The suggestion that trees should be industry's best friends under a new climate change or cap and trade program being considered by Congress, seems absurd at first. Forests do not initially appear to most people to be a source of the problem when it comes to anthropogenic greenhouse gas emissions. We generally think of planting trees as a local, individualized step to attempt to remove emissions from the atmosphere. Often we think of tree planting as a symbolic rather than a substantive or significant action to reduce climate change. Forests, however, are in fact a significant storing house for carbon and when burned, release a large amount of carbon dioxide and other greenhouse gases into the atmosphere.
Forests provide the low-cost approach for the first tranche in anthropogenic greenhouse gas reductions as we seek the "low hanging fruit" of these reductions. Forest preservation and regrowth provide the potential for the larger-volume and lower-cost source of greenhouse gas reductions and offsets for greenhouse gas emissions. As carbon capture and storage by which CO2 from coal-fired power plants and other sources is injected underground for long-term storage takes several years to bring on line, Reduced Emission from Deforestation and Degradation (REDD) can serve to make a significant step toward emissions to be achieved by 2020 being discussed in Congress for a US climate change and cap and trade program, and in terms of international negotiations for a tray to follow the Kyoto Protocol.
The size of the emissions from forest destruction usually is startling. It is in gross and relative terms rather astounding. The destruction of forests actually accounts for somewhere between 17 and 22 percent of human greenhouse gas emissions. Thus, controlling the greenhouse gas emissions from deforestation is critical to any global plan to reduce climate change, particularly in the first few years as costlier reductions can be developed over the next decade, and perhaps ways to reduce those costs.
A second aspect of deforestation relates to the areas that have already been lost or significantly degraded. For example, farmland that was previously what we call “primary forest” or forest that existed in its natural state prior to being deforested or degraded. In these areas, opportunities exist for reforesting the land through tree planting. Two types of reforestation are possible. First, the forest can be replanted with native species that would have been present prior to the destruction of the forests. The second involves the planting of non-native species or otherwise planting for the purpose of harvesting some or all of the trees. The second approach has the goal of using trees to absorb or sequester CO2 , and then using the harvested wood in ways that maintain the carbon in building or other products for a long time.
In understanding the challenges of private development of forest carbon projects, it is important to comprehend the issues of these projects. First let us consider avoided deforestation projects. One of the first issues is simply measuring the amount of carbon in the forests that would be released if destroyed. There are certain protocols that can be used now developed by the Voluntary Carbon Standard (VCS), which has become the main standard setting organization for forest-related offset projects.
Another issue is the question of permanence. For growing forests a significant risk is permanence, that is, to what extent will the forest will be preserved over a very long period, as opposed to short term preservation with destruction to follow. If the forest is logged or it burns or dies from disease, then the carbon sequestered in the trees, plant life, and soil, will be largely emitted to the atmosphere and future sequestration of carbon dioxide will not occur. The carbon credits that are generated would be without substance if after five years the forest is destroyed. Forestry projects are largely long-term projects, lasting 20 to 100 years in most cases. Parties must show the registration entity and the verifiers that review the Project Design Document that the forest will not be cut down, burned, or harvested within the relevant project period. One approach used by the VCS to address permanence concerns is to hold back a percentage of the verified credits and to release them back over time, say the 30-year life of the project, to the project developer.
One of the other major concern for forest projects is leakage. For forest projects, leakage involves the question of whether the reduction in deforestation or degradation in one are simply moves that activity to a nearby property or a significant distance away. As an illustration, burning forests for soy bean farming, which is such a significant problem in Brazil, moves from one part of a state in a country where actions have been taken to stop such burning to another area in that state or to an altogether different state. Measuring and addressing these issues is required by the VCS.
Though the real game right now for REDD and reforestation projects lies with the VCS and voluntary carbon credits, it appears fairly clear that forest carbon projects will play a role and be large part of future US federal legislation and already has been accepted as an offset mechanisms in the California climate change regulatory system and will likely be part of the three multi-state climate change regulatory programs that are evolving and will go into effect even if Congress does not act to pass climate change legislation. The discussions at the international level appear to be moving toward accepting forest-based offset credits.
The greenhouse gas emissions from forest destruction are so massive, that we cannot avoid taking on the need to reduce this destruction dramatically. More and more major greenhouse gas emitters in the United States are beginning to review this opportunity and to look at investing in project-based REDD opportunities. The thinking is that investment in a project or entering into emission reduction purchase agreements that allow a company to have a right to purchase REDD credits once approved and verified, provides a good hedging mechanism for future offset prices. More and more of our clients are looking at both domestic and international forest carbon projects either as project developers or as investors to ensure that they take advantage of the opportunities that forest carbon projects provide. Ironically, utilities and oil and gas companies may find that trees are truly their best friends when it comes to addressing the first few years of a cap and trade system in the United States.