Italy’s Carbon Market Works Out Kinks

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In the land of romance, Raphael, and ravioli, a carbon renaissance is slowly emerging. Italians transacted 144,515 tonnes of emissions reductions in 2012 at a combined value of more than a million euros (almost 1.4 million US dollars). Now, they’re working on an Italian Forest Code that would specify the rules for forest projects going beyond Kyoto Protocol requirements. Lucio Brotto, who has been deeply involved in the Nucleo Monitoraggio Carbonio that is convening stakeholders to flesh out the Forest Code, gave us the scoop.

Allie Goldstein: What developments has the Italian carbon market seen over the past few years?

Lucio Brotto: The supply is dominated by Italian NGOs sourcing credits in developing countries. The national supply of credits is expected to grow based on the consolidation of afforestation/reforestation (A/R) projects at the national level and the upsurging of new initiatives looking at ecological corridors in connection with climate-smart agriculture initiatives. There are few active brokers, retailers, and wholesalers, but in general most of the project developers have close relationships with buyers. As a result, more than 90% of credits are retired by the market in the same year [as they are transacted], with a fixed pre-paid number of credits.

AG: Could you speak about the demand side?

LB: A dominant role is played by public initiatives. At least three of them are worth mentioning: First, the “Zero Emission Province” project run by Trento Province... second, CARBOMARK, a European Union funded LIFE+ project carried on by Veneto and Friuli Venezia Giulia Regions… and third, GAIA, a European Union funded LIFE+ project coordinated by the Municipality of Bologna. The demand side is dominated by public bodies, mostly Trento Province, which is buying from project areas generated by NGOs.

When it comes to companies, [offsetting is] not widespread so far. However, [one innovative example is] pasta producer Jolly Sgámbaro. They started a sophisticated analysis of all their environmental impacts 10 years ago. Now, they have a double scheme of compensation: They are buying carbon credits from the CARBOMARK project and they are buying carbon credits directly from small NGOs making reforestation plans in Africa.

AG: What challenges lie ahead for the Italian carbon markets?

LB: We are in a situation in which there is an overlapping of the regulated versus the voluntary markets, so there is the need to organize in a way to make sure that we are not monetizing twice the same credits. Among the European states, we are using the highest rate of forest to meet our Kyoto Protocol goals…We took advantage of the forest at the national level without giving any kind of compensation to forest owners. Forest owners are very angry because everybody is telling them not to enter the voluntary market, but no one is giving them the money to manage the forest properly.

Also, market infrastructures such as standards and registries are poorly adopted. In 2012, none of the 14 tracked projects used third-party certification standards. Most of the forest compensation projects are using internal standards or taking as a reference international standards such as the Verified Carbon Standard; Climate, Community and Biodiversity Standard; and The Gold Standard.

AG: Why is there low interest in using standards?

LB: For sure it’s not a matter of price, because the average Italian prices are higher than the average international prices. The problem could be language – many actors are operating at the national level and once you begin to work with international standards that are only in English, it starts to be complicated for them to communicate to customers. The other problem is information. Suppliers in Italy are already very close to the buyers and they even agree before doing the project about the price and quantity, so there is a mutual trust – they don’t see the reason for going with standards.

AG: Tell me a bit about the Italian Forest Carbon Code (Codice Forestale del Carbonio). Where does it stand?

LB: The Italian Forest Carbon Code is an initiative to raise the quality bar of the voluntary forest carbon market in Italy. It’s an initiative grouping together project developers, public administrations, brokers, and buyers to define minimum-quality carbon projects in Italy.

To differentiate the regulated market from the voluntary ones, we took as an example the existing practices in the UK, Australia, and France. We compared them and tried to understand whether some of their aspects were able to fit into the Italian context. For example, we adopted the positive and negative list from the Australian Carbon Farming Initiative. After two years of consultation and workshops, the version 1.0 has reached the Ministry of Agriculture and Forestry for an official recognition.

AG: Could you talk a little more about the interest in a landscape approach in Italy?

LB: There are some projects, such as CO2Resa, which specifically target big food and wine producers for CO2 credits. The idea is to couple the incomes you can generate by selling carbon credits with traditional compensatory payments coming from the common agricultural policy. The European community is already paying farmers to establish new hedges [buffers alongside agricultural land] and create new wetlands, but these funds are usually not enough to justify long-term investments… The idea here is to give an extra value to these ecological corridors in order to keep the permanence of the corridors. So it’s a landscape approach in the sense that we are working on connecting high-biodiversity areas.

AG: What do you expect or hope will happen with international climate negotiations over the next two years?

LB: At this time we have a rather shy approach toward a Kyoto II, with the fear that the contribution of forests will be undervalued again. On the other hand, an international agreement is needed, and the international debate on Reducing Emissions from Deforestation and Degradation of forests (REDD) has generated a dynamic and renovated approach toward the responsible management of forests.