With a rising tone of urgency, a cadre of environmental organizations including Forests Forever is demanding that the California Air Resources Board (ARB) reverse its recent approval of a cap-and-trade protocol that will allow – and even encourage – forest landowners to make windfall profits by registering forest offset projects that may include clearcuts of up to 40 acres each.

We’ll explain the meaning of “offsets” as we go. For the moment, please realize it’s a bit of jargon that forest defenders only recently have had to come to terms with.

The cap-and-trade system we refer to is the one being set up by the ARB as part of A.B. 32, the Global Warming Solutions Act of 2006. Other cap-and-trade systems are being set up regionally and internationally (although various proposals for a national system have been stymied in Congress) and linked in various ways, but for the sake of focusing on California, we’ll leave those aside.

With the ARB’s approval last December of a protocol for forest offset projects under cap-and-trade, landowners may lay claim to “offsetting” other industries’ greenhouse-gas (GHG) pollution, even as said landowners are allowed to clearcut parcels of up to 40 acres. This they can do regardless of whether their clearcuts occur inside or outside of their project areas. Either way, ARB may still credit the landowners for conducting “sustainable” forestry practices on their lands.

Once registered with the ARB and credited with reducing GHG emissions, these landowners or timber companies can then take part in the lucrative trading of carbon pollution offsets in the cap-and-trade marketplace.

In that arena, industries required by ARB to reduce their GHG emissions engage in the trading of both “offsets” and “allowances.” The two terms represent distinct instruments of the cap-and-trade marketplace – not unlike stocks and bonds in financial markets. But rather than representing wealth, the instruments represent attempts to reduce GHG emissions – a crucial step in halting global warming. The terms have important distinctions, which we’ll come to later. For now, let’s focus on offsets.

 

A free pass on CO2 emissions

Under the Byzantine forest protocol just adopted by ARB, a timberland owner could cherry-pick which project-area parcels to register for the offsets portion of the cap-and-trade market. At the same time that owner could shift destructive logging practices – including clearcutting – to lands outside the project-area boundaries. Business as usual, including clearcutting, could go largely unchecked on the ownership.

This practice, referred to in the field of cap-and-trade policy as “leakage,” distorts GHG accounting and defeats efforts to control emissions. Yet to the detriment of the program, ARB does little to discourage and nothing to police such leakage in the forest sector.

It gets worse. The ARB, lacking any sound scientific justification, overlooks the possibility that individual timber companies – especially those doing clearcutting – may be net emitters of CO2 from their forestlands. (More about that later on.) Instead, the ARB considers the forest sector categorically, as a whole, to be a net carbon sink, always sequestering more CO2 than it releases, regardless of what kind of forestry is going on.

Extending this reasoning even further, because timber is categorically deemed a green industry, never a polluter, participation of forest landowners in the cap-and-trade program is purely voluntary.

The whole reason clearcutting became an issue in the forest protocol debate, said Brian Nowicki, California Climate Policy Director at the Center for Biological Diversity (CBD), is that the forest sector is the only economic sector deemed by the ARB to sequester more CO2 than it releases, making it a principal potential source of offsets for the cap-and-trade market.

In making this assertion, ARB relies on California’s purportedly “stringent” forestry laws while rejecting the possibility that a lawful logging operation might be a net emitter of CO2.

Thus, decrees ARB, timberland owners practicing clearcutting get a free pass on CO2 emissions restrictions while earning easy money by selling offsets in the cap-and-trade market.

 

The devil is in the details

At this point, dear reader, if your eyes are starting to glaze over at the complexity of this offsets scheme, we understand. As environmental educator and “The Story of Stuff” creator Annie Leonard says in her trenchant YouTube video on cap-and-trade, “the devils are in the details.” The more complex schemes such as forest offsets become, the greater the likelihood of them being gamed, loop-holed, hornswoggled or otherwise tampered with by industry. Which is exactly what’s happening here.

With that in mind, bear with us as we delve deeper into the details, attempting to cleanly sort them out for you.

To participate in the offsets program, forestland owners must meet certain criteria. The ARB requires them to employ and demonstrate long-term “sustainable” harvesting practices on all of their forest landholdings, both inside and outside any given project areas.

(Project areas need be of no set size; their dimensions may vary greatly. The project area boundary must circumscribe all GHG sinks, reservoirs and emission sources – such as retained forests, tree cutting and replanting, site preparation, debris burning and the like – that must be accounted for during the offset project’s duration.)

Forest owners may demonstrate “sustainability” in any one of three ways.

First, they may submit to third-party certification of their management practices under the Forest Stewardship Council (which is well regarded by most environmental groups), the industry’s Sustainable Forestry Initiative greenwash, or the American Tree Farm System, another forest-industry sponsored program.

Second, they may adhere to a renewable long-term management plan that demonstrates “sustainable” harvest levels over time and is sanctioned and monitored by a state or federal agency.

These two options do not preclude clearcutting occurring on an ownership, but do require certain concessions by the forest owner. On a watershed of up to 10,000 acres, operations within project areas must maintain, or make progress toward maintaining, at least 60 percent of their acreage in forests at least 20 years old.

In an attempt to assure that decreased harvesting inside a project area does not simply lead to increased harvesting outside the project area (an abuse known as “leakage”), the forest owner must meet the “sustainability” criteria on all of its landholdings.
Last but not least, forest owners may demonstrate “sustainability” by employing only uneven-aged harvesting (i.e. no clearcuts) in a given project area, while maintaining a canopy cover averaging at least 40 percent across all of their holdings in and around the project area.

Let’s hope this is all starting to make sense.

Baselines, assessment areas, additionality and more

In all of the scenarios just mentioned, for monitoring purposes, setting baselines and boundaries is key.

By the time of a project’s onset the ARB is supposed to have determined the historic biomass and carbon-storage levels for the project area.

This calculation is done using statistically representative “assessment areas,” which may vary in size and are supposed to typify the forest communities in and around the project area. The assessment areas may or may not overlap the project areas.

A project area can extend across multiple assessment areas.

Assessment areas themselves fall within geographically identified “ecosections,” which are large administrative areas governing forest management. These in turn may be combined to form “supersections.”

Throughout the course of a given project – which may last up to 100 years – the baseline serves to calculate the progress (or failure) of the project in storing CO2 above the baseline.

The ARB justifies clearcutting being allowed to occur on “sustainable” holdings on the grounds that the practice is already allowed under state forestry law, and that, as ARB Public Affairs Spokesperson Stanley Young told Forests Forever, “California’s Forest Practice Rules are the most stringent in the nation.”

But the rule granting forest offset projects permission to incorporate clearcuts, and for clearcutting timberland owners generally to qualify to sell offsets, has prompted environmental groups to cry foul – in particular, CBD, Sierra Club California, Ebbetts Pass Forest Watch and Forests Forever. Clearcutting is notorious for its harmful effects on water quality, wildlife habitat, microclimates, and for increased global warming emissions.

“What we’re asking for specifically is that projects being registered as part of the carbon offset program not be allowed to include clearcutting,” said Nowicki. “More specifically we wouldn’t have existing native forests converted into tree farms via clearcutting.

“We’d like to see the carbon offset program serve as an incentive to increase the conservation of standing forests because that’s not only one of their most valuable benefits as far as their ability to absorb and store carbon but also in terms of associated benefits to wildlife, water quality, and the like.”

As pointed out in a paper by Prof. David P. Turner of Oregon State University College of Forestry (“A carbon budget for forests of the conterminous United States,” Ecological Applications, Vol. 5, Issue 2, May 1995) “considerable time is required – often hundreds of years – for regenerating forests to accumulate the carbon stocks characteristic of primary forests.”

To make sense ecologically and economically, forest offset projects must be “additional,” meaning that they guarantee the sequestering or retention of carbon stocks above and beyond what would otherwise have occurred on the project land.

“You have to define the boundaries of your project and you get paid when the amount of carbon on that project is greater than it would have been under ‘business-as-usual,’” said Nowicki.

“However, the way it’s currently set up and running, you get to assume credit for carbon storage in the portion of the wood that goes into wood products, such as lumber, and also get to basically ignore a lot of the emissions associated with stuff other than standing live trees, such as (decaying) down logs and other biomass on the forest floor, and release of carbon from exposing the soil.

“The GHG emissions associated with the conversion of natural forests to even-aged plantations would not necessarily be counted under the forest protocol if the project is registered more than 10 years after the conversion occurs.”
Because of such oversights, he said, landowners may get credit for an overall increase in carbon stock when in fact they have leveled more-or-less natural forest stands and replaced them with smaller, evenly spaced trees of only one species, with little or no habitat value.

“Absolutely this is not an addition to carbon stocks.”

Incentivizing clearcuts

Nowicki said that the offsets program could create an incentive for companies to clearcut. He cites, for instance, the case of Sierra Pacific Industries (SPI).

“SPI has acquired millions of acres of forest in California that were owned by other companies doing selection harvesting. SPI’s plan is to convert a majority of that area to even-aged plantations.

“Their calculation and assertion is that by removing or liquidating existing forest down to bare dirt” they can then plant young trees grown in their nursery stock, spacing them equally, and grow them faster than a native stand would grow, which would lead to increased carbon sequestration.

This is a common assertion by the timber industry. SPI and others frequently tout studies the industry has commissioned claiming to show that young forests sequester carbon more rapidly than older ones. Industry scientists argue that forests of a certain age – say around 100 years old – cease to absorb more carbon than they emit, reaching equilibrium. Therefore these “nonproductive” elders are best cut down and replaced with young, vibrant, CO2-absorbent tree plantations.

But that old canard contains a mass of untruth.

As a group of eminent independent scientists pointed out in the Sept. 11, 2008, issue of Nature (Vol. 455), “we find that in forests between 15 and 800 years of age, net ecosystem productivity (the net carbon balance of the forest including soils) is usually positive. Our results demonstrate that old-growth forests … accumulate carbon for centuries and contain large quantities of it. We expect, however, that much of this carbon, even soil carbon, will move back to the atmosphere if these forests are disturbed.”

Given A.B. 32’s goal of reducing GHG emissions in California by 30 percent within the next nine years (by 2020), cutting down relatively natural forests now in order to cultivate tree plantations for 100 years makes no sense.

Nowicki surmised that in ARB’s view, without the participation of the largest forest landowners, who expect to continue clearcutting, the supply of offsets would be too limited for the overall cap-and-trade program to work properly.

 

Allowances vis-a-vis offsets

At this point a clarification of two terms that are sometimes (loosely) used interchangeably is in order.

Businesses regulated by cap-and-trade – power plants, cogeneration facilities, cement plants, refineries, hydrogen plants, retailers, and stationary combustion facilities – are allowed to lessen the costs of reducing their GHG emissions by purchasing offsets.

In the carbon-trading market, offsets, which we have been discussing up to now, sell more cheaply than carbon “allowances” (aka “carbon credits”). Both instruments are aimed at the same objective: reducing GHG emissions. But they differ in important ways.

At the outset of the cap-and-trade program, the ARB will allocate allowances to industries based on their cap, meaning how much CO2 (or the equivalent in other GHGs) those industries are allowed to emit. One allowance represents the right to emit one ton of GHGs in a given year.

In the first year of participation, an industry with a cap of, say, 1,000 tons of CO2 will receive 1,000 allowances for that year. Periodically thereafter, the ARB will lower the cap for all industries, forcing companies to modify their plants or processes to meet emission-reduction targets.

Industries that successfully lower their emissions below the cap will have allowances to spare. These they can then sell to other industries that fail to meet their target GHG reductions in a given period.

Allowances could, in theory, make up most or all of the excess emissions above its cap by that industry.

The cap set on an entire sector of the economy determines the total number of allowances issued by ARB for all industries in that sector. Those allowances may be traded among industries so long as the total remains under the cap. The number of allowances issued for a sector combined with the number of permissible offsets for that sector determines the absolute limit on emissions by all industries in that sector.

However in a sector that is polluting a great deal relative to its cap, allowances flowing from greener players might end up in short supply. What’s more, the price of allowances, established by what the market will bear, might in some cases be too high for some emitters.

In which case an emitter can turn to buying offsets, which are cheaper and theoretically accomplish the same goal as allowances.

An offset, like an allowance, represents a ton of reduced or sequestered CO2 (or GHG equivalent). But unlike allowances, offsets come from uncapped sectors of the economy, where sequestering CO2 is relatively cheap to accomplish

Offset-providing projects – subject to the kinds of eligibility criteria mentioned at the outset of our story – include urban forestry, methane (manure) management, the destruction of stockpiled ozone-depleting chemicals such as refrigerants, and sustainable forestry.

Discounting pollution

In effect, offsets represent a bargain-basement route for industries to help meet their emission-reduction targets.

However to assure that industries do not over-rely on offsets to avoid direct reductions of their GHG emissions, the ARB has promulgated certain restrictions. A company may use offsets to meet no more than eight percent of its mandated GHG reductions.

But if every possible “leak” in the uncapped forest sector isn’t plugged at the get-go, cap-and-trade might end up doing nothing more than draining our forests of their many rich resources – and releasing their vast stores of carbon in the process – only to provide offsets to a market that allows polluting industries to postpone installing true pollution controls for years.

We believe a sufficiently informed public can actively apply pressure, forcing an urgently needed tightening of the forest protocol. And if the whole system is too complicated for the general public to understand, this should raise red flags about how effectively it can be implemented and whether would-be abusers might not steal the show.