An agreement allowing companies to grow trees as an alternative to curbing their use of fossil fuels is becoming one of the most contentious issues in the run-up to next month's Milan conference on climate change.
The rule permitting companies to offset greenhouse gas emissions by investing in forestry projects in developing countries was part of the 1997 Kyoto Protocol.
Opponents argue that the ability of forest "sinks" to store carbon is difficult to measure, could be jeopardised by forest fires and a warmer climate, and distracts attention from attempts to reduce dependence on fossil fuels.
The European Union, concerned about the risk that carbon in forest "sinks" could be released back into the atmosphere, is arguing that companies should only be given temporary credits - renewable every five years - for carbon stored in trees.
The World Bank, which has been in the vanguard of efforts to kickstart the forest sinks market, believes the EU proposals will severely damage its viability. Ken Newcombe, director of carbon funds at the World Bank, says it will reduce the amount companies are willing to pay for carbon credits by as much as 80 per cent.
The main barrier facing forest carbon projects is uncertainty about the future of the protocol, which Russia must ratify before it can enter into force. Credits for forest projects in developing countries would be granted under the protocol's "clean development mechanism" (CDM), designed to promote sustainable development while reducing the costs of cutting emissions.
Many non-governmental organisations have voiced fears that the vast majority of forestry projects will involve potentially damaging large plantations.
"My guess is that we will see very few small-scale, truly sustainable community projects. The majority will be large scale, monoculture tree plantations," says Jutta Kill of Fern, an NGO concerned with forest issues.
A campaign to safeguard the quality of forest projects in the Kyoto Protocol by linking them to poverty reduction and biodiversity protection will be launched at the Milan meeting. The Forest Carbon Alliance plans to advocate changes to the CDM rules to bring it in line with the Millennium Development Goals.
"We must think about the CDM as an opportunity to address development," says Jos Mara Figueres, former president of Costa Rica and senior managing director of the World Economic Forum, who backs the alliance. "Most of the global response to climate change must be from reducing fossil fuel energy use. But since 20 to 25 per cent of all carbon emissions arise from land use and land use changes, improvements in land use will also be essential," he says.
The uncertainty about the status of the credits for forestry projects has delayed the launch of the World Bank's Biocarbon Fund. The fund has been set up to invest in forest sequestration projects with the backing of mostly Japanese investors.