An ambitious real estate developer, David Nilsson hoped to ink joint venture agreements with the regional government of Loreto province and the leaders of the indigenous Matses community to preserve vast thickets of the tribe's remote rainforest. Under a global carbon-trading program, he wished to sell shares of the forest's carbon credits to businesses that hope to mitigate, or offset, their air pollution.
Located a six-day ride from the frontier city of Iquitos, the jungle’s vegetation, soils, and looming trees store an immense amount of carbon dioxide—roughly one ton, the equivalent of one UN-backed carbon credit, per tree.
In an ideal scenario, this is how it's supposed to work: A community in a developing country works with an NGO or developer to design a plan to protect a large swathe of forest and thus prevent the release of the harmful chemical compound into the atmosphere, in accordance with the United Nations’ program called REDD (Reducing Emissions from Deforestation and forest Degradation). Then, it can get the emissions reductions certified by a third-party auditor and sell the resulting carbon credits to corporations in developed countries interested in reducing their own carbon footprints. (Deforestation accounts for roughly 17 percent of all global greenhouse gas emissions.) (...)
Though Nilsson's cons were extreme, international law enforcement authorities and environmental advocates say that the carbon markets are extremely vulnerable to financial fraudsters like him, especially when it comes to forest projects. Their shell games can also be hard to spot. As William Magrath, the World Bank's lead natural resource economist for rural development in Asia, once put it in a pun in a memo to his colleagues: "It's a jungle out there." In a meeting he attended with Interpol officials a few years ago, Magrath recalled, one man leaned back in his chair and called carbon "a con man's dream." The product is invisible, poorly understood, and regulation is extremely limited.
Despite the risks, carbon is the "world's fastest growing commodities market" valued at about $176 billion in 2011, according to the World Bank. The European Union Emission Trading Scheme (EU ETS), the highest volume compliance market, accounts for $148 billion of that. Countries in Europe legally require top polluters to remain under certain government-issued emissions allowances, but companies who emit less can trade those credits to those who need more. Beyond those allowances, companies can purchase carbon credits, or offsets, which are linked to emissions reductions projects, like factory retrofits or other energy efficiency projects. If the U.S. decided to establish its own cap-and-trade market, the value of the trades could reach as high as $2 to $3 trillion. Credits from forest projects, like Nilsson's would have been, have not yet been approved for the compliance markets, but they are actively sold on a second kind of market for voluntary buyers interested in offsets.
by Ryan Jacobs, Atlantic | Read more:
Image: Rebecca Spooner/Survival International
