What is Carbon Sequestration?
The removal of carbon from the atmosphere is the process of carbon sequestration. This can be accomplished by the storing of atmospheric carbon into the ground, water, or into vegetation.
How do trees play a role in Carbon Sequestration?
Trees take in carbon dioxide (CO2) from the air as part of the process of photosynthesis. Sunlight, water (H2O), and oxygen (O2) are all critical as well. The tree effectively breaks down the CO2, stores the carbon in all parts of the tree, and releases the oxygen back into the atmosphere. Fast growing trees are, in fact, the most efficient way to sequester atmospheric carbon. The dry weight of a tree is roughly 50 percent carbon.
Can I get paid for the carbon in my woods?
Many woodland owners have heard about forest carbon markets in which corporations, or large entities such as the World Bank, pay for captured carbon to offset their own carbon dioxide emissions. There may be opportunities for forest landowners to be paid for the ecosystem services such as carbon storage that their land and timber is providing. (University of Minnesota Extension, 2021).
What are some key terms to know to have a basic understanding about how carbon is tracked and potentially traded?
Carbon Offsets –Carbon offsets are any activity that compensates for the emission of greenhouse gases (GHGs). Forestry activities that represent climate solutions may be eligible for carbon credits. They include forest conservation, reforestation or afforestation, and improving forest management. Carbon offset projects are issued carbon credits for the amount of carbon dioxide equivalent (CO2e) the project provides. Typically, one carbon credit is issued for one metric ton of CO2e.
- Protocols and Standards – Protocols and Standards define how forest carbon offsets must be developed to be legitimately exchanged. These ‘rules of the game’ help provide consistency and credibility for carbon projects by addressing many of the key requirements listed below.
- Registries and Exchanges – Carbon registries and exchanges operate as a marketplace for carbon credits. Before a carbon credit can be registered for sale, an independent third party must verify that an approved protocol was followed to measure the amount of CO2e (carbon dioxide equivalent). Upon successful verification, carbon credits are issued and tracked with a unique serial number to prevent double counting. This ensures that ownership, tenure, and use rights are legally documented and undisputed.
Project developers and/or carbon exchanges generally require landowners to enter into contracts before transactions can occur. These legally binding documents clearly define the delivery of carbon credits and include protections for both the buyer and seller. Important considerations include contract duration, credit issuance (ex. annually), requirements for strict adherence to any protocol(s), and penalties for contract violations. Contracts will most likely incorporate provisions on other concepts discussed in this section.
- Eligible Activities – All forest carbon markets must define eligibility for carbon credit generation. Project developers, technical assistance providers, and landowners must be aware of which activities are eligible for participation in programs they are exploring. Identifying eligible activities in the development of any forest carbon program is essential to landowner participation and, ultimately, securing environmental benefits. Maintaining eligibility as a carbon credit producer depends on a forest’s management. Eligible activities could include:
- Planting trees on open lands, including urban landscapes and acreage previously forested, can increase carbon stocks in both tree biomass and soils. These methods are widely recognized by many current forest carbon programs.
- Sustainable forest management can provide quantifiable increases in carbon stocks through wildfire, insect, and disease mitigation.
- Carbon is sequestered in harvested wood products (HWPs), such as dimensional lumber, and as such, can be included as an eligible activity. Greater utilization of wood products also has the ability to replace more energy intensive building materials, such as steel, plastic, and concrete, leading to less overall GHG emissions.
- Markets can also recognize the climate benefit of activities that prevent forestland conversion (i.e., keeping forests as forests), which can be incentivized in the development of a proper Business As Usual (BAU) case.
- Carbon Pools – Central to any forest carbon marketing program is identifying the various carbon pools associated with the forestry offset project. For landowners to profitably participate in carbon markets, it is exceedingly important to identify the appropriate carbon pools required by the market and the inventory costs associated with each pool. The upfront inventory costs to enter the market are a major consideration. Dividing the project into various pools is important because of the need to utilize various inventory processes that are pool-specific.
Carbon accounting with pools helps eliminate de minimis pools for certain project types, optional pool reporting, and utilizing cost-effective inventory processes that are pool specific. Carbon pools generally include aboveground live biomass, below-ground live biomass, dead biomass, soils, litter, and HWPs. Deciding on which carbon pool to account for depends on the nature of the forestry offset project being implemented.
As a rule, carbon pools that are expected to significantly change over the life of the project should be quantified and reported. Generally, carbon pools that are not expected to change over the life of the project won’t be measured to avoid the costs associated with inventory, reporting, and verification.
- Measurement and Monitoring – The method used to quantify forest carbon offsets is of critical importance. Any quantification method employed should balance precision and accuracy with cost effectiveness, so landowner participation is not deterred. Quantification methods can rely on forest inventories, growth and yield models, and reference tables (such as the Energy Information Administration’s 1605b guidelines).
Forest inventories, based on statistically sound designs, can be used to accurately measure the amount of carbon stocks in a forest. Measuring all trees on a stand is simply not practical or cost effective and would severely limit landowner participation. Establishing plots that can be referenced in perpetuity is necessary to ensuring that qualified auditors are able to take accurate measurements year after year.
Approved growth and yield models can also help predict change in carbon stocks with accuracy, as long as reasonable true-up intervals are utilized. Accounting for the carbon in HWPs, either through monitoring or modeling, is important for a full picture of the carbon benefits of a landowner’s management regime.
- Baselines and Additionality – In order to generate marketable GHG emissions reductions, a project must sequester carbon that is in addition to what would have occurred in the absence of the project. ‘Additionality’ is shorthand for this condition: it refers to a project’s ability to sequester additional carbon over a baseline. Historically, nearly all markets for certified forest carbon offsets have required some documentation of additionality. However, stakeholders are now considering whether to recognize ‘early adopters’ of carbon-beneficial activities that may have been performed prior to being monetized for carbon.
Establishing additionality is a critical step in determining the validity of a project, since credible carbon (i.e., carbon eligible for offset markets) is utilized to offset emissions generated elsewhere. Determining project additionality is often a controversial issue due to the difficulty in establishing baselines.
Protocols for establishing baselines utilize one of two approaches. The first approach, ‘business-as-usual (BAU),’ compares increases in actual forest carbon stocks to reference levels of carbon stocks unaffected by project activities. The reference case is projected into the future to measure actual forest carbon sequestered over time. The BAU baseline sets a performance standard that projects must exceed to generate credible carbon. A BAU baseline may be either project-specific (i.e., a reference case is formulated for a particular tract of forestland) or ecosystem-specific, in which project carbon stocks are compared to regional estimates of carbon sequestrations for particular ownerships, age classes, and species composition.
It is important to consider that BAU baselines, when applied to forest projects on private lands, are confounded by several important ecological, political, and socio-economic factors unique to land use. In order to prove carbon sequestration that “would have happened anyway,” a landowner must establish a projection of carbon stocks many years (often decades) into the future, incorporating myriad assumptions about future impacts, market demand for forest outputs, forest laws, tax policy, and payments for other ecosystem services. Developing a baseline that successfully integrates these factors can result in dubious baselines. Most notably, non-industrial private forests in the U.S. are under increasing threat of conversion and development. How to incorporate the effects of land-use pressures into development of BAU baselines is a difficult and subjective process to consider.
The second baseline approach, ‘base-year,’ compares project-specific measurements of carbon stocks from one period to the next. The year in which the initial measurement of carbon is made provides the reference – or the ‘base year’ – to which future carbon stocks are compared. Increases in carbon storage over the base year are considered credible carbon. The base-year approach does not rely on complex assumptions about landowner intentions, market forces, or policy. Instead, only one assumption is made: all forest carbon stock changes (both increases and decreases) are the result of management actions undertaken by the landowner. Carbon stocks are measured at one point in time, then again at another point in time using the same methodology. Increases in carbon stocks are awarded as credible carbon, while decreases are compensated for per the contract.
- Permanence – Permanence addresses the degree to which sequestered carbon is ‘permanently’ removed from the atmosphere. The working definition of permanence, like additionality, is central to the controversy surrounding forestry offset projects. After all, ‘permanent’ can be defined as equal to the duration of the contract.
Long-term atmospheric carbon removals and accumulated carbon storage reversals can be caused by natural disasters such as wildfire, hurricanes, insect and disease, or even over maturation, which leads to deterioration and death. An insurance or risk-pooling mechanism is almost always put in place to offset these losses, should they occur.
- Leakage – Leakage occurs when a carbon sequestration project causes unintended increases or decreases in GHG emissions elsewhere. Leakage may have impacts at the regional, national, or international level, making the quantification of this secondary effect difficult or impossible. There are different types of leakage, including:
- Internal leakage – which occurs when activities undertaken on a portion of a forest ownership result in changes in GHG emissions on a different portion of the same ownership (ex. A landowner reduces harvesting in one area while increasing harvesting in another area).
- External leakage – which occurs when one forest owner’s carbon sequestration activities result in another landowner changing their behavior in a way that increases GHG emissions.
- Market leakage – a type of external leakage, which occurs when a forest project reduces the availability of a good, thereby transferring market demand to other forests.
- Activity-shifting leakage – which occurs when a project does not replace a land-use activity but displaces it to another location.
- Positive leakage – which occurs when one landowner’s activities have a positive impact on carbon sequestration in other forests.
- Verification – Verification is critical to determining the validity of forest-based offset projects. This aspect provides additional protection to the buyer and seller to ensure that any carbon credit transacted follows all rules, protocols, and standards. Qualifications of the verifying organization, methods used, and frequency in which verification takes place must be documented to enhance the legitimacy of these projects. There are several ways verification can be conducted in terms of methods and frequency, but the importance of independent, third-party organizations in providing this service is paramount. Generally, on- and off-site verification is conducted at project origination, project completion, and during specified intervals throughout the project.
- Aggregation – It is widely recognized that the transaction costs of entering a carbon market are very high and present significant financial barriers to smaller landowner participation. Research suggests that 5,000 acres is the smallest acreage at which carbon projects are economically feasible. With ‘aggregation,’ an entity with sufficient upfront capital will set up contracts for multiple landowners and one buyer, thereby reducing the transaction costs for the individual landowners. Aggregation can boost landowner participation and help realize greater landscape-scale benefits. However, including ‘an aggregator’ can also add time and complexity to forest carbon project development.
- Co-benefits, Stacking, and Bundling – The activities associatedwith increasing carbon stocks frequently have co-benefits, such as protecting water quality or quantity, and enhancing biodiversity. In limited circumstances, additional payments may be available to a landowner through stacking (or bundling) the total suite of environmental services being provided.
Is there a single Carbon Market?
No. In fact, there are two broad classifications of carbon markets. These are Regulatory Carbon Markets and Voluntary Carbon Markets.
What is a Regulatory Carbon Market?
You may have heard of the California Cap-and-Trade Program. Basically, certain large-scale industry that does business in California is limited to a set allowance of CO2 emissions that it must purchase, and the state as a whole has placed an upper bound on what it intends to limit itself to in terms of annual CO2 emissions (the Cap), and this total amount is supposed to be decreasing over time. By design, industry should be seeking to reduce its emissions to keep under its purchased allowance. If the business is able to keep under the capped amount, it could then sell its remaining allowance to other businesses in need of more allowance because they are exceeding the allowed amount themselves (the Trade). The reason this is mentioned here is that the State of California did not limit itself to California lands when it created a program whereby landowners can enter into 100-year agreements to store carbon for the purpose of offsetting California-based emissions on their properties. Property across the United States is eligible.
However, this program has limited appeal to the typical Southern landowner. For one thing, the average property enrolled is 48,000 acres in size. Second, clearly, is the 100-year commitment period. Sizable up-front costs, along with the need to partner with one of the small number of firms that work to guide landowners through the demanding enrollment process with the California Air Resources Board, have served to discourage most landowners from seeking to participate. Oregon and Washington have been considering similar Cap-and-Trade programs in their legislatures; current and future federal administrations may debate nationwide Cap-and-Trade policies in the future as well, so these Regulatory Markets bear watching as they continually develop (Song, 2021).
What is a Voluntary Carbon Market?
As the name implies, these are markets that exist outside of a government mandate. Many large companies have made climate pledges on their own, such as to become carbon-neutral or carbon-positive, and participating in voluntary carbon markets is an avenue toward meeting those public pledges.
For example, the American Forest Foundation, in partnership with The Nature Conservancy, is creating the Family Forest Carbon Program. They state that the targeted landowner for their program owns anywhere from 20 to 1,000 acres. This program recognizes that, together, the many smaller family-owned forest tracts equal up to millions of acres that, due to their limited size individually, were not candidates to participate in carbon markets previously.
Two options to be offered involve 10 and 20-year contracts and these seek to pay landowners for carrying out forest management practices that are proven to lead to better carbon storage outcomes. Corporations seeking to have positive carbon impacts would be eligible to purchase credits based upon the positive carbon storage actions taken by the landowners on their properties. At time of writing (October 2021), the program is in a pilot stage and only available on a limited basis in Pennsylvania but looks to expand soon (American Forest Foundation, 2021).
Other national NGOs reported to be working in the forest carbon space are Ducks Unlimited and the National Audubon Society.
Another voluntary carbon market, one that has moved from concept to pilot to implementation, is NCX, or the Natural Capital Exchange. This innovative program deals with Harvest Deferral Credits. In short, NCX has calculated the difference between optimal financial rotation age for timber stands and optimal carbon storage rotation age. As the optimal carbon storage rotation is longer, in their program, landowners have an opportunity to receive payment for maintaining harvestable timber (and its carbon) on the landscape for additional years by deferring timber harvest. NCX uses its remote sensing technology to assess carbon stocks on a potential given ownership at the present time, and if the property enrolls and successfully has a buyer for its harvest deferral credits, once again at the end of the contract period. The company that purchased the credit is free to count that stored carbon toward any pledges they have made. Any size acreage is eligible to apply. NCX offers one-year enrollments, and currently offers four marketplaces per year (NCX, 2021).
Are Carbon Markets here to stay?
It is never an easy task to predict the future, but trends over the past few years would lead one to believe that these markets, and the opportunities they bring for new revenue streams to landowners, will become a permanent feature of the landscape. We know that the Southern forest landowner practicing sound stewardship of the land is, and always has been, capturing and storing carbon throughout their property in the form of vegetation (above ground in stems, branches, and leaves; below ground in root systems; on the surface in the organic layer of soil). What has changed and is continuing to change is government regulation (currently limited to the state level) related to carbon emissions such as California’s Cap-and-Trade policies. Also, there is the emergence of corporations seeking to enter into voluntary carbon markets. “Recent reports suggest that over 450 large companies have pledged to go net zero or carbon neutral by 2050 or earlier, and these companies account for annual revenues of more than US $16 trillion per year” (Ferguson, 2021). Between these two types of expanding carbon markets, the Southern landowner can expect an increasing number of options with respect to realizing income from the inherent carbon storage potential of the forest.
DISCLAIMER: The Southern Group of State Foresters does not endorse any carbon market. FAQ is for information only.
American Forest Foundation. (2021, September 23). Landowner Participation in the Family Forest Carbon Program. Retrieved from https://www.forestfoundation.org/family-forest-carbon-program-landowners
Boe, F. (2021, October). National Association of State Foresters Carbon Statement. United States of America: National Assoication of State Foresters.
Ferguson, P. J. (2021, September 23). Carbon Offsets 101: Big Gains (and Some Growing Pains) in Forest Carbon Offset Markets. Retrieved from Davis Wright Tremaine LLP: https://www.dwt.com/blogs/energy–environmental-law-blog/2021/09/forest-carbon-offset-markets
NCX. (2021, September 23). America’s Forest Carbon Market. Retrieved from https://ncx.com/
Song, L. a. (2021, September 23). The Climate Solution Actually Adding Millions of Tons of CO2 Into the Atmosphere. Retrieved from Science Friday: https://www.sciencefriday.com/articles/california-climate-policy-co2/
University of Minnesota Extension. (2021, September 23). Can I get paid for the carbon in my woods? Retrieved from https://extension.umn.edu/my-minnesota-woods/can-i-get-paid-carbon-my-woods#sources-2648460