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Abstract: In recent years, the global carbon trading system has continued to increase, develop, and integrate, and forestry carbon sink trading is an important component of the international carbon market. This paper describes the progress and changes in international forestry carbon sink trading, summarizes the characteristics and trends of carbon sink trading development, and statistically analyzes the progress and main challenges of domestic forestry carbon sink trading. Based on the domestic and international carbon trading development situation, it proposes four key insights: parallel development of multiple mechanisms, high importance attached to non-carbon benefits, active expansion of financing channels, and continuous exploration of advancement paths.
Authors: He Guimei, Wang Peng, Xu Bin, Chen Shaozhi, He Youjun
With the development of global climate governance, carbon trading systems, as an important policy tool, have been adopted by an increasing number of countries and regions. Forestry carbon trading is a crucial component of the international carbon trading system and a pioneering exploration model for controlling carbon emissions using market mechanisms. Before the end of 2014, global forestry carbon trading and financing primarily relied on voluntary markets; since 2015, the proportion of carbon trading in regulated markets has gradually increased, and forestry carbon financing channels have begun to diversify, with non-market mechanisms and outcome-based emission reduction payment actions developing rapidly. my country has already established a voluntary emission reduction trading system and launched the National Carbon Emission Trading Registration System in early 2015, fully streamlining the entire trading process for China Certified Emission Reductions (CCERs). Ninety-five forestry CCER projects from 23 provinces (municipalities and autonomous regions) are currently in the process of being publicized, registered, or issued. Several successful cases of forestry carbon trading have emerged in the eight regional carbon trading markets across the country, with traded products including CCERs, Beijing Forestry Certified Emission Reductions (BCERs), Fujian Forestry Certified Emission Reductions (FFCERs), and Guangdong Inclusive Certified Emission Reductions (PHCERs). Various voluntary carbon compensation or carbon neutrality activities are also widely underway. However, since the National Development and Reform Commission issued Announcement No. 2 of 2017, the registration and issuance of national forestry CCER projects have been temporarily suspended, and other voluntary trading and carbon compensation activities have also been affected. Therefore, analyzing the development, changes, characteristics, and trends of international forestry carbon trading, and summarizing relevant insights and suggestions based on my country's forestry carbon trading practices, can provide a reference for national, regional, and industry management departments in cultivating the forestry carbon market.
1. Development Status of International Forestry Carbon Trading
1.1 Progress of International Forestry Carbon Trading
1.1.1 Progress of Global Forestry Carbon Sink Trading
From 2000 to 2016, global forestry carbon financing totaled over US$6.057 billion, with an additional US$4.4 billion committed to performance-based payments for emissions reductions through tropical forest management. In 2015, global forestry carbon financing reached US$888 million, comprising US$661 million in regulated markets, US$88 million in voluntary markets, and US$139 million in other non-market mechanisms. The total trading volume of forestry carbon sinks for the year was 88 million tons, comprising 67.2 million tons in regulated markets, 18.2 million tons in voluntary markets, and 2.6 million tons in other non-market mechanisms. In the same year, over 800 forestry carbon sink projects were under implementation or development in 52 countries worldwide, with the vast majority located in Australia (428 projects) and the United States (217 projects). In regulated markets, projects aimed at improving forest management saw the highest trading demand, while in voluntary markets, projects aimed at reducing deforestation and forest degradation (REDD+) were the main type. Results-based payments under other non-market mechanisms were also gradually developing. The annual transaction volume of different types of projects has been changing: afforestation and reforestation projects peaked at 14 million tons in 2011, then gradually decreased to 3.5 million tons in 2013, but rebounded to 5.3 million tons in 2015; REDD+ projects broke through to a peak of 24.7 million tons in 2013 and then gradually declined to 11.4 million tons in 2015; forest management improvement projects dropped to a low of 2.7 million tons in 2013 and then began to rebound, reaching 9.2 million tons in 2015; sustainable agriculture and agroforestry projects rose to a peak of 5.7 million tons in 2012, then decreased to 400,000 tons in 2013, and in 2015, together with wetland, mangrove and soil projects, they created a transaction volume of 4.4 million tons. Statistics show that since 2015, global forestry carbon trading has begun to diversify, with regulated markets emerging and non-market mechanisms growing rapidly. The Australian Emissions Reduction Fund (ERF), the California-Quebec carbon market, the REDD+ preparation program, and other non-market mechanisms have become the main channels for forestry carbon financing.
1.1.2 Progress of Forestry Carbon Sink Trading in Regulated Markets
Globally regulated forestry carbon trading primarily occurs in carbon markets in countries and regions such as Australia, California-Quebec, and New Zealand. Since Australia abolished its carbon tax and implemented an emissions reduction fund in July 2014, numerous forestry carbon projects have become the main players in market auctions. In 2015, market demand for forestry carbon projects accounted for 66% of all offset demand for the year. The Australian government purchased 60.7 million tons of certified carbon emission reductions (CERs) from forestry projects at an average price of US$9.7/ton, totaling US$588 million. Although the trading price of forestry carbon sinks in the market has gradually decreased-in 2015, project developers lowered their average selling price from US$10.3/ton in the first auction to US$7.8/ton in the third auction to secure the signing of auction agreements-forestry carbon projects have consistently occupied an important position in the ERF, with 104 million tons already issued, over 90% of which have been certified by the Carbon Farm Offsets Initiative. In the same year, the California-Quebec carbon market saw forestry carbon sink trading volume reach 6.5 million tons, with a trading value of US$63.2 million and an average trading price of US$9.7 per ton, representing increases of 6%, 16%, and 9% respectively compared to the previous year. Statistics from the California Air Resources Board (ARB) show that during the second regulatory period of 2015, regulated companies submitted a total of 12.8 million tons of certified carbon reductions (CCRs) for compliance offsetting, 46% of which originated from forestry projects; however, these companies did not utilize the full 8% offset quota (25.7 million tons), and it is estimated that offsetting demand in the market will not peak until the end of 2017. Because forestry carbon sink projects have consistently dominated in terms of issuance rates, registered projects in the market have already issued 28.2 million tons of CCRs, and it is estimated that a large number of projects will successfully register and obtain CCRs in the next 1-2 years; therefore, the supply of forestry carbon sinks continues to rise, and a stage of oversupply is increasingly approaching. After an adjustment period in 2013-2014, the trading volume and value of forestry carbon sinks in New Zealand's carbon market gradually increased in 2015, reaching 1.3 million tons and US$10 million respectively, and the market is in a slow recovery.
1.1.3 Progress of Voluntary Market Forestry Carbon Sink Trading
Despite the stimulus of strong international forest protection policies in recent years, the global voluntary market for forestry carbon sinks has struggled to recover. In 2015, the trading volume and value of forestry carbon sinks were 18.2 million tons and US$88 million, respectively, representing decreases of 23% and 31% compared to the previous year. The average trading price also fell from US$5.4/ton in the previous year to US$4.9/ton in 2016. Although the cumulative trading value of global voluntary market forestry carbon sinks exceeded US$1 billion in 2016, the trading volume decreased by 24% compared to the previous year, reaching a 10-year low. Typically, bulk sales have lower trading prices, while small-scale sales have higher prices, sometimes reaching US$8 to US$11.99/ton. Although the average trading price of carbon emission reductions (CERs) certified by forestry projects has consistently been higher than the $3.3/t of other projects, observations reveal a trend of convergence towards multiple price points. The vast majority of trading volume occurs within three price ranges: $0–$0.99/t, $3–$3.99/t, and $7–$7.99/t, reflecting relatively low market efficiency. Trading prices for CERs vary significantly among different project types, ranging from as low as $0.2/t to as high as $80.1/t. Afforestation projects have the highest carbon price ($7.6/t), followed closely by forest management projects ($7.4/t). Sustainable agriculture and agroforestry projects have a carbon price of $5.0/t, while REDD+ projects have seen a gradual decrease from $4.2/t in 2013 to $3.4/t in 2015. Furthermore, since the average carbon price in the regulated market (US$10-11/t) is much higher than that in the voluntary market (US$2.9/t), a large amount of voluntary carbon emission reductions have entered the regulated market for trading since the California-Quebec carbon market allowed some voluntary projects to be converted for offsetting compliance in the regulated market. As a result, voluntary carbon offsetting activities in North America have decreased significantly. In 2015, the United States and Canada traded only 1.2 million tons of voluntary forestry project certified carbon emission reductions worth US$11.3 million.
1.1.4 Progress of Forestry Carbon Sink Trading under Other Non-Market Mechanisms
Non-market forestry carbon trading primarily refers to financing methods based on the results of forestry actions that have occurred in recent years between two or more governments. In 2015, the trading volume and value of non-market forestry carbon trading reached 2.6 million tons and US$139 million, respectively, with over 90% using results-based payment methods. Unlike market-based approaches, these results-based payment institutions typically do not need to acquire ownership of project emission reductions or use purchased emission reductions to offset their climate footprint, nor do they need to enter a physical carbon market with multiple buyers and sellers. However, similarly, the carbon emission reductions of these projects must be certified by an independent third party before receiving related fees, thus constituting results-based payment. Currently, global REDD+ financing pathways, including related preparedness programs, are no longer operating under traditional prepayment or time-based payment methods, but are shifting towards results-based payment. At the 14th Forest Carbon Partnership Fund (FCPF) meeting in Paris in June 2016, participants approved the initial emission reduction project documents for Costa Rica and the Democratic Republic of Congo, which can then negotiate future emission reduction payment agreements with the World Bank. Norway, the UK, and Germany recently announced a $5 billion commitment by 2020 to support REDD+ projects; however, these projects will only receive funding after achieving the expected results, and there is a development process from announcing the investment to committing and disbursing funds. Non-market mechanisms have so far employed three implementation methods: from the Amazon to Brazil, from early REDD+ action projects to Colombia and the Brazilian state of Acre, and from the Norwegian government to Uganda. More projects under development may be implemented through the World Bank Carbon Fund, ongoing bilateral commitments, or the Green Climate Fund.
1.2 Development Trends of International Forestry Carbon Trading
1.2.1 Diversification of Forestry Carbon Financing Channels
Prior to the end of 2014, international forestry carbon trading primarily occurred in voluntary markets, with regulated markets consistently accounting for a relatively low percentage. However, since 2015, the volume of forestry carbon trading in voluntary markets has decreased year by year, while that in regulated markets has increased annually and continues to rise, as seen in the Australian carbon market, the California-Quebec carbon market, and the New Zealand carbon market, where forestry carbon trading remains a crucial component. Outcome-based payment actions and other new non-market mechanisms are also emerging, leading to a diversification of global forestry carbon financing channels. Statistics show that in 2015, financing sources for international forestry carbon projects included: carbon emission reduction sales (39%), loans or public sector grants (24%), grants and non-profit grants (15%), production activity funding (13%), private investment (8%), and others (1%). The recipients of these payments were primarily landowners (61%), production activities (17%), project development (13%), third-party institutions (6%), and communities and local stakeholders (3%). With the innovative development of various carbon finance products, such as carbon pledging, carbon insurance, carbon options, carbon futures, and carbon securities, the interest of public and private sectors in participating will gradually increase, and various new forestry carbon financing models will emerge in the rapidly developing carbon trading system.
1.2.2 The buyer's market will continue for a long time.
Although international forestry carbon trading volume reached a record high in 2015, 39.7 million tons of forestry project-certified carbon emission reductions remained unsold across various carbon markets. Excluding purchases by the Australian Emissions Reduction Fund, for every 1 ton of forestry carbon emission reductions sold in the market that year, 1.6 tons remained unsold. Due to waiting for higher prices or mandatory market signals from local authorities, market suppliers still held 80 million tons of forestry carbon emission reductions that were either unsold or not fully utilized in 2016. Forest Trends' market research indicates that project developers generally felt that current forestry carbon sink prices were too low, believing that ideal carbon prices should be more than double the current price. Meanwhile, the global issuance of forestry projects also reached a record high of 33.1 million tons in 2015, while the amount used for offsetting was only 14.1 million tons. The issuance of projects exceeded market demand and was also higher than the amount used for offsetting and neutralizing compensation. As a result, forestry carbon sink projects in the international carbon market have been in a state of oversupply in recent years. The selling price of certified carbon emission reductions for early development projects has continued to decline, and the funding for current development projects is severely insufficient. A large amount of green funds are still needed to promote their sustainable development.
1.3 Development Characteristics of International Forestry Carbon Sink Trading
1.3.1 Forestry carbon trading is heavily influenced by emission reduction policies.
In theory, forestry carbon trading is a loose collection of projects based on afforestation and reforestation, forest management, and deforestation reduction, aiming to acquire and trade the resulting carbon emission reductions. This trading is closely related to global, regional, national, and sub-national emission reduction policies. Demand for forestry carbon trading in a region only increases significantly and trading becomes active when local governments issue mandatory emission reduction signals and most participants perceive a certain market expectation. Conversely, market demand weakens when government emission reduction intentions decrease, action targets are unclear, or emission reduction policies change frequently. Therefore, global forestry carbon trading exhibits multiple characteristics of regionality and hierarchy, making large-scale integration and development difficult in the short term. For example, the increased enforcement of emission reduction policies by the governments of California and Australia has stimulated a significant increase in forestry carbon trading volume in the California-Quebec carbon market and the Australian Emissions Reduction Fund. In New Zealand, after the carbon market stopped allowing regulated entities to use international emission reductions to offset emissions in May 2015, local forestry carbon trading volume, which had stagnated for two years, began to increase again. Currently, all 15 existing and future regulated markets include offsetting mechanisms. Eleven of these markets in North America, Oceania, Africa, and Asia accept certified carbon emission reductions (CERs) from forestry projects as eligible offsetting products. The Green Climate Fund also prioritizes increasing forestry carbon financing as a core strategy to promote enhanced programs at the national level. The International Aeronautical Organization's proposed market-based offsetting scheme may also include CERs from REDD+ projects and other forestry projects. These policies will significantly impact international forestry carbon trading.
1.3.2 National and Regional Carbon Emission Control Development Priority
Global carbon pricing efforts have made continuous progress at the regional, national, and sub-national levels, with a total of 47 action systems implemented or planned, including 24 carbon emission trading systems and 23 carbon tax systems. In fact, regardless of the approach-including carbon trading markets, carbon taxes, emission reduction funds, and outcome-based payment actions-these are all different policy tools for addressing global climate change. Each system is a set of rules built upon close integration with local emission and management systems, aiming to reduce total carbon emissions at the local, national, or regional level, achieving a win-win situation for carbon emission control and development, or maximizing regional benefits. The interconnected development of different action systems is also aimed at improving cost-effectiveness and efficiently achieving the policy objectives. Therefore, the role of government intervention is significant in the construction and operation of carbon markets. Especially in the early stages of market development, forestry carbon sink trading is only a supplementary regulatory mechanism to the carbon trading system. Its market share and development progress mainly depend on the regulatory targets and effectiveness of national or regional emission markets, and market participants tend to purchase forestry carbon sinks from their own country or region. For example, the Quebec carbon market was linked to the California carbon market in 2014. The 8% offset ratio for Quebec's controlled-emission companies created an offset demand of 32.5 million tons (5 million tons annually from 2015 onwards). The California government hoped that these controlled-emission companies would act as both supply and demand participants in the joint carbon market, but as of October 2016, these companies had not purchased carbon emission reductions produced by California forestry projects. The development models of the Brazilian state of Aksi and the Canadian province of Ontario after being linked to the California carbon market may also be similar to those of the Quebec market.
1.3.3 Non-carbon benefits have received high attention and promotion.
Beyond carbon sequestration and oxygen release, forests offer multiple ecological, social, and economic benefits, a key consensus in global climate negotiations regarding forestry. In carbon trading systems, using forestry project carbon reductions to offset or compensate for a certain percentage of other carbon emissions is essentially a development approach that productizes, markets, and innovatively supports a small amount of forest ecosystem services. Regardless of whether it's a regulated or voluntary market, the average selling price of certified carbon reductions from forestry projects is generally higher than that of other projects. Many market participants are willing to purchase forestry carbon sinks primarily because they value the shared benefits associated with forestry projects, such as community benefits, biodiversity conservation, women's skills enhancement, and livelihood improvements. Forest Trends data analysis shows that in 2015, nearly half of forestry carbon sink buyers in the carbon market valued its non-carbon benefits. In the voluntary market, the main drivers for buyer participation were fulfilling corporate social responsibility, achieving climate action goals, demonstrating industry leadership, enhancing a green image, and retail sales. The effectiveness survey results of 92 projects showed that 78 project areas protected 376 endangered species, 75 projects improved the benefits of local communities, 53 projects employed 7,700 local residents and provided technical training to more than 5,000 people, 42 projects improved regional water security, 31 projects enhanced climate adaptability, and 26 projects promoted forest tenure reform. The statistical analysis of the non-carbon benefits of these projects, along with their widespread dissemination and promotion, are also important factors contributing to the proliferation of forestry carbon sequestration projects worldwide over the past 20 years.
2. Development Status and Major Challenges of Forestry Carbon Sink Trading in my country
2.1 Progress of Forestry Carbon Sequestration Project Trading
In my country, forestry carbon trading all falls under the category of certified emission reduction (CER) trading at the project level. There are three main types of projects: forestry carbon sink projects under the Clean Development Mechanism (CDM) (CDM projects), forestry CCER projects, and other voluntary projects. BCER and FFCER projects fall under the category of forestry CCER projects with changed management procedures. PHCER forestry projects are primarily voluntary, but converting them to provincial-level PHCERs is, in principle, equivalent to CCERs and can be used by regulated enterprises in Guangdong to offset their compliance obligations.
Since 2004, the National Development and Reform Commission (NDRC) has approved six forestry CDM projects: the Novartis Southwest Sichuan Forestry Carbon Sequestration, Community and Biodiversity Afforestation and Reforestation Project; the Inner Mongolia Horinger Shengle Ecological Demonstration Zone Degraded Land Reforestation Project; the Northwest Guangxi Degraded Land Reforestation Project; the Northwest Sichuan Degraded Land Afforestation and Reforestation Project; the Guangxi Pearl River Basin Management and Reforestation Project; and the Liaoning Kangping Desertification Control Small-Scale Afforestation Project. Of these, the first five projects have been successfully registered with the Clean Development Mechanism (EB), but only the first phase of certified carbon emission reductions (CERs) for the two Guangxi projects have been issued by the EB. The World Bank's Biocarbon Fund purchased the CERs from the Pearl River Basin Management and Reforestation Project.
As of the end of March 2017, the China Voluntary Emissions Reduction Trading Information Platform had published design documents for 95 forestry CCER projects, including 67 carbon sequestration afforestation projects, 22 forest management projects, 1 bamboo afforestation project, and 5 bamboo management projects. Currently, 13 projects have been registered, and 3 projects have received certified emission reductions (CERs). Among them, the first phase of 5,208 tons of CERs issued by the Guangdong Chimelong Carbon Sequestration Afforestation Project were sold to Guangdong Electric Power Group at a price of 20 yuan/ton. No trading reports have been found for the CERs issued by the Jiangxi Fenglin Carbon Sequestration Afforestation Project and the Saihanba Mechanized Forest Farm Afforestation Carbon Sequestration Project. In addition, the BCER pathway pre-issued 60% of the first phase of certified emission reductions for three projects: 1,197 tons for the first phase of the Shunyi District carbon sequestration afforestation project, 96,000 tons for the first phase of the Fengning County Qiansongba Forest Farm carbon sequestration afforestation project, and 1,500 tons for the Fangshan District Shilou Town carbon sequestration afforestation project. The cumulative transaction volume reached 72,615 tons, with a transaction value of 2.655 million yuan and an average price of 36.6 yuan/ton. The FFCER pathway registered seven projects implemented by Shunchang County State-owned Forest Farm, Dehua County Forestry Bureau, and Yangkou State-owned Forest Farm, issuing 1.18 million tons of certified emission reductions. Another 21 projects are currently in the application and registration process. As of the end of 2017, FFCER had traded 274,000 tons, with a transaction value of 5.25 million yuan.
The Voluntary Carbon Standards (VCS) database shows that by the end of 2017, six Chinese projects had obtained VCS standard registration, and two projects had received certified emission reductions: the Jiangxi Le'an Forestry Carbon Sequestration Project (108,545 tons) and the Sichuan Yingjing County Reforestation Project (1,207 tons). VCS project owners in Yunnan, Fujian, and Inner Mongolia signed carbon trading agreements with relevant companies, with the Inner Mongolia Zhuoer Forestry Bureau receiving 400,000 yuan in carbon sequestration revenue. In 2017, the Guangdong regional carbon market saw the trading of 242,343 tons of provincial PHCERs generated by five pilot projects in Shaoguan City, generating over 3 million yuan in revenue. These included the State-owned Liuzhangjiashan Forest Farm Forestry Carbon Inclusive Forest Protection Project A (26,284 tons) and Project B (11,328 tons), as well as the Wengyuan County Wengcheng Town Zhankeng Village Forestry Project (3,046 tons). In May 2018, the Guangdong Dongjiang Forest Farm Forest Protection Carbon Sink Project (34,254 tons) and Forest Management Carbon Sink Project (27,161 tons) also generated 900,000 yuan in PHCER trading revenue. Meanwhile, the certified carbon emission reductions generated by the first batch of 42 farmers' forest management projects in Lin'an, Zhejiang, the Yichun Forest Management Carbon Sink Project in Heilongjiang, and the first Panda Standard Bamboo Afforestation Carbon Sink Project were also traded between 2011 and 2014. The China Green Carbon Foundation is the promoter and advocate of these voluntary trading activities. Since its establishment in 2010, it has been continuously exploring and expanding the domestic voluntary carbon sink trading model, organizing and implementing a series of afforestation carbon sink projects and 39 carbon neutrality projects, carrying out a large number of carbon sink science popularization and education activities, and establishing more than 70 personal donation carbon sink afforestation and publicity and display bases (data from the website of China Green Carbon Sink Foundation). Other innovative carbon sink trading actions have also been sporadically reported, such as purchasing carbon sink car stickers to offset private car carbon emissions, using online platforms to purchase carbon sinks to fulfill tree planting obligations, and Ant Forest tree planting to reduce carbon emissions.
2.2 Challenges Facing my country's Forestry Carbon Sink Trading
Given the near-complete disappearance of demand for CDM projects in the current international carbon market, the prospects for continued development of forestry CDM projects in the short term are limited unless reforms are significantly intensified. Furthermore, since the National Development and Reform Commission suspended the acceptance of all CCER project filings in March 2017, and the national unified carbon market has not yet implemented a CCER offsetting model, the monetization of forestry CCERs in the next 2-3 years can only be achieved through regional pilot markets or voluntary markets. Therefore, many regulated enterprises and investment institutions are cautious about participating in forestry CCER work. Coupled with the price competitiveness of other types of CCERs, forestry CCER projects currently lack issuance volume, and market demand is unlikely to increase significantly in the short term. Although BCER, FFCER, and PHCER trading has emerged in the market, their development and offsetting compliance are subject to strict regional restrictions, indicating a clear trend towards localization. In addition, for voluntary projects such as VCS, since the international carbon market has been in a buyer's position for many years, some buyers prefer forestry carbon emission reductions outside of Asia. VCS forestry projects developed across the country may face problems such as long filing cycles, difficulty in finding international buyers, and difficulty in realizing expected project returns. With the coordinated advancement of domestic ecological civilization construction, green environmental protection, and energy conservation and emission reduction, the demand for carbon sinks in the domestic voluntary market may increase in the future; however, such transactions are usually mediated or organized by intermediary institutions, with diverse participation methods and a low transaction volume. Without long-term regulatory pressure and supporting incentive policies, the prospects for this demand increase are not optimistic.
At present, there are no mandatory guarantee regulations related to forestry carbon sink trading, resulting in insufficient motivation for market participants to purchase. There is also a lack of national-level overall planning and supervision mechanisms, overlapping roles among participating institutions and personnel, and a wide variety of project situations, making it difficult to unify project quality and affecting the participation confidence of enterprises and the public. The trading support system needs to be improved, and more policy, market and technology-related research needs to be carried out.
3. Revelation
3.1 Multiple mechanisms developing in parallel
Currently, global carbon pricing is driven by a variety of mechanisms, such as emissions trading systems, carbon tax systems, offsetting mechanisms, emissions reduction funds, carbon price floor control mechanisms, and outcome-based climate finance. Different countries and regions choose to develop a single mechanism or multiple mechanisms in parallel based on their own circumstances. As an important component of carbon pricing, international forestry carbon trading has also seen the emergence of various mechanisms. In recent years, in particular, regulated markets and voluntary markets have developed in tandem, with some systems beginning to transform and connect with each other; project-based emissions reduction trading and forestry carbon quota trading each have their own characteristics, and emissions reduction fund mechanisms and outcome-based payment actions are gradually expanding; global forestry carbon trading is showing a diversified development trend. my country has significant differences in resource endowments and socio-economic development levels across different regions, and the public's understanding and practice of carbon sequestration vary. Therefore, in the early stages of the national carbon market, forestry carbon trading is unlikely to adopt a one-size-fits-all policy and standards. Numerous mechanisms, including project-based and quota-based, regulated offsetting and voluntary compensation, and independent and regional joint pilot programs, can be piloted under the overall planning of national and industry management departments. We should focus on boosting demand in the domestic market, especially by vigorously promoting horizontal compensation for regional carbon sink benefits and voluntary carbon neutrality actions, in order to explore and summarize practical and feasible operational models.
3.2 Give high priority to non-carbon benefits
Emissions reduction and carbon sequestration are only a small part of the many ecosystem services offered by forest systems. Therefore, the forestry approach is highly valued in global climate governance, with stakeholders prioritizing not only the carbon reduction benefits of forests but also the numerous other benefits that follow. This is a key factor in the rapid development of voluntary forestry carbon trading, which outpaced regulated markets for many years. Regardless of the financing method, most funders value the shared benefits of forestry carbon projects, particularly community poverty alleviation, skills training, livelihood improvement, women's employment, biodiversity conservation, climate adaptation, forest land ownership, and water security. Therefore, it is essential to learn from international experience, strengthen the foundation in incentive policies, participation pathways, management models, public awareness campaigns, and technical support, and continuously research, quantify, analyze, verify, and promote the non-carbon benefits of various forestry projects to gradually enhance the competitiveness of the forestry carbon sequestration market.
3.3 Actively broaden financing channels
International forestry carbon sink project financing has diversified. In particular, financing from regulated markets and outcome-based payment actions are gradually expanding and will constitute the main channels for future forestry carbon financing. The latter has already gained a dominant position in REDD+ project financing and is gradually combining with various local financing methods to form a nested development model. Funding for international forestry carbon sink projects has shifted from primarily relying on investor purchases to multiple sources, such as project loans or public sector grants, non-profit grants, local government matching funds, and private sector investment. Various carbon financial products, including carbon retailing, carbon options, and carbon futures, are also gradually being tested in the forestry carbon sink trading sector. In contrast, my country's current forestry carbon sink project financing channels are relatively limited. CCER projects mainly rely on government funding, while other projects rely on social welfare donations. The costs of subsequent monitoring, verification, and operation management during the project's crediting period are often difficult to guarantee. A phased development target for the forestry carbon sink trading market should be formulated in a coordinated manner. Incentive policy mechanisms should be flexibly utilized, and pilot projects should be conducted to broaden project financing channels. Market and non-market approaches should be combined, public and private sector funds should be combined, and project activities should be nested with local action funds. Carbon finance products and services should be developed to serve the forestry industry, so as to better achieve industry development goals while promoting the participation of the whole society in carbon sink and emission reduction actions.
3.4 Continuously explore pathways for advancement
The carbon trading system is a systematic project that involves simultaneous theoretical research, practical exploration, and continuous development and improvement. The implementation effects can vary significantly across different countries, regions, industries, and sectors. This is not only related to various carbon pricing technologies but also closely linked to the actual socio-economic development of the implementing entities. The EU's carbon trading system, the oldest international carbon trading market, has continuously learned from experience and adjusted to new circumstances since its implementation in 2005, but it is still far from mature. The construction of my country's unified carbon market system cannot be achieved overnight; it needs continuous revision and improvement based on changes in domestic and international emission reduction situations and policy objectives, as well as the accumulation of practical experience. Given the lack of clear connections between CDM, joint compliance mechanisms, and voluntary markets and the new methods and mechanisms in the Paris Agreement, coupled with declining international demand, an uncertain future, and the difficulty in achieving large-scale breakthroughs in domestic trading, how should my country's forestry carbon sink market be cultivated? Which model can more effectively contribute to the modernization of the industry, highlight the long-term nature and importance of industry development, and contribute to national strategies? This is actually a very important top-level design issue. Especially in the process of promoting multiple policy systems in parallel, such as ecological civilization construction, ecological poverty alleviation, rural revitalization strategy, green and low-carbon economic transformation, energy conservation and environmental protection and climate change response, the development of forestry carbon sink trading and the operation of other mechanisms will inevitably have cross-influences. It is necessary to enhance the integrity, synergy and systematic nature of these policies at a higher level, and to explore and conduct in-depth research on the improvement path of carbon sink market cultivation and evolution.