Temporary credits: A solution to the potential non-permanence of carbon sequestration in forests?

The potential non-permanence of sequestered CO2 emissions is a crucial issue to tackle in order to safely include forestry activities among eligible activities for the Clean Development Mechanism. Rather than looking at accurate ways of securing permanent reductions, some experts studied the possibility of delivering temporary licenses as a way of circumventing the respective drawbacks of previously proposed approaches (e.g. Ton-Year Accounting). This paper focuses on this concept of temporary (or expiring) credits and tries to assess its financial viability using different scenario assumptions while bearing in mind the need to protect the CDM's environmental integrity. Our main finding is that the concept of expiring credits (EC) provides a convincing answer to the issue of non-permanence both from an environmental perspective and from a strictly financial point of view (as it has the property of efficiently dealing with uncertainties and therefore hedges the risk). However, given the specific nature of forestry activities compared with other types of CDM projects, the EC concept should be complemented with additional rules and modalities. (c) 2005 Elsevier B.V. All rights reserved.