The impacts of carbon trading in developing countries

The global market for carbon trading is growing rapidly. Many schemes set up to offset carbon emissions are hosted in developing countries. While these schemes claim to help companies and individuals in developed countries to mitigate the carbon emissions they produce, they may be less well suited to the needs of the host countries.

Researchersfrom the Overseas Development Institute in the UK examine how carbon offsetschemes could better benefit the countries in which they are based. Carboninvestment schemes either fall under the Clean Development Mechanism (CDM),which is heavily regulated by the Kyoto Protocol, or under voluntary schemesrun by companies or retailers. Voluntary schemes invest more in forestprojects, because these can be cheaper than other schemes, such as alternativeenergy sources. Forestry is also easier to sell to consumers.

Somevoluntary schemes are set up and run for individual companies. Other ‘retail’schemes sell ‘carbon credits’ to businesses or individuals. Voluntary schemesare often more flexible than those regulated under the CDM, which means costs,such as planning and monitoring, are lower. This makes them more accessible forsmall businesses and individuals.

However,this lack of standardised processes can allow negative social and environmentalimpacts, such as restricted access to natural resources;inflexibility in options for land use; loss of employment from displacedactivities (such as those associated with harvesting of wood products); andmonoculture plantations, which can lead to reduced soil quality andbiodiversity. Standardsare important for increasing consumer confidence in a scheme, but the largenumber of competing schemes that now exist can confuse investors.

It is alsoimportant to ensure that local needs are met as well as investors’ needs. Theresearch has some key findings:

• Sincethe science behind carbon offsetting is inconclusive, assessors may changeprogrammes, causing problems for producers committed to long term land use.
• Thereare fewer offset schemes in Africa than other developing regions. Reasons for this include alack of expertise, insecure land tenure and high costs resulting from thedominance of smallholder land ownership.
• Monocultureland use is favourable in technical terms as it is easier to calculate how muchone crop contributes to carbon sequestration (the removal of carbon from theatmosphere by plants). However, monoculture is often unsuitable for poorpeople, who lose access to forest products and land.

Voluntaryschemes must consider host countries’ priorities more. While CDM schemes mustbe approved by a national body, voluntary schemes must only ensure they arewithin national laws. Several policies could improve the benefits fromvoluntary schemes:

• Projectimplementation and carbon trading businesses should be based in host countries,to increase the role of these countries in global carbon markets.
• Hostgovernments should regulate voluntary schemes to ensure they match nationalpriorities, and reward those that do this.
• Projectsshould set out clear legal rights for producers and protect them if programmeschange throughout their lifetime.
• Contractlengths, the timing of payments and types of activities carried out should allconsider the priorities of small producers.
• Communityself-monitoring can improve evaluation and increase the involvement of localpeople.