Ecosystem Services Update
By David Ray, Forestry Research Scientist
Welcome to the inaugural issue of the ‘Ecosystem Services Update’. While the primary motivation for developing this new section of Tall Timbers E-News was to keep you posted on major developments in the area of forest carbon, it will also serve as a forum to discuss other emerging markets for non-traditional forest products (e.g. watershed protection, habitat for threatened and endangered species, etc). This first offering, however, deals with forest carbon exclusively.
Setting The Record Straight
To jump right in, two recent articles published in the E-News, one by myself (https://talltimbers.org/ttnews/news.cfm?news_id=117) and another authored by Kevin Pope and Jeff Main (https://talltimbers.org/ttnews/news.cfm?news_id=104), appear to have stirred some controversy based on an apparent portrayal of opposing views on the same subject. While this was not the intent of my follow-up article to theirs, which was to put this ‘opportunity’ in the context of traditional management of open-canopied pine uplands on Red Hills’ hunting plantations, some clarifications are warranted. Both articles addressed the issue of forest carbon offsets in relation to the ‘voluntary’ market provided by the Chicago Climate Exchange (CCX), and were, by mutual agreement of all authors, factually correct and not necessarily contradictory, though each provided a somewhat different perspective on the subject.
Issues that emerged as confusing, or are otherwise important to understand, will be touched on here. Specifically, my article largely ignored the potential of unmanaged bottomland forests, which may be increasing in biomass (and thus carbon), to contribute to the bottom line that a landowner could realize. Pope and Main’s article provides an estimate of carbon sequestration for this portion of the landscape. Thus, even if the pine uplands on a property were being managed in such a way that carbon stocks remained stable, i.e. growth was balanced by removals, any additions taking place within the unmanaged bottomlands would be marketable according to CCX rules. Also, my treatment of the subject may have left the impression that the costs incurred by landowners in bringing the credits to market would need to be recovered through the initial sale. This is an erroneous interpretation for a couple of reasons. First, the project aggregator typically assumes those costs until a sale is made (on the CCX). Second, the credits potentially represent an annual income stream and so may still be a good investment even if a positive cash flow is not realized in the first couple of years.
Pope and Main’s article touched on the CCX requirement of conducting a forest inventory to quantify the carbon stocks on a property at the initiation of a project, and provided a per acre cost inclusive of that and the additional activities that would be required to bring the carbon credits to market. In addition to the forest inventory, landowners are required to have their management certified as sustainable by a third party (Forest Stewardship Council, Sustainable Forestry Initiative, and American Tree Farm being examples of such entities), and make a commitment to maintain the forest carbon they sell over an extended period (ostensibly 15 years in the case of CCX). Also, certifiers or perhaps an aggregator serving in this role, will require access to the property on a regular basis (likely at 1-5 yr intervals) to verify the predicted rates of increase in carbon storage are in fact occurring. Where forest management is taking place the landowner would also need to provide records of those activities, i.e. maps of harvest areas and receipts indicating rates of removal. And while active management is permitted in forest carbon offset projects by the CCX, such projects may represent a more complex and costly accounting schedule for some landowners. Finally, in situations where an aggregator is managing the project (most cases), the individual landowner transfers the decision making responsibilities regarding the timing of carbon credit sales to them. A complete description of how managed forest projects are conducted on the CCX can be found by following the link provided at the end of this article.
Those paying attention to developments in this area, or simply watching the nightly news, have probably heard about the Waxman-Markey Bill. This legislation, which seeks to address greenhouse gas emissions nationwide by establishing a cap and trade system, recently made its way through the House, and will be taken up by the Senate in September. At this point it appears likely that at least certain types of carbon sequestration projects involving forests and agriculture will be eligible to provide offsets. Offsets, which need not be part of a cap and trade system, effectively allow the ‘cap’ to be exceeded so long as a compensatory action is taken elsewhere. In this case we are talking about forests sequestering an equivalent amount of carbon. Offsets are generally viewed by industry as a cost effective option for staying under the cap, the alternative being taking actions to lower emissions directly at their source. Some groups argue against the inclusion of offsets because they are inherently difficult to verify, and do not necessarily ensure the source of the problem is being addressed. Compromise appears to be prevailing here, however, and the industries that will be regulated under this new system are actively scouting for opportunities to develop low-cost carbon offset projects in anticipation of cap and trade. At the same time environmental groups are pushing for rigorous standards to guide offset projects.
The proposed start date for cap and trade in the Waxman-Markey Bill is 2012, though documented offsets established prior to then, as long as they are consistent with project definitions yet to be fully developed, will likely be eligible for sale. Some guidance here may be found in the literature describing the Voluntary Carbon Standard (which is being viewed as a possible framework for a national system), and the California Climate Action Registry and Regional Greenhouse Gas Initiative (for forestry projects); links to both are provided at the end of this document. While prices for carbon being paid on the voluntary market were never very high, averaging around $2/credit over the past couple of years, they are extremely low at the present time ($0.35 on 6 Aug 09), presumably driven down by uncertainties related to the pending legislation. It is widely forecast that the value of carbon credits will be considerably higher under a mandatory system than has yet been seen in the US market (e.g. possibly in the $15 - $30/credit range). But, these higher prices will almost certainly come with stricter standards and longer commitment periods than have been required of CCX projects.
What’s a Landowner to Do?
With timber prices running as low as they have been lately its nice to imagine the possibility of tapping into a new market that can compensate for those reductions (and then some), and forest carbon offsets may well turn out to fit the bill. It is unlikely, however, that they will work for every forest landowner, based on different management priorities and visions for the future. Two elements that are likely to be required of saleable carbon offsets under a national cap and trade scheme are ‘additionality’ and ‘permanence’. Additionality refers to amount uptake and storage (or sequestration) of carbon above and beyond that which would occur as a matter of course, sometimes referred to as ‘business as usual’. In other words, participants would be required to demonstrate that their management is storing more carbon than would have been the case in its absence. Projects being sold on the voluntary market through the CCX do not face this requirement, where all carbon that is added from the time of enrollment is credited. Permanence is like it sounds, and involves the landowner committing to maintain the sequestered carbon they have sold, for all intents and purposes in perpetuity. Whether certain types of easements or other contracts will need to be entered into is up in the air at this point. It is highly unlikely that short-term agreements will be viewed favorably.
Having an up to date forest inventory and accompanying management plan will almost surely be requisite to entering this market, and probably third party certification too. Large industrial and non-industrial forest landowners who are in the timber business undertake these procedures as a matter of course, and so are poised to enroll in carbon markets with little additional investment. Smaller scale landowners, or those who only sell timber as a sideline, may or may not have these elements in place and if not will need to consider doing so if they want to participate. Consulting foresters are increasingly experienced in this area, and should be the initial point of contact for those interested in investigating this possibility further. I encourage you to explore the information available through the links provided below and better educate yourself about forest carbon credits in general. While many of the details are yet to be worked out in terms of how a national cap and trade scheme will operate, and more specifically view forests and forestry in the offset category, enough background exists to make some educated guesses. Look for details on Waxman-Markey bill and how forestry is being handled in the next installment of Ecosystem Services Update in E-News.
Forestry Carbon Links
-GA Carbon Sequestration Registry (http://www.gfc.state.ga.us/ForestMarketing/CarbonRegistryDocs.cfm)
-Department of Energy voluntary reporting program (http://www.eia.doe.gov/oiaf/1605/)
-Chicago Climate Exchange (http://www.chicagoclimatex.com/content.jsf?id=242)
-California Climate Action Registry (http://www.climateregistry.org/)
-Regional Greenhouse Gas Initiative (http://www.rggi.org/home)
-The Voluntary Carbon Standard (http://www.v-c-s.org/)
-US Forest Service Ecosystem Services (http://www.fs.fed.us/ecosystemservices/)
-Carbon Positive (http://www.carbonpositive.net/default.aspx)
-SAF Landowner Page (http://www.eforester.org/lp/climate.cfm), see linked article at bottom of page, or (http://www.eforester.org/publications/jof/jof_cctf.pdf).
-Forest Guild publication (http://www.forestguild.org/publications/research/2007/ForestGuild_climate_carbon_forests.pdf)