Value and Risks of Expiring Carbon Credits from CDM Afforestation and Reforestation
34 Pages Posted: 17 Aug 2004
Date Written: August 2004
The Milan conference of the UN Framework Convention on Climate Change has established two types of emission offsets under the Clean Development Mechanism (CDM), valid for afforestation and reforestation activities. In order to account for the non-permanent nature of carbon storage in forests, these credits expire after a predefined periods, after which the buyer needs to replace them. The present article assesses their market value in relation to permanent credits, identifies their specific risks and proposes how to mitigate and manage them. It analyzes strengths and weaknesses of expiring credits for sellers and buyers. Taking the example of the EU emissions trading system, the authors discuss how expiring credits could reach fungibility with permanent emission allowances on domestic markets.
Keywords: CDM, afforestation, reforestation, permanence, insurance, lCER, tCER
JEL Classification: Q23, Q25, Q13
Suggested Citation: Suggested Citation