There is generally little relationship between the value to society of reducing greenhouse gas emissions or sequestering carbon and the market price at present. This is due to low emission reduction targets being set by governments in establishing cap-and-trade schemes and shortcomings in the design and operation of such markets as described below.
Carbon market prices are lower than social values
Market prices for carbon tend to be lower than social values. Prices in voluntary carbon markets worldwide are reported to have ranged from around $1/tCO2e to $47/tCO2e ($4/tC to $182/tC) in 2008, illustrating the importance of differences of quality and type. In 2018, projects in forestry and land use sectors accounted for the largest volume of carbon units sold in voluntary markets (50.7 MtCO2e), with the highest average prices ($8/tCO2e) reported for improved forest management projects (Donofrio et al., 2019).
Forest carbon covered by government quality assurance scheme
In 2010 the Forestry Commission launched a Woodland Carbon Code (https://woodlandcarboncode.org.uk/) to help underpin the quality of carbon units and confidence in the emerging market for carbon from UK forest projects. This provides a consistent approach to accounting for the carbon sequestration benefits of new woodland creation projects. 266 projects had been registered under the Woodland Carbon Code as of 31st March 2019 which were projected to sequester a total of 6.2 MtCO2e over their 100-year lifetime.
In late 2019 the government in England launched a £30 million Woodland Carbon Guarantee fund to support woodland creation in England. This will be done through the purchase of Woodland Carbon Units from projects validated and verified under the Woodland Carbon Code, with carbon prices to be determined by auction (FC, 2020).
Potential double-counting issues
Sale of carbon units by sectors covered by binding national or international carbon reduction commitments (e.g. mandatory reporting of emissions from land use activities under the Kyoto Protocol) gives rise to potential double-counting issues that can undermine their market value. Mechanisms do not currently exist to ensure the reporting additionality of any voluntary carbon units issued by the UK forestry sector by excluding them from national reporting, or allowing equivalent carbon credits to be retired.
Forests and carbon: valuation, discounting and risk management (PDF, 760.9kB) Reviewing methods to value carbon over time, examining approaches for dealing with risk and considering approaches that could be used in extending standards to forestry more generally in voluntary carbon markets in the UK.