Gordon Smith

April 28-29, 2009Biological Sequestration through Greenhouse Gas Offsets:Identifying Challenges and Evaluating Potential Solutions

Washington, DC

Forestry: Additionality and Baselines

Outline

• Global context

• Concepts

• Current problems

• Possible solutions

Global context

• Forests are ~20% of global anthropogenic emissions

• REDD: reducing emissions from deforestation and degradation

More focus on deforestation than degradation

Tried project scale; now focusing on national scale and sub-national

Considering funds phasing to credits

Total flux >60 bn tons C/year

Concepts:Additionality matters

• 224 billion ton CO2e BAU gross global annual uptake by forests;

•Waxman-Markey 2012 goal:~ 0.7 billion ton CO2e below BAU

Baseline

•What would likely have happened in the absence of the project, “business as ususal” (BAU)

• Requires guessing at net emissions under the BAU activity

•May be performance standard or project specific

Crediting baseline: risingProject Credits

Baseline Stock

Declining baseline: REDDProject Credits

Baseline Stock

Declining credits

Project Credits

Baseline Stock

Forest stocks change over time Age Class Distribution

PNW Industrial Forest

0

2000

4000

6000

8000

10000

12000

14000

0 to4

5 to9

10to14

15to19

20to24

25to29

30to34

35to39

40to44

45to49

50to54

55to59

60to64

65to69

70to74

75to79

80to84

Age Class

Acres

Forest stocks change over time Live Tree Carbon Stock

75,363 acres, Idealized Industrial Management

-

2.00

4.00

6.00

8.00

10.00

12.00

0 10 20 30 40 50 60 70 80 90

Project Year

Million Tons CO2e

Problems: afforestation

• Possible leakage

Significant if projects cause clearing elsewhere

May be negligible if combined with forest management incentives* or international REDD actions*EPA. 2005. Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture, EPA 430-R-05-006.

Problems: forest management• Baseline depends on absolute and

relative prices of different wood products

• Prices change!

• Few can model profit maximizing behavior

• Fewer can check modeling

• Actual management is not fully profit maximizing

Forest management example• 2006 housing boom: lumber prices

high; chip prices low

• Baseline: Cut Douglas-fir for lumber; leave Alder for chips

• Project: Grow Douglas-fir; cut Alder and replace with Douglas-fir

• 2008: Housing crash: lumber prices low; chip prices high

• 2008 BAU is 2006 project activity

FM problem: voluntary opt-in

• BAU stocks rise and fall over time

• Those with low stocks that are about to rise opt in

• Those with high stocks that are about to fall stay out

Avoided deforestation baselines• Immediate threat

Can be gamed

•Model trends

Trends change quickly

Gives modest incentive

Leakage generally >65% sometimes >90%**Gan, Jianbang and Bruce A. McCarl. 2007. Measuring transnational

leakage of forest conservation. Ecological Economics. 64: 423-432.

Solutions: afforestation

• Recognize offsets

• Forestry is low value use so all afforestation can be declared additional

• Baseline can be carbon stock present at time of project

• Carbon stock quantification methods are well established and reliable

• Leakage treatment depends on FM rules

Solutions: deforestation

• Require projects to maintain supplies of goods, to avoid leakage

• Deforestation fee (not offsets)

• No net forest loss policy

Maintaining supply

• Demand for crop land

Intensify crop production elsewhere

• Demand for wood products

Intensify wood production elsewhere, e.g. plantations

• Demand for land for development

Up-zone other lands

Deforestation fee

• Apply to all conversions, including small areas

• Set fee by average carbon stock for the potential forest type and site productivity

• Fee can be function of recent allowance price

No net forest loss

•Model: wetland no net loss policy

We know better how to grow trees than how to make wetlands

• Probably have net emissions in short term, until new trees grow

• Can have trading factor, e.g. 2 new forest acres for every acre converted

Solutions: forest management• Comprehensive accounting

All tons above baseline are eligible to be tradable credits

All emissions below baseline must be covered by allowances

Avoids need to determine additionality

Captures leakage in comprehensive counts

• All properties above specified size are included; not voluntary opt-in

Comprehensive forest accounting• Baseline equal average carbon stock,

by forest type and site productivity

Avoids problems of modeling profit-maximizing management

• Allow time to come up to average stock

• Allow banking on non-tradable “ton-years” to cover periodic dips in carbon stocks

Comprehensive forest accounting• Smaller entities are more likely to

sequester; need to identify how small to set property size threshold for inclusion

• Rewards past good forestry

• Avoids need for early action crediting

• Necessary to achieve modeled sink amounts

Additionality and selection bias limit offset benefit

Landowner fears

• High reporting cost

• Confidentiality

•Will have to pay to log

•Will pay for fire emissions

• Long rotation mandate

Low reporting cost

• Use timber inventory data

Add woody debris or soil organic layer in selected ecosystems

• Five-year reporting periods

Could forgo reporting if no harvest

• Downloadable software tool calculates carbon stocks and changes

• No third party verification necessary; federal audits and penalties for lying

Confidentiality

• Landowners fear that competitors will learn what trees they have available to harvest

• Secure transactions only between government and landowner

• Option for landowner to do calculations in-house and report only total carbon stock each period?

No fee for logging

• Liability based on cumulative carbon stock on all stands, not single stand

• Banking non-tradable ton-year credits covers periods with lower carbon stocks

• Time to meet initial requirement allows re-growth on currently understocked lands

Need research on effects on harvesting of alternative grace period lengths

Insurance for fire emissions

• Natural disturbances include fire, insects, and wind

Loss rate is small

• Create optional insurance fund

“Premiums” paid in credits

Need actuarial quantification of how many ownerships go below average C stock because of natural disturbance, how far, and how deficit varies by ownership size

Prohibit rotation length mandates•Mandating long rotations costs

landowners a lot because large harvest revenues are deferred

• Prohibiting rotation length mandates assures landowners that incentive program will not mandate silvicultural practices

How address existing California rotation minimums?

Summary• Afforestation: Offsets

•Multiple avoided deforestation options:

Require projects to maintain supplies of goods

Deforestation fee

No net loss policy

• Forest management: comprehensive accounting

Avoids additionality, baseline and leakage problems

Compatible with international REDD program

Gordon Smith

Ecofor LLC206.784.0209

13047 12th Ave NWSeattle, WA 98177

USA

Thank you