By Natalia Medina-Irizarry and Dr. Michael Andreu
Currently, landowners generate income from their forests by participating in markets that have long existed in the U.S. These include solid wood products, pulpwood, biomass, pine straw, and other types of nontimber products, leases, and mitigation banks. The forest carbon market is a fairly new and emerging market with recent expansion into the U.S. southeast. This new market presents opportunities for landowners to generate income from their forested land. Such opportunities are evolving as part of the solution to address climate change, particularly the release of greenhouse gases (GHGs).
The primary GHG of concern is carbon dioxide (CO2). Through the process of photosynthesis, trees utilize CO2, thereby removing it from the atmosphere and storing it for an extended period of time. We refer to the removal of carbon from the atmosphere as carbon sequestration. Essentially, the carbon accumulates in biomass, i.e. the carbon pool, and as more carbon is sequestered, carbon storage increases. So the question is, how exactly does increasing carbon storage generate income for landowners? Answer: by selling (or trading) the carbon their trees have sequestered, i.e. carbon trading. Simply put, forest landowners can initiate a carbon project on their property which generates carbon credits that are then sold in the forest carbon market.
The ins-and-outs of the forest carbon market become quite convoluted as you learn more about it; there are many moving parts. The goal here is to familiarize landowners and land managers with some of the terminology commonly used in the forest carbon market and how the carbon credit process works.
What is carbon trading?
Carbon trading is a market-based approach for reducing the release of greenhouse gas (GHG) emissions to mitigate climate change. In forestry-based carbon trading, the forest landowner receives payment for the additional carbon sequestered in their forest. Additional carbon can be thought of as the carbon that was grown with intention to be converted to some forest product, but is instead retained. Retaining this carbon pool and increasing carbon storage requires a forest to function below the business-as-usual (BAU) scenario or baseline activity. For instance, a forest managed with a 35-year pine rotation (BAU), would accumulate additional carbon if a 45-year rotation (below BAU) was implemented instead. Essentially, carbon trading provides landowners a monetary incentive to defer or avoid harvesting trees.
What is a carbon project?
A carbon project encompasses the collection of activities associated with increasing carbon storage on a property. Carbon projects are also sometimes referred to as carbon reduction projects, carbon offset projects, and carbon offset schemes. There are a few elements that comprise a carbon project. Generally, carbon projects are initiated with the creation of Project Design Documents (PDD); a sort of “carbon management plan” or proposal. Formulating the PDDs involves developing the project concept, detailing project activities, specifying stakeholders, determining baselines, choosing standards and methodologies, and so on. There are three primary carbon project types: afforestation/ reforestation, avoided conversion, or Improved Forest Management (IFM). Each carbon project type has a specific set of actions required. Therefore, the type of carbon project a landowner may participate in depends on their eligibility for each project and the landowner’s management objectives.
What are carbon credits?
Carbon credits, aka: carbon offsets, are tradable certificates that represent a reduction in atmospheric CO2 or an increase in carbon storage. One carbon credit indicates one metric ton of CO2. There are two types of carbon credits that supply different markets within the forest carbon market. The two types of carbon credits are Voluntary Emission Reductions (VERs)- sold in the voluntary market, and Certified Emission Reductions (CERs)- sold in the compliance market. There are further nuances between the creation of VERs and CERs. Projects that generate CERs are typically longer, have more restrictions, require additional certifications, and more frequent verification. That said, the amount received for each CER is higher than VERs.
Here’s how they work: Carbon credits can be purchased by industries, corporations, and businesses to compensate the release of carbon emissions created during the process of producing goods and services. For instance, if a forest increases carbon storage by 50 metric tons above BAU projections, they will be issued 50 carbon credits. Furthermore, if a small business discovers they emit 20 metric tons of CO2 per year in travel alone, and decide to offset it by 50%, they may do so by purchasing 10 carbon credits. Individuals may also purchase carbon credits to offset emissions associated with everyday life. These are examples of voluntary carbon offset transactions.
See this helpful info-graphic about carbon offsets by The Nature Conservancy: Carbon Offsets Illustrated
What are the foundational principles?
To ensure the integrity of carbon credits, three foundational principles were established for forest carbon projects. The principles are additionality, permanence, and leakage. For additionality, one must demonstrate that, without the commitment to the carbon project, the carbon capture would not have occurred. Permanence denotes the longevity of the carbon benefits resulting from a project, in other words, the length of time carbon is sequestered. Lastly, leakage is carbon released unintentionally, as a result of the carbon project. For instance, leakage may occur when the reduction in harvesting in one forest results in an increase of harvesting in a neighboring forest. Each principle is accounted for differently across forest carbon programs, which impacts the relative value of the carbon credits generated. How the foundational principles are accounted for help determine the credibility of the carbon credit to the buyer.
Registries, Carbon Standards, Methodologies (aka Protocols), and Project Developers
Registries are responsible for tracking, validating, and verifying carbon projects against carbon standards and methodologies. Carbon standards are criterion created by registries for the purpose of certifying a project’s contribution to the reduction of carbon emissions. Methodologies, or protocols, are also created and approved by registries. Methodologies define how carbon credits are quantified for each type of carbon project. After certifying carbon projects, registries issue and register the carbon credits so they may be sold. If a landowner works with a project developing organization, rather than the landowner stepping in as the project developer, much of the responsibility of creating and managing a carbon project falls upon the project developing organization.
What is the process of enrollment like?
The creation of carbon projects differs broadly across registries and project development organizations. But generally, landowners must provide information which may include property maps, deeds showing ownership, management history, management plans, etc., to determine eligibility. If eligibility requirements are met, PDDs are developed by the landowner and a project developer and then submitted to a registry for validation. Once a project is validated it is registered and monitoring then begins. Monitoring may involve remote sensing or plots set within the property. When monitoring begins the crediting period also begins, which is the period when emission reductions are to be verified and are eligible for issuance as carbon credits. The length of this crediting period varies from 20 to 40 years. After the crediting period there is additional verification to ensure the reductions of carbon emissions or increase in carbon storage has occurred.
Having covered the surface layer of the forest carbon market, the next bulletin and Florida Land Steward newsletter* will include Part 2 of this topic which will discuss ‘who’s who?’ within the forest carbon market and their major differences.
About the authors:
Natalia Medina-Irizarry is Forest Systems Research Assistant, University of Florida IFAS, School of Forest, Fisheries & Geomatics Sciences (SFFGS)
Dr. Michael Andreu is Associate Professor, SFFGS
*This bulletin was first published as an article in the Summer-Fall 2021 Issue of the quarterly Florida Land Steward newsletter (Vol. 10, No. 3).