called Cap and Trade. Carbon is traded through credits gen- erated either by government-issued permits or project-based credits.
Market Segment for CARBON SEQUESTRATION: Keeping the lid on emissions
G
REENHOUSE GASES (GHG) are released into the atmosphere by various human activities, including
burning fossil fuels (oil, natural gas and coal) and clearing natural vegetation for development purposes (agriculture, infrastructure). Carbon sequestration refers to the uptake of carbon dioxide (CO2
), a primary GHG, into a natural or arti-
ficial reservoir for a long period of time (Trumper et al. 2009). Te goal of carbon sequestration is to store carbon which would otherwise be released into the atmosphere, where it contributes to climate change.
Carbon is primarily stored by biological or physical processes – in biomass by photosynthesis and physically in soil and rock formations. Terrestrial carbon, stored in plant biomass and soil in forest land, plantations, cropland and pasture, is oſten called ‘green carbon’. Te world’s oceans bind an estimated 55 per cent of all carbon in living organisms – phytoplankton and coastal plants (Nellemann et al. 2009). ‘Blue carbon’ refers to carbon sequestered by coastal habitats – particularly man- groves, marshes and sea grass – and carbon stored in biomass and buried in marine sediments.
Te other main type of carbon sequestration is an industrial process whereby GHG from power plants and other large emitters is captured, compressed and stored in geological for- mations, either on land or below the surface of the sea. Tese processes, referred to as carbon capture and storage (CCS) or geological sequestration, are relatively recent innovations and have yet to be implemented on a large scale.
Carbon markets also provide economic incentives for reduc- ing emissions through carbon emissions trading, sometimes
Under the Cap and Trade system emitters exceeding regula- tory imposed ‘caps’ on GHG limits – typically energy com- panies, heavy industry and more recently aviation companies – purchase carbon permits from entities with CO2
emissions
below their cap. For the most part Cap and Trade is carried out through market exchanges, of which the most prominent is the European Climate Exchange.
Carbon credits can also be generated by investing in ‘on the ground’ projects, but the credits may not be traded. Under this system GHG emitters – private or public bodies, indi- viduals – seek to ‘offset’ their emissions in various ways. Tey may invest directly in the recovery of ecosystems through, for example, a forest planting project which captures carbon, or invest in renewable energy or projects promoting greater en- ergy efficiency. Over recent years there has been substantial growth in such project-based transactions.
Such transactions may be voluntary or required by legislation, the latter obliging the relevant bodies to reduce or cap their carbon emissions within a certain timeframe. Such legisla- tion may be framed at a local, national or international level. At the international level, markets for carbon sequestration are taking shape under the Clean Development Mechanism (CDM) established by the Kyoto Protocol as part of the UN Framework Convention on Climate Change as well as volun- tarily for pre-compliance purposes.
Elements of the CDM provide for planting trees as a means of compensating for, or offsetting, GHG emissions. Both affores- tation (growing forest on land which has been without such cover for at least 50 years preceding 1990) and reforestation (planting forest on degraded woodland) are supported under the CDM scheme (USAID 2007). Recent technical innova-
tions which are able to accurately measure the amount of CO2 sequestered by a given stand of trees or unit of land have made it much easier to set a price tag for carbon. Until now, the stor- age of carbon in trees which would otherwise have been felled – known as ‘avoided deforestation’ – has not been eligible un- der CDM provisions. However, experimental markets outside Kyoto-type arrangements exist, rewarding measures designed to preserve forests which might otherwise be lost.
40 VITAL GRAPHICS ON PAYMENT FOR ECOSYSTEM SERVICES