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Marketing for Markets

Selene CastilloThis blog posting was submitted by Selene Castillo, Natural Resources Analyst at the World Bank.

Forest carbon markets – and broadly, markets for ecosystem services – are still in nascent stages. As in all markets, information is fundamental to establish the market and attract buyers and sellers. PROFOR has been supporting Forest Trends’ Ecosystem Marketplace initiative to generate this critical information on environmental markets. Ecosystem Marketplace’s publicly available information sources include annual reports on carbon, watershed payments and biodiversity, quantitative carbon and water market tracking, and roundtable coordination and communication designed for different forest sector stakeholders – including offset project developers, offset investors, government officials, NGOs, and civil society. Through this partnership with Forest Trends, PROFOR is able to make reliable knowledge on carbon and watershed markets publicly accessible, help build confidence in these markets, and spur investment.

As a loyal follower of Ecosystem Marketplace’s work for some years now, I am thrilled to see how this initiative is building momentum and interest in environmental markets – in particular through their annual voluntary carbon and forest carbon market reports, which will be the focus of this piece. For these reports, Ecosystem Marketplace distributes surveys globally to offset buyers, sellers, brokers, or other type of market actor. These surveys feed the annual reports.

Figure 1 does a good job of summarizing the scope of this work through several metrics. First, we have the survey response rates of countries/regions – of which the US has the lead, followed by Europe and Latin America. The market shares of these regions follow the same pattern. What’s most interesting to note though is the market share of respondents by profit status (ie private, public or NGO sector). In most regions – with the conspicuous exception of Asia – respondents are from the for-profit/private sector. This serves as a positive signal from the sector of their interest in obtaining insights on how the market (with its respective breakdowns) is doing in terms of trends, prices, volume, etc. and their simultaneous acknowledgement that in order to obtain this information, they too need to do their part in providing information.

Figure 1.

Photo: Map Key 1

So, exactly what “information” are we talking about and what picture has it painted thus far? For an easier digestion of this information, I’m going to zoom in on Ecosystem Marketplace’s 2013 State of the Forest Carbon Market report. Basically, this annual report gives us a rundown of the who, what, where, and a bit of the why too. - Who is investing in forest carbon projects? By and large, the private sector held the largest market share, covering 70% (roughly 19.7 MtCO2e) of the global market volume reported (roughly 28 MtCO2e) – with EU-based corporations being the largest source of demand for forestry offsets within that group. The public sector may have made a smaller splash than in previous years given that tCERs (temporary Certified Emissions Reductions) are in declining demand, and fewer offsets were sold into British Columbia’s Carbon Neutral Government program. - What type of projects are they investing in? The report captures information on agriculture, forestry, and other land-use (AFOLU) related projects. Globally, reducing emissions from deforestation and forest degradation (REDD+) and afforestation/reforestation projects raked in the highest volumes of carbon. Regionally, project types varied in popularity, as is seen in Figure 2.

Figure 2.

Photo: Map Key 2

Where are these projects and investors (ie supply and demand) located?

Figure 2 also shows that projects based in North America provided the greatest volume of offsets transacted (6.7 MtCO2e), followed closely by Latin America and Oceania with 6.2 MtCO2e each. 

  • Why are people investing in forest carbon projects?

Broadly, buyers purchased offsets for voluntary and pre-compliance purposes. The majority of these buyers (71%) were voluntary buyers, fulfilling corporate social responsibility, demonstrating climate leadership, acting on their climate-driven mission, and engaging in public relations/branding.

All in all, market value for AFOLU offsets was able to stay relatively close to the prior year’s value, reaching $216 million.

So, what does this mean in the grand scheme of climate and forest finance? Clearly, there is recognition on behalf of businesses that forests are, and will continue being, a critical defense against the environmental and economic challenges brought by climate change. There are great strides being taken by the private sector in particular to provide support for offset projects; however, financing to continue managing, conserving, and expanding forested lands is far from comprehensive. This report covers 26.5 million forested hectares; according to the Food and Agriculture Organization (FAO), roughly 13 million hectares of forest were converted to other uses or lost naturally annually from 2000-2010. As we continue looking for ways to different approaches to prevent the destruction of our forests, it will be equally important to continue refining the tools we already have, such as carbon offset projects, in order to lower their risks, and improve their quality, transparency, and effectiveness.

One way quality is being monitored and transparency encouraged is through the application of carbon standards – including Verified Carbon Standard (VCS), Climate Action Reserve (CAR), and Carbon Farming Initiative (CFI) – and certification of additional environmental and/or socio-economic benefits through the Climate, Community and Biodiversity (CCB) Standards, Forest Stewardship Council (FSC), and other programs. More than half the market share reported achieving or seeking certification from at least one standard – a noteworthy jump from previous years.

Through these insightful market trends, it is clear that there is much to learn and consider when it comes to how carbon markets can be a useful tool to achieve both corporate and environmental goals. Hopefully we will continue having Ecosystem Marketplace to shed light on market trends, players, and the like.

To learn more on the work Ecosystem Marketplace is doing through PROFOR support, please visit the activity page.

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