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    Spanish company Ferry Group is to invest €42/US$55.2 million in a project for the production of biomass fuel pellets in Bulgaria. The 3-year project consists of establishing plantations of paulownia trees near the city of Tran. Paulownia is a fast-growing tree used for the commercial production of fuel pellets. Dnevnik - Feb. 20, 2007.

    Hungary's BHD Hõerõmû Zrt. is to build a 35 billion Forint (€138/US$182 million) commercial biomass-fired power plant with a maximum output of 49.9 MW in Szerencs (northeast Hungary). Portfolio.hu - Feb. 20, 2007.

    Tonight at 9pm, BBC Two will be showing a program on geo-engineering techniques to 'save' the planet from global warming. Five of the world's top scientists propose five radical scientific inventions which could stop climate change dead in its tracks. The ideas include: a giant sunshade in space to filter out the sun's rays and help cool us down; forests of artificial trees that would breath in carbon dioxide and stop the green house effect and a fleet futuristic yachts that will shoot salt water into the clouds thickening them and cooling the planet. BBC News - Feb. 19, 2007.

    Archer Daniels Midland, the largest U.S. ethanol producer, is planning to open a biodiesel plant in Indonesia with Wilmar International Ltd. this year and a wholly owned biodiesel plant in Brazil before July, the Wall Street Journal reported on Thursday. The Brazil plant is expected to be the nation's largest, the paper said. Worldwide, the company projects a fourfold rise in biodiesel production over the next five years. ADM was not immediately available to comment. Reuters - Feb. 16, 2007.

    Finnish engineering firm Pöyry Oyj has been awarded contracts by San Carlos Bioenergy Inc. to provide services for the first bioethanol plant in the Philippines. The aggregate contract value is EUR 10 million. The plant is to be build in the Province of San Carlos on the north-eastern tip of Negros Island. The plant is expected to deliver 120,000 liters/day of bioethanol and 4 MW of excess power to the grid. Kauppalehti Online - Feb. 15, 2007.

    In order to reduce fuel costs, a Mukono-based flower farm which exports to Europe, is building its own biodiesel plant, based on using Jatropha curcas seeds. It estimates the fuel will cut production costs by up to 20%. New Vision (Kampala, Uganda) - Feb. 12, 2007.

    The Tokyo Metropolitan Government has decided to use 10% biodiesel in its fleet of public buses. The world's largest city is served by the Toei Bus System, which is used by some 570,000 people daily. Digital World Tokyo - Feb. 12, 2007.

    Fearing lack of electricity supply in South Africa and a price tag on CO2, WSP Group SA is investing in a biomass power plant that will replace coal in the Letaba Citrus juicing plant which is located in Tzaneen. Mining Weekly - Feb. 8, 2007.

    In what it calls an important addition to its global R&D capabilities, Archer Daniels Midland (ADM) is to build a new bioenergy research center in Hamburg, Germany. World Grain - Feb. 5, 2007.

    EthaBlog's Henrique Oliveira interviews leading Brazilian biofuels consultant Marcelo Coelho who offers insights into the (foreign) investment dynamics in the sector, the history of Brazilian ethanol and the relationship between oil price trends and biofuels. EthaBlog - Feb. 2, 2007.

    The government of Taiwan has announced its renewable energy target: 12% of all energy should come from renewables by 2020. The plan is expected to revitalise Taiwan's agricultural sector and to boost its nascent biomass industry. China Post - Feb. 2, 2007.

    Production at Cantarell, the world's second biggest oil field, declined by 500,000 barrels or 25% last year. This virtual collapse is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos. Wall Street Journal - Jan. 30, 2007.

    Dubai-based and AIM listed Teejori Ltd. has entered into an agreement to invest €6 million to acquire a 16.7% interest in Bekon, which developed two proprietary technologies enabling dry-fermentation of biomass. Both technologies allow it to design, establish and operate biogas plants in a highly efficient way. Dry-Fermentation offers significant advantages to the existing widely used wet fermentation process of converting biomass to biogas. Ame Info - Jan. 22, 2007.

    Hindustan Petroleum Corporation Limited is to build a biofuel production plant in the tribal belt of Banswara, Rajasthan, India. The petroleum company has acquired 20,000 hectares of low value land in the district, which it plans to commit to growing jatropha and other biofuel crops. The company's chairman said HPCL was also looking for similar wasteland in the state of Chhattisgarh. Zee News - Jan. 15, 2007.

    The Zimbabwean national police begins planting jatropha for a pilot project that must result in a daily production of 1000 liters of biodiesel. The Herald (Harare), Via AllAfrica - Jan. 12, 2007.

    In order to meet its Kyoto obligations and to cut dependence on oil, Japan has started importing biofuels from Brazil and elsewhere. And even though the country has limited local bioenergy potential, its Agriculture Ministry will begin a search for natural resources, including farm products and their residues, that can be used to make biofuels in Japan. To this end, studies will be conducted at 900 locations nationwide over a three-year period. The Japan Times - Jan. 12, 2007.

    Chrysler's chief economist Van Jolissaint has launched an arrogant attack on "quasi-hysterical Europeans" and their attitudes to global warming, calling the Stern Review 'dubious'. The remarks illustrate the yawning gap between opinions on climate change among Europeans and Americans, but they also strengthen the view that announcements by US car makers and legislators about the development of green vehicles are nothing more than window dressing. Today, the EU announced its comprehensive energy policy for the 21st century, with climate change at the center of it. BBC News - Jan. 10, 2007.

    The new Canadian government is investing $840,000 into BioMatera Inc. a biotech company that develops industrial biopolymers (such as PHA) that have wide-scale applications in the plastics, farmaceutical and cosmetics industries. Plant-based biopolymers such as PHA are biodegradable and renewable. Government of Canada - Jan. 9, 2007.

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Wednesday, October 25, 2006

The World Bank thinks carbon trading can save rainforests

Earlier we reported about Europe and the US's "historic deforestation debt" and concluded that simply putting a price on a hectare of rainforest by coupling it to the price of carbon might not be strong enough an incentive for farmers (small and big) in the tropics to stop logging (earlier post). Later, we found that the concept of "compensated reduction" already circulated amongst some NGO's. Today, the World Bank releases a report in which it argues that carbon trading can be used to protect endangered rainforests by compensating nations that avoid deforestation. The Bank suggests that industrial states offset their carbon emissions by funding projects designed to reduce deforestation in developing countries.

The World Bank report says 5% of the world's rainforest is lost each decade. The forest was more valuable if left to store carbon dioxide emissions than if cleared for pasture, it argues.
Imagine a poor farmer cutting down a hectare of rainforest, rich in biodiversity, to create a pasture worth US$300. The trees, cleared and burned, release 500 tons of heat-trapping carbon dioxide into the atmosphere, contributing to global warming, Meanwhile, firms in industrialized countries are paying many times the value of the cleared land—about US$7,500—to meet their commitments to limit the same amount of carbon dioxide emissions. “The trees are worth more alive, storing carbon, than they would be worth if burned and transformed to unproductive fields,” says Kenneth Chomitz, lead author of a new World Bank report on tropical forests. “Right now, people living at the forest’s edge can’t tap that value.”
The report, At Loggerheads? Agricultural Expansion, Poverty Reduction and Environment in the Tropical Forests, says a system of international payments – “forest carbon finance” – could change that situation.

The report sketches an interesting overview of who benefits from deforestation, who loses, which factors in different forest systems and land-use practises lead to "forest poverty" or to its opposite (huge profits), and for which land-use situation "forest carbon credits" might work. (It doesn't take into account the highly productive commodity estates, such as palm oil plantations in SEAsia or large sugarcane complexes in Brazil; and now that these crops can be used as biofuel feedstocks for which an international market exists, this lack is certainly problematic.)

According to the World Bank, deforestation contributes to 20% of global carbon dioxide emissions. Deforested land that is worth $200-500 as pasture [note: but between US$ 10,000 and 20,000 if converted into oil palm plantations - for smallholders; even more for estates] could be worth $1,500-$10,000 if left as forest and used to offset - or trade against - carbon emissions in the industrial world. Carbon trading is a market mechanism intended to tackle global warming. The most important greenhouse gas contributing to global warming is carbon dioxide (CO2), which is mainly emitted by burning fossil fuels:
:: :: :: :: :: :: :: :: :: :: :: ::

The key idea behind carbon trading is that, from the planet's point of view, where carbon dioxide comes from is far less important than total amounts. Its proponents argue that trading the right to emit CO2 allows firms and nations to decide whether they should spend money on cutting pollution or on buying the right to pollute by paying someone else to cut back.

"Global carbon finance can be a powerful incentive to stop deforestation," said World Bank economist Francois Bourguignon. "Compensation for avoiding deforestation could help developing countries to improve forest governance and boost rural incomes, while helping the world at large to mitigate climate change more vigorously."

At the moment, carbon trading markets like that run by European Union members offer no reward to forest owners for cutting emissions by simply leaving trees where they are. But if developing nations could tap this income, they could use the money to preserve the environmental benefits of forests and stimulate more productive agriculture on poor quality land.

The World Bank is one of the main players in carbon financing, and estimates the value of carbon traded in 2005 to be about $10bn. It believes the carbon market has the potential to bring more than €18bn/$25bn in new financing for sustainable development to the poorest countries and the developing world.

“Global forest carbon financing could be a powerful incentive to stop deforestation” says François Bourguignon, Chief Economist and Senior Vice-President, Development Economics at the Bank.

The report argues that with stronger financial incentives for avoiding cutting down trees, poor farmers in Madagascar and other forest countries could invest in sustainable agriculture in already-cleared fields, rather than cutting down more forest for paltry and often temporary gains.

Tropical deforestation accounts for about 20 percent of global CO2 emissions, so the report says global forest carbon finance could therefore be a tool for slowing global warming.

“These forests are being lost at the rate of five percent or more a decade,” Chomitz says.

“Now that may not sound like much, but that’s equivalent to losing an area the size of Portugal every year and it means by the middle of the century, vast tropical forests may be reduced to just shreds of what they once were.”

“Now is the time to reduce pressures on tropical forests through a comprehensive framework that integrates sustainable forest management into the global strategy for mitigating climate change and preserving biodiversity,” says Kathy Sierra, the Bank’s Vice President for Sustainable Development.

The report stresses the fight against forest poverty should be part of the framework. About 800 million people live in and around the tropical forests and many of them are extremely poor.

“But we shouldn’t automatically assume that poverty causes deforestation, or that deforestation causes poverty,” Chomitz says. “These generalizations are only partially true, and don’t provide a good foundation for policy.”

He says deforestation is often undertaken by wealthy ranchers and plantation owners and poor households can carve productive farmlands out of the forest.

The report says one way to address both problems is to strengthen forest governance – which in practical terms, means finding ways to sort out conflicting claims on trees and land.

But approaches differ in three forest zones described in the report:

* In the mosaiclands, patchworks of farms and forest where most people live, it says environmental services markets could help. In Costa Rica and Mexico, these markets let water users compensate upstream forest owners for reducing sediments in rivers.

* In forest frontiers, where loggers, plantation owners, and households are competing for trees and land, provision of more secure tenure can fight resource grabs by the elites and deter wasteful deforestation. For example, in Cameroon, forest concessions are now allocated through a public auction, independently observed so it’s conducted in accordance with the law. Part of the forest royalties are distributed to local communities and nongovernmental organizations monitor how concessionaires care for the forests assigned to them using satellite photos and on-site visits.

* In areas currently beyond the agricultural pressures, the report says challenge is to head off future conflicts. Regularization of protected areas and recognition of indigenous lands are approaches which have been successfully used in this zone.


Obviously, there are a large number of identified problems that will make the implementation of such a system extremely difficult. Some of those are:

1. the fact that this is a top-down scheme: forest carbon credits are in all likeliness received first by the state bureaucracy of a country, after which they 'trickle down' via a long chain to finally arrive at the small farmers who should benefit from them most. Knowing the situation of bad governance and mass corruption in many developing countries, it is almost certain that the actual cash will not reach the bottom of the pyramid.
Considerable research has shown that smallholders in the tropics avoid strategies that require the temporary suspension of cashing in, and instead prefer tactics that result in immediate and guaranteed incomes. This will prove to be a huge barrier for the implementation of this scheme. When farmers have to wait for their money for too long, they will prefer certainty and start logging instead, so to speak.

2. it will be difficult to do the actual carbon accounting of different forest types and monitor their state on a continuous basis

3. the report does not take into account the huge profitability of lucrative crops like palm oil and sugarcane in light of their use as feedstocks for biofuels. If oil prices rise, these crops will become green gold (even more than they are today) and carbon compensation might not be able to compete. (E.g. a smallholder in the tropics in SEAsia on average makes somewhere between US$ 10,000 and 18,000 per hectare of palm oil, over the life of the plantation. Carbon prices would have to rise dramatically to ever reach this level)

4. The value of biofuel crops is now firmly tied to oil prices. Carbon prices are not, or in a far less direct way. (In the European carbon market, oil prices affect emissions permits because they are linked to the price of natural gas. Gas burns more cleanly than coal, so utilities burning it need only about half the allowances they would require if they burned coal to produce the same amount of power. With oil and gas prices rising, utilities are burning coal because it's cheaper. That increases demand for allowances. On the other hand, carbon prices collapsed when news arrived that governments had issued too many allowances.)
The World Bank remains vague about whether a separate carbon trading mechanism would be created for forests, one that is independent from other carbon markets. If not, the system might be difficult to work with as so many external factors and state decisions taken in European/Western markets will play a key role on global carbon prices.

All in all, it is good to finally see a major institution looking at the problem of deforestation in the tropics, and proposing a market-based mechanism to change the situation. All of us have interest in seeing such a mechanism succeed.

More information:

World Bank: Overview of the report's themes - At Loggerheads? Agricultural Expansion, Poverty Reduction, and Environment in the Tropical Forests - Oct. 24, 2006

World Bank: Document page of abstract, different chapters, report in full.


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