Carbon sequestration & European reforestation

© 2009 Joshua Stark

Don't let the title scare you off, I'll bring it down a notch, and talk about that issue in a bit.

Last week, I was able to attend a lecture by a researcher from Spain, Dr. Alejandro Caparrós of the Institute of Public Goods & Policies at the Spanish National Research Council. The good doctor gave a fine presentation, even while interrupted mid-lecture by rude Americans with questions. He was well-versed in the actual effects of carbon regulation, because the EU has been actually implementing them for a few years now.
flx1247rg
So, a definition, to get everybody up to speed: Carbon sequestration is the physical act of pulling carbon out of the atmosphere and storing it. Many folks are working on an engineered sequestration, but we have an elegantly designed method in plant life, esp. in trees and other slower-growing plants. Now that you know this (if you hadn't before), you can see the obvious interest in reforestation or avoided degradation of existing forest lands. You can also see the dollar signs appearing in many folks' eyeballs as they look out no longer at pristine forests, but at miles and miles of giant carbon stands and the money they might hold.

I won't go into the weeds too deep over actual reforestation vs. avoided degradation, or the comparisons between a largely free market (Spain) and a controlled market (Tunisia). I want to point out a surprising finding he mentioned as an aside, and two conclusions that I reached from this lecture.

First, the little gem that Dr. Caparrós pointed out: Paying farmers to reforest or avoid degradation is seen as a way to wean the EU off a large portion of its farm subsidies, and it looks like it may work. He said that the EU is attempting to eliminate its farm subsidies over the next 20 years, and is offering a way to pay for carbon sequestration as an alternative for farmers. For this reason, they are looking at the best way to ease farmers into agreeing to these subsidies. Surprisingly, with carbon market prices, it may be possible to reforest about 10% of Europe through pricing in the value of carbon.

As for my conclusions, they are a tad disturbing, but hopefully more enlightening in the long run.
As Dr. Caparrós talked about different ways to "internalize" the price of carbon, he narrowed the subsidy/payment down to two methods, which he named the Carbon Flow Method (CFM), and the Ton Year Allocation Method (TYAM). CFM is easiest: You get a check for the amount of carbon you sequester in a year, and you pay that amount when you lose that carbon. Ideally, this means that a farmer grows oaks for twenty years, and receives a check for his additional carbon every year. When he harvests his oaks, he pays for the carbon that leaves his property. Realistically, a certain percentage of farmers will lose their trees to catastrophic wildfire every year, but will probably be quite unwilling to pay for their carbon loss immediately after losing everything.

TYAM tries to alleviate the fire problem by allocating a smaller amount to the farmer for sequestering carbon each year, but not requiring payment if the farmer loses carbon to a fire or harvest. It seems like an insurance plan to me, but it also has the effect of incentives for farmers to keep trees longer, thus rehabilitating native Spanish cork oaks and their habitats.

These are all well and good, point to an economics concept really pushed lately, which is to try to internalize (make a price for) market externalities. So when I had a chance, I asked a question about this idea, because I saw a looming hole growing in the carbon pricing mechanism, and one that worries me as a conservationist/environmentalist.

I asked him if he anticipates any pressures to encourage reforestation in habitats which provide strong carbon sequestration, and degradation of habitats where not so much carbon is sequestered, but where we have other ecosystem values. His answer was illuminating: He said yes, he anticipates that market distortion, and that we would all love to be able to internalize every externality to alleviate that problem.

Which brings me to an "if you have a hammer, every problem looks like a nail" conclusion. Economists, in order to prove the ultimate efficiency of market systems, are looking to internalize every externality. But, you can't do it to everything, so we are going to see some serious distortions, until economics as a study again accepts the necessity of direct public involvement to alleviate these problems.