Forest Carbon Markets: Potential and Drawbacks

Ross W. Gorte
Specialist in Natural Resources Policy

Jonathan L. Ramseur
Specialist in Environmental Policy

Forests are major carbon sinks (storehouses), and activities that alter forests can release or sequester carbon dioxide (CO2), the most common greenhouse gas (GHG). Some carbon markets have been formed under mandatory GHG reduction regimes, such as the Kyoto Protocol and various regional and state initiatives in the United States. Other markets have formed for voluntary efforts to reduce GHG emissions. Offsets, or credits for sequestering carbon or reducing emissions in unregulated sectors, are typically allowed in both mandatory and voluntary markets. Forestry activities are among the largest-volume and lowest-cost opportunities for generating offsets.

Various forestry activities may be feasible for carbon offsets. Afforestation (planting trees on open sites) and reforestation (planting trees on recently cleared sites) are the activities most commonly included for offsets. Some propose that the carbon stored in long-term wood products, such as lumber and plywood, could be credited as carbon offsets, and mill wastes often substitute for fossil fuels to produce energy; however, short-term products (e.g., paper) and the biomass left in the woods after timber harvesting release carbon, making the net carbon effects uncertain. Some forest management practices also might qualify for carbon offsets; certified sustainable forest practices provide a system of assured, long-term forests, while activities to increase tree growth face many of the same concerns as long-term wood products. Finally, deforestation is a major source of GHG emissions, accounting for as much as 17% of anthropogenic emissions. Thus, avoided deforestation, especially in the tropics, potentially provides an enormous opportunity to reduce GHG emissions. However, avoided deforestation is particularly prone to leakage (see below), as well as many of the concerns about forest carbon offsets generally.

Forestry projects may offer considerable market opportunities for carbon offsets, but several issues have generated concerns and controversy. One concern, especially for compliance markets, is whether projects are additional to business as usual. An activity that is common practice or industry standard, or a project that is required under current federal, state, or local laws, cannot be used as an offset. Functional carbon markets also require cost-effective practices to verify carbon sequestration. Current measurement and monitoring practices are costly and have several implementation challenges. Another concern is that, compared to other types of offsets, forestry projects present substantial risk of leakage. Emission leakage can occur if carbon sequestered in one location (e.g., by avoided deforestation) leads to carbon release (e.g., from increased harvesting) in another location. Product leakage could occur if forest carbon sequestration induces use of more carbon-intensive substitutes (e.g., cement or steel). Forest carbon projects are expected to generate offsets for decades. Some are concerned that the sequestration will be negated subsequently by human activity (e.g., change in land use) or a natural occurrence (e.g., forest fire or disease). Although there are legal and accounting mechanisms that can address this concern, implementing these options may present challenges, particularly for projects in developing nations. Finally, forward crediting to allow early credits for expected sequestration faces many of the same concerns about not fulfilling expectations. .


Date of Report: May 24, 2010
Number of Pages: 21
Order Number: RL34560
Price: $29.95

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