Climate Change

Optimism in the face of uncertainty: growth in forest carbon markets

Has there been significant growth in the forest carbon markets? What are the trends? Where is the quantitative, market-based evidence to support these markets?

These questions have been raised in the halls of U.S. Congress, where the passing of national climate legislation has been put on the ropes. They resonated throughout the Copenhagen Climate summit, which left the world without a binding international agreement and, in spite of its support of Reduced Emissions from Deforestation and Forest Degradation-plus (REDD+), leaves us with more questions than answers. They’re also disputed on Wall Street, where investors struggle with financing for climate projects in the face of a protracted economic downturn.

Until quite recently, even key players and insiders involved in carbon finance have relied on anecdotal evidence and generalized proxies to answer these questions. Comprehensive, industry-wide research had not been compiled.

Sapling

However, last week the Ecosystem Marketplace (a leading source of news, data, and analytics on markets and payments for ecosystem services) released a seminal report entitled “State of the Forest Carbon Markets 2009: Taking Root & Branching Out.” Based on the input of over 100 actors in the forest carbon market and representing 226 projects in 40 different countries, the report provides an overview of the growing forest carbon marketplace, assesses the progress made in forest carbon markets in 2009 and provides historical background on activity in the forest carbon markets over the past decade.

The bottom line? In spite of the uncertainty and volatility that have characterized the forest carbon markets in the absence of binding international agreements and clear national policies, “survey results signal a robust and growing belief in the ability of ecosystem markets to help reverse climate change” (Steve Zwick, report contributor and managing editor of the Ecosystem Marketplace).

The report confirms that markets for forest carbon credits have been growing and transactions of forest carbon credits are rising. In 2007, volumes transacted rose to 5.1 million tons of carbon dioxide (MtCO2) — a 228 percent increase from 2006 — and were sustained through 2008 (reaching 5.3 MtCO2). Even in the face of the recession this growth was expected to continue through 2009, as 3.7 MtCO2 have already been transacted through the second quarter of 2009.

Forest Carbon Market Graph by Ecosystem Marketplace

To date, over US$149.2 million in forest carbon credits have been traded. While the price for forest carbon credits varies widely (from $0.65/tCO2 to over $50/ tCO2), the volume-adjusted average price over time is $7.88/ tCO2. As the graph above indicates, the bulk of market value (66 percent) has been generated from 2007 to the second quarter of 2009.

As the forest carbon market has grown, so has the demand for third-party standards. Validation and verification to third-party standards increased from just 15 percent in 2002 to 96 percent in the second quarter of 2009. Of these standards, the Climate Community and Biodiversity Alliance (CCB) Standards have proven quite popular, accounting for 23 percent of all offsets coming from projects validated to a third-party standard. The Rainforest Alliance has contributed significantly to the CCB standards, which emphasize social and environmental “co-benefits,” and we are a leading validator of CCB carbon projects.

The “State of the Forest Carbon Markets” report clearly demonstrates the activity and growth in the forest carbon markets. And this EcoSecurities, Conservation International, CCB and Climate Biz survey helps answer another important question: why are investors interested in forest carbon credits?

Conducted in 2009, it indicates that corporate buyers purchase forest carbon credits for two main reasons: 1) they want their purchases to support projects generating community and environmental benefits; and 2) they are concerned about the scale and immediacy of deforestation and climate change. Similar conclusions could be inferred from the growth of forest carbon markets, but this study explicitly confirms that companies want to be part of the climate and international development solution.

We encourage you to learn more by reading the “State of the Forest Carbon Markets 2009: Taking Root & Branching Out” report. This is particularly valuable if you are interested in payment for environmental services, sustainable finance or the emerging carbon markets.

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