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REDD: Breathing new life into the scam of carbon trading

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WRMThis article was published in the World Rainforest Movement Bulletin 151, February 2010. It is loosely based on a presentation I gave at a workshop in Bogor earlier this month, about local media and REDD. The workshop was organised by the Indonesian local media association ASTEKI and the Samdhana Institute.

World Rainforest Movement has been closely (and critically) following the climate negotiations for many years and has a huge amount of information about climate change and forests on its website.

REDD: Breathing new life into the scam of carbon trading

Reduced emissions from deforestation and forest degradation (REDD) is based on a simple idea: Making forests worth more alive than dead. But on closer examination, it is not simple at all. To forest peoples, forests already are worth more alive than dead. REDD could involve the biggest ever transfer of control over forests – to international carbon financiers and polluting companies.

A massive new market in forest carbon would come with a series of new (and not so new) risks. In an article describing how Goldman Sachs helped create (and profit from) the financial bubble that so spectacularly burst a couple of years ago, journalist Matt Taibbi explains that “Instead of credit derivatives or oil futures or mortgage-backed CDOs , the new game in town, the next bubble, is in carbon credits . . . a groundbreaking new commodities bubble, disguised as an ‘environmental plan’.”[1] This new market in carbon derivatives “will be vast, complicated, and dauntingly difficult to monitor,” writes Rachel Morris in Mother Jones magazine.[2]

But it is not only journalists who are concerned about the complexities of this new market. Feike Sijbesma is the Chief Executive Officer of Royal DSM, one of the largest Dutch multinational corporations. “There are now already in development derivatives of CO2 prices that are so complicated that I do not understand it any more,” he said at the World Economics Forum earlier this year. “If you get a reservoir of derivatives which becomes so big that it becomes an industry in itself that is very dangerous because you can get the tail wagging the dog.”[3]

At least one hedge fund company is already betting on the carbon market collapsing. “We think there’s a 30 percent chance the market collapses,” says Anthony Limbrick, the chief investment officer of the hedge fund firm, Pure Capital. Limbrick, however, is not too worried about a collapse. “That could create a ‘fat tail’ (a very rare event with major consequences) for us to make money.”[4]

Proponents of financing REDD through carbon trading put forward two apparently contradictory arguments. The first is the “low-hanging fruit” argument – stopping deforestation is one of the cheapest and easiest ways of reducing emissions. “Tropical forest conservation is a critically strategic climate change solution,” says Jeff Horowitz of Avoided Deforestation Partners, “because it is more affordable than technologically intensive solutions therefore allowing bigger pollution reductions than would otherwise be economically or politically feasible.”[5] Horowitz and his organisation have lobbied hard to make sure that carbon offsets are part of the draft climate legislation in the US. Horowitz also estimates that “protecting tropical forests will cut the cost of U.S. climate legislation almost in half – saving Americans billions.”[6]

The second is that reducing deforestation needs so much money, that the only way of financing REDD is to make sure that the carbon markets are involved. Here’s Horowitz again: “The only path to secure the $40 billion annually that may be needed to end and ultimately reverse deforestation is through creating incentives for private investment.”[7]

Of course there is no guarantee that throwing vast sums of money at the problem of deforestation will make it go away. Underlying causes of deforestation include corruption and illegal logging. The Forestry Ministries in several REDD countries are the most corrupt ministries in some of the most corrupt countries in the world. Illegal logging accounts for a large proportion of timber exports from many of the countries currently interested in implementing REDD.

“Alarm bells are ringing,” says Peter Younger, a specialist in environmental crimes at Interpol. “It is simply too big to monitor. The potential for criminality is vast and has not been taken into account by the people who set it up.” In an interview with the Guardian last year, Younger notes that “Organised crime syndicates are eyeing the nascent forest carbon market . . . REDD schemes are open to wide abuse.”[8]

Abuse is already happening, in both the forest and the market. Papua New Guinea has seen fake carbon credits, carbon cowboys and a series of dodgy-looking deals with landowners. Meanwhile in Europe, carbon credit fraud in the Emission Trading System (ETS) has resulted in losses of about five billion euros. The European Law Enforcement Agency estimates that “in some countries up to 90 per cent of the whole market volume was caused by fraudulent activities.”[9]

The risks are obvious. So is the impossibility of regulating such a complex market. And the point of this whole shaky edifice, apart from generating huge profits for carbon traders? To ensure that companies can buy carbon credits allowing them to continue pumping out greenhouse gases.

[1] Matt Taibbi (2009) “The Great American Bubble Machine”, Rolling Stone, July 2009.

[2] Rachel Morris (2009) “Could Cap and Trade Cause Another Market Meltdown?Mother Jones, June 2009.

[3] Ben Hirschler (2010) “DSM CEO cautions on carbon derivatives dangers”, Reuters, 27 January 2010.

[4] “Hedge fund firm eyes carbon”, Reuters, 19 June 2009.

[5] “‘We must take advantage of low-hanging fruit solutions such as forest conservation’: Interview with Jeff Horowitz”, REDD-Monitor, 19 February 2010.

[6] Rhett Butler (2010) “Forest conservation in U.S. climate policy: an interview with Jeff Horowitz”,, 5 February 2010.

[7] “‘We must take advantage of low-hanging fruit solutions such as forest conservation’: Interview with Jeff Horowitz”, REDD-Monitor, 19 February 2010.

[8] John Vidal (2009) “UN’s forest protection scheme at risk from organised crime, experts warn”, The Guardian, 5 October 2009.

[9] “Carbon Credit fraud causes more than 5 billion euros damage for European Taxpayer”, Europol, 9 December 2009.

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  1. I believe the authors comments in the last paragraph summarise the true reality of carbon trading….a load of “hot air”.
    Human rats jumping ship which is sinking.

    Humanity inclusive to those citizens particularly in the G8 and G20 countries have to begin now to start living responsibly on our planet. Only a global tax on the G20 nations will solve this based on a minimum of INVESTMENT 20% the value of the finances as endorsed in Stern Review Report of October 2006 and now upgraded analysis in the SEEBif Iniiative will resolve and absolve humanity out of its current inertia. Let us hope that this productive input can be assimilated into a remit into the U.N. International Platform on Biodiversity and Ecosystem Services (IPBES).

  2. REDD is cheaper (per unit) than many alternative emissions, but there are a lot of emissions, which means the total cost is a large number. Your attempt to discredit Jeff Horowitz’s logic is itself flawed.

    Why not finish off these articles with some ideas for solutions? You should have some if you have followed things so closely.

  3. REDD has very little potential to accomplish the objective of reducing or offsetting global carbon emissions. Unless the global demand for forest products is reduced – and not shifted to other materials sectors (hardly possible) – we will only shift deforestation from one location to another. REDD ignores the mass balance of global demand and supply.

    The so-called “solution” is to allow subnational accounting of leakage that will somehow be integrated later into national accounting!? This is not a solution. It would have to be done globally to mean anything. And then, how does one retroactively adjust the offsets “generated” from individual projects after it is determined globally that the benefits are much less than the sum of what was credited to individual projects?

    For forest nations, REDD is an opportunity to receive funds while their forests recover until the next cutting cycle. For example, the permit life of a REDD project in Indonesia is 30 years, which is equal to one cutting cycle. This should set off alarms for carbon buyers about the life of REDD offsets – especially the later vintages.

  4. The whole issue is a big scam. For goodness shake where is the money, where is it coming from, who will pay and who will benefit? It is becoming more and more a flawed solution when you have people who are after MONEY and NOT Climate Solutions devising monetary solutions as per the REDD concept.

  5. @Ed Walter – Sorry, I thought that one solution was kind of obvious from the final sentence: No carbon trading. If we really want to reduce emissions from deforestation and forest degradation, what is the point trading the reduced emissions against continued emissions somewhere else? That guarantees that there is no reduction in emissions. And given the impossibility of dealing with the issues of additionality, permanence, leakage and fraud, carbon trading is not even a zero sum game – it leads to increased emissions.

    On your other point, how do you know that REDD is cheaper (per unit) than reducing emissions at home? Insulating a house or office, for example, actually saves money over time because less fuel needs to be bought to heat the building. “Technologically intensive solutions” also have the advantage that the price is likely to come down over time (look at the cost of computers, which have become cheaper as they have become more sophisticated).

    Of course, what carbon trading does, is to create the possibility of massive profits for carbon traders – who neither produce anything useful nor help to reduce emissions. (One example of such a carbon trading firm, not chosen at random, I admit, is Equator, LLC a company that Jeff Horowitz “helped to found” with his nephew Gerrity Lansing.)

    If Horowitz were being honest, he would admit that he doesn’t really know how much REDD is going to cost. From a U.S. perspective, REDD may be “low-hanging fruit” – that is when it is compared to reducing emissions in the U.S. But Soumitra Ghosh makes a good point in a recent comment:

    When we will learn that forest conservation in tropical countries can not be achieved through funds? Show us one good instance when international funds alone have conserved forests. Deforestation is a complex socio-political and economic event, factors leading to which can never be controlled by funding.

  6. Complete misquote. Pure Capital runs what is called a tail-risk strategy which means we make profits in big moves up and down – but most of the time we don’t make money – as markets don’t make big moves very often. But what I was actually trying to tell the journalist was that it was less than 50% probability that the market would collapse (would you bet money on that???) – but if it did we would probably make money – as movement in markets is a driver of performance with our systematic approach to market risk. By the way – the amount of money allocated to this so-called big hedge fund trade? Less than the price of a one bedroom flat in Brixton. Hardly a position with seismic implications. Check your facts please. I have been attributed this misquote all over the place. Apologise for the use of a gmail address but I already get too much spam. Best regards Anthony Limbrick

  7. @Anthony Limbrick – Thanks for this. To be honest, I can’t see the misquote. Reuters quoted you as saying this: “We think there’s a 30 percent chance the market collapses.” And you’ve just written that there is a “less than 50% probability that the market would collapse.”

    In the Reuters article, you say: “That could create a ‘fat tail’ (a very rare event with major consequences) for us to make money.”

    And you now write that if the market did collapse, “we would probably make money – as movement in markets is a driver of performance with our systematic approach to market risk.”

    To summarise: There is a fairly high chance, according to you somewhere between 30% and 49.99%, that the carbon market will collapse. You are not betting much money on this, but you don’t really care whether the market goes up or down, because you make money when there is a big move either way.

    The point I’m trying to make is that apart from the fact that the carbon market will not reduce emissions (it will just move them from one place to another) according to at least one expert (you) there is a fairly high chance of it collapsing. Whether you stand to make money, or how much money you have bet on the market collapsing, is not really the point. (Incidentally, I have absolutely no idea how much a one bedroom flat in Brixton would cost.)

  8. The point(s) I was trying to make…

    (1) As the position-sizing we have been working with is very small in international market terms, Pure Capital is very very far from being a significant player in the carbon markets – and thus our opinion on these markets is not particularly important.
    (2) Where there is an estimated 30% probability of a market collapsing, isn’t it important to understand what the other 70% is comprised of? If that other 70% is 40% sideways/range trading, 30% rally – then the statement has little significance. Thus wouldn’t the statement at least require some further questioning of the person who made the statement to understand what the other 70% was made of? I have received no contact from any media regarding this supposed statement.

    The (mis)quote is a little similar to the journalistic device whereby someone is written to be “denying” having done something – and thus by default from that point is insinuated to have actually done whatever it was.

    I believe the injection of this quote into discussion of emissions trading is a cheap shot using the recent “hedge fund” journalistic device. “Hedge funds”, like all industries has a mix of mostly “clean” and some “dirty” players, but is also subject to some unnecessarily misinformed reporting and appears to be an easy journalistic tool for implying “dark financial forces” are at work.

    Despite all this, I think you are doing good work with REDD-Monitor. Discussion/debate is a faster way to the truth – however that may eventually manifest.

    Best regards
    Anthony Limbrick