Carbon Trading – Synergy Between Environmental & Economic Goals

1. Choosing a supplier:

There are four types of carbon credit suppliers on the voluntary carbon credit market today: project developers, people and companies that have ownership over carbon offset projects; carbon offset wholesalers, who own a portfolio of credits and sell them in bulk; carbon offset retailers, who sell carbon credits in smaller amounts; and brokers, who do not own any carbon units, but simply facilitate carbon credit transactions.

Although the UN REDD program has been around since 2008, certified REDD carbon credits from forestry conservation offset projects are a relatively new unit on the carbon exchange market. The first REDD carbon offset was granted a VCS certification in February of 2011. Therefore, it probably makes sense to seek out and buy verified REDD carbon credits directly from a certified supplier as this can guarantee quality and probably more cost-effective REDD credits than those from third-party suppliers.

Since choosing REDD carbon credit projects depends on the buyer’s personal motivation and goals, it is important before choosing to evaluate the location of the offset project, its scope, how big its environmental impact is, how it protects the wildlife in the area and how it contributes to the sustainability of the local communities. By their nature, REDD offset projects employ a more comprehensive business approach than other green investments like, say, renewable energy installations. REDD carbon offsets look to not only reduce GHG emissions by preventing deforestation, but to also provide incentives for local industries to keep their trees standing. By creating jobs for the local people and providing them with an opportunity for financial profits, REDD offset projects give more reasons to the local community to refrain from cutting trees down for timber use and turning forestry lands into agricultural fields.

The first VCS-certified REDD carbon offset, for example, produces verified emission reductions in Kenya’s Kisagau Corridor. The project’s scope includes the protection of more than 500,000 acres of forest and the wildlife that inhabits the area between Kenya’s Tsavo East and Tsavo West national parks. Beyond preserving the wilderness, the project aims at solving the needs of the indigenous people and diverting them from killing animals and destroying forests in order to survive. Local people have been employed as conservation rangers, factory workers, machinists, foresters, carpenters, construction workers, drivers and mechanics.All REDD carbon credits from the first phase of the project, representing the total reduction of 1.6 million tons of GHG emissions, were bought by a South African bank.

The question is where to find reliable REDD carbon offset projects such as this one. The best place to start your research is the carbon standard registries. Each carbon standard website provides a list of verified REDD projects. Here are some of the most prominent registries to look at: VSC , Markit , Rainforest Alliance and Climate Community and Biodiversity Alliance registries.

2. Estimating REDD carbon credit costs

Estimating the optimal value of carbon offsets depends on the type of project and project location. According to Bloomberg New Energy Finance survey, the average price for REDD cc’s in 2010 was estimated at $5 per credit. In addition, carbon credits that are certified by different verifying standards vary in price. VCS carbon units, for example, average at $6 per credit. Moreover, the location of the REDD offset project also matters when determining the cost of your investment. The Bloomberg survey from 2010 estimates that prices of carbon credits produced in Africa are around $9 per credit, in Asia the amount is about $5.4 and in Latin America — $5.3 per carbon credit.

When evaluating the REDD offset project, which will supply your credits, you can look at the above general criteria, which will give you a pretty good overall picture about the budget you will need to allocate, depending on the volume of carbon footprint you are aiming to offset. Each REDD credit is the equivalent to one ton of GHG emission reduction. Investors also need to be cautious about REDD projects, which quote you carbon credit costs at levels much higher than the estimated averages for the region or quality standard. We don’t exclude, however, the possibility that specific project characteristics or limited supply/increased demand on the voluntary carbon market might be valid reasons for increased prices of REDD carbon commodities.


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