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Stories to Watch in 2012

Renewable Energy

World Resources Institute

By Manish Bapna

What are the top environmental and development issues that will shape 2012? Jan. 10, I presented the World Resources Institute’s (WRI) 9th annual Stories to Watch at the National Press Club. While we can’t predict the future, here’s a rundown of the key issues to keep an eye on:

1. Environmental Issues in an Election Year

U.S. Climate Policy

In 2008, the Obama administration set a target that the U.S. would reduce greenhouse gas (GHG) emissions 17 percent by 2020 (compared to 2005 levels). According to WRI’s 2010 analysis, the 17 percent target is still within reach, but it will require a sustained effort in 2012 and beyond.

In 2012, the Obama administration has significant opportunities to cut emissions—but it remains to be seen how far it will be willing to go. This year you cannot answer the question of whether the administration will be aggressive without considering the political context even more than usual.

At the state level, California will be putting in place the foundation for their new cap-and-trade program, and the Regional Greenhouse Gas Initiative states will be doing a program review in 2012.

U.S. Presidential Election

It's amazing how quickly things can change in politics. Back in 2008, both Democratic and Republican candidates supported national action to address climate change.

Now, the obvious story to watch is how environmental issues play out in the 2012 campaign. This will, in part, set the stage for what happens in the next presidential administration.

Will President Obama leverage his environment and public health record and position himself in contrast to the more extreme strains of the GOP? Will he lean into these issues or distance himself from them?

On the Republican side, will the presumed candidate embrace anti-EPA rhetoric, using it as a prime example of government overreach? Or will he pivot back toward more moderate positions as the general election begins?

2. Transitions in China

Solar and Wind Trade Issues between the U.S. and China

Recent trade cases have upped the ante in the clean energy trade dispute between the U.S. and China. Solarworld has brought a case forward on behalf of a coalition of U.S. manufacturers of solar panels. A group of solar buyers and installers have banded together to oppose the complaint. China’s Ministry of Commerce began a formal investigation of U.S. government support for the clean energy sector. And, just last week, a new trade case was filed in the U.S. challenging Chinese subsidies for steel towers used for wind turbines.

We’ll be keeping a close eye on this story. Some are suggesting that this dispute could become as heated as the trade wars on automobiles between the U.S. and Japan in the 1980s.

National Energy Cap

For the first time, China is considering setting a national cap on energy use. Although we don’t know the details yet, it will likely be an annual limit on total energy consumption or coal consumption, probably through 2015 or through 2020. This would be a major step forward in helping China decouple energy consumption from Gross Domestic Product growth.

The ultimate impact of the cap will be to limit the use of coal in China, which currently makes up more than 70 percent of consumption. We’ll be watching to see how this plays out on the national and provincial level.

Carbon Trading Systems

China will be setting up provincial carbon trading systems in 2012. Interestingly, the pilots in different places will be constructed differently. Just as U.S. states act as laboratories of change, the Chinese government uses pilots at the provincial level to test new ideas before scaling up across the country.

3. Rising Food Demand and Opportunities

Demand for food is accelerating at a remarkable rate. The global middle class is expected to triple within the next 20 years, changing the types of food people eat. There will be pressure to convert many of the remaining, pristine natural landscapes to food production. How we respond to this demand will have profound implications for biodiversity, forests and the global climate.

One solution to this problem is to restore degraded or significantly underproductive lands. Although estimates vary, a key study last year published in the Proceedings of the National Academy of Sciences found that somewhere between 600-700 million acres of degraded cropland has been abandoned over the past century, and a huge amount of that land (about four times the size of Texas) could be brought back into production.

4. Renewable Energy—Boom or Bust

Global investment in renewable energy is already approaching global investments in fossil fuels. Could 2012 be the year in which renewable energy investment surpasses fossil fuels?

This depends in part on two issues. First is the effect of the shale gas boom. Abundant, cheap shale gas may make it even more difficult for renewables to break into the market.

Second are government policy decisions, especially in the U.S., China, Germany and India. These will likely determine the scale of future investment in renewable energy. Will countries commit to steady and well-telegraphed renewable policies, as Germany has done successfully over the past few years, or will they cut renewable support under political and fiscal pressures?

5. Rio+20

In June 2012, more than 40,000 people are expected to convene for the Rio+20 Conference in Brazil. This is the fourth historic global environmental summit, following Stockholm in 1972, Rio in 1992, and Johannesburg in 2002. But, with just six months to go, vision for the conference is only now beginning to emerge. I am therefore doubtful that major breakthroughs will emerge from the official process. That said, we may see exciting action emerge from the bottom up—via a subset of governments or from civil society or from the business sector or a combination of them.

For example, we expect to see governments make commitments to energy access, and around water security, food security and governance. If so, we could see some significant developments in Rio.

When we look to 2012, we see that a movement toward sustainability is underway in many places around the globe. It is collapsing the boundaries between economics and environment, and is re-defining concepts of what constitutes quality of life and national security. We observe it is being driven not just by altruism, but by necessity—long-term business strategies, political calculations, re-valuing natural resources and in many instances survival for many people.

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Ola Elvestrun, Norway's environment minister, announced Thursday that it is freezing its contributions to the Amazon Fund, and will no longer be transferring €300 million ($33.2 million) to Brazil. In a press release, the Norwegian embassy in Brazil stated:

Given the present circumstances, Norway does not have either the legal or the technical basis for making its annual contribution to the Amazon Fund.

Brazilian President Jair Bolsonaro reacted with sarcasm to Norway's decision, which had been widely expected. After an official event, he commented: "Isn't Norway the country that kills whales at the North Pole? Doesn't it also produce oil? It has no basis for telling us what to do. It should give the money to Angela Merkel [the German Chancellor] to reforest Germany."

According to its website, the Amazon Fund is a "REDD+ mechanism created to raise donations for non-reimbursable investments in efforts to prevent, monitor and combat deforestation, as well as to promote the preservation and sustainable use in the Brazilian Amazon." The bulk of funding comes from Norway and Germany.

The annual transfer of funds from developed world donors to the Amazon Fund depends on a report from the Fund's technical committee. This committee meets after the National Institute of Space Research, which gathers official Amazon deforestation data, publishes its annual report with the definitive figures for deforestation in the previous year.

But this year the Amazon Fund's technical committee, along with its steering committee, COFA, were abolished by the Bolsonaro government on 11 April as part of a sweeping move to dissolve some 600 bodies, most of which had NGO involvement. The Bolsonaro government views NGO work in Brazil as a conspiracy to undermine Brazil's sovereignty.

The Brazilian government then demanded far-reaching changes in the way the fund is managed, as documented in a previous article. As a result, the Amazon Fund's technical committee has been unable to meet; Norway says it therefore cannot continue making donations without a favorable report from the committee.

Archer Daniels Midland soy silos in Mato Grosso along the BR-163 highway, where Amazon rainforest has largely been replaced by soy destined for the EU, UK, China and other international markets.

Thaís Borges.

An Uncertain Future

The Amazon Fund was announced during the 2007 United Nations Climate Change Conference in Bali, during a period when environmentalists were alarmed at the rocketing rate of deforestation in the Brazilian Amazon. It was created as a way of encouraging Brazil to continue bringing down the rate of forest conversion to pastures and croplands.

Government agencies, such as IBAMA, Brazil's environmental agency, and NGOs shared Amazon Fund donations. IBAMA used the money primarily to enforce deforestation laws, while the NGOs oversaw projects to support sustainable communities and livelihoods in the Amazon.

There has been some controversy as to whether the Fund has actually achieved its goals: in the three years before the deal, the rate of deforestation fell dramatically but, after money from the Fund started pouring into the Amazon, the rate remained fairly stationary until 2014, when it began to rise once again. But, in general, the international donors have been pleased with the Fund's performance, and until the Bolsonaro government came to office, the program was expected to continue indefinitely.

Norway has been the main donor (94 percent) to the Amazon Fund, followed by Germany (5 percent), and Brazil's state-owned oil company, Petrobrás (1 percent). Over the past 11 years, the Norwegians have made, by far, the biggest contribution: R$3.2 billion ($855 million) out of the total of R$3.4 billion ($903 million).

Up till now the Fund has approved 103 projects, with the dispersal of R$1.8 billion ($478 million). These projects will not be affected by Norway's funding freeze because the donors have already provided the funding and the Brazilian Development Bank is contractually obliged to disburse the money until the end of the projects. But there are another 54 projects, currently being analyzed, whose future is far less secure.

One of the projects left stranded by the dissolution of the Fund's committees is Projeto Frutificar, which should be a three-year project, with a budget of R$29 million ($7.3 million), for the production of açai and cacao by 1,000 small-scale farmers in the states of Amapá and Pará. The project was drawn up by the Brazilian NGO IPAM (Institute of Environmental research in Amazonia).

Paulo Moutinho, an IPAM researcher, told Globo newspaper: "Our program was ready to go when the [Brazilian] government asked for changes in the Fund. It's now stuck in the BNDES. Without funding from Norway, we don't know what will happen to it."

Norway is not the only European nation to be reconsidering the way it funds environmental projects in Brazil. Germany has many environmental projects in the Latin American country, apart from its small contribution to the Amazon Fund, and is deeply concerned about the way the rate of deforestation has been soaring this year.

The German environment ministry told Mongabay that its minister, Svenja Schulze, had decided to put financial support for forest and biodiversity projects in Brazil on hold, with €35 million ($39 million) for various projects now frozen.

The ministry explained why: "The Brazilian government's policy in the Amazon raises doubts whether a consistent reduction in deforestation rates is still being pursued. Only when clarity is restored, can project collaboration be continued."

Bauxite mines in Paragominas, Brazil. The Bolsonaro administration is urging new laws that would allow large-scale mining within Brazil's indigenous reserves.

Hydro / Halvor Molland / Flickr

Alternative Amazon Funding

Although there will certainly be disruption in the short-term as a result of the paralysis in the Amazon Fund, the governors of Brazil's Amazon states, which rely on international funding for their environmental projects, are already scrambling to create alternative channels.

In a press release issued yesterday Helder Barbalho, the governor of Pará, the state with the highest number of projects financed by the Fund, said that he will do all he can to maintain and increase his state partnership with Norway.

Barbalho had announced earlier that his state would be receiving €12.5 million ($11.1 million) to run deforestation monitoring centers in five regions of Pará. Barbalho said: "The state governments' monitoring systems are recording a high level of deforestation in Pará, as in the other Amazon states. The money will be made available to those who want to help [the Pará government reduce deforestation] without this being seen as international intervention."

Amazonas state has funding partnerships with Germany and is negotiating deals with France. "I am talking with countries, mainly European, that are interested in investing in projects in the Amazon," said Amazonas governor Wilson Miranda Lima. "It is important to look at Amazônia, not only from the point of view of conservation, but also — and this is even more important — from the point of view of its citizens. It's impossible to preserve Amazônia if its inhabitants are poor."

Signing of the EU-Mercusor Latin American trading agreement earlier this year. The pact still needs to be ratified.

Council of Hemispheric Affairs

Looming International Difficulties

The Bolsonaro government's perceived reluctance to take effective measures to curb deforestation may in the longer-term lead to a far more serious problem than the paralysis of the Amazon Fund.

In June, the European Union and Mercosur, the South American trade bloc, reached an agreement to create the largest trading bloc in the world. If all goes ahead as planned, the pact would account for a quarter of the world's economy, involving 780 million people, and remove import tariffs on 90 percent of the goods traded between the two blocs. The Brazilian government has predicted that the deal will lead to an increase of almost $100 billion in Brazilian exports, particularly agricultural products, by 2035.

But the huge surge this year in Amazon deforestation is leading some European countries to think twice about ratifying the deal. In an interview with Mongabay, the German environment ministry made it very clear that Germany is very worried about events in the Amazon: "We are deeply concerned given the pace of destruction in Brazil … The Amazon Forest is vital for the atmospheric circulation and considered as one of the tipping points of the climate system."

The ministry stated that, for the trade deal to go ahead, Brazil must carry out its commitment under the Paris Climate agreement to reduce its greenhouse gas emissions by 43 percent below the 2005 level by 2030. The German environment ministry said: If the trade deal is to go ahead, "It is necessary that Brazil is effectively implementing its climate change objectives adopted under the [Paris] Agreement. It is precisely this commitment that is expressly confirmed in the text of the EU-Mercosur Free Trade Agreement."

Blairo Maggi, Brazil agriculture minister under the Temer administration, and a major shareholder in Amaggi, the largest Brazilian-owned commodities trading company, has said very little in public since Bolsonaro came to power; he's been "in a voluntary retreat," as he puts it. But Maggi is so concerned about the damage Bolsonaro's off the cuff remarks and policies are doing to international relationships he decided to speak out earlier this week.

Former Brazil Agriculture Minister Blairo Maggi, who has broken a self-imposed silence to criticize the Bolsonaro government, saying that its rhetoric and policies could threaten Brazil's international commodities trade.

Senado Federal / Visualhunt / CC BY

Maggi, a ruralista who strongly supports agribusiness, told the newspaper, Valor Econômico, that, even if the European Union doesn't get to the point of tearing up a deal that has taken 20 years to negotiate, there could be long delays. "These environmental confusions could create a situation in which the EU says that Brazil isn't sticking to the rules." Maggi speculated. "France doesn't want the deal and perhaps it is taking advantage of the situation to tear it up. Or the deal could take much longer to ratify — three, five years."

Such a delay could have severe repercussions for Brazil's struggling economy which relies heavily on its commodities trade with the EU. Analysists say that Bolsonaro's fears over such an outcome could be one reason for his recently announced October meeting with Chinese President Xi Jinping, another key trading partner.

Maggi is worried about another, even more alarming, potential consequence of Bolsonaro's failure to stem illegal deforestation — Brazil could be hit by a boycott by its foreign customers. "I don't buy this idea that the world needs Brazil … We are only a player and, worse still, replaceable." Maggi warns, "As an exporter, I'm telling you: things are getting very difficult. Brazil has been saying for years that it is possible to produce and preserve, but with this [Bolsonaro administration] rhetoric, we are going back to square one … We could find markets closed to us."

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