Forest carbon markets grow, despite uncertainty

A surge in activity around projects that reduce emissions from deforestation and forest degradation (REDD) has helped boost the value of the forest carbon markets – despite lingering uncertainty about their future, according to a survey.

The State of the Forest Carbon Markets 2011 report, published yesterday by information provider Ecosystem Marketplace, says that 30.1 million tonnes of carbon dioxide equivalent (MtCO2e) were contracted last year, valued at $178 million in total. These figures cover both primary deals – made directly with a project – and subsequent secondary market transactions in both the voluntary and regulated carbon markets.

However, the vast majority (29.0 MtCO2e) of deals were in the primary market, and about two-thirds (19.5 MtCO2e) of that was from REDD projects. Other project types tracked in the survey were improved forestry management, afforestation/reforestation and agro-forestry.

In 2009, some 20.2 MtCO2e were contracted from the primary market, with 9 million from REDD projects.

More than 90% of 2010’s deals were for voluntary carbon credits; less than 10% were done in the regulated markets of the Clean Development Mechanism (CDM) and New South Wales Greenhouse Gas Abatement Scheme.

Average primary offset prices climbed to $5.50 per tCO2e in 2012, up from $4.50 in 2009 and $3.80 in 2008, the report says.

In comparison, average prices in the secondary market for certified emission reductions (CERs) from CDM projects – the most liquid offsets market in the world – also climbed, to about €12.40 ($16.74) in 2010 from around €11.80 in 2009, for the December contract on the European Climate Exchange. However, in 2008, the CER price averaged around €17.80.

Projects in Latin America supplied almost half of the forest credits, while European buyers were the largest source of demand, taking at least one-third of the volumes.

Almost half of the credits were verified to the Verified Carbon Standard and the Climate, Community and Biodiversity Alliance standard.

Most of the participants to the survey expect forest carbon markets to grow, but the report notes that demand for credits needs to be created at the international level for the market to thrive.

“The fate of these markets and projects will in large part rest in the hands of policymakers. 2010 was undoubtedly a critical year in the history of the forest carbon markets, but the most consequential chapters in this story still remain to be written,” the report says.

The survey captured data from 161 project developers and 48 secondary market suppliers.