Carbon trading and forests: Background and overview

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
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.

John is an extension forest specialist working on issues important to Wisconsin’s family forest owners. He is based at UW – Stevens Point.

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  1. Sir,
    Please send details about how individuals, enterpreneures can contribute voluntarily towards reduction of green house gases.
    Please also give details of companies willining to work in Asia towards this noble cause especially in Nepal and India to save the mighty Himalayas.
    Last but not the least, how do small business houses get involved in the business of carbon credits trading?
    With regards,

  2. Hi Rajesh!

    These are great questions. I can provides some ideas but I may not be able to answer them directly. I am a professor of forestry and not business administration but I can comment on how current markets work and the opportunities that may exist.

    The guidelines for greenhouse gas offset and trading programs vary form country to country. There are numerous carbon offset suppliers and exchange type systems in the United States and around the world.

    The key part of your question is the forestry offset project itself. Many of the carbon offset suppliers will have projects identified in countries around the world and offer individuals a way to offset their personal, both figurative and literal, offsets by calculating their carbon footprint and then giving them the opportunity to donate to reforestation / revegetation projects.

    So, to answer your question(s), one potential type of project might be to establish a local organization that would purchase, lease, or contract land in Nepal or India and work with a reputable carbon offset suppliers to raise the funds for a reforestation / revegetation project. The local firm would be responsible for identifying potential plantings sites, contracting with the landowner, planting and maintaining the project and then submitting the required documentation to the offset supplier who in turns provides the cash raised by individuals who have made payments to be directly linked to the project or in generall to any project that is available.

    Projects that I have seen include reforestation, wind energy, solar, energy or any number of ideas that provide clean energy or sequester atmospheric carbon.

    This is a complex process that involves many partners but the general process is as simple as I have outlined here. It is important to understand as well that the offset project could be anywhere in the world and the individual seeking to offset their carbon footprint can be as well. Another way to look at this type of project would be to work with or establish a carbon offset supplier firm that would offer the peoples of India or Nepal the opportunity to donate money towards or to offset their carbon footprint.

    If you would like to learn more about carbon offset suppliers, carbon footprint calculators, and the types of carbon sequestration and clean energy projects that carbon offset suppliers are engaged in follow this link to Ecobusinesslinks carbon emissions offset directory. You can see what the firms are offering for projects and how they work to link donors to suppliers.

    I hope this helps. Your questions were complex but this will hopefully clarify the current (and I emphasize currents as the rules surrounding this are constantly changing) situation and some ideas in how folks can become engaged.