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Carbon Offset Credits: Tradable Market Goods

By: Marlene Tyner, M.E.S.M.

Exciting news in the fight against climate change and deforestation. In November 2013, the California Air Resources Board (ARB) issued its first set of carbon offset credits for a validated forest conservation project. The Willits Woods Project, located in northern California’s Mendocino County and developed by Coastal Ridges, LLC, generated 1.2 million offset credits based on the amount of carbon stored in its 19,000 acres of forestland. ARB also granted credits to another forest conservation project, located in Maine, which generated almost 250,000 carbon offset credits.1

What are offset credits and why are they important?

Carbon offset credits reflect how much carbon has been taken out of the atmosphere by a human action, rather than put in, allowing those reductions to become tradable market goods. Entities such as private landowners, non-profit organizations, and corporations, can generate carbon offset credits and then sell them to companies who are emitting too much carbon. Companies with high carbon emissions can buy offset credits to effectively “cancel out” some of their emissions.2

The cap and trade market established by California Assembly Bill (AB) 32 regulates over 400 large utility and manufacturing companies with facilities located within the state of California.3 California allows these companies to apply offset credits to 8% of their emissions cap and these offset credits can be generated by actions taken anywhere within the United States. Offset credits are therefore a powerful incentive for companies to conserve forests, either through direct action by generating their own offset credits, or indirectly by purchasing credits generated by an outside entity’s forest project. This is especially true since offset credits cost less than emitting credits (about $9 per offset credit versus $12 per carbon allowance).1,4 Based on these estimated costs, the Willits Woods project generates approximately $3.6 million in potential gross compliance cost savings.

What kind of projects can generate credits?

Forests are widely recognized for their ability to remove CO2 from the atmosphere. There are three general kinds of forest conservation projects that the ARB will recognize under the U.S. Forest Projects Compliance Offset Protocol:

  • Reforestation
  • Improved Forest Management
  • Avoided Conversion

Reforestation Projects significantly increase forest cover on non-optimal logging land that will not be commercially developed. Efforts to plant trees in historically forested areas that have either experienced 90% or more deforestation or have 10% or less of their original stand biomass remaining6.

Improved Forest Management Projects, such as the Willits Woods Project, increase the amount of sequestered carbon in forests based on recognized sustainable forest management practices. These practices include increasing the rotation time between harvests on timberland, logging fewer trees, or clearing out invasive species or underbrush to optimize the productivity of the forest7.

Avoided Conversion Projects are privately-held forested conservation easements that have demonstrably avoided a significant conversion threat.

The amount of carbon stored in a tree varies depending on the species and its physical characteristics (height, trunk diameter, root mass, etc), which impacts how much carbon is stored in the forest. The ARB therefore uses models and measurements to establish a baseline carbon amount for each forest project. This number acts as a legitimate and validated measure of how much carbon is stored in the forest. This is then used to determine the number of carbon credits issued for the project. Validating the amount of carbon stored in the forest project ensures that all credits traded on the market are standardized and also acts as a deterrent to carbon fraud. The forest project carbon stocks are measured and updated annually.8

While there are many other specific details regarding how forest projects are deemed eligible for offset credits, in general projects must be located in the United States (as opposed to the United Nations’ similar programs, REDD and REDD+, which are aimed at mitigating climate change through conserving tropical forests in developing countries), they must be voluntary, and they must have the quality of additionality. This means that the landowner must actively increase the amount of carbon sequestered in the forest, on a piece of land, relative to the amount the forest would sequester if it were not owned by the landowner. This requirement explains why all the project types involve increasing tree biomass on land either through tree planting or altered stand management techniques.

Producing carbon offset credits with conserved forestland represents a significant opportunity for companies to generate value for their shareholders while meeting their emissions cap requirement or helping to reduce emission penalty fees and creating environmental value. It also allows private landowners to generate revenue from their property while increasing the quality of forest on their land. The Forest Project Offset Protocol represents another way California’s carbon market is generating win-win opportunities for businesses, landowners, and other stakeholders while tackling one of the defining environmental challenges of our time.

Additional information:

References:

  1. “First California carbon offsets approved under Forestry Protocol: Press Release 13-71.” California Environmental Protection Agency Air Resources Board News Release. 2013. State of California.
  2. Samuel, Molly and Laurent Sommer. “Cap-And-Trade 101: How California’s Carbon Market Works.” QUEST: The Science of Sustainability. Science.KQED.org. 9 Nov. 2012.
  3. “Program Links: List of Covered Entities.” Allowance Allocation. California Environmental Protection Agency Air Resources Board, 1 Nov. 2013.
  4. Carroll, Rory. “California Issues First Carbon Offset Credits Via Forest Conservation Under Cap-And-Trade Program.” The Huffington Post. TheHuffingtonPost.com, 14 Nov. 2013.
  5. Nabuurs,  G.J.; Masera, O.; Andrasko, K.; Benitez-Ponce, P.; Boer, R. ; Dutschke, M.; Elsiddig, E.; Ford-Robertson,  J.;  Frumhoff, P. ; Karjalainen, T.; Krankina, O.; Kurz, W.A.; Matsumoto, M.; Oyhantcabal, W.; Ravindranath, N.H.; Sanz Sanchez, M.J.; Zhang, X.  2007: Forestry.  In Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel  on Climate Change [B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer (eds)], Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.
  6. Grover, Ellen. “Forest Owner Opportunities in California’s Cap and Trade Program.” Karnopp Petersen LLP. Karnopp Petersen LLP, 23 Jan. 2014.
  7. “Forest Carbon Offsets: Case Studies.” Ecotrust. Ecotrust, 2013.
  8. California. Environmental Protection Agency Air Resources Board. Compliance Offset Protocol: U.S. Forest Projects. October 20, 2011.

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