Forestry Carbon Offsets in the Global Markets

Introduction

Purchasing forest carbon offsets are one of the ways that corporations are reducing their carbon footprints. Corporations often prefer forest carbon offsets given the co-benefits that intact forests have for air, water, biodiversity, in addition to the carbon sequestration benefits. Corporations are under increased pressure to purchase offsets and take other action to reduce their GHG risk exposure due to pressure from investors and other stakeholders ^[1].

We have previously discussed other jurisdictions that have established carbon trading systems where forest carbon offsets are permitted (or are being considered) as a valid project type. Our analysis builds on a document titled Crown and Carbon ^[2] which conducts a jurisdictional review of the legal precedents across Canadian provinces and international jurisdictions. We began this review with a discussion on British Columbia’s forest carbon offset system ^[3] and we also discussed regimes for forest carbon offsets in Alberta and other Canadian provinces ^[4]. In this blog, we discuss forest carbon offset initiatives in the US state of California; in Australia and New Zealand; and in voluntary offset programs.

California

While the issues related to ownership over forest carbon offsets on Canadian Crown land is subject to each province’s unique legislative and regulatory context, the issues of additionally and permanence are common across all international forest carbon programs. Under California’s cap and trade program offset credits can be generated for reforestation, improved forest management, and avoided conversion ^[5]. The protocol allows for a 25-year crediting period followed by a 100-year monitoring period. This post-project monitoring period is a significant barrier to project implementation. Further, if landowners are already managing their forest in a sustainable fashion, there is little room for improvement. This limits the credit generation potential under the California protocol.

Australia and New Zealand

Australia and New Zealand were two of the first countries to design and implement forest carbon mitigation schemes ^[6,7]. Both countries established carbon offset programs for forest landowners following the Kyoto Protocol in 1997. To address permanence each country created laws to mitigate risks, such as pooling risk across projects. Australia takes a unique approach to additionality, requiring a 70% probability that the net increase in carbon sequestration is greater than the number of credits allocated.

Voluntary Offset Programs

There are several voluntary offset programs with standards and methodologies for forest carbon offsets. Table 1 provides an overview of the leading voluntary offset standards and their approach to forest carbon quantification. Voluntary offset programs require that project ownership is clearly established, but do not provide the legal framework for establishing ownership. For forest management projects that sequester carbon on public lands, if ownership is not clear, the project is not eligible to generate carbon offsets under the voluntary standard. Voluntary offset programs also do not address the specific jurisdictional rules for forest management on public lands that dictate project additionality and permanence. These aspects can only be defined by the regulatory authorities in the jurisdiction where the project resides. Voluntary offset project methodologies are written more generally to focus on quantification of emission sources and sinks.

Table 1 – Voluntary offset standards with forest-related carbon offset protocols

Conclusion

In this blog, we discussed forest carbon offset initiatives in the US state of California; in Australia and New Zealand; and in voluntary offset programs. California, Australia and New Zealand provide insight into approaches to additionality and permanence in regulatory systems. The voluntary market is more relevant for corporate offset purchasers looking to make progress against GHG targets. Forest carbon offsets from voluntary markets can typically be purchased at a lower cost than credits from regulatory markets. Unlike forest carbon developed on public lands, most voluntary credits are developed on private lands and therefore are not faced with the same ownership complexities ^[14]. However, these credits have much higher heterogeneity than regulatory credits. Buyers need to understand the differences between credits to ensure there is a rigorous approached to quantification, additionality, permanence, and verification ^[15,16]. Make sure you know what you’re buying and undertake rigorous due diligence. With high-quality credits, corporations can make meaningful progress towards emissions reduction targets.

References

1. https://blog.frostbyteconsulting.com/sustainability-in-the-spotlight-is-your-company-ready
2. https://static1.squarespace.com/static/5d0a2bfbb7222000014fe2bf/t/5d35a8d7a56d230001c97c1d/1563797729929/Crown+and+Carbon.pdf
3. https://blog.frostbyteconsulting.com/forestry-offsets-in-bc
4. https://mailchi.mp/f5d174dabaf7/reduce-climate-related-financial-risk-with-offsets-forestry-offsets-in-alberta
5. https://ww3.arb.ca.gov/cc/capandtrade/offsets/offsets.htm
6. https://www.jstor.org/stable/44135349?seq=1; Gould, Karen, Monique Miller, and Martijn Wilder. "Legislative approaches to forest sinks in Australia and New Zealand: working models for other jurisdictions?." Climate Change and Forests: Emerging Policy and Market Opportunities. London: Chatham House (2008).
7. https://www.climateactionreserve.org/how/protocols/
8. http://www.climateactionreserve.org/climate-forward/fmus/
9. https://verra.org/methodologies/
10. https://verra.org/methodology/vm0034-british-columbia-forest-carbon-offset-methodology-v1-0/
11. https://americancarbonregistry.org/carbon-accounting/standards-methodologies/approved-methodologies
12. https://cdm.unfccc.int/methodologies/index.html
13. https://www.goldstandard.org/sites/default/files/guideline-methodology-approval-process.pdf
14. https://blog.frostbyteconsulting.com/forestry-offsets-in-canada
15. https://blog.frostbyteconsulting.com/reduce-climate-related-financial-risk-with-offsets-basic-criteria-for-offset-project-eligibility
16. https://blog.frostbyteconsulting.com/reduce-climate-related-financial-risk-with-offsets-nature-based-carbon-offset-considerations

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