Carbon Credit

GoldTeak Community Re-forestation Project

Indonesia has signed but not ratified the Kyoto protocol.

“Our report shows for the first time that deals between industry and community tree growers may be one of the least expensive ways for companies to off-set their carbon emissions,” said Sara Scherr, Senior Policy Analyst at the Washington, D.C.-based Forest Trends and co-author of the report. “If companies invested in such deals, this could mean a huge number of private sector dollars being invested in poor rural areas.”

Industrial countries can only use deals in lower-income countries to offset a limited portion of their carbon obligations. This still represents a potential private financial flow of US$300 million per year to some of the world’s poorest people, however. According to the researchers, this share of investment could more than match current annual flows of official overseas aid for forestry development in poor communities.

Emissions Trading

Emmissions trading allows industries in developed countries to off-set their emissions of carbon dioxide by investing in reforestation and clean energy projects in developing countries.

Emissions trading is a proposed economic solution to air pollution. In such a plan, government agencies set limits or “caps” on each pollutant. Groups that intend to exceed the limits may buy emissions credits from entities that are likely not to exceed the limits. One variation of this scheme is called a cap and trade system. Emissions trading is one of the solutions proposed by free-market environmentalism.

The idea is that a central authority will grant an allowance to entities based upon a measure of their need. For example an allowance to a country might be based upon total population. An industrial facility might be granted a license for its current actual emissions. If a given country or facility does not need all of its allowance, it may offer it for sale to another organization that has insufficient allowances for its emission production.

The value of carbon credits

A key issue in any decision will be the value of carbon credits. Estimates have ranged from $2 per tonne (CO2 equivalent) up to $60 per tonne and any figure in between. The difficulty is that carbon credits arising from sequestration in planted forests have not yet been traded to establish a price.

Some background information on carbon credits

A Protocol to the United Nations Framework Convention on Climate Change was adopted in Kyoto in 1997. This Kyoto Protocol establishes legally binding greenhouse gas (GHG) emission targets for developing countries. The Protocol has not yet been ratified by member countries, but ratification is expected in early 2001.

The Protocol includes flexibility mechanisms to help countries meet their emission reduction targets. These flexibility mechanisms include the use of carbon sinks (pools that take up released carbon from another part of the carbon cycle) and emissions trading.

Under Article 3.3 to the Protocol a planted forest which is established after 1 January 1990 on previously cleared land will count as a carbon sink. The carbon dioxide sequestered in such a forest can be used to create carbon credits.

Emissions trading will allow countries and individual companies to buy and sell carbon credits created by activities that reduce the level of GHG emissions.

The creation of carbon credits using sinks will only ever form a small proportion of the activities that will need to be implemented to achieve emission reduction targets. This is because the total area that can be planted as carbon sinks is limited and the cost in establishing such forests is significant.

It should also be noted that under the Kyoto Protocol, the only carbon credits that can be traded to meet emission reduction requirements are those credits arising from carbon sequestration between 2008 and 2012 (the first commitment period under the Kyoto Protocol), plus any subsequent agreed commitment periods. This means that carbon sequestered up to 2008 is not available for sale as carbon credits to meet Kyoto emission reduction targets. However, opportunities may exist to sell these pre-2008 carbon sequestration benefits to achieve compliance under the NSW greenhouse benchmarks.

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