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When Is the Time to Enroll in a Forest Carbon Program?

Scott Nissenbaum, president of Finite Carbon Corporation

Regardless of what side of the heated climate-change debate you are on, a tidal wave of opportunity in forest carbon is quickly approaching.

Overseas carbon markets exceeded $120 billion1 in 2008. A bill recently passed in the U.S. House of Representatives (Waxman-Markey Bill) could create a carbon market worth more than $1 trillion2. With such a vast opportunity on the horizon, when is the right time to enroll in a forest carbon program? Each situation is unique; so, consider the following factors as you make the determination for your property.

Economic Rewards

First, consider the economic rewards. At $6.50 per ton on the Climate Action Reserve (CAR) (as of August 2009), carbon revenues won't replace timber revenues but could make it profitable to extend rotation ages, expand buffer zones, and/or continue sustainable harvest practices, as all three of these actions might qualify for carbon offsets.

The economics become even more compelling when you consider the Congressional Budget Office's estimate that carbon prices will triple during the next 10 years3. The U.S. Energy Information Administration goes even further, predicting that by 2020, the price of carbon will range from $19.90-$93.30.

Restrictions on Property

Next, consider the restrictions that a forest carbon project can place on the property and the approval process. In its recent update, CAR revised its rules to remove more onerous requirements, such as permanent conservation easements, and although a project is expected to last 100 years, landowners can opt out of the program at any time via a buyout option.

The approval process to qualify and sell carbon offsets has seven steps:

  • Complete a forest carbon inventory
  • Select appropriate registry/protocol (e.g., CAR, VCS, or CCX)
  • Translate inventory into carbon model and management plan
  • Prepare and submit project plan to chosen carbon registry
  • Once plan is accepted and registered, hire third-party project verifier
  • Submit project verification to registry and receive allocation of carbon offsets
  • Market and sell carbon offsets directly or engage top brokers to broaden sales process

Time and Costs

Of concern to some landowners is the time and cost for approval of carbon offsets. For example, the process for the CAR protocol is estimated to take an average of six months and cost more than $100,000 -- when you add up the carbon inventory, carbon modeling, regulatory filings, third-party verification costs, registration fees, and brokerage fees. Fortunately, firms with expertise in forest carbon can assist larger landowners as they navigate the process. Smaller landowners with acreage under 1,000 acres can enroll in such alternative programs as the Chicago Climate Exchange (CCX) or wait for aggregation rules under CAR.

Liquidity

Liquidity of the carbon offsets is another critical factor. Buyers, such as large power companies, multinational firms, and even hedge funds, are stocking up on offsets before the expected price increase. Even in today's stressed economy, demand for quality carbon offsets greatly outstrips the supply. With such an imbalance, many sellers struggle with the decision to sell now or to "bank" credits until mandatory compliance drives prices higher. Brokerage firms can create added liquidity but can charge up to seven percent of the sale price.

Eligibility

The final factor to determine is eligibility. The definition of an offset has changed over the years, and the heated debate in the U.S. Senate promises additional changes. A landowner's ability to qualify can be a moving target from year to year, but one thing not expected to change is the right for state-sponsored protocols, such as CAR, to grandfather credits. This means credits approved in line with current protocols will continue to be valid whether or not the project meets future requirements under federal regulation. For some, now may be the only opportunity to enroll.

Enrollment in a forest carbon program can present a multi-million-dollar opportunity. The factors that determine the timing of enrollment may seem like an ever-changing landscape, but getting the timing right could be the difference between sitting on a pile of carbon profits and just sitting. One thing is certain -- the opportunity is worth investigating.

Scott Nissenbaum is the president of Finite Carbon Corporation, which uniquely pays for forest carbon project expenses in exchange for a share of credits. He can be reached at 1-877-9CARBON or snissenbaum@finitecarbon.com.

 

1 According to New Carbon Finance press

release dated April 27, 2009

2 U.S. Commodities Futures Trading Commission

3 http://www.cbo.gov/ftpdocs/102xx/doc10262/hr2454.pdf

 

 

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