Northern woods poised to benefit from carbon credit market. 8/18/2009by Richard Thomas
BusinessNorth.
Tom Class has 200 wooded acres in Carlton County. “My father owned it,” he said. “I’m finding extra income to keep it in the family.”
Class is one of the first forestland owners in Northeastern Minnesota to enroll his property in the carbon credit market — in essence, he’s getting paid to watch his trees grow.
Industrial companies may voluntarily agree to limit how much carbon dioxide they emit. If they decide to exceed that “cap,” they can purchase “carbon credits” — one credit for one metric ton of carbon dioxide — to offset their excess emissions.
Companies that emit less than their allowance can sell credits, as can forestland owners, since growing trees absorb carbon dioxide.
“It’s a tremendous opportunity. It could do a lot for rural economic development,” said Todd Parker, an associate with Chicago-based Delta Institute, a nonprofit that deals in carbon credits.
The market would expand enormously if “cap and trade” of carbon emissions becomes mandatory. The American Clean Energy and Security Act of 2009 narrowly passed the U.S. House of Representatives in June by a 219-212 vote and is before the Senate.
The bill aims to reduce emissions by 2050 to 20 percent below 2005 levels. Two billion tons of the required reductions may come from carbon-offset credits.
Market not dead, just sleeping
The Chicago Climate Exchange, formed in 2003, is the major U.S. market, used voluntarily by such companies as Ford, Dupont, Cargill, IBM, United Technologies and Rolls Royce.
On July 30, carbon credits traded at 50 cents on the Chicago exchange. That’s down from $2 in February and a high of $7.50 in 2008.
To be financially viable the price needs to be at least $2, said Gerald Grossman of Grossman Forestry Co., a landowner agent in Michigan. “It’s a concept, it’s there, and it can change in a hurry,” he said.
On July 30 at the European Climate Exchange, where carbon emissions have been regulated since 2005, credits traded at 14 euros each, or $19.99.
The U.S. carbon market “has not been an income generator, but it will become one,” said Kent Scheer, a Wadena tree farmer who enrolled a portion of his land in the carbon credits program in 2007.
He notes that Minnesota landowners have been slow to sign on. Those who want to get involved “should act on it sooner than later,” he said, noting procedures for such programs tend to be less complicated early on.
Scott Koerner, a logging contractor in Portage County, WI, signed up 480 acres of land for carbon credits in early 2009. “I haven’t seen an impact yet, but I think it has great potential,” he said.
Some large landowners in the region already using sustainable forestry practices have considered the market, but not yet found it worthwhile. John Rajala, president of Bigfork-based Rajala Companies, said returns are not yet worth the administrative chores.
Congress first considered “cap and trade” legislation in summer 2008. The debate raised expectations, resulting in carbon credits reaching $7.50. But their value dropped after the bill failed, and tumbled with the rest of the economy last fall.
Another factor in the drop was that speculators overloaded the market. “In the beginning it looked very attractive,” said Edwin Moberg, a board member of the Wisconsin Woodland Owners Association. “Everyone and their brother got into it.”
U.S. Rep. Henry Waxman, D-CA, chairman of the House Energy and Commerce Committee, reintroduced cap and trade legislation this year as part of HR 2454. The bill’s House passage did not spur the market from its slump because investors have been more cautious after the bill failed last year.
“People are very tentative and suspicious about taking part in the market,” said John DuPlissis of the University of Wisconsin-Extension. “It’s constantly changing and evolving.”
Climate change bill
Mandatory cap and trade is controversial, though many say it’s inevitable. U.S. Rep. Michele Bachmann, R-MN, calls it “a choice between liberty and tyranny.” Critics on the other side say the bill doesn’t go far enough, having too many loopholes and compromises.
The concept is not entirely new in the United States. The Clean Air Act of 1990 launched a similar program for sulfur emissions. Both industry and government predicted it would be expensive, but it achieved goals with costs much lower than expected.
Farmers have sold carbon credits since the early 1990s. By not tilling the soil, allowing crops to decay naturally, and changing their system of planting, farmers can reduce their carbon output. They also can get credits for converting fields back to grassland or forest.
For manufacturing industries the voluntary market “was a PR thing,” DuPlissis said, adding limited soil tillage reduced agriculture energy costs. “It was always a good deal for farmers changing over to no-till,” he said.
In 2007 both Wisconsin and Minnesota governors signed a regional agreement, the Midwest Greenhouse Gas Reduction Accord, that seeks to establish a regional cap-and-trade system along with several other states and one Canadian province.
A statewide cap and trade bill was introduced at the 2008 Minnesota legislative session, but critics, including the state Commerce Department, objected it would put the state at a competitive disadvantage and hamper efforts to establish the regional system. Eventually a different bill passed to finance studies.
Critics of the proposed national clean energy bill make a similar argument in terms of competition: Unless nations like China and India pass similar cap and trade programs, U.S, industries will have the incentive to relocate overseas.
Counties sign on
In abundantly forested northern Minnesota, a study financed by the Blandin Foundation and released last February looked at the carbon credit possibilities for Aitkin and Cass counties.
Aitkin’s land department is carrying the study further, accepting bids from firms to validate the numbers in the Blandin study. If the county board moves forward, the study will assess county forestland carbon storage capacity over the past decade, and calculate how modifying forest management practices could create additional capacity.
“This is kind of new for all of us,” said Mark Jacobs, Aitkin County land commissioner. “Every time I look at it I get more confused.”
Cass County land commissioner Joshua Stevenson said he also hopes to move forward on carbon credits, but the process is on the back burner. “We have to do a lot of homework with the county attorney to see if we can legally do it,” he said. “There are a lot of questions to be answered. But we’re 99 percent there.”
There are only three counties in the nation trading credits on the Chicago Carbon Exchange, but they’re heavy hitters: King County (Seattle); WA, Miami-Dade, FL, and Sacramento, CA.
“My understanding is that we’re one of very few looking at it at this level of detail,” Jacobs said. He has received inquiries from national energy companies asking for updates on the county’s progress.
His goal is to increase the forest’s capacity for carbon storage, but not at the expense of the timber industry. Timber still can be harvested, but to earn credits there needs to be a net gain in the amount of sequestered (captured) carbon.
This can be accomplished through various management practices:
• Increasing stocking of a long-lived shade tolerant species.
• Longer rotations: extending the life of harvestable trees.
• Increasing the proportion of harvestable products that are long-lived, for instance, construction materials, as opposed to short-lived, including paper products.
• Frequent thinning can turn trees that otherwise would die, decompose and emit carbon into products that can be harvested and manufactured as furniture, hardwood flooring, and veneer. The carbon in these wood products remains captured, and is not released back into the atmosphere as carbon dioxide.
Signing up
“Many of Minnesota’s land managers are well positioned to participate in carbon credit markets because they are already participating in third-party forest certification,” states the Blandin Foundation study. Third-party certification is an evaluation of forest management, based on internationally recognized standards and conducted by accredited organizations.
“Additional efforts, including expanded use of group certification, will be needed if Minnesota’s family forest owners are going to be able to efficiently and effectively participate in carbon and ecosystem service markets,” the report continues.
Private forestland owners may earn carbon credit money by signing on with an aggregator — a company that combines credits among groups of landowners and bundles them together to sell on the Chicago Climate Exchange.
The Delta Institute is an aggregator, working with landowners in the Lake Superior region with forest holdings ranging from 20 acres to 34,000.
Aggregators that primarily serve farmers are the National Farmers Union, working through the North Dakota branch, and AgraGate Climate Credits Corp., an affiliate of the Iowa Farm Bureau.
On July 15 Agragate temporarily suspended accepting new enrollments, partly due to the depressed market. Another reason is that the Chicago Climate Exchange enters a new phase on Jan. 1, 2010, and the farm bureau is awaiting the new rules, said Chad Martin, soil aggregation specialist.
Still the American Farm Bureau Federation opposes current cap and trade legislation, asserting as written, it would increase agribusiness production costs.
The National Farmers Union has been more supportive, but wants some conditions met, including recognition of early actors, no artificial cap on domestic offsets, and permission for producers to stack environmental benefit credits.
Farm and tree farm carbon credits are relatively simple, since the science behind them is well understood. Forestland is far more complicated, since it must be inventoried in detail by tree species and ages. Younger forests grow faster and sequester more carbon.
The expense of inventorying forestland to qualify for carbon credits currently outweighs the benefits, said Tom Wyse, forester for the Living Forest Cooperative in Ashland. “I don’t see any way to recoup costs unless credits were tremendously valuable in a year,” he said.
Back in Carlton, Class said the Minnesota Department of Natural Resources covered the cost of his initial inventory— about $1,000 on 200 acres— but he expects to pay for updates every five years.
Minnesota has a shortage of private foresters qualified to do the inventories, said Delta Institute’s Parker. “It’s been a real challenge getting foresters engaged,” he said.
Duluth forester Brian Allen, who inventoried Class’ land, said few foresters and landowners are engaged because current financial benefits are inadequate, and because of the intensive nature of the required inventory. But with enactment of federal cap and trade legislation, “there would be a lot more incentive,” he said
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