FORESTDUMP: WHY WOODS COULD BECOME INDUSTRY'S PRIZED ASSET

`Chemicals executives battle to save forests.' The headline conjures up scenes of marketing executives chaining themselves to trees and R&D managers crouched, Swampy-like, in tunnels as bulldozers move in. Fanciful, certainly; but forests, lakes and seas may soon become more valuable than ever to the process sectors and other energy-intensive industries. They are one embodiment of the international communities' latest weapon for combatting the greenhouse effect: emissions trading.

In theory, trading could be local, national or international. In the US, for example, trading is already underway within certain states. The scheme, which targets sulphur dioxide rather than CO2, has been running since 1996.

The programme, triggered by worries over acid rain, awarded emissions allowances to utilities in each state. Inter-state trading was allowed, but the Environmental Protection Agency reports that virtually all trading was within the state. Utilities were also allowed to `bank' their allowances for future years. This, the EPA explains, encourages early reductions (by reducing the allowances for particular years) but also gives the utilities more flexibility in timing their programmes. For example, utilities might bank allowances early in a reduction programme to anticipate stricter emissions limits in future years. Each allowance has an expiry date, so the number of allowances is reduced each year. This ensures that total emissions fall over time.

The scheme's success appears to have quelled many of the fears over emissions trading. Nearly every state involved saw reductions in SO2 emissions, with a sharp (around 5million tonne) overall drop as the scheme was instituted. The EPA estimates that emissions will fall by 8.5million tonnes from 1980 levels by 2010.

The EPA says that its results so far refute claims that larger emitters will simply use their financial clout to buy in allowances rather than making the effort to reduce their own emissions. In fact, the operators of the highest emitting plants found they could reduce their emissions at a lower cost per tonne than most of the smaller emitters.

So where do the forests come in? For a global CO2 market, such regions would suddenly become even more important to industry. Leaving aside trifling factors of natural beauty, large concentrations of trees represent efficient sinks for CO2. Therefore, forests would represent extra emissions credits, which would allow industry to emit more CO2 without having to secure extra allowances. Companies would be naturally keen to ensure that their green belt remains both green and tightened.

The success of the US's experiment should be heartening to industries in the UK, which are keen to push CO2 trading as an adjunct or alternative to the government's proposed carbon tax. The Chemical Industries Association, at the forefront of the opposition to the proposals, argues that the tax would penalise energy-intensive industries, even if they make great efforts to reduce their emissions. An emissions trading programme for these industries would give them the flexibility to reduce their emissions without adding to their costs and damaging their competitiveness. Such a scheme was proposed by Lord Marshall in his report to the European Commission on fiscal methods for reducing CO2 emissions. It remains to be seen whether the governments will be persuaded. PE