- Introduction
- Carbon Transactions – A Primer
- Forestry and the Kyoto Protocol - The International Context
- The United States Context
- Global Carbon Markets
- Trading and Marketing U.S. Forest Carbon Offset Projects
- Forestry Project Accounting Issues for U.S. Registries
- Conclusion and Synthesis
Carbon Primer
Forest Carbon Trading and Marketing in the United States
8. Conclusion and Synthesis
Market-based mechanisms are emerging as a more efficient means for addressing climate change. With market-based mechanisms come opportunities for increasing return on investments available to managed forests, and afforestation and reforestation projects. Voluntary and mandatory forest carbon markets are evolving in the United States for evaluating, registering, verifying, and trading carbon credits for offsetting GHG emissions from manufacturers and utilities. As markets for ecosystem services like sequestered carbon develop globally, managed forests, and afforestation and reforestation projects will play an increasingly important role for addressing climate change.
The Chicago Climate Exchange is the only exchange platform in North America and is currently trading emission reduction credits that can be gained through verified net increases in forest carbon stocks. Three other U.S. regional registries have emerged for registering carbon credits associated with managed forests, and afforestation and reforestation projects; the CCAR, the DOE’s 1605b program, and RGGI. Each registry addresses, with different rules, the important issues of additionality, leakage, and permanence of forestry projects, and how managed forests and harvested wood products can participate. Buyers of forestry offsets have established their own purchasing criteria for the level of quality that they demand in these types of financial instruments.
Since the U.S. is not a party to Kyoto, there are no opportunities to export emission allowances or emission reduction credits out of the U.S. to other exchanges, such as the EU ETS exchange platform, where prices are currently about five times that of the CCX exchange platform. So, as organizations make investments in emission reduction credits such as forestry offset projects in the U.S., they may decide to protect those investments by registering project CO2 in one of the four primary U.S. registries.
Barriers to trading and marketing forest offset projects include the transaction costs associated with these registries which are directly related to the different project eligibility rules. Of course, the expected price of carbon will also be a determining factor in the economic analyses required to justify an investment. Forestry markets in the U.S. have, until the emergence of the RGGI, been voluntary. As RGGI comes on line in 2009, mandatory emission reduction targets assigned to power plants in the Northeast will motivate buyers in the forestry offset market. This demand should, in the short term raise carbon prices for forestry offset credits.
The lack of federal cap-and-trade legislation, on one hand, has stimulated innovative approaches to establishing trading and marketing systems. The CCX exchange platform is the best example of this innovation. On the other hand, the absence of long-term regulatory carbon constraints has kept buyers unmotivated in carbon markets, slowing the development of the required capital needed to sustain these markets. A well-defined, transparent, and credible federal cap-and-trade compliance program for reducing GHG emissions in the U.S. will help create clear price signals that are needed to attract the level of capital required to sustain a U.S carbon market.
The authors32 can be contacted at:
Steve Ruddell, Director of Forest Investment and Sustainability. Forecon, Inc. 616-874-9934
Michael J. Walsh, Senior Vice President, Chicago Climate Exchange. 312-554-3350
Murali Kanakasabai, Economist, Chicago Climate Exchange. 312-554-3350
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32The authors would like to thank Neil Sampson for his review and comments on this paper. R. Neil Sampson, President. The Sampson Group. 703-924-0773
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