By: Gloria Gonzalez Ecosystem Marketplace
Though demand for forest carbon offsets grew 17% in 2013, market participants recognize the need to scale up faster in order to curb emissions from deforestation and land-use change. Attendees at Ecosystem Marketplace’s launch of the State of the Forest Carbon Markets 2014 at the World Bank last Friday discussed the policy developments that could guide growth – and how the certification of co-benefits could shape demand
24 November 2014 | Much of the discussion during next month’s international climate negotiations in Lima, Peru will revolve around halting tropical forest loss to reduce global greenhouse gas (GHG) emissions. But Ecosystem Marketplace’s latest report on the voluntary and compliance markets shows forest carbon projects already having an impact – an impact that could multiply if the right policy signals are sent.
The global markets for offsets from agriculture, forestry, and other land-use projects transacted 32.7 million tonnes (MtCO2e) in 2013, a 17% increase from 2012 and tying with 2010 for the highest demand tracked by Ecosystem Marketplace as part of its State of the Forest Carbon Markets report series.
The forest carbon market surpassed a critical milestone last year by topping $1 billion in cumulative value. “That brings up the big question of whether $1 billion is enough and the obvious answer is no,” said Allie Goldstein, Ecosystem Marketplace’s Forest Carbon Associate and co-author of this year’s report. “Although deforestation rates have declined since the early 2000s, deforestation and other land-use change still accounts for 14% of greenhouse gas emissions in the world. That’s more than fossil fuel use in Africa, Central and South America combined.”
Last year’s market value of $192 million represented an 11% drop from 2012 as average offset prices fell to $5.2 per tonne of carbon dioxide equivalent (tCO2e), down from $7.8/tCO2e, due in part to classic supply-demand dynamics and a perceived flood of offsets into the marketplace, she observed. Forest carbon offset prices ranged from less than $1/tCO2e for “legacy” offsets sold on the Chicago Climate Exchange – the voluntary, but legally binding carbon cap-and-trade program launched in the United States in 2003 – to more than $100/tCO2e for improved forest management (IFM) offsets sold to Japanese buyers purchasing domestic offsets as part of the country’s proprietary J-Credit Scheme.
More than 80% of offsets transacted from projects that reduce emissions from deforestation (REDD), and the majority of those were sourced from Latin America, which tripled from 2012 activity and held almost half of overall market share last year. Avoided deforestation projects now cover almost 30 million hectares, about the size of the forest area of Malaysia.
“To me, that’s a strong sign that REDD is finding more traction, not only on the ground, but in the marketplace,” said Michael Jenkins, President of Forest Trends, the parent organization of Ecosystem Marketplace.
An early example of public sector “payment-for-performance” for REDD was evidenced in the state of Acre, Brazil, which secured a $40 million agreement with German development bank KfW for 8 MtCO2e in emissions reductions. Dozens of other jurisdictional REDD programs are under development.
“What we are seeing is definitely a shift in focus toward going to a jurisdictional scale and going to scale,” said Ellysar Baroudy, Lead Carbon Finance Specialist for the World Bank, which manages several funds dedicated to supporting efforts to implement national REDD+ programs on several continents.
JOBS, JAGUARS, AND JOSTLING STANDARDS
Forest carbon projects provided many “fairly impressive” co-benefits in 2013, including 9,000 jobs; 13 million hectares of habitat for endangered species; and $41 million in education, health care, and infrastructure, Goldstein said. Direct employment and training and capacity building were the most commonly-reported co-benefits of forest carbon projects.
“One thing I was really pleased to see in the report was the quantification of co-benefits,” Baroudy said. “I think that is hugely important. I think if we do want to move forward with REDD programs and projects, this is a vital part and a piece of this that we need to see more of.”
Developers reported their project areas protected habitat for dozens of endangered species, including charismatic mega-fauna such as orangutans, koalas, African elephants, cheetahs, jaguars, giant armadillos, and bonobos. Project developers also reported on a myriad of watershed protection benefits such as decreased erosion and flood protection.
In a nod to the rising attention paid to the community and biodiversity outcomes of carbon offset projects, the Verified Carbon Standard (VCS) assumed the day-to-day management of the Climate, Community and Biodiversity (CCB) Standard last week. More than 70% of forest carbon offsets developed under VCS also pursued certification with CCB, according to the report.
The VCS remained the most popular voluntary standard in the forest carbon markets, with projects developed according to VCS methodologies transacting 14.6 MtCO2e, or 46% of all market activity. However, internal or proprietary standards – used for only one or two projects – made a surprising comeback after years of consolidation, with about 12.6 MtCO2e transacted under these standards. The largest internal standard is the Acre Carbon Standard, used by the Brazilian state to track performance against emissions reductions targets as Acre continues its pilot under VCS jurisdictional nested REDD+ standard.