A Free Carbon-Trading Area for the Americas, Part 2: Running the Numbers

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Published on April 6th, 2009  |  Discuss This Article  

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Last month I suggested a hemispheric dimension be added to the proposed U.S. cap-and-trade system for carbon emissions, to allow U.S. companies to offset some of their emissions through projects in Latin America.

This idea was picked up by the environmental blogs of The New York Times and the Christian Science Monitor, while a report in The Economist at the same time noted that “cheap international offsets in lieu of emissions cuts at home” were being considered by a group of wary Midwestern senators — which suggests that any international dimension to a U.S. cap-and-trade system should be kept modest, to avoid it turning into a mechanism that enables wary senators to avoid their domestic responsibilities.

So what contribution could a U.S. cap-and-trade system for carbon emissions make to hemispheric conservation, bearing that caveat in mind? I spent a couple of entertaining hours on the Internet, and with the help of every economist’s basic toolkit — a pencil, the back of an envelope and a calculator — here’s what I came up with:

I began with an arbitrary assumption: that just 1 percent of anticipated revenue from Obama’s proposed cap-and-trade scheme would be dedicated to climate-change related projects in Latin America.

At an anticipated $647 billion over a decade in revenues overall, 1 percent works out at $647 million a year. What would $647 million a year buy you in Latin America, if you only spent it on things relevant to climate change?

Quite a lot, as it turns out.

Let’s start with the easy stuff — national protected area systems. In Latin America, these are skewed towards protecting forests, which buffers climate change by guaranteeing — hopefully — that those protected forests continue to act as carbon sinks.

Probably the best funded and most effectively protected national park system in Latin America belongs to Costa Rica — $647 million big ones would pay Costa Rica’s national park budget for 38 years. Brazil, of course, has a far larger (and less well run) national parks system than Costa Rica, including some individual parks larger than that entire country, but $647 million would still bankroll the Brazilian parks system for more than 4 years.

Ah, you might rightly point out, but channeling cap-and-trade revenues to parks would just give those countries an excuse to cut their parks budget, and in any case forests that are already protected wouldn’t get us any additional carbon benefits, assuming the protection is effective (actually a big assumption in a lot of places, but let’s not go there). So, restricting the discussion to additional protection, how far would $647 million go?

In Brazil right now, farmers are beginning to buy land in native vegetation to offset past deforestation, so that they can get into compliance with Brazilian environmental law and export to markets that demand no link with deforestation, like the EU. In the Brazilian Amazon, a hectare of standing rainforest with sound title and good river access — prime real estate in Amazonian terms — goes for around $325. So $647 million would be enough to buy around 8,000 square miles of rainforest — about the size of New Jersey.

That’s actually a little misleading, since once you’ve bought the rainforest you still need to protect it and provide income and employment to the people who live there.  Usually we would calculate around 80 percent for capital costs of land acquisition, and 20 percent to fund permanent running costs — so let’s cut that to 6,400 square miles of protected Amazon rainforest a year. Over a decade, that’s still an area the size of South Dakota. Not bad for 1 percent.

There are many other ways to run the numbers, in Latin America or elsewhere. One thing is clear, though: However you run them, you can get an awful lot of conservation and climate change bang for your buck south of the border for a measly 1 percent of the anticipated revenues from a U.S. cap-and-trade scheme. And those wary Midwestern senators would still be on the hook.

(Image: Deforestation due to agricultural grazing in the Santa Elena cloud forest near Monteverde, Costa Rica. Credit: David Woodfall.)

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