August 19, 2009
In past articles I have touched on the potential support that payments for ecosystem services can provide for community based forestry.
Efforts to develop Cap and Trade markets for carbon emissions are underway at the both state and federal levels. The sale of carbon offsets to mitigate global climate change may soon be able to deliver concrete financial benefits to forest landowners who sequester additional carbon as part of their forest practices.
Establishing payments for one particular ecosystem service doesn't necessarily promote overall sustainability congruent with community forest management goals. For instance, plantation-grown eucalyptus pulls high volumes of carbon from the atmosphere in a short time frame. But, there is a strong correlation between on-site forest carbon storage and community based forestry that restores and maintains conservation values on the working landscape.
Sawlog prices remain at historic lows and full recovery in the market for new homes is still some ways off in the future. A realistic opportunity for landowners to be paid real money to manage forestland for conservation objectives could help to offset reduced incomes from delayed harvests. So this could be exciting.
Of course, the devil may still be in the details. Let's take a closer look at where we stand now.
The Basic Concept of Cap and Trade Emission Markets
The Cap: Place a regulatory limit on emissions. Ratchet that limit down to desired target levels over time.
The Trade: Allow entities with emission levels below allowable limits to sell their right to emit carbon to entities which are unable to reduce their emissions to allowable levels.
Enabling carbon trading motivates those who can achieve lower emissions at lower costs to reduce their emissions still further and sell the remainder of their allowance to those for whom the cost of compliance is much higher. In theory the market for carbon offsets will motivate the most reductions in emissions for the least economic cost.
You may agree with this method of encouraging overall reductions in carbon emissions to the atmosphere or you may not. There are certainly other legitimate methods to mandate reductions of carbon in the atmosphere. But, the mechanisms and legislation necessary to encourage and regulate the sale of sequestered forest carbon in state and national carbon markets appears to be coming of age.
While carbon-offsets markets in California are currently voluntary, the recent passage of AB32 in the California legislature establishes mandatory reporting of emissions and requires cuts in the state's greenhouse gas emissions to 1990 levels by 2020. The bill also requires that the California Air Resources Board use "a mix of mandatory, market based and voluntary approaches" to meet these goals. The board has until 2012 to set these standards and develop approaches.
At the national level the Waxman/Markey Clean Energy and Security Bill (HR 2454) outlining a national Cap and Trade program with the goal of reducing emissions 17% by 2020 won passage through the House of Representatives. While some groups attack the bill's emission reduction targets as too lenient, the concept of using Cap and Trade to mitigate climate change appears to be accepted.
In California the Climate Action Reserve (CAR) is now working on version 3.0 of their Forest Protocols. To date the number of forest projects that have registered with The Reserve is small, but recent sale of carbon offsets from the Garcia Forest Project to PG&E by The Conservation Fund as well as other transactions indicate that the rigorous CAR Forest Protocols are reaching maturity. The exact price per ton is proprietary information; however, initial trades in today's voluntary markets are reported to be in the range of 5 to 10 dollars a ton.
Taken together these events indicate that compliance based markets for carbon offsets will soon emerge in California if not the United States as a whole.
Carbon in North Coast Forests:
Carbon is the primary component of all living elements of forest ecosystems. As you might suspect the majority of that carbon is held in the trunk, roots, branches and leaves of larger tree species.As forests grow they pull carbon from the atmosphere and store it in forest biomass. When forests burn and/or die and decay, they release carbon back into
the atmosphere.
Old-growth forests store a high level of carbon. They also release carbon as mature trees and other types of biomass die and decay. The result is a fairly stable volume of on-site carbon--unless it burns.
Well stocked and well managed working forests also store relatively high volumes of carbon. And, as they grow, they pull additional carbon from the atmosphere. As timber harvests occur the total amount of on-site carbon periodically declines and then rises again as stand inventories grow to, and/or exceed, previous levels. After a certain stand-age, forest growth begins to slow down. Managing for a biologically optimum level of growth--and on site carbon sequestration--will result in longer rotation ages and older forest stands than is typical on the north coast today. Still, even with longer rotations, over the course of 50 years the average stand will reach a point where forest growth and on site carbon storage stabilize as older trees are harvested and replaced by younger trees. Any additional carbon sequestration resulting from ongoing management in these stands will be embodied in harvested logs taken off-site to the mill.
Young second growth forest stands currently store relatively low volumes of forest carbon. Yet they also offer the most potential to increase on site carbon storage. As these forests grow, their capacity to sequester carbon from the atmosphere also increases until they too, like the well stocked stand described above, reach a well stocked biological optimum of productivity and carbon sequestration capacity. But for the next 50 to 70 years these young stands offer the best opportunity for north coast forest growth to mitigate the increases in atmospheric carbon driving global climate change.
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As harvested carbon is taken offsite a portion of it returns rapidly to the atmosphere as bark, sawdust and other wood processing wastes decay. The portion of the harvested carbon that remains in durable wood products is stored for a period of time that depends on the nature of the wood product. Redwood Victorian's in San Francisco continue to sequester carbon harvested generations ago; paper products and particle board have a much shorter live span. Experts familiar with calculating carbon tons stored in manufactured wood products indicate that approximately 25% of the carbon volume harvested from the forest as sawlogs remains sequestered for 100 years.
What's it All Mean?
As landowners consider the possibility of selling carbon credits several aspects of the commitments required to register their carbon under the Climate Action Reserve's emerging Forest Protocols 3.0 justify careful attention.
Common Practice
The typical landowner will be able to sell offsets for on-site forest carbon above a baseline of "common practice". "Common practice" is established through an evaluation of Forest Inventory Assessment (FIA) plots maintained by the US Forest Service throughout the United States. Carbon stocking for the average landowner will, by definition, be closely in line with the common practice baseline.
Sequestration
In order to sell a credit for a ton of carbon sequestered in forest biomass, the landowner must commit to holding that ton of carbon on-site for 100 years. Future harvests cannot allow tons of on-site carbon to dip below levels established by "common practice" plus the carbon tons sold as offsets.
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A Couple of More Marginal Scenarios
To get a sense of the implications for restoration and community forestry we chose several forest treatment types and modeled the growth and yield of both sawlogs and above-ground carbon out
50 years.
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Hard Selection
This scenario modeled a relatively intensive "hard selection" treatment that brought the basal area down to 100 sq ft per acre every 20 years starting in 2009. After initial reductions conifer stocking steadily increases to 234% of the original stocking level over a 50 year period.
Thin From Below
The second scenario was a "thin from below" treatment every 20 years, also beginning in 2009, designed to increase conifer inventories, increase fire safety and improve forest habitat conditions. This treatment allowed steady accrual of basal area at every entry from 100 sq ft to 125 to 150. Over 50 years conifer stocking steadily increases by nearly 400%.
According to CAR Forest Protocols 3.0 under "common practice" this forest type will store 45 tons of above ground carbon in living trees. And indeed, the FIA plots indicated 48.9 tons of above ground carbon at year one. Over the next 50 years on-site carbon under the "thin from below" scenario increased to almost 80 tons per acre. Under the "hard selection" scenario on-site carbon declined slightly to approximately 46 tons per acre--one ton above common practice.
Current Value
To establish the relative value of the two management scenarios to the landowner we discounted the cash flow generated by each treatment to the present. We made several assumptions to make these calculations. Stumpage values for logs harvested under the hard selection scenario were assumed to be $200. Due to the increased cost of harvesting under the thin from below treatment stumpage values were assumed to be $100. We used a discount rate of 7% and a price per ton of carbon offset sold of $7.00.
Hard Selection: The present value of the cash flow from log sales under the "hard selection" scenario was approximately $715 per acre. The cash flow generated from on-site above-ground carbon sequestration was essentially nil in the first 50 years.
Thin from below: The present value of the cash flow from log sales under the "thin from below" scenario was significantly less: $148. The present value of the cash flow from carbon offsets, at $7 per ton, is approximately $88 for a total current value of $236.
Where Do We Go From Here?
These two scenarios are quite simplified. There are a number of additional variables involved in qualifying carbon for sale as offsets--and many other management options and combinations of treatments over time that could potentially increase the timing and volume of above-ground carbon. Downstream carbon sequestration on harvested logs can also add some value. But based on this rudimentary sketch of potential carbon values at today's offset prices it appears unlikely that landowners of young tanoak-challenged mixed conifer forests will be motivated to sequester additional above-ground carbon based on sales of offsets alone.
The thin from below management treatment offers a number of advantages:
* Fewer ladder fuels: reduced fire hazard
* Greater conifer stocking
* Fewer, larger trees: higher quality saw logs
* Greater above-ground carbon
Some analysts have noted that forest carbon can help to sequester up to 20% of US carbon emissions. What will it take to motivate landowners to sequester carbon on land that is currently economically marginal but with significant carbon mitigation potential?
The fuel reduction and fire hazard mitigation potential of forest thinning projects--leading to fewer large scale forest fires--can provide an additional reduction in carbon emissions. Implemented on a landscape scale, thinning projects will also reduce fire suppression costs--costs currently spiraling out of control at the state level as our forests become drier and warmer.
The future price of carbon offset credits in state and national compliance markets is currently unknown. Estimates range from $10 to $40 a ton. Offset values will be driven by both the cost of alternative mitigations and the political will of our representatives to set emissions caps at levels that drive significant reductions.
I'm not suggesting that carbon offset prices will increase to the levels modeled in the graph to the left, or that we necessarily have the political will, or income, at the state level to fund fuels reductions incentives at a landscape level. But to get a sense of what level of incentives may be needed to motivate landowners to manage for increased carbon sequestration potential and other conservation values we offer one more chart.
At a $35 a ton offset price and with a $100 dollar per acre incentive--to offset the increased expense of thinning treatments--the present value of the "thin from below" treatment becomes competitive with the more intensive "hard selection" treatment.
The development of the carbon offset markets is an important and exciting step in the right direction: reducing the private burden of providing public benefits in North Coast forests. But, we still have a ways to go to achieve an economic environment in which conservation based forest management is competitive with alternative uses.
For more information: www.newforestry.org
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TOC for Forest & River News, Summer 2009