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Deforestation is the second largest source of annual CO2 emissions after fossil fuel combustion, accounting for around 12-15% of annual global CO2 emissions. Deforestation negatively affects biodiversity, soil retention, water regulation and forest dependant communities. Reducing deforestation has also been identified as one of the most cost effective ways to lower global carbon dioxide emissions.

Forest carbon offsets therefore seem like a no brainer – save forests, reduce emissions, protect wildlife and help communities at a lower cost than the alternatives.

However, the picture is not as simple as it first appears. Forest carbon offsets face a number of challenges.

First, it is difficult to ensure that the carbon is stored in the forest permanently. Forests can be cleared in the future by logging, fire and encroachment. This can release the carbon claimed to be saved by forest carbon offset projects.

Second, although a project may reduce deforestation in one area, deforestation may just shift to a new area. This is termed leakage and can occur both within a country and internationally, leading to no net carbon savings.

Third, as with carbon offsets in other sectors, it can be difficult to show that forest carbon offset projects are additional i.e. that the carbon wouldn’t have been saved without the project. For example, new forests may have been planted anyway and, for avoided deforestation projects, there is no guarantee that the forest would have been cut down in the future.

Carbon offset standards are trying to address these issues in different ways. For example, with respect to the permanence issue, the Clean Development Mechanism (CDM) provides temporary credits for forest carbon offset projects that are only valid for a limited period of time. On expiry, these credits need to be replaced either by verifying the project again to ensure the carbon savings are intact or by buying new permanent credits from another project.

This approach, coupled with restrictions on avoided deforestation projects under CDM rules, has had limited appeal for project developers with the majority of forest carbon offset projects being developed in the voluntary market. The approach to permanence is different in the voluntary carbon market. For example, the Voluntary Carbon Standard requires a proportion of the credits to be held in a central buffer reserve which varies depending on the potential for future carbon loss. Any future carbon loss from a project is covered by the credits in this reserve.

These efforts to improve forest carbon offset projects are welcome. However, serious questions remain over permanence, leakage and additionality issues for many projects. Furthermore, care needs to be taken to ensure that forest carbon offsets do not undermine domestic emission reduction efforts. For example, the large volume of potential forest carbon credits is a key reason behind the EU’s opposition to including forest carbon credits in its Emissions Trading Scheme.

A comprehensive framework for addressing emissions from deforestation is urgently needed to help overcome these issues. Progress in this area is promising with negotiations to develop a global scheme to Reduce Emissions from Deforestation and Degradation (REDD) being one of the few areas to make significant headway at the COP15 climate conference in Copenhagen in December last year. $3.5 billion in fast start funding for REDD was pledged in Copenhagen and a further $1 billion in funding was pledged during recent talks in Paris. The first nationally regulated emissions trading scheme covering forestry is also now in place in New Zealand. Last week the UK Government signed up to a new international partnership on forestry and committed £300m to helping rainforest nations safeguard their forests.

These comprehensive approaches are necessary to address the shortcomings with current approaches at a project level and offer a glimmer of hope in the effort to significantly reduce global deforestation.