Rio’s new take on carbon markets

Rio de Janeiro next year will launch a market for carbon credits with an interesting twist – it’s based primarily on forestry. Most emissions trading systems evolved from the 1980s campaign to cut pollution that was causing acid rain, and are generally focused on emissions of carbon dioxide from factories and power plants. Rio had talked about a system like this, but it didn’t make a huge amount of sense because most of Rio’s emissions come from cars and trucks and from illegal landfills.

Rio Environment Secretary Carlos Minc this week said the program, which starts next April, will be based on credits for government-mandated reforestation. Companies that cannot or do not manage to replant as much forest as required by environmental regulations can buy up credits from other forestry groups that do so. Firms that want to go above and beyond their required forestry replanting can sell their credits to others. The system also gives the market an additional form of demand by requiring that some environmental fines be paid off by purchasing such credits.   

The system is also expecting to create certificates representing recycling and reduction of industrial pollution into Rio’s scenic Guanabara Bay that borders that Sugar Loaf mountain.

I think this is a good idea, and hope the cariocas can pull it off. The cynics of course enjoy the contradiction of Rio on its way to becoming one of the world’s biggest producers of oil and gas (offshore albeit) while trumpeting its status as the future Green Capital of the world. I’m actually willing to overlook this as long as they’re willing to do something smart with the money. And creating a standard CO2 cap and trade system was never going to happen. A large part of that bill would be have to be borne by Rio’s steel industry, which is already kicking and screaming so much about high costs and getting eaten alive by the Chinese. But the steel companies know they’ve got plenty of environmental fines to pay.

I would be a bit worried about what would constitute “forest.” I’m guessing more than one enterprising carbon cowboy would run out to put up a eucalyptus plantation that could double for pulp production and carbon storage. I do hope Rio’s environment ministry is smarter than that. We’ll see how it shakes out in April.