CLIMATE CHANGE: CRISIS and OPPORTUNITIES

CAP Reform: entrepreuneurial opportunities in the enlarged EU

ELO Conference, Brussels, 6 & 7 November 2003

Climate Change

Mitigate risks while promoting sustainable rural development

François FallouxVice President, Eco-Carbone

ELO, Brussels, November 6th, 2003

Ffalloux@wanadoo.fr

Five questions1. Is there a real climate change crisis?2. What can be done about it?

Adapting to Climate Change (CC)? And/or mitigating the CC Risk?

3. How can farmers adapt to CC?4. Mitigating CC risk and promoting

sustainable agriculture: missed opportunity?5. How to grasp it in rural Europe? Possible

role for ELO?

Five preliminary remarks Focus on carbon bio-sequestration…but, Links among carbon sequestration, GHG

emission reduction and biomass energy Virtuous circle with quality water resources Kyoto, a first small step R&D but stronger

constraints to be expected CAP Reform and Climate Change: 2 parallel

stories until to now

Kyoto Protocol: expected impact

With KyotoWithout Kyoto

GHG

Time

Q1. Is there a Climate Crisis?

Historical and Projected Future (ppm, CO2)

0

100

200

300

400

500

600

1000 1850 2000 2060

CO2

An emerging crisis building up…

Last years, particularly 2003, the hottest… Towards a double CO2 before 2100 Impact on climate and agriculture Other impacts on biodiversity/forestry,

water supply and coastal zones High expected costs but winners and losers But, still uncertainties…

Q2. What can be done globally about the CC risk?

Initiatives to reduce risk

Uncertainties Precaution Principle UNFCC signed in 1992 The Kyoto Protocol (1997) and its

current impact despite non-ratification Both adaptation to climate change and

reduction of GHGs Not to forget the likely losers…

Q3. How can farmers adapt to CC?

Adaptations measures from farmers

CC adaptation, a neglected field worldwide including in Europe;

Incorporating CC risk at the macro level: Agricultural sector planning in relation to extreme

events (droughts and flooding); Effort in meteo information and forecasting; Institutional development (research, extension,

farmers associations); Agricultural insurance and re-insurance;

Incorporating CC risk at the farm level: Applying risk factor in investment decision making; Developing alternative strategies.

Q4. Are there opportunities to mitigate CC risk while promoting

sustainable agriculture?

Yes! Emerging carbon market

It grows every day despite uncertainties From 1996 to 2000: slow growth Acceleration starting in July 2001 with about 60Mt

of C-equivalent transacted so far for about $500 million

Expected fast increase to reach 500Mt of C/year in 2008 meaning $5 to $10 billion!

Current average price of $6 to7/t of CO2-equivalent but wide range

1t of C-equivalent = 3.6t of CO2-equivalent

Carbon Market 2001-2002

About 100 million tons of CO2!

28%

22%15%

25%

10% 0% USA

WB C Funds

Canada

Europe

Japan

Emerging carbon market

$billion

0

10

20

30

40

50

60

2000 2010 2020

HighMediumLow

Source: World Bank Study 1998 & 2002

Some Financial Mechanisms World Bank Carbon financing with 5 funds

(PCF, BioCF, CDCF, NCDF, Italian CF) => leading the carbon business today. Hence importance to have the World Bank seal!

The Dutch System The English Market Chicago Climate Exchange Internal Markets within large oil companies

Mutual FundMultinationals

and Govts..

$ $

C credits

C

Credits

New Financial Mechanisms

Carbon Projects

Entreprises

But the C opportunity almost not used in European agriculture and land

management so far despite large potential!

Potential: storing carbon and reducing GHGs in rural areas

Promoting no tillage, without decreasing yields Up to 60t of C captured per ha 60% less fossile fuel consumption 40% less fertilizer consumption Large risk mitigation (drought resistance, water

pollution) Rehabilitating landscape with hedges, reforestation Improving waste management while producing

energy Producing biofuels without having to “freeze”

lands

Two interesting cases

Brazil: 15 million ha of no-tillage and growing Additional storage of up to 50t-C/ha Substantial decrease of production costs

~50% in fossil fuel consumption ~40% chemical fertilizers

USA About 20 million ha of no-tillage Similar benefits

No tillage in the State of Santa Catarina

Brazil

CO2

Source USDA

Is Europe behind ?

Less than 1 million ha of no tillage and C sequestration not yet regarded as a priority

European eco-systems less fragile Climate change not integrated in European

CAP so far Yet similar benefits could be expected as in

Brazil and the USA Network in progress such as ECAF

Possible Future Directions…

…for European Agriculture

Integrated landscape approach

Rehabilitating hedges and windbreakers Reforesting areas marginal for agriculture No tillage Biofuels production Waste management and energy production Towards integrated contracts Farmers associations role Food industries, e.g. Sustainable Agriculture

Initiative (SAI)

Biomass and ResiduesProduction

Sugarcane

Bagasse

VinasseCH4 & N2O

Burning

CH4

CH4

EnergyAgro-industrial

Benefits

COGEN

Organic Fertilizer

ElectricityFor the Mill

Alcohol/Sugar

Storage

Storage

WITHOUT PROJECT SITUATION (Baseline)

CO2

EnvironmentalBenefits

Carbon Sequestration

Soil FaunaDiversity

ErosionControl

Biomass and ResiduesProduction

Forest

Sugarcane

Bagasse

Vinasse

EnergyAgro-industrial

Benefits

Biogas

COGEN

Wood

Organic Fertilizer

Charcoal

Storage

Storage

Bicarbonates

Decomposition

Litter

CH4 & N2O Soil Carbon

OtherBenefits:Health

Alcohol/Sugar

Heat & Powerfor the Mill

Electricityto the Grid

CO2

WITH PROJECT SITUATION

Q5. How to grasp the CC opportunity in rural Europe and possible role for ELO?

CC opportunity in rural Europe and possible role for ELO

Increase lobbying for incorporating climate change in CAP

Promote the integrated approach linking energy, GHGs reduction and C sequestration

Promote CC related pilot projects in European rural areas

Set up multi-partnerships involving ELO, ECAF, SAI (food industry), etc.

Strengthen public/private partnerships in this integration European Carbon Funds for rural development?

Conclusions (1)

Climate change, an opportunity to seize A way to cover a substantial part of the new

investment through the sale of carbon credits Potential to bring co-investors Potential to improve financial results

combined with an improved green image But some key conditions to be met…

Conclusions (2)

But some key conditions to be met: Integrating carbon right at the beginning of the

diagnosis Having key carbon buyer booked a.s.a.p. Solid transparent baseline proving additionality Robust carbon measurement program Integrated approach: a way to increase C

credits, mitigate risks for C buyers and therefore attract them

Eco-Carbone ready to help meet these conditions