Climate Policy
Climate Policy 5 (2005) 109–125
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Research Article
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Value and risks of expiring carbon credits from afforestation and reforestation projects under the CDM
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Michael Dutschke, Bernhard Schlamadinger, Jenny L P Wong and Michael Rumberg
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Received 27 February 2003
; received in revised form 13 August 2004
; accepted 1 December 2004
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Abstract
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 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; Insurance; lCER; tCER
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