EU must restrict forestry offsets: EU paper

LONDON (Reuters) - The European Union should not allow industry to meet climate goals by funding forest conservation in developing nations before 2020, said a leaked EU Commission paper due for release on Friday.

The proposals, which would need backing from EU lawmakers and leaders, were welcomed by green groups but will come as a disappointment to private sector developers who argue that only carbon markets money can save the world's trees.

Worldwide, an area of forest greater than the size of Greece is lost every year, contributing to about a fifth of the global greenhouse gas emissions blamed for global warming.

European businesses are set a fixed quota of emissions permits under the EU emissions trading scheme, and allowing them to buy offsets from curbing deforestation would swamp that scheme, the EU executive Commission argued.

"Allowing companies to buy avoided deforestation credits would result in serious imbalances between supply and demand in the scheme," the paper said, adding that deforestation emissions were three times more than emissions regulated under the EU ETS.

The EU Commission wants to halve annual deforestation by 2020 and halt it altogether by 2030, and said that the best way to do that was through public sector funding in the near-term.

For example, it recommended a "global forest carbon mechanism" whereby EU countries would pay developing countries to curb deforestation, if they had ratified a successor climate pact to the Kyoto Protocol from 2013.

One source of funding could be from the sales of emissions to permits to industry under the EU ETS, which the proposal paper estimated could raise 30-50 billion euros annually for EU member states by 2020.

The cost of halving global deforestation by 2020 would be 15-25 billion euros annually, the paper said, and it proposed that 5 percent of the EU ETS auction revenues could be earmarked to combat that.

EU governments could also "test" using forestry carbon offsets, by using these to help them meet their own climate targets under a new climate pact from 2013, said the paper seen by Reuters on Thursday.

"For a global forest carbon mechanism to be operational in 2013 and to test the feasibility of including forests in carbon markets intensive preparatory work will be necessary," it said, referring to much work needed to build up local agencies and curb illegal logging.

The paper encouraged the use of labeling and certification schemes to curb the import of illegally harvested timber into Europe.

"It is particularly encouraging to see that the Commission has recognized that substantial public funding will be required to tackle problems of poor forest governance, and that the carbon markets will not be an appropriate way of overcoming such problems for the foreseeable future," said Simon Counsell, director of the green group, the Rainforest Foundation.

(Editing by James Jukwey)