Carbon trading and forests: Background and overview

By John DuPlissis, University of Wisconsin Extension

Recently you may have heard people talking about “carbon credits,” “carbon trading,” “carbon sequestration,” and possibly even the “Kyoto Protocols.” These phrases and other similar terms have become increasingly part of our language as energy companies, paper mills, factories, and other industrial manufacturers are looking for opportunities to offset their greenhouse gas emissions through a market-based mechanism that would pay woodland owners to grow trees.

Sounds simple and the idea is certainly very interesting to many woodland owners who are looking for opportunities to generate income from their lands. But what are the opportunities and how can you get involved? I hope to cover the issue, the opportunities and the commonly asked questions that many people have as a series of articles here. I thought that I would start with the Kyoto protocols and the basis for “trading” carbon credits.

So where did this start? The United National Framework Convention on Climate Change, commonly known as the Earth Summit, held in Rio de Janeiro in 1992 was where it all started. Article 2 of the convention directly addressed the need to stabilize greenhouse gas emissions “at a level that would prevent dangerous anthropogenic (human caused) interference with the climate system.”

One of the main greenhouse gases of concern is carbon dioxide. The burning of fossil fuels for energy, heating, and transportation has led to elevated levels of carbon dioxide in the atmosphere. Through the process of photosynthesis trees remove and use carbon dioxide to create roots, branches, trunks and leaves. Therefore, trees and other green plants are seen as a potential solution to help slow down global climate change by removing carbon dioxide from the atmosphere and storing (sequestering) it as part of the permanent structure of the tree.

Photo: Flickr/mhaithaca

As a part of United National Framework Convention on Climate Change the “Kyoto Protocol” was established to create policies and measures to reduce greenhouse gas emissions. The Kyoto Protocol requires industrialized nations (the United States has not ratified these protocols and is not bound by them) to reduce their greenhouse gas emission to approximately 95 percent of their 1990 levels by 2008-2012. Countries that are unable to achieve this goal through direct reduction of emissions are allowed to “compensate” by buying credits from countries that have under used their emission allowance, by investing in “cleaner” energy technology abroad or by putting money into forestry or soil conservation.

Article 3.4 of the Kyoto Protocol provides an option to account for increases in carbon storage through forest management. Essentially, under these rules, companies can offset the amount of carbon dioxide they release into the air through industrial processes by purchasing credits from individuals or organizations who can show they are decreasing atmospheric carbon dioxide through forest management or soil conservation activities. This is often referred to as Carbon Trading.

This article is reprinted with permission from Woodland Leaders News, published by the University of Wisconsin Stevens Point. This is the first in a series. John’s future posts will address how carbon credits are traded on the Chicago Climate Exchange.  For more on this issue, check our carbon credits page and John’s April 2009 post called Carbon Credits and Managed Family Forests: How it works.

Carbon credits and managed family forests: How it works

By John DuPlissis, University of Wisconsin, Stevens Point.

As markets for Carbon Credits have emerged most of the focus for woodland owners has been on afforestation projects, the conversion of unforested or degraded lands to forests by planting trees.  I have discussed this type of project in past articles and by now I am sure that many of you are familiar with the process to enroll plantations under this option and the potential financial returns from these types of projects.

The other option available to woodland owners to participate in the Carbon Credits market is the Managed Forest Projects option.  The Managed Forest option recognizes that woodland owners engaged in sustainable forest management are increasing the amount of carbon sequestered through active forest management practices including silvicultural treatments, thinning, and harvesting.  However, there has been a great deal of debate over these types of projects and the rules governing how this option would be implemented were not clear.  As aggregators have looked at how to measure, monitor, and verify the carbon sequestered by Managed Forest projects there were always more questions than answers.  However, over the past year the Chicago Climate Exchange (CCX) has developed new rules and guidelines that have established a process for enrollment and verification of Managed Forest Projects.

How can you participate?

The process to enroll lands under the managed forest option isn’t really all that different from the afforestation option.  CCX requires that all Managed Forest projects show a net gain in sequestered carbon over the contract period.  Which means that the total amount of CO2 (timber) removed during a harvest cannot exceed what you have sequestered over the contract period.  Also, you must provide evidence that your woodland is sustainably managed.

CCX requires that land enrolled in the Managed Forest option also be enrolled in a forest certification scheme.  Woodland owners enrolled in Wisconsin’s Managed Forest Law Program or the American Tree Farm System meet this requirement.  Depending on which aggregator you choose to work with, you are going to need to file the appropriate paperwork, provide proof of ownership, sign a letter of intent to maintain forest carbon stocks beyond 2010, and identify if your management plan requires you to perform a harvest during the contract period.

However, this is where the similarities end.  Afforestation projects use carbon accumulation tables or direct measurement process to estimate annual carbon sequestration per acre.  Determining the amount of carbon sequestered under the Managed Forest option is more complex.

Just how complex is it?

To enroll lands under the Managed Forest Project option you will need to contract with a consulting forester to perform a baseline inventory of your woodlands.  This inventory is different from the reconnaissance that is performed as part of the process of writing a management plan for your property.  That inventory is designed to identify and describe all of the resources on your property.  The baseline inventory completed as a part of the enrollment process for a Managed Forest Project is designed to quantify the carbon stocks on your land in sufficient depth and detail to allow for statistically accurate modeling of current stocks and future growth.

How are your credits determined?

The Managed Forest Project option calculates carbon credits based on net average annual carbon sequestered.  As the term net implies, you are given credit for carbon sequestered but must subtract any removals due to management activities (thinning or harvest).  The first step in the process is to estimate the amount of carbon that will be sequestered during the contract period.  A computer simulation, using the information gathered in your baseline inventory, estimates the amount of carbon sequestered during the contract period.

Depending on whether you will have a harvest during the contract period a computer simulation will also be run to determine the amount of carbon removed from your woods.  If you do have a harvest then you may be eligible to receive a long-lived wood products credit.  This credit acknowledges that “wood products have appreciable carbon mitigation benefits by displacing fossil-fuel intensive construction materials and that durable wood products, such as houses and furniture, have the potential to retain carbon for centuries.”  Once this total is estimated for your woodlands it is divided by the number of years in your contract and your annual payment is based on the net average annual carbon sequestered.

A word about the long-lived wood products credit…

The CCX protocols for long-lived wood products require that you show that you have retained the rights to claim this credit as part of the timber sale contract.  You will also want to make sure that the aggregator you are working with has the necessary reporting and monitoring process in place so you can take advantage of this credit.

It is important to understand that, although your contract and initial payments are based on the estimated net annual average carbon sequestered, you will be required to have an inventory completed after any harvest and again at the end of the contract period to determine the actual volume of carbon sequestered during the contract period.  Your final payment will be adjusted to reflect any over or under-payment made due to the difference between the actual carbon sequestered and the original estimate of carbon sequestered during the contract period.

How are your annual payments determined?

Your annual payments are based on the net average annual carbon sequestered by the annual average price for a metric ton of carbon for that year.  You do not lock into a price based on what carbon was trading for on the day you signed your contract.  Daily price quotes in 2008 ranged from $1.20 to $7.40 for a metric ton of sequestered CO2 from a forestry offset project.  However, the average price for a forest offset contract in 2008 was $4.26.

What is your potential income?

The potential income from enrolling your woodlands in Managed Forest option is reduced by the cost of the inventories you will be required to perform during the life of the contract.  The cost of the baseline, post-harvest, and end of contract inventory are the responsibility of the landowner.  As you think about whether or not to enroll your lands you will need to consider the cost of these inventories against the income you will receive when evaluating if this is right for you.

The next article in this series will provide a breakdown of the costs to enroll in the Managed Forest Project option and the income that you can expect to receive over the life of your contract.

This article is reprinted with permission from the Spring 2009 issue of Woodland Leaders News, published by the University of Wisconsin Stevens Point.  We will also reprint the next article in the series,  on costs and expected financial returns based on analysis of two Wisconsin properties. Readers of this article may also be interested in this field tour summary: Silviculture and Carbon in the Cloquet Woods.

Silviculture and Carbon in the Cloquet Woods

Photo by Philip Potyondy

What are the connections between forests and atmospheric carbon?  How do different silvicultural interventions affect forest-based carbon uptake and storage?  On February 25, about 75 foresters, researchers, and others took to the Cloquet Forestry Center woods to find out.

The tour included visits to red pine, aspen, and mixed aspen-spruce stands with a variety of management histories, from benign neglect to a century of intensive management. At each stop, we discussed the stand history, rates of carbon sequestration and accumulation, and the impact of past and possible future silvicultural treatments.

Although the discussions took us much deeper into detail than is presented here, this post offers top-level take-home messages from the tour.

The tour was part of the February 2009 Forest Values and Carbon Markets conference.

Pure red pine: The student thinnings

This is one of the more impressive examples of the impact of active management in red pine that I know of.  The stand originated naturally around 1910, so it’s about 100 years old.  On one side of the road, the 40-acre stand has been thinned four times: in 1950, 1960, 1970, and 1985.  On the other side of the road, the stand has never been thinned.

Focusing on carbon dynamics, both stands have sequestered approximately the same amount of carbon during the past 100 years.  However, in the unthinned stand, almost 40% of that carbon has returned to the atmosphere, or is in process of doing so, through mortality and decomposition of dead wood.  In the thinned stand, almost all of that natural mortality has been “captured” through thinning and turned into wood products.

In the early thinnings, nearly all of the harvested material went into pulp production.  Pulp is a short-lived wood product, so much of this carbon would have returned to the atmosphere within 5-10 years.  However, in the later thinnings, larger and larger proportions of the harvested wood went into long-lived wood products such as construction materials.  Long-lived products store carbon on a nearly permanent basis.

Although not the focus of this tour, the four thinnings have also dramatically increased the financial return.  Including returns from products sold (compounded at 5% annually) plus the value of standing timber on the sites, the thinned stand has a total value of over $6,000 per acre, many times that of the unthinned stand.

Comparing the two stands drove home the potential of active forest management to do three important things: 1) reduce atmospheric emissions of carbon through mortality and decomposition, 2) increase long-term carbon storage by increasing the proportion of harvestable wood products that are long-lived rather than short-lived, and 3) produce a dramatic financial return.

See a photo slideshow from the student thinnings site here.

Aspen-spruce mix

Our next stop was at a 22-year old mix of aspen and white spruce.  The stand originated from a 1987 clearcut.  Natural regeneration was almost pure aspen, and in the same year as the harvest, 800 white spruce seedlings per acre were planted on the site.  Like most of the CFC soils, this is a low-productivity site for aspen, with a site index of only about 55 (meaning 50 year old aspen would be about 55 feet tall).

This stand has interesting silvicultural potential.  Perhaps the most likely treatment would be to harvest the aspen when it becomes merchantable, likely around age 45-50, leaving the spruce intact.  Depending on the pattern of harvest (e.g. uniform vs. patches), this would lead to some regeneration of aspen and more shade-tolerant conifers such as white spruce or balsam fir.

From a carbon storage perspective, this system would retain a relatively high level of carbon storage on site after the sale and harvest of the aspen.  White spruce is relatively long-lived in Minnesota and could easily be managed on an 80-120 year rotation.  The extended rotation, combined with the increase in growing space from the aspen removal, would also increase the growth rate of the spruce, producing larger trees and a higher proportion of long-lived wood products at the final harvest.

Based on research conducted in this area, on stands of similar age and composition, this stand is estimated to accumulate carbon at a rate of about 2.35 tonnes of CO2 equivalent per acre per year.  (Accumulation is sequestration minus respiration.)

See a photo slideshow from the aspen-spruce site here.

Mixed reserve stand

Just across University Road from the aspen-spruce stand is a reserved (unmanaged) mixture of aspen, birch, balsam fir, white spruce, and scattered other species.  (This stand is in reserve status on the CFC management plan.)

Photo by Emma Schultz

This stand is very similar to the stand that was clearcut in 1987 to produce the mixed aspen-spruce stand described above.

Typical of older stands, this one is breaking up fairly rapidly.  Dominant birch and aspen are nearing the end of their natural lives, particularly for northern Minnesota sandy sites.  Decadent stands like this one have a number of important ecological benefits: they provide coarse woody debris for forage, den sites, and cover as well as a different kind of habitat from intensively managed stands.

From a carbon dynamics perspective however, stands like this one are less than optimal.  Even before they fall, the dying trees begin to decay and emit carbon through the respiration activities of decomposition.

Based on research conducted in this area, on stands of similar age and composition, this stand is estimated to accumulate carbon at a rate of only about 0.4 tonnes of CO2 equivalent per acre per year.  This is just over 1/4 the rate of the aspen-spruce mix across the road.  The primary difference is the high rate of decomposition-related respiration in the reserve stand. (For more on this difference, click here.)

See a photo slideshow from the reserve site here.

Young pure aspen

Photo by Emma Schultz

The final stand we visited was a young pure aspen stand.  By this point of the tour, most of the big ideas were clear:  This stand is accumulating carbon at a relatively fast rate, which is great.  However, the likely silvicultural trajectory for pure aspen in this part of the world is a 40-55 year rotation followed by clearcut.  This pattern, while creating important benefits for wildlife habitat and local production of renewable wood products, does not lead to a high level of long-term storage of atmospheric carbon.

This point is clarified by comparison with the mixed aspen-spruce stand described above.  In that stand, after harvest of the merchantable aspen, a large standing stock of carbon remains in storage in the stand.  The tradeoff, of course, is lower production of aspen, which is important to Minnesota’s wood products industry.

See photos from the young aspen site here.

B4WARMED

After visiting all of the stands, we visited the B4WARMED experiment.  This experiment, led by Peter Reich with a number of other University of Minnesota collaborators, simulates the projected warming trend and will monitor impacts on native trees.  The study uses a sophisticated system to carefully monitor and manipulate soil and above-ground temperature fluctuations.  (Want to learn more about the project? Check out this KAXE interview with Rebecca Montgomery.)

Summing it up

The tour included several hours of discussion, in the woods, of practical issues associated with forest-based carbon accumulation, the role of silviculture, and related issues.  We also discussed possible carbon credit payments and associated (and complex) issues like additionality, leakage, and carbon credit protocols.  The take-home messages about carbon are as follows:

1. Increasing stocking of a long-lived shade tolerant species can increase the stand’s potential for long-term carbon storage.
2. Longer rotations, regardless of species, can increase long-term carbon storage as long as they don’t exceed the natural lifespan of the dominant species.
3. Increasing the proportion of harvestable products that are long-lived (e.g. construction materials) as opposed to short-lived can increase long-term storage after harvest.
4. Frequent thinning can capture mortality, turning trees that would otherwise die and decompose into products that can be harvested and sold, and at least some of which will contribute to long-term post-harvest storage.

Update: Minnesota Public Radio ran a story today called Northwoods hold an answer to slowing effects of climate change that covers similar ground.

What are your thoughts? Leave a comment or question below.

Forest Values and Carbon Markets: Opportunities for Minnesota

Save the date! February 25-26, 2009

Forest Values and Carbon Markets: Opportunities for Minnesota
A conference of Blandin Foundation’s Vital Forests/Vital Communities Initiative
Cloquet MN, February 25-26, 2009

In 2006 and 2007, the Blandin Foundation convened conferences at St. John’s University to introduce forestry professionals and woodland owners to tools to foster sustainable forestry practices.  These conferences advanced a shared strategic vision and action plan to increase the number of acres of family forest land with Forest Stewardship Management Plans from the current 1.3 million to 2.3 million by 2015.

This event picks up where those two left off: This time around we’ll focus on carbon credit payments and the role of managed forests in climate change.

Confirmed speakers so far include Will Steger, Chuck Leavell, Mark Seeley, representatives from the Chicago Climate Exchange, and many others.  Event organizers include the Minnesota Society of American Foresters, Minnesota DNR, Blandin Foundation’s Vital Forests / Vital Communities initiative, Dovetail Partners, and the University of Minnesota.

Mark the dates on your calendar now and watch for more info on this event.  We hope to see you there!

Carbon credits on Minnesota woodlands

A brief overview of carbon credits on Minnesota woodlands.