Another Side to the Carbon Credit Coin
David Ray, Forestry Scientist
The basic theory underlying emerging markets for carbon sequestration by forests was presented in a recent issue of Tall Timbers E-News (Pope and Maine). Forest landowners of all stripes are curious about what this new income opportunity might mean for them, and rightly so. The justification for carbon trading is mitigating the negative impacts of climate change. Trading does have the potential to reward a public service that may be provided by private forests. Forest economists have long struggled to find ways to compensate forest landowners for ‘ecosystem services’ that extend beyond the boundaries of their ownership: clean air and water, biodiversity conservation, and open space values, to name a few. Carbon credits may well turn out to be the first widely accessible incarnation of this type of market.
Whatever the future may hold in this area, it is useful for landowners to have a sense of how their forests are likely to measure up. The Red Hills landscape is unique in many ways, and there is reason to believe that the same factors that make this place special, will figure prominently into any opportunities to generate income from forest based carbon credits, at least as presently envisioned. At issue here is the current and future state of forest cover and how that fits with the accounting procedures used to allocate credits. For Red Hills' landowners, we are primarily talking about mature forests and fairly open (low density) tree canopies. These forest characteristics turn out to be two big strikes from the perspective of carbon markets- what follows is an attempt to explain why.
A central concept of carbon accounting is ‘additionality’, where carbon credits accrue in relation to increases in forest biomass. In other words, currently you do not get credit for what already exists at the time of entry into the market. Here in the Red Hills, mature upland pine forests tend to be in an equilibrium state in relation to biomass, due to lightning strikes and selective harvest removals being balanced out by the growth of smaller trees. Under this scenario, no salable carbon credits would accrue. Thus, in order to generate credits, a landowner in this situation would need to increase, and maintain, the amount of forest biomass that exists on their property. And while there are certainly opportunities to accumulate biomass (and thus carbon credits), it is probably not reasonable to expect that credits will accrue at rates similar to those presented for pine plantations. The pine plantation example tends to be the ‘model’ system used to introduce and promote this market.
Further, it is widely recognized that there is an upper limit to the amount of biomass that upland pine forests can support and still maintain the conservation and aesthetic values that are of primary interest to Red Hills' landowners. Evidence presented in the Red Hills Forest Stewardship Guide indicates these values are best maintained with pine basal areas in the range of 40-60 ft2/ac. This science based recommendation is well below that which could possibly exist, when compared to high density pine plantations (150-200 ft2/ac). Thus, while it would be possible for a landowner who’s forest is currently below the upper end of that range, i.e. a basal area less than 60 ft2/ac, to enter into this market without compromising the values for which they own the land, neither the number of credits nor the rate at which they will accrue should be expected to approach those that are possible for intensively managed pine plantations.
Another important consideration here has to do with the maturity of the overstory trees and the multiaged structure that is characteristic of upland pine forests in the Red Hills. Trees like people grow rapidly when they are young, particularly in height, and continue to ‘fill out’ in diameter over time. As a result young trees accumulate biomass (or carbon) more rapidly than old ones. However, unlike in a plantation situation where all trees are approximately the same height and thus have similar access to sunlight as their neighbors, young trees in multiaged stands tend to grow more slowly due to competition from nearby canopy trees that are much larger.
In order to examine these differences I used a forest growth model to compare the accumulation of carbon credits by upland pine forests typical of Red Hills' hunting plantations with those that might be expected from a young pine plantation. As expected, the difference is dramatic (Figure 1). On average, carbon credits were generated 10 times faster in the pine plantation than in the mature upland pine forests. More densely stocked upland pine forests produced carbon credits at a faster rate, around 1 credit/yr at 60 ft2/ac vs. 0.3 credits/yr at 20 ft2/ac. Given a current value of around $1.50/credit on the Chicago Climate Exchange, their sale (valued at between $0.45 and $1.5/ac/yr) would not cover the costs required to bring them to market ($2-3/ac according to Pope and Maine). If the price per credit were to rise to $15/credit, as some are predicting will happen under mandatory cap and trade legislation, then $4.5 to $15/ac/yr would more than offset those up front investments. However, conventional wisdom suggests it is unlikely that mandatory markets will view forestry projects as liberally as the voluntary market represented by Chicago Climate Change. This will likely make the costs of enrollment go higher.
In conclusion, no one really knows how this market is going to develop, and therefore what kind of an opportunity carbon credits may come to represent for forest landowners in the future. What is certain is that this opportunity needs to be evaluated in the context of conditions that exist on the ground, and in light of how related decisions are likely to complement or conflict with the values for which the property is otherwise being managed. As the carbon market information develops we will keep you abreast. I am happy to entertain any questions you may have regarding developments in this area. Contact me by phone, 850.893.4153, x277 or email: email@example.com.
Figure 1. The relationship between forest density (basal area) and the generation of carbon credits under two management systems, mature open-canopy pine uplands and densely stocked pine plantations, as forecast by the Forest Vegetation Simulator. Ages associated with the pine plantation are presented for clarification. Note however that the rate at which credits are generated does not continue to climb for the pine plantation, and in fact drops off sharply after about age 30 (data not shown here) owing to constraints on growth discussed in the article.