Questions and answers from 3GreenTree Ecosystem Services Ltd.
Clive Welham, PhD, RPBio – Specializes in the application of ecological models towards the development of sustainable forest management systems, with a particular emphasis on carbon. He is a Founder and Principal in two active consulting firms, FORRx Consulting Inc., and 3GreenTree Ecosystem Services Ltd., a Research Associate in the Faculty of Forestry, UBC, and an Adjunct Professor at Nanjing Forestry University, in China.
Activities that reduce greenhouse gas (in particular, carbon dioxide) emissions through the application of innovative forest management practices, restoration of degraded land, and/or avoided conversion from forest to other land uses. The amount of emission reductions from these activities is expressed in terms of carbon credits. Credits can be used internally to meet emission reduction targets or sold to other parties. These projects usually also generate other ecological and community benefits.
A carbon credit represents the avoided emission of 1 ton of carbon dioxide equivalent (CO2e).
The terms ‘carbon credit’ and ‘carbon offset’ are often used interchangeably. In practice, a carbon project generates credits. Credits have no inherent value, however, until they are used as offsets to reduce (offset) the impact of the same amount of GHG emissions elsewhere.
No. Carbon offsets serve to counterbalance emissions that are occurring elsewhere. They are one of a number of solutions to reducing GHG emissions:
• The private sector pays for carbon offsets, which allows capital to flow directly to priority areas such as forest carbon sequestration projects that have been traditionally underfunded.
• There are now robust carbon offset frameworks that provide strong measuring, reporting and verification requirements to ensure projects result in genuine benefits to the atmosphere.
• Cost-effective mitigation options like offsets will help lower the overall costs of transitioning to a low-carbon economy.
No. Projects can include some planned logging as an activity. However, to generate any credits the emissions from logging must be less than would have occurred had the carbon project not be undertaken.
Yes, ownership and management activities on the MNC MFR would satisfy requirements defined by the leading carbon standards organizations.
Estimates indicate that a carbon offset project on the MFR could provide an ongoing, stable revenue source to the MNC. The analysis looked at a price range from $5.00 CAD per t CO2e to $20.00 CAD t CO2e. At an average annual sale price of $10 CAD per t CO2e, a carbon project is competitive with the current logging model.
In the case of the MFR, a single baseline was utilized, termed business-as-usual (BAU). BAU is a continuation of the harvesting and silvicultural practices employed on the MFR over the recent past. Harvesting returns (annual profit) were derived from the financial statements submitted to the Forest Advisory Committee each year, from 1987 to 2019. Annual profit reflects the actual benefits returned to the community from the forestry program
Approximately, $260,000. This number includes what has already been spent on data acquisition, analysis, and the carbon report, and the expected costs of generating a fully functional project with marketable credits. All of these costs were included in the revenue comparison calculations.
About $30,000 annually, on average, for project-specific costs. There may be some periodic fixed and capital costs from harvesting that could be included in the financial calculations.
Experience from prior projects we have developed, and market reviews. The Forest and Land Use project category tends to command the highest average prices, particularly the Improved Forest Management (IFM) project type (i.e., the same type as the MFR project). IFM projects reported average credit prices in 2017 and 2018, of $9.32 USD and $8.15 USD per t CO2e, respectively (source: Ecosystem Marketplace - Financing Emissions Reductions for the Future. State of the Voluntary Carbon Markets 2019). In 2017, there were just as many credit sales in the highest carbon price category ($12+ USD) as the lowest category (< $1 USD), but in the former, buyers purchased offsets in much smaller quantities. It is worth noting that the highest prices were more than $50 USD per t CO2e.
For large credit producers, oversupply and resulting low prices, have been a challenge. This project, however, is relatively small, charismatic (see Question 13), and conforms to a leading carbon standard, which makes it highly desirable. Our expectation is that the MNC project will have appeal to a more specialized segment of the market (local businesses, government, non-governmental organizations), who are seeking relatively small amounts of high-quality credits and willing to pay higher-than-average prices.
This is a non-technical term applied to projects that deliver a suite of co-benefits beyond just carbon credits, some of which have additional monetary value. In the case of North Cowichan, co-benefits might include habitat improvement for rare and endangered species, water quality and supply, visual quality, and recreational opportunities. A project that possesses these attributes will have widespread appeal and thus is “charismatic”.
As with any product, recent events make it difficult to predict general market conditions. A carbon project is an investment, not just in community aspirations but financially. As such, it entails both risk and reward. Nature-based solutions like the MNC Forest Carbon Project have been gaining popularity in recent years, a trend likely to continue. The Paris Climate Accord (signed in 2016) should have a positive impact on credit demand. There is a gap between the level of emissions that countries have committed to under the Accord and the emissions trajectory that climate scientists predict is necessary to keep global warming within 2°C. Closing this gap will likely require significant action by non-state actors thus providing opportunities for the voluntary market. Governments and the corporate sector have indicated the importance of maintaining climate commitments, despite the economic impacts of COVID-19
The Project crediting period is time span for which the credits generated by the project will be eligible for sale. Under the Verified Carbon Standard (VCS), this a minimum of 20 years (renewable up to 4 times), to a maximum 100 years. The project could, in principle, end after 20 years but there are financial benefits to having a longer crediting period
Typically, validation and the first verification are conducted simultaneously, usually requiring several months to complete, but this saves both time and money. Subsequent verifications confirm the integrity of new credits generated in the period following the previous verification. A project must re-verify a maximum of every five years.
The project is required to implement a monitoring program that includes a series of permanent sample plots, as well as remote sensing data. Monitoring activities occur on a regular basis in order to track conditions on the project area (documenting any unplanned carbon losses from fire, illegal harvesting, leakage, for example) and estimate carbon stocks resulting from planned harvests and re-growth.
Yes. It appears that, on average, from 2020 onwards, MNC will need to reduce emissions annually by 9,250 t CO2e to achieve the year 2050 emissions reduction target. This is achievable using the carbon project but the proportion of annual credits that would need to be allocated depends how many are generated from the project; this will impact the number of credits that would be left for sale.
Yes. This is called a grouped project. It has to be designed at the beginning, is more complex to set up and operate but has the benefit of including landowners directly in the community’s climate goals.
Yes. This can be included within the project activities.
Yes. This can be included within the project activities.
Yes. Project monitoring and forest maintenance activities will still be required.
Yes. In the case of the MFR, the credit pool is generated by preserving trees that, under the baseline, would have been logged.
Credits are sold after emission reduction have occurred, not before (termed, ex poste). So, for example, if the project start date is January 1, 2020, and verification occurs on January 1, 2021, there is a 2020 vintage of credits available to sell. Credits generated in year 2021 then, cannot be sold until at least year 2022. Typically, credits are purchased annually at negotiated prices. It is possible to utilize a forward-contract, whereby an entity agrees to purchase credits annually, for a set time period, as they become available.
Carbon projects are not fundamentally different than traditional forestry, in the sense, that credits are generated annually and are ongoing. In the MFR project, it is the harvest schedule itself, as defined under the baseline, that generates the credits. Ironically, at the end of the carbon project, timber values would have appreciated by the fact that trees are that much bigger.
Technically, this is correct though certainly not desirable. The VCS has provisions to address this issue and rectify any resulting increase in emissions.