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Making carbon markets work for small forest owners
Authors: Hugh BigsbyPublication: New Zealand Journal of Forestry, Volume N.Z.J.For. 2009, Issue N.Z.J.For. 54(3) 2009, pp 31-37, Nov 2009
Publisher: New Zealand Institute of Forestry
Abstract: Small forest owners have a wide variety of forest types, age class distributions, forest sizes and management strategies making it awkward, if not impossible for them to participate in carbon markets. The key issue is that the focus of forest-based systems for sequestering carbon is largely on creating permanent stores of carbon on defined areas of land with a one-off payment to the forest owner for the carbon. From a forest management perspective, this focus leads to either continued production of timber only if the forest area is sufficiently large to create an effectively permanent carbon pool, and otherwise a cessation of harvesting if the forest area is too small. Combined with a payment system for carbon that is generally based on matching a specific buyer and seller of carbon using a one-off payment to the forest owner, this creates a carbon market that is too inflexible to attract any but the largest land or forest owners. This paper presents an alternative system for marketing sequestered carbon - carbon banking. Carbon banking treats sequestered carbon in the same way that a financial institution treats capital. In essence, forest owners ‘deposit’ carbon, in exchange for an annual payment, and those who need carbon offsets ‘borrow’ carbon by making an annual payment. The role of the carbon bank is to aggregate deposits of carbon and use these to meet various demands for carbon. The carbon bank provides an opportunity for small forest owners to participate in carbon markets because payments are based only on current carbon sequestered. It also allows participants in the carbon market to receive current value for carbon rather than what effectively represents the capitalised value of the future benefits of sequestering carbon, thus removing some uncertainty about locking into the wrong value for carbon.