ENVIRONMENTAL DEFENSE FUND
Domestic and International Forestry:
Implications for the Carbon Market
Ruben N. Lubowski
Senior Economist, EDF
EPA/RFF Workshop on Modeling the Costs and
Volumes of GHG Offsets
Washington, DC, May 12, 2009
ENVIRONMENTAL DEFENSE FUND
• What is the likely impact on GHG allowance prices of
allowing forest carbon credits?
• How many such credits are likely to be available at
prevailing prices?
• What is the profile of those credits over time?
• How could REDD work in practice? Hypothetical scenario
for Brazil.
ENVIRONMENTAL DEFENSE FUND
METHODOLOGY
• Our model solves for an intertemporal equilibrium for the period 20122050. Two conditions are met in every year:
– The market clears.
– The price rises at the market rate of interest.
• Policy scenario
– U.S. adopts Waxman-Markey targets: 4% below 1990 by 2020 and
69% below by 2050.
– Group 1 (EU, Japan, Canada, Australia, NZ): 60% below 1990
levels by 2050.
– Group 2: BAU until 2020, steady decrease to 1990 levels by 2050.
– No restrictions on trading.
Allowance Prices (rising at 5%)
ENVIRONMENTAL DEFENSE FUND
$140
Nofoforest
carbon
from
developing
No
rest carbo
n fro m develo
ping
co untries
$120
Reduced
deforestation
Reduced
defo restatio
n o nly
(REDD)
All international
forest carbon
Reduced
defo restatio n plus
affo
restatioplus
n /refo
restatio n and changes
in
(REDD
afforestation/
reforestation
fo rest management
$100
2005$/tCO2e
countries
and changes in forest management)
$80
$60
-32%
$40
-45%
International forest carbon potentially
powerful tool for cost containment.
$20
$0
2013
2018
2023
2028
2033
2038
2043
2048
Source: EDF based on offsets cost curves used in EPA’
EPA’s preliminary Waxman-Markey draft analysis.
International forestry curves are from Global Timber Model of Sohngen and Mendelsohn (2007).
ENVIRONMENTAL DEFENSE FUND
100 %
Supp ly
50%
Supply
25%
Supply
% change
versus no
developing
country forestry
Scenario
Carbon price in
2013
($/ton CO2e)
No forest carbon from
developing countries
$22
Reduced deforestation (REDD)
$15
-32%
All forest carbon
$12
-45%
No forest carbon from
developing countries
$24
Reduced deforestation (REDD)
$20
-20%
All forest carbon
$17
-29%
No forest carbon from
developing countries
$25
Reduced deforestation (REDD)
$22
-12%
All forest carbon
$21
-16%
Source: EDF based on offsets cost curves used in EPA’
EPA’s preliminary Waxman-Markey draft analysis.
ENVIRONMENTAL
DEFENSE FUND
Predicted US Abatement
under Waxman-Markey Targets
with Full International Forest Carbon Potential
1.
Total
abatement
exceeds
demand in the
first two
decades.
2.
The bank is
comparable in
magnitude to
the quantity of
forest carbon
credits.
Other G2 forestry
REDD
Other G2 credits
Domestic offsets
US capped abatement
Source: EDF based on offsets cost curves used in EPA’
EPA’s preliminary Waxman-Markey draft analysis.
ENVIRONMENTAL DEFENSE FUNDAverage
Scenario
100%
Supply
50%
Supply
25%
Supply
annual US
purchases
2013-2023
Average
annual US
purchases
2013-2050
(billion tons
CO2/year)
(billion tons
CO2/year)
Share of
US
abatement
2013-2050
Reduced deforestation
(REDD)
3.3
1.4
23%
All forest carbon from
developing countries
3.0
1.8
28%
Reduced deforestation
(REDD)
1.8
0.8
12%
All forest carbon from
developing countries
1.9
1.0
16%
Reduced deforestation
(REDD)
0.8
0.4
6%
All forest carbon from
developing countries
0.8
0.5
8%
Source: EDF based on offsets cost curves used in EPA’
EPA’s preliminary Waxman-Markey draft analysis.
ENVIRONMENTAL DEFENSE FUND
Source: EDF based on offsets cost curves used in EPA’
EPA’s preliminary Waxman-Markey draft analysis.
International forestry curves are from Global Timber Model runs for Stanford Energy Modeling Forum (EMF).
Domestic Forest and Agriculture Offsets
ENVIRONMENTAL DEFENSE FUND
Scenario with full international forest carbon potential.
51%
41%
Source: EDF based on FASOM model and other offset cost curves used by EPA (2009).
ENVIRONMENTAL DEFENSE
FUNDREDD
How Could
Work?
Hypothetical Example based on Brazil Announcement
Cap and Trade Scenario for Brazil
ENVIRONMENTAL DEFENSE FUND
*2018-2050 EDF projections.
projections.
• If Brazil and the US trade exclusively through 2020, US could reduce 4-10% below
1990 levels by 2020, rather than reaching 1990 by 2020, at no added cost to US
companies compared to no REDD.
Source: EDF based on opportunity costs for Brazilian Amazon from Nepstad et al. (2007).
ENVIRONMENTAL DEFENSE FUND
Summary
• Forest carbon from developing countries could lower the global
allowance price by 12%-32% if deforestation only is included, and
by about 16%-45% if all forest carbon is included, depending on
realized potential of 25%-100%.
• Average US purchases over 2013-2050 range from 0.4-1.4 billion
tons/year if deforestation only is included, and 0.5-1.8 if all forest
carbon is included , depending on realized potential of 25%-100%.
• International forest carbon could be used to induce broader
participation in the global carbon market to achieve greater and
faster overall reductions for the same cost as a regime without
forest carbon.