{"id":6640,"date":"2023-04-18T11:30:18","date_gmt":"2023-04-18T11:30:18","guid":{"rendered":"https:\/\/euromenaenergy.com\/?p=6640"},"modified":"2023-04-18T11:30:18","modified_gmt":"2023-04-18T11:30:18","slug":"in-defence-of-nature-based-carbon-markets","status":"publish","type":"post","link":"https:\/\/emimer.com\/?p=6640","title":{"rendered":"In defence of nature-based carbon markets"},"content":{"rendered":"

Voluntary markets for carbon offsets have recently come under fire, with critics questioning the efficacy of contracts that aim to reduce atmospheric carbon dioxide relative to what would have happened in the contract\u2019s absence. The biggest concerns are about \u201cnature-based\u201d projects involving various land-use changes \u2013 such as protecting forests, planting new ones (afforestation), and so forth.
\nBut these instruments\u2019 imperfections are no secret. For well over two decades, ecologists and foresters have been working to develop more sophisticated methods to satisfy economists\u2019 faith in market instruments, and they have made good progress. Though offset schemes are still riddled with complexity, there is no question that they pay for something that matters.
\nImagine seeing what the atmosphere sees. The Intergovernmental Panel on Climate Change\u2019s Sixth Assessment Report provides an outline of the planet\u2019s carbon cycle, which makes evident the fundamental role of plants\u2019 conversion of CO2 into cellulose and back on a massive scale. Terrestrial photosynthesis alone draws down 113bn tonnes of carbon every year. By comparison, humanity added about 11bn tonnes of carbon to the atmosphere last year.
\nThe problem, of course, is that humans\u2019 cumulative contributions go in only one direction, whereas the carbon captured by vegetation is normally balanced by an equal, opposite flow from plant respiration and degradation. By interfering with the climate system, we have thrown this balance off, adding a net flow of about 5.9bn tonnes to the landscape and the ocean every year. In other words, the planet is drawing down only half of what we inject into the atmosphere.
\nEven a relatively small perturbation in this vast natural cycle can reach an enormous scale. That is why nature is such an attractive climate-mitigation option. Suppose we succeed in eliminating fossil-fuel combustion. Keeping global average temperatures within 1.5C or 2C of pre-industrial levels will still require substantial carbon removal. Estimates vary, but they are on the order of 200-300bn tonnes removed by plants before 2100.
\nNor will the story end there. The atmosphere contains about 870bn tonnes of carbon in the form of CO2 (one-third of which has been added since industrialisation), and the carbon cycle connects that atmospheric stock to vast reservoirs. The largest is the ocean, which holds 900bn tonnes at the surface and another 37tn tonnes deeper below. Terrestrial vegetation and soils also hold about 2.15tn tonnes, and permafrost contains another 1.2tn. As far as the atmosphere is concerned, losses from any of these reservoirs could easily exceed the carbon we burn (from the 930bn tonnes that are sequestered in fossil fuels).
\nFar from being a secondary concern, managing the stocks and flows of carbon through the planet\u2019s ecosystems is essential to keeping the entire Earth system in balance. But to carry out that task, we will need to think differently about the landscape. Landscapes and seascapes are not just the backdrop to our life. They are public infrastructure, and like all infrastructure, they must be paid for and maintained.
\nSince the 19th century, however, we have known that paying for infrastructure by rewarding its marginal benefit (as offsets do for nature-based interventions) almost never covers the total cost. Because public-utility infrastructure like a highway or an airport tends not to command a high enough marginal value, taxation must cover the rest. Whom to tax then becomes the most important question.
\nTo illustrate the point, consider Brazil, whose ecosystems contain some 60bn tonnes of carbon in above-ground biomass. One way to estimate how much this stock is worth is to assume that we value carbon at a given price, say, $50 per tonne (halfway between the price in the regulated European market and nature-based offsets in voluntary markets). In this scenario, Brazil is home to ecosystems worth $10tn, which is over six times the country\u2019s GDP and far greater than the value of its 13bn barrels of oil reserves.
\nNow, how much should the world pay Brazil to keep that forest in trust for everyone? Assuming a 2% fee on the value of the assets (a reasonable rate for most asset managers), the country ought to receive $200bn per year. On those terms, Brazil would almost certainly put a stop to deforestation in the Amazon.
\nBut here we run into a sad truth. There is simply no evidence that the international community has any appetite to pay such sums. In 2022, total overseas direct assistance amounted to just $186bn. For years, rich countries have failed to honour a 2009 pledge of mobilising $100bn per year to help developing countries adapt to climate change.
\nBy thinking of natural assets not as infrastructure but as service producers, we end up relying on the voluntary payments companies make at the margin in exchange for \u201coffsetting\u201d some other reduction that they cannot or will not carry out. But, for all this mechanism\u2019s shortcomings, at least it directs some money \u2013 albeit a drop in the ocean \u2013 toward carbon-landscape management.
\nOf course, additional scrutiny of offsets is welcome for driving improvements. But it would be a fatal mistake to conclude that protecting forests or augmenting Earth\u2019s carbon sink is any less urgent than reducing fossil-fuel emissions. Nature-based offsets traded in voluntary carbon markets should be seen as merely a first step. In the end, we will need to do \u201call of the above\u201d: end fossil-fuel combustion, maintain ecosystems, and augment nature\u2019s capacity to draw down carbon, regardless of whether we can prove that such reductions would not have happened anyway.
\nThe atmosphere does not care about our motivations, counterfactuals, or moral hazards. All it sees is carbon flowing in and out. Ecosystems store carbon and draw it from the atmosphere at scales that matter. All of us \u2013 taxpayers, consumers, and companies \u2013 must pay for this critical public good. \u2013 Project Syndicate<\/p>\n