Transcript Document

Opportunities for Forestry in the
Emerging Carbon Market
Delta Institute
About the Delta Institute
2
Transforming the Great Lakes Region into the
vital center of an emerging green economy.
Delta creates, funds and implements programs that promote a
healthy environment, a strong economy and thriving, vibrant
communities.
About Me
3
Education
BS Forestry – Michigan State University
MS Environmental Law – Vermont Law School
Work Experience
US Forest Service
-Mt Hood NF
-Tongass NF
-Huron-Manistee NF
-Southern Research
Station
Private Industry
-Rothig Forest Products
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Current U.S. Carbon Markets
•Chicago Climate Exchange
•Carbon Offset Credits
Chicago Climate Exchange
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•Voluntary, private, member-based, cap-and-trade market for the reduction of greenhouse gases
•Self-regulated market with legally binding emission reduction targets
•Cap is the member’s average annual emissions from 1998-2001
•Phase 1 Members – 4% reduction by 2006; 2% by 2010
•Phase 2 Members – 6% by 2010
•Phase 3 Members – Under consideration
The Delta Institute is an Associate Member and Registered Aggregator on the Chicago Climate
Exchange
•Over 400 Members
•Ford, Dow Chemical, DTE Energy, Steelcase, DuPont, Waste
Management, International Paper, AEP, Michigan State University,
MeadWestvaco, Neenah Paper Inc, Plum Creek, Stora Enso,
Temple-Inland
•Emission Reduction Results
•2003 – 32,806,900 mT (9.0%)
•2004 – 42,711,000 mT (12.1%)
•2005 – 32,540,200 mT (9.7%)
•2006 – 20,819,600 mT (5.9%)
Regional Greenhouse Gas Initiative (RGGI)
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•Cap-and-trade compliance market for the reduction of greenhouse gases
•10 participating states (CT, DE, ME, MD, MA, NH, NJ, NY, RI, VT)
•Each state sets limits on GHG emissions from electric utilities, creates CO2 allowances
and establishes participation in allowance auctions
•Phased-in approach, so initial reductions are modest
•Offsets are allowed, but constrained to 3.3% of utilities total compliance obligation
during control period.
•May be expanded to 5% or 10% if certain price thresholds are reached
•Afforestation projects are the only approved forestry projects
•Must have a 99 yr easement to prevent development
•Sustainably Managed Forest Protocols under some consideration
Over-the-Counter Markets (OTC)
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Over-the-Counter Markets
Gold Standard
Protocols based on the Kyoto Protocol Clean Development Mechanism
Focused on energy efficiency and renewable energy
No Forestry credits
Voluntary Carbon Standard (VCS)
Opportunities for agricultural and forestry projects
Standards that include a risk assessment to measure permanence, additionality
and leakage of the project
Requires conservation easement
Prices typically trade higher than CCX at $5-7 per mT
Other Policy Drivers
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California
Climate Action Registry (CCAR)
Credits from forestry allowed with 100 yr commitment
AB32 Regulatory requirement for California to reduce GHG emissions
“As California goes, so goes the U.S.”
Western Climate Initiative
Members: Arizona, British Columbia, California, Manitoba, New Mexico, Ontario,
Oregon, Quebec, Utah, Washington
Midwest Greenhouse Gas Reduction Accord
Post-Kyoto Protocol
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Introduction to Managed Forest Program
•Project Eligibility
•Enrollment Process
•Inventory Guidance
•Contractual Terms
Project Eligibility
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
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Private, non-industrial working forestlands, actively managed for sustainable timber
management, wildlife habitat, conservation, etc.
All forestlands in a single state under same title holder or controlling interest must be
enrolled
Complete forest inventory to establish baseline carbon stock and future carbon
sequestration
Participation in stewardship certification program
American Tree Farm System
Sustainable Forestry Initiative
Forest Stewardship Council
Forest Stewardship Plan or other sustainable forest management plan
Letter of intent to maintain forestland in certification program for at least 15 years
Enrollment Process
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1.
Complete enrollment application and contract
 Binds project owner through 2012
2.
Perform forest inventory to establish carbon baseline
 Emphasis on measuring total growth
 Performed by qualified forester in the dormant season
 Project owners bears the cost
Delta enters inventory data into USFS FVS model to establish carbon baseline and gross
sequestration
 Project owner earns credits for above-ground live, below-ground live and possibly, longlived wood products
Landowner/Foresters submits annual update on changes in carbon stocks

If a harvest is reported, foresters must re-inventory the affected areas so the annual net
carbon storage can be determined
Verification for aggregated enrollment pool occurs year

Desk/Field audits in Year 1 – desk audits in remaining years

Project owners shares cost with other enrollees
3.
4.
5.
Enrollment Process
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6.
7.
Verifier submits reports to CCX
 CCX removes reserve pool credits
 Annual, 20% deduction to reduce impact of catastrophic events
 At end of contract period, unused credits are released and sold on market
 End Result: Salable carbon credits
Delta sells credits on the Chicago Climate Exchange trading platform with net profits
returned to project owners
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Aggregation & Data Management Fee – 10% of gross revenue
CCX Trading Fee - $0.20 per ton
Verification fee – proportional to amount of credits that a landowner contributes to
the enrollment pool
Inventory Guidance
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1.
“Qualified” foresters conduct inventory
 State Registered Forester
 SAF Certified Forester
 Member of Association of Consulting
Foresters
2.
Variable and fixed radius plots
 Variable radius plot to measure overstory
vegetation
 Hundredth (1/100) acre plots to measure
understory vegetation
3.
Inventory to be done with error rate of +/20% of mean wood volume at a 90%
confidence interval
Inventory Guidance
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Stand Data Requirements
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Stratify property by forest cover type
List site index and site index species for
each stand
Record the approximate age of each
stand
Delineate stands on maps, preferable
in GIS shapefiles
Plot Data Requirements
Variable radius, overstory plots
•Record species and count of trees using FIA codes
•Measure diameter for all trees greater than 4.6”
dbh
•Management prescription
Fixed Radius , Understory Plots (1/100 acre)
•Record species and count of trees using FIA codes
•Measure diameter for all trees less than 4.6” dbh
•If trees are greater than 1’ ft but less than 4.5’,
record diameter as 0.1
•Estimate height in 1 ft increments
Other Programmatic Items
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Baseline

Fall enrollments means 2009 baseline – credits earned for net carbon storage during
2009, 2010, 2011 and 2012 growing seasons

Crucial to establish baseline as soon as possible to preserve salability of credits
Reserve Pool

CCX requires that 20% of credits each year be placed in a reserve pool to protect
against catastrophic events

In the event of wholesale catastrophe, liability is limited to the credits in the reserve pool.
Will not have to buy credits to account for catastrophic losses
Losses to timber harvesting

CCX does not permit reserve pool credits to be used for timber harvesting losses

If project owner has an carbon deficit due to timber harvesting, future are applied to the
deficit before anything can be sold.
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If deficit occurs in final contract year, landowner buys credits off market
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Project Examples
Example 1 – Typical Property
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Acreage
2007
End
Wght Incrmnt
A
84
49.2
50.7
1.04
B
8
25.2
26.1
0.06
C
28
1.6
1.9
0.06
120
76.0
14568.7
78.6
15031.3
1.16
462.6
Total
Baseline (mT CO2)
Stand
Start
Acreage
End
Wght Incrmnt
84
50.7
52.1
1.04
B
8
26.1
27.0
0.06
0.09
Total
Stand
28
1.9
2.2
120
78.6
81.4
1.19
15031.3
15506.9
475.7
Acreage
Start
End
Wght Incrmnt
52.1
53.6
1.00
B
8
27.0
27.9
0.06
C
28
2.2
2.7
0.10
120
81.4
84.2
1.16
15506.9
15972.1
465.2
Total
Stand
Acreage
2010
End
Wght Incrmnt
A
84
53.6
54.9
0.92
B
8
27.9
28.9
0.06
0.16
C
Total
16500.0
16000.0
15500.0
15000.0
14500.0
2009
84
A
17000.0
2008
Start
A
C
Example 1
Carbon Sequestration
Metric Tons CO2
Stand
Start
28
2.7
3.3
120
84.2
87.1
1.14
15972.1
16428.0
455.9
14000.0
13500.0
2006
2007
2008
2009
2010
Example 2 – Property w/Harvest
18
Acreage
2007
End
Wght Incrmnt
A
140
39.8
41.4
1.37
B
7
0.6
0.7
0.00
C
Total
11.5
3.5
3.8
0.02
158.5
44.0
45.9
1.40
18707.5
19446.0
738.5
Baseline (mT CO2)
Stand
Start
Acreage
End
Wght Incrmnt
77
41.4
43.0
0.81
B
7
0.7
1.0
0.01
C
11.5
3.8
4.0
0.01
-0.83
A1
Total
Stand
63
39.9
37.8
158.5
85.80
85.86
0.00
19446.0
19135.7
-310.34
Acreage
Start
End
Wght Incrmnt
77
43.0
44.6
0.74
B
7
1.0
1.4
0.02
C
11.5
4.0
4.2
0.01
63
37.8
39.3
0.60
158.5
85.86
89.43
1.36
19135.7
19854.8
719.1
Total
Stand
Acreage
2010
End
Wght Incrmnt
A
77
44.6
45.9
0.65
B
7
1.4
2.1
0.03
C
11.5
4.2
4.5
0.02
63
39.3
40.7
0.56
158.5
89.43
93.21
1.26
19854.8
20520.5
665.7
A1
Total
20500.0
Start
20000.0
19500.0
19000.0
18500.0
2009
A
A1
21000.0
2008
Start
A
Example 2
Carbon Sequestration
Metric Tons CO2
Stand
18000.0
17500.0
2006
2007
2008
2009
2010
Example 3 – Property w/Harvest & Deficit
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Acreage
Start
End
Wght Incrmnt
A
418
32.2
32.5
0.19
B
38
22.7
23.8
0.07
C
16
2.8
4.1
0.03
D
51
35.7
37.1
0.12
E
50
0.0
0.0
0.00
F
22
0.0
0.0
0.00
Total
595
Baseline (mT CO2)
Stand
93.5
97.5
0.41
53894.4
54711.8
817.38
Acreage
2008
Start
End
Wght Incrmnt
A
411
32.5
32.3
-0.12
B
21
23.8
17.6
-0.22
C
16
4.1
5.6
0.04
D
51
37.1
38.5
0.12
E
50
0.0
0.0
0.00
F
22
0.0
0.0
0.00
A1
7
45.1
10.6
-0.41
B1
16
12.0
0.9
-0.30
-0.03
B2
Total
Example 3
Carbon Sequestration
2007
1
60.8
43.0
595
215.4
148.6
-0.91
54711.8
52696.0
-2015.78
55000.0
54500.0
54000.0
Metric Tons CO2
Stand
53500.0
53000.0
52500.0
52000.0
51500.0
2006
2007
2008
2009
2010
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Cost/Benefit Relationship
Managed Forest Project Costs
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1.
Upfront costs
 Forest Inventory
 Landowners pay an average of $1-10 per acre
 Larger landowners (>5,000 acres) pay $1-3/ac
 Smaller landowners (<200 acres) pay $6-10/ac
Sustainability certification (SFI or FSC - $10,000 - $500,000)
2.

Back-end fees deducted from the annual sale of credits
 10% of gross revenue for Delta aggregation & data management fee
 CCX registration and trading fee - $0.20 per ton
 Verification fee – depends on enrollment pool. For most landowners, will only be a
few hundred dollars, at most.
Managed Forest Project Revenue
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MF Pool 1 (Pilot)
48,665 acres
Gross Credits
201,300
Harvest
28,400
Annual Net Cseq
172,900
Reserve Pool (20%)
34,600
Tradable Credits
138,300
2008
Gross Revenue
Typical Midwestern forestland sequesters between
3 – 5 mT of CO2 annually
Enrollment pool grossed $468,837
Average sales price $3.39 per ton
Net Revenue to landowners - $389,097
Net Revenue per acre - $8.00
Represents credits for 2007 only!
Aggregation
Trading
Net Revenue
$2 per ton
$
276,576
$
27,685
$
27,658
$
221,261
$3 per ton
$
414,864
$
41,486
$
27,658
$
345,720
$4 per ton
$
553,152
$
55,315
$
27,658
$
470,179
$5 per ton
$
691,440
$
69,144
$
27,658
$
594,638
$6 per ton
$
829,728
$
82,973
$
27,658
$
719,098
$7 per ton
$
968,016
$
96,802
$
27,658
$
843,557
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What’s Next?
The Future of U.S. Carbon Trading
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Chicago Climate Exchange
Scheduled to end in 2010 - CCX members discussing a Phase 3 which may extend
to 2012
CCX is positioning itself to be the trading platform in a mandatory system
CCX will likely fill the gap until the compliance market takes effect
Best Case Scenario – CCX credits fungible in compliance market
President Obama
Reduce to 1990 levels by 2020
Reduce 80% below 1990 levels by 2050
Unclear what role agriculture or forestry would play in a compliance market
Democrat Leadership in the House will introduce bills to establish cap-and-trade market
contact me
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Contact Information
Delta’s Carbon Portfolio
Michigan Office
Chicago Climate Action Plan and Offset Fund
600 W St Joseph Ste 1G
Carbon Offset Opportunities through Product
Lansing, MI 48933
Substitution
517.482.8810
Reducing GHG Emissions through Environmentally
[email protected]
Preferable Purchasing
DeltaCarbon.org
Main Office
Retail Carbon Sale
53 W Jackson Blvd Ste 230
“Coal in Your Stocking” Event
Chicago IL 60604
delta-institute.org
Illinois Conservation & Climate Initiative (ICCI)
deltacarbon.org
Michigan Conservation & Climate Initiative
(MCCI)
www.delta-institute.org
Managed Forest Carbon Offset Program
www.deltacarbon.org