Tuesday, 20 November 2007

Why Malaysia Wants to Be Paid for Staying Green

Why Malaysia Wants to Be Paid for Staying Green: Andy Mukherjee
By Andy Mukherjee

Nov. 20 (Bloomberg) -- Malaysia, the world's No. 1 exporter of tropical wood, is lucky to have become a fairly prosperous country while preserving a substantial part of its forests.

With annual per capita income in excess of $5,500 and three-fifths of its land still covered by forests, Malaysia is in a better position to save its environment from the pressures of abject poverty than, say, Papua New Guinea, where the average income is $770.

Even so, the economic incentive to cut down trees has risen of late: The same Windsor chair that Malaysia exported for $10 between 1997 and 2005 now fetches it $50, according to the International Tropical Timber Organization in Yokohama, Japan.

There's also intense pressure to clear land for plantations. Crude palm-oil futures prices have jumped fourfold since May 2001 because of a growing biofuel craze.

As a partial compensation for the forgone economic opportunity, Malaysia is now pressing a claim on the rest of the world. And it isn't alone.

Malaysia, Indonesia, Brazil, Peru, Cameroon, Costa Rica, Colombia, Congo, the Democratic Republic of Congo, Gabon and Papua New Guinea have come together as a group to ensure that conservation of forests is suitably rewarded in any new global agreement on climate change. The Kyoto Protocol, which is the existing accord, expires in 2012.

``It has to be recognized that tropical forests are making an important contribution to the environment,'' says Shamsudin Ibrahim, a senior director at the state-sponsored Forest Research Institute Malaysia. ``There must be incentives for countries to avoid deforestation.''
Carbon Sink

Malaysia is going to push the agenda at the crucial climate change talks in Bali, Indonesia, next month, Shamsuddin said.

Forest ecosystems, especially in the tropics, are a veritable carbon sink: they hold more of the stuff than there is in the earth's atmosphere. And yet, the fight against global warming is, for some perverse reason, promoting ethanol at the expense of trees.

This needs to change.
The so-called Clean Development Mechanism of the Kyoto Protocol does allow the countries that have binding commitments to reduce their greenhouse-gas emissions to buy some of these improvements from forestry projects in the developing world.

There is a catch, though: It's possible to plant trees on barren land and claim carbon credits, but only if the area has been devoid of green cover for at least 50 years. Reforestation is also rewarded, provided the original forest was destroyed before 1990.

No Incentives
There is no incentive for preserving what still exists.
That's a serious handicap. (Provided one believes that the problem of global warming is manmade; there are many reasonable people, including Czech President Vaclav Klaus who don't think the evidence is strong enough to draw such a conclusion.)

Between 1990 and 2005, the world lost 13 million hectares of forests every year. In countries such as Indonesia, this loss is cited as the main cause of greenhouse-gas emissions.
Putting an economic value on averted deforestation could go a long way toward saving the last tropical tree in the world from being turned into a tabletop. The questions that have yet to be answered relate mostly to practicality and prevention of fraud:

-- How does one ensure that the carbon sequestered in trees remains trapped for a reasonable length of time, say 100 years?
-- What should be the starting year against which improvements will be measured?
-- How does one prevent leakages in the carbon sink due to forest fires and logging?
-- What happens if trees saved in one part of the world are cut in another, resulting in no net improvement in the environment?

Rule of Law
There are other problems.
Apart from discouraging the much-needed clean-energy projects in developing countries, an oversupply of carbon credits through forestry programs might make developed countries complacent about reducing their own emissions.

Procedural challenges, daunting as they are, don't detract from the importance of preserving tropical forests. A more serious hurdle might be legal hassles.

Rule of law, which is central to establishing the ownership rights of any asset, will be absolutely critical when applied to something as intangible as averted deforestation.

The World Bank ranks Malaysia's investor-protection standards higher than what minority shareholders can expect in the U.K. or the U.S. While that somewhat blithe assessment may be a source of comfort to global investors who buy shares in a company trading on the stock exchange in Kuala Lumpur, it may not be enough to motivate them to buy emission credits in the jungles of Sarawak. Let's not even talk about bringing market forces to the tropical forests of Congo or Gabon.

Those designing a trading arrangement in forest conservation will have to find a way to create a reasonably secure property-right regime. And that's easier said than done.

(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)