New Greenpeace report: Trading in forest carbon would crash carbon markets

“Including forest protection measures in carbon markets would crash the price of carbon by up to 75 percent and derail global efforts to tackle global warming,” says Greenpeace in a new report released on the sidelines of the U.N. climate talks in Bonn.

The report, “REDD and the effort to limit global warming to 2°C: Implications for including REDD credits in the international carbon market“, was carried out by a New Zealand-based economic modelling group called KEA3.

The report also found that including REDD credits in carbon markets would reduce investments in clean technologies worldwide, causing a “lock in” effect, leaving high-carbon technologies such as coal-fired power stations in place for many years to come. In addition, the report points out that “significant questions of permanence, leakage, and additionality have been raised about potential REDD credits; as well as the ability of countries to accurately measure, monitor, and report on such emissions.”

REDD is one of the issues being discussed in the climate change talks taking place in Bonn from 29 March to 8 April 2009. “Forests are the wild card in these negotiations – it could be used to bring us closer to our goals, or to water them down,” AFP reported Greenpeace International’s Roman Czebiniak as saying. “Of the many options for forest financing currently on the table, this one ranks as the worst.”

Greenpeace is not the only organisation to argue that trading the carbon stored in forests would crash the carbon markets. A 2008 report by the European Commission noted that emissions from deforestation were three times bigger than the emissions traded on the European Emissions Trading Scheme (ETS). The Commission stated that “Allowing companies to buy avoided deforestation credits would result in serious imbalances between supply and demand.”

In a report released in March 2009, the consulting firm New Carbon Finance estimated that “unlimited use of forestry could cut carbon offset prices by 40 percent by 2020”, according to a report by Reuters.

Emmanuel Fages, a Paris-based carbon analyst at Societe General told Bloomberg that “If you take the market as it is now, accepting REDD with the present level of demand would lead to a price crash.”

“There is clearly the fear that if you have one market, the forest funds would flood it and push prices so low that there wouldn’t be an incentive to invest in technological change in industry and power generation,” said Michael Zammit Cutajar, chair of the Ad Hoc Working Group on Long-term Cooperative Action, in an interview with Bloomberg.

However, Mark Lewis, an analyst at Deutsche Bank in Paris, told Bloomberg that the effect of including forestry in carbon markets depends on whether all countries, including the U.S., sign up to a climate agreement. “If the U.S. is part of a global agreement, and forestry credits are included in the carbon market, then I think the demand would be considerable,” Lewis said. But the Greenpeace report argues that even with a lower supply of REDD credits the price of carbon would still fall by 60 per cent.

Greenpeace is not opposed to carbon markets. On its website, Greenpeace states that “Carbon markets must provide a strong and stable price of carbon to drive the development of clean and renewable technologies and should therefore remain focused on the more easily quantifiable and comparable fossil fuel emissions. A separate mechanism is needed to deal with the complexities and risks associated with REDD.”

Greenpeace concludes that “World leaders must find a way to provide significant and reliable financing for REDD which is additional to deep emission reductions in industrialised countries and ambitious renewable energy and energy efficiency investments in developing countries. Among available financing options, the direct inclusion of forest offset credits in the carbon markets carries the greatest risks to both the climate and the forests.”