Forestry: Additionality and Baselines

1. Forestry: Additionality and Baselines Gordon Smith April 28-29, 2009 Biological Sequestration through Greenhouse Gas Offsets: Identifying Challenges and Evaluating Potential Solutions Washington, DC

2. Outline • Global context • Concepts • Current problems • Possible solutions

3. 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

4. Total flux >60 bn tons C/year

5. 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

6. 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

7. Crediting baseline: rising

8. Declining baseline: REDD

9. Declining credits

10. Forest stocks change over time

11. Forest stocks change over time

12. 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.

13. 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

14. 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

15. 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

16. 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.

17. 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

18. Solutions: deforestation • Require projects to maintain supplies of goods, to avoid leakage • Deforestation fee (not offsets) • No net forest loss policy

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. Landowner fears • High reporting cost • Confidentiality • Will have to pay to log • Will pay for fire emissions • Long rotation mandate

26. 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

27. 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?

28. 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

29. 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

30. 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?

31. 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

32. Thank you Gordon Smith Ecofor LLC 206.784.0209 13047 12th Ave NW Seattle, WA 98177 USA