Bringing forest carbon projects to the market

The quantities of forest credits traded on the voluntary market increased steadilyfrom 2007 to 2008, from 3.7 to 5 MteqC0 2, or nearly 135% (valued at 24.5 M€ 31 ).This high rate of increase stems mainly from growth on the CCX (from 0.04 to 1.3MteqC0 2), as compared to only a modest increase 0.05 MteqC0 2on the voluntaryOTC market. Despite the relative growth, the relative share of forest carbon projectson the OTC markets is dropping rapidly, from 48% of all credits pre-2006 to 8.5% in2007 and 7% in 2008.This drop in market share is predominantly due to the increasing professionalismof the carbon sector, through quality standards. For example, with the developmentof the voluntary markets, a great many forest projects have been questioned onthe grounds the lack of transparency, particularly regarding methodologies and thecalculation methods used. No standards have been established to clarify matters forconsumers, resulting in adverse effects for the image of forest carbon projects ingeneral. This lack of confidence has prompted operators to consolidate and diversifytheir portfolios to take in projects using other technologies, which, like the CDM, havereadier access to standards than forest projects.On the CCX market, although forest projects had a relatively low market share in2008 (2%), the sector has grown strongly (from 0.04 MteqCO 2to 1.3 MteqCO 2).The fact that this is a well structured market (definition of protocols for the forestrysector, etc.) and the flexibility and simplicity of these protocols may account for thetrend.The forest carbon market is therefore in a consolidation phase which is reflected inthe establishment of quality standards. These standards set out specific proceduresfor validation and certification drawing on the CDM approach. Several standards offerinnovative solutions. For example, to resolve the issue of the permanence of forestcarbon credits, some standards offer an insurance scheme that spreads the risk ofnon-permanence to an entire set of projects. The scheme operates by “reserving” aset number of generated credits in a “buffer”. This allows projects to offer permanentcarbon credits that are more attractive to buyers than the tCER and lCER credits thathave to be replaced periodically.31 We have used an exchange rate of 1€ = US$ 1.5 throughout the guide38The fragile position of forestry projects in the carbon markets