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By Damian Kahya
BBC News
Why would America's largest coal utility and Britain's biggest oil company
invest in protecting a remote plot of Bolivian rainforest?
American Electric Power and BP invested in the pilot project alongside
environmental groups such as the Nature Conservancy to find out if protecting
forests compensates for their own pollution.
The burning of tropical forests emits more carbon dioxide every year than all
the cars, planes, and boats on the planet - between 15 and 20% of global
emissions.
A deal at Copenhagen could mean both governments and businesses paying billions
to keep the forests standing.
With agreement looking unlikely on many other areas, some negotiators feel a
deal aimed at preventing deforestation may be the most concrete outcome from
the talks.
Valuing a forest
Professor Geoffrey Heal is working out how this money would be spent.
The Columbia University economist used to advise Opec on how to manage the oil
market. Now he teaches courses on corporate social responsibility and energy to
Business MBA students.
In 2004, he was approached by a student who knew the prime minister of Papua
New Guinea. The student had been sent to New York on a mission.
"Deforestation was a big issue there," he says. "The prime minister had asked
him when he was in New York to look into whether there was any way to make
money from the forests without cutting them down."
The Rainforest Coalition - a loose grouping of more than 20 nations - grew up
in response to that question.
Their first task was to find a way to reward nations for not cutting down their
forests.
"Basically the mechanism we've come up with is the following; countries reduce
their rates of deforestation below what they historically have been and in
exchange for that, they get carbon credits which they can sell on world carbon
markets," says Heal.
To work out exactly how much money each country would get, they needed to
calculate how much carbon was released by burning their forest. They get paid
for every tonne they keep trapped.
Different forests contain different amounts of carbon.
So teams of conservationists turned economists are being dispatched around the
world to work out a forest's value.
"It is possible to calculate the amount of carbon in a hectare of rainforest to
a reasonable amount of precision," he says.
Data from numerous plots is then combined with satellite imagery of the forest.
Once the carbon stock is calculated, satellite pictures are used to track the
impact of any deforestation.
Nations would be paid from annuities - the money would only keep coming if the
forest kept standing.
Creating a market
Valuing the forest is complex - finding the money to pay for it even harder.
The movement has turned biologists into entrepreneurs. Andrew Mitchell is one.
He is a director at the Global Canopy Programme which published the Little REDD
Book, on plans to fund forest protection.
"Well, I've been a biologist up in the trees and I realised that with all the
scientists I worked with around the world, it's time we got out of the trees
and the green jungles and into the concrete jungles. I spend a lot of time now
talking to businesses," says Mr Mitchell.
He his helping with another project, Canopy Capital, which encourages
investment in the ecosystem of the Iwokrama forest in Guyana.
The forest's carbon is one product of the ecosystem which investors - and
forest residents - may earn money from in the future.
Mr Mitchell says you need private and public sector funds to raise the money to
prevent deforestation.
The British government's Eliasch Review put the cost of paying nations not to
deforest at between $17bn and $33bn a year.
One way to raise that would be to allow polluters in the west to make a portion
of their agreed emissions reductions by investing in preventing pollution from
deforestation.
That's what drove AEP, BP and Pacific Corp to invest in the Noel Kempff Mercado
Climate Action Project in Bolivia's north-eastern rainforest a decade ago.
The public purses of developed countries will not be able to produce all the
finance needed... in the latter stages we hope it will be significantly a
carbon market and that market will be global
Joan Ruddock, UK climate change minister
Like most countries, the British government supports the idea. Joan Ruddock is
the UK climate change minister. Her team leads the EU's negotiations on avoided
deforestation.
She says national governments will provide funding at the start - until the
market kicks in.
"The public purses of developed countries will not be able to produce all the
finance needed. In the latter stages, we hope it will be significantly a carbon
market and that market will be global," she says.
The new US senate bill on climate change would force US firms to make tough
emissions cuts.
But the bill would allow them to make some of these cuts, 500 million tonnes of
carbon dioxide per year, by paying for emissions reductions in other countries.
Firms such as American Electric Power are lobbying for the limit to be far
higher. Their spokesperson, Melissa Chenry, argues preventing deforestation is
a cheap way of cutting emissions.
It "provides a very economical way to reduce atmospheric concentrations of
carbon dioxide", she says.
Reducing emissions by keeping trees standing is likely to be far cheaper than
other solutions, such as converting power stations to capture their carbon
dioxide.
Ultimately, it means consumers will have to pay less.
Funding dilemma
The economics pose a dilemma at Copenhagen.
Businesses will only pay to protect rainforests if it means they can avoid
making more costly reductions to their own emissions.
Greenpeace's senior climate adviser, Charlie Kronick, worries protecting
forests might provide a "get out of jail free card" to polluting western firms.
Few believe preventing deforestation can be a substitute for substantial
emissions reductions in developed countries.
Paven Sukhdev, a career banker for Deutsche Bank who now works on the issue for
the UN and EU, argues that at least 65% of reductions must be made within
developed countries.
That means firms such as AEP may still be limited in how much they can invest
in projects abroad. Firms in developing countries may not have to buy credits
at all.
That has led to worries in the City that there won't be enough money to buy all
the forest carbon.
London's financial centre is the main home to the incipient global carbon
market. Prof Heal believes that in a decade, the trade could be worth trillions
of dollars.
But recently falling carbon prices and uncertainty have reduced demand for the
few international schemes which currently exist.
Rupert Edwards, the managing director of Climate Change Capital, believes
rainforest carbon could swamp the market - if not enough money is allowed in.
Rainforests "might be a big part of the potential supply, but it could swamp
all the demand", he says.
The numbers could add up, he admits, but only if polluters around the world are
forced to buy credits as well as making drastic reductions to their own
emissions.
Such a solution may be more costly to firms and consumers than many are willing
to accept.