Forest-Saving Credits Could Sink Carbon Pricing

March 31, 2009

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Awarding tradable credits to countries that reduce deforestation could result in plunging carbon prices worldwide, and worsen global warming by pulling investors away from renewable energy, according to a study by New Zealand-based economic modelers KEA 3 for Greenpeace International, reported Bloomberg News.

Greenpeace said the study indicated that countries like China, India and Brazil could lose tens of billions of dollars for clean energy investments if forest protection measures are included in an unrestricted carbon market. Including forest offset credits in the carbon markets could crash the price of carbon up to 75 percent, according to the study.

Greenpeace said it would also significantly cut the number and value of energy credits, so countries like China and India would get less money for sustainable development policies, which the environmental organization estimates at $10 billion per year for China alone.

KEA 3 investigated different scenarios for carbon markets in 2020, including a new global warming treaty requiring developed countries to cut emissions by 25 percent, 30 percent and 40 percent by 2020, according to Bloomberg News. A 40 percent reduction target without REDD would lead to a carbon price of 47.80 ($62.77) euros a ton, and with forestry credits, the price would be 20.40 euros. Price drops could be as much as 75.7 percent, depending on the scenario, reported Bloomberg News.

Analysts have mixed views. Emmanuel Fages, a Paris-based carbon-market analyst at Societe Generale told Bloomberg News that accepting REDD (reduced emissions from deforestation and forest degradation in developing countries) with the current level of demand would lead to a price crash.

Mark Lewis, a market analyst at Deutsche Bank AG in Paris told Bloomberg News that the impact of including forestry in carbon markets depends on whether all countries, including the U.S., sign up for a climate agreement. Lewis said as long as demand for credits is high, forestry credits won’t lead to a crash in pricing.

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