Grad presentation for UF SWS6932 F2016

1. The Carbon Market
Valuation and trading of a forest ecosystem service
Karen Zilliox Brown
UF SWS 6932
Fall 2016

2.  Carbon sequestration is the process by which atmospheric
carbon dioxide is taken up by trees, grasses, and other plants
through photosynthesis and stored as carbon in biomass (trunks,
branches, foliage, and roots) and soils. The sink of carbon
sequestration in forests and wood products helps to offset
sources of carbon dioxide to the atmosphere, such as
deforestation, forest fires, and fossil fuel emissions. (USDA
definition)
 Rate of sequestration depends on tree species, age of stand,
stocking level, and site index (Mercker)
The Service: Carbon Sequestration
(Gas regulation and climate regulation)

3. The Service: Carbon Sequestration
(Gas regulation and climate regulation)
 Recognized role of greenhouse gas emissions in global
climate change (Susaeta, Noss, many others)
 Carbon dioxide in particular, a main contributor
 Pace of average annual temperature rise, and myriad
adverse effects, are a chief concern to scientific
community, world governments, and citizens

4. The Framework: Global Climate Initiatives
 Kyoto, 1997
 Copenhagen, 2009
 Paris, 2015
 Marrakesh in 2016
 Nations agree to reduce emissions to a specific level or
reduction rate, by a target date, in order to curtail global
temperature averages from rising by a determined
increase that has been deemed significant
 Forests’ role in the global carbon cycle is considered
towards a nation’s emissions-cutting efforts (Stainbeck)

5. Marketplace solutions for carbon
exchange
 One carbon credit=one tonne of atmospheric carbon
 Worldwide standard unit of measurement
 Cap and trade system: carbon emitters can purchase
offsets for excess emissions in the forestry sector, among
others
 Sequestration services are transportable

6. Carbon markets for forest landowners:
Getting started
1. Feasibility study
2. Certification and enrollment
3. Monitoring by an independent party
to determine storage estimate
4. Contract for a carbon sequestration
term, including any penalized
activities
5. Issuance of carbon credits for
services provided
6. Credits enter the marketplace for
sale, also called “retiring” of credits
(Jenkins)
 Carbon firms appealing to
landowners interests:
 Finite Carbon
 Green Assets

7. Forest practices for sequestration:
Improved Forest Management (IFM)
 Also called Sustainably
Managed Forest option in
some plans
 Carbon sequestration based
mainly on lengthening
rotations for timber species
 Can be beneficial for
landowners when longer-lived
timber results in higher value
products once harvested
 Saw timber vs. pulpwood ratio
(Stainbeck)

8. Forest practices for sequestration:
Improved Forest Management (IFM)
 Sequestration is valued based on the increase of carbon
storage vs. the BAU scenario (Soto)
 Sequestration must exceed deficits
created from approved practices
including thinning or prescribed
burning (Mercker)
 Relationship between timber prices,
carbon prices, and landowner
choices (Kothke)

9. Forest practices for sequestration:
Afforestation
 Carbon storage increases are much higher than
the previous land usage, especially if degraded
 Can be a total gain if land was previously
devoid of vegetation (Kothke)
 AF has the greatest increase of storage over
baseline of all forest practices (Soto)
 Thinning and burning may be allowed with
some AF contracts, during some period of the
term
 Some markets ONLY recognize AF projects
(Jenkins)

10. A path to the carbon market for southern
forest landowners?
 Forested lands in the south projected to decline by 6% over 35 years
(Mutandawa)
 Landowners with timber may seek to derive a variety of products off the
land
 Traditional timber, pine straw
 Hunting leases
 Now, ecosystem services
 Landowners who manage for aesthetics, wildlife, recreation are likely to
engage in carbon markets, with little impact to current management
(Mutandawa)

11. A path to the carbon market for southern
forest landowners?
 Viability of markets depends on an option of no-penalty for forest
management practices
 Likelihood of market exchange overall low under the following
economic conditions (Brown):
 Excludability
 Transaction costs/Implementation costs
 Rivalness
 Availability of buyers and sellers
 There are, however, few negative externalities associated with
providing carbon credits
 Increased risk of standing timber
 Market fluctuations in timber and in carbon

12. Challenges…
 Variable market rate for Mte carbon (Mercker)
 $12.95, September 2016 (www.calcarbondash.org)
 Transaction/Implementation costs not well
known or understood (Galik)
 Accounting techniques can result in variability in
valuation (Galik)
 Functions as an economy of scale
 Prohibitive of small tracts of land
 Production and transaction costs decline with
acreage
 Implementation costs fall off as stand matures
(Galik)

13. A path to the carbon market for
southern forest landowners?
 Participation depends on continued regulation
 Voluntary markets are also trading with companies seeking to
lower their impact (and promote a clean image)
 May become less significant as industry cuts emissions
(Mercker)
 Sequestration is temporary; emission output reductions are
permanent (Elbakidze)
 If no market for carbon, then carbon is not a management
consideration for forest landowners (Mercker)
 If there is a market, carbon sequestration services are yet another
product delivered by forested lands to owners (Mercker)

14. Challenges…
 Unlike many other ecosystem services,
atmospheric carbon has a value attributed to
it and is currently traded in the economy
 But, like the challenges of valuation with all
ES, this service has been performed by
ecosystems for free, and will continue to be
done for free even if the market value for it
dissolves
 That value is based on enforcement of
regulation, though voluntary offset purchasing
does occur

15. Where does it go from here?
 Several contract types are
available to forest landowners
 Implementation and transaction
costs must come down
 More research and modelling
needed in southern ecosystems
 Dependent on continued and
tightening regulation of industry
emissions
 But, if markets remain viable,
many landowners are willing to
participate with forest
management (Mutandawa)

16. Where does it go from here?
 The carbon exchange market is still young, and new players
are entering every day
 Uncertainty is present in any traded commodity; carbon is no
different, and the price is thus reactive
 It does have its challenges to address, and more ahead indeed
 Stay tuned…

17. References
 Dwivedi, P., et al., 2012. Impacts of payments for carbon sequestered in wood products and avoided carbon
emissions on the profitability of NIPF landowners in the US South. Ecological Economics 78, 63-69.
 Elbakidze, L., McCarl, B.A., 2007. Sequestration offsets versus direct emission reductions: Considerations of
environmental co-effects. Ecological Economics 60, 564-571.
 Galik, C.S., Cooley, D.M., Baker, J.S., 2012. Analysis of the production and transaction costs of forest carbon
offset projects in the USA. Journal of Environmental Management 112, 128-136.
 Jenkins, D., Smith, M.S., 2013. Carbon offsets: is there a path to market? Association of Consulting
Foresters’ The Consultant, 25-29.
 Kothke, M., Dieter, M., 2010. Effects of carbon sequestration rewards on forest management-An empirical
application of adjusted Faustmann Formulae. Forest Policy and Economics, 12, 589-597.
 Mercker, D. "W217 The Business of Carbon Credit Trading for Forest Landowners," The University of Tennessee
Agricultural Extension Service, 09-0191 W217-4/09, http://trace.tennessee.edu/utk_agexfores/42
 Mutandwa, E., Grala, R.K., and Grebner, D. L., 2016. Family forest land availability for the production of
ecosystem services in Mississippi, United States. Forest Policy and Economics 73, 18-24.
 Noss, R.F. 2000. Beyond Kyoto: Forest management in a time of rapid climate change. Conservation Biology
15:3, 578-590.
 Soto, J.R., Escobedo, F. J., Adams, D.C., 2014. An Overview of Carbon Markets for Florida Forest
Landowners. University of Florida, IFAS Extension document FOR319.
 Stainback, G.A., Alavalapati, J. R. R., 2002. Economic analysis of slash pine forest carbon sequestration in the
southern U.S. Journal of Forest Economics 8, 105-117.
 Susaeta, A., Carter, D.R., Adams, D. C., 2014. Sustainability of forest management under changing climatic
conditions in the southern United States: Adaptation strategies, economic rents and carbon sequestration.
Journal of Environmental Management 139, 80-87.
 USDA Forest Service. October 7, 2016. Valuing ecosystem services; Carbon sequestration.
http://www.fs.fed.us/ecosystemservices/carbon.shtml