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Title
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Eng
A Cost-Effectiveness Analysis of Managing Small Forestland for Carbon Credits and Timber
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Date
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2011
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Creator
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Eng
Rodrigues, Laysa L
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Subject
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Eng
Environmental Studies
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extracted text
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A COST-EFFECTIVENESS ANALYSIS OF MANAGING SMALL FORESTLAND
FOR CARBON CREDITS AND TIMBER.
by
Laysa L. Rodrigues
A Thesis: Essay of
Distinction Submitted in partial fulfillment of
the requirements for the degree
Master of Environmental Studies
The Evergreen State College
June 2011
© 2011 by Laysa L. Rodrigues. All rights reserved.
This Thesis for the Master of Environmental Study Degree
by
Laysa L Rodrigues
has been approved for
The Evergreen State College
by
________________________
Dr. Richard Bigley
________________________
Date
ACKNOWLEDGEMENTS
I thank Richard Bigley for finding the time and resources to help me develop and finish
this thesis with such quality. I also appreciate the support and editing efforts of Tyler
Bishop and Jessica Kennedy. This master thesis is dedicated to my parents who worked
hard to give me the opportunity of graduating with a master’s degree.
ABSTRACT
A COST-EFFECTIVENESS ANALYSIS OF MANAGING SMALL FORESTLAND
FOR CARBON CREDITS AND TIMBER.
Laysa Rodrigues
Western Washington forests are amongst the most productive in the world storing high
contents of carbon. Small private forest owners hold about 4 million acres of these
productive forests playing a significant role in expanding carbon sequestration strategies.
These landowners could participate in carbon markets if they manage their stands to store
more carbon. However, their participation can be limited by high transaction costs and
low carbon prices. This thesis estimated carbon credits and timber revenue within
different management strategies that thinned, clear-cut and did not harvest. The revenue
was compared throughout the 100 year contract period required by CCAR and NW
Neutral® using a cost-effective analysis. Results were reported in nominal values and
discounted values, which made a significant difference. The traditional strategy of clear
cutting on 40 years rotation is still the most profitable, unless carbon prices are over
$100. Transaction costs of CCAR and NW Neutral ® did not prevent forest owners from
profiting when credits cost a minimum of $5, but revenue was very low.
Table of Contents
1. INTRODUCTION ................................................................................................................... 1
2. CONTEXT ............................................................................................................................... 4
2.1 Forest ecosystems and carbon ................................................................................................ 4
2.2 Washington State forests....................................................................................................... 4
2.3 Washington State small forestland owners ............................................................................ 6
2.4 Carbon markets ...................................................................................................................... 9
2.4.1 Emerging markets ............................................................................................................... 9
2.4.2 The role of offsets ............................................................................................................. 11
2.5 Land management for forest offset projects ........................................................................ 11
2.6 Transaction costs.................................................................................................................. 14
3. METHODS ................................................................................................................................... 17
3.1 Study site.............................................................................................................................. 17
3.2 Biomass inventory ............................................................................................................... 17
3.2.1 Manually Calculated biomass inventory ........................................................................... 19
3.4 Forest modeling for 100 years ............................................................................................. 23
3.4 Determining Baseline........................................................................................................... 23
3.5 NW Neutral® & CCAR transaction costs ........................................................................... 23
3.6 Calculating carbon credits.................................................................................................... 23
3.7 Timber and carbon price long-term forecast ........................................................................ 24
3.8
Cost-effectiveness analysis ............................................................................................ 25
4. RESULTS .............................................................................................................................. 26
4.1 Biomass inventory and carbon report .................................................................................. 26
4.1.1 Hand calculated carbon inventory..................................................................................... 26
4.1.2 FVS biomass inventory ..................................................................................................... 27
4.2 Diverse management options of carbon storage and timber harvest.................................... 28
4.3 Transaction costs.................................................................................................................. 35
5. CONCLUSIONS ............................................................................................................................ 37
6. DISCUSSION................................................................................................................................ 39
REFERENCES .............................................................................................................................. 41
APPENDIX 1 .................................................................................................................................... 47
iv
List of Figures
Figure 1: Total aboveground biomass stored in live trees in Washington forests divided by
ownership ................................................................................................................................. 6
Figure 2: Percentage of forest land area in Washington, by owner group, 2002–2006. .......... 7
Figure 3: Number of family owned forests distributed by property size in hectares. .............. 7
Figure 4: Comparison of C stocks in Aspen stands in Michigan under a 30 and 50 years
rotation. ................................................................................................................................. 13
Figure 5: Comparison of C stocks in an Aspen stand with different treatments: a 50 year
clear-cut rotation and sustainable management harvesting 20% of volume every 10 years
(called new strategy in the graph) .......................................................................................... 14
Figure 6: linear regression of Douglas-fir DBH and height. .................................................. 19
Figure 7: total non-soil carbon stocks over 100 years............................................................ 28
Figure 8: total non-soil C stock over 100 years when 10% of the stand was thinned from
below in 2011, 2051 and 2091 ............................................................................................... 30
Figure 9: total non-soil carbon stock over 100 years under management option 3 (20%
thinning) ................................................................................................................................. 32
Figure 10: total non-soil c stocks when harvesting timber and joining NW Neutral® ......... 33
Figure 11: total non-soil carbon stock over 100 years under 40 years clear-cut rotation ...... 34
Figure 12: comparison of total C non-soil across all the management options .................... 34
v
List of Tables
Table 1: Costs related to generating forest offset credits. ...................................................... 15
Table 2: Biomass equations from BIOPAK ........................................................................... 20
Table 3: biomass equations developed by Jekins et al (2003) ............................................... 21
Table 4: wood density for each species decay class. ............................................................. 22
Table 5: trees and carbon contents distributed per plot.......................................................... 26
Table 6: FVS carbon report for the study site ........................................................................ 27
Table 7: Steps to determine the number of carbon credits issued by participating in the
CCAR when no harvest occurs .............................................................................................. 29
Table 8: NW Neutral credits accounting................................................................................ 29
Table 9: steps for calculating C credits issued by CCAR for management option 2 (10%
thinning) ............................................................................................................................... 311
Table 10: steps for calculating C credits issued by CCAR for management option 3 (20%
thinning) ................................................................................................................................. 32
Table 11: Annual membership fees: ...................................................................................... 35
Table 12: expenditures required from forestland owners to sell carbon credits in the NW
Neutral ................................................................................................................................. 355
Table 13: CCAR transaction costs ......................................................................................... 36
Table 14: Revenue comparison in USD$ between carbon markets and management
strategies. ............................................................................................................................... 38
Table 15: converting from metric to English units................................................................. 47
vi
1. INTRODUCTION
Meeting the challenge of global warming will require innovation in both natural
resources management and business strategy. This thesis explores the intricate ties
between alternative forest management and the options small landowners must consider
to participate in emerging carbon credit markets. Carbon markets represent a potential
alternative income stream that may match the management objectives of many small
private land owners in Washington State.
Climate change is a phenomenon caused by the accumulation of greenhouse
gasses (GHG) in the atmosphere emitted by anthropogenic activities (IPCC, 2007).
Increases in population, industrialization, consumption and urbanization are keys to the
rising emissions. The current level of carbon dioxide (CO2) and equivalent gases in the
atmosphere is 380 million tons (IPCC, 2007). GHG are particles able to trap solar rays
(heat) that bounce back to the atmosphere after hitting Earth’s surface. GHG trap the heat
that otherwise would escape the atmosphere. Climate change has been proven to affect
the biosphere in many ways, some of which may be irreversible (Bloom, 2010). The
Earth’s most unbalancing source of CO2 emissions comes from the anthropogenic use of
fossil fuels. Deforestation and decay of biomass come in second being responsible for
17.3% of emissions (IPCC, 2007).
Citizens and governments are aware of the possible negative impacts climate
change can cause, and have been trying to cut back their emissions, or invest in offset
projects that sequester or avoid emissions of GHGs. For this reason, since 1990, many
countries and municipalities have signed the Kyoto Protocol, while others are
participating in volunteer markets or regional obligatory trading schemes. Emission
trading schemes have motivated landowners to develop offset projects using their land.
Forestry offsets can play a significant role in these markets because forests store
significant amounts of carbon.
The plants and soil on Earth contain more than 3 times the carbon (C) than what is
currently in the atmosphere. About half of this carbon is stored in forest ecosystems
(IPCC, 2007). When climate change issue is in the spotlight, forests are seen more and
more as part of the solution to slow down the fast pace of rising temperatures. Forest
1
ecosystems can reduce net C by sequestering CO2, or increase net C through
deforestation and natural disturbances. For this reason, sustainable management and
deforestation reduction have been the focus of many studies and strategies.
Carbon trading schemes have also included forests in their protocols as to avoid
emissions from deforestation and as carbon sinks. The intention of forestry offset projects
is to reward landowners who change their land management in order to sequester
additional carbon. However, the income generated from the sale of carbon credits vary
considerably according to protocols (Pearson et al., 2008, Galik et al., 2009). Moreover, it
may not be profitable for small landowners to join carbon markets due to high transaction
and participation costs (Galik et al., 2009).
High transaction costs can prevent small forest owners to participate in carbon
markets, which could decrease carbon sequestration. This is particularly significant for
the state of Washington where 4 million forested hectares are divided into small parcels
belonging to different owners. Western Washington forests are highly productive and
great carbon sinks. Thus, if western Washington small landowners willing to participate
in carbon markets are left out because of high transaction costs, it may represent a
structural problem in these markets’ protocols.
This thesis examines the costs for small forest owners to get credits for forestry
projects under the California Climate Action Registry (CCAR) protocol and NW
Neutral®, and compares income opportunities from different management strategies.
These markets are significantly different and are accessible to Washington’s forestland
owners. Costs will be estimated as an independent project, rather than aggregated.
Revenue will be compared for 5 different forest management options: (1) unmanaged
forest with natural forest dynamics and no timber harvest, (2) thinning of 10% of the
basal area from below in 40 years cycle, (3) thinning of 20% of the basal area from below
in 40 years cycle, (4) harvesting surplus carbon when the stand is enrolled with NW
Neutral ®, and (5) clear-cut harvest with a rotation of 40 years. Through a cost
effectiveness analysis, this research will answer if participating in these carbon markets is
viable for small landowners, and which is the best management option to generate the
most revenue.
2
The following section presents a contextual background for the understanding of
this research. It will be divided in six topics: forest ecosystems and carbon, Washington
State forests, Washington’s small forestland owners, carbon markets, forest management
and transaction costs.
3
2. CONTEXT
2.1 Forest ecosystems and carbon
Forest ecosystems sequester CO2 from the atmosphere, but also partially respire it
back. Plants absorb CO2 and light through their leaves (stomata) transforming it into
energy through a process named photosynthesis. The energy and carbohydrates are used
by plants to maintain vital functions and growth by allocating C to their below and
aboveground biomass. Forests accumulate biomass in stems, roots, leaves, understory
vegetation and organic matter in soil. Photosynthesis only happens under ideal conditions
of temperature, light, moisture and ambient CO2. Photosynthesis is the only process that
brings C into the system, but soils can also gain C overtime from dead plant materials
that accumulate on the top soil (Harmon, 2009). On the other hand, forests lose C through
plant respiration, decomposers, consumers, combustion erosion and leaching. Forests can
also emit methane when organic matter accumulates on the soil (Goodall, 2005). They
can be compared to a leaking bucket: there is only one way it can be filled, but has many
leaking holes (Harmon, 2009). Depending on the inflow and outflow the bucket can
remain full, attributing the role of carbon sinkers to forests. American forests offset 10%
to 12% of all annual U.S. GHG emissions from fossil fuels (Woodbury et al. 2007).
Carbon gain over the years is measured by assessing net ecosystem production
(NEP), which is the increase of tree biomass, woody debris on the forest floor, and
carbon in the soil minus soil and plant respiration, and decomposition. In other words,
NEP is the subtraction of net primary production (NPP) from heterotrophic respiration.
However, to estimate C stored in forests, the focus is on numbering the NEP. Accurate
measurements of NEP are not yet possible, but there are many available tools and
equations that provide close estimates.
2.2 Washington State forests
Washington forests’ characteristics can be found in the US Forest Service (USFS)
Forest Inventory and Analysis (FIA) Program (Campbel et al., 2010). According to the
most recent report, Washington State (WA) territory encompasses 17 million hectares, of
which approximately 9 million are forested covering 52.6% of the state. Climatic
4
discrepancies differentiate WA forests into coastal, western and eastern. The Cascades
mountain range prevents low clouds that come from the Pacific Ocean from moving into
the eastern part of the state causing it to be dry. At the same time the range holds the
clouds on the western portion causing the mild and rainy climate. Because of this, on the
east side of the Cascades ponderosa pine is the dominant tree, while Douglas-fir
dominates on the western side. Douglas-fir has adapted to the western climate, and it is
also the most planted tree in the region, not only because of its natural characteristics, but
due to its commercial features. Hemlock and Sitka spruce prevail on coastal areas
because of the high humidity and fog, while fir, spruce and mountain hemlock are found
on higher elevations. In general, conifers make up 86% of the WA’s forests. Most of the
forests in WA (about 7.3 million hectares) are classified as timberland, which is forest
land capable of producing more than 1.3 cubic meter of wood per hectare a year and not
legally restricted from harvest (Campbel et al., 2010). The rain forests west of the
Cascades in the Pacific Northwest are rated among the most productive in the world
(Andersson, 2005) making WA forests some of the greatest carbon sinks in the US.
Total estimated biomass in live trees and dead wood across Washington is 2.5
billion metric tons. Softwood stores more carbon than hardwood in WA when
individually compared (Campbel et al., 2010). The aboveground live-tree biomass
divided by landowner type results as depicted in the chart:
5
Figure 1: Total aboveground biomass stored in live trees in Washington forests
divided by ownership
Note. This chart was adapted from Campbel et al., 2010
WA’s small landowners and tribes hold 14% of the aboveground live-tree
biomass in the state making them a significant group that could potentially increase C
storage, and impact national net C. Carbon markets could influence this portion of
landowners to increase their lands’ C sequestration, if well funded.
2.3 Washington State small forestland owners
Non-industrial private forestland owners such as families, individuals,
conservation organizations and Native American tribes own a significant amount of land
throughout WA. Together they hold approximately 4 million hectares of forestland
representing 21.6% of the total forested land (Campbel et al., 2010).Subtracting Native
American tribal lands, this forested area is divided into approximately 45,000
decentralized ownerships (Hagan, 2002). Ninety-nine per cent of family owners surveyed
between 2002 and 2006 by Campbel et al. (2010) own parcels of 2,024 or fewer hectares
(Figure 3). Families that own 20 hectares and more can be good targets for participating
in carbon markets because they are fewer and hold almost 50% of this family owned
forested area. Moreover, high productivity lands are concentrated in private lands
6
(industrial and non-industrial) making management on these lands even more significant
to global net C. Forested properties have gotten smaller in the last decades (Campbel et
al., 2010), which will make more difficult the participation in carbon markets (Galik et
al., 2009).
Figure 2: Percentage of forest land area in Washington, by owner group, 2002–2006.
Note. This chart was adapted from Campbel et al., 2010
Figure 3: Number of family owned forests distributed by property size in hectares.
Note. This chart was adapted from Campbel et al., 2010
7
Many researchers have intended to formulate a non-industrial private forest
owners’ profile, but they have all came up with different numbers. Over 70% of these
forestland owners use the land as their primary residence (Campbel et al., 2010), while
for Blatner et al. (2000) only 50% do so. This may be possible because the latter did not
include Native American tribal lands in the research. Non-industrial owners have an
average age of about 57 years (Butler et al., 2005; Lawrance, 1992; and Campbel et al.,
2010), suggesting that these lands will change ownership or be passed to other
generations in the next 20 to 40 years (Campbel et al., 2010), which can be concerning in
a sense that the future generation may not continue the parents’ management selling the
land for development realsing all the carbon stored in the forest.
Small private landowners (1 to 2,000 hectares) have different management plans
and ideas about the land. According to Blatner et al (2000) survey, about half of the
interviewed forest owners strongly disagreed that their forest must provide an income to
cover the land expenses. Most of them (70%) also expressed concern for the land,
understanding the connections of their land to a bigger ecosystem (Blatner et al., 2000),
and having interest in conservation (Lawrance, 1992). However, their actions
contradicted their written opinion. Timber was most harvested on their land in the 1990s
when timber prices were high and they feared severe harvesting restrictions (Hagan,
2002). In Lawrance’s research (1992) 65.9% of Western WA owners claimed timber as
being an important source of income on their land, while 20.2% indicated special forest
products, and 57% of WA’s forest owners were considered to practice agroforestry
(defined by Lawrance as sustainable practices aiming for constant and long term income).
From the owners who apply agroforestry, 75% indicated that they do so to accomplish
conservation and production goals, which would fit within carbon market requirements.
Only about 13% of the family owners surveyed by Campbel et al. (2010) had written
management plans, 3% participate in green certificate programs, and 3% to 8% planned
to sell, subdivide, or convert their forests. Land use laws, market opportunities and tax
incentives will influence the rate of forest conversion.
8
2.4 Carbon markets
Carbon markets encourage the maintenance of carbon stores on the landscape to
slow climate change. They intend to attribute an economic value on GHG emissions and
sequestration by issuing exchangeable carbon credits. Moreover, carbon markets use
common market rules of supply and demand to control the price of carbon credits. There
are two types of market: voluntary and compliance. In both types, polluters have to
reduce their GHG emissions to a certain number of CO2 tons/year. If polluters cannot
accomplish the target reduction, they can buy carbon credits from offset projects, or from
other polluters who reduced their emission below what was set. The difference is that
with compliance markets GHG emitters are forced to reduce their emissions by law or an
agreement, while in voluntary systems polluters choose to participate. The most common
design of a compliance market is a cap-and-trade system, while voluntary markets vary
between what was described above and over the counter transactions (OTC), which are
side transactions between a buyer and a seller. Currently the Kyoto Protocol is the major
worldwide compliance market, which has set rules and reduction targets for all the
participating countries. US has not signed the Kyoto Protocol, and currently does not
have a national cap-and-trade system. Instead, it mostly relies on voluntary markets.
2.4.1 Emerging markets
Currently, however, in the US there is only one mandatory cap-and-trade system.
Two others will start in 2012, but only California will have a cap. The compliance market
Regional Greenhouse Gas Initiative was launched in 2009 and signed by ten northeastern
states to offset and reduce emissions related to the use of coal to produce power. In 2008,
California became the first state to pass legislation to cap GHG emissions statewide using
a cap-and-trade system. Starting 2012, they plan to achieve the goal of reducing
emissions in 2020 to the 1990 level. California is the pioneering state in this journey, and
is certainly setting an example. Western Climate Initiative (WCI) will be another marketbased system that should also start in 2012 (Western Climate Initiative, 2010). WCI is a
regional agreement signed in 2007 by the governors of seven western states (Arizona,
California, Montana, New Mexico, Oregon, Utah, and Washington) and the premiers of
four Canadian provinces (British Columbia, Manitoba, Ontario, and Quebec). However,
the cap-and-trade law did not pass when individually voted on by many states, limiting
9
the participation to only California, British Columbia, Ontario, and Quebec (Western
Climate Initiative, 2010) . Although only few governments will start in 2012, this capand-trade is still promising due to the economic importance those entities have in their
countries. The rest of the states and provinces, which failed in participating, will join the
extensive list of observers that include Mexican states, western American states, and
other Canadian provinces. WCI and California Climate Action Registry (CCAR) will
open for the participation of WA’s forestland owners as offset suppliers.
Voluntary markets also allow WA’s landowners to sell carbon credits generated
in offset projects. Over the counter transactions are one kind of voluntary market where
offsets are negotiated directly with a buyer, through an entity that has a protocol to guide
how credits are generated. For example, NW Carbon Neutral® is a program developed by
the Northwest Natural Resources Group (NNRG). This thesis will focus on CCAR
because there is a published forestry offset protocol (Climate Action Reserve, 2010)
(WCI does not have one), and on the NW Carbon Neutral® because it deals exclusively
with western Washington forestry offsets.
NW Neutral ® intends to provide income for western Washington small
landowners by rewarding their effort in maintaining their forests as carbon sinks and
providers of environmental benefits to society. The program is directed at small
landowners who are often prevented from participating in other markets due to
transaction costs and their small capacity to offset GHG because of their small property
size. NW Carbon Neutral ® was created by Northwest Natural Resources Group (NNRG)
as an over the counter transaction (OTC) market to connect Western WA small forestland
owners wishing to sell carbon offsets with preferably local buyers seeking to reduce their
climate impacts. Thus, it should ease the participation of small landowners.
California Climate Action Registry (CCAR) was created in 2001 as a non-profit
entity to manage and register GHG emissions from California by setting guidelines to the
accounting of these gases (Pearson, 2008). As of March 2011, emitters voluntarily
register their emissions, but this will change when the AB 32 full program gets
implemented (set for 2012). CCAR has also created a comprehensive protocol for offset
projects. It accepts offset credits from other states that are generated in compliance with
10
the protocol rules. It does not have specific targeted landowners like NW Neutral ®, so
small landowners should also be able to participate.
2.4.2 The role of offsets
Offsets play an important role in the market, and are the focus of this thesis.
Offsets are carbon credits produced by entities, organizations, landowners, or people that
are not forced to reduce their emissions. These projects must sequester, avoid, or reduce
emissions of GHG beyond the business as usual practices. In other words, offset projects
have to prove a net carbon reduction or sequestration, also called additionality. The extra
carbon sequestered or not released generates environmental benefits paid by the carbon
market. Offset projects meet additionality if they prove that net C gain would not happen
without payment from the market. Moreover, offset projects need to discount a leakage
rate because reducing GHG emissions or increasing sequestration often intensifies
emissions in other regions. There is also a risk buffer zone that needs to be set aside for
some types of projects such as forest offsets. This buffer zone works as insurance if loss
of forest biomass occurs. Finally, offsets need to prove permanence, which means that the
carbon stored will remain stored for a number of years. Forestry offset permanence is of
100 years. Forestry offset protocols are complex and have been constantly revised.
2.5 Land management for forest offset projects
Forestry offset projects are relatively cheap and low maintenance (Diaz et al.,
2009), especially for regions that already have monitoring programs in place and well
developed forest sciences. Tree growth is one of the most assured ways of sequestering
CO2, but forests commonly release great quantities of CO2 when natural disturbances or
deforestation happens. There are also other issues associated with forest offsets or
deforestation reduction such as the difficulty in finding accurate numbers for carbon
stocks, lack of monitoring in tropical countries (Baker et al., 2010), proving additionality,
and risk of offset reversal (unintentional release of carbon) (Galik & Jackson, 2009).
Sequestering CO2 or reducing emissions through forest management can reduce climate
change, but it is not the permanent solution (Harmon, 2009). Reducing the use of fossil
fuel is the most powerful action to slow climate change to curb emissions.
11
Managing forests can maximize or reduce carbon stocks. Disturbances and
harvest reduce carbon storage in forests, while fertilization, planting genetically
appropriate seed sources for trees, and allowing the forest to grow without interference
increases carbon sinking (Galik & Jackson, 2009; Lindauer-Thompson, 2008). There are
three types of forestry offset projects that are acknowledged by its potential to increase C
storage and are accepted in most carbon markets. They are afforestation/reforestation,
extended rotation, and sustainable management.
Afforestation and reforestation clearly increase C storage on the landscape.
Afforentation represents the planting of trees on lands that were forests more than 50
years ago, or on lands that have never held any forest (Pearson et al., 2008). On the other
hand, reforestation reestablishes trees that had been logged or naturally displace not long
ago. As trees grow, they store C in the ecosystem. It is also simpler to account for net
increase of C in afforestation and reforestation projects and to prove additionality. Many
restoration projects have relied on selling offset credits to cover the expenses (Ebeling et
al., 2010).
Extended rotation is the delay of harvest for a number of years, which increases
carbon storage on the landscape. Delaying clear-cut increases carbon stocks overall
because it reduces disturbances and allows more carbon to accumulate in the soil, trees
and wood products (Figure 4). The business as usual rotation in WA ranges from 35 to 45
years, so extending it to 60 or 80 years could increase C stocks.
12
Figure 4: Comparison of C stocks in Aspen stands in Michigan under a 30 and 50 years
rotation.
Note. This graph was adapted from Lindauer-Thompson, 2008.
Sustainable management maintains constant harvesting, but in small amounts
throughout the years. This form of management stores more C than business as usual and
extended rotations. For example, a landscape in Michigan that has 20% of its volume
harvested every 10 years stored more carbon than clear-cutting in a 90 year rotation, and
much more than the business as usual, which clear-cut every 50 years (Figure 5)
(Lindauer-Thompson, 2008). This management strategy maintains habitat for certain
species and a constant flow of timber and carbon credit income also reducing soil erosion
and “boom and bust” economic effects.
13
Figure 5: Comparison of C stocks in an Aspen stand with different treatments: a 50
year clear-cut rotation and sustainable management harvesting 20% of volume
every 10 years (called new strategy in the graph)
Note. This graph was adapted from Lindauer-Thompson, 2008.
This thesis focuses on the sustainable management as a strategy to participate in
carbon markets because it suits the management implemented on this thesis’ study site.
Selling carbon credits not only requires a adequate management, but also a written
management plan, a biomass inventory, project registration, and verification. The
requirements have costs to the landowner and are referred to in the literature review as
transaction costs. Transaction costs can be very high, possibly preventing small and
medium landowners from making any profit with the sale of their offset credits (Galik et
al., 2009).
2.6 Transaction costs
Transaction costs are the expenses of participating in carbon markets (Table 1).
They are not related to the amount of carbon sequestered per hectare (Pfaff et al., 2007).
Galik et al. (2009) compared transaction costs across markets and forest types and arrived
to the conclusion that small and medium forestland owners cannot profit from
participating in any of the most US popular carbon markets, including CCAR. Other
authors also realize that land size can be a problem, but it may be possible that a
significant income can be earned (Brooke, 2010; Diaz et al., 2009; Pfaff et al., 2007)
Joining an aggregator should also increase profitability (Brooke, 2010; Diaz et al., 2009;
14
Pfaff et al., 2007) opposing Galik’s et al. (2009) findings, which say that having an
aggregator would increase a project’s expenses which would ultimately reduce income.
Table 1: Costs related to generating forest offset credits.
Opportunity Costs
Foregone profits from harvests (through higher
retention, longer rotations, etc.) or development.
Forest carbon inventory
Characterizes the pools of carbon in a forest, measures
key carbon fluxes, and collects related data necessary to
drive growth and yield models.
Forest Management Plan
Describes the objectives and prescribed management
actions for the forest area, including a plan to measure
and monitor carbon with quality.
Growth & Yield Modeling
Helps to value the carbon in the project through the
manipulation of inventory data and the forest
management plan.
Sustainable Forest
A third-party certification that the forest is being
Certification
sustainably managed. Most commonly obtained from
the ATFS, FSC, or SFI.
Verification Fee
A third-party verification of information contained in
the PDD is required.
Registration Fee
Most carbon offset standards have registries, which
track the carbon pool through various transactions (resale of carbon offset projects is increasingly common)
until it is retired, helping to prevent fraud.
Sales Fee
The CCX trading platform charges $0.20 cents per ton
trading fee on all transactions. Carbon brokers also
charge varying sales fees.
Sub-aggregator fee
The sub-aggregator fee covers expenses such as
education & outreach, application review, data
management in the aggregation process and general
project oversight.
Aggregator Fee
The aggregator fee covers expenses associated with
project development
Monitoring & Auditing
After the initial establishment of a carbon project, the
landowner must keep their aggregator updated on
changes in forest carbon stocks. Auditing is undertaken
to ensure that the landowner is fulfilling their contract
and that carbon is being sequestered at the estimated
rate.
Note. This Table was adapted from Brooke (2010)
This thesis further investigates Galik’s et al (2009) findings that transaction costs
restrict income, and also the management strategy that optimizes revenue using a study
15
site located in western Washington. Forest data was collected, and then entered into
Forest Vegetation Simulator to forecast carbon stocks and timber harvest among different
forest managements over the century. A cost-effectiveness analysis provided the results.
This thesis reveals if transaction costs prevent small forest owners from profiting, and the
best management option for the most revenue for a 60- year old Douglas-fir forest under
various scenarios where carbon credit prices differ.
16
3. METHODS
3.1 Study site
The Heernett Foundation is a nonprofit environmental organization dedicated to
restoring forest and wetland ecosystems existing on its 323 hectares property. The land is
located in Tenino, Washington (Township 16 N and Range 1 W). The elevation in this
area is about 5,000 feet above sea level and the climate is typical of the western
Cascades, mild and wet year round with the exception of dry summers. This thesis is
based on the characteristics of a 48 hectares stand (section 23, T16N, R1W) that has been
managed in compliance with Forest Stewardship Council (FSC) standards in order to
keep the certification. A certification such as FSC is required in order to participate in
both CCAR and NW Neutral carbon credit programs further limiting my study site to this
stand.
This FCS stand managed by Heernett Foundation has been thinned to an average
spacing of 3 meters between trees, yet this is highly variable throughout the stand, which
has an average of 340 trees per hectare. The forest is 60 years old composed Douglas-fir
being the dominant, red-alder as co-dominant, followed by western cedar and big leaf
maple. This composition is the result of a clear-cut that took place 60 years ago replanted
with Douglas-fir. The understory is dominated by sword fern and Oregon grape
indicating higher temperatures and slight to moderate dry soil (mesic towards xeric). The
stand was divided by the foundation’s forester into 6 sub-stands of two kinds: one
comprising a mix of red alder and Douglas-fir, and the other is exclusively Douglas-fir.
3.2 Biomass inventory
Inventorying forest C requires measuring carbon pools, rather than fluxes.
Quantifying C fluxes is useful in understanding the processes of C storage and in
comparing sites, yet fluxes are not stocks. C concentrates in 6 different pools: standing
trees (living and dead), forest floor, belowground (roots and buried wood), soil,
understory, and downed wood debris (logs and stumps). However, Market protocols
dictate how pools are accounted for in offset projects. Some pools are not counted in
17
particular projects while others include C stored in wood products. I estimated these
pools by producing a biomass inventory using two different methodologies: (1) hand
calculations using biomass equations and volume formulas and (2) data entry into Forest
Vegetation Simulator (FVS). Both methodologies required field data collection such as
tree measurements and observed site characteristics.
Field data collection for this project took place on eleven stratified timber plots,
each measuring 25m in diameter. These individual study sites of 0.05 hectares
represented 1.2% of the 48 hectare FSC-certified timber stand. Larger plot sizes of 0.05
hectare and over are recommended for old growth or thinned forests in order to
encompass about 20 trees per plot (Willey & Chameides, 2007). For trees measuring over
5 inches in diameter at breast height (DBH),measurements we attained by using a
diameter tape and height measurements were taken with laser points. Thirty meters
diameter plots surrounding the original 25 meters plots were set in order to account for
logs greater than 7.5 centimeters diameter. Transects were run within the larger plots in
all cardinal directions. Only intercepted logs have their length and diameter at the
intercept point taken, and decay class noted. Tree height for 3 plots was estimated using
linear regression with data from the 8 previous plots. Figure 6 shows linear regression for
Douglas-fir (Pseudotsuga menziesii), but linear regression was also used for other
species. This was the data collected on the field used for the manual calculations and
partially on Forest Vegetation simulator (FVS).
18
Figure 6: linear regression of Douglas-fir DBH and height.
Although two biomass inventories were produced, the thesis’ results were based
on the numbers generated by the FVS. The results of the manual calculated inventory
were only used for comparison with the computer calculated FVS carbon estimates.
3.2.1 Manually Calculated biomass inventory
Estimates of total aboveground live tree mass was calculated using methods
developed by Jenkins et al. (2003) and other authors listed in the BIOPAK (Means et al.,
1994 ). The BIOPAK is a set of biomass equations developed by many authors that were
gathered by Means et al. (1994), and compile in one document. Equations developed by
Jekins et al. (2003) were used for red alder (Alnus rubra) and big leaf maple (Acer
macrophyllum) because the BIOPAK (Means et al., 1994) provided limited choices that
complied with my collected data. For example, some of the available equations for
estimating total aboveground biomass required measurement different than DBH and
height. Jekins et al. (2003) equations were developed to encompass large-scale properties
and cross-regional trees. However, reliable regional equations are better when dealing
with a small site such as the Heernett Foundation. Thus, I used regional equations from
the BIOPAK (Means et al., 1994 *) that suited the collected measurements (Table 2).
19
Precise height measurements provides a bit more accurate results (Jekins et al., 2003), yet
such precision is difficult to obtain and for this reason is not required for the allometries
developed by Jekins et al. (2003).
Biomass equations correlate DBH, height and other tree measurable
characteristics with biomass. In addition, it is best to use equations that incorporate all the
aboveground biomass such as branches and foliage. Allometries provide oven dry weight
of a tree, of which 50% is C (Clark et al., 2001). Roots of the encountered tree species
normally weight 20% of the total aboveground mass (Jekins et al., 2003). Errors
potentially occur when using allometries (Jekins et al., 2003). Although they are society’s
best developed tool, they do not perfectly represent reality.
Table 2: Biomass equations from BIOPAK
Species
Equation
Unit
Pseudotsuga BAT = 1054 Centimeter,
menziesii
+ 0.2057 *
gram
(DBH^2*HT)
Reference
Shaw, D.L, Jr. Biomass equations for...
p.763-671. in W.E. Frayer, ed. Forest
Resource Inventory - Vol.II. Proc. of
workshop 1979 July 23-26 sponsored by
SAF, IUFRO, Col. State Univ.
Thuja
plicata
Shaw, D.L, Jr. Biomass equations for...
p.763-671. in W.E. Frayer, ed. Forest
Resource Inventory - Vol.II. Proc. of
workshop 1979 July 23-26 sponsored by
SAF, IUFRO, Col. State Univ.
BAT = 1270 Centimeter,
+ 0.1501 *
gram
(DBH^2*HT)
Abies
grandis
BAT = 30200 Centimeter, Standish, J.T. et al. 1985. Development of
+ 0.1469 *
gram
biomass equations for British Columbia
(DBH)2 *
tree species. Inf. rep. BC-X-264. Pacific
HT
Forest Research Center. Canadian FS
*BAT is the total aboveground biomass weighted in grams, DBH is diameter at breast
height in centimeters, and HT is height in centimeters.
20
Table 3: biomass equations developed by Jekins et al (2003)
*Note: this Table was extracted from Jekins et al. (2003)
**The equations applied for red alder and big leaf maple were for the species group
Aspen/alder/cottonwood/willow and Soft maple/birch
The biomass of stumps, logs and snags was calculated by determining the volume
and decay class. The volume of snags was estimated by the formula V= L (Ab+At)/2,
where V is volume, L is length and Ab and At is the area for the base, middle and top,
assuming top diameter is half of DBH (Harmon & Sexton, 1996). While volume of
stumps and logs was defined by the formula V= Am*L, where V is volume, Am is the
area at the midpoint, or intercepted diameter, and L length or height. This formula
assumes that the log is round, and it was used for all logs and stumps even though they
often acquire elliptical or other forms. There are other equations to adapt the formula to
other wood shapes, but due to their insignificant statistical difference, they were not used
in this thesis.
21
Wood density varies according to species and decay class. Harmon & Sexton
(1996) were able to define wood density for each decay class of the most common tree
species in the Pacific Northwest and other regions (Table 4). Density is the ratio of
volume per mass (D = V/M), so having the density and calculated the volume, the oven
dry mass of logs, snags and stumps was revealed.
Table 4: wood density for each species decay class.
Tree Species
Psedotsuga menziesii
Decay Class Density (g cm-3)
1
0.450
2
0.342
3
0.277
4
0.137
5
0.148
Thuja plicata
1
0.318
2
0.259
3
0.248
4
0.154
5
0.143
Note. This Table was adapted from Harmon & Sexton (1996).
Carbon amounts for forest floor (fine woody debris with DBH less than 7.5
centimeters, litter, fine roots above mineral soil), understory (boles, crowns and coarse
roots of trees with DBH less than 2.5cm, shrubs and bushes) and organic soil (organic C,
including fine roots up to 1 meter below surface) C pools were imported from estimates
reported by the US Forest Service (USFS) online carbon estimator (COLE) in order to
complete the hand calculated biomass inventory. COLE offers reports for selected areas
with a minimum of 10 km radius. The reports are based on data published by the Forest
Inventory and Analysis (FIA), and on biomass equations developed by Jekins et al
(2003).
COLE’s report for Douglas-fir and red alder stands in the study site defined the C
pool for forest floor, understory and soil as containing 21.4 and 4.4, 6.3 and 3.3, 94.8 and
115.2, respectively. Thus, for plots that are Douglas-fir and red cedar dominant I used the
estimates for Douglas-fir stands, while for those plots mostly containing red alder I used
the estimates for red alder stands, and the median for mixed plots.
22
3.4 Forest modeling for 100 years
The permanence criteria of both carbon markets studied in this thesis, NW®
Neutral and CCAR, require landowners to enroll their forested lands in 100 years
contract. In this thesis C pools and harvested timber volume were predicted using FVS.
This forest simulator uses ecological concepts of western Pacific Northwest forests and
stand measures and characteristics to estimate C stored on the study site throughout one
century. FVS allows its users to apply different managements also reporting volume of
timber harvested. Reports from FVS are widely accepted as a forest modeler.
3.4 Determining Baseline
Baseline reflects the amount of C stored in forest surrounding the offset project,
where common management practices are applied. NW Neutral® and CCAR’s protocol
consider baseline to be the median of C stored in live trees throughout one management
cycle. For the study site located in Tenino, the baseline is the average C retained in live
trees during 40 year rotation cycles on Douglas-fir plantations located on the western
portion of Washington with a discount of regulated non harvesting buffers such as
riparian (Hanson, 2011; CCAR, 2010). In this case, the baseline for both is the same, and
it was estimated using FVS.
3.5 NW Neutral® & CCAR transaction costs
Participation in the NW Neutral ® and CCAR require paying transaction costs.
Those costs were estimated from information presented on NNRG’s website
(http://nnrg.org/NW-Neutral/nw-neutral-faqs) and CCAR’s webpage
(http://www.climateactionreserve.org/how/protocols), and from an email interview on
18/01/2011 with Kirk Hanson, director of NNRG Washington.
3.6 Calculating carbon credits
Both protocols have different rules for accounting carbon credits. NW Neutral®
compares the actual amount of C in standing trees in the project area to the average stored
in standing tree over a 40 year clear-cut rotation (the baseline = 150 C t/ha). Landowners
are awarded for the C they have stored over the baseline at the day the land is enrolled.
23
They receive one payment for the extra C stored committing to conserve the current
stock. Carbon credits of CO2 equivalent were defined by multiplying tons of stored
carbon by 3.7, then discounted for accounting uncertainties to achieve a 95% confidence
level and discounted again for reversal risk (20%). Meanwhile CCAR protocol allows
projects to account for all carbon pools, except for soil. Sellable carbon credits were
calculated according to rules existing in the protocol, and landowners are paid for C
increments over the years.
3.7 Timber and carbon price long-term forecast
Publications analyzing timber value over the years have concluded that log price
has remained relatively stable when adjusted for inflation (Lutz, 2002; Lutz 2003). With
the exception of strong market disturbances, Douglas-fir log price reports for the Puget
Sound region show that over the years log prices per 2.35 cubic meter (or 1thousand
board foot) have remained within a price range of $338 (Adjusted for inflation 2006)
during economic depressive years such as Regan’s presidential years and the recent
economic crisis (2008, 2009, and 2010) to $790 when house market and other market
factors were favoring this commodity (Mason, 2011). The log price used in this thesis to
determine future values is the average price from 1981 to 2009 reported in 2006 nominal
dollar value and adjusted for inflation by Mason (2011). This average of $528 was used
as the timber value over the next century.
On the other hand, carbon credits are fairly new and vary with different markets
such as the EEU and voluntary ones in the US. The current prices for credits in the US
fluctuate, but average approximately $5 (Hanson, 2011; Latta et al., 2011). Because
forest offset contracts are of 100 years, this thesis had to forecast carbon credits prices in
order to complete the cost-effectiveness analysis. NW Neutral® only allows one sale of
carbon credits, which happens in the present having no need to forecast carbon prices.
Thus, I used the current value of $5 and the desired value of $20 for the economic
analysis. I adapted forecasts developed by the EPA, and also used a constant price of $15
as suggested by Latta et al (2011) for carbon credits generated through CCAR. EPA
made its forecasts on spring of 2008 prior to a national cap-and-trade bill being declined
by congress that was previously approved by the House. The fact of having a mandatory
24
national market would heavily influence carbon prices, and EPA forecasted under this
scenario. EPA (ADAGE) _ scenario 2 estimated allowances to cost $37 in 2020, $61in
2030 and $159 in 2050. For this scenario, the median between prices in 2030 and 2050
was taken to estimate price on year 2040. For the following decades, prices grew
exponentially at a 30% rate until completing the century. Prices were $207 for 2060,
followed by $269 in 2070, $269, $349, $454, $590, $767, respectively until 2110. This
forecast is unrealistic, but provides an interesting comparison with timber income. The
second EPA forecast used is the EPA (ADAGE) _ scenario 10, where prices start at $28
in 2020, $46 in 2030 and $121 in 2050. In this scenario the median was also taken to
estimate price in 2040, and price remained constant at $121 for the following years until
2110. It is almost impossible to correctly forecast 100 years into the future because too
much changes in one century. However, it is still useful to make the analysis. Therefore,
there are three very different forecasts: one very optimistic, but unrealistic; the second
still optimistic but more realistic; and the third was pessimistic and realistic if carbon
markets do not become successful.
3.8
Cost-effectiveness analysis
Revenue from timber and carbon credits were calculated discounting transaction
and logging costs for the different carbon price forecasts scenario. This calculation
produced the nominal value in US dollars. This result was then compared with a 4%
discounted value. The value in the future was equal to the nominal value divided by 1
plus the discount rate squared by the period such as 30 years into the future. The formula
is nominal value/(1+.04)^year. The discount rate was extracted from Latta et al (2011),
who did a similar analysis in the article “Simulated effects of mandatory versus voluntary
participation in private forest carbon offset markets in the United States”. Discount rate is
an important part of the analysis because predicting income into the future has high risks,
which are tentatively mitigated with the discount rate.
25
4. RESULTS
4.1 Biomass inventory and carbon report
4.1.1 Hand calculated carbon inventory
Hand calculating the biomass inventory for the study site generated the total of
489 tons per hectare without including soil. Carbon content was estimated for the 11
plots, and then averaged. Table 5 displays tree species, median DHB and carbon stocks
per plot.
Table 5: trees and carbon contents distributed per plot
Plot #
1
2
3
4
ACMA
Tree
ALRU
Species
ABGR
2
ha
Stand
total
3
6
7
1
1
2
12
2
1
8
9
10
11
14
3
13
16
1
PSME
C ton/
7
5
9
13
10
18
1
6
7
18
THPL
1
8
3
median
DBH
Live tree
55.3
44.7
54.5
53.9
45.3
35.5
54.6
50.3
51.6
34.7
49.4
244
257
58.9
315
529
234
352.
305
359
249
404
live below
ground
Snags
48.9
51.5
11.8
63.1
46.9
70.6
61.0
71.9
49.9
80.9
0.0
9.3
0.0
9.6
105.
8
10.4
5.3
0.0
2.5
37.5
1.8
86.0
DWD
11.2
26.0
127
22.4
0.0
30.2
1.9
56.5
16.1
3.0
57.4
Stumps
1.0
11.0
0.0
68.4
0.0
7.2
143
0.0
172
242
0.0
understory
6.3
4.8
3.3
6.3
4.8
6.3
6.3
6.3
6.3
4.8
6.3
forest floor
21
12.9
4.4
21.4
12.9
21.4
21.4
21.4
21.4
12.9
21.4
soil
94
105
115
94.8
105
94.8
94.8
94.8
94.8
105
94.8
total
427
477
total nonsoil
non-soil
333.1
372.
9
321.
0
205.
8
601.
7
506.
9
768.
1
663.
1
446.
7
351.
9
690.
9
596.
1
547.
5
452.
7
779.
3
684.
5
669.
1
564.
1
751.
5
656.
7
489
26
4.1.2 FVS biomass inventory
FVS generated a carbon report according to the measurements and site
characteristics ranging from 2011 to 2110. The report relies on ecological rules for forest
ecosystems in the region, on biomass allometries developed by Jekins et al. (2003)
equations and on forest fuel estimates methodology. The current stocks are presented in
Table 6 below.
Table 6: FVS carbon report for the study site
--------------------------------------------------------------------------------------------------------Aboveground
Belowground
Forest
Total
----------------- ----------------- Stand ------------------------YEAR
Live Roots Dead
Snags/Stumps
Stand
DWD Floor Understory non-soil
---------------------------------------------------------------------------------------------------------2011
251.8
52.9
0.0
0.0
64.5
30.6
0.4
400.2
2021
285.3
59.9
5.0
19.5
50.5
30.9
0.4
451.5
2031
311.4
65.3
8.6
33.8
49.2
30.6
0.4
499.2
2041
330.2
69.2
11.2
45.2
50.1
30.3
0.4
536.7
2051
345.4
72.3
12.7
55.3
51.0
30.0
0.4
567.2
2061
359.1
75.2
13.7
62.0
53.8
29.7
0.4
593.9
2071
371.3
77.7
14.4
70.3
54.8
29.4
0.4
618.4
2081
382.7
80.1
14.8
77.2
57.3
29.0
0.4
641.6
2091
393.2
82.2
15.0
84.8
58.7
28.7
0.4
663.2
2101
402.8
84.2
15.2
91.3
60.6
28.4
0.4
682.9
2110
402.8
84.2
10.3
76.0
61.7
28.0
0.4
663.4
-------------------------------------------------------------------------------------------------------*Note: this table was adapted from FVS
The result from the hand calculation method and FVS were different. The main reasons
for such difference rely on the use of different biomass equations, diverse methodology to
estimate down wood volume, and snag data was not input into FVS, which resulted in
zero carbon content for this class. The difference is not significant due to the
uncertainties that the science of measuring carbon faces.
27
4.2 Diverse management options of carbon storage and timber harvest
This thesis explored a diverse set of forest managements that include the sale of
carbon credits and/or timber that could be applied to the Heernett foundation’s stand. The
different managements were modeled using FVS, and the goal was to compare revenue
generated from both commodities under different strategies. Management options also
varied if carbon credits were to be sold through CCAR and NW Neutral® because of
different requirements and rules for carbon accounting.
The first management option is to leave the stand alone and let it grow naturally
without harvesting. This option is accepted in both protocols, but the amount of carbon
credits accepted for sale differs strongly. This no management strategy was modeled for
one century complying with the permanence requirement. The forest will function as a C
sinker (see Figure 7) proving additionality. A landowner who chooses this option will be
relying on the sale of carbon credits as the main income, unless tax credits or other
conservation income is received.
Figure 7: total non-soil carbon stocks over 100 years
A landowner call significantly different amounts of carbon credits when
participating in NW Neutral® or CCAR. All carbon pools were included in CCAR
calculations, which generated 1003 carbon credits per hectare over the following century.
On the actual program, the credits would be given on a year basis, but to simplify the
28
analysis over such long period the credits were reported every 10 years (see Table 7). On
the other hand, if the FSC stand was enrolled with NW Neutral®, the Heernett
Foundation would receive 86 ton/ha only in 2011 (Table 8). When payment for credits is
received, the landowner has to maintain the current carbon stocks throughout the 100
year contract.
Table 7: Steps to determine the number of carbon credits issued by participating in
the CCAR when no harvest occurs
CCAR
2011
actual onsite
C stock
confidence
deduction
adjusted
stocks
10 year
increment
total net in
co2
risk
400.2 451.5 499.2 536.7 567.2 593.9 618.4 641.6 663.2 682.9 663.4
Credits issued
10%
2021
10%
2031
10%
2041
10%
2051
10%
2061
5%
2071
5%
2081
5%
2091
5%
2101
0%
2110
0%
360.2 406.4 449.3 483.0 510.5 564.2 587.5 609.5 630.0 682.9 663.4
360.2 46.2
42.9
33.8
27.5
53.7
23.3
22.0
20.5
52.9
-19.5
0
171
159
125
102
199
86
82
76
196
-72
16%
16%
16%
16%
16%
16%
16%
16%
16%
16%
16%
0
143
133
105
85
167
72
69
64
164
0
1003
total Ctrs/ha
over 100 years
Table 8: NW Neutral credits accounting.
NW Neutral
Live tree pool
uncertainty discount
discounted C
risk buffer pool
Total C
Credits equivalent
(subtracted from
baseline of 150 ton/ha)
CO2 equivalent
2011
304 ton/ha
3%
296 ton/ha
20%
236 ton/ha
86 ton/ha
318/ha
The second forest management plan revolves around commercially thinning from
below 10% of the basal area on 40 years cycle, and it is only compatible with CCAR’s
29
protocol. Harvesting would take place in 2011, 2051 and 2091. Only Douglas-fir trees
larger than 10 inches DBH would be harvested. Then the site was be replanted with 98
trees per hectare without using fertilizer after every harvest. Biomass residue was left on
the ground to naturally decompose. The fist replanting was done with western hemlock,
the second with western cedar and the third with grand-fir, which helps the Heernett
Foundation to achieve its biodiversity goals. Under this management, it was harvested
13.8, 21.9, 23.2 cubic meter (CB) of merchantable wood per hectare respectively in 2011,
2051 and 2091. The resulting total non-soil is shown on Figure 8.
Figure 8: total non-soil C stock over 100 years when 10% of the stand was thinned
from below in 2011, 2051 and 2091
The management strategy 2 provides landowner with the option to harvest small
amounts of timber and continue to generate carbon credits throughout the contract with
CCAR. On this scenario the stand would generate 861 credits per hectare over the next
century.
30
Table 9: steps for calculating C credits issued by CCAR for management option 2
(10% thinning)
CCAR
2011
actual onsite C
stock
confidence
deduction
adjusted
stocks
10 year
increment
C removed
2021
2031
2041
2051
2061
2071
2081
2091 2101 2110
388.4 436
482
519
532
553
575
598
603
618
599
10%
10%
10%
10%
5%
5%
5%
5%
0%
0%
349.6 392.4 433.8 467.1 478.8 525.
546.2
568.1 572
618
599
0
20.9
21.85 4.7
45.1
-19
10%
42.8
41.4
33.3
-11
5.3
c stored in
wood products
C increment in 15.9
wood products
accountable C 0
11.7
46.5
-16
-15
4
3.5
3.2
12
10
9.1
8.6
16.1
13.8
12.9
-1.3
-0.5
-0.3
8.8
-2
-0.9
-0.5
7.5
-2.3
-0.9
41.5
40.9
33
20.5
44.5
20
21.3
12.2
42.8
19.9
73.6
C credits in
CO2
equivalent
risk
0
154
151
122
76
165
74
79
45
159
16%
16%
16%
16%
16%
16%
16%
16%
16%
16%
16%
Credits issued
0
129
127
103
64
138
62
66
38
133
-62
Total over 100
years/ha
861
The third management option thinned from below 20% of the basal area every 40
years. In this simulation only trees over 10 inches DBH were cut in the years of 2011,
2051 and 2091 followed by the replanting of 172 trees per hectare of western hemlock
after the first harvest, Douglas-fir after the second, western cedar after the third. The
trees were replanted without fertilizing and wood debris was left untreated. The 34.8,
48.9 , 64.4 CM of merchantable wood were harvested was per hectare, respectively in the
harvesting years. C stocks continued to increase (Figure 9), and 575 carbon credits per
hectare were sold through CCAR over the century (Table 10).
31
Figure 9: total non-soil carbon stock over 100 years under management option 3
(20% thinning)
Table 10: steps for calculating C credits issued by CCAR for management option 3
(20% thinning)
CCAR
2011
2021
2031
2041
2051
2061
2071
2081
2091
2101
2110
actual onsite C
stock
confidence
deduction
adjusted stocks
369.4
410
452
488
478
495
516
540
524
537
520
10%
10%
10%
10%
10%
5%
5%
5%
5%
0%
0%
332.5
369
406.8
439.2
430.2
470.3
490.2
513
497.8
506.6
494.1
10 year increment
0
36.54
37.8
32.4
-9
40.05
19.95
22.8
-15.2
8.8
-12.5
C removed
-28.9
c stored in wood
products
C increment in
wood products
accountable C
14.9
11.5
10.2
9.4
30
25.4
23.3
22
41.6
37.3
35.3
6.3
-3.4
-1.3
-0.8
20.6
-4.6
-2.1
-1.3
19.6
-4.3
-2
0
33.14
36.5
31.6
11.6
35.45
17.85
21.5
4.4
4.5
-14.5
risk
16%
16%
16%
16%
16%
16%
16%
16%
16%
16%
16%
Total accountable
C
Accountable C in
CO2 equivalent
Credits issued
0
28
31
27
0
30
15
18
4
4
0
0
103
113
98
0
110
55
67
14
14
0
0
103
113
98
0
110
55
67
14
14
0
Total credits issued
over 100 years
575
-38.3
-36.9
32
A forest owner could also sell carbon credits to NW Neutral® and continue to
harvest for the following 100 years as long as the initial committed carbon stock is
maintained. Because the carbon accumulated in the stand after the contract is signed
cannot be sold in the future (unless a new contract is made), landowner might as well
harvest the extra carbon. In this case the landowner will sell the amount of C inventoried
in standing live tree pool in 2011 (304 ton/ha), and harvest the amount that exceeds the
2011 level. This way the landowner will receive income for carbon credits and timber.
To accomplish this goal and to reduce costs and impacts of logging, the ideal
management would be to harvest 20%, 25% and 25% of basal area of tress with DBH
greater than 10 inches in 2031, 2071 and 2101. The harvest was followed by replanting of
123 western cedar, western hemlock and grand-fir trees per hectare, respectively. This
management maintained C stocks above the minimum required (304 tons/ha) as shown in
Figure 10. It was cut 76, 81.5, and 81.5 CM of merchantable wood per hectare,
respectively in 2041, 2071 and 2101. There are other forms of logging this same amount
of wood, which can vary with landowner’s needs, timber prices and etc. However, this
harvest percentage provides the maximum amount of wood, thus, ideally, the most
income.
Figure 10: total non-soil c stocks when harvesting timber and joining NW Neutral®
Finally the last management option, which is also the baseline, is clear-cut on 40
year rotation cycle. In the simulator, the stand was clear-cut in 2011, 2051 and 2091
33
leaving 12 30 inches or greater legacy trees per hectare followed by regular biomass
treatment which makes it easier to replant. It was harvested 209.7, 215.6 and 227.2 CM
per hectare. The site was replanted with 988 Douglas-fir trees per hectare using fertilizer
(49 gallons per hectare). Figure 11 below illustrates the carbon pools for this
management.
Figure 11: total non-soil carbon stock over 100 years under 40 years clear-cut
rotation
The comparison of the carbon stored in the stand when different management
options occur is clearly illustrated in the graph below.
Figure 12: comparison of total C non-soil across all the management options
34
4.3 Transaction costs
There is few transaction costs associated with selling credits in the NW Neutral
market. Participation in this market is exclusive to western WA forestland owners that
have NNRG’s Northwest Certified Forestry (NCF) program membership. The
membership costs $150 per year for organizations like Heernett Foundation
(http://nnrg.org/nw-certified-forestry/Membership, 2011). In addition to being a member,
landowners can only sell carbon offsets from FSC (Forest Stewardship Council) certified
stands, which costs for my study site of 48 hectares (120 acres) $330 annually (see Table
8). A biomass inventory made by a professional forestry organization is also necessary,
and costs vary from $49 to 123 per hectare depending on the property (Hanson, 2011).
Third party verification and management costs are included in the FSC and NCF
membership fees. FSC certified NNRG will negotiate the carbon credits and discount a
7% brokerage fee from the total amount paid to landowners. The total costs are then
summarized in Table 11. Heernett’s Foundation participation in this market would cost
8,000 every 10 years if no harvest occurs. In case there is harvest, another biomass
inventory is required.
Table 11: Annual membership fees:
Associate
Individual or Family
Organization
$50/year
$150/year
Certified
Family (<100 acres)
$230/year
Small (101 - 200 acres) $330 /year
Large (> 200 acres)
Negotiated
Table 12: expenditures required from forestland owners to sell carbon credits in the
NW Neutral
Fees and costs
NCF membership
FSC membership
Biomass inventory
Monitoring
Brokerage
Total up front
Dollar amount in 2011
150/year
330/year
3,200-8,000/every timber
harvest
Included in NCF
membership
7% of sale
3,700-8,500
35
CCAR requires more expensive fees than NW Neutral. If Heernett Foundation
enrolled its FSC stand with CCAR, the foundation would have to pay for all of the fees
listed in table 13. The total amount using the lowest rates would be about $38,400 every
10 years. Monitoring and verification were estimated based on charges for biomass
inventory. There was no organization or person available to extract the exact amount
charged for monitoring and verification.
Table 13: CCAR transaction costs
Account Setup Fee
Account Maintenance Fee (annual)
Project Submittal Fee (per project)
Variance Review Fee (per request)
CRT Issuance Fee (per CRT issued)
Account Transfer Fee (per CRT transferred, paid by seller)
Account Holder Project Transfer Fee (per project transferred between
account holders, paid by transferee)
Retirement (per CRT retired)
Biomass inventory
Monitoring
Verification
$500
$500
$500
$1,000
$0.20
$0.03
$500
no charge
$ 3,2008,000
$ 500/ 2
years
$ 3,2008,000/ 5
years
36
5. CONCLUSIONS
Transaction costs do not prevent landowners from making profit even when
carbon credits cost as low as $5. However, it may not be worth going through the process
of enrolling private small forests in carbon markets when prices are so low. NW
Neutral® is more small landowner friendly than CCAR requiring less monitoring and
other expenses, and providing more assistance. Transaction costs for CCAR are
substantially higher than NW Neutral® resulting in a difference of approximately $3,000
per year.
A small landowner can only exclusively rely on carbon credit income if EPA’s
price forecasts are correct. However, when revenue is discounted with a risk rate of 4%
none of the management strategies can substantially fulfill human needs of health care,
food, education, transport and etc. The most a landowner can receive, when discounting
the nominal value for a similar property to the study site is $20,000 per year under the
traditional management of clear-cut.
When carbon prices are high and not discounted, it is better to manage Douglasfir forests for carbon sequestration. However, when values are discounted, the best option
for EPA’s scenarios is thinning 10% of the basal area. Thinning 20% is only the best
option for EPA’s scenario 10 and only by $5 over. Estimates for carbon prices at constant
$15 also change behavior when values are nominal or discounted. At the nominal value,
timber oriented management increases revenue when carbon price is $15 and under. On
the other hand, when low carbon prices are discounted, it is more profitable to manage
for carbon sequestration. The discount rate significantly affects income because this
analysis goes 100 years into the future, and too many uncertainties have to be accounted.
NW Neutral® had to be analyzed separately because carbon prices are not
forecasted or discounted in the future. If a landowner enrolls his/her forest in NW
Neutral®, it is best to harvest and replant throughout the contract maintaining carbon
stocks at the initial level. Timber revenue substantially complement carbon credits
income, but not as much when values are discounted.
37
There is a significant difference between timber and carbon revenue. Managing
lands to store carbon was only more profitable under the most unrealistic scenario. In
order to carbon sequestration management to be more profitable than the traditional clearcut, carbon credits would have to cost at least $100. Even when timber is harvested to
complement carbon credits income, it is still difficult for landowner to make a living
exclusively from the forest. This situation varies with forest type and age, and property
size. Bigger properties would have more costs, but also more income. It is not appropriate
to generalize revenue estimates per hectare, neither across forest types. For example,
income generated from carbon credits in Michigan Aspen forests overcomes timber
revenue when carbon credits cost $26 (Lindauer-Thompson, 2008). The results of this
thesis are clearly illustrated in Table 14.
Table 14: Revenue comparison in USD$ between carbon markets and management
strategies.
No harvest
(NW
Neutral)
when
C=$5,
$396/year
when
C=$20,
$2,386/year
Discounted
4%
Discounted
4%
Baseline
Thin (NW
Neutral)
Scenarios
No harvest
(CCAR)
10% Thin
(CCAR)
20% Thin
(CCAR)
when C=$5,
$17,179/year
EPA optimistic
$110,311/
year
$98,729/year
$55,879/year
when C=$20, EPA constant
$19,
169/year
$15 constant
$42,642/ year
$40,126 /year
$31,749/year
$ 3,916 /year
$18,403 /year
$12,562/year
when C=$5,
$3,049/year
When c=$20
$5,039/year
$ 10,215/year
$ 12,072/year
$10,703/year
$ 6,814/year
$ 7,713/year
$ 7,718/year
$ 7,954/year
$ 5,457/year
$ 4,318/year
Discounted=
$ 20,592/year
Nominal=
Discounted 4%
EPA optimistic
Discounted 4%
EPA constant
Discounted 4%
$15 constant
$50,803/year
38
6. DISCUSSION
Carbon markets have the potential to be an effective tool to reduce GHG in the
atmosphere. The financial incentive to landowners to change their management to
sequester more CO2 can be a leverage point to change current levels of atmospheric
CO2. However, carbon credits need to cost at least $15 to be used as a supplemental
income. Relying on carbon credits like many landowners rely on timber as a major
income will only be possible if credits cost approximately $80 and maintain this price
throughout the 100 year contract. Thus, it is seems obvious that forest owners who enroll
their land in offset project are inclined to conserve the land, which makes it more difficult
to prove additionality. Some carbon markets such as CCAR accepts conservation
easements as offset projects. When such projects are accepted, the validity of the project
becomes questionable because if those are conservation lands anyway, how participating
in the carbon market will affect global net C gain? In some cases the money earned in
credits will help improve management to store more C, but in big picture little will
change. Another issue of forestry offset projects is that forests slowly store carbon and
eventually release it too, thus they are not capable of sinking all the CO2 emitted from
the use of fossil fuels. Forestry projects have its limitations, but if protocols are well
designed and carbon price high, it is possible to expect management changes in order to
participate in carbon markets increasing overall carbon sequestration.
Permanence is a positive requirement of forestry protocols, but it possibly
prevents forest owners from participating. 100 year contracts guarantee that the carbon
stored today will remain in the ecosystem for one century. This is a gain for society, but a
huge commitment to landowners. Their forests will be tied to a one century contract, and
there will be penalties if contract is broken. Moreover, there may be many opportunities
missed because of this contract. For this reason, carbon credits price must be attractive, or
only conservation minded owner will turn their forests into carbon offset projects.
Because of long contract and variable carbon price, it may be better for landowners, who
are interested in being rewarded for the environmental and societal benefits their land
39
provide, to enroll in other programs that provide tax abatement or payment that do not
require the same things as a forest offset protocol. However, these rewarding programs
are limited and become even scarcer when governmental agencies go through financial
burden.
I would suggest to western Washington forest owners to wait a little longer before
joining carbon markets. Emerging mandatory markets like CCAR and WCI may push
credit prices up. In addition, businesses have developed environmentally friendly
practices that include the purchasing of carbon credits, which may also contribute to
raising prices. Kirk Hanson from NW Neutral® also tries to negotiate credits at a higher
value, but it has not been possible at the moment. If carbon price rise, carbon markets
will have an impact on how people, landowners and other entities will manage their
business and make their choices.
40
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46
APPENDIX 1
Table 15: converting from metric to English units
1 hectare
2.47 acres
1 centimeter
.39 inches
1 meter
3.28 feet
1 cubic meter
35.5 cubic feet
1 cubic meter
.42 thousand board feet (MBF)
47
