Frequently Asked Questions About Forest Carbon Offset Projects
- What is a carbon offset?
- Who buys carbon offsets?
- How do I determine if a carbon program is appropriate for my forestland?
- What does ARB require for a forest carbon project to be eligible?
- What kind of commitment is involved with a carbon project?
- Can I still harvest my trees during the contract period?
- What are the steps for L&C Carbon to evaluate project opportunities?
- What are the steps involved to bring a forest carbon project to the California compliance carbon market?
- What are the elements of a typical carbon transaction and how are offsets sold?
- Can the carbon contract ever be terminated?
- What happens if a natural disaster occurs and destroys part or all of my timber?
- What are additional landowner benefits (besides carbon) of implementing a project?
- Why should I enter the carbon market now?
- What kind of legal documents are involved?
A: A carbon offset is a reduction in emissions of one ton of carbon dioxide (CO2) to compensate for an emission made elsewhere. A carbon offset is a generic term for any tradable certificate or permit representing one ton of CO2.
A: California approved a Cap-and-Trade program that requires major carbon emitters in the state to reduce emissions or purchase carbon offsets to achieve a prescribed emissions limit. The program became operational January 1, 2013 and companies required to meet the cap are seeking carbon offsets from across the U.S. that meet the California Air Resources Board (ARB) requirements. Demand for carbon offsets, including forestry carbon offsets, is expected to grow rapidly in the coming years.
In addition, a voluntary carbon offset market exists and there are a variety of buyers of carbon offsets. However, the majority are private companies that are acting to improve the environmental impact of their activities. Buyers include large U.S. utility companies and Fortune 500 firms. For a partial list of voluntary carbon offset buyers, see the following websites:
A: The requirements to develop a forest carbon project encompass technical, economical and legal considerations. These parameters are designed to ensure that the resulting carbon offsets are real, measurable, verifiable (by a third party) and represent an environmental benefit that would not occur without the implementation of the project.
For many organizations, working with a carbon project developer can facilitate the evaluation and implementation of a carbon project. Based on a landowner’s values and objectives, L&C Carbon assesses forest carbon opportunities and their revenue potential in the context of the evolving market for carbon offsets. With this information, the landowner is in a better position to decide about proceeding with a project.
A: The basic eligibility requirements for a qualifying forest carbon project vary by project type. Certain forestland management activities are eligible to generate carbon offsets under the California program, including:
- Avoided Conversion (AC) of forests to non-forest uses
- Improved Forest Management (IFM)
The most common forest carbon offset project under the California program is Improved Forest Management (IFM). Landowners must meet the following basic management requirements to participate:
- Land management activities must comply with all federal, state, and local laws, regulations and ordinances; and deed restrictions
- Forest volume in the project area must be maintained or increase over the project life, except for unintentional decline due to a force majeure event (wildfire, windstorm, pest outbreak, etc.)
- Project lands must consist of a mix of native tree species
- Project lands must never have more than 40% of trees in age classes of less than 20 years old
- Clear-cuts cannot exceed 40 acres in size
A: The forest landowner commits to increase their forest carbon stocks above an agreed upon carbon stocking level for the duration of the project period. In summary, landowner carbon project commitments include the following:
- Increase overall project area carbon stocks over the commitment period.
- Follow the agreed to management plan, including planned timber harvests.
A: Yes. Forest management carbon projects involve the long-term forecast (20 to 100 years) of what you plan to harvest (the “project case”), versus what could be harvested under a business as usual or “baseline” case. As long as the overall carbon stocks increase over the project period, the project can include timber harvest.
A: L&C Carbon’s preferred approach is to work with foresters and land managers at your organization who understands the critical variables of your forestland base better than anyone (growth and yield, volume stocks, project acreage, etc.). These variables are of crucial importance to accurately assess carbon project opportunities.
L&C Carbon brings forestry carbon expertise to assist in the assessment of carbon offset potential, while working with your organization’s professionals. Both parties, working together, are better positioned to form an accurate picture of carbon offset opportunities.
The four steps in the L&C Carbon evaluation process are:
Step 1: The landowner representative signs a confidentiality agreement with L&C Carbon. This provides all parties protection when evaluating your proprietary records and inventory information. It also provides L&C Carbon security while we invest our company’s resources in an evaluation.
Step 2: L&C Carbon engages with your team to work through relevant forest resource information.
Step 3: L&C Carbon completes a preliminary analysis of carbon offset potential. The outputs are communicated via an evaluation report back to you for consideration and discussion.
Step 4: Together, we review the evaluation report. If you decide to proceed with a carbon project, commercial discussions are initiated with L&C Carbon. If you decide not to proceed with a carbon project, you have no obligation to L&C Carbon.
Step 1: List project with an ARB approved carbon registry
Step 2: Complete a tree inventory of the project area
Step 4: Analyze the inventory data and calculate the amount of available project carbon offsets
Step 5: Complete a verification of the available carbon offsets through a third party
Step 6: ARB approves the carbon project and offsets are issued to project account
Step 7: Once offsets are issued by ARB, the landowner can sell carbon offsets through a broker or work with CE2 Carbon Capital on offset purchasing options.
A: Carbon offsets are only awarded following a thorough evaluation by a third-party verifier. Third-party verifications must be completed once every six years at a minimum, however they can be done on a more frequent basis (annually). After completion of successful verification, carbon offsets are issued to the project owner’s account. The awarded offsets are termed “vintages” for the particular year that they were issued (for example 2012 Vintages, 2013 Vintages, etc.). Issued offsets can either be sold immediately after being awarded or held in the landowner’s account and sold at a future point in time.
A: Carbon contracts can be terminated by the landowner; however, there are penalties associated with doing so. Termination penalties are designed to ensure that any offsets issued are supported by real increases in carbon stocks on project lands.
A: Each year after the project is initiated, a certain percentage of the project’s carbon offsets are set aside in what is called a buffer pool, which is designed to cover unavoidable loses associated with natural disasters (e.g. hurricanes, wildfires, flooding, forest pest outbreaks). The size of the buffer pool is a function of the project’s specific risk rating. In the event that a natural disaster occurs, it is considered an unavoidable reversal and the buffer pool tons are used to compensate for the loss and the landowner has no additional obligation.
A: In addition to carbon revenue, a forest landowner will obtain valuable information about their forest land that can assist with natural resource assessments and timber management planning. Helpful information that is typically developed during a carbon project include:
- Forest inventory information including species, diameter at breast height, height, volume, forest health.
- Projection of future timber revenue and resources.
- Growth and yield of currently regenerating stands and their associated growth dynamics.
- Satellite imagery and GIS data of the forest land base in the project area.
A: Carbon revenue can be a source of supplemental annual income, in addition to timber revenue. Carbon markets are growing and new opportunities are developing rapidly. By entering the market today, a landowner can begin to generate new annual income sources and be in a position to realize additional value over time.
A: The common legal instruments involved in a forest carbon offset project are:
- Project development services agreement—which is a commercial contract between the landowner and the project developer that details the commitments and responsibilities of each party to the agreement. This agreement also spells out the commercial terms associated with the project (% carbon split, contract length, etc.).
- ARB Attestations—the State of California requires the landowner to sign attestations that affirm their statements about the project are true, accurate and complete. It also affirms that the landowner’s participation in the ARB program is voluntary, and that they agree to be subject to regulatory requirements and enforcement mechanisms of the California cap and trade program. The landowner also affirms that the project will be in regulatory compliance as part of the rules of the California cap and trade program.