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Category Archives: Policy Innovations

Forest Carbon Tax and Reward: Creating more jobs and carbon in the woods.

Deforestation, forest degradation, and unsustainable forest practices are major drivers of climate change. Deforestation and other land-use changes have released approximately 150 gigatons of carbon to the atmosphere since 1850, roughly one-fifth of the current atmospheric total. The contributions from forest degradation (i.e. converting real forests into tree plantations) and unsustainable practices (i.e. those that cause irreversible damage to soils) are on the rise. Globally, emissions from forest degradation have increased from 0.4 to 1.0 gigatons CO2 per year between 1990 and 2015. In Oregon, emissions from deforestation and industrial forest practices are not monitored by any state or federal agency but are likely the scond largest source of greenhouse gas pollution each year.

A swift transformation to sustainable forest practices that halt and reverse deforestation and forest degradation has the potential to capture and store much of the excess carbon that is now fueling climate change. For example, climate scientist James E. Hansen has calculated that we can pull 100 billion tons of carbon from the air through large scale restoration of areas denuded by logging and agricultural expansion. This has the potential to reduce CO2 concentrations by 30 parts per million by 2100, which can make all the difference as to whether humanity achieves the 2° C warming cap established by international agreements or blows past that critical threshold.

As it has done in the past on so many other issues, Oregon can lead the way. It can do so by passing globally replicable legislation implementing a forest carbon tax and reward program to penalize clearcutting, chemical sprays, short rotations and construction of logging roads and dramatically scale up climate smart forest practices that enhance carbon sequestration and storage capacity of its state and privately managed forestlands.

Here’s how it would work: Forestland owners who release more carbon through logging than is sequestered by natural forests on their properties would be levied a tax equivalent to the social cost of carbon – roughly $42 per ton of carbon dioxide emitted – on these net emissions. However, forestland owners would receive credits against the levy for a wide range of beneficial practices that bolster carbon storage including long rotations, selective harvesting and set-asides for streams, wildlife, non-timber forest products, recreation, and other beneficial uses. In addition, forestland owners that embrace these practices would be eligible for generous payments from a Forest Carbon Incentive Fund (FCIF) capitalized by the tax and managed by the Department of Forestry in consultation with the Oregon Global Warming Commission. Many forestland owners would make money on this deal – in particular, good actors who know how to produce timber while leaving a real forest behind.

The revenue impacts of the proposed legislation have yet to be calculated. But a reasonable estimate is that the net (after credits and deductions) tax would generate $50 per thousand board foot harvested – equivalent to $120 million per year at current rates of harvest on industrial forestlands. Oregon’s Department of Forestry and the Oregon Global Warming Commission would keep what they need to fill in their budget holes and administer the tax and reward program. The rest (about $100 million) gets dispersed to forestland owners who agree to implement climate smart, labor intensive practices needed to boost carbon storage and transform Oregon’s private forest landscape from a veritable wasteland of clearcuts and logging roads into a green carpet of healthy, functioning, and naturally evolving forests. If managed well, Pacific Northwest forests have the potential to capture and store more carbon per acre than any other forest type on the planet. A forest carbon tax and reward program would help fulfill this potential and by doing so, create thousands of new jobs.

A typical multiplier for money spent in the woods paying workers to restore timber plantations back to real forests and implement other climate smart practices is about 60 direct and induced jobs per million dollars invested. That’s 6,000 jobs per year associated with FCIF payments of about $100 million per year. Not a bad deal for skilled forest workers. And a welcome shot in the arm for distressed rural communities searching for ways to decouple from the booms and busts of industrial, high emissions logging cycles.

Time is running out on the climate time bomb. One of the great contributions Oregon can make on the global stage is to recruit its state and privately held forestlands into its climate agenda, help restore the world’s most effective carbon sink, and create thousands of jobs in doing so. The Oregon Legislature and Governor Brown would do well to provide such leadership by enacting forest carbon tax and reward legislation this year.

Further reading:

Fossil Fuel Risk Bonds: Making Polluters Pay for the Climate Crisis

One of the most aggravating aspects of the climate crisis is the fact that fossil fuel companies are passing on huge financial risks to taxpayers and politicians are simply turning their backs on the problem instead of holding those companies accountable. At each stage of the fossil fuel product life cycle, taxpayers are increasingly burdened with a litany of costs such as those associated with fracking-induced earthquake swarms, pipeline explosions, abandoned infrastructure, water pollution and, of course, the costs of climate change. Fossil fuel risk bond programs – a policy innovation proposed by Center for Sustainable Economy – can help reverse this glaring inequity by shifting the economic risk back where it belongs: on the polluters.As set forth in our new report, fossil fuel risk bond programs are systematic efforts by state and local governments to evaluate and respond to the financial risks they face at each stage of the fossil fuel lifecycle in their jurisdictions. Specific fossil fuel risk bond program instruments can be grouped into two broad categories:

  • The first category of risk bonding for fossil fuels would consist of conventional financial assurance instruments such as surety bonds and environmental liability insurance that would address discrete risks caused by particular entities in particular places – such as abandoned infrastructure, explosions, or localized pollution. Fossil fuel risk bond programs can expand the scale (i.e. required coverage amounts) and scope (i.e. types of hazards covered) of these conventional instruments.
  • The second category of risk bonding for fossil fuels would consist of surcharge-based climate or natural hazard risk trust funds. These trust funds can be used by governments to offset public costs of climate-related natural disasters, to pay for the costs of climate adaptation, or to pay for economic damages associated with fossil fuel production and trade that are difficult to attribute to a single entity. They would be capitalized by a surcharge on all fossil fuel transactions in the local economy. The surcharge rate could be based on a jurisdiction’s expected costs associated with climate change, climate adaptation, and other pervasive risks such as earthquake swarms and pollution, and be levied on each ton of carbon dioxide equivalent (CO2-e) embodied in fossil fuels extracted, transported, stored, distributed, and combusted (at least by industry and power plants) by any source in a given jurisdiction.

The benefits could be huge for states, counties, and cities struggling with rising climate-related costs with no clear way to pay for them. For example, consider a county in which oil, gas, and coal extraction takes place that is also suffering the effects of a strengthening climate change signal in the form of regular 100-year floods. Climate risk trust funds maintained by that county could be used to: (1) compensate homeowners for fracking-related earthquake damage; (2) pay for the costs of filtering water contaminated by tailing pond leaks; (3) pay for the increased public service cost burden associated with oil or gas boomtowns; and (4) relocate infrastructure from floodplains.

CSE has begun work along the West Coast to promote this policy innovation as part of our work on a just transition toward a low-carbon and climate-resilient economy. In particular, fossil fuel risk bond programs provide a way to ramp up the funding necessary to put scores of people to work – including displaced oil, gas, and coal workers – while ramping down fossil fuel consumption, decommissioning obsolete fossil fuel infrastructure, restoring mines, oil platform sites, and gas well pads back into a natural condition and implementing climate adaptation projects to help make communities safe in the face climate disasters. In a 2012 analysis of oil platforms in Cook Inlet, Alaska, we estimated that decommissioning 16 active oil platforms and 160 miles of pipeline could inject over $1 billion into the local economy.

As our report goes to press, Fort McMurray, Alberta has experienced one of the scariest signals of climate change – an unprecedented wildfire of epic proportions that burned large portions of the city to the ground. Over 1,600 structures were lost. The economic toll is $1 billion and counting. The irony, of course, is that the city lies at the epicenter of the tar sands industry, producing oil that packs an enormous climate change punch. If fossil fuel risk bond programs were in place, the city, province, and federal governments would have adequate funding to respond to this disaster, help residents rebuild, and invest in a future beyond fossil fuels. Instead, they are left with a blackened landscape and a mountain of debt that has yet to be tallied.

For a copy of Fossil Fuel Risk Bonds: Safeguarding public finance from product life cycle risks of oil, gas, and coal, click here.


Climate Risk Bonds: An Alaska Case Study

US-CLIMATE-DEMOOn September 21st, 2014, the largest climate march in world history lit up New York’s city streets with colorful protesters. Leading the way of the 400,000-strong marchers were indigenous peoples from around the world, calling on world leaders to take action on climate change. As we argue in our new report (link below) climate risk bonds may be an important part of the solution.

Indigenous peoples were rightly on the front lines of the climate march: They are on the front lines of much of the oil, gas, coal and tar sands extraction globally. And they are suffering some of the biggest costs of climate change—cancers from poisoned waters downstream from tar sands mining, homes falling into the oceans and rivers as permafrost melts and flooding increases with a warmer climate. As subsistence-based peoples, many Native peoples are finding their ability to hunt and gather foods as they have for centuries harder as climate change accelerates, threatening their way of life.

Following the climate march, thousands of protesters “flooded Wall Street.” Two years earlier, in the wake of Hurricane Sandy on Oct 29, 2012, as the evening high tide was drawing closer, Wall Street was literally flooding, cars bobbing up from underground garages. So on September 22nd, 2014, protestors “flooded” Wall Street again to remind the world that our political and economic system continues to ignore one of the biggest crises—perhaps the biggest existential crisis of our time: climate change—while going full steam ahead with business as usual.

But in the context of a changing climate, we all know business cannot continue as usual. Among the things that must change: An economic system where oil, gas and coal companies make immense profits and control our politics while the rest of us pay the price for the destabilization of our atmosphere.

Among the demands that the indigenous-led protesters put forward in the New York climate march was the need to put a price on carbon. While a carbon tax (ideally, a fee and dividend of some sort, to avoid regressive impacts) is one approach, we propose here something that can both supplement a carbon tax or be done entirely independently: an immediate climate risk bond that all fossil fuel companies must pay, up front at the point of extraction, to ensure that the costs of climate change, now measuring in the trillions of dollars, are captured before any more mining of oil, gas and coal continues. The International Energy Agency tells us two-thirds of all proven fossil fuel reserves must remain in the ground if we are to avoid a rise in planetary temperatures over 2 degrees Celsius. Environmental justice demands that people who are suffering the costs of climate change, North and South, be compensated for the damages they are suffering now.

This concept of “climate risk bonds” attempts to put this price tag in place. We start with Alaska, where Native peoples are suffering enormous costs, right now, uncompensated, due to climate change. But this concept can be acted on in every jurisdiction in the country and the world, without the need for approval from a recalcitrant or corrupt national government. It is a tool we can use, right now, in our communities, to begin to level the playing field in favor of clean energy.

We are running out of time and climate risk bonds sends the correct signal of economic urgency we need to send, here and now: The costly age of fossil fuels is coming to a close. Here comes the sun!

For a copy of CSE’s climate risk bond concept paper, click here to visit our project page.

Keep Trade Subsidies at Home to Pay for Local Economic Development

Hanjin-Blog-Photo-150x150The Port of Portland recently approved another round of subsidies for Hanjin Shipping and other ocean carriers $20 per container up to $4 million in order to keep the ships coming to our ports.  The Port’s decision continues a long, dubious era of free trade policies that have opened new markets for some Oregon businesses, but have done so at a steep price for most Oregonians.  Studies using economic well-being metrics like the Genuine Progress Indicator – first published in Oregon by Portland State University (PSU) in 2012 – show that, up to a point, more liberalized trade regimes may help the local economy, but past that point, Continue reading

Climate Risk Bonds for Adaptation Finance

Climate Risk Bond imageBonding requirements for risky industries are nothing new. Most countries have one form or another. It is time to extend this concept to the unambiguous risks associated with climate change. Here is how it would work.

Before new permits are issued for fossil fuel extraction, countries, states, or local governments (and this depends on the structure of a particular country’s laws) would require posting of a climate risk bond,calculated as the social cost of carbon multiplied by the amount of carbon emissions added Continue reading

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