Breaking Down Forest Carbon Opportunities For Small/Medium-Sized Landowners
Breaking Down Forest Carbon Opportunities For Small/Medium-Sized Landowners
By Andy Carlo, Environmental and Certification Manager, F&W Forestry Services, Inc.
So you’re interested in selling carbon credits. Many people are these days, and with good reason. The market for forest carbon credits is active and growing, and the “buzz” around these markets is everywhere in the world of forestry. For instance, consider the following:
“There are some states in the U.S. right now where there’s not a timber market that can compete with carbon.” — Tommie Elder, director of forest carbon project origination, Bluesource
Delaware blockchain company spends $1 million for the carbon on a 46-acre forest in Washington state. — Nicholas Turner, Blockchain company buys $1M in carbon credits generated by Issaquah forest, the biggest such deal in U.S. history, June 3, 2022, The Seattle Times
“Forest carbon has emerged as a viable alternative source of income for forest landowners.” — Dr. Leah Rathbun and Dr. Rajan Parajuli, Forest Carbon as an Income Source: A Case Study at North Carolina State University, January 2022, The Forestry Source
There are now several opportunities for forest landowners to participate in carbon markets and sell carbon credits, sometimes for substantial sums of money. The carbon market may be a major shift in the economics of owning forestland. Or it may be the next dot-com bubble. Or maybe, it’s a combination of the two. There is clearly a lot of opportunity, but there is also risk and, like a lot of things, the devil is in the details. In this article, I will dig into some of these details to answer the questions that landowners may have about this emerging market:
What are carbon credits?
What issues should be considered by a forest landowner when weighing options in a carbon market?
What opportunities are available to an owner of forestland?
What role do forest carbon markets play in the big picture: in forest economics and in addressing global climate change?
This article is intended to be an overview of these issues, and we encourage you to speak with your F&W forester to carefully consider opportunities available to you.
Part 1: Forest Carbon Basics
The following concepts are foundational to an understanding of forest carbon:
Sequestration of Forest Carbon: In a plant, a pine tree for instance, carbon dioxide is pulled from the atmosphere and converted into sugar through photosynthesis, which the plant uses to grow a stem, branches, and needles and which people then use to make cardboard for boxes, cross-laminated timbers, and a million other forest products. The carbon dioxide is taken out of the atmosphere and held (sequestered) in the tree, and then it is held (sequestered) in the forest products made from the tree.
Why Forest Carbon Matters: Most human activities emit carbon dioxide into the atmosphere. Some human activities emit a lot of carbon dioxide. The current high level of carbon dioxide in our atmosphere is widely believed to be changing the climate of the planet, potentially causing disruptions which will have long-term consequences for society. Even if we were to drastically reduce carbon emissions right now, the higher levels of carbon dioxide will continue to affect the climate for centuries. Sequestering carbon in trees and in forest products is not a full solution to this problem, but it is one of many tools that may be deployed to address the problem.
What are Carbon Markets? Some governments have developed systems to control and limit the amount of carbon dioxide emitted into the atmosphere. Examples are the U.S. (through EPA regulation of greenhouse gases), the state of California (through the California Air Resources Board), the Northeastern U.S. (through the Regional Greenhouse Gas Initiative), and the European Union (through the EU Emissions Trading System). Additionally, many companies have promised to voluntarily reduce or eliminate their own carbon emissions, including Walmart, Ford, General Motors, BP, Microsoft, and Amazon.
So, either by regulation or voluntarily, efforts are being made to reduce carbon emissions. In response, markets have developed to allow companies and individuals to acquire the rights to sequestered carbon, to credibly show that they have reduced their “carbon footprint.” These markets trade in credits resulting from projects that sequester carbon, often through specific forest practices.
What are Carbon Offsets? In these markets, the sellers are those who can prove that they are sequestering extra or “additional” carbon than would be sequestered otherwise. (The “additional” carbon sequestered is in excess of what would be sequestered under the “business-as-usual” scenario.) The buyers are those who want to compensate for or offset their own emissions, by buying the rights to extra carbon sequestration. Therefore, the markets are structured to offset carbon that will be emitted into the atmosphere.
What is A Carbon Credit? Carbon markets need a common currency. For this they use the “metric ton of carbon,” a “metric ton of CO2 equivalent,” or one carbon credit. A metric ton of carbon is simply 1,000 kilograms of carbon dioxide (2,205 pounds of carbon dioxide). For scale: One green ton of wood contains approximately 0.834 metric tons of CO2 equivalent. A metric ton of carbon dioxide would fill a 2,200-square-foot house at standard temperature and pressure. And a 4-year-old Ford F150 emits a metric ton of carbon every 1,650 miles.
Part 2: Key Issues You Should Consider When Weighing Your Involvement in a Carbon Project
There are two categories of carbon markets, and sellers need to decide which is right for them. Carbon markets are generally broken down into compliance markets and voluntary markets. These two categories have different rules and (generally) different buyers and sellers.
Compliance markets are those set up by governments under a regulatory system intended to reduce emissions. In the U.S., the main such market is the system set up by the California Air Resources Board.
Voluntary markets are those set up for willing buyers and willing sellers outside of a regulatory requirement.
The rules in compliance markets are tighter, and these markets may end up being more stable in the long term. However, opportunities are higher now in the voluntary market, although risks may also be higher. In both cases, there are specific rules related to the credibility of the offsets being sold.
Additionally, the following issues should be considered carefully when weighing options:
• Time commitment: The compliance markets require a substantial time commitment from the forest landowner, usually 100 years. Generally, the voluntary markets require a less substantial commitment—40 years or less, and down to just one year in one case.
• Harvest limitation: The idea of sequestering more carbon than the business-as-usual scenario requires that management sequesters additional carbon. This occurs through requirements for harvest deferral, improved forest management, management practices which are known to sequester carbon, or a combination of these.
Part 3: Carbon Programs For Smaller Landowners
There are now several credible carbon programs currently operating in the U.S. A few of the most prominent are:
Forest Carbon Works is one of the few opportunities for small landowners to access the compliance market (the California Air Resources Board). The program requires a long-term commitment (125 years) with payments for the first 25 years, and it has an emphasis on long-term conservation. This yields high-quality and high-value credits. The process involves an online application, an on-the-ground forest inventory, and then an offer. If you accept, you become a member of FWC. Typical payments are in the range of $10-$100/acre/year. Light harvesting is allowed.
Core Carbon (a program of Finite Carbon) is a developing program which connects buyers and sellers in the voluntary market. Credits are certified through the primary registry for the voluntary market, the American Carbon Registry. The program is open to owners of 40 to 5,000 acres of forestland and the process is conducted entirely through an online platform. It requires a harvest deferral (with very minor allowances) for 20 or 40 years, and it may be a viable option for reserves or areas with longer rotations.
Family Forest Carbon (FFC) Program is jointly sponsored by The Nature Conservancy and the American Forest Foundation. It is intended to help family forests (30 acres and up) manage their lands in ways that promote carbon sequestration. The program pays landowners for management practices which are proven to increase stored carbon. FFC pays landowners, and then FFC sells the resulting credits on the voluntary carbon market. There is a 20-year commitment. The program is currently regional and requires 50 percent of the forest in northern forest types, a minimum of 2 million board feet (MMBF) per acre, and B line stocking. Practices which generate payments include increased time between harvests, establishment of forest reserves, regeneration by gap cutting, and light thinnings. The program is currently active in Pennsylvania, West Virginia, Virginia, New York, Vermont, New Hampshire, and Massachusetts.
NCX is the most flexible carbon program currently available for owners of small forests. It involves a one-year contract and harvest deferral, but no minimum acreage. It uses proprietary technology (remote sensing) to determine standing timber and harvest potential for each participating forest. The owner must acknowledge that he or she will entertain an offer from a timber buyer (NCX’s way to confirm “additionality”). The program holds an annual auction for sale of the credits and reports high demand from voluntary-market buyers such as Fortune 100 companies.
Bluesource is a long-standing and well-credentialled company offering more traditional voluntary market opportunities, generally for larger forests (3,500 acres and more). The process involves a rigorous inventory and then a sale of resulting credits on the voluntary market, with Bluesource compensated for the inventory from the proceeds of the sale, and the remaining proceeds shared between Bluesource and the owner. There is a 40-year commitment to improved forest management practices and harvests are limited to no more than growth each year. Bluesource also manages projects for the compliance market.
Finite Carbon is the leading developer in North America for the compliance market. Generally, projects are 5,000 acres or more, and are conducted similarly to the model described above: a rigorous inventory, sale of credits (in this case on the compliance market), and a reimbursement for inventory costs and revenue sharing. These projects have a 100-year commitment to improved forest management. Finite Carbon also manages projects for the voluntary market.
Part 4: The Big Picture
Forests have always provided an abundance of benefits—carbon sequestration, clean water, wildlife habitat, biodiversity, and many others. And, for as long as there have been forest landowners, stewardship of their lands and their efforts to keep their forests as forests have secured these benefits for everyone.
The carbon markets are the first broadly available system to compensate landowners for environmental benefits provided by their forests. This may be a significant change in forest economics and, if only for that, the carbon markets should be considered truly innovative and perhaps revolutionary.
However, a few red flags have been raised recently about forest carbon and interested landowners should understand the controversy.
Carbon markets are young. The jury is still out on how the public will perceive a system by which forest landowners are compensated for something that they have previously provided for free. There is also a debate about whether they will result in a tangible benefit for the planet.
One of the most succinct statements of concern came from Andrea Tuttle, former California State Forester, in a letter to the editor of the Society of American Foresters’ Forestry Source. She points out that carbon credits need to be more than a good opportunity for forest landowners. They need to be credible in order to survive into the long term. They need to function as promised, to sequester more carbon than would be sequestered otherwise, and to provide real benefits to society and the planet. She states that a market with lower standards is “vulnerable to criticism and public disdain of both buyers and sellers” and may not survive into the long term. However, ”Clearly there are benefits to forest landowners, their forests, and the climate from standards that produce real carbon gains,” and she makes the case for re-investing the revenue from carbon projects into further improved forest management, extending the reach of stewardship.
So, the bottom line for forest carbon is both buyers and sellers should beware. Forest landowners should speak with their F&W forester, educate themselves, consider their options, get all of their questions answered, and only when they are fully satisfied with the results should they then sign up for a forest carbon program. F&W is available to assist landowners in considering these opportunities.