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Africa: Carbon Trading Deceptions

AfricaFocus Bulletin
Dec 7, 2011 (111207)
(Reposted from sources cited below)

Editor's Note

"Africa's share has remained at about two per cent of CDM (Clean Development Mechanism) projects officially registered with the UN's climate change secretariat. If South Africa and countries in North Africa are taken out of the aggregate, all the other African countries currently account for just 0.6 per cent of registered CDM projects." But even in carbon markets in Africa were expanded, argues this new comprehensive study from the Institute for Strategic Studies, carbon offsets at best bring only deceptive benefits to developing countries, while allowing rich countries to evade their responsibilities for reducing carbon emissions.

The report, entitled Carbon Trading in Africa: A Critical Review, and edited by Trisha Reddy, was released in November. In addition to three overview chapters and concluding recommendations, it contains detailed summaries of existing offset projects in South Africa, Uganda, and Ethiopia; a chapter on the World Bank and forest projects in Africa; and an incisive critique of the inherent flaws in carbon offset markets, noting their "un-regulatable chactacter" similar to that of the financial derivatives markets. The result, notes leading expert Larry Lohmann in that chapter, is "regulation as corruption," in which those presenting carbon offset projects essentially make up plausible but unverifiable scenarios comparing the carbon impact of projects with the counterfactual scenario of the project not happening.

The full report, a fundamental resource on the subject, is available as a pdf download at http://www.iss.co.za/pgcontent.php?UID=31241

This Bulletin, available on the web at http://www.africafocus.org/docs11/clim1112b.php but not sent out by e-mail, contains the text of Chapter 2, with an overview of carbon trading in Africa to date as well as a review of pending projects.

Another AfricaFocus Bulletin with several recent documents on climate change is being sent out today by e-mail and is also available on the web at http://www.africafocus.org/docs11/clim1112a.php

For previous AfricaFocus Bulletins on climate change and the environment, visit http://www.africafocus.org/envexp.php

For an earlier report on carbon trading as a false solution, see http://www.africafocus.org/docs10/can1012b.php

++++++++++++++++++++++end editor's note+++++++++++++++++

Climate change and carbon trading in Africa

Yacob Mulugetta

in Trisha Reddy, ed., Carbon Trading in Africa: A Critical Review. Institute for Security Studies Monograph 184, November 2011

[Note: chapter text only. Notes for chapter available in pdf at: http://www.iss.co.za/pgcontent.php?UID=31241]

Introduction

Africa has gained few benefits from economic globalisation, and the continent's economies continue to depend on a handful of primary goods whose prices are determined externally. This unjust allocation of resources, access, and development extends to climate policies in that Africa's interests have remained peripheral to their implementation. The introduction of carbon trading schemes has arguably not transferred finance or technology to Africa. Just two per cent of projects under the Clean Development Mechanism (CDM), the main carbon market resulting from the Kyoto Protocol, are in Africa, and if South Africa is excluded, a mere 0.6 per cent of these are in sub-Saharan Africa. With carbon markets driven primarily by commercial interests, most CDM credits are awarded for simple changes to reduce industrial gases other than CO2. The manufacturing facilities that generate these gases are not found in Africa. While hydro power, the other major source of CDM credits to date, is the most common form of electricity generation in sub-Saharan Africa, this results in an assumption that the energy mix is already clean. Simply put, sub-Saharan African countries are not deemed to be dirty enough, or to consume enough, to compete successfully for CDM projects.

Partly in response to these failures, CDM reform is being discussed at UN climate negotiations. However, the approaches favoured in these talks could exacerbate rather than ameliorate the problems associated with carbon trading. One of the main proposals is to replace a project-based approach with one that encompasses entire economic sectors. However, this does not solve the basic problem of carbon 'offsetting', namely its lack of environmental and social integrity. Nor would a sectoral approach address the geographic imbalance in favour of middle-income countries. A second scheme that is heavily linked to carbon markets is Reducing Emissions from Degradation and Deforestation (REDD). However, this could introduce a series of additional problems, including the displacement of forest-based communities, and a financial incentive to replace complex forest ecosystems with monoculture plantations. Serious doubts also remain about the ability to account for emissions 'savings' from REDD. Thus far, the evidence shows that carbon trading is an ineffective way of addressing climate change, largely helping powerful governments and business executives to meet the demands for action on climate change while preserving the commercial and geopolitical status quo.

This chapter probes these issues by placing climate change in its historical and political context. This may help us to understand why and how carbon trading falls short of addressing carbon mitigation efforts, and limiting the effect of climate change on livelihoods in Africa. It then discusses the marginalisation of Africa in the carbon market. Finally, it explores some future trends in the African carbon market.

The historical and political context of climate change

The historical legacy of unequal access to resources and unequal development demands an open debate about the causes of anthropogenic greenhouse gas (GHG) emissions, how past and future emissions are likely to be allocated, and what interventions are required to engage in a meaningful way with CO2 stabilisation efforts. Placing the climate discussion in its historical (and political) context has two important functions. Firstly, it helps us to appreciate the origins of the problem and the possible effects of global warming on present and future generations, thus situating local impacts firmly in global politics and economics, and helping us to discuss inequality in a concrete way. Secondly, it helps us to explain the evolution of social and environmental systems while explicitly considering relations of power, thus providing a platform for challenging dominant accounts of environmental change.1 The argument here is that environmental change and ecological conditions are fundamentally linked to broader economic, social and political processes in which the 'triple inequality'2 of vulnerability, responsibility, and mitigation are embedded.

It is worth focusing on 'responsibility', given that an agreement in this area would constitute a first step towards arriving at 'fair' solutions. The advocates of industrial progress saw nature as a source of unlimited resources to sustain development, with an infinite reservoir for waste. This extraction–dumping paradigm involves a highly unequal sharing of the benefits of material and energy flows on one hand, and the social and environmental costs incurred at all stages of the commodity chain on the other. The negative impacts are often absorbed by upstream communities, mainly involved in resource extraction, which are almost always rural, poor, and powerless. Byrne et al3 argue that the industrialised world consumes a disproportionate part of global resources via supply systems that extract energy from various parts of the world. The US alone consumes a quarter of the world's energy, while its share of global Gross Domestic Product (GDP) is 22 per cent, and its share of the world population only 5 per cent. At the opposite end of the spectrum, less than one-fifth of global resources are dedicated to the needs of the South, home to two-thirds of the human community.

Of course, consumption at the individual level cannot be divorced from the wider project of economic growth and accumulation that governments have pursued so relentlessly, particularly over the past three decades of neoliberal ascendancy.4 Moreover, in the course of pursuing economic growth, some progress has been made in the efficient use of resources for each unit of economic activity.5 For example, energy intensity in both the UK and US is about 40 per cent lower than in 1980,6 as are material intensities more generally. A possible motive is that the 'redesign' of goods and services can help an economy to grow without depleting resources and surpassing ecological limits.

However, this harbours a paradox. Despite declining energy and carbon intensities, carbon dioxide emissions are almost 40 per cent higher than they were in 1990, which the Kyoto Protocol treats as the baseline for calculating changes in GHG emissions. The simple explanation for this lies in the sheer size of the global economy, which has grown more than five times since the mid-20th century, and could be 15 times larger than it is today by 2050.7 These figures also reflect high levels of consumption in industrialised countries, with an expanding range of consumer goods and services8 also becoming increasingly accessible to populations in emerging economies. This phenomenon is threatening to wreck the very ecosystems that sustain the global economy and the livelihoods of billions of people.

Given the strong relationship between economic growth and consumption, it is difficult to see a way out of this impasse in the absence of a hegemonic project that can challenge and reverse neoliberal policies.

What we have seen over the past 30 years is a remarkable shift in power from producer to consumer at almost every point along the commodity chain. The global integration of production and consumption has resulted in a major shift in the ecological load from North to South over the past 20 years. Thus the Netherlands Environmental Assessment Agency reports that China has overtaken the US as the biggest CO2 emitter, although its per capita emissions are still a quarter of those in the US, and half of those in the UK.9

On closer examination, the picture is even more complex.10 A study by the New Economic Foundation (NEF)11 shows that large proportions of China's rising emissions are due to the dependence of the rest of the world on exports from that country. Thus growing demand for cheap consumer products is turning China into the environmental or 'carbon' laundry for the Western world. The NEF report also points to the relocation of significant numbers of heavy (energyintensive) industries to China as a visible outcome of policies of market deregulation and free trade. Since China's energy mix is more fossil-fuel-intensive than those of Europe, Japan or the US, outsourcing to China from 'apparently cleaner, richer nations' creates more 'greenhouse gas emissions for each product made'.12

The intention here is not to defend China in respect of climate change. The evidence shows quite clearly that China's industries and power stations are playing a major role in rising GHG emissions. Instead, this discussion is aimed at placing the ecological implications of global trade underpinned by neoliberalism in perspective, and challenging the myth that the self-regulating market is the best possible mechanism for addressing the world's problems, including climate change and poverty. The concerted effort to subordinate society to the logic of the market in such a way that 'social relations are embedded in the economic system' has created unexpected contradictions.13 The very act of subordinating natural and social systems to the market has unleashed new problems, some of which will have profound consequences for human society and the biological world as a whole.

The altered chemistry of the planet's atmosphere presents industrial society with a major contradiction, demanding a radical break from 'business as usual' in the ways in which goods (and services) are produced, distributed, and consumed. China's growing ecological footprint is a symptom of the predatory nature of neoliberalism and the gap it has created between human-made and natural systems. Some 50 years back, Karl Polanyi warned that the self-regulating market 'could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man, and transformed his surroundings into a wilderness'.14 It is not obvious whether the human community is heading towards a total breakdown, but there are signs that the current economic model is taking us to the brink, undermining wellbeing and causing 'social recession'. Yet we have also witnessed how durable liberal market capitalism really is. After causing a major economic crisis, neoliberalism remains effectively unchallenged, and the only model of economic organisation on offer. The irony in this is that while this economic model has lost all credibility, there appear to be no politically durable alternatives.

As noted earlier, Africa has not benefited from neoliberalism. On the whole, neoliberal policies contributing to economic globalisation have reinforced the marginalisation of African economies, which continue to depend on a few primary goods whose prices, and market appeal, are externally determined. Despite African governments having obediently pursued World Bank and International Monetary Fund (IMF) structural adjustment programmes for nearly three decades, foreign investment in African economies has remained negligible, and is unlikely to be stepped up significantly in the near future. This further hampers the participation of African countries in the global economy as producers of goods and services. The marginalisation of Africans as producers and consumers of goods also means that their per capita resource use is relatively low, which translates into low ecological and carbon footprints. It also indicates that Africa is still relatively unspoilt, at least when compared to other parts of the world, where industrial footprints are much larger.

However, it also demonstrates that Africans have not benefited from modernisation; more than 75 per cent of subSaharan Africans do not have access to electricity, and the performance of the health, education and water sectors is just as poor. Some argue that Africa's energy solution lies in opening itself to carbon trading initiatives, but even in this respect African countries will struggle to attract investors due to a number of practical impediments that prevent real participation in these markets. Furthermore, serious questions remain as to whether carbon trading is an appropriate response to the task of climate stabilisation and the alleviation of energy poverty more generally. The following sections will explore these issues in greater detail.

The place of Africa in carbon trading

The carbon market has become a multi-billion-dollar industry, worth $144 billion in 2009 according to the World Bank's carbon finance unit.15 It remains dominated by the sale and re-sale of EU Allowances (EUA) under the EU's Emissions Trading Scheme (ETS), which covers about half of its carbon dioxide emissions. Project-based activities under the CDM also reached the $6,5 billion mark in 2008, although this shrank to $2,7 billion in 2009. This tailing off is attributed to deteriorating economic conditions, coupled with the uncertainties about post-2010 arrangements when the Kyoto Protocol expires. According to the World Bank, China has dominated the CDM market since its inception, accounting for about 66 per cent of all contracted CDM supply between 2002 and 2008, and 72 per cent of the market in 2009.16 India and Brazil rank second and third on the list of sellers in terms of volumes transacted.

Africa's share has remained at about two per cent of CDM projects officially registered with the UN's climate change secretariat.17 If South Africa and countries in North Africa are taken out of the aggregate, all the other African countries currently account for just 0.6 per cent of registered CDM projects.18 This tiny market share has a great deal to do with the major industrial opportunities and low transaction costs as a result of economies of scale that regions such as China and India are able to offer buyers of carbon credits.19 Projects of this type include emissionssaving technologies that may involve refitting factories to capture or destroy industrial gases, such as HFC-23 (a byproduct of refrigerant manufacturing, and a far more dangerous gas than CO2), or investment in large hydroelectricity projects that 'replace' electricity generated by fossil fuels. Given that most sub-Saharan African economies are largely agrarian, CDM-type investment opportunities in large industrial gas destruction projects are simply not available.20

Another reason why the African carbon market is less attractive relates to how electricity is generated. Access to electricity is a major challenge across much of Africa, with less than 25 per cent – and, in some countries, as little as 5 per cent – of the population enjoying access to grid electricity.21 Thus the World Bank22 has calculated that the 47 countries in sub-Saharan Africa, with a combined population of 800 million people, generate as much power as Spain, with a population of 45 million. The potential for CDM-type projects in the power sector therefore seems significant. However, this is complicated by the fact that hydro power is the largest source of electricity across subSaharan Africa by far.23

This is problematic from the perspective of carbon accounting, given that new investment in low-carbon, gridconnected electricity has to demonstrate that it displaces 'carbon-intensive' electricity.

The fact that large proportions of electricity are derived from hydro sources across many countries makes it harder to rely on 'investment' through CDM, since carbon credits would not be awarded for proposed clean energy sources. This obstacle was observed in the case of a recent $30 million proposal for a 120mW wind energy scheme in northern Ethiopia. Although the project was deemed suitable to be registered as a CDM project, the high proportion of hydro power resources in the country's electricity mix meant that the emissions factor (EF)24 was relatively low. A low emissions factor means modest corresponding Certified Emissions Reductions (CERs),25 and therefore less money. Given the choice, an investor seeking high returns is likely to pick less risky but dirtier pastures elsewhere in the South, where higher and quicker returns are guaranteed.

This 'unintended consequence', to use the World Bank's euphemism for Africa's marginalisation,26 seems to suggest that countries in sub-Saharan Africa are not dirty enough, or do not consume enough, to compete successfully for carbon-offsetting opportunities. In other words, Africa has to get dirty to be admitted as a serious player in the CDMtype carbon business. For the time being, the World Bank suggests that 'African countries may do well to look even further beyond CDM at the fast-growing carbon market in the voluntary and retail segments',27 which may offer the flexibility that the compliance-driven carbon market does not.

The lack of carbon-reduction investment opportunities in the power sector and the limited number of carbon-intensive industries outside Northern Africa and South Africa implies that the rest of Africa is not well positioned to influence the direction of the debate around carbon trading. Ultimately, carbon trading is about maximising profits by offsetting emissions in the cheapest way possible, which automatically favours middle-income countries that have experienced sharp increases in energy-intensive (and carbonintensive) industries over the past 20 years. It also means that the market is driven by large private sector players, with profit-seeking investors drawn to 'low-hanging' carbon abatement opportunities. Such opportunities are hard to come by in Africa.

The types of projects that could deliver livelihood benefits to Africans, such as renewable and other small-scale energy projects, are not 'cheap' options of carbon abatement, and are therefore less likely to attract the big investors. According to CDM Watch, as long as the CDM continues to function as a market 'in which least-cost considerations dominate, then it will continue to be technology-neutral, and if there are cheaper options than renewables projects, they will be preferred.'28 In other words, the market will continue to favour those projects likely to deliver the cheapest credits, and not necessarily those with the best environmental outcomes.

This runs counter to the CDM agreement, which requires CDMtype projects to help host countries achieve 'sustainable development' besides helping Annex I countries to reduce their emissions. However, because countries are allowed to define sustainable development in their own terms, and strike their own balance between economic fundamentals on one hand, and equity and environmental integrity on the other, this has been difficult to achieve. In the absence of a universal definition that would make project overseers more accountable for their efficacy, host country governments are unlikely to lay down challenging sustainable development requirements for fear of chasing away potential investors. Hence, concerns about social and economic inequality, which are central to the sustainable development debate, are often treated as consequential to the single objective of gaining carbon credits. More specific to Africa, projects that could contribute to meeting the Millennium Development Goals (MDGs) in respect of incomes, education, health services, and the protection of ecosystems are not competitive enough in terms of the CDM costeffectiveness criteria.

Given the limited opportunities for expanding the carbon market in Africa through the CDM, attention has shifted to projects that can be delivered through the voluntary market. These include improved stoves and tree planting projects, which have been controversial for a variety of reasons, including the difficulties they pose to verify the offsets. The permanence of the carbon storage claimed by such projects cannot be guaranteed, since the potential clearing or burning of forests would return the stored carbon to the atmosphere. There are also concerns that the fast-growing trees favoured by project developers could threaten biodiversity, disrupt water tables, and encourage the use of pesticides, to the detriment of small farmers living nearby.29 Moreover, protecting forests against loggers could displace agricultural or logging activity to other forests – a phenomenon known as 'activity shifting' or leakage.30 While there are many good reasons to champion forestry programmes, notably for supporting local livelihoods as well as the obvious contribution they make as carbon sinks,31 current tree planting practices as part of carbon offsetting efforts conflict with the interests of local communities. A project in the Bukaleba Forestry Reserve in Uganda, intended to offset the GHG emissions of a coal-fired power plant to be built in Norway, clearly illustrates the conflict of interests of the offset company, host countries, and the needs of local communities. The Ugandan government received a meagre onceoff fee of US$410 and an annual rent of about US$4,10 for each hectare of plantation, which is an absurdly low lease price compared to the huge carbon credits the Norwegian company (Tree Farms) was aiming to sell. The project was also responsible for evicting 8 000 people living on the land, depriving them of their livelihoods, and probably driving them to clear land elsewhere. Eraker quotes the managing director of the project as saying: 'Everyone living and farming inside our area are illegal intruders … we have told the forest authorities that this is their responsibility.'32 What is embedded in this statement is that tree planting under carbon trading tends to push aside local interests, local needs and traditional land rights in favour of external commercial interests.

Box 1: Future trends in the African carbon market Oscar Reyes

As suggested above, Africa is currently marginal to the carbon market, and the carbon market has been irrelevant to the continent's efforts to address climate change. Could this be about to change?

To start with, it is worth underscoring how little has happened to date within the framework of the CDM. Only 6 million of the 424 million CERs (CDM credits) issued by August 2010 have gone to African projects, and 80 per cent of these have gone to a single industrial gas plant in Egypt.33 Looking ahead, however, 95 new projects are seeking approval to join the CDM (compared to the 43 already registered). After South Africa, most of these are located in Kenya and Uganda, with 'reforestation' projects the largest single type requesting registration in both countries.34 A closer look shows that these are all smallscale, World Bank-funded schemes, though it should be noted that the Bank has a track record of developing such prototypes within the CDM which are then replicated on a larger scale by the private sector, as discussed in Chapter 4.

Large-scale reforestation projects

A better indication of the shape of things to come, however, may be a 'reforestation' project currently seeking approval in Ghana, which would replace existing grasslands with large-scale biodiesel monoculture plantations. The project has been initiated by Natural African Diesel, a South African company, which expects to receive more than 40 million CERs by 2030, and hopes it will continue to receive credits for its plantations of jatropha and maringa at rates of two to three million a year until 2058. However, the biodiesel industry in Ghana has been widely criticised for engaging in land grabs which displace local populations, undermine food security, and fail to assess the threat that jatropha poses to water supplies.35

Large-scale projects such as the Ghana plantations are likely to dominate the issuance of credits – in other words, the cash flows within the CDM.

Gas utilisation and capture projects

To date, a handful of large industrial gas projects (like the Egyptian factory) destroying the potent greenhouse gases HFC-23 and N2O account for almost three quarters of all credits issued globally.36 Few such gases are produced in Africa, but large-scale subsidies can be derived from the CDM in other ways. Most notably, a series of new 'gas utilisation' projects are under way in the Niger Delta. The first of these, at Kwale, a site run by the Nigerian Agip Oil Company (a joint venture between the Italian state oil company Eni and its Nigerian counterpart), expects to receive about 15 million credits by end-2016. The Pan Ocean Gas Utilisation Project, the second such scheme to be registered, is the largest registered CDM project in Africa, and expects to receive more than 26 million CERs by 2020. Shell and Chevron are developing similar projects.

There can be few clearer examples of the perverse incentives created by the CDM. The Niger Delta projects claim to stop gas flaring, yet this activity has already been judged illegal by the Nigerian High Court, as also discussed in Chapter 5. As such, companies will be rewarded for their failure to abide by the law. Furthermore, while the projects claim to address gas flaring, an analysis of the gases they will process suggests that the figures are being manipulated, and that the registered projects will process large quantities of liquefied natural gas (LNG) and other gases that were not associated with crude oil production in the first place.37 In other words, these projects may be more accurately characterised as subsidising the expansion of fossil fuel exploitation in the Niger Delta. This, in turn, fits into a circular structure. In the case of Kwale, Eni's Nigerian subsidiary is locking in fossil fuel dependence, gains credits for this activity, and sells these to Eni in Italy. These credits will then be surrendered within the EU ETS, enabling Eni to avoid reducing emissions from its oil refineries in Italy. The Pan Ocean project forms part of a similar fossil fuel cycle, with many of the anticipated credits already purchased by Vattenfall, one of the largest operators of coal-fired power plants in Europe.

Such circularity is not restricted to the oil and gas sector. Most notably, the South African state-owned power utility Eskom is conducting a feasibility study to determine whether to seek CDM credits for Medupi, the fourth largest coal-fired power station in the world.38 'Supercritical' coal plants like Medupi have been eligible for CDM subsidies since 2007.

Biomass power sector

Other large-scale opportunities are likely to exist in the biomass power sector (which is growing rapidly within the CDM) and hydro power sector. Such projects could fall foul of the fact that sub-Saharan Africa is already largely powered by hydroelectric dams, which are considered to be zero emitting.39 However, as the example of the recently (re)submitted Bujugali Dam in Uganda makes clear, the comparisons used for calculating CDM baselines relate not to existing practice but to projections of future use. Project developers routinely maximise the projections in order to maximise the number of available credits. In the case of Bujugali, this is reflected in an assumption that Uganda will be afflicted by load shedding, stimulating an increase in the use of diesel generators and the burning of automotive oil.40

This scenario is projected to continue indefinitely, since the project assumes a steady issuance of credits at a rate of 900 000 a year until 2019 (with the option of claiming project credits for a total of 21 years).41 Needless to say, this is highly unlikely. The financial 'additionality' of the project is equally suspect, given that engineering for the controversial new dam was 91 per cent complete and procurement 99 per cent complete by the time of its application.42

There is nothing in the CDM reform proposals currently under discussion within UN climate talks that would put a stop to such fanciful scenarios in claiming additionality. Nor are these, strictly speaking, 'abuses' of the system. Such claims about 'what would otherwise have happened' are the very basis upon which the CDM works.

Sectoral carbon markets

Although UN climate negotiators sometimes talk the language of environmental integrity and greater equity in offsetting, the proposals currently on the table belie this view. The basic premise underlying most of the proposed reforms to the CDM, as well as potential new 'sectoral' carbon markets, is to increase the volume of credits generated by offsetting. This, in turn, would help industrialised countries to meet their emissions reduction obligations without having to make structural changes to domestic energy production, industry, or agriculture. In other words, offsetting remains an avoided responsibility mechanism.

There are two tracks to the UN Framework Convention on Climate Change (UNFCCC) negotiations. The first of these is the Ad Hoc Working Group on Further Commitments under the Kyoto Protocol (AHG-KP), which has the remit to discuss CDM reform. A number of proposals relate to new sectors and industrial gases. The range of new GHG, if approved for inclusion, would probably continue where HFC and N2O projects left off, with the concentration of projects in middle-income countries.

The key proposals relate to the inclusion of nuclear power as well as carbon capture and storage (CCS) in the CDM, and a far greater scope for agriculture and forestry projects. A majority of developing countries continue to oppose the proposal on nuclear power, as they feel they would have little to gain from it. The picture is more complex with regard to CCS which, if included, could see projects in South Africa, where Eskom is exploring carbon capture in coal-fired power plants; North Africa, with Algeria (which already has its first CCS demonstration project on gas fields run by BP and Statoil) affirming its intention of encouraging CCS projects in CDM;43 and the gas fields of the Niger Delta. However, serious concerns have been raised about CCS, with UN negotiating texts including options to exclude the technology from the CDM on the grounds of negative environmental impacts, non-permanence of carbon storage, potential for unforeseen leakage, measurement difficulties, liability, safety and 'the potential for the creation of perverse incentives for increased dependency on fossil fuels'.44 The powerful opposition of Brazil may yet block the inclusion of CCS in the CDM, however. In essence, any sectoral emission reduced below a pre-set baseline would be credited to governments.

Agriculture, forests, and Reducing Emissions from Deforestation and Degradation (REDD)

In the case of agriculture and forests, the scope of new measures under the CDM is vague but potentially significant, with advocates for increasing the use of CDM in sub-Saharan Africa identifying these sectors as potentially the most lucrative.45

To date, afforestation/reforestation accounts for just 56 of more than 5 300 projects being considered for inclusion in the CDM, and no credits have yet been issued for these projects. The slow pace in developing such projects is partly accounted for by the availability of cheaper options, and partly by the restrictions placed upon the use of such credits. Such projects are currently only entitled to issue tCERs (the 't' stands for temporary) or lCERs ('l' for longterm), but these have proven unpopular with carbon traders, and the prices remain low. The UNFCCC currently caps the use of Land Use, Land Use Change and Forestry (LULUCF) credits at one per cent of base year emissions, meaning that industrialised countries face a limit on how many they can buy. The EU ETS, which drives most of the demand for offsets, currently excludes LULUCF credits altogether. And, finally, such projects can only be developed on land that was not forested before 1990.

While several options remain on the table, some restrictions look set to remain – including the one per cent threshold on such projects. However, this still provides scope for expanding them considerably. There is significant pressure to drop the tCER and lCER distinction, despite the fact that the measurement difficulties that led to their creation in the first place remain largely unresolved. The EU has maintained the exclusion of LULUCF credits for the third phase of its ETS (to 2020), but this provision is potentially undermined by its intention to link its scheme with other OECD carbon markets as those emerge. More significantly, a series of new activities dubbed 'forest management' could be included beyond the one per cent limit. Under current definitions, these could include monoculture plantations and commercial logging.46

Beyond this, a range of agricultural activities could be included in the CDM under the rubric of 'soil management'. While this could theoretically support small-scale, agroecological farming – which has been shown to increase organic matter in the soil, thereby increasing its capacity to act as a 'sink'47 – the transaction costs and monitoring difficulties of linking such activities to an offset scheme would prove prohibitive. The real 'winners' from such proposals, therefore, are likely to be in large-scale industrial agriculture – with agribusinesses already looking to the possibility of CDM funding for 'no-till' genetically modified (GM) monocultures, and tree plantations to produce biochar (a controversial technique for creating charcoal and then burying it to 'store' carbon). In addition, the rules on LULUCF may change to scrap the 1990 threshold, making a far wider land area available for such projects.

In the longer term, schemes for REDD, which will begin with public funding, are being established to kick-start a forest carbon market capable of issuing offset credits. It is sometimes argued that REDD, alongside the inclusion of afforestation/reforestation of CDM, would significantly benefit Africa on the grounds that these sectors account for 'over 60 per cent of Africa's mitigation potential'.48 Yet the existence of considerable forested areas – including the world's second largest forest in the Congo Basin – does not in itself guarantee a significant flow of REDD money. Historical deforestation rates have been far higher in Brazil, Indonesia or Malaysia, which may be (perversely) rewarded by REDD for having deforested more rapidly than their African counterparts unless a 'correction factor' is built into the scheme.49 Alternatively, the 'baselines' for REDD could be set so high that payments will be triggered for increases in deforestation, as is the case with a recent agreement between Norway and Guyana.50

There are serious concerns, too, about who will benefit from REDD, and at what environmental cost. With many forest-based and indigenous communities having few formal titles to their land, REDD is likely to fuel property speculation and dispossess local populations.51 These risks are exacerbated by the inclusion of plantations in the current UNFCCC definition of what constitutes a forest.52 Furthermore, in common with CDM, the complex accounting procedures involved in commodifying forests tend to divert resources from forestry initiatives to carbon counting. While direct estimates for REDD are not yet available, it is reasonable to assume that this would be comparable with the CDM, where only 30 per cent of financing goes towards the project itself, with the rest absorbed by consultancy fees and taxes.53 Finally, the combination of significant uncertainties in forest carbon accounting and weak governance structures – such as those in the Congo Basin – signals a capacity for large-scale fraud and the siphoning off of funds by elite interests.54

Whether through REDD or the CDM, there is pressure to increase the penetration of carbon markets in least developed countries (LDCs)and in Africa in general. This is the case both within and outside UN negotiations. At present, the EU ETS is by far the single largest driver of demand for CDM credits. In the absence of an international agreement to supersede or complement the Kyoto Protocol, whose first commitment period ends in 2012, EU policy allows for the continued use of CDM credits on a highly selective basis. In the absence of an international agreement, the rules for the third phase of the EU ETS would restrict the intake of CDM credits to projects in LDCs and Africa, and countries that make bilateral agreements with the EU.

Increasing projects in least developed countries and Africa

In parallel, the UN negotiating texts include a proposal to develop criteria that would increase projects in LDCs and Africa, potentially requiring that 10 per cent of all CERs surrendered come from these areas. While this is presented as a progressive measure to ensure a more 'equitable' mechanism, the nature of such projects could be characterised as a means to share the pain of such measures more widely: as we have seen, such projects have the potential to stimulate land grabs, undermine food security, and promote a model of development that keeps sub-Saharan Africa dependent on a handful primary and extractive industries, while most of the finance associated with the projects flows out of the continent.

Ultimately, the political rationale for such measures lies in a desire (advanced most forthrightly by the EC) to advance new forms of sectoral carbon markets, targeted at the middle-income countries currently dominating the CDM market (including China, India, Brazil, South Korea, Mexico and South Africa). These proposals are being developed within the Ad Hoc Working Group on Long Term Cooperative Action (AHG-LCA), the second track of UN climate negotiations.55 The EC is keen to encourage these countries to develop sector-wide carbon markets as a step on the road to 'cap and trade' emissions trading schemes which have binding targets on emissions. Such schemes are not proposed as a reform or replacement to the CDM, but are envisaged as running alongside a CDM that would be more targeted towards LDCs and sub-Saharan Africa.

Conclusion

This discussion points to some of the practical limitations on the benefits of carbon markets to Africa. It also alludes to the ethical and fairness issues that are often ignored, as though climate change can be separated from the social and economic conditions that gave rise to it in the first place, or the proposed solutions may in fact cause. We need to return to the fundamental issue. The richest countries are largely responsible for the climate problem through their profligate burning of fossil fuels, while the effects of climate change are disproportionately shouldered by the poor. However, CDM and voluntary offset schemes do not challenge the underlying consumption ethics, which continue to drive the fossil fuel economy. If anything, offset schemes allow industrialised countries to maintain their affluent lifestyles by exporting the burden of reducing GHG emissions to countries in the South, often by stressing poor people even further. The argument that carbon trading offers real benefits to the poor in Africa is simply not credible. What is puzzling is the persistence of the proponents of carbon markets, who continue to cling to these ideas in the face of mounting evidence that carbon trading does not deliver results commensurate to the effort invested in it. They seem ready to 'innovate' endlessly to get a market mechanism working because they are ideologically chained to the 'competitiveness' agenda rather than environmental concerns. In support of this point, Nick Davies, writing in The Guardian, argues that carbon offsetting is

"an idea which flows not from environmentalists and climate scientists trying to design a way to reverse global warming, but from politicians and business executives trying to meet the demands for action while preserving the commercial status quo."56

Fundamental inequality is behind the climate problem, and the search for solutions must involve industrialised societies making fundamental structural changes to their lifestyles, energy practices, and their production and consumption systems.

[For notes see full pdf version available at http://www.iss.co.za/pgcontent.php?UID=31241]

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