Irregular carbon credits cause upheaval in the government of Papua New Guinea

From Economist.com

AT THE United Nations climate change conference in Bali two years ago, the head of the delegation from Papua New Guinea, Kevin Conrad, became a celebrity of sorts. He challenged America to lead the world on climate change or “get out of the way”. America, which had been insisting that poorer countries make more promises on fighting climate change, backed down. That allowed delegates to agree on a road map for setting up an international treaty to replace the existing Kyoto protocol.

Mr Conrad directs an organisation called the Coalition for Rainforest Nations, an alliance of 33 countries that promotes “avoided deforestation”—which means taking measures to prevent trees being chopped down. Deforestation accounts for about a fifth of the world’s emissions of greenhouse gases. The coalition argues that poor countries urgently need the revenue logging can bring. If rich countries want them to preserve their forests to keep the planet cool, they should provide some compensation for the forgone logging revenue. In other words, rich countries that are obliged to make reductions in carbon emissions under a new climate treaty could pay owners of forests to stop deforesting as a way of reducing carbon emissions.

The World Bank, the UN and various donor countries such as Norway are enthusiastic about the approach—partly after prodding by Papua New Guinea.

The proposed process for formalising such trading is known as REDD, which stands for reduction of emissions from deforestation and degradation. International talks are under way in Bonn as part of an attempt to decide how REDD would work. But for now the UN does not endorse any offsets based on avoided deforestation. Nor do rules apply to voluntary credits, such as those bought by airline passengers to offset the carbon emissions of their flights.

Even before agreement on which projects might qualify, a REDD market has emerged on the basis of promises to deliver carbon credits from pilot REDD projects. Some traders are willing to buy and sell on the assumption that real credits will be delivered one day. In 2008, REDD projects made up 14% of forest carbon “credits” traded on the voluntary credit market.

Such trading may be speculative, but it is legitimate. Yet no government is able to issue any legal REDD credit, as no framework exists for doing so. Indeed, even if REDD is formalised later this year, some expect that credits would be issued by third parties not governments. Nonetheless, the government of Papua New Guinea has apparently been issuing credits. For example, documents obtained by The Economist suggest that, on November 3rd 2008, the country’s Office of Climate Change (OCC), a part of the executive branch, issued REDD credits for 1m tonnes of carbon, supposedly under the proposed REDD mechanism.

Betha Somare, press secretary for the prime minister, said in a formal statement “the OCC has no legal mandate to issue any forest carbon credits, other than afforestation and reforestation through the Clean Development Mechanism, nor is there currently any REDD asset in existence due to a lack of a regulatory framework for forest carbon in Papua New Guinea”. Officials are now looking in to how REDD credits came to be issued.

Further investigation suggests that at least 39 more such REDD “credits”, which apparently each denote 1m tonnes of carbon, have been issued by the OCC for projects across the country in pilot projects of up to a dozen forests. One of the companies involved in the development of these forests as future REDD credits said a number of certificates had been issued by the OCC. These, it added, were “not real” but rather “symbolic” certificates.

One of these REDD carbon “credits” has caused particular outrage in the country. The area of forest is given as the “Kamula Duso REDD Project”. Yet the 800,000 hectares of virgin rainforest in Kamula Duso are at the heart of a long-running legal dispute over ownership, and the land is now the subject of a court injunction. Until the courts settle the legality of an agreement with the Forest Authority to permit logging, nobody is supposed to touch it.

The emergence of the Kamula Duso credit was one of the reasons for a crisis meeting of the country’s governors in May. All of the governors asked for the OCC to be referred to a public-accounts committee, and to undergo an audit. They also demanded that the office should be restrained from issuing any carbon credits or approving any carbon trade project. At the same time the governors also wrote to the Norwegian and Australian governments, the UNDP and the EU asking for aid funding to be suspended pending these inquiries.

The Economist has also obtained credits that were signed by a government minister in 2005 and that denote ownership in carbon sinks in relation to the Clean Development Mechanism. These credits are also now the subject of investigation by officials. As too is a financial arrangement that would have seen brokers provide money for running the OCC, should REDD be agreed.

Upon receiving a copy of the Kamula Duso credit last week, Ms Somare said, “very recently apparent irregularities within the OCC have come to our attention. As a result the prime minister has asked for a review to be carried out and a report to be made to his office. Other prudential measures are being taken within the OCC until the results of the review are available.” She added that the government could not say more at this stage while it was taking legal advice.

Kevin Conrad, interviewed last week, said it was too early to conclude what went wrong but said an “independent review” was under way. He added that “carbon speculators” were putting pressures on landowners in many countries to sell large tracts of forest ahead of a possible deal on avoided deforestation in Copenhagen later this year.

The broader issue with any kind of carbon credit, however, is ensuring that governments of poor countries behave impeccably. Indeed, if problems like this can happen in Mr Conrad’s own back yard, it suggests that the challenges ahead for REDD are tough ones.

Avoided deforestation is a big deal for climate-change policy. It is also a prize worth fighting for, even if it is hard to achieve. Poor governance, on top of poorly defined and defended forest property rights, mean that without proper care REDD could become a recipe for disaster rather than part of a solution the world needs.