Gordon Smith April 28-29, 2009 Biological 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 CO 2 e BAU gross global annual uptake by forests; Waxman-Markey 2012 goal: ~ 0.7 billion ton CO 2 e 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: rising

Declining baseline: REDD

Declining credits

Forest stocks change over time

Problems: afforestation Possible leakage Significant if projects cause clearing elsewhere May be negligible if combined with forest management incentives* or international REDD actions *EPA Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture, EPA 430-R

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 Measuring transnational leakage of forest conservation. Ecological Economics. 64:

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 LLC th Ave NW Seattle, WA USA Thank you