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.