Forest carbon projects sold to voluntary buyers were challenged in 2013 by stiff competition from cheaper offsets flooding the market. Chandler Van Voorhis, Managing Partner of project developer GreenTrees, thinks this is a short-term trend, but forest carbon project developers must still do a better job of selling the attractive attributes of their projects.
5 June 2014 | Project developer GreenTrees has been riding the rails: partnering with Norfolk Southern – through its Trees and Trains reforestation and carbon sequestration project – to plant six million trees in the Mississippi Delta over five years, generating more than one million tonnes of carbon offsets to help offset the railroad’s emissions and restore habitat along its lines.
But GreenTrees knows these types of reforestation projects have plenty of assets that go beyond carbon and has also been hard at work collecting data to use in establishing baselines that help capture the connection between water and carbon in forestry projects and calculate the additional value that co-benefits bring. Highlighting the additional benefits of reforestation projects is critical in light of the fierce competition in the voluntary carbon offset market in 2013, as buyers had their pick of cheaper offsets from other project types. But there are buyers such as Norfolk Southern out there who are more interested in offset projects that can tell a bigger and better story than just reducing carbon.
Ahead of the release of Ecosystem Marketplace’s State of the Voluntary Carbon Markets 2014 full report (Executive Summary available here), Chandler Van Voorhis, Managing Partner of project developer GreenTrees, told Gloria Gonzalez about the work that forest carbon project developers are and should be doing to promote other attributes of their projects and why they shouldn’t even try to compete on pricing with landfill methane and other types of carbon offsets.
Gloria Gonzalez: What did you see in the voluntary carbon markets in 2013?
Chandler Van Voorhis: I thought it showed a lot of life and was very robust during the first eight months of the year. In the fourth quarter, it got really quiet in the market and it has been quiet. I’m not necessarily sure what to attribute that to. The one thing we did speculate was that there’s been a flood of (landfill) methane credits that have come on the market. I think it’s put a lot of downward price pressure in general in the market. There are those that are trying to hit a (corporate social responsibility) CSR mandate and they don’t care what the credits look like. Then there are those that go above and beyond just buying the credit. Right now, until all this landfill methane kind of works itself out of the system, I think that’s the number one thing we can point to.
GG: What kind of impact has the influx of other types of offsets had on the pricing for forestry?
CV: (Ecosystem Marketplace’s) numbers will bear it out, but my gut says that you’ll see the average price dipped down a little bit last year because of this. I know the pressure wasn’t moving the other way. It wasn’t people trying to get it at $8 or $9 per tonne. They were trying to get it down closer to $7/tCO2e or $8/tCO2e for forestry. Landfill methane is much cheaper than that. Forestry, because of the costs associated with it, will never be able to compete at that level, nor should it. If you want those types of credits, we in the forestry community should say ‘fine, have at it’. That’s a different ballgame with a different pricing structure.
GG: How much of a concern is this price drop—is it a short-term issue or a long-term trend?
CV: I think it’s probably short term. What it means is that we in the forestry industry have to do a better job of communicating the value proposition of why our credits and not landfill methane. While it’s obvious to us, we need to make it more apparent to the buyer. I think that’s probably the number one thing we have to do as an industry. We need to go out there and say ‘you can buy all those cheap tonnes, but that’s all you’re buying. With forestry, you’re buying a whole lot more.’ Forestry really is the crown of a whole host of co-benefits from biodiversity to water to nutrients and more. After all, a majority of our freshwater comes from forested ecosystems.That’s where I think doing the quantification on the water pieces and some of the other attributes will actually create a finer separation and move the price back up to where it should be.Forestry is full of co-benefits that other offset types fall short.
GG: Is that something that’s a topic among forest carbon developers?
CV: It is probably phone call to phone call. Is it a formal conversation? No. Should it be a formal conversation? Yes, it really should. We talk a lot about regulations and what the landscape is looking like. But we haven’t been very good at sitting down and saying ‘how do we as an industry market forest carbon so that we can get a better price structure?’ (Ecosystem Marketplace’s report) always asks the question every year: what should the price be? The price we’re selling is always less than what we believe it should be. At some point, we need to cross that hurdle and see the price actually go north of that line, not south.
GG: What would you say is the buyers’ primary motivation or most cited reason of being interested in purchasing carbon offsets?
CV: Predominantly, if they’re coming into the voluntary market, they have a CSR mandate. They could go out and get the low-hanging fruit in (landfill) methane, but they want something that they can communicate that’s more than just a number back to their shareholders. Usually they are the ones that have very robust sustainability reports. Norfolk Southern is a case in point. A lot of our reforestation is targeted at different areas where they have rail lines running through because they’re looking for ways to get that extra mile in the communities that they serve. They like forestry because it’s creating corridors of habitat.
GG: What were the trends you saw last year in terms of buyer interest in forest carbon and how forestry fit into what they were trying to do?
CV: The story is the dominant thing that they’re trying to get their hook around. It’s what’s happening on the ground, what is going above and beyond carbon, and how to start to quantify. We’re doing more and more work on trying to quantify water benefits and the nexus in forestry between carbon and water. It seems to get stronger as the days go by, which I think is good. It’s a value proposition that I think that other types of offset credits can’t provide like forestry can.
I think the buyers are out there. The beverage companies come to mind first and foremost as they are really looking at their water footprints, just like people are looking at their carbon footprints. I think you’ll see in the coming months and years that this nexus between carbon and water through forestry will only grow stronger.
GG: California’s system up and running for over a year now—what has been the impact, if any, on the voluntary market?
CV: I think it remains to be seen. The California market is great to have because it does bring buyers and interest and keeps carbon in the front pages absent a federal pathway to market. The problem that California has from a reforestation standpoint is that it’s next to impossible to bring a reforestation credit into California. I think one of the things that California is going to have to come to grips with is that the protocols are biased toward very wealthy institutional landowners. If you don’t have 3,000, 5,000, 10,000 acres of land, you can’t play in that game – whether Reforestation, IFM or Avoided Conversion. It’s just not economically feasible. From a reforestation side, every landowner has to go through its own verification. Well, verifications are expensive. California does not allow aggregation of lands and the compliance market does not go out long enough to match how trees grow. I think the only market for reforestation is voluntary.