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Pulp fact or fiction?

Khadija Sharife

10 / 2010

Using Norway-based Green Resources Ltd’s plantations as a case study, Khadija Sharife looks at whether clean development mechanism projects like those undertaken by Green Resources in East Africa can actually bring benefits to people on the ground.

Green Resources Ltd, Africa’s largest forestation company, appears to be an entity with a sustainable mission, ranging from ranging from recuperation of wood waste to carbon sequestration. This is no accident: just two days after the UN Framework Convention on Climate Change’s (UNFCCC) Kyoto Protocol was adopted, the company (then known as Fjordglott) increased capitalisation from US$98,000 to US$1.4 million, later extending invitations to private investors, such as Norwegian corporation TRG, to acquire shares. (1)

These days, Green Resources’ activities include plantations, carbon offsets, forest products and renewable energy. The company’s wood production in Africa is pegged at 14,000ha of forest plantations of total 610,000ha under process for future development. (2) The company, primarily operating in East Africa, with 3500 employees (3) holds 12,000ha in Uganda (4) as well as significant areas in Tanzania (34,000ha of land, with a further 120,000ha in the process of acquisition), Mozambique (172,000ha) and Sudan (179,000 ha). (5) It also owns East Africa’s largest sawmill, Sao Hill, and remains one of the continent’s largest producers of transmission poles required for electricity, amongst other products such as wood for housing. (6)

The company’s current major shareholder structure (7) includes: Phaunos Timber Fund (26 per cent), New Africa (26 per cent), Steinerud (ten per cent), Macama (eight per cent), Storebrand ASA (eight per cent), Verbene Investment Ltd (seven per cent), TRG (four per cent), Preben Invest AS (three per cent). Unlike the company’s limited competitors, Green Resources has the comparative advantage of already having significant experience in land acquisition, described as a ‘significant entry barrier’ by the company. Competitors include the Global Forest Solidarity Fund (8), a private initiative active in Mozambique, funded to the tune of US$100 million from investors such as Harvard University, planting 5,000ha in the past decade. Other competitors include New Forest (9), financed by UK capital, operating in Uganda and Mozambique, planting 1,500ha in 2007; Actis/CDC (10), controlling 7,000ha of teak plantation in Tanzania, as well as logging rights in Sudan; Raiply (11), East Africa’s largest forest industry company, owning 12,000ha in Tanzania, with operations in Kenya; and Rift Valley Holdings (12), self-described as ‘one of the largest investors in agriculture and forestry in sub- Saharan Africa.’

As Mutuma Marangu, chairman of a Green Resources subsidiary recently explained (13), a tree that takes 70 years to grow in Norway, takes just 17 years in Tanzania. Given the geostrategic location of East Africa, and the rising need from emerging nations such as China for wood, Marangu believes that with major forests coming online, Chinese, Japanese and other major users of wood in the near- and far-East will move toward East Africa as opposed to Brazil, Argentina and Chile – their traditional mainstays for lumber.

‘There is a shorter shipping voyage from China to East Africa rather than China to Brazil,’ he stated. ‘There is ample opportunity here. We have the least penetration of forestry and forest cover in the world, the greatest possibility for growing trees. We are leading by example.’ (14) During his recent interview with Canada’s Business New Network (BNN), Marangu said that each year wood is required for 300,000 homes in three different East African countries, with population growth at ‘one million people, per year’ in Kenya, Tanzania and Uganda. (15)

‘In terms of power and demand, there is an extreme need for both (wood) production and (carbon) offsets. At present, there is not much multinational or foreign investment in the sector,’ he said. Currently, ‘high cost’ producers such as the USA (producing over 600 million cubic metres of wood per year) and Russia (which producers over 400 million cubic metres yearly) amongst others like Uruguay, Brazil, Indonesia and South Africa, account for 80 per cent of supply. (16) The company notes that Russia’s new log wood export tariffs (€50 per cubic metre) exceeds Tanzania’s stumpage costs (the residual costs after subtracting various allowable costs such as transport). (17) Meanwhile, emerging nations such as South Africa are increasing local consumption of wood products.

Marangu’s assessments of China and India are indeed correct: from 2002 to 2006 (18), the latter’s imports doubled as did China’s during the past five years. And while China has increased domestic plantation of both hardwood and softwood (rising from 6 million and 7 million cubic metres respectively in 2000, to 25 million cubic metres and 16 million cubic metres annually in 2010), China’s ‘explosion’ in wood imports will have only a ‘modest impact’. It is precisely the company’s vast wood resources that enable it to perceive carbon offsets as a viable means of generating profit through carbon sequestration or storage via plantations. Plantations are seen as a profitable means of mitigating climate change under the umbrella of the Kyoto Protocol’s Clean Development Mechanism (CDM) projects. Africa has been the smallest recipient of climate reparations funds even though the continent emits just three pre cent of all greenhouse gases (GHG) worldwide.

Despite studies by Stanford University’s Program on Energy and Sustainable Development, which reveal that between one-third and two-thirds of CDM projects ‘do not represent real carbon reductions’ (19) CDM projects account for 20 per cent of the total carbon market (20), valued at US$17.5 billion of US$94 billion (in 2009). The European Union carbon market comprises 77 per cent (US$72 billion), but the market itself is pegged to explode by 300 per cent once the US market officially comes online. (21)

The relevance of forests as a means of ‘sinking’ carbon was recognised by the Kyoto Protocol’s Articles 6 and 12, related to project activities and emissions trading. Article 6 articulates that Annex 1 (or developed/industrialised nations accounting for more than 80 per cent of historical emissions), may transfer to, or acquire from, any other Annex 1 country, carbon credits – the result of projects aimed at reducing man-made emissions or enhancing carbon sinks. (22) Included in Article 6 are two key provisions stipulating that any claimed emissions reductions be from ‘additional’ to emissions that would have otherwise occurred. (23)

Meanwhile, Article 12 concerns the role of non-Annex 1 nations (developing countries) by defining the role of CDM initiatives, enabling – in theory – developing nations to move forward sustainably through technology transfer (for example, solar and wind power) from developed nations. (24) CDM in return facilitates compliance for continued C02 emissions on the part of developed nations through purchasing carbon credits generated via the lack of fossil-fuel use in developing nations. Aforestation (A) and reforestation (R) projects were adopted by the 9th Conference of the Parties (COP) in December 2003. (25)

Green Resources has declared that existing projects will generate over 60 million tonnes of carbon ‘capture  (26) during the next decade, with total forestation carbon capture expected to peak at 2 million tonnes per annum for existing projects under development (in 2009). (27) Additional projects are estimated to generate 9 million tonnes (by 2020 when ‘net growth in biomass is the highest’). The Norwegian government, eager to offset some 6 million carbon credits (28) has already acquired carbon credits from Green Resources. (29)

Though the 1997 Kyoto Protocol, established under the umbrella of the UNFCCC entered into force in 2005, Tanzania ratified the agreement in 2002. (30) The UNFCCC’s approval is vital as is the approval of the host country via the Designated National Authority (DNA) is a fundamental pre-requisite. Tanzania’s official CDM guide for investors revealed, ‘In Tanzania, before the DNA can approve the A/R project activities, it is addressed by the Ministry of Natural Resources and Tourism through the Forest and Beekeeping Division which has formed a task force to looking at A/R project activities and other factors related to carbon trade opportunities.’ (31)

In order to ‘speed up’ and simplify the process for small-scale CDM initiatives, the government has implemented ‘faster registration, only four weeks after submission, exemption from registration fee’, as well as entities that are, ‘validated, verified and certified by the same designated operational entities’ (DOE). DOE’s are responsible for checking that CDM projects conform to proper regulations. To achieve DNA approval, ‘project idea notes’ (PIN) – identifying the ‘additional’ nature of the project without which it would not qualify for CDM status – and project design documents (PDD) are required, while DNA involvement from the project start date is preferred. Projects earmarked for rural areas are also preferred, while technology transfer remains one of four key conditions pending approval by the DNA. The guide further reveals, ‘Timing of the CER sales has an impact on the price which can be obtained. Contacting buyers at the PIN or PDD stage can be advisable if financing for the CDM registration is sought.’ (32)

Green Resources’s Idete Forest Project (IFP) is one such CDM initiative. ‘The objective of Idete is to grow trees for carbon storage and to harvest forestry products for sawn timber, utility poles and renewable energy,’ revealed Green Resources. While the company submitted the PDD in November 2008, planting at Idete had already begun in 2006 on degraded grasslands. (33) Forest Stewardship Council (FSC) certification, already achieved in 2008 at the company’s Uchindile and Mapanda concessions, is fundamental to ensuring that best industry standards are maintained. According to Dr Blessing Karumbidza of the Institute or Economic Research and Innovation (EIRI) it is Norway – one of the world’s leading oil producing nations – rather than Tanzania that stands to benefit.

‘The Idete project was allegedly underwritten by Norway’s Ministry of Finance. The Norwegian prime minister, who was present at the time of the launch, articulated the importance of carbon credits as a means of offsetting Norway’s emissions. Tanzania was at the heart of the deal,’ says Karumbidza, who also represents the African civil society organization Timberwatch. The irony, as Karumbidza points out, is that wood plantations are not forests but monocultures and thus should not receive FSC certification.

‘Green Resources claimed that the acquired Idete land was degraded through fire, but unlike wood plantations where fire can destroy wood products, grasslands fires serve a very natural and quick, process of maintaining the ecosystem by removing dead herbaceous materials, recycling nutrients and other important factors,’ he says. ‘The purpose of this and similar CDM deals is not to transfer technology enabling sustainable development and renewable energy in developing countries in exchange for offsetting Western emissions, but instead, more of the same exploitation.’

Species are primarily composed of potentially invasive eucalyptus (59 per cent), and pine (40 per cent). The forest, situated in the Mufindi district, Iringa region, is located at an altitude of between 1,100m and 1,550m. The rainy season extends from November through May. (34) By 2008, 1,600ha of 8,000ha plantable area (from a total of 11,600ha of Idete land acquired by Green Resources) had been developed, generating a potential 172,471 temporary certified emission reductions (tCER) per annum. (35) The company estimates that total production over 20 years will generate almost 2.6 million tCER from Idete alone. (36) In 2009, Green Resources revealed that potential tCERs of over 6 million by 2020, sold at US$6 per estimated emissions reduction would generate US$36 million in revenue, for the crediting period (under CDM rules, the accumulated carbon can be sold every five years). (37) The economic challenges facing carbon offset projects in Tanzania have been described by Green Resources as projects beset by a ‘high level of risk, low and uncertain tCER price, and high cost of project development and implementation’. Institutional and social obstacles include limited government understanding of the carbon certification process and difficulties innate in government procedures and bureaucracies for approval, as well as similarly limited understanding on the part of communities. (38) The company further added in their presentation, ‘Oveview of Plantation/Certification Development in Tanzania’, that stakeholders and communities had very high expectations of perceived benefits. (39) Moreover, the company declared that private investors were placed in a disadvantageous position.

‘While there are large amounts of funding available for forestry and carbon activities, very little of this benefits private companies,’ Green Resources revealed. ‘We estimate that private companies receive less than two per cent of the public funding available for forestation and carbon. In order to increase all the activity aimed at combating climate change, in particular in Africa, funding agencies should provide much increased grants to the private sector.’ (40) While the company stated that project costs per hectare ranged from US$400-US$600[41] land is leased for a 99-year period from the Tanzanian government at just 2.3 Norwegian krone per hectare– (less than US$0.36), generating just under US$4200 for Idete’s lease. (42) This represents a decrease of two-thirds from previous land-lease prices, lambasted by former managing director Ivar Løvhaugen who revealed that lease prices should be reduced as much as possible to diminish risk. His thoughts were echoed by John P. Haule, managing director of a subsidiary owned by Green Resources Ltd (then known as Tree Farms), who announced that leasing charges must decrease by 50 per cent to 750 Tanzanian shillings. (43)

Green Resource’s head, Mads Asprem, further explained to Norway’s civil society group Norwatch last year, ‘It is interesting to note that the demand for land in Tanzania is very low and that there is little development within forestry and agriculture. The conclusion can only be that the price of land is too high.’  (44) The company has pledged to re-invest 90 per cent of revenue back into further projects while, according to the company, the two villages leasing land will receive 10 per cent of the profit generated from carbon credits. (45)

‘What Green Resources is doing is exporting the problem of pollution generated abroad to Africa. Tanzanians are receiving little in the process. This will become more evident in ten or 15 years when groundwater is depleted by wood plantations. The exploitative nature of the deal is especially evident in the fact that it was negotiated not in hard currency but Tanzanian shillings subject to currency depreciation,’ Karumbidza explains. ‘Tanzanian communities can expect to receive several million Tanzanian shillings from the carbon credit revenue in 15 years – whatever that is worth.’

Though Green Resources – the first company to receive Voluntary Carbon Standard (VCS) certification outside of the USA, has claimed that thus far the company has reaped no profits after 12 years of operation in Africa, plantations will soon be fully grown and ready to harvest. (46) Time will tell whether reforestation CDM projects are more fact than fiction.

NOTES

(1) Norwatch (2000) ‘Norwegian Tree Plantations, Carbon Credits and Land Conflicts in Uganda’: p. 4.
(2) Green Resources (2009) ‘CCA Africa Agribusiness Sector Presentation’, p. 2 (available from: tinyurl.com/268jfuy)
(3) Ibid.
(4) Ibid.
(5) Ibid.
(6) Ibid., p. 4.
(7) Ibid., p. 2.
(8) Ibid., p. 4.
(9) Ibid.
(10) Ibid.
(11) Ibid.
(12) Ibid.
(13) Business News Network (2010), Interview with Green Resources’ Mutuma Marangu, 28 April (available from: tinyurl.com/2f34wg9)
(14) Ibid.
(15) Ibid.
(16) Green Resources (2009) ‘CCA Africa Agribusiness Sector Presentation’, p. 6.
(17) Ibid.
(18) Ibid.
(19) Christian Aid (2009) ‘The Role of Carbon Markets In Countering Climate Change’ (as cited by Victor, David. (2008) ‘A Realistic Policy on International Carbon Offsets’, CITY, Stanford University Press).
(20) Green Resources (2009), ‘CCA Africa Agribusiness Sector Presentation’ p. 5.
(21) Ibid.
(22) Winrock International (1999) ‘Guidelines for Inventorying and Monitoring Carbon Offsets in Forest-Based Projects’ Arlington, VA, Winrock International.
(23) Ibid.
(24) Ibid.
(25) Republic of Tanzania (2007) ‘A Handbook for Clean Development Mechanism Projects (CDM) Activities in Tanzania’, (available from: tinyurl.com/27bo4kd)
(26) Green Resources (2009) ‘CCA Africa Agribusiness Sector Presentation’, p.5.
(27) Ibid.
(28) TimberWatch (2009) ‘Potential Impacts of Tree Plantation Projects under the CDM An African Case Study’ (available from: tinyurl.com/2dsqo3h)
(29) Green Resources (2009) ‘CCA Africa Agribusiness Sector Presentation’, p. 5.
(30) Republic of Tanzania (2007) ‘A Handbook for Clean Development Mechanism Projects (CDM) Activities in Tanzania’, p. 4.
(31) Ibid. p. 14.
(32) Ibid., p. 8.
(33) Green Resources (2010) ‘Plantations Tanzania’ (available from: www.greenresources.no/Plantations.aspx)
(34) Ibid.
(35) Green Resources (2008) ‘Overview of Plantation/Certification Development in Tanzania’, p. 9.
(36) Ibid.
(37) Green Resources (2009) ‘CCA Africa Agribusiness Sector Presentation’, p. 5.
(38) Green Resources (2008) ‘Overview of Plantation/Certification Development in Tanzania’, pp.13-14.
(39) Ibid.
(40) Carbon Positive (2010) ‘Reforestation Vital for Africa & Climate Developer’,(available from: tinyurl.com/y9qhuvf)
(41) Green Resources (2008) ‘Overview of Plantation/Certification Development in Tanzania’, pp.13-14.
(42) Norwatch (2009), ‘Climate Project on Cheap Ground’, (available from: tinyurl.com/2wyhobq)
(43) Ibid.
(44) Ibid.
(45) Green Resources (2009) ‘CCA Africa Agribusiness Sector Presentation’, p. 5.
(46) Carbon Positive (2010) ‘Reforestation Vital for Africa & Climate Developer’.

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