Preparing for the Carbon Market: Forestry Offsets Linc Cannon Oregon Forest Industries Council April 21, 2009 Where are the State and Federal Policies.

Preparing for the Carbon Market: Forestry Offsets

Linc Cannon

Oregon Forest Industries Council

April 21, 2009

Where are the State and Federal Policies on Forestry Offsets Headed? What is Coming Over the Horizon?

“In the long term, a sustainable forest management strategy aimed at

maintaining or increasing forest carbon stocks, while producing an annual

sustained yield of timber, fibre or energy from the forest, will generate the largest

sustained mitigation benefit.”

From: Forestry. In Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer (eds)], Cambridge University

Press, Cambridge, United Kingdom and New York, NY, USA.

IPCC 4th Assessment Report (2007)

Put another way…

Sustainable Forest Management can best contribute to reduction of atmospheric carbon by:

• Maintaining Forest Stocks– Keep Forestland in Forest Use– Reforestation

• Increasing Forest Stocks– Afforestation– Active Management to Increase Growth Rates– Rotation Age

• Sustainable Production of:– Forest Products– Bioenergy, biofuels, biochemicals

How it all fits together:Managed Forest Carbon Effects

How it all fits together:Forest Carbon Effects

Wood Product Life Cycle (from CCAR)

Forest

Green Bldg

Landfill

Energy

Harvested wood product

Short- -term wood products

Mill

Landfill

Long-term wood products

BiomassSubstitution

Imported wood product Recycling

http://www.climateregistry.org/resources/docs/protocols/agendas/CCAR_Workshop_February3.ppt

Private Forest Carbon Reduction (Offset) Opportunities

• Keep Forests in Forest Use (avoided conversion)

• Afforestation Conservation Forests (longer rotation) • Forest Management (reforestation, increased yields)

• Forest products and landfill • Bioenergy & biofuels (renewable energy credits/green tags)

• Energy substitution (green building)

• Cobenfits?

• Federal Forests – Avoided wildfire emissions– Feedstock for bioenergy & biofuels– Increased sequestration from active management

The Multi-Billion Dollar Question!

Will Private Forests Managed for Sustainable Wood Production Get Credit (Offset Payments) for Their

Contributions to Reducing Atmospheric Carbon??

Cap & Trade - Forestry Offsets

• Regions•Regional Green House Gas Initiative (RGGI)•Midwest GHG Reduction Accord•Western Climate Initiative (WCI)

• States•California•Washington•Oregon•Utah

• Federal

U.S. Regional GHG Reduction Initiatives

Regional Greenhouse Gas

Initiative

RGGI

RGGI

• First mandatory, market-based effort in the United States to reduce GHG emissions.

• Cap and then reduce CO2 emissions from the power sector 10% by 2018.

• Compliance obligations begin in 2009

• Sell emission allowances through auctions

• 2nd Auction – 12/17/08, 31.5 million allowances @ $3.38 = $106.5 million

RGGI Forestry Offsets

• Draft Recommendations (May ‘08)– Conservation & Managed Forests

• FIA Average Regional Inventory Baseline

– Forest Products • Above Business As Usual “BAU”

– Biomass Plantations• Displace Fossil Fuel Use

– No Avoided Deforestation

– NOT included in Dec ‘08 Model Rule• Afforestation only, permanent easement

Western Climate Initiative

WCI

WCI Recommendations (Sept 2008)General

Regional cap and trade program framework

WCI ONLY recommends,

it’s up to states/provinces to adopt!

• Phase 1 takes effect in 2012

• Phase 2 takes effect in 2015

WCI Recommendations (Sept 2008)Offsets

Offsets = Emission reductions outside the cap

• Limited to no more than 49% of total emissions reductions from 2012 to 2020

• Priority offset types for investigation– Agricultural – Forestry – Waste management

WCI Recommendations (Sept 2008)Key for Forest and Forest Products

• Forestlands are not included under the cap

• Carbon neutral biomass emissions – determined by each state

• Cogeneration unresolved

• Biofuel exempt, with possibility that upstream emissions could still be counted

• Priority consideration for Forestry offsets

• WCI Offsets Working Group

WCI Work Plan (Feb 2009)

Offset Protocols (Ag, Forestry, Urban Waste)• Forestry Offset Types to be Evaluated

– Afforestation– Reforestation– Forest Management– Forest Preservation/Conservation– Forest Products– Urban Forestry

“The Committee will aim to identify those stakeholders with knowledge, experience and resources to be directly

involved in the appropriate protocol task teams”

California

California

• AB 32 (2006) Mandates– 1990 GHG emissions levels by 2020– 80% reduction from 1990 levels by 2050

• California Air Resources Board (CARB) adopts AB 32 Scoping Plan on December 11, 2008– identifies cap and trade program as one of the main

strategies to reduce GHG emissions– Must adopt cap and trade regulation by Jan 1, 2011– Program begins in 2012– Rule development coordinated with WCI timeline

California Climate Action Registry Climate Action Reserve

What is the Climate Action Reserve?

•CCAR program to register and track carbon offset projects throughout the U.S.

•Established as its own name, but co-branded with CCAR

•Intended to be the premier place to register carbon offset projects for North America (VCS approved)

•Until now, U.S.-based projects only

•Expanding to Mexico and Canada

California Climate Action Registry Climate Action Reserve

Draft Forest Project Protocols (Dec 2008 & Jan 2009)Eligible Forest Project Types

• Afforestation

• Improved Forest Management– Natural Forest Management Practices

• Mixed native species, multiple ages, multiple scales – Baseline

• BAU regulatory baseline modeled on forest practices regulations• Reference is FIA average mean stocking

– Additionality is above and beyond Business as Usual (BAU) – Allows limited credit for harvested wood products– Minimum 100 year duration – No credit for wood in landfills

• Avoided Conversion– Immediate site specific threat– Conversion uncertainty discount

California Climate Action Registry (CCAR)

Forest Protocols Process/Timeline Original protocols recognized afforestation and

conservation forestry project types

Draft Revised Forest Project Protocols (December 2008)

Public workshop on wood products quantification and other miscellaneous items on February 3, 2009.

Additional two week public comment period to address wood products or other protocol issues. Concluded on February 20, 2009

Final draft delivered to CCAR on March 8, 2009

• Final Forest Project protocol to CCAR Board in April 2009

Washington

WashingtonHouse Bill 2815 (2008)

• GHG Emission Reduction Targets– 1990 GHG emissions levels by 2020– 80% reduction from 1990 levels by 2050

• Directs the Department of Ecology to develop and implement a program to limit statewide greenhouse gas emissions.

• Authorizes a reporting system to monitor greenhouse gas emissions.

• Directs the Department of Ecology to develop a design for a regional multisector market-based system to limit and reduce greenhouse gas emissions, in coordination with WCI.

• Climate Advisory Team to provide a report to the Legislature by December, 2008

Washington

Forest Sector Workgroup On Climate Change Mitigation - HB 2815 (2008)

Diverse Stakeholder Group, Consensus Process, DNR/DOR Report (December

• Priorities– Conversion– Active Forest Management/Harvested Wood Products– Afforestation/Reforestation– Substitution– Avoided Emissions– Biomass Energy

WashingtonReport – Forest Sector Workgroup On Climate Change Mitigation (Dec 2008)

• Avoided Conversion– Cluster development (w/ permanent easement)– Transferable Development Rights (TDRs)

• Urban Forests• Forest Management

– Offsets Beyond BAU• Include Harvested Wood Products• Exclude wood in Landfills

– Non-offset Carbon Storage Incentives• Funded by carbon auction revenues• Revisit if not created or appropriately funded• Can recognize co-benefits

Washington

• Washington state Governor Chris Gregoire told reporters in Washington D.C. on February 23 she hopes her state will pass a bill setting a mandatory cap on greenhouse gas emissions and enabling it to participate in emissions trading in the Western Climate Initiative (WCI).

• Gregoire has warned that it would not bode well for other WCI states if the Democratic-controlled Washington legislature fails to pass the bill.

• “If I can’t get the job done I fear we will have others that can’t. That’s why failure is not an option for us.”

WashingtonHB 1819 (2009)

• Authorizes the Department of Ecology to create an allowance trading program.

• Creates a cap-and-trade work group.• Creates criteria for the cap, allowances, and offsets.• Specifies the emissions covered in the allowance

trading program.• Requires the Department of Ecology to develop a

design for the auctioning of the state's allowances.• Sets compliance obligations and penalties.• Creates the Climate Protection Account.• Sets reporting requirements for fuels.• Is Dead…

SB 5735 (2009)

• Functionally caps emission from the only coal plant (Transalta) in Washington

• Allows use of offsets (up to 49%) to meet emissions reductions requirements

• 14 page bill, 1/3 dealing with forest offset language.

• Study and make recommendations

Oregon

Oregon HB 3543 (2007)Global Warming Strategy

• Carbon emissions reduction goals:– 10 percent below 1990 levels by 2020– 75 percent below 1990 levels by 2050

• Examine cap and trade systems

• Develop strategy for educating the citizens

• Track economic, environmental, health, and social impacts

Oregon

• Global Warming Commission– Natural Resources Committee

• Forestry Subcommittee

• Forest Carbon Stakeholders Group (facilitated)

• Woodlands Carbon Company• SB 80 (2009) – DEQ Cap and Trade• HB 2186 (2009) – DEQ Alternative

Measures• Oregonians for A Balanced Climate Policy

– Balanced Carbon Reduction Act

Forest Carbon Stakeholder Group Comments to WCI – July 2008

“Our deliberations have led us to believe that a properly structured forest carbon offset program can provide significant

ecological, social, and economic benefits in addition to offsetting GHG emissions…”

American Forest Resource Council – Associated Oregon Loggers – Boise Cascade - California Forestry Association - Defenders of Wildlife -

Ecotrust - Forest Capital Partners - Lone Rock Timber Company – Oregon Forest Industries Council – Oregon Small Woodlands Association -

Oregon Woodland Cooperative - Roseburg Forest Products – Mark Copeland - The Collins Company - The Conservation Fund –

The Nature Conservancy in Oregon – Washington Forest Protection Association – Weyerhaeuser Company

From Governor Kulongoski’s testimony at the February 5th hearing on SB 80

Over the last year I have – like you – been listening to those still in denial who argue that SB 80 is not the right approach to address the issues around CO2 emissions.  Their answer to the climate change debate has been to promote fear and confusion …  They argue against a cap and trade and other parts of this proposed package by claiming now is not the time to make significant changes with a fragile economy, or let the federal government deal with this issue….   You may recall that the same coalition of Salem Beltway naysayers made similar arguments about the Renewable Portfolio Standard bill in the 2007 session…

American Chemistry Council -- American Forest and Paper Assn -- Associated Oregon Industries -- Associated Oregon Loggers -- Building Owners and Managers Association -- IBEW Local 48 -- Industrial Customers of NW Utilities -- Oregon NFIB -- Northwest Food Processors Assn -- Northwest Industrial Gas Users -- Northwest Propane Gas Assn -- Northwest Pulp and Paper Assn -- Oregon Association of Realtors -- Oregon Cattlemen’s Association -- Oregon Dairy Farmers Association -- Oregon Farm Bureau -- Oregon Forest Industries Council -- Oregon Home Builders Association -- Oregon Metals Industry Council -- Oregon Refuse and Recycling Assn -- Oregon Rural Electric Coop. Assn -- Oregon Seed Council -- Oregon State Building Trades Council -- Oregon Trucking Associations -- Oregon Wheat Growers League -- Oregonians for Food and Shelter -- Umatilla Electric Cooperative

Oregonians for Balanced Climate Policy

SB 80/HB 2186 Metamorphosis

• Cap and Trade

• Hard Cap (no trade)

• Hard Cap (with offsets)

• Hard Cap (with off ramps)

• Soft Cap??

SB 80 Messages- April 21, 2009

• Legislature needs to slow down harmful and costly climate change legislation. Oregon cannot solve global climate change on its own.

• The U.S. EPA recently classified carbon as a harmful pollutant. The federal government is taking steps now to press for carbon reductions.

• Utilities estimate that to meet the pie-in-the-sky carbon reduction goals in SB 80, it would cost nearly $17 billion in higher electricity costs--$12.5 billion for PGE and $4.5 billion for PacifiCorp. Oregonians cannot afford increased costs, which result in lost jobs and higher unemployment.

• Legislators should not leave major climate change policies in the hands of state agencies. They need to have all the proposals on the table, and know all the costs and benefits before making a decision. Elected officials should set economic policy, not unaccountable bureaucrats.

• We should not fund large, new state programs at the expense of existing programs that protect our air and water.

• The federal government is moving ahead quickly on climate change. Oregon should find out how it can benefit from a program like this before jumping head first into a duplicative and costly program.

Oregonians for Balanced Climate Policy

Oregonians for a Balanced Climate PolicyAlternative Legislative Proposal

“Balanced Carbon Reduction Plan of 2009”

Electric Sector Alternative (PUC)

Forest and Agricultural Offsets

Emissions Performance Standards

Transportation Sector Alternative

Alternative Measures

Woodland Carbon Company• An aggregation organization providing access

to the Chicago Climate Exchange for certified members of the American Tree Farm System in Oregon.

• One of three National Tree Farm pilot programs that will be established in 2008 as models for other Tree Farm organizations that wish to enter the forest carbon market.

• WCC will operate as a sub-aggregator to the National Carbon Offset Coalition (NCOC) that will bring aggregated pools of eligible forest projects to the Chicago Climate Exchange (CCX).

Utah

Utah “Beltway Naysayers”

• HR3, a non-binding resolution urging Gov. Jon Huntsman Jr. to withdraw Utah from the multistate Western Climate Initiative cleared Utah’s House on Tuesday, February 24, 51-19.

• Sponsor Rep. Mike Noel, R-Kanab said the measure would send a message to Utah’s chief executive that he overstepped his bounds by participating in energy policy that could affect the economic health of many of the state’s businesses.

National

Chicago Climate Exchange - CCX

• North America’s only greenhouse gas (GHG) trading system.

• Launched in 2001. Modern web-based trading platform.

• Only Members can buy and sell on CCX.• Trading launched in 2003; Currently trading

emissions dated 2003 through 2010.• Trading rules managed by expert committees

drawn from CCX members.• Info at www.chicagoclimatex.com

CCX Forest Offset Project Types

• Afforestation – Planting trees on land that has not been in forest for the previous 10 years or more. A land use change that creates new forest lands.

• Reforestation – Planting trees on forest land where the forest was destroyed and is not naturally regenerating.

• Sustainable Forest Management – Changing forest management so as to increase forest biomass and retain it for long periods.

• Harvested Wood Products – Credit for the amount of wood that will remain in use or in landfills 100 years after it is harvested.

National

• President Obama’s 10-year budget plan includes $645 billion from 100% auction of GHG allowances (2012-2020) in a national cap and trade program.

• Cap and Trade Legislation this year?– Waxman/Markey is currently in markup – House Energy Chair Waxman wants a bill out

of Committee by End of May– Senate Environment Chair Boxer is drafting

bill, probably for consideration later this summer

Society of American Foresters

Preferred Forest Offsets Policy Options for a national carbon trading program

• Afforestation. Planting trees on suitable land that has been in another land use for 10 or more years (including riparian forests, windbreaks, mined land reclamation, etc.).

• Reforestation. Planting trees on former forestland where forests damaged through natural events have not begun to regenerate after two years.

• Forest management. Managing forests sustainably under either a sustainable forest management standard or other suitable criteria

• Forest products. Providing credit for the carbon that remains out of the atmosphere in harvested forest products at the end of 100 years. Carbon credit values and their assignment can be determined between a landowner and a timber buyer via contractual arrangements.

• Forest conservation. Protecting forests from land-use change with conservation easements, contracts, or other legal instruments

American Forest Foundation (AFF)Forest-Climate Working Group (FCWG)

Begun in December 2007 to build consensus on how forests can play a meaningful role in addressing climate change.

Co-chaired by Drue DeBerry (AFF) and Jad Daley (the Trust for Public Land) it has broad representation from virtually all sectors of the forest community—the forest products industry, conservation and wildlife groups, foresters, private forest owners, academics, and carbon finance groups.

In order to build and achieve consensus, the organizations engaged in a series of Dialogues on forest-climate issues in 2008.

More info available at http://www.affoundation.org/ccs_carbon.html

Binational Forest Carbon Standards Committee (FCSC)

The Forest Carbon Standards Committee (FCSC) was formed by a binational group of stakeholders familiar with the suite of forest carbon offset protocols and standards that have been developed to date and the difficult issues that forest managers face in complying with the demands of emerging greenhouse gas emission programs.

Binational Forest Carbon Standards Committee (FCSC)

Their purpose is to develop and maintain consensus standards for the measurement, reporting, and verification of forest carbon emission reduction projects (e.g., offsets) under current and emerging greenhouse gas emission reduction programs in Canada and the United States.

Binational Forest Carbon Standards Committee (FCSC)

• Standards will be developed under American National Standards Institute (ANSI) accredited standards, efforts to be consistent with procedures of the Canadian Standards Association (CSA), an accredited standards development organization of the Standards Council of Canada (SCC)

• ANSI and SCC are the national standards accreditation

bodies for the United States and Canada respectively

• AF&PA is the Secretariat for the process. Other sponsoring organizations include the Society of American Foresters, the Forest Products Association of Canada, and the Canadian Institute of Forestry

Binational Forest Carbon Standards Committee (FCSC)

Members are drawn from three Interest categories:

• Producers – individuals or organizations that will use the proposed standard to guide the production, measurement, monitoring, and sale of forest carbon offsets

• Users – individuals or organizations that will use the proposed standard to verify, approve, register, broker, or purchase forest carbon offsets, or to establish public policy or rules that may refer to the standard

• General interest – individuals or organizations that have a direct interest in the environmental integrity and/or public interest impact of the forest carbon offsets produced under the guidance of the standard

Membership in the Committee has been chosen to be sufficiently diverse to ensure reasonable stakeholder balance without dominance by a single interest category

Binational Forest Carbon Standards Committee (FCSC)

The Committee will produce a standard (or set of standards) that will cover the various types of forestry projects that will be eligible to produce compliance-grade forest carbon offsets. Preliminary discussions identify those project types as:

• Afforestation • Reforestation• Forest Management• Forest Protection • Urban Forestry

Binational Forest Carbon Standards Committee (FCSC)

Four technical task committees:• Baselines, additionality • Permanence, Leakage • Quantification (Measuring, Monitoring,

Verification)• Sustainability, Co-Benefits, and Environmental

Impacts

An Integration Task Committee will: • Review Technical Task Committee draft

recommendations. • Prepare and integrated draft to be submitted to

the Committee for consensus consideration.

Binational Forest Carbon Standards Committee (FCSC)

Anticipated Timelines

• Initial Scoping Meeting Oct 23 & 24, 2008• Scope of Work Completed - January 2009• Task Committees named - February 1, 2009• Task Committee draft recommendations - April

1, 2009• Consensus process completed - July 1, 2009• Adoption process completed - September 1,

2009

Conclusion

States, regions, and countries are all trying to figure out how to reduce atmospheric carbon, primarily focusing on cap and trade mechanisms. The role forests play in sequestering carbon is understood and accepted, but whether or how that should be rewarded in a cap and trade program is not!

It’s complicated!

Thank You !Offsetting vehicle emissions with wood products…?

Linc Cannon

[email protected]

www.ofic.com