Authors:
- Amanda West Fordham, Ph.D., Associate Director of Science and Data, Colorado State Forest Service
- Ethan Bucholz, Ph.D., Forest Monitoring Program Manager, Colorado State Forest Service
- Tony Vorster, Ph.D., Research Scientist, Natural Resource Ecology Laboratory, Colorado State University
- Ashley Woolman, Forest Carbon Specialist, Colorado State Forest Service
Editor:
- Amy Bulger, Communications Specialist, Colorado State Forest Service
Forest carbon markets are one natural solution to increasing carbon sequestration, which reduces the amount of greenhouse gases entering the atmosphere in the long term. Carbon markets exchange carbon credits and provide a way for forest landowners to derive long-term, non-consumptive value from well-managed forests.
A carbon credit represents the removal of one metric ton of carbon dioxide equivalent (tCO2e) from the atmosphere. These credits are derived from activities called carbon offsets that capture greenhouse gases (GHGs) to compensate for GHG emissions.
Forestry activities that may be classified as carbon offsets include forest conservation, avoided conversion of forests, reforestation, afforestation and improving forest management. Forest management can, in some cases, provide quantifiable increases in carbon stocks through mitigating carbon lost to disturbance (e.g. wildfire, insect and disease). Entering a carbon market does not preclude timber harvest or other management activities, but it does influence forest management decisions. For example, it may necessitate changes to how timber is harvested during a project, such as extending the rotation period.
Carbon Market Types
There are two main types of carbon markets forest landowners will encounter:
- “compliance” markets that are mandated by legislation designed to reduce or offset emissions
- “voluntary” markets that allow organizations to voluntarily purchase carbon credits to offset emissions
- These markets cap total allowed GHG emissions – major polluters such as industry, energy producers and transportation are granted a specific amount or cap in emissions. This cap typically declines over time.
- Polluters can reduce net emissions and/or purchase offsets to meet this cap – offsets may be from another polluter who is below their cap, or from organizations that reduce GHGs through actions such as growing trees or using landfill methane emissions.
- California Assembly Bill 32: The Global Warming Solutions Act created the largest regulated carbon market in the world that allows managed forests to generate offset credits, including in states such as Colorado. The CA Cap-and-Trade Program is regulated by the California Air Resources Board (CARB).
“CARB requires rigorous third-party verification of offset projects to ensure that their reductions are real, quantifiable, permanent (for a minimum of 100 years for forest projects, for example), and additional – that is, above and beyond what is legally required and what normal practices are for any given project. This approach means that offsets deliver multiple benefits even beyond the carbon reductions they generate.” – CARB
There are other regulated markets already established (e.g. the Regional Greenhouse Gas Initiative in the eastern U.S.) or that may be established soon (e.g. Washington, Oregon). These are small markets compared to California’s forest carbon offset program.
- These markets are not regulated, but many forest carbon “protocols” have been developed by nonprofit organizations to quantify, track, verify and manage projects.
- Voluntary credits are verified by auditors and tracked in official registries:
- Climate Action Reserve Registry (CAR) – a California nonprofit that includes reports for carbon market projects in all 48 continental U.S. states. It uses U.S. Forest Service datasets for regional carbon storage averages and allows forest managers to receive credits for carbon stored above this baseline. There are additional requirements, including maintenance of native species diversity, forest management on the site must not be required by law, the additional carbon sequestered by the project must be stored for 100 years, broadcast fertilizer is not allowed, downed woody debris must be maintained and project activities cannot start more than 6 months prior to project listing on the CAR.
- Verra Registry System (formerly Verified Carbon Standard (VCS)) – this nonprofit is currently the most widely used voluntary GHG program across the globe. Projects are certified against the VCS rules and requirements and then issued tradeable GHG credits called Verified Carbon Units (VCUs).
- American Carbon Registry was founded in 1996 as the first private voluntary GHG registry and joined the nonprofit Winrock in 2007.
- Programs such as Climate Forward allow companies to make proactive investments in GHG mitigation projects to mitigate expected emissions.
- A new program developed by the American Forest Foundation and The Nature Conservancy uses Forest Inventory and Analysis (FIA) data combined with modeling and analysis to help owners of small forests participate in the carbon market. The CSFS collects FIA data across Colorado and parts of Wyoming! Called the Family Forest Carbon Program, it designed for family forest owners with forested properties as small as 30 acres that have historically had barriers to enter these markets.
Basic Project Framework for a Landowner
Landowners can hire a project developer to manage the entire process of generating forest carbon offset projects. These developers may cover the up-front investment for the landowner, with an agreement to receive a portion of the proceeds. They will also typically prepare a financial analysis to estimate costs and revenues in advance of initiating the project. The following items are common parts of project development.
The protocol and type of project (e.g., improved forest management, avoided conversion, reforestation) selected should align with the landowner’s management goals. Determining the requirements, eligibility, fee structure and current prices for each protocol will help a landowner decide the best course of action.
Most projects require detailed field sampling of the various carbon pools on the property. The pools included depend on the project type and protocol selected, and they can include above-ground live biomass, below-ground live biomass, dead biomass, soil litter and harvested wood products.
Initial project development requires modeling forest growth and calculating anticipated credit yield.
Each project must develop documents that describe the project and ensure that the activities outlined will be eligible for the project type. This documentation can be completed by the landowner or an outside project developer, and in many cases may require the assistance of certified foresters to attest to the details of the new project scenarios.
Once all the project field work, modeling and documents have been completed, the forest landowner must hire an accredited third party to perform a verification. This includes a site visit to review the property and inventory accuracy. It also includes an office visit to review all the management planning details, carbon modeling and project documents. All documents are submitted to a registry.
After verification, projects are registered in public databases, which certifies authenticity and availability for sale. Selling carbon credits requires knowledge of the different buyers looking to purchase credits. This often involves generating a term sheet or brief document describing the project, terms of sale and amount of credits generated. This can be distributed to a variety of buyers to begin the process of creating a sales contract.
Monitoring, reporting and verification requirements must continue to be met throughout the lifetime of the project. These requirements are defined by each protocol. For California cap-and-trade projects, for example, monitoring of the project is required for 100 years after the final issuance of credits. Over this time, reporting is required annually and verifications requiring remeasurements are required at least every six years.
Connections for Colorado Landowners
- The Natural Capital Exchange (NCX) is a marketplace for connecting interested buyers and sellers of forest carbon and other ecosystem services. It operates across the continental U.S. and focuses on providing an unbiased assessment of opportunities to participate in natural capital markets for both public and private landowners.
- Finite carbon connects projects to carbon markets and operates throughout the continental U.S. A program called Core Carbon is in development, which will include landowners with as few as 40 acres.
- RenewWest provides valuation assistance for landowners and also focuses on leases for reforestation.
- Anew Climate provides services in project development and is beginning to expand scope throughout the continental U.S.
Various consulting forestry companies may be employed to provide consultation and project development throughout the state.
Is this a purchase of forestland or implementation of a new forest management plan on existing land?
Change is a necessary component to enter a carbon market project. This can include a change in ownership of a private forest parcel, a new management plan (to include carbon sequestration goals or co-benefits), reforestation, protecting forests that were planned for harvest or extending the length of harvest rotations.
How much acreage is required?
There are increasing options emerging for small acreage forested properties, as small as 30 acres. Historically, projects greater than 5,000 acres had the best likelihood of achieving economies of scale necessary for the project to be profitable.
Is there a forest age requirement?
All ages of forests may be eligible, however, if current timber volumes are greater than a regional average, they may accrue more carbon credits early in the project.
How long must I commit to the project?
In most cases, once a baseline is established, projects are required to store additional carbon up to 100 years to qualify for payment.
Am I willing to allow third-party contractors onto the property every few years?
This monitoring is necessary for verification, and these monitoring costs can be substantial.
What are some typical barriers to entering forest carbon markets?
- There are initial development, monitoring, reporting and verification costs associated with maintaining projects. These costs make it particularly challenging for landowners with smaller acreages.
- Market and policy uncertainty
- The long (frequently 100 years or greater) time commitment
Forest carbon protocols seek to measure and verify the true benefit of carbon offsets through accurate reporting and by accounting for additionality, leakage and permanence. When any of these three criteria is compromised, carbon offsets do not have their intended effect of reducing greenhouse gases and can give emitters and consumers a false sense of emissions reduction. The benefit of some carbon offset projects has been called into question recently along with the related carbon neutrality claims from offset purchasers. Carbon offsets that genuinely result in greenhouse gas reductions are generated from projects that adhere to these criteria and that use accurate baselines and business-as-usual scenarios.
- Additionality
- This means the project must increase carbon sequestration in trees and other vegetation biomass, beyond that which would occur through usual forest management (also referred to as business-as-usual; see baseline section). One example is selection-based tree harvesting. Additionality is challenging to establish because it requires the development of a baseline. Some states such as California, Washington and Oregon cannot consider carbon stored in trees planted after harvesting, since reforestation is required there. Placing a property into a conservation easement could be considered additionality; however, an existing conservation easement that restricts timber harvests may disqualify a property owner from receiving carbon credits.
- Baseline
- A project must establish a carbon baseline, which can be developed in two different ways, and this is specified by the protocol selected.
- The first is a comparison of increases in forest carbon stocks to reference levels of carbon stocks unaffected by project activities. These are called business-as-usual scenarios. Reference levels of carbon stocks are projected into the future to evaluate forest carbon sequestered over time. The baseline can be either project-specific for the specific property, or ecosystem-specific, where project carbon stocks are compared to regional estimates of carbon sequestration for ownership types, age classes and species composition.
- The second is quantification in the amount of carbon in the project area for a “base year.” Future modeled carbon stocks are compared to this “base year” – increases in carbon storage over the base year are considered for credits. Decreases in carbon storage under the base year are compensated per contract requirements.
- Leakage
- Leakage occurs when a carbon project causes unintended increases or decreases in GHG emissions outside the project area. Leakage has impacts at regional, national or international levels; therefore, quantifying this secondary effect is difficult.
- Internal leakage occurs when activities on one portion of a landowner’s forest result in changes to GHG emissions on another part of their forest (e.g. reducing harvest in one area while increasing harvest in another area).
- External leakage occurs when one forest landowner’s carbon sequestration activities result in another landowner changing their behavior in a way that increases GHG emissions.
- Market leakage is an example of external leakage. It accounts for increased harvesting by other landowners responding to the market conditions created by a carbon project (e.g. availability of a wood product has decreased as a result of the carbon project; therefore, the demand shifts to other areas).
- Activity-shifting leakage occurs when a project does not replace a land-use activity, but displaces it to another location.
- Positive leakage occurs when one landowner’s activities have a positive impact on carbon sequestration in other forests.
- Permanence
- This is the degree to which sequestered carbon is permanently removed from the atmosphere. This establishes a legally binding length of time that carbon offset production and, therefore, carbon sequestration will continue happening within a given project area. Legal assurance must be provided to ensure the benefits in carbon sequestration will not be compromised through future harvest, change in ownership or change in management. Many projects guarantee carbon storage for 100 years.
- Risk
- There are mechanisms to address the risk to permanence for a project, such as natural disasters or maturation and mortality.
- A buffer pool of carbon credits can be created to compensate for potential wildfires, insect and disease outbreaks, or other unplanned forest disturbances. A portion of each project’s carbon credits are not sold in the market and are kept in this buffer pool.
- Insurance can be purchased so that if a carbon project is all or partially destroyed, compensation can still occur for a landowner or purchaser.
- Like-kind pools can be created in which forestland managed for carbon sequestration serves as a replacement reserve for projects that generate and sell carbon credits.
- Biological risk management includes forest management activities that reduce the risk of wildfire, insects and disease.
- There are mechanisms to address the risk to permanence for a project, such as natural disasters or maturation and mortality.
A landowner should be familiar with all terms of a carbon market project contract. There are three general methods of offset credit delivery, with various levels of risk to providers and buyers of carbon offset credits.
- Prompt delivery
- Typically occurs within days of a contract signature. Requires that the provider (e.g. the landowner) sells carbon offsets they have in stock and all project and price risks have been assumed prior to selling the credits. This can result in a higher sales price.
- Forward delivery of future offsets
- The contract commits the provider to delivering emissions reductions to the buyer at a pre-defined time and price. Delivery can be months to years. This reduces risk of falling market prices for a provider, and risk of rising market prices for a buyer. However, credit risks should always be assessed by all parties entering this type of contract. In forward delivery, the provider is typically responsible for generating any offset credits that a project falls short on delivering. A forward contract can specify whether a fixed or proportional amount of offsets are to be delivered. A fixed quantity means the provider carries the risk if fewer offsets are generated than was expected. A proportional contract means the buyer agrees to buy a certain percentage of the offsets generated for a defined period of time. For example, the buyer may agree to purchase 75 percent of all carbon offsets for each year for 10 years of the project.
- Forward crediting of ex-ante offsets
- Typically, the buyer pays the provider the purchase price for a specified number of offsets that have not been produced at the closure of the contract. Delivery can be over multiple decades. These types of contracts are high risk for the buyer because the offsets may never happen; however, this method of credit delivery is common in forestry projects. One exception to this risk is when a contract contains an ex-post adjustment of the purchase price corresponding to any shortfall in offset generation. Forward crediting is similar to forward delivery in the section above; however, the purchase price is paid up front rather than at a specified time, and it is not repaid if there are shortfalls in offset delivery.
Does the State of Colorado or the Colorado State Forest Service have a program to recruit or assist landowners with carbon markets?
Not at this time.
How much is a carbon credit worth?
The price of carbon credits can change frequently depending on market conditions, supply and demand, and the type of carbon credit. In the regulated market, the California Cap-and-Trade program is listed at a minimum of $22.21 per credit for the year 2023. However, allowance prices reached $30.85 in 2022, a sharp increase from $16.68 in early 2020. In the voluntary market, one credit can range from less than $4 to $15 or more. Projects verified by a reputable standard that provide additional social or environmental benefits are likely to be valued higher.
Are there penalties for non-compliance?
Contracts will outline requirements and penalties for contract violations based on the protocol selected.
How are the carbon offsets on my property monitored?
For most protocols, establishing permanent monitoring and re-measurement plots is necessary for qualified auditors to take measurements throughout the project lifetime.
Can I work with other landowners to reduce investment costs?
An entity with up-front capital can aggregate – or set up individual contracts of multiple landowners with one buyer. Aggregation can boost landowner participation and help realize landscape-level benefits; however, it can also add time and complexity to project development.
What are co-benefits, stacking and bundling?
Carbon projects frequently have co-benefits, such as improving water quality, water quantity and/or wildlife habitat. Additional payments may be available to a landowner through stacking or bundling these additional ecosystem services.
I have property in another state, or I have small acreage. What are some other options outside those listed that I can look into?
Recently, the American Forest Foundation (AFF) and the Nature Conservancy (TNC) created the Family Forest Carbon Program, in which they serve as aggregators in a voluntary market for landowners with forested properties as small as 30 acres.
- Gulf coast states: ACRE Investment Management LLC
Are there examples of carbon projects in Colorado?
More projects are currently being developed with Colorado landowners. Colorado’s first forest carbon project we are aware of is a voluntary market reforestation project on the San Juan National Forest started in 2013. Projects are currently underway to generate carbon credits by replanting burned areas.
What types of forest projects are there?
Forest carbon projects most commonly fall into three types: improved forest management, afforestation/reforestation and avoided conversion. New project types, such as a protocol to credit avoided wildfire emissions for fire mitigation work, are currently being developed.
| Project Types | Description | |
| Afforestation/Reforestation | Reforestation is natural or intentional restocking of existing forests that have been depleted. Afforestation projects involve restoring tree cover to previously non-forested land. Afforestation projects have high costs because they generally require significant planting, maintaining, and often irrigating trees, especially in arid environments. | |
| Avoided Conversion | Preventing the conversion of forested land to non-forested land. Project developers must demonstrate that the forested land is under significant threat of conversion for the project to be considered viable. | |
| Improved Forest Management | Projects involve forest management activities that increase or at a minimum maintain the current level of carbon stocking. |
References
Brown, M. (2021). Forest Landowners and carbon: How actively managed woodlands can help fight climate change. National Association of State Foresters. Retrieved from https://www.stateforesters.org/2021/08/19/forest-landowners-and-carbon-how-actively-managed-woodlands-can-help-fight-climate-change/
New Reduced Emissions from Megafires Forecast Methodology published by Climate Forward
“Fuel treatments are typically not considered a feasible project activity under traditional carbon offset crediting programs because of the initial carbon loss resulting from the removal or manipulation of forest biomass to reduce wildfire risks, the long period of time before a project would achieve sufficient ex post climate benefits for crediting, and the relatively high initial and ongoing project costs until such net climate benefits could be shown and payments for resulting credits are received. This misalignment between project costs and potential revenues from credit generation provides a barrier to entry that would be difficult to overcome by most would be project proponents. The ex ante approach under this methodology recognizes and credits for the future climate benefits resulting from fuel treatment activities, thus helping to finance a substantial portion of project activity costs. In doing so, the methodology expands the scope of GHG mitigation projects recognized by the market, especially for mitigation projects that would not happen otherwise.”
News in Related National Legislation
The Growing Climate Solutions Act was included in the 2023 omnibus spending bill; now, the U.S. Department of Agriculture (USDA) may expend up to $4.1 million over fiscal years 2023 to 2027 to create and administer a new “Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Program” to provide U.S. farmers, ranchers and private forest landowners with technical guidance for reducing GHG emissions and sequestering atmospheric carbon on working lands. The program would also guide third-party entities that verify and validate claimed GHG reductions to support the generation of credits in voluntary carbon offset markets. The legislation has the potential to advance “climate-smart” agriculture and agricultural commodities in the U.S., through both new and existing USDA programs, while expanding access to carbon markets for U.S. farmers, ranchers and foresters.