Forest CO2 markets are in balance

LONDON (Reuters) - The global market for carbon offsets from planting trees and preserving forests, worth nearly $150 million to date, could stall without a U.S. climate bill or a successor pact to the Kyoto Protocol, a report said on Thursday.

"At the end of 2009, the market for forest carbon stands in an uncertain position on the verge of potentially enormous growth," the State of the Forest Carbon Markets 2009 report said.

"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."

Although climate talks in Copenhagen in December failed to agree a new legally-binding global climate pact to cut greenhouse gas emissions, the U.S. pledged at the summit $1 billion toward a scheme to reduce emissions from deforestation and degradation (REDD).

Many countries have committed politically to the $3.5 billion scheme, of which Australia, France, Japan, Norway and Britain are also contributors.

A domestic U.S. bill to cut emissions has also stalled in Congress, with market players calling its passage this year vital for investment.

Regardless of this uncertainty, the forest carbon market grew nearly fivefold since 2006.

The market was worth $37.1 million in 2008, after rising to $40.5 million a year before and from $7.6 million in 2006, according to Ecosystem Marketplace, the report's authors.

The report said the forest carbon market was worth $21 million in the first half of 2009.

The volume-weighted average price was $7.88 per tonne of carbon dioxide, with compliance markets like the New Zealand Emissions Trading Scheme commanding the highest average price for forest offsets ($10.24).

The over-the-counter (OTC) market for voluntary carbon offsets, typically unregulated and somewhat opaque, had average prices of $8.44 a tonne, while forest offsets trading on the Chicago Climate Exchange, the only exchange for voluntary carbon offsets, saw prices of around $3.03.

To the end of June 2009, the market traded the equivalent of 20.8 million tonnes in offsets, representing 2.1 million hectares of forests worth some $149.2 million, the report said.

Of this, North America was home to 39 percent worth $32 million, Latin America had 22 percent worth $35.5 million, Australia had 16 percent worth $37.8 million and Africa had 11 percent worth $20.9 million, the report said.

Asia and Europe made up only 6 percent and 4 percent of volumes, worth $10 and $6 million respectively.

The report found that of the protected forests in question, the top drivers of deforestation were commercial logging (23 percent) and agricultural development (19 percent).

Latin America, home of the Amazon rainforest, showed the largest variety of pressures, which also included ranching, illegal logging, urban development and oil and gas exploration.