The Thorny Issue of Stacking

Payments for Ecosystem Services (PES) projects are rather like roses. The blossoms are the desired lovely benefits.  At the same time the cliché stands, and every rose has its thorns. In the case of PES projects, the large obvious thorns include things like unintended perverse incentives that lead to issues like leakage.  Then there are those smaller thorns, the kind that break off in your fingers like slivers, and are often far more annoying to contend with. Thorns like stacking.

Stacking PES

How to deal with stacking is currently a hot issue for policy makers to contend with.  But what is stacking to begin with?

The concept of stacking has arisen basically stems from land owners/managers and project developers saying, “Hey, there are many PES programs sprouting up out there. Can I benefit from more than one of them at once for what I’m doing on this land?” Or, they might also be saying something like, “Well, I’d love to be able to conserve my land instead of logging it, but I make way more felling trees on my land than I would with just a, say, carbon project, so can you throw me a better incentive to make it more worth my while to engage in more sustainable options?”

In the first case, stacking would likely bring a higher net gain to the land owners and project developers than one project alone, and in the second case, stacking actually enables some projects to happen that probably wouldn’t otherwise fly. So, we already have complexity here, and a caveat on debates on stacking is that when people talk about stacking they aren’t always talking about the same thing. Many opponents to stacking do so because of the first reason, and the difference between these two examples, brings up a second niggly thorn. Additionality.

Additionality

Additionality is a concept that is integral to developing carbon mitigation projects, but has not been widely applied in the PES world. Additionality is basically a tenet to ensure that GHG mitigation actually takes place in a commodity system, stemming from provisions in the Kyoto Protocol under the Clean Development Mechanism. The central provision for additionality ensures that if developed countries are going to get out of making costly direct GHG reductions themselves, and buy cheaper offsets , that the money from those offsets better go towards causing GHG reductions that would NOT have otherwise happen. i.e. Those offsets have to be additional, otherwise the money is just being spent on activities, providing extra padding to the pockets of those that would have undergone those activities anyhow. So, under Kyoto, it is very important that offset money should go towards making reduction activities happen that couldn’t happen in the absence of the money (and sometimes technology/expertise) of the offsets and offset project developers. Within the carbon world, this provision for additionality has also filtered down into the developing voluntary carbon offsets as well. If you are purchasing offsets that aren’t additional, you might just be wasting your money.

In the PES world, however, there is no international agreement. No potential global compliance system to regulate the various ecosystem services. And, no mandated additionality. And in many cases of PES, this principle of additionality isn’t really necessary. This is because many PES projects are voluntary and many ecosystem services don’t involve something that can be commodified, so offsetting and additionality are harder to define and so haven’t been part of the lexicon. Here are some examples:

Example 1: Biodiveristy

Say someone develops a one-off ecosystem services biodiversity project to protect and endangered species in a tropical jungle. The jungle is obviously disappearing. The animal is obviously threatened. Money is raised to buy rights to land or land itself as well as manage it buy hiring rangers to stop poaching etc. A large company is recruited to voluntarily help invest in the project because it uses this species as part of its brand logo. The cost is willingly incurred by the company to help support the company’s sustainability initiatives, brand and integrity, not because they have to due to legislation. In this case, the money spent to save the species isn’t being spent to offset killing the species somewhere else. And it is relatively obvious that without the money the species would likely go extinct under the status quo.

Example 2: Water

A large company is using up a lot of water in a local watershed. They have been pressured and lobbied by local citizens and environmental groups for drawing down the water table. In order to protect the regional water, the company then invests in protecting another local watershed so that the water there is not depleted. In this case, although the activity of protecting the watershed is done in part to offset water loss in another area, this isn’t necessarily measured unit for unit, the way a commodity like carbon would be, and in all likelihood, the other watershed was not going to be protected anyhow.

Differences with Carbon and PES Worlds

There are several differences between the carbon world and PES world that affect additionality including:

  1. Carbon is a commodity. PES are plural and often not able to be ‘commodified’. They can’t be traded or offset necessarily one for one.
  2. Carbon is legislated under the CDM and regulated under many rigorous voluntary standards, such as VCS, that mandate additionality for projects. PES doesn’t have this history, and because of the diversity of different kinds of ecosystem services, it is more complicated to figure out how additionality applies.
  3. In the carbon world, many projects could be undertaken for reasons besides GHG mitigation. Updating heating boilers, or manufacturing technology happens all the time, because it helps to raise production efficiency as well as lower costs. These activities also happen to lower GHG emissions. So, in this case it is very important to establish that a project is being undertaken not just for the former reasons. In the PES world, conservation projects are relatively rare under the business as usual scenario, so additionality is not such a priority.
  4. Carbon is one thing, and other GHGs can be compared to carbon through the use of global warming potentials GWP (so, methane = 21 carbons). ES are diverse, complex and confusing.

So, why apply additionality to PES projects? As mentioned at the start of this article, the issue mostly arises when a project is going to be undertaken on a piece of land, where there is another project going on. There is a piece of land, lets say, undergoing an activity of avoided deforestation to sequester carbon and generate carbon credits. The potential arises to also create water and biodiversity projects in the park. Should new PES projects be allowed since the land is already conserved for carbon mitigation? This is the question that policy makers are now dealing with, and the question I shall expand on further in a subsequent article, so stay tuned…

News: UN Issues Warning if Private Sector Doesn’t Invest in REDD

“Forests are the natural treasure chests of the world, providing a host of ecosystem services that – and this needs to be said very clearly and up front – are paramount to ensuring economic progress and human well-being, not only locally but globally. What forests give us is fundamental in the strictest sense of the word: they stabilise the global climate system, regulate water cycles, provide habitat for flora, fauna and people, and host genetic resources of unimaginable potential. Forests and their services remain, however, chronically undervalued by today’s economic and political decision makers, resulting in their rapid destruction. One of the many consequences of current deforestation and forest degradation is their contribution of approximately one fifth of global greenhouse gas emissions.”

UN, REDDy Set Grow

It has been a challenging year for the carbon world, and the related sphere of  applying economic instruments for environmental protection and conservation of other ecosystem services. Variables, such as the economic downturn and the political climate on climate change have downplayed the urgency for dealing with issues like deforestation. What does all this stalling spell out for natural environments?

The UN has put out a recent report, “REDDy Set Grow: Private sector suggestions for international climate change negotiators.” The report clearly states why the forests of the world are important (which I also do in my previous Part I, II, III series on forests), why the private sector needs to get involved in financing saving them, and how they can do it through programs like REDD and REDD+.

The question is, is the involvement of certain actors within the private sector going to be enough to sway the tide of political opinion so that policy makers can put into place the kind of policies needed to take these markets beyond the voluntary scope they operate at now? A recent report by Forest Trends indicated that the last couple of years has shown many firsts for the implementation of economic instruments for forests, including the rise of forest carbon markets, with the EU leading the front for purchasing and many projects in the supply pipeline. However, in spite of the forest carbon sector being poised to take off,  many uncertainties remain as to whether the regulatory drivers that underpin demand will kick into gear in time to take these markets where they need to go. The quote below from State of the Forest Carbon Markets 2011, sums it up:

“Currently, buyers purchase most credits voluntarily, but regulatory drivers hold a critical key to unlock larger climate impacts and market demand. Across the global markets, a number of influential political choices remain to be made, and a host of market drivers remain uncertain. The consensus among dozens of market players interviewed for this report, including leaders of standards organizations and major buyers and project developers, is that the forest carbon market is entering a phase where growth will be fundamentally tied to finding and creating new demand for forest carbon credits

Policymakers are in the midst of developing funding for forest conservation at an unprecedented scale. A number of innovative solutions have evolved to both overcome many of the earlier hurdles facing market-based forest conservation efforts and attract private sector investment, but the scope of these markets is still relatively small in the face of global forest loss and a changing climate. The fate of these markets and projects will in large part rest in the hands of policymakers. 2010 was undoubtedly a critical year in the history of the forest carbon markets, but the most consequential chapters in this story still remain to be written.”