The Future Of Voluntary Forestry Offsets

This chapter has so far reviewed what constitutes a tradable voluntary forestry offset and has described the market in terms of sources of demand,

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Years since planting the variety of products supplied and prices. Two important characteristics of forestry offsets that affect their equivalence with other types of offsets and therefore have implications for markets were discussed: the risk of impermanence, and the fact that they take time to offset present emissions. These characteristics are in contrast to other types of offsets that are both permanent and take effect immediately. The chapter concludes with a review of future prospects for voluntary offsets in the light of the changes in the structure of markets and the trends in demand already in evidence.

In 2007 a trend emerged in the increase in buyer demand for credits produced by projects awaiting issuance through the CDM. However, forestry projects constitute a negligible proportion of this market because the number of CDM projects in the pipeline is small. While the volume of offsets traded on the CCX is increasing dramatically, trade rising from 3.3 Mt of CO2e in July 2007 to 4.8 Mt in July 2008, the proportion of trades based on A/R plantation forestry is likely to remain very small, at around 4 percent. In contrast to the bureaucratic and administrative hurdles of the CDM and the lack of certainty for CERs post-2012 (Harris, 2007; Capoor and Ambrosi, 2007), voluntary offsets are cheap to administer, depending on the rigor of verification and location, and timing is not restrictive.

There has been heavy demand for forestry offsets from the US, which has not ratified the Kyoto Protocol, and Australia, which only recently ratified the Protocol. It is evident, however, that even where Kyoto parties have introduced schemes to control their emissions, such as in Europe and the United Kingdom, there is still a strong demand in the voluntary market.

Some products are verified, certified and labeled, instilling confidence in the buyer that the claims to offset a quantity of CO2e emissions for a given length of time will be met. Nevertheless in a large proportion of the market there is a distinct lack of rigor. Where forestry offsets are not verified by a third party, real possibilities exist for double-counting of the sequestration benefits as well as exaggeration of the offsets achieved. This has led to trenchant criticisms of offsets, and particularly forestry offsets, by commentators in civil society and the media.

The fall in market share of forestry of non-CCX offsets in 2007 compared with 2006 was highlighted above, and was linked to the poor report card give forestry offsets, together with the availability of standards that increased the relative credibility of other types of offsets. The finalization of comprehensive rules for forestry in the Voluntary Carbon Standard, which is already the most favored standard in the market, suggests that buyers could be drawn back to forestry. As highlighted above, further improvement is needed in the level of transparency in the market with respect to timing of the forestry offset being sold.

Most of the demand for forestry offsets is from developed countries, while almost half the projects are executed in developing countries. Projects allow small investors to contribute to projects in Asia, Africa and South America that are marketed as providing social and economic benefits to local communities. If reforestation projects are well designed they can contribute to the provision of vital habitat and wildlife corridors and enhance the chances of survival of threatened and endangered species. In practice, however, the contribution to biodiversity enhancement of forestry offset projects in developing countries based on A/R can be said to be modest unless they are certified under the Climate Community and Biodiversity Alliance. (Chapter 4 reviews the biodiversity benefits of forestry offset projects.)

After the Bali Conference there has been a surge of interest in the development of avoided deforestation projects (REDD). Notwithstanding the difficulty of verifying that the forest would be lost without the project and that deforestation would not be shifted elsewhere, REDD has the advantage over A/R projects of delivering immediate emission abatement and real biodiversity co-benefits. The development of standards for REDD, the involvement of the World Bank in piloting such projects, together with the interest shown by major financiers, augurs well for the growth in this segment of the voluntary market.

In conclusion, there will always be a market for voluntary carbon offsets that suit the needs of companies and industries, not to mention households that are not covered by mandatory schemes, in reducing their carbon footprint. Buyers are also able to satisfy their desires for environmental and sustainable development benefits. The introduction of standards has increased buyer confidence that the reduction in GHG emissions will actually occur. The issue of the sale ex ante of carbon sequestered in A/R projects is something that needs to be addressed, however.

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