Forest carbon market: 20mT in 20 years

The forest carbon market is now two decades old but the bulk of its 20-million-tonne contribution to carbon sequestration and emissions reduction has come in the last three years - despite the global financial crisis and recession. This picture emerges from the ‘State of the Forest Carbon Markets’ report released by Ecosystem Marketplace (ESM) this week. Its landmark report appears the best attempt yet at a comprehensive estimate of the volumes and value in the forest carbon sector worldwide.

The organisation says its doesn’t claim to have accounted for every forest carbon transaction but has surveyed widely in the market. It found 226 projects past and present covering 2.1 million hectares in 40 countries involving 61 project developers and 34 intermediaries. Activities bankrolled by carbon finance were dominated by afforestation & reforestation (A/R), improved forest management and avoided deforestation, increasingly known as ‘REDD’.

Looking to the future, the study says there is uncertainty over the growth path ahead as participants await political developments that could see vast new markets emerge dwarfing anything up to now. Potentially billions of tonnes of carbon assets would come into play under new REDD forest preservation mechanisms being drafted at the United Nations and in the United States Congress. But the role of the largely private sector project-based forest activity that has driven the market up to now is very much under a cloud in these schemes.

Over the two decades since the first projects emerged, the forest carbon sector has transacted a total of 20.8 million tonnes of CO2 (MtCO2), including two million tonnes in secondary trading, which realised $149 million. But two-thirds of forest carbon transacted volumes have occurred in the last three years since the voluntary carbon market took off and when the world’s first mandatory carbon market, the NSW GGAS scheme in Australia, peaked. Tiny by comparison to the EU ETS, the NSW programme and other mandatory schemes have been important contributors to the forest carbon market - recognise forestry credits unlike the European giant.

Of the total historical volume, the over-the-counter (OTC) voluntary carbon market accounted for 15.3 MtCO2, and voluntary exchange-related trading on the Chicago Climate Exchange (CCX) saw 2.6 MtCO2 transacted. Forest credits generated for sale into the mandatory emissions markets accounted for the rest; 1.8 MtCO2 from NSW GGAS, 600,000 tonnes in Kyoto Protocol AAUs, 500,000 tonnes from Kyoto’s CDM A/R sector and 100,000 from New Zealand’s recently-begun emissions trading scheme.

And of that 20-year total volume, 14 million tonnes were transacted in the two and half years from 2007 to mid-2009. From 2008 onwards, the fastest growth has been in the voluntary OTC market and NZ ETS, where forestry and land-use activity is destined to play a big part in the country’s emissions reduction action.

The study found that the historical average price for forestry-based carbon credits was $7.88 per tonne of carbon dioxide (tCO2) reduced, although this figure means little given the great variability in project type, design, and verification standards employed across the breadth of the mandatory and voluntary markets. Mandatory emissions markets in general attract higher prices and averaged $10.24 per tCO2 over the last 20 years. The OTC voluntary market averaged $8.44 per tCO2 while CCX averaged $3.03. The average price of CDM forest credits – only temporary and different to the permanent credits issued in the other markets – averaged $4.76.

In 2008, the most recent year fully accounted for in the ESM study, voluntary OTC market credits averaged $7.12. But the NZ ETS in 2009 secured the highest prices at an average of $12.31 per tCO2. Third-party verification of projects to set standards is also a key price driver and a big issue in the unregulated voluntary market. The study says certification to such standards has increased from 15 per cent in 2002 to 96 per cent in 2009.

Over time, A/R projects accounted for 63 per cent of credits, REDD projects 17 per cent and improved forest management (IFM) projects 13 per cent. But those involving a mix of activities are on the rise. In 2008, A/R covered 53 per cent, combined REDD, A/R and IFM accounted for 24 per cent and IFM 20 per cent. In the voluntary markets, six out ten projects A/R and IFM projects reported planting indigenous trees.

The geographic spread of the 226 projects surveyed was 39 per cent North America, 22 per cent Latin America, 16 per cent Oceania, 11 per cent Africa, 6 per cent Asia and 4 per cent in Europe.

The ‘State of the Forest Carbon Markets 2009’ report was released by Ecosystem Marketplace. It's a landmark report that appears the best attempt yet at a comprehensive estimate of the volumes and value in the forest carbon sector worldwide over its 20-year history. It covers the market from the first projects in the late 1980s up to mid-2009. Although dated 2009, it was released in January 2010.

ESM says its doesn’t claim to have accounted for every forest carbon transaction but has surveyed widely in the market. It found 226 projects past and present covering 2.1 million hectares in 40 countries involving 61 project developers and 34 intermediaries. These activities bankrolled by carbon finance were dominated by afforestation & reforestation (A/R), improved forest management and avoided deforestation, increasingly known as ‘REDD’.

The report finds that over the two decades since the first projects emerged, the forest carbon sector has transacted a total of 20.8 million tonnes of CO2 (MtCO2), including two million tonnes in secondary trading, which realised $149 million. But two-thirds of forest carbon transacted volumes have occurred in the last three years since the voluntary carbon market began to take off.

Downloads
Full report: State of the Forest Carbon Markets 2009: Taking Root and Branching Out [PDF 6.4 MB]

State of the Forest Carbon Markets 2009 – Executive Summary [PDF 1.3 MB]