Examination of Witnesses (Questions 80-92)
MR ERIC
BETTELHEIM AND
MR ABYD
KARMALI
16 DECEMBER 2008
Q80 Mark Lazarowicz: I would be interested
in Mr Karmali's views on these figures, if he differs in any way
or wishes to expand on it.
Mr Karmali: I think the calculations
themselves, based on the opportunity cost methodology, are sound.
Halving rates of deforestation would mean taking us from 30[55]
million hectares a year loss to 6.5 million hectares a year lost,
and if you assume roughly 400 tonnes of carbon, sorry CO2,
per hectare at a price of $10-15 a tonne, that is how you build
up to the Eliasch Review estimate. I agree whole-heartedly with
Mr Bettelheim's point that that is fine on a static analysis,
but we are in the world of increasing population, increasing scarcity
of land and, therefore, one assumes increasing prices for agricultural
commodities. One can counteract that by saying, "Yes, but
we are also in a world likely to be increasingly scarce in terms
of allowable CO2 to be emitted and, therefore, perhaps
the C02 price will rise just as the agricultural commodity prices
are rising." If you pursue the opportunity cost approach,
you need to consider dynamic changes on both sides, but the principal
point is that one has to take an holistic view and look at the
revenue that the owner of the land can generate per hectare. Is
it going to come from timber? Is it going to come from sustainable
softs? We argue that with a carbon market for avoiding deforestation,
as an example, there could be a successful countervailing force
but it would need to be a pretty compelling one and there would
need to be a lot of long-term certainty that the market for forestry
carbon was going to be there for the longer term.
Q81 Mark Lazarowicz: The comments you
are both making seem to be not a million miles away from the position
in some of the NGOs who are critical of some of the proposals,
in the sense that they take the view that carbon credits are a
distraction from tackling some of the current deforestations.
How would you set out the balance between the two types of approach
to the issue?
Mr Karmali: I think what is important
to keep in mind is that the challenges in forestry carbon, the
real challenge, is getting at the underlying driver of deforestation,
and some of that is going to be through providing countervailing
price signals, through a long-term price of CO2, some
of it is to remove some of the perverse incentives—agricultural
subsidies, for example, in some cases energy subsidies—and
securing land tenure rights. I think those are the three pillars
that need to be looked at as part of an entire package, and without
one of those this whole approach is not going to be successful.
Mr Bettelheim: Could I add to
that? I think what Abyd has just said is very important to understand.
You do need an holistic approach to landscape management, and
one of the problems with the Kyoto Protocol and the REDD discussions
today is trying to slice up the landscape into different categories
and treat them differently. The reality is every country, every
landowner has policy choices, individual choices to make about
the optimal use of the land that they have and if you exclude
agricultural land from this equation you will fail with REDD.
If you exclude afforestation and reforestation you will fail with
REDD. If the world's primary concern is to save these places,
both for climate and other reasons, you have to take into account
the full landscape, the full rural landscape of the country and
how it can be used in the most sustainable fashion, and that means
providing credit, not just for trees, but for soils and grass
and crops. That is how most people live in these places. If they
are incentivised to use a high carbon technique on their land,
by having a carbon price that is sustainable in the long term,
you will have a natural bias to keep the most carbon dense areas,
which are the native forests, and you will have incentives to
increase carbon in soils and carbon in crops and in horticulture
and agro-forestry. Indeed, apropos that, one of the most encouraging
initiatives at Poznan was that of the African countries, led by
the Common Market of Southern and Eastern Africa but supported
by SADC and EAC—that is basically all of Africa aside from
West Africa—and the indication was that they supported this
as well—which was to say that, as the part of the post Kyoto
deal, part of the Copenhagen deal, they must not only deal with
forests, they must also deal with agricultural and pastoral soils
and activity. The atmosphere does not care whether there is a
tonne of CO2 in a blade of grass or in a tree, and
so it should all be credited and, if it is all credited, you will
find that you will move the entire rural balance in favour of
sustainable use as opposed to its current use, but if you ignore
and you separate out any of these things one from the other, you
are creating artificial winners and losers. For example, governments
own most of the forests in these areas, even if it is encroached
on legally or quasi legally by local people, and the poor live
on the most marginal land, on the land that does not have the
richness of the forest. There are some exceptions to that, indigenous
groups do inhabit forested areas, but by and large the poor live
on the marginal agricultural land and the governments own the
forests. If you are going to design a REDD mechanism, which is,
for example, being urged by the European Union and some NGOs,
that is a government to government transfer of wealth, it will
fail; and the reason it will fail is because it will put money
in the pockets of the forest owner, the government, but it will
not help change the behaviour of the four billion people who are
dependent on those forests and on agricultural land in these areas.
So you need to do both if you are to succeed. It is very encouraging
that Africa has adopted a full bio-carbon, sometimes called a
terrestrial carbon approach, to land use for the Copenhagen Agreement.
Because if you credit all biological carbon, and remember, for
example, peat soils hold more carbon than any forest and yet they
are being converted rapidly now in Indonesia and elsewhere into
oil palm plantation, one of the most disastrous policies ever
encouraged by the European Union, but whatever the stimulus, if
we want to seriously deal with the problems of poverty, sustainable
development, land use management and sustainable use of forests,
you have to include the entire landscape in the carbon market
system, because the reality is (and I think Abyd will probably
agree with me, most observers do) that while governments may stimulate
the first efforts in this way, governments and international organisations
will never provide the scale of capital. Whether you take the
Eliasch number or my number or something in between, you will
never get that kind of money on an annual basis from the international
institutions, and it needs to come from a carbon market that has
enough regulatory certainty to stimulate the massive investment
required and the rent that has to be paid to all of these people
if we are to succeed.
Q82 Dr Turner: What role do you see
for the development of carbon markets for forests in dealing with
this very complex set of issues and what preconditions do you
think are needed to be able to make them work? What is the biggest
challenge?
Mr Bettelheim: Abyd is from the
markets. I will respond to anything he misses.
Mr Karmali: The association which
I represent here today, the Carbon Markets and Investors Association,
lives and breathes these issues, if I may say, on a day-to-day
basis. Our view is the carbon market can play a critical role
in scaling up the level of finance we have talked about in this
hearing, and what is really important is that the design of the
mechanisms themselves reflects the difference that Mr Bettelheim
has referred to, namely the different roles that the public sector
has in the short-term building capacity and perhaps facilitating
some pilot projects before allowing for the significant scale
of capital that will come from the private sector to emerge. One
of my concerns, which I did not highlight appropriately earlier,
is that the way the REDD mechanism is currently moving through
the SBSTA process perhaps does not reflect the need to engage
the private sector fully enough. More generally, however, to have
a market to work in this area, you clearly need demand. In the
short-term the demand is not going to come from the compliance
markets, because we all know it is going to take a few years for
the REDD mechanism to be fully fleshed out, which means that we
are relying upon the voluntary market. The voluntary market is
only worth of the order of about $350 million a year, but it could
provide an important bridge in demonstrating some of the lessons
learned from having forestry carbon included in the carbon market,
which is why our association is disappointed by the Defra code
of conduct, which focuses only on compliance instruments. This
is a classic case where the voluntary market can provide some
innovative lessons learned for the future compliance market. But,
coming back to the compliance market, if it evolves, the targets
for REDD (the emission reduction targets) will need to be of a
sufficiently long scale so that investors can allocate capital
accordingly to some of these projects and, of course, there will
need to be some thought given to how the REDD financial mechanism
integrates to the existing Kyoto market which forces the allowances
being traded as well as the carbon credits coming in from CDM
and JI. In the jargon we talk about that as being fungibility.
Why is fungibility so important? It is important because it, in
fact, allows for maximum efficiency in the carbon markets. If
investors can help compliance buyers meet their needs through
one instrument or another, that will increase efficiency, reduce
the overall costs that the compliance buyers have and will attract
more speculative capital to the market. One other point I want
to mention, which is a lesson learned from the existing use of
afforestation and reforestation carbon credits under CDM: I think
I can say that the market view on that has been that it has been
an abysmal failure, primarily because of the lack of fungibility.
Nobody in the market place, certainly that we interface with,
wishes to purchase so-called temporary CERs or long-term CERs,
which are these instruments created under the afforestation, reforestation
guidelines, because they are not fungible with other carbon instruments.
The buyer has the liability for those instruments and it is simply
not a market friendly approach. We think, again, the voluntary
market provides some interesting lessons learned. Under the voluntary
carbon standard for various approaches to forestry carbon, the
approach to having a risk-management buffer, essentially a set
aside, that will allow you to appropriately risk-reduce the carbon
credits coming from a particular area of land, seems a far more
sensible approach, albeit perhaps overly conservative, but one
which we think at least enables the market to function in an efficient
manner.
Mr Bettelheim: Let me underscore
what Abyd has said. To answer your question in its simplest, what
the markets need and what investors need in order to shift resources
to this part of the climate equation is regulatory certainty.
What I mean by that, as Abyd has said, is, first of all, that
these credits will be valuable in the long-term. It takes a long
time to earn and develop these credits. Secondly, that they are
equal, as good as any other credits in the market system, so that
they are, as it were, fungible; that is that a buyer, an industry
for example, does not need to worry whether it is an afforestation
credit or a credit from methane recapture or a credit from carbon
capture and storage; they are all the same and they are all good
currency in the international and national market places. This
is what is absolutely critical, and this is the key reason why
there has been very little, if any, investment in this sector:
it has been regulated to death under the CDM. As Abyd put it quite
eloquently, it is an abysmal failure. The regulations were created
at a time perhaps of relative ignorance among the people involved,
I am not going to blame anyone, but it is quite clear from the
experience of the voluntary market and projects around the world,
including those sponsored by the World Bank, that that regulatory
approach is no longer necessary to give the reassurance to the
market place that these credits can be good in the long term,
that they are permanent, that they are additional, that you can
avoid leakage and all of the other concerns, and you can respect
the rights of people, and so on, that have been raised as various
objections over the years. So we are at the point where if policy-makers
(and I think this is fundamentally a question of political leadership)
at a senior level will insist that the processes involved, whether
it is the European Union or the Copenhagen process, that biologically
stored carbon must be made as good as, as equal to, other kinds
of carbon credits, then you will stimulate the scale of investment
that is required in order to address this part of the carbon equation.
Q83 Dr Turner: Of course, that assumes
that you can demonstrate the legal validity of different forms
of credit and that has been a problem, has it not, particularly
with the CDM? There has been a certain loss of faith in international
credits because of the difficulty of verifying them. Do you feel
that forest credits could be made easier to verify?
Mr Bettelheim: I think Abyd has
already addressed this in part. Sir, there is overwhelming scientific
consensus that forest credits can be measured, monitored and verified
even to a higher degree than other forms of carbon credit generation.
For example, the Environmental Protection Agency of the United
States will tell you, as will NASA, as will Google Earth, that
you can measure the flux of carbon in tropical and sub-tropical
forests today using satellites with additional ground-proofing
to within plus or minus five percent. That allows you to set aside
5% or even 10% to ensure that you are not over counting, that
it is always going to be there. The Japanese satellites which
are being launched now will improve that to plus or minus three
per cent. I do not know of any industry in the world that can
tell you, within a margin of error of plus or minus three per
cent, what it's performance will be from year to year. Certainly
it is as good as wind farms, it is as good as solar energy in
terms of its predictability. All of those objections have been
fully aired and reviewed and analysed and policies developed over
the last decade, so I think that to any objective observer, that
is an observer who does not have an alternative agenda, we have
the capacity today, and it could be implemented worldwide over
the next three to five years so that all countries, except perhaps
those in conflict areas, could participate in this market place
and receive the benefits of these credits.
Q84 Dr Turner: What happens if a
developing country receives revenues through avoided deforestation?
What is to prevent them from investing with energy intensive infrastructure
instead of carbon reduction? Would it be possible to account for
the impact of such activities in future systems?
Mr Bettelheim: Briefly, as I think
I mentioned earlier in my remarks, government-to-government transfers
run exactly that risk, and that is why I do not believe they will
make a significant difference. You do not have to be a developing
country to know that a finance minister is very jealous of his
receipts, and he will allocate them according to the priorities
of the government, not necessarily the source of the receipts,
which is why I think that the private sector is a much more reliable
source of the finance and of these credits, for exactly these
reasons, because someone who sells the credit is accountable for
that credit. It has got to be good delivery in the market place,
and that means he has a vested interest in making sure that that
credit is there and is kept there and that he is not going to
end up having to pay the costs of replacing it, just like any
other commodity. Also, in the private sector, the markets encourage
stability of land tenure or resolution of land tenure disputes,
because they have got to know on an audited basis that it comes
from a legitimate source, that it comes from the owner, the real
owner, and, similarly, markets nowadays, whatever some people
may think, do not accept product from illegitimate sources very
readily. There was, of course, the example of conflict diamonds,
and so on. There is, particularly in this area, a very strong
sense that any credit that came from the results of an abuse of
human rights, or the dislocation of people or the confiscation
of their land would simply have no viability in the market place
because all of these credits are going to be traceable, they are
traceable to an industrial source or to a wind farm, they are
traceable to a forest from which they are generated, and I think
one of the benefits of a private sector approach is that it stimulates
that kind of transparent and accountable behaviour.
Q85 Dr Turner: Somebody has to police
it; so there is still a problem there. Do you think it is justifiable
for the Government to treat international credits as reducing
our net emissions when they are bought from countries that do
not themselves have binding carbon targets because overall emissions
are actually increasing?
Mr Karmali: I am accumulating
a list of issues to address questions you have raised. If I can
start with some of your earlier points and I will return to this
one, you asked about the verification processes. I wanted to highlight
that one of the failings, or perhaps sub-optimal approaches that
the CDM had taken is essentially to start with a project-by-project
approach without having a set of approved methodologies in place,
which I think has really dragged out the process for getting carbon
credits through the system, which is frustrating both for credit
developers as well as, of course, for the developing countries
themselves. One of the opportunities we have with REDD is to agree
upon a set of methodologies that would become acceptable and then
project developers can take those methodologies and undertake
eligible project activities, and we are seeing some efforts. I
wanted to highlight the work of the Avoided Deforestation Partners
group, which is trying to come up with a set of agreed methodologies.
The second point is: what makes forestry projects different from
your typical industrial emission reduction projects and CDM? Clearly,
as Mr Bettelheim pointed out, it is not verification that can
be done mostly by sitting at one's desk and then going out to
just kick the tyres of the project; rather you have to have a
marriage of ground-truthing as well as remote-sensing, and, of
course, in terms of costs, that is much more costly than your
typical verification. A project in which the company I represent,
Merrill Lynch, is involved, we would estimate that the annual
verification costs could be in the order of about $1.5 million
per project in avoided deforestation, which compares to $15,000
for verification at an industrial project. So I think a significant
order of magnitude of difference. Your next question related to
some of the challenges or prerequisites in a market approach and
the monitoring and verification approaches for national level
inventories that is one of the critical prerequisites, to get
the market up and running. I would add to that, land tenure settlement,
which Mr Bettleheim highlighted as well, and then, coming back
to the earlier point we discussed about perverse incentives, making
sure that those incentives are part of the overall package of
capacity building, I think, is important too. Your question about
government-to-government approaches highlights the importance
of the private sector's involvement, and this comes back to another
point we discussed earlier, namely the danger of the REDD mechanism
resulting in only a government-to-government type approach. We
will not scale up the finance. We need to involve the private
sector, and that typically means finding a way to engage the private
sector at the sub-national level. The private sector is not going
to fund national level programmes, sectoral level initiatives,
it is going to fund things that look, feel and smell like project
activities, because we can then define the boundaries, which means
we do need to address linkage issues, but we can define the boundaries
and we can then put in place a set of risk mitigants to address
some of the concerns we may have about the investment costs that
are required as well as the on-going operating costs. What does
that mean in terms of monitoring of government-to-government transactions?
It means that you have to have the national level inventory that
is in place that provides an environmental cap. So to your question,
"Should the Government engage in carbon credits from countries
with no cap on emissions?", I would say, we all recognise
that at the time of the Kyoto Protocol there were countries that
were deemed to be the ones where we need to focus our effort first
because of historical responsibility and those for whom no target
was seen as appropriate, but the existence of the pre-development
mechanism joined-up limitation will result in roughly 2.00 to
2.5 billion tonnes of emission reductions that would not have
happened had those mechanisms not been in place. So I think it
is a credit to the developers of the architecture of the Kyoto
Protocol that emission reductions are occurring in countries without
caps. There is a little bit of an adjustment towards a lower carbon
trajectory, but, clearly, for the larger emerging markets, that
is not going to be sufficient. A cap needs to be put in place
and part of that cap should focus on the forestry sector, which
will provide the reference against which we hope some of the sub-level
project activities can then be credited against.
Mr Bettelheim: Can I address the
last point? I think it is extremely important. That is, why should
developed countries pay countries for credits when they do not
have a cap? I think one of the interesting things that happened
in Poznan is a country like Mexico said it will take a cap, and,
as you know, the rain forest nations have said, "We will
join the system", albeit on terms to be negotiated—when
they would have a cap, what kind of cap it will be and so on—"if
you pay for our forests." Strangely enough, this excluded
sector, this much criticised sector of forestry, is in fact the
key to the developing world taking on caps. China understands
this, India understands it, Brazil understands it and the 100
countries that are not industrialising rapidly who were dependent
on forest and agriculture now understand it. They understand that
the way for them to develop sustainably, that is to lift people
out of poverty, is for them to become part of the system, but
only if they are paid something to do it, and we can argue back
and forth that this is fundamentally a trade negotiation in which
all we are really talking about is a shifting of money, but if
the money is just shifted to governments and that is the end of
it, it will fail. If it is shifted to the people who actually
live on and manage the land, it has a chance of succeeding, and
this is what has to happen if there is going to be a global deal
because the four to five billion people who are still in poverty
are going to need that kind of help, and whether they can get
it from their government or not, they need to know that improving
their standard of living is consistent with mitigating climate
change and, importantly, adapting to it. In all the discussions
about adaptation, again, people fail to realise that forest and
land management is the key to adaptation to climate change for
almost all of the world poor of the developing world, and that
is going to take significant long-term investment in those people
and in their practices of land use. So the answer to your question
is those countries are now ready, even if they were not at the
time of the Kyoto Protocol, to take caps, albeit phased in on
some negotiated basis, if, and only if, biological carbon is credited
to them for mitigating climate change and giving them the opportunity
to move on to a sustainable low-carbon path of development.
Q86 Martin Horwood: I am absolutely
with you on the importance of forest and land management and I
can see these markets working very well with people like your
investors at international level, I even buy that they can be
verifiable by satellite to some extent, but do you really think,
when it comes down to individual land use decisions by marginal
farmers and local lobbying outfits let alone indigenous people
who are not even part of the money economy, that these market
mechanisms are going to efficiently trickle down to that level
and really affect decisions from day to day?
Mr Karmali: My sense is that if
the mechanism can be made to work at the sub-national level, you
have a far greater chance of achieving that, and this again highlights
why we cannot let the REDD mechanism simply be a government-to-government
transfer. Yes, you absolutely need to have a national level inventory
in place that sets the overall budget for that country, but we
as private investors will engage in projects where we feel that
there is a good chance the measures which are being funded to
reduce deforestation, for example, will be executed. There is
a higher chance of success in a case where you can have transparency
about the local benefit-sharing approach, which will ensure that
the benefits are flowing to the individuals who have the ability
to change those decisions, than money flowing into some pot at
the national level that may end up funding, as you said—
Q87 Martin Horwood: What about indigenous
people who do not use money?
Mr Bettelheim: Can I just respond
with our experience as a company. We work with American Indians
in the Amazonian rainforest, we work with Aborigines in the North
West of Australia, we work with the Maori people in the North
Island of New Zealand, we work with dispossessed land owners who
are seeking to recover their land in South Africa under the Post-Apartheid
Constitution, we work with extremely small land owners in Rwanda,
so we cover most categories of what people generically refer to
as indigenous people. The reality is that indigenous people are
smart, they understand what is in their self-interest, and they
find partnerships with people like us enormously refreshing because
they have been promised so many things for so long and none of
it has been delivered by governments, or aid, or international
organisations. I will give you just a small vignette. When I was
at the Bali Conference we met up with the indigenous people's
representatives from Africa and the indigenous people from South
and Central America and the indigenous people from the Pacific,
and they all had one message. They said: "Do not talk to
us about Kyoto, do not talk to us about governments, do not talk
to us about charity or aid. They all have failed us. We want to
do business; so come and see us and let us do a business deal",
and they understand about carbon; they are fully aware of it.
They also understand, probably in most cases, how to best use
their land if they have what we would regard as pretty modest
capital investments, like better tractors, like better water management
and irrigation equipment, and this includes people who are quite
isolated. In one area in Peru we are the buffer zone between civilisation
and uncontacted tribes and we work with organisations like Survival
International and others to ensure that we do not transgress on
their rights and on their way of life. We capitalists running
dogs are not nearly as insensitive and foolish as you might imagine,
and we generally find that our partnerships with those people
are far more straightforward and mutually beneficial than any
partnership we strike with government.
Q88 Martin Horwood: Do you think,
even if you believe this is necessary, that it is sufficient and
it works without, for instance, land rights for tribal peoples
or control of uncertified logging, and things like that?
Mr Bettelheim: I did not say that.
Q89 Martin Horwood: No, I am asking.
Mr Bettelheim: First of all, for
example, in South Africa we are funding groups to recover their
land because they could not afford the lawyers to go through the
legal process. From our point of view, the first and most fundamental
requirement of any business transaction with any community is
that they own the land, that they have legal title to it, and
the second is that under the legal regime in place, or the regulatory
regime, they are entitled to transfer the carbon separately from
other commodities, from other uses of their land. This is critical,
and that is what has to be implemented for the first time in many
countries in which we are working. For example, in Zambia and
Gabon we are helping the Government to develop precisely those
tools which you take for granted in a modern society. There is
a Land Registry. You can go there and check what rights have been
allocated to whom, you can separate the fruits of the land from
a farm, from the land itself, you can separate out the mineral
rights, with the stroke of a pen. In many countries these things
are either confused or their laws have been inherited from a colonial
or much earlier past which is no longer appropriate. So we do
work in order to help change the legal regimes, or implement them
for the first time in some cases, and to ensure that the land
title is secure, because we cannot sell what we do not own, and
we buy from people that are in the same position. They cannot
sell us anything they do not own. So it is a fundamental premise
of any of these transactions from the private sector that we first
ensure that the legal regime and structure is in place before
we can invest, and that will be a requirement for anyone investing
in the land use sector, for climate or other purposes.
Q90 Mr Caton: You have both spelt
out your commitment to a market mechanism to stimulate the level
of investment needed, but are there any other mechanisms on the
table that could encourage similar levels of spending?
Mr Bettelheim: The short answer
to your question is, no, and that is because you said "similar
levels of spending". There are a number of proposals on the
table, both from NGOs and, indeed, as I explained in the formal
negotiations of the post Kyoto Treaty, that are focusing on government-to-government
transfers, and I know of no other sources of money except the
public sector and the private sector. Even in my business it does
not grow on trees. So either the public sector is going to do
the lifting, in which case, if the world's public sector has the
resources and is willing to spend the money over decades measured
in hundreds of billions of dollars, so be it, it has the potential
to work. Most observers, that includes Lord Stern, McKinsey and
others, would indicate, and I think most experienced politicians
would verify, that that kind of money is simply not going to be
available given the other priorities of government and the public
sector, aside from climate change and, in particular, aside from
land use in the developing world, but the public sector has (and
I think I referred to this earlier) a very important role to play.
First and foremost, as I hope I have made clear, you must set
up a straightforward regulatory system that gives credit to the
carbon stored biologically in these places. Secondly, you must
help these countries build capacity. You must help them build
the administrative systems, the legal systems, training, provide
the scientific infrastructure and so on, so that they can in fact
fully participate in the market that you create the regulations
for otherwise they will remain excluded. And finally, there is
a use for public money in the short term to help build out through
experience how this can be done in a reliable way. A lot of pilot
projects are already underway. I do not think we need a lot of
other pilot projects. What we need is national scale projects.
For example, McKinsey is working with the President of Guyana,
President Jagdeo, to do precisely that, and the President has
been very forthcoming to the international community and said,
"If you pay me for my forests so I can develop my country,
they are yours to maintain on a sustainable basis," and so
far as I am aware he has had no takers. That is just one small
tropical forest country.
Q91 Mr Caton: What is your view of
the recent proposal to spend a percentage of the EU ETS auction
revenues which they claim will deliver £8 billion per year?
Mr Bettelheim: This is yet again
one of these false hopes. You will have to enquire of the Shadow
Chancellor and the Chancellor whether or not they are willing
to give up general revenues for this purpose on that scale. There
are a couple of European countries who said they might volunteer
to do it. There is no timescale involved and there is no legally
binding commitment. The Commission has been disingenuous on this
for some time. Of course, if the EU as a political organisation
does adopt rules hypothecating revenue for this purpose, those
revenues could well be used for this. However, even that scale,
as I hope we have made clear, is far too small to make any significant
difference in the equation.
Mr Karmali: I would simply add
that of all the alternative approaches that have been discussed,
which include EU allowance auctions, AAU auctions, ie the national
budgets allocated to countries, the maritime tax on bunker fuels,
aviation, although I think aviation is now shifting more towards
trading, and even the Brazil Amazon Fund, which is perhaps a real
example of an alternative approach, none of them would get us
to the sorts of numbers we talked about earlier which would be
required to even partially address the problem. So they may contribute
little bits and pieces in the short term but they are nowhere
near the scale that is required.
Q92 Mr Caton: Can you give us your
views on the problems around the issue of governance in developing
countries? Also, you have told us about the various developing
countries that you work in. It would be very useful if you could
elaborate on what you say with examples from your own experience.
Mr Bettelheim: Governance is an
issue in many places but it is not as prevalent as people often
believe. The perception of the governance risk is often exaggerated
from the reality. All of the countries in which we work have governments
that want to help us get this done because they see it in their
interest. The corruption issue, which is really what people talk
about when they talk about governance, is chronic in a couple
of major areas of tropical rainforest. There is a history of corruption
in these countries. Our policy is very simple. If we are asked
by any civil servant, any politician or anyone in any authority
for a bribe or an incentive of any kind, we simply do not operate
in that country, we leave it, and we have done that. We have in
one African country had the endorsement of the President and all
four ministers of his Cabinet who had responsibility for the forestry
sector and when we were asked by a civil servant for an incentive
in order to provide the information, which his minister had promised
us, we simply left the country. There are other countries—and
I think they should remain nameless for these purposes—that
do have chronic corruption and these are the countries to which
the public sector needs to pay the most attention. This is not
something which the private sector can deal with on the size and
scale necessary to incentivize them to move to a sustainable use
of their land. The vast majority of the over 100 developing countries
can benefit from an integrated carbon system that credits all
biological carbon and the question is not governance in the sense
of corruption, the question of governance is of capacity. They
simply do not have the human resources and often the intellectual
resources and the financial resources to build the administrative
systems, to pass the laws, to use scientific data, to train their
people, whether it is in guarding a forest or it is in improved
land use techniques and so on. That part of it is the fundamental
role of governance that needs to be addressed by the public sector
if the developing world as a whole is to participate in the marketplace.
As the Eliash Review rightly points out, the resources are there.
The £3-5 billion that has already been committed by various
countries like Norway, the United Kingdom and others is enough
to build in those countries that are not conflict zones, where
corruption is not endemic, the governance capacity both at the
centre and at the grassroots that is necessary for these people
to benefit from a carbon system and it can be done in the next
three to five years.
Mr Karmali: I think from a financial
institution perspective governance risks are one of the critical
impediments in the forestry carbon market. Obviously the focus
on risk has become all the more acute in recent months. To address
some of the issues we would need a stronger focus perhaps assisted
by capacity building on land use reform. We would need to have
in some cases rules governing local benefit sharing, ie how should
the proceeds of the carbon financial flows be best directed. If
there is no prescriptive approach, which is also acceptable, then
for an institution like the one I represent to be involved in
a project we would want to see an environmental NGO that is responsible
for working with local communities to ensure that there is proper
transparency and accountability for local financial flows, and
we think that is a way of addressing the issue. The final point
is at the national level. Just as under the CDM there is a focal
point, a designated national authority to assign the carbon rights,
the same needs to be done for REDD and often that may be a different
ministry in a country, perhaps the Ministry of Forestry, and there
has to be a lot of effort to focus on the governance of carbon
rights and the assigning of carbon rights under any financial
mechanism that evolves.
Chairman: I think we are out of time.
Thank you very much, both of you, for coming in. It has been a
very interesting and helpful session from our point of view.
55 <ep<nh Note by Witness: The figure
would be reduced from 13million hectares a year loss, not 30 million
hectares. Back
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