The International Small Group and Tree Planting Program (TIST) is a standout carbon project based on a mix of poverty alleviation and cutting edge technology. The Ecosystem Marketplace highlights TIST's efforts to make the world's carbon markets work for the rural poor and asks the curiously related question: Have eBay shoppers just stumbled across the sustainable development deal of a lifetime? Internet shoppers can now find greenhouse gas offsets from Kongwa, Tanzania on eBay, just a click away from their favorite antique collectibles. Through a novel program called The International Small Group and Tree Planting Program (TIST), sustainable development has come to the world's largest online marketplace. Greenhouse gas offsets, also known as carbon credits, are marketable certificates representing reductions in greenhouse gas emissions. Offsets generated by emission reductions in Kongwa, the theory goes, may be used to cancel out excess greenhouse gas emissions anywhere in the world. In the case of TIST, subsistence farmers generate offsets by planting trees that absorb carbon dioxide as they grow, locking up greenhouse gases that might otherwise contribute to climate change in the atmosphere. The TIST eBay store has sold 150 tons of offsets so far (US $20.00 for one ton) and is now routing money back to subsistence farmers planting trees in Tanzania, Kenya, Uganda and India. In part because of its innovative use of technology, TIST has become a flagship greenhouse gas offset project: unlike most community-based forestry initiatives–which have struggled to attract investors because of scientific and regulatory uncertainties (see Horses for Courses: Voluntary CDM Carbon Projects in Mexico)– the project has claimed a spot in the portfolio of a prominent carbon fund at the World Bank (carbon funds are not unlike mutual funds, but instead of a portfolio of investments in companies they direct investment in a portfolio of carbon offset projects). On August 31, 2005, the World Bank's BioCarbon Fund officially closed Tranche One of its investment portfolio, moving a step closer to its goal of proving that Land Use, Land Use Change and Forestry (LULUCF) projects can provide creditable, cost-effective emissions reductions. Notably, TIST was the only multi-country project to make the cut. "The [TIST] project is a model for demonstrating the developmental impact of carbon finance and how remote communities in the developing world can harness the carbon market to help themselves and contribute to the global good," trumpets the fund's website.
Virtual Cash Crop
To understand the circuitous route of Tanzanian carbon to eBay and the World Bank, one must follow a man named Ben Henneke. Mr. Henneke–the President of Clean Air Action Corporation–was on a trip in Tanzania when the idea of marrying sustainable development and the emerging global carbon market first began to take shape in his mind in 1999. "If you go where people need the opportunity the most, you are in places that are very far off the beaten path," observes Mr. Henneke. "The wonderful thing about ecosystem services markets is that you aren't trying to transport products." Familiar with markets in pollution credits from his work in the United States, Mr. Henneke says he began to wonder, "'What if we could create an income stream that was adequate to change people's lives by selling greenhouse gas credits?'" The farmers and church leaders with whom Mr. Henneke was working welcomed his idea of a 'virtual cash crop' that could buoy local incomes while reforesting villages with native trees. And so, led by Clean Air Action Corporation, forty small cooperative groups (ten to twelve farmers per group) organized to create TIST in 1999. The TIST board voted to create a for-profit organization called TIST Ltd. the following year. Today, TIST has expanded to over 2000 groups spanning four countries–Tanzania, Kenya, Uganda and India–and TIST farmers have planted a total of 4 million trees (2000 mature trees account for 1000 metric tons of carbon dioxide equivalent). A typical small group now earns around $40/year from TIST for planting trees that generate carbon credits and another $450/year from the adoption of conservation farming techniques that increase crop yields. "The tree planting and improved agriculture produce hope among the group members," says Vanessa Henneke, Chairmain of the Board of the Institute for Environmental Innovation, the not-for-profit arm behind TIST in the United States. "They become willing to tackle harder issues such as HIV/AIDs, family planning, and other health issues. The TIST groups then become a good example for other villagers–providing leadership with their own actions." TIST estimates that its farmers should sequester a total of around 1.5 million metric tons of CO2 by 2012 (for comparison: personal computers in California emit about 1.7 million metric tons of CO2 per year). And, if all goes as planned, TIST trees should have soaked up more than 2.3 million metric tons of CO2 in some 40 countries around the world by 2017, marking a real contribution to the fight against climate change while generating a stable income source for those who need it most.
While TIST's rapid growth suggests that creating a market for carbon credits in places like Tanzania was an idea waiting to happen, those involved in the project stress that pitching a tree-planting project in rural Africa to Western investors is anything but easy. "There is this very large mismatch between cultures," says Mr. Henneke. On one end, he explains, you have a demand for very high quality data from regulators, environmentalists and investors in the Western world and on the other you have villagers without electricity. Executives at Clean Air Action Corporation understood, from the beginning, that if they were ever to recoup their investment in TIST, their best bet was to create carbon credits that could be sold into the compliance market created by the Kyoto Protocol. Specifically, they knew that TIST would have to navigate the stringent rules and regulations of the Protocol's Clean Development Mechanism (CDM), which allows companies in industrialized countries to fund greenhouse gas reduction projects in the developing world in exchange for carbon credits. "When the CDM is the only real market out there for this kind of project, you have no choice but to work from scratch to build a project that will be replicable within a CDM framework," says Edward Kirk, Senior Program Manager at Clean Air Action Corporation. In impoverished regions–where just three minutes worth of a phone call cost the average farmer a day's wages–TIST's founders knew that they would have to be innovative in order to generate the kind of data that would attract CDM investors. "We set out to marry Western accounting practices with East African and Indian cultures and realities," recounts Mr. Kirk. And so, in order to establish a clear baseline, TIST began training farmers to collect the necessary data using a host of new technologies. "We used all the battery based stuff [global positioning systems, palm-pilots, laptops] to be more or less independent of the electricity grid," says Mr. Henneke. Notably, TIST farmers found that modern technology allowed them to leapfrog some of the hurdles that had plagued their efforts to access markets in the past. They no longer needed to transport products such as mangoes or tea across long distances on unpaved roads; they simply needed to transmit information across oceans. Amazingly, they found that, in today's world, crossing oceans often is easier than bumping along dirt roads. Using a global positioning system (GPS) and a personal digital assistant (PDA), subsistence farmers now can send the coordinates and measurements of the trees they have planted to investors in Washington D.C. or London from tree groves in the middle of rural India or Africa. The TIST website lists the precise latitude and longitude of each farmer's grove and tracks the number of trees and seedlings that are planted. "The web helps drive accountability to western investors," explains Mr. Kirk. Investors who have taken note of the project say that they are, indeed, impressed by the tech-savvy tracking system that TIST farmers have developed. "TIST is unique," says Benoit Bosquet, Manager of the World Bank's BioCarbon Fund, "it brings a very simple concept and project structure, yet a very modern monitoring technique [and] it has put in place a very transparent monitoring system." Indeed, he concludes, "[TIST] is testing techniques, delivery mechanisms, etc., which are going to be useful to many other LULUCF project developers."
Trail blazing usually generates some nice buzz, but being out in front also means that people take note when things go wrong. Some in the world of carbon finance say that they are both impressed and skeptical of the level of technological sophistication employed by TIST. A dose of this skepticism, at least, has proven healthy. Visitors to the TIST website will spot the steep drop in the number of trees depicted in a bar graph on the home page. Last year, TIST listed data for 2.1 million trees, but this year, the number has dropped to 1.4 million. What happened? Part of the discrepancy, explains Mr. Henneke, can be attributed to a drought that has afflicted East Africa in recent years. In other words, some trees just died. Much of the discrepancy, though, is due to misreporting rather than tree death. Quantifiers caught many of the problems and TIST welcomed an audit by the World Bank last year, but such a downscaling of numbers might, in many business circles, give pause to potential investors seeking assured carbon credits for the regulatory market. In the new and largely untested world of LULUCF projects, however, such adjustments are hardly uncommon. Consequently, potential investors generally apply the rule of conservatism, committing to buy many fewer credits than a project can generate. "We would not buy more than 1 Mt of CO2 from this or any other project. So the problem is more one of lower revenues to TIST than lower carbon deliveries to the BioCarbon Fund," explains Mr. Bosquet. Mr. Bosquet, in fact, says he considers the drop in numbers to be a sign of progress. "It is a normal adjustment based on improvements in data collection and tighter controls in the monitoring process," he says. "In my view, the fact that TIST readily recognizes the need for adjusting their numbers increases the level of confidence in their business ethics." Indeed, the TIST model is based on continual adjustment, with small groups meeting regularly to share lessons and refine techniques. "We do, we learn, we iterate," explains Mr. Kirk. "We at Clean Air Action repeatedly had to remind ourselves that we were not teachers, we were facilitators." Invoking the idea that it took Thomas Edison 10,000 tries to make a working light bulb, Mr. Henneke explains that the idea is not to avoid making mistakes so much as it is to avoid making the same mistakes over and over again. And the resulting evolution, he says, has been towards a more, rather than less, comprehensive sustainable development package. Anyone engaged in the realities of sustainable development in rural communities, can attest to the fact that one problem cannot be treated in isolation of the rest. Subsistence farmers whose health is declining because they suffer from AIDS, for instance, will never be able to plant trees and operate GPS units for concerned investors back in the carpeted hallways of the developed world. "The needs of the communities that we wanted to serve went way beyond tree-planting," explains Mrs. Henneke. "You are hoping for a longer term benefit within the system of the small groups, within the system of the villages." Accordingly, TIST now provides training in conservation farming techniques, runs family planning programs for women, and disseminates public health information about HIV and AIDS in addition to coordinating its tree-planting efforts. "The program," concludes Mr. Kirk, "is much more holistic than it was originally."
As reactions to TIST's forecast adjustments and evolving methodologies show, potential LULUCF investors manage the uncertainties associated with community-based carbon offset projects in impoverished parts of the world by buying conservatively, leading to lower revenues. In other words, they shift their financial risk over to project developers. Project developers, meanwhile, react to these same problems by investing more time and energy in the health and education of participants, leading to higher costs. The reactions of both project investors and project developers are correct (carbon funds must purchase credible carbon credits and developers must confront the realities of working in rural Africa), but they widen the gap between potential revenues and probable costs ever further. If global carbon markets are truly going to succeed in advancing sustainable development in impoverished rural communities, then the developed world must figure out how to plug this financing gap. While many project developers are looking toward TIST's technological solutions when thinking about how to structure a LULUCF project for the carbon market, regulators might do well to look closely at the project's financial challenges. "The real policy question," says Mr. Kirk, "will be whether governments and the CDM Board will establish policies that encourage local groups to take action that benefits the environment, or whether the process will be so restrictive and cumbersome that only 'big' projects with major investment in the front end to satisfy the requirements will be successful. It will be a shame if carbon finance can't help small farmers solve the problem." Given this dilemma, TIST's greatest achievement in the context of the LULUCF market–if it can pull it off–may not be its innovative use of technology to bridge the distance between the realities of developing countries and Western accounting strategies, but rather its innovative use of philanthropy to bridge the financing gap that exists between costs and revenues for LULUCF projects in their first decade.
Mr. Kirk, at the Clean Air Action Corporation, describes the Institute for Environmental Innovation's not-for-profit philanthropic funding and TIST's for-profit carbon credit revenues as two flows coming into the same stream. At first, the tight cooperation between the for-profit investors behind TIST's carbon sequestration project and the not-for-profit backers of TIST's larger sustainable development initiatives seems a little too close for comfort. Considered thought, however, suggests that such a public-private relationship might actually make a great deal of sense. At the urging of the Dow Chemical Company Foundation–which was uncomfortable donating money to a for-profit venture, but wanted to see TIST expand its model beyond Tanzania–TIST's founders helped set up the Institute for Environmental Innovation in 2001 as a non-profit arm based in the United States. Dow immediately contributed $1.2 million to the Institute and TIST's sustainable development initiatives suddenly had a new champion. Since then other donors have also added to the charity's coffers. On the business side, meanwhile, the Global Development Alliance (an arm of USAID) has provided TIST with $500,000 to put toward its efforts to become self-sustainable. The Global Development Alliance, according to its website, believes that "public-private sector conversations almost always lead to a better understanding of the challenge." While TIST is hardly alone in its mix of non-profit and for-profit aims (most community based carbon offset projects in the world today have philanthropic origins), the project serves as a unique kind of control, demonstrating that even with all the technological savvy and market knowledge in the world, even with careful planning and much adaptive management, the financing gap for carbon sequestration projects still exists. Importantly, the project's object lessons don't stop there: TIST highlights that, in their struggle to plug this gap, LULUCF projects are beginning to light on some opportunities as well as problems. Combining short-term philanthropic support of public health and environmental initiatives with the long-term promise of sustainability offered by carbon credits has convinced Mr. Kirk of the potential fit between sustainable development efforts and the carbon market. "The subsistence farmers would be waiting years if carbon were the only driver," he explains. And, on the other end, "participation [in the regulatory carbon market] is a huge carrot on the end of the sustainable development stick." "We have to be optimistic about the future of the carbon market," he continues, "because there is so much hope for the small groups of subsistence farmers."
Specifically, those involved in TIST, like most LULUCF developers, are holding out hope that the European Union Emissions Trading Scheme (the largest of the regulatory markets) decides to allow carbon credits from LULUCF projects in the future, something it currently does not permit. Looking to the regulatory markets alone to solve the financial challenges facing LULUCF projects, however, may be missing the real opportunity at hand. Many market analysts point out that businesses required to meet compliance targets in the near future are not the natural investors for the relatively expensive and risky carbon credits generated by LULUCF projects in developing countries. Instead, community-based land use and forestry projects represent a chance for well-invested international aid to act as seed capital for projects that will carry their own weight in the carbon market further down the line. The regulators behind the compliance markets, then, might be asked to prepare the way for mature LULUCF projects to enter the marketplace. For instance, the EU ETS might agree to admit LULUCF projects that had already successfully piloted scientific, monitoring and delivery methodologies for a set number of years. While five to ten years is a long time for a subsistence farmer to wait on revenues from carbon credits, it is no time at all for an international aid donor to wait on sustainable social and environmental returns from a project. And, critically, eBay shoppers may have already hit upon the infrastructure necessary to streamline this kind of international aid–the voluntary carbon market. The voluntary market was the only carbon market that existed until the Kyoto Protocol was ratified and the European Union Emissions Trading Scheme launched in early 2005. Voluntary market buyers–be they eBay junkies, UN initiatives, or American corporations–generally purchase credits for philanthropic or marketing reasons, rather than for compliance reasons. Importantly, the voluntary market does not require its tradable carbon credits to undergo a certification process as stringent as that required by the Kyoto Protocol's Clean Development Mechanism (CDM). While this difference has led some environmentalists to criticize the voluntary market for failing to ensure environmental progress, it also makes the voluntary market much more accessible to community-based carbon projects. Traditionally, project developers have considered the voluntary and regulatory markets to be separate. As a result, many projects are designed specifically for one or the other. As TIST's eBay boutique demonstrates, however, there is no reason that the voluntary market cannot be used as a staging ground for LULUCF projects bound for the regulatory market. While CDM methodologies are refined and delivery methods honed to meet the high standards of corporations and governments involved in the regulatory market, it may be up to the rest of us–eBay shoppers and international aid agencies alike–to enter the voluntary market and thereby plug the financing gap for projects that promise both social and environmental benefits. Many of the world's top economists argue that helping the poorest among us to help themselves probably offers a better return on investment for global society than anything else out there. And so, when sustainable development could be just a click away, it is a purchase we all must consider for economic reasons…not just moral ones. Amanda Hawn is Associate Editor of the Ecosystem Marketplace: ahawn[at]ecosystemmarketplace.com First published: October 5, 2005