Market Discounts for Sinks: A Concept for Restricting Forest Contributions in Accounting for Emission Reductions?

Gabus, A. (2001). Market Discounts for Sinks: A Concept for Restricting Forest Contributions in Accounting for Emission Reductions? IIASA Interim Report. IIASA, Laxenburg, Austria: IR-01-012

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Abstract

Forests are capable of the best and the worst when greenhouse gases are at stake. Their controversial contribution for helping developed countries to reach their emission reduction targets is largely responsible for the November 2000 failure of the Kyoto Protocol being enforced in the near future. Regarding the unit price of emission credits for fossil fuels, future transactions for carbon offsets associated with land use change and forestry projects may well reveal market discounts due to risks and uncertainties related to their evaluation and management. The author proposes to apply these market discounts for assessing "at intergovernmental level" the the 'contributive' value of forestry activities eligible for meeting countries' emission reduction targets.

This proposal is preceded by an outline of the position of the forestry projects within the Kyoto treaty, as well as by an outlook on the establishment of a market for carbon offsets. Indications are given for correcting emission reductions and removal assessments by adjustments that are required when assuming that the true contributive value of one CO2-e ton to be retained may vary (1) according to the uncertainty degree associated to evaluations and (2) that this degree is closely related to project features and origins.

Fixing consensual rules for consideration and quantification of uncertainties associated with carbon uptakes and removal evaluations, including market appraisals as a last resort, has the potential of moving international negotiations from divergences in the eligibility of activities towards verification and penalty, in short to policing the Protocol. The chances for the treaty to be effective and successful would then be enhanced.

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