Green Horizons

During The Carbon Corner’s summer vacation, I took some time to step back and talk with people... a lot of people... who know a thing or two about the U.S. carbon market and forestry offsets in particular. I have spoken with folk from the California Air Resources Board (CARB) and the California Climate Action Registry (CCAR), the Northeast Regional Greenhouse Gas Initiative (RGGI); members of the CCX Forestry Committee; and technical experts with the major aggregators with registered and verified forestry offset projects.

Beginning with this issue I will share with you what I have learned, particularly related to what is known as managed forest offsets.

I’ll start with Delta Institute because this group was the first aggregator to work with the Chicago Climate Exchange (CCX) in developing the managed forest offset option . In future installments, I will share news and information on other aggregators, the CCX, regional carbon initiatives around the country, and any policies that might emerge from Washington, D.C.

The Delta Institute (www.deltacarbon.org) is a nonprofit organization formed in 1998 to develop and test fresh ideas for bringing about sustainable communities. A key goal of Delta is to integrate environmental protection and economic development. Delta developed the managed forest protocols and program framework in late 2006/early 2007, enrolled landowners, and inventoried/modeled the acreage by June 2007. The CCX formally approved their program as an offset project in August 2007, three months before the CCX released protocols in Dec 2007.

From the outset, Delta has developed managed forest offset pools consisting of many landowners, as opposed to developing a managed forest offset project for a single entity. Forecon’s wholly owned subsidiary, Ecomarket Solutions LLC, is an example of the latter and we will explore that project in another issue.

As is true for all aggregators, Delta is approved to aggregate credits in multiple states. Within their managed forest program, they have projects (enrolled lands) from Michigan, Illinois, Indiana, Wisconsin, Minnesota, Arkansas, Louisiana, and Texas.

When a landowner enrolls his managed forest with Delta, the contract is directly between the landowner and Delta. The landowner can work with any professional forester they want to prepare the management plan and conduct the forest inventory. Unlike the aggregator and verifier fees that are deducted from the carbon credit payment, the professional forester’s fee is usually an up-front cost paid at the time the service is performed.

Delta’s first managed forest pool was formed in 2007 and involved private forest landowners in Michigan. It started here because the Michigan Department of Natural Resources gave Delta a grant that, among other things, provided landowners technical assistance funds for the required upfront forest inventory fees. Landowners repay the funds through the annual sale of the carbon credits.

This first pool consisted of 34 properties totaling 48,665 acres. Delta registered 173,000 metric tons of carbon with the CCX Forestry Committee, of which 138,300 tons were verified for sale. Remember that the CCX holds back 20 percent of a project as an insurance policy. If the project remains intact at the end of the contract period, then this reserve will be available for sale.

Landowners are typically paid once the entire pool of credits is sold, using the average sales price for that pool. To date 69,300 tons of the pool has been sold and they have a verbal agreement from a large CCX member to purchase the remaining 69,000 metric tons. Assuming this latter sale is finalized, landowners should receive checks by the end of October.

Actually, 26 of the 34 participants will receive money in the form of a check. This is because their managed forests are large enough that they have generated sufficient income to pay off the technical assistance fund, Delta’s aggregator fee, and carbon verifier’s fee. The remaining eight landowners were not able to cover their costs through the sale of credits. Two of the eight landowners were in carbon deficit, and had no credits to sale. The remaining six landowners did not cover their inventory costs, primarily because their lands were less than 50 acres.

Remember that in this first pool, Michigan DNR covered the up-front inventory cost. This may or may not happen again for Michigan landowners in other managed forest pools and landowners in other states will need to see if their state forestry agency is (will) offering similar assistance monies.

The second pool was open to enrollments from Oct. 31, 2007, through May 1, 2008. They enrolled 33 landowners in eight states; totaling 41,730 acres, with an estimated 206,000 metric tons of carbon credits in the first year. This pool will be verified this winter and submitted to the CCX once verification is complete. Delta expects to have those credits on the market in late spring 2009.

Their third enrollment pool will open this October and close in May 2009, with credits available for sale in early 2010.

With the successful release of this first managed forest pool by Delta, other aggregators are beginning to open their own managed forest pools. Remember that the income you receive from participating in a managed forest offset project will depend upon:

• The size of your forest. If your acreage is small, inventory costs will consume a larger portion of your carbon revenue compared to larger landowners.
• The aggregator’s fee. Nonprofits such as Delta usually charge less compared to for-profit companies.
• The verifier’s fee. This covers the baseline inventory and succeeding annual inventories to verify the actual amount of carbon that your forest sequestered over the previous year.
• The price of carbon when credits in the pool are actually traded on the CCX.