Including offsets from Latin America in California’s cap-and-trade plan is a bad idea

mcafee_1I’ve written elsewhere about the pros, cons, and contradictions of REDD/REDD+ and markets in ecosystem services as a joint conservation and development strategy.* Here, as requested, I’ll try to address the proposed REDD Offset Working Group recommendations for California in the context of the wider controversies about trade in carbon offsets.

Some economists and policy makers are convinced that international trade in ecosystem services, especially the carbon-sequestration functions of forests, can be a triple-win strategy that creates new incentives for conservation, mitigates global warming, and transfers needed resources for development to cash-poor countries and communities. This is the central claim supporting market-financed REDD/REDD+ as conceptualized and promoted by the World Bank, by UNREDD, and in some voluntary carbon markets. Supporting this claim is the belief that conservation both depends upon and will follow from monetary and other material incentives.

However, this assumption has been thrown into doubt by much of the empirical literature on Payments for Ecosystem Services projects and the Clean Development Mechanism, which are the main models for REDD/REDD+. Data on the CDM show that its results are rarely genuinely additional. Studies of actual outcomes of PES projects reveal that criteria for market-based efficiency typically conflict with anti-poverty objectives (McAfee and Shapiro 2010; McAfee 2012a). Numerous PES studies have also shown that, where non-monetary or non-material values and collective incentives have previously supported equitable distribution of land-use rights and have motivated land users to limit environmentally destructive practices, the linkage of land-use decisions to “payment for performance”** systems can crowd out these values and practices in favor of more individualistic, short-term livelihood strategies.

A further argument by supporters of transnational offset trading is that market-based pricing of forest functions and other ecological assets will direct incentive-creating investments toward those places where conservation can be carried out most cheaply, resulting in maximally efficient use of scarce conservation resources. To its advocates, this is the greatest virtue of carbon-offset trading. A corollary presumption is that governments and international agencies will not provide needed conservation funds.

Instead, the private sector is expected to generate revenues for conservation investing in offsets. Where cap-and-trade regimes permit offsetting, it will be less costly for polluting enterprises to comply with present or future requirements to limit greenhouse-gas emissions by paying for offsets that are generated in places where the offsets can be produced most cheaply. At best, according to offset-trade supporters, investment in carbon offsets and linked financial instruments may become highly profitable and will therefore generate substantial new capital that, in theory will be used for conservation.

It is important to remember that such trade in carbon offsets, in itself, does nothing to reduce total, global GHG emissions. And, within regions such as the EU where regulations restrict GHG emissions for various enterprises or sectors, the option of purchasing offsets from outside the region means that the total emissions allowed within that regulated space are greater than they would be in the absence of provisions for offsetting. That’s one reason why offsetting is being phased out of the European Trading Scheme, why it is opposed my many environmentalists and climate activists, and why I question the inclusion of international offsets in California’s cap-and-trade system.

If the goal is reduction of GHG emissions or other pollutants, in any cap-and-trade regime it’s the cap that counts. Ecological damage will be reduced to the extent that the cap – a government regulation – is low enough at the outset, made lower annually, and vigorously enforced. The cap is what matters in a global-scale carbon market or in any state, country, or region that adopts targets and laws to reduce GHG emissions and increase carbon storage. As is true for almost any policy, effectiveness depends on action at the local level. Effective monitoring and enforcement of caps depends on capacities and power relations within the jurisdiction and at the sites where the monitored activities take place. This applies as much to Acre and Chiapas as to the EU, Chiapas, California, or the Western Climate Initiative group.

The draft ROW proposal offers some compelling arguments in favor of jurisdictional -scale programs for reducing emissions as opposed to project-by-project approaches. In short, it argues that, to the extent that land-use planning and related environmental policies can reduce total deforestation rates and foster reforestation where appropriate, such policies are more likely to succeed, with less leakage, fewer reversals, and greater additionality, if they are if coordinated, monitored and enforced at a larger scale than that of the individual project. Agreed.

That said, in most place environmental policies alone, at whatever scale, are not likely to succeed in these goals. Ecosystem services have become the latest in a long history of tropical-commodity miracle crops. They are no more likely to boost prosperity for the majority in the exporting regions than did coffee, sugar, rubber, or any such commodities in the past (McAfee 2012b). Meanwhile, landed elites and well-connected investors with influence in the courts, police, military, and other federal agencies, commonly defy or bypass environmental restrictions in their pursuit of profitable but environmentally destructive logging, ranching, and expanded cultivation of export crops such as soy and agrofuels including cane, palm oil, and jatropha.

The damages are social as well as ecological. Struggles to reverse this trend are ongoing and intense in Brazil and Southern Mexico. Those of us outside Acre and Chiapas can’t do a lot to affect the outcomes. However, we can make the outcomes less likely to be sustainable and just by promoting offset trading and market-based pricing as the preferred strategies for raising funds and allocating rewards for conservation.

In contrast to its analysis of jurisdictions, the draft ROW proposal provides no convincing reason for measures in California “linking its cap-and-trade program with other subnational cap-and-trade programs”. It describes the MOUs between California, Acre, and Chiapas as “historical opportunities to strengthen jurisdictional REDD+ programs” because it is “the only GHG compliance program today that could provide positive incentives to these nascent jurisdictional REDD+ programs through its international sector-based offsets provisions” and that it that will “send a signal” that mitigation successes in Acre and Chiapas “will be recognized and rewarded”. Otherwise, the ROW proposal says, “the viability of an international mechanism for REDD+ recedes further into the future and political support within tropical states dissipates”.

Thus, the proposal takes for granted that REDD+ is a sound and preferred conservation-and-development strategy, a presumption that is questioned by a great many analysts and local and regional conservation and development NGOS and social movements. But let’s set that aside for the moment.

For those of us not familiar with the details of the CA plan, proposal doesn’t tell us how much its proponents expect that the California offset provisions can influence policies and practices in Chiapas and Acre. The proposal notes that these offsets “would represent, at most, 2% (first compliance period) to 4% (second and third compliance periods) of total compliance obligations under the cap-and-trade program” but it doesn’t provide estimates of how much revenue might be generated by offset sales or what the price of carbon credits obtained through offsets might be. This matters because the gap between the higher prices of offsets generated in the global North compared to prices of offsets generated in less wealthy regions is exactly what would motivate private-sector actors to invest in offsets from tropical regions. It is also the reason why such a globalized, private-sector-led carbon market, as envisioned by the World Bank, for example, is likely to deepen North-South and urban-rural inequalities while doing little to reduce total, net GHG emissions (McAfee 2012a).

Nowhere does the proposal acknowledge that the financing of REDD/REDD+ by means of markets in offsets has been opposed by many “tropical states”, including Brazil. At the Rio+20 summit and in FCCC and CBD negotiations, a significant number of Latin American delegations have opposed REDD/REDD+ and international offset trading in particular. They contend that that global, market-based valuation and international trade in nature’s services constitutes “environmental neocolonialism”. Market in ecosystem services, they argue, will shift control over landscapes to those with the greatest wealth to lease or purchase these newly-constructed commodities at prices over which the sellers have little say, accelerating the flow of value out of cash-poor regions toward richer ones.

We could debate the sincerity, capabilities, and environmental commitments of the governments of Brazil, Bolivia, Mexico, Ecuador, not to mention those of the US. But the distributional effects of the privatization and market of ecosystem services do need to be addressed. Even within California, Acre, Chiapas or any other a jurisdiction, cap-and-trade systems carry the risk of reinforcing existing inequalities or creating new ones, for the same reasons why the US companies that opted not to reduce mercury pollution in the US cap and trade scheme were more likely to be those poisoning poor communities than better-off ones. There is ample basis to expect that markets or market-like systems for allocating permits to pollute or rewards for conservation will favor larger-scale and better-connected landholders and enterprises while pricing out the poor. This problem is acknowledged even by strong advocates of ecosystem services markets and is illustrated by PES in practice. It is one reason why, as the ROW proposal notes, “[e]nvironmental and social safeguards have moved in recent years from the periphery to the center of the debate on REDD+”.

When offsets are valued and traded internationally, these risks are multiplied. The greater the distance between credit buyers and the sites where GHG offsets are produced or where other credit-earning activities take place, the less interest the buyers are likely to have in ensuring that the purchased offsets are linked to any actual environmental gain, especially net gain that is not undercut by leakage and by the short-term, profit-driven time frames of investors and speculators in offsets. Literature on the CDM, the ETS, and voluntary carbon trading has already documented widespread conflicts of interest, double-counting, disregarded uncertainties, deceptive rent-seeking, reversals, and outright fraud that have arisen in this context. And, evidence from PES case studies shows that the more that the distribution of credits is based on market criteria such as opportunity costs, the more that poorer individuals and communities are likely to lose out. Such results are inevitable wherever conservation priorities are determined by market rationalities.

Moreover, the offsetting proposal comes at a time of a renewed, worldwide land rush.*** Appropriation of land by sovereign wealth funds, urban and local elites, and transnational firms has surged as investors shift from dubious assets such as mortgage-backed securities into tangible resources for biomass production. Now that rural frontiers are closing, food prices rising, and carbon-sequestration services becoming tradable – and subsidized – commodities, control over land and forests is increasingly contentious. Claims on territory and ecosystems for differing purposes – food production, biofuels and carbon sequestration – are now in conflict in many locations. Many such land claims – what critics call green grabbing – are being advanced as part of new REDD and REDD+ projects. Many such REDD+ schemes are meeting resistance from communities threatened with dispossession by new, REDD-linked regulations and property rights.

This doesn’t mean that incentives to reward ecologically sound land management, including monetary incentives, are not often appropriate and sometimes necessary. But first, let’s distinguish between distinguish between rewards, on the one hand, and market-based incentives, on the other hand. Not all forms of compensation and support need be monetary or market-based. Let’s also separate the question of the role of markets in the raising of funds for conservation from the issue of the role of markets, in any jurisdiction, in the allocation of rewards in the form of credits or other means of accounting.

Whether California includes international offsets in our cap-and-trade system is an issue for California. I don’t think we should include it for two reasons. First, for reasons given above, it does less than nothing to reduce total GHG emissions in California, regionally, or globally. Second, offset commerce promotes the market-centric approach that is proving so inadequate in achieving real, net conservation and climate-mitigation results while – predictably – reinforcing or worsening preexisting inequalities. Climate-mitigation policies that “that address the underlying causes of both deforestation and degradation” and that “large-scale changes in the rural development model” are not possible if rewards are allocated according to market-efficiency criteria because they are bound to reflect existing power relations and inequalities.

Of course, it might be possible for the jurisdictions of Acre or Chiapas to distribute credits and conservation-supporting resources within those regions on a basis other than market rationality, no matter whether or not they are working with funds generated by market-based offsetting schemes based elsewhere. Many PES-type projects that include anti-poverty goals have often done this, to the chagrin of market-efficiency advocates. Non-market-based allocation of rewards and compensation to land users for conservation practices have been conceptualized and applied in PES policies and projects in Latin America. Whether or not this approach is adopted in Acre or Chiapas depends on priorities, capacities, and power relations, in those place. But by stressing things like “mechanisms for attracting private sector investors”, “tradable compliance units”, and “transfer of offset credits”, the ROW proposal would only nudge the jurisdictions in Chiapas and Acre further away from such alternatives.

Kathleen McAfee is Associate Professor of International Relations at San Francisco State University


* McAfee, Kathleen (2012a) The Contradictory Logic of Global Ecosystem-Services Markets, in Development and Change 43:1.

___ (2012b)  Nature in the Market-World: Ecosystem Services and Inequality, in Development 55:1, 25–33.

McAfee, Kathleen and Elizabeth N. Shapiro (2010) Payments for Ecosystem Services in Mexico: Nature, Neoliberalism, Social Movements and the State, in Annals of the Association of American Geographers 100:3, 579-59.

** All quoted text is from REDD Offsets Working Group Partnering To Reduce Emissions From Tropical Deforestation

*** For case studies and insightful analysis of land grabbing and green grabbing, see the excellent, recent issues of The Journal of Peasant Studies.


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