Examination of Witnesses (Questions 20-38)
MR JOHAN
ELIASCH, MR
JONATHAN BREARLEY
AND MR
GRAHAM FLOATER
9 DECEMBER 2008
Q20 Martin Horwood: Can I ask you
about another governance issue, which is about the land rights
of indigenous tribal peoples? They do not receive an awful lot
of mention in the Review. Would you first of all acknowledge that
there are rights there to be recognised as in a sense we are commodifying
their living environment, but, secondly, that it is a potentially
quite neglected part of the possible solution in that if you firm
up land rights you will improve the importance of land rights
and encourage more governments to sign up for things like ILO169
and that could be quite an effective tool in helping to protect
the forests themselves? Would you agree with that?
Mr Floater: It is fundamental
that there is full participation from forest communities and that
includes indigenous peoples. Forests are home to about 350 million
people and about 60 million indigenous people, and one thing that
we wanted to get across in this Review is that all of those people,
many of them very poor, are important in this process. Over 90%
of those living on less than one dollar a day depend on forests
for their livelihood. In terms of addressing specifically the
rights of indigenous peoples, on page 195 of the Review we talk
about Articles 18 and 19 of the UN Declaration on the Rights of
Indigenous Peoples, and, as I say, it does need to be fundamental,
but we also have to recognise that there are many other forest
communities who need to be taken into account as well.
Q21 Martin Horwood: Forgive me, I
missed that on page 195 but it is quite a slight reference. The
issue about poverty reduction as part of this package and the
number of people living on one dollar day is a slightly misleading
one, is it not, when you are dealing with indigenous tribal peoples
who are living in the forest because in a sense they do not live
on anything a day in monetary terms? They often have quite a sustainable
lifestyle as it is without needing to be part of the money economy,
so the protection of their rights is a much more important thing
than incentivising poverty reduction because in that sense they
are not really poor in the same way as a community on the margins
of the forest. You do not talk a lot about their land rights as
part of the solution, do you?
Mr Eliasch: Of course their land
rights are as important as everybody else's land rights, and we
do emphasise that in the Review. If you take a country like Brazil,
they have an institute called FUNAI which is dedicated to looking
after indigenous people. This is a formula which, if that is managed
properly, is highly recommendable and also for the rest of the
rainforest nations to adopt a similar type of system to protect
their rights.
Q22 Chairman: Can we go back to the
issue of credits? You argue in the report that if you allow credits
into the EU ETS, provided you have got the right supplementarity
limit and the right emissions reduction targets, which I think
might be a fairly big assumption but I imagine you can do that,
then it does not have the effect of reducing the carbon price.
However, a high carbon price is regarded as essential to drive
all sorts of investment in low carbon technologies crucial to
what is going on in the energy sector, the transport sector and
so on. There is still nevertheless a risk, is there not, that
if forestry credits came in they would have a depressing effect
on the carbon price?
Mr Eliasch: In our opinion, with
supplementarity limits of 50% and a gradual smooth transition,
and this is based on evidence from modelling, we do not think
it would have an impact. I would say that the underlying thesis
here is that in any market there will always be investors into
that. It will always attract capital flows if you have an attractive
proposition. As part of that we need a currency, a security that
is robust and stable pricing mechanisms—like in any economic
system that is based on open market principles that will prevail.
It is not a question of flooding; it is a supply and demand situation.
Mr Brearley: Can I just add that
this is not unique to the forestry debate actually, there is lot
of cheap abatement in countries outside of Europe and the same
issues apply. Essentially what we say is that by setting supplementarity
limits you can make a judgment between that and your targets about
where you think your EUA price might end up. The trade-offs you
make in forestry are exactly the same as the trade-offs you make
in other low carbon technologies across the developed and developing
world.
Q23 Chairman: Yes, it is just potentially
that they are rather big. That is why it is so important that
the scope is so enormous?
Mr Brearley: Absolutely. That
is why we describe a transition where essentially you have a slow
transition into the market and therefore you have a slow supply
of credit. That is not unique. If you look at the potential of
other sectors, for example, I believe with the associated costs
there you will find we did have a similar scale of issues.
Mr Floater: Could I come back
to your specific question about the price impact. The modelling
that we did showed that if you allow forestry credits into the
international market, if the supplementarity limit in the EU ETS
is already set and that level is below 50% then there will be
no impact on the EUA price. The reason is, that although the average
cost would go down, the carbon price is set by the marginal cost—the
most expensive part of the abatement—and for that reason
it would have no impact on the price. There would be implications
for the international credit market, and we looked at that again.
I think there is an assumption that forest credits are extremely
cheap and much cheaper than credits in other sectors. We found
that the reality is more complicated than that. If you allow forest
credits into the international market it could make up about 34%
of that market; but with stronger developed country targets and
supplementarity limits in place you would be able to keep your
price at a level that would be a strong incentive for investment
in new technologies; it would support a high level of technology
transfer to developing countries; and it would also fund the significant
forestry abatement that we need.
Q24 Chairman: A 50% limit which you
suggest, do you think that is the right one?
Mr Floater: We have not suggested
what would be an appropriate level; that would have to be based
on a number of different decisions for other sectors, because
that is a decision on the level for international credits as a
whole. The only thing that we did was to ask ourselves, at whatever
level it is already set at if you then included forestry credits
what would happen? Anything below about 70% would have very little
impact.
Q25 Chairman: The Climate Change
Committee reported last week and suggested that 73% of our 80%
emission reduction target is likely to be most cost-effectively
delivered domestically. What do you think that implies about the
role of a carbon market for delivering funds for forestry?
Mr Floater: It is important to
make the distinction between the ETS and non-ETS. What the Committee
on Climate Change is suggesting is that in the intended budget
case—this is the case that they put forward in the eventuality
of a global deal—up to 20% of the required emissions reductions
could be achieved through offset credit purchase. That is outside
of the EU ETS; and so the report is compatible with the findings
in our report.
Q26 Joan Walley: Just looking at
offsetting, a large proportion of our emission reduction target
places considerable faith in international credits; but it has
been difficult verifying emission reductions from industrial sources.
What we wondered is what evidence you have to show that forest
credits will not be even harder to verify and easier to manipulate?
Have you got evidence to show that it will not be even harder
to verify the forest credits that there would be? If you actually
look at what is happening at the moment, it is very difficult
to verify and manipulate the credits that there are; and we just
feel with the forestry situation you are embarking on something
that would be even harder to verify.
Mr Eliasch: With all types of
credits you have similar types of challenges. The implementation
period is not something we can switch on overnight; it will take
some time here, and that is why we are saying that it is so incredibly
important to start capacity-building now because it is a big task
and it is going to take time.
Mr Brearley: This was a surprise
for me when we embarked on the Review, because one of the biggest
questions I had when we started was: how are we going to understand
what we are delivering here. Graham can give you the detail, but
the surprise for me was, with the combination of satellite technology
and with capacity on the ground, actually we feel we can be approaching
measurements as accurate as we are in other sectors. If you look
at what we do in Europe and our assessment of our own accuracy,
then we are not that far off in forestry and we do not expect
to be.
Mr Eliasch: If you have the science
right from the start the actual measuring and monitoring is very
easy because you see it—it is right there in front of you
from above and you can see progress.
Mr Floater: This has been a concern,
and understandably so. As I mentioned before, the IPCC guidelines
are not that simple because you have to understand the type of
forest you are working with, the amount of carbon stored and the
land use change as well. Over recent years there has been a significant
advance in techniques in order to quantify the carbon stored and
the emissions that would be produced under different land use
changes. Chapter 10 of the Review goes into some detail looking
at the evidence, which concludes that the confidence for the estimates
of emissions in the forest sector can be around about the same
as other sectors. As Johan says, that requires capacity-building
on the ground on a country by country basis, and that is why it
is very urgent that we get this capacity-building up and running.
Q27 Joan Walley: As well as having
to do that capacity-building there is also going to be a cost
to that as well, is there not, which is going to presumably be
offset against whatever the cost for setting up the whole market
process is?
Mr Eliasch: Yes, obviously, but
if you look in the big context here the capacity-building is small.
Mr Floater: We estimated it would
be about $50 million for a sample of 25 forest nations to set
up national forest inventories, with a further $7-17 million needed
for annual running costs. That is relatively small compared to
the $4 billion we were talking about overall.
Q28 Joan Walley: Let me just try
and understand this a little bit more. Let us assume then that
the UK is buying emission credits from the countries that themselves
have not got binding carbon targets, and in those countries the
overall emissions are actually growing. How can we justify our
Government treating those credits, which are actually growing
in another country because there are not binding targets, from
actually reducing our net emissions? Is there not a contradiction
somewhere at the heart of that? It is okay for us, but it is going
to offset that growing elsewhere.
Mr Eliasch: The starting proposition
here is that everybody is part of an agreement—whatever
the trade performance, that is number one. Number two, with forestry
in particular this is a big opportunity to actually address developing
nations' poverty, or need to reduce poverty, which goes hand in
hand with forests—there is close linkage. That is the second
part of this. The third part is that to effectively get the funding
to these countries, and also for developed nations to fulfil their
targets they are going to have to buy in carbon credits from other
countries. Lastly, if you have a global scorecard for how this
is going, where it is measured or just like we are here today,
we are being audited, then this is something that can work.
Mr Floater: Your specific question
was, if emissions are increasing then why should we be buying
credits? What we set out here is that you set a national baseline
and it is important to be at the national level, and it is the
reduction below that baseline that has to be measured and verified
that results in the credits. You are only buying additional reductions
in forest emissions.
Q29 Joan Walley: Can I just clarify
then that all of the arguments you are laying out in your report
are dependant upon a new starting point, presumably through what
is going on in Poznan at the moment and then in the future to
Kyoto?
Mr Floater: Yes.
Mr Brearley: Just to look at that
wider framework, essentially if you look at what we would hope
for in the Review from Kyoto, it is basically a process by which
countries make some form of commitment in exchange for some kind
of funding mechanism. We focussed here on forestry and what we
say is that the commitment that needs to be made, not a binding
cap but a commitment, is to come in under your national baseline,
under national business as usual emissions. Essentially that is
what you get funding exchange for. Essentially if you can get
into that framework—which is not about a cap and trade mechanism,
the full cap or national cap for developing countries but does
allow us to begin to pay for things which are additional—then
I think you are in the right sort of space. Again, I would just
point out that this is an issue for forestry, but it is an issue
in every other sector as well. It is exactly the same question.
Q30 Joan Walley: How would you stop,
for example, a developing country from spending any revenues that
were raised through these avoided deforestation schemes; how would
you stop a developing company spending the money that they would
then get on energy-intensive industrialised investment?
Mr Eliasch: They would have a
problem with their targets that they would have to sign up with
if they did that.
Q31 Joan Walley: How have you actually
considered how you would avoid that happening?
Mr Brearley: I think we would
have to look to the wider global agreements to begin to deal with
other sectors. That is where you would expect them to be binding.
That is where you would expect the international response to that
action.
Q32 Joan Walley: Assuming that developing
countries agree to such a target in the negotiations, how much
scope will there be for trading in forest credits given that they
would need to reduce emissions themselves?
Mr Floater: By that, do you mean
that there is a difficulty in reducing industrial emissions at
the same time?
Q33 Joan Walley: Given that the developing
countries will want to be going ahead and reducing their own emissions,
what is the effect of buying the credits in going to be on their
need to reduce?
Mr Floater: The effect of a source
of finance going to developing countries through forest credits
will mean that they have more funding to reduce deforestation
at a greater rate. It should have no effect on their ability to
reduce industrial emissions.
Q34 Jo Swinson: In your report you
are quite clear that the measures to halt deforestation and reduce
deforestation will be successful only if there is a global step
change in the way land is used and commodities are produced. How
do you think you would actually be able to take that forward with
governments to achieve that step change? What is important to
make sure that happens?
Mr Eliasch: First of all, the
whole deforestation issue revolves around one thing, and that
is: how do you make the standing tree worth more than the cut
down tree; and how do you implement that in a process such that
it is acceptable to all the stakeholders? That leads on to the
fact that forestry operations need to be sustainable. It needs
to be in balance with a country's need for more agricultural lands,
whatever the pressures are here for more land. It is taking into
account all pressures on land and trying to achieve the right
balance with the funding that is required in order, through what
we propose here, through various funding mechanisms, to also have
an economic balance that justifies not doing things in some areas,
and doing the right things in other areas.
Mr Brearley: What we did in the
Review was focus on financial incentives, and I think that is
fundamental to getting a change in production away from deforestation
and to more sustainable practices. I do think there is a lot more
work to do, to think about how we change agricultural methods
and agricultural practices to become more productive. I do think
that is fundamental to the answer and not something that we looked
at in perhaps as much detail as we would have liked.
Q35 Jo Swinson: You mentioned the
financial incentives, do you think that the financial resources
identified through your approach would actually be able to help
to fund that change to more sustainable land use, or would money
have to be found from some other kind of measures?
Mr Brearley: I think the financial
incentives that we set out help that because that changes the
economic incentives on access, but it is not enough just to do
that. I am not sure whether the answer on how we improve production
in less productive land elsewhere is just about funding. It is
also about increasing our understanding and use of technology,
for example. I do think there is a lot more to be thought about
and to be done in that area.
Mr Floater: Also this is not just
about sustainable land use; it is not just about more efficient
and more sustainable production of agricultural commodities; it
is also about more sustainable timber production; it is also about
infrastructure policies at a regional and national level, which
is why the national level approach is so important; and it is
also about conservation of areas that include indigenous peoples
and also include wildlife. All of these have to be a part of the
solution. In terms of the costs, we commissioned work on the opportunity
costs to update those from the Stern Review, to take account of
higher commodity prices currently and projected, and found that
the estimate was around about $7 billion per year to halve deforestation.
We then commissioned two other pieces of work to look at the rents
that you would get if you were to fund this with a single carbon
price. What that means is that within those rents there is an
added amount of funding that could be used to address a shift
to more sustainable production.
Q36 Jo Swinson: Do you think it should
be up to countries that participate in this scheme to spend the
money as they see fit; or do you think that part of the funds
that they get through keeping a forest standing should be directed
specifically towards a move to more sustainable land use?
Mr Floater: First of all, we have
to understand that there is a national sovereignty issue here,
and that nations must take a lead in the policies that they have—partly
because of the importance of reducing intra-national leakage,
so that you address emissions at the national level; partly for
additionality reasons; but also in terms of national sovereignty.
At Poznan and at Copenhagen it is going to be nation states which
are negotiating a deal. There are a number of different ways in
which you can distribute finance and, as I say, some of those
will need to be targeted at the national and regional levels to
shift whole economies out of land use that results in deforestation
into, for instance, new technology sectors or other sectors that
do not impact so much on the forests.
Q37 Jo Swinson: Finally, you mentioned
the move towards increased production and so on is not hugely
mentioned in your report. To what extent have the negotiations,
at these climate change negotiations, realised that this is not
just about avoiding deforestation but is about these other land
use issues that go with it?
Mr Floater: There is certainly
a good understanding amongst the UK negotiators whom I have talked
with. In terms of more generally I could not say, but I think
there needs to be a realisation that these elements have to be
taken into consideration, and I hope they will be.
Q38 Chairman: Unfortunately, we are
running out of time. There are various other issues we might have
covered because your report does raise a lot of very interesting
matters, but I think we are going to have to wind up here. Thank
you very much for coming in this morning, it is much appreciated.
We will be working on the subject now for a few weeks and I hope
we will come up with something worthwhile ourselves in due course.
Mr Eliasch: Thank you very much.
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