Since the establishment of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992, policy developments associated with the role of forests in mitigating greenhouse gases have been both rapid and complex. The Kyoto Protocol, with its binding commitments to reduce greenhouse gas emissions, outlines the ways in which afforestation, reforestation and deforestation, and other land use activities have potential in achieving the framework’s aims. Included in the Protocol are three flexibility mechanisms designed to facilitate the realisation of emission reduction targets. The exact definition of how forestry can be included under the Protocol is not entirely clear and open to different interpretations. This is particularly true for the eligibility of land use based activities under the clean development mechanism.
Despite these uncertainties, an increasing number of forestry-based emission reduction projects have been established in parallel to the ongoing policy developments. To date, there are more than 40 forestry projects with the main objective of fixing carbon or preventing its release to the atmosphere. Many are based on reforestation or other tree-planting activities. Although the market for forestry based carbon offsets is still dependent on policy decisions, there is the potential for considerable infusion of capital into the forestry sector. For such investment foresters need greater understanding of carbon markets and the mechanisms for credit transactions, and how this new commodity will affect management practices.
This working paper reviews the evolution of the markets and transaction mechanisms for carbon offsets and greenhouse gas reductions. Although the concepts and ideas are generic and applicable to any type of greenhouse gas mitigation option, the paper focuses on forestry-based carbon offsets.
