New trading regime could boost forest carbon market

Expectations that forest-based carbon credits will be eligible for use in future compliance regimes could boost the market, according to Ecosystem Marketplace.

Many current deals for forestry credits are being completed on a pre-compliance basis due to expectations that US or international emissions trading programmes will recognise the credits, said Katherine Hamilton, the Washington, DC-based director for the information provider.

Following the Copenhagen negotiations on a post-2012 international climate agreement, there could be huge potential for projects to reduce emissions from deforestation and forest degradation (REDD) in compliance regimes, she said. Proposed US legislation also includes financing for REDD projects.

“A lot of investors are turning their eyes to this marketplace, even if it doesn’t translate to transactions right now,” Hamilton said.

A total of 3.7 million tonnes of carbon dioxide (Mt CO₂) of forest-based carbon credits were traded in the first half of 2009, putting the market on track to surpass the 5.3 Mt CO₂ transacted in all of 2008, according to the State of the Forest Carbon Markets 2009 report by Ecosystem Marketplace, released last month.

Overall, 20.8 Mt CO₂ has been transacted in the global forest carbon market from 226 projects over the past 20 years, for a total value of about $150 million, the report stated.

In the first half of 2009, the voluntary carbon markets accounted for 72% of forest carbon transactions. But the newly-launched New Zealand Emissions Trading Scheme (NZ ETS) accounted for 1.4% of the market in the first six months of last year and such transactions could continue if there a new international agreement, according to the report.

Prices for forest carbon credits over the period studied have ranged from $0.65/t CO₂to more than $50/t CO₂, with an average price of $7.88/t CO₂. “I was surprised by that,” Hamilton said of the average price. “I thought that was really quite high.”

The study found that, unsurprisingly, the compliance markets commanded the highest prices, with an average price of $10.24/t CO₂, mostly because of deals in the NZ ETS, she said. The least expensive voluntary credits were those traded on the Chicago Climate Exchange, which have had an average price of $3.03/t CO₂.