ErgodyneCarbon Credits — A Cause for Concern, an Opportunity, or Both?

By Jack Petree

“Big Investor Eyes Carbon-Offset Land,” was a headline in the October 13, 2021, issue of the Wall Street Journal, reporting on a proposed $500 million dollar partnership between two entities proposing to purchase something in the range of 1 million acres of forest land in North America and remove those lands from potential timber harvest in favor of harvesting “carbon credits.”

The credits are to then be offered for sale to companies as diverse as Microsoft and British Petroleum — companies seeking to “negate” or “reduce” their carbon footprints through the bookkeeping exercise involved in mitigating carbon emission releases to the atmosphere in one place by reducing carbon emissions in another place.

The carbon-offset business, as it grows in coming years, will result in significant financial impacts, positive and/or negative, on all facets of the forest products industry. Landowners, harvesting contractors, equipment manufacturers, mill owners, and others, including the end users of the forest originated product, will be affected. Industry participants with an eye to the future would do well to pay attention to the issues involved in carbon-offset markets. Their participation in just beginning discussions will likely have considerable influence on the shape of the industry’s future for decades to come.

Current State of Credits

Early in 2021, Washington State followed California in passing legislation aimed at requiring large emitters of greenhouse gasses to engage in finding ways to reduce those emissions to specified “cap” levels over time. For the right amount of money, companies (at least for the present) can buy their way out of exactly meeting the assigned reduction targets. Washington’s version is called “cap and invest.” What that term means exactly is yet to be seen.

Rulemaking on the Washington version is just beginning with the first public meeting/briefing held November 2021. California’s rule making has been a work in progress. A cascade of similar legislation is expected in coming years as other states, including most western states, join the parade.

Carbon Credits or Carbon Offsets

The crux of the issues regarding carbon legislation, and its importance for the forest products industry, is a concept called Carbon Credits or Carbon Offsets. Trees are famously able to capture carbon from the atmosphere and store (sequester) that carbon for much of the life of the tree. When a tree is harvested, its career as a carbon sequestration entity obviously ends. The amount of carbon the tree would have sequestered each year had that tree not been harvested can be calculated. The value of that additional sequestration is recognized in what amounts to a virtual currency in the form of Carbon Credits — registered and numbered units, each representing one metric ton of carbon.

Simplistic characterizations are always open to question, but put simply, a company emitting carbon as part of its operation and unable to meet the maximum allowable number assigned by the state can buy carbon credits in lieu of a reduction in emissions by an amount equal to the carbon emissions reduction represented by the credits purchased.

It’s easy to understand why investors and greenhouse gas emitters are so eager to purchase timbered land, pull it from the potential harvest inventory, and harvest carbon credits.

The Forest Products Point of View

For the forest products industry the issues are manifold. For example, the rush to remove ever increasing amounts of forestland from potential harvest probably means rising stumpage prices on an ever decreasing supply of timber, resulting in the consequent passing of those higher costs through the supply chain all the way to the consumer. Decreasing supplies of harvestable timber also means reduced opportunities for harvesting contractors, equipment suppliers, and so on.

Less obvious impacts may be even more profound in their effect. Just one example among many? Absent carefully designed rules governing carbon credits, the health of many forests may be threatened. Oregon’s 2021 Bootleg Fire destroyed 400,000 acres, some set aside to produce carbon credits. Had those acres been properly treated to reduce the potential for catastrophic fire would those carbon credits have gone up in smoke? Would those acres ever have been properly treated with the restrictions required to obtain carbon credits in place on them?

November’s World Climate Change Conference in Glasgow, Scotland, can be seen as the kick-off to a new era in “combatting” climate change. The forests of North America, because of their importance in sequestering carbon, will be the focus of intense interest as rules and regulations governing the production and acquisition of carbon credits are developed in coming years.

The potential for severe damage to the forest products industry, as well as the potential for significant opportunity, exists as those rules are adopted and put into place. It behooves industry professionals to learn everything possible about how climate change regulations can achieve the goals set out for them while also causing the least harm and the greatest benefit to the industry possible. Then participate — and participate some more — in helping to shape that legislation.

Jack Petree is a public policy consultant an owner of Tradeworld Communications.

TimberWest November/December 2013
November/December 2021

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Carbon Credits — a cause for concern, an opportunity, or both?


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