Value and Risks of Expiring Carbon Credits from Afforestation and Reforestation Projects under the CDM

background

One of the main concerns with afforestation and reforestation being part of the Clean Development Mechanism (CDM) is the issue of liability about the length and quality of the project (the risk of the forest or plantation being harvested or otherwise destroyed). To account for the non-permanent carbon storage of afforestation and reforestation projects, Credits for Emissions Reductions (CERs) can expire.

Goals & Methods

This article presents the risks of expiring CERs including: Baseline risks in which the project does not create more forest than would occur if the project were not in existence; commercial risks in which the permanence and credibility of the project is at risk to failure by the operating company in the host country; and finally institutional risks in which after the CER expires, the host country does not approve of the project due to political or governmental changes.

Conclusions & Takeaways

Using the EU's emissions trading system, the authors explain how expiring CERs can be linked to other CERs and emissions allowances by providing insurance for the project, credit replacement after expiration, and acceptance of the renewal by the host company and country.