Forest carbon projects rake in $178 million in 2010

Jeremy Hance
September 29, 2011

 An aerial view of an Amazon tributary in Peru, one of the top countries for projects in the young forest carbon market. Photo by: Rhett A. Butler.
An aerial view of an Amazon tributary in Peru, one of the top countries for projects in the young forest carbon market. Photo by: Rhett A. Butler.

Investors funneled $178 million into forest carbon projects intended to mitigate global climate change last year, according to a new report by Forest Trends' Ecosystem Marketplace. By trading a record 30.1 million tons of carbon dioxide equivalent (MtC02e), the market saw a 48 percent rise over 2009—including a rise in private investors over non-profits as well as greater support for the Reduced Emissions from Deforestation and forest Degradation (REDD) program—shows that the burgeoning market may be beginning to make good on its promise to provide funds to save forests for their ecosystem services with an initial focus on carbon.

"Contracts for forest carbon offsets more than doubled over the past two years, likely due to international policy discussions, and increased awareness of the critical role forests play in sequestering carbon," says Katherine Hamilton, Ecosystem Marketplaceā€™s Director, in a press release.

Still the report admits the future of the carbon forest market, which has both 'increased the volume of its transactions and matured in its structure' is by no means secure.

"While the marketplace has taken root enough as to entice new developers and investors to participate, many observers still remain cautious amid significant uncertainties. Despite growing confidence around several nascent policies and compliance markets, the future shape, size, and scope of the global forest carbon marketplace remains highly uncertain," the report, entitled State of the Forest Carbon Markets 2011: From Canopy to Currency, reads.

The annual report, the second released, found that the average price for forest carbon continued to rise from $3.8/tCO2e (price per ton of carbon energy equivalent) in 2008 to $5.5/tCO2e last year.

Aside from general rising support of forest carbon funds, the report also documents greater investment by the private sector, investors, and intermediaries, marking a significant transition from prior years when the most of the projects were developed by conservation NGOs.

"The influx of private-sector investment is a positive indication that some of the major financial firms have a level of confidence—albeit backed by early-stage market risk—that forest carbon projects will play a significant role in the future of carbon markets and in reducing global greenhouse gas emissions," explains Steve Baczko, director of commercialization for ERA Ecosystem Restoration Associates Inc.

REDD projects fared incredibly well last year, making up 70 percent of the total market activity. Meanwhile, there was also an increase in carbon projects that supported better forest management. Investors also showed increased interest in programs that included other environmental and social benefits documented by independent certification, showing that investment was interested in projects that had a broader appeal beyond carbon.

But projects that focused on reforestation and afforestation saw an overall decline.

"The unique hurdles to financing and commercializing afforestation/reforestation projects continue to persist and constrain the ability for the carbon markets to incentivize one of the oldest strategies for enhancing and restoring environmental health—planting trees," the report reads.

While projects spanned nearly 50 countries, South America supplied over half the market, with Brazil and Peru containing the lion's share. Asia, which has seen vast deforestation in its tropics over the past few decades, supplied 12 percent of the market, but was behind projects in North America, which suppled 16 percent. Africa, home to the world's second largest rainforest the Congo, supplied 6 percent.

In total the global forest carbon market is now estimated at $432 million with projects impacting 7.9 million hectares worldwide.

"The picture that emerges from deeper examination of the surge in contracted tonnes over 2009 and 2010 is fundamentally about a small—but growing—cadre of forward-looking buyers and investors making big bets on the future of the forest carbon markets," the report reads.

Still the size of the market does not yet represent the massive potential of protected forests to lock-in carbon in warming world.

"These markets have shown tremendous innovation and growth, but we are still a long way from channeling a sufficient amount of funding to reign in global forest loss as a critical source of greenhouse gas emissions," explains co-author David Diaz.

CITATION: David Diaz, Katherine Hamilton, and Evan Johnson (2011). State of the Forest Carbon Markets 2011: From Canopy to Currency. Ecosystem Marketplace September 29, 2011.

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Jeremy Hance
mongabay.com (September 29, 2011).

Forest carbon projects rake in $178 million in 2010.