ENVIRONMENTAL DEFENSE FUND Domestic and · PDF fileENVIRONMENTAL DEFENSE FUND Domestic and International Forestry: Implications for the Carbon Market Ruben N. Lubowski Senior

ENVIRONMENTAL DEFENSE FUND

Domestic and International Forestry:Domestic and International Forestry:Implications forImplications for the Carbon Market the Carbon Market

Ruben N. LubowskiRuben N. LubowskiSenior Economist, EDFSenior Economist, EDF

EPA/RFF Workshop on Modeling the Costs andVolumes of GHG Offsets

Washington, DC, May 12, 2009


•• What is theWhat is the likely likely impactimpact on GHG allowance priceson GHG allowance prices of ofallowing forest carbon credits?allowing forest carbon credits?

•• How manyHow many such credits are likely to be available at such credits are likely to be available atprevailing prices?prevailing prices?

•• What is the What is the profile of those credits over timeprofile of those credits over time??

•• How could REDD work in practice? Hypothetical scenario How could REDD work in practice? Hypothetical scenariofor Brazil.for Brazil.


METHODOLOGYMETHODOLOGY

•• Our model solves for an intertemporal equilibrium for the period 2012-Our model solves for an intertemporal equilibrium for the period 2012-2050. Two conditions are met in every year:2050. Two conditions are met in every year:

–– The market clears.The market clears.

–– The price rises at the market rate of interest.The price rises at the market rate of interest.

•• Policy scenarioPolicy scenario

–– U.S. adopts Waxman-Markey targets: 4% below 1990 by 2020 andU.S. adopts Waxman-Markey targets: 4% below 1990 by 2020 and69% below by 2050.69% below by 2050.

–– Group 1 (EU, Japan, Canada, Australia, NZ): 60% below 1990Group 1 (EU, Japan, Canada, Australia, NZ): 60% below 1990levels by 2050.levels by 2050.

–– Group 2: BAU until 2020, steady decrease to 1990 levels by 2050.Group 2: BAU until 2020, steady decrease to 1990 levels by 2050.

–– NoNo restrictions onrestrictions on trading.trading.

ENVIRONMENTAL DEFENSE FUNDAllowance Prices Allowance Prices (rising at 5%)(rising at 5%)

$0

$20

$40

$60

$80

$100

$120

$140

2013 2018 2023 2028 2033 2038 2043 2048

2005$/tCO2e

No forest carbon from developing countries

Reduced deforestation only

Reduced deforestation plus

afforestation /reforestation and changes in

forest management

Source: EDF based on offsets cost curves used in EPASource: EDF based on offsets cost curves used in EPA’’s preliminary Waxman-Markey drafts preliminary Waxman-Markey draft analysis.analysis.International forestry curves are from Global Timber Model of International forestry curves are from Global Timber Model of Sohngen Sohngen and and Mendelsohn Mendelsohn (2007).(2007).

No forest carbon from developing countriesNo forest carbon from developing countries

Reduced deforestationReduced deforestation (REDD) (REDD)

All international forest carbonAll international forest carbon(REDD plus (REDD plus afforestation/afforestation/reforestationreforestationand changes in forest management)and changes in forest management)

International forest carbon potentiallypowerful tool for cost containment.

-32%-32%-45%-45%


$21

$22

$25

$17

$20

$24

$12

$15

$22

Carbon price in2013

($/ton CO2e)

No forest carbon fromdeveloping countries

100%Supply -32%Reduced deforestation (REDD)

-45%All forest carbon

25%Supply

50%Supply

ScenarioScenario


-12%Reduced deforestation (REDD)



-20%Reduced deforestation (REDD)


% changeversus nodeveloping

country forestry

Source: EDF based on offsets cost curves used in EPASource: EDF based on offsets cost curves used in EPA’’s preliminary Waxman-Markey drafts preliminary Waxman-Markey draft analysis.analysis.

ENVIRONMENTAL DEFENSE FUNDPredicted US Abatement under Waxman-Markey TargetsPredicted US Abatement under Waxman-Markey Targetswith Full International Forest Carbon Potentialwith Full International Forest Carbon Potential


USUS cappedcapped abatementabatement

REDDREDD

OtherOther G2 forestryG2 forestry

Other G2 creditsOther G2 credits

DomesticDomestic offsetsoffsets

1. Totalabatementexceedsdemand in thefirst twodecades.

2. The bank iscomparable inmagnitude tothe quantity offorest carboncredits.


25%Supply

50%Supply

100%Supply

ScenarioScenario

All forest carbon fromdeveloping countries

Reduced deforestation(REDD)





0.8

0.8

1.9

1.8

3.0

3.3

Averageannual USpurchases2013-2023(billion tonsCO2/year)

0.5

0.4

1.0

0.8

1.8

1.4

Averageannual USpurchases2013-2050(billion tonsCO2/year)

8%

6%

16%

12%

28%

23%

Share ofUS

abatement2013-2050



Source: EDF based on offsets cost curves used in EPASource: EDF based on offsets cost curves used in EPA’’s preliminary Waxman-Markey drafts preliminary Waxman-Markey draft analysis.analysis.International forestry curves are from Global Timber ModelInternational forestry curves are from Global Timber Model runs for Stanford Energy Modeling Forumruns for Stanford Energy Modeling Forum (EMF).(EMF).

ENVIRONMENTAL DEFENSE FUNDDomestic Forest and Agriculture OffsetsDomestic Forest and Agriculture Offsets

Source: EDF based on FASOM model and other offset cost curves used by EPA (2009).Source: EDF based on FASOM model and other offset cost curves used by EPA (2009).

ScenarioScenario with full international forest carbon potentialwith full international forest carbon potential..

51%51%

41%41%

ENVIRONMENTAL DEFENSE FUNDHow Could REDD Work?How Could REDD Work?Hypothetical Example based on Brazil AnnouncementHypothetical Example based on Brazil Announcement

ENVIRONMENTAL DEFENSE FUNDCap and Trade Scenario for Brazil

•• If Brazil and the US trade exclusively through 2020, US could reduce 4-10% belowIf Brazil and the US trade exclusively through 2020, US could reduce 4-10% below1990 levels by1990 levels by 2020, rather than reaching 1990 by 2020, at no added cost to US2020, rather than reaching 1990 by 2020, at no added cost to UScompanies compared to no REDD.companies compared to no REDD.

*2018-2050 EDF projections*2018-2050 EDF projections..

Source:Source: EDF based onEDF based on opportunity costsopportunity costs for Brazilian Amazon from for Brazilian Amazon from Nepstad Nepstad et al. (2007).et al. (2007).


SummarySummary•• Forest carbon from developing countries could lower the globalallowance price by 12%-32% if deforestation only is included, andby about 16%-45% if all forest carbon is included, depending onrealized potential of 25%-100%.

• Average US purchases over 2013-2050 range from 0.4-1.4 billiontons/year if deforestation only is included, and 0.5-1.8 if all forestcarbon is included , depending on realized potential of 25%-100%.

• International forest carbon could be used to induce broaderparticipation in the global carbon market to achieve greater andfaster overall reductions for the same cost as a regime withoutforest carbon.

Documents

ENVIRONMENTAL DEFENSE FUND Domestic and · PDF fileENVIRONMENTAL DEFENSE FUND Domestic and International Forestry: Implications for the Carbon Market Ruben N. Lubowski Senior