The growing moves towards establishing a carbon trading market to promote forest preservation has taken a significant step with a preliminary agreement struck between two of the biggest tropical rainforest nations and three US states.

Under the agreement, California, Illinois and Wisconsin will look to incorporate in their emerging emissions trading schemes the use of carbon credits generated by paying for the protection of rainforest in Brazil and Indonesia. Big emitter companies in these US states would be allowed to offset the credits against their emissions cap under schemes currently being drafted.

It is an early example of how a future global forest carbon market envisaged by the UN, the World Bank and others might work. The concept goes by the name of REDD – Reduced Emissions from Deforestation and Degradation. A REDD financial mechanism is seen by many as vital to halt the alarming rates of deforestation that make contribute up to 20 per cent of the world’s greenhouse gas emissions.

There are already individual REDD projects underway, financed in the voluntary carbon market, but this latest agreement foreshadows the first attempt to make such projects part of a mandatory emissions reduction scheme.

“This is the first time policymakers are creating concrete rules and incentives to protect the world's remaining tropical forests,” Conservation International’s Toby Janson-Smith told Bloomberg. The agreement was unvelied by Governor Arnold Schwarzenegger at the Governors' Global Climate Summit he is hosting in Los Angeles. The accord targets the rainforest-rich Indonesian provinces of Papua and Aceh and the Brazilian states of Amazonas, Para, Amapa and Mato Grosso.

California is leading efforts in the US to rein in greenhouse emissions and is due to release the rules for its emissions trading scheme, scheduled to begin in 2012, within months. The scheme aims to reduce the state’s emissions, by themselves larger than most other countries’, back to 1990 levels by 2020.

California is looking to link its scheme with other states and Canadian provinces in the Western Climate Initiative, while Wisconsin and Illinois are part of Mid-West group considering a similar regional approach. Hopes are also high that US President-elect Obama will institute a national cap and trade scheme when he takes office.

The US is seen as a key to successful concerted action against climate change on many levels, but it is particularly in the forestry sector where it’s embrace of proactive climate policy promises a big international impact. There is a much greater acceptance of forest-related emissions reduction activity in the US than in Europe, the current world leader in climate action.

California’s Climate Action Registry (CCAR) rules is also emerging as a leading standard for ensuring the environmental integrity of forest carbon projects.

Bloomberg, Reuters 19.11.08