Development of Carbon Standards and Access to International Carbon Markets

Misc Image


This paper presents the outcomes of a review of existing and emerging voluntary carbon markets and the process by which forest carbon projects can register fungible units for trading in these markets. The review was undertaken in 2009 and conducted from the perspective of particular opportunities for a large scale demonstration activity based on peat land in Central Kalimantan.

The review comprised four key components. These were:

  • An assessment of selected forest carbon markets and carbon standards, including carbon registers and trading schemes that incorporate or are intending to incorporate forest-based offsets or other forms of tradeable carbon units;
  • Development of a harmonised standard that meets the emerging market requirements;
  • A gap analysis for a forest carbon project, in this case the Kalimantan Forest Carbon Partnership, to assess the carbon baseline and monitoring processes in place to meet the requirements of carbon markets; and
  • Synthesis of key outcomes and potential pathways to forest carbon markets.

The outcomes incorporate a review of the timeline for forest carbon projects to take fungible units to market, through forest carbon standards and associated registries.



The Kalimantan Forests and Climate Partnership (KFCP) is a REDD (Reduced Emissions from Avoided Deforestation and Degradation) demonstration activity that is focused on improving hydrology and reducing degradation of peatland and at-risk peatland forests in Central Kalimantan. Under the partnership, works will be undertaken to rehabilitate drained peatlands and protect forested peatlands, with a view to contributing to the common goal of addressing climate change and its adverse effects. The KFCP will contribute to the advancement of REDD through the development of demonstration activities, carbon stock assessment and monitoring, promotion of good forest governance and the prevention, monitoring and suppression of fires.

The KFCP field demonstration activity will be implemented within a single peat ecosystem, or “dome”, of approximately 120,000 hectares of peatland and forest within the northern part of the Ex-Mega Rice Project (EMRP) area in Central Kalimantan (refer Figure 1). The northern half of the peat dome (Block E) is covered by relatively intact peat swamp forest, whereas the southern part (Block A) is a mixture of logged over and degraded peat swamp forest and cleared areas.

Click here for Figure 1: Location Map of the KFCP Demonstrate Site (opens in a new window)



Global carbon markets are in a state of rapid change, due to evolving policy frameworks and growing demand. The total value of global carbon markets in 2008 was approximately USD120 billion, up from USD60 billion in 2007 (Hamilton et al 2009). To accommodate this growth in demand and increasing regulatory requirements, both regulated and voluntary markets have been established.

Regulated markets currently account for 99% of carbon traded. By far the largest of these markets are the EU Emissions Trading Scheme (ETS) and the Kyoto-based Clean Development Mechanism (CDM), which collectively account for approximately 99% of regulated markets.

However, significantly for the KFCP project, no existing regulated markets provide access for projects based on avoided deforestation and forest degradation.

Voluntary carbon markets remain small relative to the total of regulated market trades, accounting for less than 3% of the total volume traded and less than 1% of the total value traded in 2008 (Hamilton et al, ibid). Within this, avoided deforestation projects were estimated to total approximately 1% of the 54 MtCO2e traded Over the Counter (‘OTC’) in 2008 - i.e. approximately 540,000 tonnes.

It is unclear whether REDD projects generally will be covered or otherwise recognised as eligible under future regulated markets.

Carbon registries have emerged in recent years as part of the infrastructure of carbon markets. These registries have two purposes, for which separate registry functions may exist: firstly, to track project emissions reductions or removals (‘emissions tracking’); and secondly, to track and facilitate the sale of carbon permits (‘credit accounting’ and ‘carbon trading”).

Most significantly for KFCP, the development of registries to date reflects the increasing importance of high quality carbon standards to further growth of international carbon markets. To a large extent, registry systems have and will follow the development of carbon standards, through which credible carbon credits or emission reduction certificates are generated.



Over the past few years, market standards for carbon projects have evolved to accommodate various project categories and market demand for levels of assurance. Existing standards have evolved with differing areas of emphasis such as carbon accounting and socio-economic development. REDD represents a new framework with its own requirements; as the REDD framework continues to develop, particularly through international policy negotiations and national carbon legislation, it is expected that market standards will be developed further to address a broad range of requirements.

Carbon standards
This review considered a range of voluntary standards applicable to forest carbon projects for the purpose of assessing scope for KFCP to access forest carbon markets. The standards considered under this review and their primary areas of focus are outlined in Table 1. Some of these standards have their own affiliated registries that generate specific trading units (or certificates).

Table 1 - Overview of selected voluntary carbon standards

Carbon accounting guidelines
Social and environmental guidelines
Affiliated registry
VCS Registry System
CCB Registry
Plan Vivo
Plan Vivo Registry
Carbon Fix
Carbon Fix Registry
Social Carbon
Social Carbon Registry
* Draft standard currently subject to public comment



Complementary principles
Forest carbon standards are continuing to evolve at a rapid pace. Recognising that the KFCP is likely to be looking to access forest carbon markets from 2012 onwards, significant future changes in forest carbon standards can be expected to develop. Key factors likely to contribute to further shaping of carbon standards include the specific application of sustainable forest management principles, good financing principles and institutional safeguards.

Forest carbon objectives and sustainable forest management principles have begun to converge and this trend can be expected to continue. At the international and national forest policy levels, there is growing recognition that programs developed to address key issues such as climate change and illegal logging must take into account the broad range of forest management uses and livelihood dependencies. This recognition will drive the integration of carbon market standards and sustainable forest management principles.

There are a range of forest management principles that could be applied, for example, the Forest Stewardship Council (FSC) Principles and Criteria for Forest Stewardship, national standards accredited under the Programme for Endorsement of Forest Certification (PEFC), and - in tropical countries - the International Tropical Timber Organization’s (ITTO) Criteria and Indicators for sustainable management of natural tropical forests.

As an example, FSC forest management stewardship is based on ten principles, incorporating compliance with laws, tenure and use rights and responsibilities, community relations and worker’s rights, benefits from the forest, environmental impacts, monitoring and assessment, management planning and maintenance of high conservation value forests. The PEFC and ITTO standards comprise similar principles and performance assessment criteria.

Good financing principles are also expected to play an increasing role in shaping carbon market standards. These principles are defined in the International Finance Corporation (IFC) Performance Standards for Social and Environmental Sustainability, and the Equator Principles, which provide a financial industry benchmark for determining, assessing and managing social and environmental risk in project financing.

The IFC fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the international financial markets, and providing advisory services to businesses and governments. Carbon finance-related issues are handled by IFC’s Carbon Finance Unit, providing services directly to buyers and sellers.

The IFC applies environmental and social standards to all the projects it finances to minimize their impact on the environment and on affected communities. The Performance Standards on Social and Environmental Sustainability include eight performance standards detailing aspects such as labour and working conditions, community health, safety and security, biodiversity, indigenous people and cultural heritage. The IFC performance standards are designed to apply across sectors and product markets.

While not specifically included in this review of carbon standards, the objectives of World Bank Environmental and Social Safeguards policies are complementary to REDD programs. These policies aim to avoid, minimise or mitigate harm to people and the environment while seeking economic development and co-benefits. The management of carbon emissions and climate change has gained significant support from the World Bank, becoming part of its core mandate.

These principles as defined in the standards are complementary to the objectives of carbon standards and their application within international and national policy frameworks to address climate change. As carbon markets evolve and migrate towards more commodity-based trading structures, it is expected there will be greater convergence of these standards and principles over time.



The requirements of selected carbon standards and complementary principles of good practice were drawn upon to derive a harmonised standard to guide the KFCP in respect to becoming market ready to access carbon markets.

A summary of this harmonised standard is incorporated in Table 2. Based on the review outlined above, it incorporates requirements of selected carbon standards, social and environmental performance standards, relevant forest management principles and good financing guidelines. The structure of the standard is based on a hierarchical set of principles, criteria and indictors. This structure and terminology is consistent with a range of registered standards including CCB, REDD+ and forest management standards including the FSC and PEFC.

The development of this standard incorporated consultation with and feedback from a range of organisations that are involved in the development of REDD projects in Southeast Asia . This feedback was used to refine the standard prior to application through this analysis.

To assess the extent to which the KFCP would meet requirements of forest carbon markets, an analysis was conducted against the harmonised standard. The analysis was conducted at the criteria level, grouped under each principle. Indicators were used to inform an assessment of the requirements to attain compliance under each criterion. Table 2 provides a summary of this assessment, incorporating a set of requirements aligned with each criteria of the harmonised standard.

Click here for Table 2 – Summary of findings at the criteria level (opens in a new window)




An indicative timeline for forest carbon projects to access carbon markets is illustrated in Figure 2, based on the scope and scale of the KFCP demonstration activity. The development of a Project Description Document (PDD), and validation and verification for the PDD, are incorporated into this timeline.

Click here for Figure 2 - Typical pathway to international carbon markets (opens in a new window)


This review indicates that the timeline for large scale forest carbon projects to access carbon markets is in the order of 2-3 years from inception. The scope to accelerate this timeline will depend to a large extent on capacity to mobilise resources around activities along the critical time path. For projects such as the KFCP, activities along the critical time path include the social and environmental impact assessments, which need to be completed before the comprehensive risk assessment can be finalised and the buffer allocation is made. Development of the alternative livelihoods strategy is also time-critical, as it will inform the social impact assessment and ultimately to the calculation of project reductions.

These observations will be broadly applicable to a range of forest carbon projects that intend to attain verification against internationally recognised carbon standards. These standards will similarly require social and environmental impact assessments, which will need to be completed before the comprehensive risk assessment can be finalised and the buffer allocated. The development of a robust alternative livelihoods strategy will be a requirement for all forest carbon projects that introduce changes to the use of land on which communities depend for their livelihoods.



Hamilton, K., Sjardin, M., Shapiro, A. and Marcello, T. 2009, Fortifying the Foundation: State of the Voluntary Carbon Markets 2009. A report by Ecosystem Marketplace and New Carbon Finance.

KFCP, 2009, Kalimantan Forests and Climate Partnership (KFCP) Design Document, July 2009.

Morton, A. and Freeman, B. 2009. REDD in Asia Pacific: Challenges and Implications. Proceedings of the Biennial Conference of the Institute of Foresters of Australia, Caloundra, 2009.

Voluntary Carbon Standard – Guidance for Agriculture, Forestry and Other Land Uses Projects
(VCS 2007.1), 18 November 2008.

Voluntary Carbon Standard – Guidance for Agriculture, Forestry and Other Land Uses Projects (VCS 2007.1, 2008) - Draft version of the VCS guidance amended for inclusion of Peatland Rewetting and Conservation (PRC), Version 0.13, October 2009; provided to URS by the VCS PRC Technical Panel for the specific and limited purpose of conducting this review of forest carbon standards for the KFCP.



Blair Freeman is a Principal Consultant with URS Forestry, based in Melbourne. He can be reached at


This article is based on a study undertaken by URS for the Indonesia-Australia Forest Carbon Partnership, which was established in 2007 to manage forest carbon initiatives under a bilateral agreement between the Government of the Republic of Indonesia and the Government of Australia. For further information on this Partnership, contact Grahame Applegate, Forest & Climate Specialist, at