bettelheim: First of all, as
in any commodity market—and I think it is high time we looked
at this as a commodity market or a hybrid between financial and
commodity markets—the way in which things are audited is
through exchanges and clearing houses and securities regulators,
in the ordinary way. Buyers and sellers are very sensitive to
what they are delivering and what is being delivered and the price
they are paying for it. Market discipline is remarkably efficient,
and they can tell the difference and adjust the price for the
quality of the thing being delivered and, if there is doubt that
the carbon credit came from a place that is legitimate or from
a legitimate system, that credit is either unsaleable or at a
very steep discount. So you can have pretty good confidence that
self-interest, not to mention the profit motive, of businesses
and investors is going to impose governance and rules which are
already being developed substantially in the voluntary sector.
This Committee will be aware of the number of regimes, including
most recently the Voluntary Carbon Standard, which was developed
under the auspices of the International Emissions Trading Association,
with wide consultation with the NGO community and developing countries,
which is a very rigorous process of regular intervention by third
parties to determine the veracity and the permanence and the additionality
of each credit that comes out of a particular area or project.
So we have the tools. We do not need to invent anything new. The
tools have evolved over the last ten years and are ready for use.
72 See Ev 56 Back
73
The Voluntary Carbon Offset Market, Sixth Report from the Environmental
Audit Committee, HC 331, Session 2006-07. Back
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