From Grades to Trade: Ideas on a Peruvian Carbon Market

By Maria Pia Zevallos, Climate and Society ’13

Climate change has been ascending in the Peruvian environmental public agenda, with greenhouse gas (GHG) mitigation being recognized as an opportunity to address structural issues such as environmental degradation, social conflict, and competitiveness. As one of the fastest growing countries in Latin America, Peru has the opportunity to shape its development model before getting locked-in to a highly emitting, low technology and socially exclusive economy. With this in mind, my personal interest for pursuing a Master degree in Climate and Society (C&S) at Columbia was climate change mitigation.

Pricing carbon is a key part of the solution, and can be achieved either through carbon taxes or carbon markets (cap and trade systems). Key stakeholders in Peru, at least the few who have awareness on the issue, have an implicit understanding that the second is the only feasible option. A well designed carbon market, although more demanding in terms of data and enforcement, provides more flexibility, economic efficiency and environmental integrity (Taylor, 2012). Another important perk of carbon markets is their potential to become a global effort in which Peru – with its current relatively low emissions and large extensions of forests – could be a net seller of carbon credits.

Peru is currently engaged in several initiatives aimed at assessing its mitigation potential and designing mitigation actions. Among these, the PlanCC Program has created an umbrella process for advancing two enabling conditions for low carbon development planning: stakeholder engagement and model based research.

Using decision models to choose between GHG abatement options in the Quantitative Models of Climate-Sensitive Natural and Human Systems C&S class or learning about carbon pricing alternatives in the Climate Change Law elective course, are some examples of the knowledge I gained in Columbia and had to put to practice while interning with Libelula, the implementing agency for PlanCC. To date, under the Program, a group of the best local scholars –guided by representatives from every sector- have modelled two scenarios that frame the national mitigation challenge: business as usual and required by science. What is PlanCC’s next step?: to formulate the mitigation actions that will fill the gap between these two scenarios.

A cap and trade system can be conceptualized as one of such mitigation actions, and there is particular interest from the Peruvian Ministry of Economy to explore this option. Such systems are put in place by setting the “cap” (an emissions target translated into a maximum quantity of emissions); deciding on sectors covered by the system and dividing the cap (as allowances) between the emitters; and setting ground rules for monitoring, reporting and verification.

Three challenges arise on the road to a functioning cap and trade system in Peru: the political and technical difficulties of setting the cap, data quality and the fact that the largest emitting sector in is land use change. For setting the cap, I propose to use the PlanCC platform, which already provides a process for stakeholder discussions and sound modeling  In order to overcome the data challenge, the system should start with a mandatory reporting phase. Thirdly, an idea to include forests while providing flexibility and honouring the “polluters pay” principle, could be to include offsets from the forestry sector as part of the system in an initial state, while the sector builds capacity for more astringent policies to avoid deforestation.

While these ideas continue to be fleshed out and developed, two other main thoughts should be kept in mind. First, the system itself is not the final goal, but only a means to an end. In the case of Peru the goal lies between reducing emissions and increasing the countries’ competitiveness. Second, the system will not achieve the goals by itself and will need to be complemented by a set of policies that foster low carbon innovation and technology and promote low carbon investment in all sectors.

References:

• Taylor, Margaret R. Innovation under cap-and-trade programs in Proceedings of the National Academy of Science of the United States of America. Vol. 109 no. 13, March 27, 2012.

Feature image: Imperial94 Flickr