Window on Wood – Moving Markets

Vicforests Symposium 15 October 23007

 

Forestry’s climate friendly advantage

 

Alan Oxley

ITS Global, Melbourne

 

 

We have just entered an election where climate change has dominated the politics of election positions on both sides of politics. Yet polling shows it is not a leading issue of electoral concern.

 

Until now, Labor has successfully made “who’s in touch” and “who isn’t” the leading measure of political approval.  It is in that context that who will act and who will not on climate change gives the issue political cache.

 

The result is that one party says it will ratify the Kyoto Protocol, despite the fact there is agreement in the United Nations that it has to be replaced; and the other has committed to a national system to regulate emissions of greenhouse gases of cap and to trade permits to emit them, with the declared intent to key it into an international system that is unlikely ever to be created.

 

Of course, the public do not understand the technical implications of either of these options. The media are struggling with this as well, as are a large number of politicians.

 

The public will probably consider the strategies are about the same. This would be right. 

And perceive that these actions represent political action, which is exactly what the politicians wanted. In that case we could hope that be the end of the matter.

 

Unfortunately it won’t.  If present settings don’t change, we are on the cusp of period of exceedingly bad public policy which will drag government back into managing the minutiae of economic activity.

 

So what, many of you will say.  This has been happening in forestry for years. True, and for the same reason, to which I will revert shortly.

 

The Climate Change policy windstorm

 

Al Gore has just been given the Nobel peace prize for spruiking climate change alarmism.  He has played a key role in the resulting public policy windstorm. The windstorm has had unexpected effects.  It has created awkward dilemmas for Green groups.

 

I worked on nuclear policy in government in the early 1980’s.  It was inconceivable then that nuclear would return as a mainstream source of energy.

 

With the passage of time, it has proven its durability and not caused the plethora of accidents and deaths from cancer, predicted in the alarmism employed in those days to foster worldwide aversion to nuclear power.

 

Today’s climate change Alarmism is even more effective, given the availability of large amounts of funds from foundations, the willingness of Hollywood to join this bandwagon (as they did on nuclear power – remember the China Syndrome) and the availability today of virtual global communications.

 

The alarm is reaching fever pitch because in December, the World’s Governments begin to deliberate over the replacement for the Kyoto Protocol.

 

The alarmists want government to impose early restrictions on generation of electricity. One of the few ways tangible progress can be made is to increases use nuclear power.

It is the only mainstream and cost-effective source of energy capable of replacing coal.  (Although not in Australia – nuclear generated electricity would still be about 20 percent more expensive than coal.)

 

Nuclear is now respectable. Greenpeace in particular, and WWF, are in a jam over this:  they remain anti-nuclear, but there can be no progress on reducing emission of carbon dioxide without an increase in power from nuclear reactors.

 

Forestry is climate change friendly

 

The debate can go the same way on forestry. The good news in climate change for forestry is that is also an industry which will have to expand if strategies to mitigate global warming are to be successful.

 

As Patrick Moore, the founder of Greenpeace has declared – ‘ the easiest way to reduce carbon dioxide in the atmosphere is to increase forests and increase the harvesting of them’.

 

I notice that the role forestry can play is in part recognized in Victorian Government literature on climate change.  But like the rest of official material on forestry, you could be forgiven for missing it.

 

If you review the broad picture painted by Government literature on forestry from a distance as I did in preparing this presentation, an impression is left that the primary task in forestry is to manage its impact on the environment.

 

The reason is obvious.  International green groups have made forestry a pariah industry for over 30 years.  Victoria is like a number of other Governments in Australia. It has allowed Green groups to set the high ground on policy on forestry and progressively shifted its policies in the direction of green reference points.

 

The inaugural “State of the Forests” report produced in 2005 has the Minister stating in the first sentence of the Introduction - Victoria has a world class conservation system”.

 

Why didn’t he say “Victoria has world’s best practice sustainable forestry”? Because it does.  And has had it for several years, ever since the Regional Forestry Agreements were implemented.

 

I watched the evolution of the Regional Forestry Agreements with interest.  I had been a Commissioner for the review by the Resources Assessment Commission of Australia’s coastal zone. 

 

Its immediately previous report was on the economic and environmental values of forestry.  It made the memorable point there was no intrinsic, technical environmental value in the term “old growth forests”.  It recommended a detailed and hands on approach to settling forest policy Australia wide.

 

When the Keating Government finally acted, the most detailed process of consultation and review, based on the technical and economic data from the RAC review, ever untaken on a national environmental issue, ensued.

 

The result was the set of Regional Forest Agreements.  This was world’s best sustainable forest practice.  Although I discovered later this was not known by senior officials in the central agencies at Spring Street.

 

  • The economic, social and environmental values of forestry were set out in an independent, expert report. 

 

  • Elaborate processes of consultation were established,

 

  • Conservation areas, based on assessments of what was necessary to set protect representative biodiversities and ecosystems were identified,

 

  • Areas for forest harvesting were identified, as were areas for mixed us. 

 

Of course the Greens refused to sign off on the  RFA’s as they invariably seem to, although WWF probably did until it was convenient to switch ground;  industry made the mistake of thinking this issue was now settled and would run itself;  and State Governments either got institutional memory loss, or started pandering to Green pressure to unpick the agreements.  That is what happened in Victoria.

 

I have reviewed the official literature and positions and they leave a distinct impression that no one wants to mention the RFAs.  I found only one reference to the RFAs in the online official literature on forestry.

 

I sense as well there is an attitude privately held in some senior levels among officials that since forestry yields only around one percent of GDP, letting the industry slip away might be worth it to get rid of the political heat it causes.

 

There many industries in Victoria that contribute around one percent of GDP that people consider valuable.  We consider our economy growing well when it increases GDP by four percent per year.  We might be enjoying sustained prosperity, but surely we haven’t got to the point where we can casually reduce annual growth by 25 or 30 percent.

 

This of course is just what the Greens want.  Not just in Australia, but globally.

 

Illegal logging – more exaggeration

 

You may have noticed this year that Greenpeace and WWF lobbied the Government to ban imports of illegal timber and pressed for all imports of timber to be certified that they were not illegal. 

 

The Australian Conservation Foundation (ASCF) also put public pressure on the ANZ Bank to cease provision of banking services to Rimbunan Hijau, the largest forest business in Papua New Guinea.  (It is a client of ITS Global). It is now targeting Gunns over finance for the Pulp Mill.

 

ACF’s public campaign flopped.   It also drew attention for ungracious way it behaved towards the Bank. 

 

While engaged in a formal process of consultation with NGOs over a set of corporate social responsibility policies, particularly over forestry, which ANZ had initiated, the ACF lodged a formal complaint with the Commonwealth Treasury that ANZ was in breach of OECD guidelines on how multinationals should operate in developing countries.  The complaint was so spurious, Treasury did not even lodge it with the OECD.

 

ACF then mounted a formal web-based campaign attacking the Bank for dealing with Rimbunan Hijau, while still enjoying the Bank’s free provision of a portal on its site to enable people to contribute funds to ACF.

 

You may have noticed as well that illegal logging issue has become globally prominent in recent years. 

 

With the exception of Indonesia, it is not because the incidence has suddenly worsened. The incidence of illegal logging is significantly exaggerated.  It is because there has been a conscious campaign to achieve global regulation of forestry. 

 

A global forestry convention has been a Green ambition since the Rio Earth Summit in 1992 when it was rejected by developing countries.  Voluntary global principles to promote sustainable forestry were adopted instead. 

 

They stressed that in developing countries, forestry has to be preserved as a source of economic development.  “Sustainable forestry” meant harvesting and environmental management went hand in hand.

 

The formal definition of “sustainable development”, as endorsed at the Rio Earth Summit, was similarly double-barreled.

 

Since Rio, environmental agencies in Europe and leading Green groups (Greenpeace, WWF and Friends of the Earth) have worked to diminish the weight of the economic leg and make “sustainable development” synonymous with protection of the environment.

 

Another effort to win support to negotiate a global forest convention was made last year.  My surmise that the heightening of global attention on illegal logging was designed to create a climate to support this in the UN. 

 

It failed.  Developing countries, the US and Australia opposed it and the decision was taken not to raise the matter again in the UN until 2015.  I will show shortly how this might be circumvented by inserting back door controls on forestry through climate change mechanisms.

 

Pressuring the private sector

 

When the Greens realized at Rio that they could not pressure governments to adopt the policies they wanted, they decided to pressure the private sector directly.  Very sophisticated methods have been developed.  Some sly, others bordering on breach of commercial fair practices:  some consider some measures would constitute extortion in some countries.

 

It was recognized at Rio that forest industries did need to demonstrate that they were behaving in an environmentally sensible way.

 

WWF pioneered the establishment of a global standard for sustainable forestry and set up the Forest Stewardship Council.  It was marketed with a logo and the sell was the logo would create higher-value, green products for environmentally discerning customers. 

 

There was little consumer interest.  For example, IKEA initially joined the scheme on condition it did not have to use the logo.

 

The FSC model never seemed premised on a commercial model.  WWF has secured significant funding from Foundations and Governments, principally European, to fund development and operation of the scheme.

 

The FSC model was also not popular with forest producers worldwide.  The FSC standard was not an independent free standing standard, but something negotiated with FSC.  FSC also imposed political conditions like formal disavowal of use of GMOs and commitment to the principle that forest land should not be converted to non-forest purposes.

 

An alternative system, coming ultimately to be known as the Program for Evaluation of Forest Certification (PEFC) was developed around the same time, initially by European forest producers.  It produced objective and independent standards following the procedures of national standards-setting bodies.

 

It was and is more popular with producers.  PEFC certified forest areas worldwide are double those of FSC.

 

WWF and FSC turned its attention to the retail and wholesale arms of the supply chain.  It has found it can encourage or pressure these businesses to do what consumers will not – favor products endorsed by FSC, forcing upstream producers to apply the FSC standards on their products.   They also appear to work in tandem with Greenpeace, who were also foundation members of FSC. 

 

Let me give an example.  Greenpeace and WWF have been urging importers in Europe to boycott illegal timber imports.  In a glossy publication released last year, Greenpeace named, with portrait photographs, some CEOs of large furniture and retail businesses and accused them of being forest criminals for not boycotting timber products from PNG.

 

A couple of months later it gleefully reported that several committed not to import timber which had not been legally verified.  PNG timber exports to the UK that year were valued at less than 8 million Euros (PNG’s annual timber exports earn over 100 million Euros – most go to Asia)

 

Greenpeace also invariably urges that companies should have FSC certification.  WWF also encourages businesses to join “Forest Trade Networks”.  These networks appear to support the FSC system.

 

A guide recently produced jointly by WWF and the Forest and Trade Network states that if companies “fail to exercise due diligence over theirs supply chains”, a consequence could be “vulnerability to NGO criticism and consequent loss of reputation”.

 

WWF have also started pressuring governments to regulate to require FSC certification in government procurement.  It ran an ill-advised campaign against the Australian Forestry Standard with European Governments.  Some governments acquiesced, then reversed the position following representations from Canberra and the Australian industry.

 

WWF have urged, with some success, the EU ban timber imports unless the exporters demonstrate the product is legal.  This is not a normal requirement in international trade and in principle breaches trade rules.  The EU invites developing countries to “voluntarily” enter a legal agreement with the EU to institutionalize such trade controls, and obviate concerns about breaching WTO rules.

 

Two other targets are financial services suppliers and members of Boards of public companies. 

 

It seems that companies who go along with these arrangements find themselves in something of a money trap, as noted in a recent issue of the IPA Review.  In 2006, HSBC announced it would give WWF over UK Pounds 12 million for a freshwater project.  That apparently engendered little goodwill.

 

This year Banktrack, a small group based in the Netherlands, attacked HSBC for financing an IPO in Hong Kong for a Malaysian forestry company on the grounds this sullied HSBC’s attempt to create and environmentally friendly image.  Banktrack’s  major strategy is to embarrass financial companies to impose environmental conditions on project  finance in developing countries.  The strategy was developed by WWF UK.

 

This year HSBC announced it would donate US$100 million to support environmental activities, largely climate change.  Around one third was to go to WWF.

 

Attacks on Forestry

 

Greenpeace opposes commercial forestry in all countries.  It argues developing countries, should practice subsistence and community forestry.  WWF’s position can vary from country to country, but its general position is pro-plantation, anti-conversion of forest land and, of course, pro-FSC.

 

The anti-conversion position effectively limits use of forest land in developing countries and is seen as an anti-growth position in the developing world.

 

I know this matters less in Australia, but it may matter a lot for the way in which global environmental politics will impact on the handling of forestry in international discussions on climate change.

 

Forestry and land clearing are formally recognized as offsets for the purposes of meeting emission targets under the rules of the Kyoto Protocol. 

 

There is little likelihood we will see a global emissions trading scheme in the near term, or possibly at all.  It will be at least 5 years before the shape of a replacement for Kyoto is known.  Global,common,binding caps are not likely to be agreed.  Without that, a global emission trading system cannot be established.

 

It is likely however, that the World Bank, the EU, Australia and possibly some other countries will look at how credits might be traded among national schemes.  The rules countries set on how carbon offsets are recognized in forestry will be influenced by those rules.

 

At the moment they are deficient.  They do not recognize that carbon remains stored in finished timber products, or for that matter, paper.  Trees cut are currently regarded as diminishing the capacity of the sink.

 

Technical knowledge of the carbon cycle is also poor.  The capacity of the soil to act as a carbon sink is not factored into assessments of the forest sinks.

 

The principle risk for forestry is that the Green groups will seek to use the climate change regulation to pursue their agendas of limiting commercial forestry and to subject forestry at large to international regulation.

 

However, the opportunity in national schemes to recognize the role forestry plays in carbon sinks is significant. 

 

A new global importance for forestry

 

Governments will find modest targets to reduce emissions difficult.  Most industrialized parties to Kyoto are unlikely to meet the modest targets of reducing emissions by 2012 to seven percent below 1990 levels. 

 

The EU wants to hike the target to a further 20 percent cut by 2020 and possibly 40 or 50 percent 2050.  Al Gore wants a 90 percent by 2050.

 

Forestry is one of the few industries available where expansion will reduce emissions.  No conversion rules may also reduce opportunities to increase sinks.  Oil Palm for example is an excellent consumer of carbon dioxide.

 

The ideal profile for Australia would a predominance of young, growing trees.  Old growth areas will be much poorer sinks.  Growing trees absorb more CO2.

 

By expanding the area of Old Growth reserves, governments have reduced the capacity of forests to reduce global warming.

 

The case for Victoria is simple.  Victoria’s world’s-best-practice sustainable forestry should be expanded to enable Australia to improve its contribution to climate change.  This would also reduce the need to increase power costs to reduce emissions.

 

Several things fall out from this.

 

The carbon cycle for forestry has to be properly assessed and measured.

 

If Labor is elected and ratifies the Kyoto Protocol, Australia should reserve on acceptance of the existing rules for offsets for forestry and land-clearing because they do not recognize the continuing stored value of embedded carbon in timber and paper products.

 

Finally, the Victorian Government needs to restore the credentials of the economic development leg of its sustainable forestry and trumpet the fact to Victorians that Victoria has world’s best sustainable forestry.

 

And argue strongly that a vibrant, expanding and economically productive forest industry is a powerful, positive and effective way of tackling climate change.

 

 

15 October 2007

 

www.itsglobal.net

 

ITS Global are consultants on global issues.  The consultancy specializes in public policy and communications analysis, concentrating on economic growth, trade and environment.  ITS Global consults to Australian and international forest businesses.