The Role of Forestry Sinks in the CDM - Analysing the Effects of Policy Decisions on the Carbon Market

The details on rules and modalities for the inclusion of forestry projects in the Clean Development Mechanism (CDM) are one of the last non resolved implementation issues of the Kyoto Protocol. We examine in detail the implications of different policy decisions concerning the inclusion of CDM forestry sink enhancement projects in the first commitment period of the climate regime (2008-2012). Our analysis is based on the development of marginal forestry cost curves which are implemented into the carbon market model CERT. The latter is a partial equilibrium model of the international market for emissions permits under the Kyoto Protocol. The scenario analysis sheds light on the role of CDM forestry sinks in the climate regime, the effect of different policy scenarios on the carbon market price as well as the distribution of benefits and losses between countries. The results suggest, that the role of forestry projects in CDM in the first commitment period will be rather small. The countries mainly benefiting from the introduction of forestry in the CDM are the Annex B and the Latin American and African countries while China and the hot air holding countries will lose as compared to a purely energy based CDM.