Leakage Accounting in Forestry and Agriculture

1. Leakage Accounting in Forestry and Agriculture Gordon Smith April 6-9, 2009 5th Forestry and Agriculture Greenhouse Gas Modeling Forum Shepardstown, West Virginia

2. Outline • Concepts, current practice & offset supply implications • Needed research and modeling

3. Outline • Concepts, current practice & offset supply implications • Needed research and modeling

4. Leakage definition • Displacement of emissions from project area to outside project acrea • Kyoto accounting: Increased emissions within the project boundary • Caused by project activity

5. Cause of leakage • If a project reduces supply of a good without reducing demand, the market will replace much of the lost supply • Leakage greater for smaller projects because no price increase decreasing consumption • If replacement supply creates new emissions, leakage occurs • Emissions per unit of production may be higher, lower, or same as pre-project emissions

6. Factors affecting leakage rate • Project type/activity • Project location • GHG accounting rules • Project size • External economic changes • Example: FASOM GHG shows US forest management large sink or source across recent variation in agricultural product prices

7. Leakage by activity: Agriculture • Plowing to no-till: Little or none • May reduce yield in some situations, displacing production • Reducing fertilizer use: Little or none • May reduce yield, displacing production • Changing fertilizer use: None (possibly positive?) • Changing manure management: None

8. Leakage by activity: Forestry • Avoided deforestation: High • Forest management: Depends • Generally high if reduces harvest • May only shift emissions in time • May be negligible if harvest maintained • Afforestation: Depends • Significant if causes clearing elsewhere • May be negligible if combined with forest management* • *EPA. 2005. Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture, EPA 430-R-05-006.

9. Current treatment of leakage • Econometric estimates with cross-sectoral interactions (EPA Climate Leaders) • Address specific activities (CDM) • Ignore (1605(b), RGGI) • State that should be dealt with, but give no guidance (CCAR) • Assign flat rate (VCS)

10. Leakage varies by program Florida afforestation example

11. Rules affect offset supply • Reducing number of offsets credited increases cost of creating each offset • Want policies to make actors responsible for their actions • Credit actual GHG benefits • Don’t credit actions without GHG benefit

12. When GHG benefit occurs • Current rules credit forest rotation extension with GHG benefit as carbon stock increases within project boundary • Leakage indicates GHG benefit occurs when harvesting resumes • Credit actual GHG benefits • Don’t credit actions without GHG benefit

13. Credit timing effect Florida: extend pine rotation 20 to 35 years 6% discount rate

14. Policy recommendations • Assign low-leakage activities zero leakage rate • No-till, fertilizer N2O, manure management • Deforestation fee (not offsets) • Applies to all conversions, including small areas • Fee set according to average carbon stock, by potential forest type and site productivity

15. Forest management • Determining project additionality and baseline is problematic • Modeled baseline depends on wood product prices • Cap sector, not voluntary opt-in • Baseline can be set at average carbon stock by forest type and site productivity, avoiding problems of modeling profit-maximizing management • Avoids additionality and leakage problems • Smaller ownerships more likely to sequester; need to identify how small to set property size threshold for inclusion in cap

16. Policy recommendations • If forest management is capped, can assign afforestation zero leakage • Rewards entities that do good • If no cap on forest emissions, more research is needed…

17. Outline • Concepts, current practice & offset supply implications • Needed research and modeling

18. Forest management research • US mapping of potential forest type and site productivity • Quantification of average carbon stocks, by forest type and site productivity • Tool for overlaying map and land parcel boundaries to set baseline for each ownership

19. Forest management research 2 • Decadal variation in C stocks at property scale, relative to average • How long and how far do C stocks go below average because of normal harvest, and how does this vary by ownership size? • Natural disturbance • How many ownerships go below average C stock because of natural disturbance, how far, and how does this vary by ownership size?

20. National-scale monitoring • Needed for REDD • Terrestrial C quantification protocols • For all land cover types • Must detect small % change • Must be repeatable • Must be do-able by developing countries • Desirable to be compatible with developed country methods

21. “Factoring out” • Can carbon effects of natural disturbance be separated from effects of human actions? • Used retrospectively to determine compliance with REDD & A1 targets • Use to allocate REDD payments between entities that control lands and national governments • At minimum, inventory “unmanaged” forest

22. Global modeling • How comprehensive must accounting be to avoid having to estimate leakage? • What other sectors should be addressed to limit leakage? • Which countries (for international leakage)?

23. Comprehensive accounting • What land types must be counted to get realistic counts? • Peat estimated to be 6% of global emissions: how measure area and depth of loss? • Develop inexpensive protocols for non-forest lands • Avoid things like recent Russian claim of a new billion ton sink

24. REDD program design • What are effects of alternative consequences for later reversal of REDD? • Cost in tons of emission • Cost in dollars to meet net emission target

25. Program evaluation • What REDD programs work, and why? • Do soil protection programs enhance soil carbon stocks? • Do educational programs affect GHG emissions? • No-till, fertilizer management, water management

26. Model calibration • What is correlation between actual behavior and profit maximizing behavior? • Necessary for constructing mitigation supply curves

27. Most important needs • Support comprehensive GHG accounting • Methods for counting, esp. non-forest lands • Volatility of fluxes • Address fears of cap on forests • Which landowners have deficits from natural disturbance, and for how long? • Show banking can cover normal management • Climate feedbacks on unmanaged forest • REDD: effects of alternative consequences for reversals

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