Investing in climate projects
"We look upon Plantar as a way of testing different climate projects," say Lasse Nord and Liv Rathe i Hydro. Yet leading environmental organizations have asked Hydro, Statoil and the Norwegian state to reconsider taking part in the Brazilian climate project that will gain them climate credits.
"The media have stated that Hydro and Statoil have invested USD 5 million each, and the Norwegian state USD 10 million, or a total sum of 150 million Norwegian kroner, in the Brazilian Plantar project. This is a misunderstanding," says senior vice president Lasse Nord, who heads Hydro's Climate and Environment function.
"The NOK 150 million represents the total Norwegian investment in the World Bank Prototype Carbon Fund (PCF) that is currently considering some 30 odd projects," he says. Plantar is the only PCF project in a developing country. PCF involves CO2 fixation, an area that currently represents a very minor share of the total number of projects. More than half of the PCF projects will be targeted at renewable energy sources, especially wind power.
The Prototype Carbon Fund, established in the wake of the UN Framework Convention on Climate Change (UNFCCC) in Kyoto will invest in projects designed to reduce greenhouse gas emissions in developing countries as well as in transitional economy countries, such as those in Eastern Europe. The Fund is involved in establishing a quota market for these projects.
Six countries, including Norway, Sweden, Finland and the Netherlands, plus 17 companies, have invested in the Fund, which manages a capital sum of USD 180 million.
Charcoal replaces coke
The controversial Plantar project in Brazil is a three-phase carbon credit-project that the developer, the forestry company Plantar, will partially finance through the sale of climate credits.
In the project's first phase, Plantar will plant eucalyptus on land previously used for grazing in the state of Minas Gerais. The second phase involves the cleaner production of charcoal to reduce methane emissions. The third and final phase involves Plantar using charcoal to replace coke in pig iron production. The idea is that CO2 fixation in the plantation, plus cleaner production by means of charcoal instead of coke, will lead to a reduction in emissions and therefore they can be sold as climate credits.
Forests can help to reduce greenhouse gases because the trees absorb CO2 in their growth phase.
Environmental groups are opposed
But several environmental groups in Norway - The Future in Our Hands, Norwegian Society for the Conservation of Nature, World Wildlife Fund Norway and The Association for International Water and Forest Studies (FIVAS), as well as the organization CDMWatch - are opposed to the forestry planting part of the project. They are advising the companies to reject the credits, which they believe do not contain any guarantee that the projects will have a beneficial climate effect in the long-term, and they claim that Plantar will be able to earn millions of dollars through the sale of credits in a project that is without any value in climate terms.
In a joint statement, the environmental organizations state that: "By approving the credits, Norway will be part of a process that will enable companies and countries to fulfill their commitments to reducing carbon emissions through the use of quotas that do not have ecological or climate value. Not only will this undermine the effectiveness of CDM, but also that of the entire Kyoto protocol."
Opportunity to learn more
In its response, Hydro emphasizes the significant learning opportunity the project will provide.
"We believe that the Prototype Carbon Fund represents a constructive contribution to developing credible mechanisms for registering and controlling global climate gas reductions. But it should come as no surprise to anyone that some of the first projects are being assessed differently with regard to their effect on the climate," says Nord.
Liv Rathe, head of the new energy supply department at Hydro Energy, and member of the PCF board of investors, points out that PCF is the first initiative taken towards establishing a broad and constructive cooperation between industry, local authorities and host countries with a view to creating a reliable system for climate gas reductions.
She adds that even though the Plantar project has been approved by PCF, it is not yet clear how the rules for quota trading will look, and whether the conditions for having credits approved have been met in this project. In an early phase it is nevertheless enormously important to gain experience from different types of projects.
Tool of development countries
Nord and Rathe believe that the environmental organizations are addressing an important problem when they insist that forest plantations should not be accredited because of the problem of calculating the long-term effects, among other problems.
"This is a legitimate point of view, but it has not been accepted in international environmental negotiations. CO2 fixation in forests has been a mechanism to which many countries - including the least developed countries with little industry - attach a lot of importance. It is in this area that they have something to sell," explain Nord and Rathe, who do not think that forest projects will make up a large share of the total number of projects: forest project credits are limited to one percent of the countries' total climate gas emissions.
"We expect that such projects will represent an insignificant share of the company's future emission quota dealings. On the other hand, we do not regard it as appropriate to draw any final conclusions regarding emission credits in single projects at this early stage."