Carbon - A Forestry Opportunity?

by Neil Sampson

 

Since the late 1980s, forests and forestry have been recognized as a possible way to reduce the buildup of carbon dioxide (CO₂ ) in the atmosphere. As policy makers at the state and federal levels debate options for future climate change legislation, it is important for foresters to consider whether and how carbon credits can become a feasible economic opportunity for forest landowners.

The basic idea is that if non-forested land is planted to trees, or a forest is managed so that it captures and stores (sequesters) carbon that would not have otherwise been sequestered, the landowner can receive credit for that additional sequestered carbon. If a market exists where other people are purchasing carbon credits to meet a company goal or a legally imposed “cap” on carbon emissions, the forest landowner can sell his credits on that market. At this time, the only market in the U.S. where carbon credits can be sold is the Chicago Climate Exchange (CCX).¹

This is a different type of sale, however. The stored carbon (and ownership of the land and trees) remains with the property. The landowner sells only the assurance that the stored carbon will remain out of the atmosphere for an extended period of time. It’s at this point that the transaction gets complicated, as buyers, markets and eventually governments establish criteria to assure that the carbon credits claimed are an acceptable substitute (usually called an offset) for CO₂ emission reductions.

Foresters are skilled in packaging and delivering wood products to existing markets. The challenge is to expand those skills to include the packaging and delivery of carbon offset products on behalf of their clients. This raises several issues.

The standard unit of measurement in a carbon market is one metric ton (2204 lbs) of carbon dioxide equivalent, so foresters need to calculate how much wood will contain the carbon that would represent that metric ton. Those conversions are fairly straightforward. Dry wood is about 50% carbon. If carbon is converted to carbon dioxide (for example, through combustion) one ton of carbon will produce 3.67 tons of CO₂.

 

A simple example would be to calculate the amount of CO2 equivalent in a load of delivered pulpwood. If the wood is weighed, the calculation would be:

 

tCO₂e = stWg • .5 • .5 • 3.67 • .91, or tCO₂e = stWg • .833, where:

 

tCO₂e is metric tons of carbon dioxide equivalent, and stWg is delivered short tons of green wood whose moisture content is assumed to be 50%.

If that same load of wood is measured in volume (i.e. cords), the calculation becomes a bit more complex. The volume must be converted from cords to cubic feet, then to dry weight per cubic foot, then to tCO2e.²

For a standing forest, or to estimate the amount of carbon to be sequestered annually by a newly planted forest, foresters will need to have an acceptably accurate estimate of the current wood volume and a well-designed growth and yield model to illustrate how the forest will change over time.

To qualify for trading on the CCX, new forests must have been planted since January 1, 1990, on land that was not in forest use prior to that time. Eligibility rules for managed forests and harvested wood products are under development, and foresters considering CCX carbon projects should consult the current rules to make sure the project will be eligible.

Only the carbon that would not have otherwise accumulated will count toward carbon credits. This is usually called additionality, and there are a variety of rules proposed to calculate the eligible carbon. The California Climate Action Registry, for example, requires that only the carbon that accumulates in addition to what would accumulate under the state’s Forest Practices Act can be counted as additional. The CCX allows the annual increase in stem wood following the project establishment. Foresters need to know the requirements and methods allowed in each program to be able to establish the eligible amounts of carbon that can be claimed.

Leakage refers to a loss of carbon that might result on other lands as a result of a forest carbon project. If a forest is not harvested, for example, but demand for products remains the same, some other forest will be harvested to fill that demand. At the global level, the total amount of harvest will be unchanged. While it is arguable that any forest management decision will have some impact on markets, calculating the amount of impact from a single project is very difficult. While a number of efforts have demonstrated possible approaches to estimating leakage, there are not yet any accepted rules. In the CCX, a forest landowner is required to have their forests certified as sustainable by one of the recognized forest certification systems.

One of the concerns about using forests to store carbon is the risk that the carbon will be re-released to the atmosphere through natural events or management changes. If the carbon is lost, a buyer who used forest carbon credits to meet a requirement for permanent emission reductions would lose that value. Several approaches have been proposed to help reduce this risk. The approach used by CCX is to require each project to set aside 20 percent of its carbon for a “reserve pool.” If the project falls short of planned performance, the credits are taken out of the reserve to cover the shortfall. If, at the end of the market period (currently 2010), the project has met its obligations, the carbon credits in the reserve pool are released to the project owners, who can sell them if they choose.

The CCX requires that forestry projects be verified by a CCX-approved forest verifier. In an audit similar to a forest certification audit, the verifier makes certain that the forest project and its calculation of tradable carbon meets all CCX rules for eligibility, accuracy and quality. The project must pay these costs.

As can be plainly seen in the above discussions, the rules governing forest carbon credit eligibility will be the major factor in determining how much effort will need to go into the packaging and marketing of carbon as a forest commodity. A forest owner will need to consider these costs of doing business. For foresters, it will be important that emerging rules are consistent with standard forestry practice and good science. The required precision and frequency of measurements will be important in determining whether or not forest carbon projects are economically feasible.

Currently, only CCX members can buy or sell carbon credits. Other forest landowners wishing to create a carbon project for sale will need to work through a CCX aggregator. These aggregators are organizations that belong to CCX and are approved to bring a group of small projects (called a pool) to the trading floor. A list of CCX aggregators is available on the CCX Web site. Project owners can expect to pay a fee for these aggregation services, as well as a CCX registration fee when the project is placed on the trading floor.

Forest management systems seem capable of adding somewhere around a half ton of CO2 per acre per year, with fast-growing young plantations sequestering one to three tons. Yields will differ significantly, depending on the species and site index, so each project must be estimated individually. Forest Service tables show average yields for main species and regions that can be used for general estimates.³

Prices for carbon credits on the CCX have ranged from $3 to $4 per ton of CO2 over the last few months. While these prices are considerably higher than the $1 per ton experienced when the CCX was launched in December 2003, they don’t provide much economic incentive to package and market carbon credits. How future prices will trend is a good topic for conjecture, but there is little evidence upon which to base a forecast.

Obviously, a federal requirement for reducing emissions would create additional demand in the carbon offset market, but it also would create significant incentives for the regulated industries to do research and development on improving production efficiencies and reducing emissions. Forest carbon projects will be in direct competition with all other forms of emission offsets, so as these new emission reduction technologies come on line, prices will follow the supply-demand balance and the lowest-cost offsets will have the advantage.

If carbon marketing rules support the development of feasible forest carbon projects, professional foresters and consulting firms will have many new opportunities. Landowners will need professional cruise estimates and good growth and yield modeling. Some can do that themselves, but most will need to call for professional assistance, so carbon project planning and documentation will be a new business opportunity for foresters.

Some forestry firms have already become qualified as CCX verifiers, and that opportunity will expand.  Interested firms need to contact CCX for application procedures and requirements. Some consulting firms may wish to become CCX aggregators so they can create and pool forestry projects for their clients. Again, it is necessary to contact CCX to get current application and membership requirements.

Most of the organizations involved in forest carbon projects today are doing so as a way of learning the business, developing the necessary techniques and discovering the costs in the hope that future market expansion and price levels will result in a new business line. They are, in many cases, also active in the CCX and other state and federal policy discussions as they try to use their experience to help guide the process of creating new guidelines and rules. Neil Sampson is president of Vision Forestry LLC, a forestry consulting firm in Salisbury, Maryland. He can be reached at nsampson@visionforestry.com.

 

 

 

1. See www.chicagoclimatex.com for background information on current market conditions, prices, traded volumes, etc.

 

2. For a detailed explanation of this conversion, see Sampson, Neil, 2002, “Monitoring and Measuring Wood Carbon,” available from

     www.sampsongroup.com.

 

3. Smith, et al. 2006. Methods for Calculating Forest Ecosystem and Harvested Carbon with Standard Estimates for Forest Types of the United States.

    Gen Tech Rep NE-343.  Available at www.fs.fed.us/ne.

 

To view the entire publication of The Consultant 2008 click here