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January 20, 2010
Report Details the Growth of Market for Forest Offset Credits
    by Robert Kropp

Although the vast majority of projects are transacted in voluntary markets, third-party certification as well as commitments to offsets by governments have grown.

Forest carbon offsets may have their detractors—in a 2006 Guardian article, author George Monbiot likened offsets in general to papal indulgences, and described some forest offset projects as “disastrous forays into tree-planting”—and incentives for Reducing Emissions from Deforestation and Forest Degradation (REDD) were excluded from regulatory markets in the Kyoto Protocol in 1997.

However, voluntary markets have grown during the last decade to provide financing for such projects, in which companies and governments purchase offset credits to finance reforestation projects that reduce greenhouse gas emissions (GHG) by capturing carbon in trees. According to a recently published report by the Ecosystem Marketplace, the market value of forest carbon credits reached $149.2 million through the first half of 2009.

Furthermore, with agreement reached at December’s Copenhagen Accord on the need to develop financing mechanisms for REDD, the expected rise of regulatory markets, and the increase in transparency that is expected as a result, should encourage investors to increase their involvement.

The report, entitled State of the Forest Carbon Markets 2009: Taking Root & Branching Out, tracked 226 forest carbon projects that had transacted credits, of which 90% were Over the Counter (OTC) and 6% were transacted via the Chicago Climate Exchange (CCX). Only 4% of projects, or nine of the 226 tracked by the Ecosystem Marketplace, were from regulated markets.

Over the past 20 years, nearly 70 million tons of carbon have been captured in trees as a result of offset projects. Since 2007, $100 million have been invested in forest carbon markets, leading to the capture of 21 million tons of carbon, representing 67% of the market value of all forest carbon offsets.

Despite the minimal involvement of regulatory markets, third-party certification of OTC forest carbon offset projects grew from 15% in 2002 to 96% in the first half of 2009, according to the report.

The report concludes with the observation that, by the end of 2009, “countries have committed politically in international negotiations to reducing emissions from REDD and several have also committed financing.” In the US, the Clean Energy Jobs and American Power Act, which is awaiting final deliberations in the Senate, “explicitly calls for domestic forestry offsets and includes financing for REDD.”

“Amidst this scene of opportunity and risk, investors are still eyeing forest carbon, though many are waiting on more definite regulatory signals before taking a financial leap,” the report states.


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