The Market
The UN
Framework Convention on Climate Change is the main international
policy instrument dealing with the threat of global warming and
most industrialised countries have committed themselves to reducing
their emissions if greenhouse gasses by 95% of their 1990 levels.
These reductions targets will be legally binding
once the treaty is ratified. A series of flexible mechanisms
were included in the agreement that enables trade in verifiable
greenhouse gas emissions reductions between parties to the convention.
This can take place on the level of country to country amongst
what are refereed to as Annex 1 (developed) countries and in
terms of the Clean Development Mechanism (CDM) between developing
countries and Annex 1 countries.
Afforestation and reforestation projects in which forests are
planted are included in this framework.
The development of international trading systems for emissions
mitigation has been of considerable interest to industries wishing
to limit their potential liabilities incurred as a result of
national tax based policies for reductions imposed by governments
to ensure reductions in emissions.
Several major international corporations have successfully argued
that open trading mechanisms could significantly reduce the cost
of compliance with Kyoto, British Petroleum have successfully
demonstrated this by instituting an internal market between its
divisions.
Forests based transactions in such a market offer a means of
providing a cap on the cost of emissions reductions in a general
range of between 1 to 15 USD per tonne of Carbon sequestered.
These transactions are two-way and a continuous process.
Companies have also become interested
in providing carbon neutral products and services on a voluntary
basis and this sector of the market has embraced the forestry
and land use sector of emissions reductions with some success.
This sector of voluntary carbon offsets is the focus of Envirotrade’s
activities.
The Participants
The World Bank Prototype Carbon Fund was the first emission-purchasing
programme and comprised of a mixture of governments and private corporations
and has successfully demonstrated that the carbon market can function
in a meaningful way.
The Dutch and UK governments have also successfully embarked on
trading programme to meet its reduction commitments that has focussed
on the non-forestry sector of market. The EU has recently launched
its own carbon trading market and various Scandinavian countries
have also enjoyed success in this area.
Private sector companies have moved beyond these projects that are
linked to the cap and trade concept into what is referred to as a
voluntary reductions regime. This market sector has seen the emergence
of brokers and project developers who have produced and marketed
carbon reductions packages that are sold on to corporate consumers.
The market in carbon emissions reductions is fluid and dynamic with
prices being determined by supply factors as well as subjective marketing
criteria linked to the ongoing debate about the desirability of such
a market. This has meant that projects that broadly comply with internationally
recognised sustainability and bio-diversity standards are generally
more valuable and carbon offsets resulting from these projects command
higher prices on the open and particularly, voluntary market.
Projects in Land Use and Forestry
Forestry projects that bring sustainable development, restore bio-diversity
and sequester significant quantities of carbon are currently being
developed within the CDM mechanism and outside in the parallel voluntary
markets.
The CDM mechanism that excludes pure forest management and preservation
is based on commitment periods and areas deforested before 31st December
1989 .
Acceptable projects in the forestry sector
should be based on “Afforestation” (direct
human induced conversion of land that has not been forested for a
period of at least 50 years through planting, seeding and promotion
of natural seed resources); and “reforestation” (direct
human induced conversion of land that was forested but has been converted
to non forested land before December 1989).
Projects must result in real, measurable and long term emission
reductions and be certified as such by third party certification
agencies.
These projects need to demonstrate “permanence” (i.e.
they must be managed over an extended period of time – normally
99 years); “additionality” (i.e. they must be centrally
driven by sequestration objectives and are measured against what
would have happened even if the project had not taken place) and
must prevent “leakage” i.e. generate additional activity
which merely displaces carbon emissions to another site or increases
carbon emissions.
It is generally accepted that they should maximise bio-diversity
and avoid plantation type monoculture planting.
