Gourmet Carbon vs. Commodity Carbon

Climate Forests Investments Jan 1, 2001
Katherine Hamilton

On December 6, 2006, the Ecosystem Marketplace co-hosted an open discussion on the voluntary carbon market with ABN-AMRO, Climate Change Capital, Earthscan, EcoSecurities, Generation Investment Management, and The Climate Group. On December 6, 2006, the Ecosystem Marketplace launched its new book: "Voluntary Carbon Markets: An International Business Guide to What They Are and How they Work" at a dynamic meeting in London that explored the future of the voluntary carbon market. The session was chaired by the Ecosystem Marketplace's Director, Ricardo Bayon, and included: Joe Nation, former California Assemblyman and principal co-author of AB-32; David Tepper of Climate Change Capital; Pedro Moura Costa of EcoSecurities; Martha Isabel Ruiz Corzo of Reserva de la Biosfera in Sierra Gorda, Mexico; Colin Le Duc of Generation Investment Management; and Mark Kenber of The Climate Group. Richard Burrett, ABN AMRO's Managing Director of Sustainable Development, opened the panel by describing the enthusiastic response to the event, the growth of carbon markets in general, and the "complimentary and contradictory" position of voluntary carbon markets in relation to regulatory markets. Pointing to the rapid evolution of voluntary markets, Burrett noted the book's timely contribution of "invaluable" information to the carbon sector. After Burrett's opening, Michael Jenkins, Forest Trends' President and CEO, stepped up to thank the event's sponsors. Jenkins highlighted the importance of voluntary carbon markets as a space for innovation. Carbon market participants, he said, are in a unique position to test the notion that environmental markets can contribute to conservation and sustainable development. Ricardo Bayon then introduced the panel, painting a picture of the voluntary markets in the process. Total volumes and average prices in this space, he noted, remain unknown. He also described the role of voluntary markets in shaping regulatory markets. As a co-author of California's AB- 32: Global Warming Solutions Act, Joe Nation updated the group on California's march towards regulation and foreshadowed the possibility of a national greenhouse gas regulatory structure in the United States. He noted that California provides a key example of a region that has been active in voluntary markets during its transition to regulated markets. Nation explained that California's governor would be setting up a "Market Advisory Committee" and that a cap-and-trade scheme was likely to play a part in AB-32's implementation. After surveying the scene in the US, the conversation swung back to the overall voluntary market and the need for quality and standards in its development. David Tepper stressed investors' desire for a scalable commodity with low transaction costs. He also noted that groups such as Climate Change Capital were interested in the voluntary market and, in particular, were looking for large deals that would allow them to take on significant numbers of voluntary credits. Accordingly, he said it would be important for aggregators to emerge. When asked about forestry credits, Tepper noted the Climate Change Capital was interested in forestry and that pre-compliance forestry credits would be one key sector in the future voluntary market. Pedro Moura Costa continued the discussion surrounding forestry carbon credits and, as a veteran of carbon market development, presented his view of voluntary carbon markets in general. He described watching a "spontaneous expansion" of these markets. He argued that the Kyoto Protocol, while very instrumental, would not be enough to fight climate change since it excluded a variety of important sectors. Fortunately, he said these sectors have been engaging in voluntary markets on their own terms and have been essential in driving innovation and reducing bureaucracy. Mark Kenber followed Moura Costa's presentation by introducing his organization's Voluntary Carbon Standard—an effort The Climate Group is undertaking in partnership with the International Emissions Trading Association (IETA). The standard is still in draft form, but should be released early this year. The VCS, as it is known, is designed to be a "basic, minimum standard for voluntary carbon." Kenber explained that the standard was not created to focus on sustainable development benefits but rather is meant to ensure that greenhouse gas emission reductions meet a basic quality threshold: namely, that they are real, additional, measurable, permanent and quantifiable. Kenber compared the market for voluntary carbon with the coffee market. While some consumers may be willing to pay more for fair trade coffee, he said, at the very least consumers want to be assured that what they are buying is coffee and not "hoover scrapings." Martha Ruiz Corzo then introduced the voluntary credits she is selling from the Sierra Gorda Biosphere Reserve, as "not just a carbon credit, but as a green jewel." Corzo emphasized how her organization's aim is to provide options for "extreme poverty communities" to achieve a better livelihood while still protecting their natural resources; in short, to achieve true sustainable development on the ground. In this, she said, the Kyoto Protocol's Clean Development Mechanism (CDM) had not been helpful to her. To highlight these problems, she told the story of her struggle to sell credits under the CDM, with its high transaction costs and insurmountable barriers to entry. She recounted how she spent years trying to sell carbon from the Sierra Gorda into the CDM until she realized that it would be nearly impossible, and that her efforts would not be properly remunerated. Frustrated, she finally began exploring the voluntary carbon market and immediately sold credits—solid, verifiable credits, she explained—for more than she would have gotten via the CDM. For this reason, she said, she thought it important to make sure that the voluntary markets remain innovative, vibrant, and accessible In response to Corzo's story, Colin Le Duc thanked her for reminding the panel about the real sustainable development benefits behind the market for "gourmet carbon." He also described how large financial institutions such as his were rapidly coming to the realization that sustainable development and environmental protection are the ultimate underpinnings of economic growth and financial performance. He added that Generation was watching the carbon markets closely and using approaches to carbon management as a surrogate for better understanding quality of management. He said that those companies that take issues of climate change seriously also tend to have more responsible and solid management teams. After the panelists spoke, the floor was opened to the audience. Most questioners were interested in how best to harness voluntary carbon markets toward both greenhouse gas reductions and sustainable development goals. In the end, people in the room appeared to agree that the voluntary markets could—within certain parameters—serve as a vibrant and important part of society's response to climate change. Audience and panelists both noted that voluntary carbon markets would never supplant regulated markets nor the need for action to reduce emissions at source, but that voluntary markets could certainly help complement regulatory efforts. It was also noted that as voluntary markets grow, efforts to ensure quality and accountability must be redoubled. First published: January 29, 2007 Please see our Reprint Guidelines for details on republishing our articles.