Forest carbon boost in California ETS offset rules

Forest carbon boost in California ETS offset rules
Carbon News and Info > Climate change news > Carbon finance, emissions trading & offsets

Tuesday, 2 November 2010
[This story updates an earlier version Monday 1 Nov]


The forest carbon sector in the US has received a boost with the release of draft rules for the Californian cap and trade scheme. The rules released by the state’s Air Resources Board (ARB) for consultation include a doubling of the limit originally proposed for the use of offsets in the scheme, from 4 per cent of an emitter’s obligation to 8 per cent, and early-action recognition of voluntary-market credits back to 2005.

To help lower the cost of compliance to the scheme, Californian emitters can buy offset credits generated across the United States from projects to reduce emissions in four areas initially. The four are forestry, urban forestry, livestock manure treatment and the reduction of ozone-depleting substances.

The increased offsets limit means a total of 232 million offset credits will be allowed over the period 2012 to 2020.

Offset protocols in other reduction activities will be considered for inclusion as soon as next year. Offset projects from Canada and Mexico may also be eligible in future. As well as project-based offsetting, the ARB will also pursue larger, sector-wide offsetting programs over time, including avoided deforestation, or REDD, in tropical developing countries such as Brazil and Indonesia.

The rules of the forestry offset protocol would make carbon credits from afforestation & reforestation, improved forest management and avoided conversion activity - to the Climate Action Reserve (CAR) standard - eligible for compliance in the California trading scheme. The relevant version of the protocol is CAR’s Forest Protocol, version 3.2, which updates the voluntary market standard for use in the state regulatory compliance scheme.

In detail, ARB’s Forest Offset Protocol allows the following activity:
Reforestation; planting trees on land that has been out of forest cover for at least 10 years or has been subject to a recent significant disturbance. Sustainable harvesting is allowed, if certified.
Improved Forest Management (IFM); undertaking management activities to maintain and increase carbon stocks on forested lands. Must use a mix of native species.
Avoided Conversion; preventing the conversion of high-risk forestland to a non-forest land use by dedicating the land to continuous forest cover through a conservation easement or transfer to public ownership.
Reforestation and IFM projects on private, tribal and non-federal public lands are eligible, and only private land for avoided conversion.

Permanence of emissions reductions must be ensured for 100 years from the date of the last credit issuance in a project, via third party verification every six years over that time. A buffer reserve account must be held with ARB to cover any losses. The proportion to held in reserve will vary from project to project depending on an individual risk rating assessment.

Early action
The cap and trade scheme is set to begin in 2012 but provision for early-action recognition in the draft rules would see offset credits from voluntary-market projects already underway to earlier versions of the CAR standard in the four approved areas become eligible. Specifically, credits from projects conducted between 1 January 2005 and the end of 2014, but commencing before 2012, will be eligible. The early action recognition of voluntary credits is designed to help jump-start offsets supply to the compliance market, ARB says.

California’s cap-and-trade scheme is emerging as a critical market for forest-based offset credits, said MaryKate Hanlon, senior analyst at forestry investment manager New Forests. “The latest draft regulation takes important steps to clarify how forests can play a role in generating early action and regular offsets as well as in sector-based offset programs.”

“Increasing flexibility for covered entities to meet emission-reduction liabilities is likely to improve market performance and environmental outcomes,” Hanlon said. “A clear signal of forthcoming regulations means more projects on the ground, and specifically, commitments to long-term land management strategies for forest owners.”

Final approval of rules is expected in a vote by the Air Resources Board on December 16.


Download:
Compliance Offset Protocol for US Forest Projects [3.3 MB]