Towards Improving Forestry Offsetting Schemes

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By Colin Hunt & Seth Baum

Forestry is a popular offset in the voluntary market, promising “carbon neutrality”, by capturing as much carbon in trees as the purchaser is emitting. However, carbon neutrality is achieved at some point in the future, usually on a 30 to 100 year timescale. Since little carbon is removed in the short term, the social and environmental damage caused by the emissions continue in the intervening period. The “hidden cost” is the value of the damage done and not offset during the life of the project.

The social costs incurred vary depending on the timescale of the offset project and are highest for projects with shorter lifespans because net marginal social costs are accrued early on in the offset period when carbon uptake is slow. For example, the social costs not covered associated with a 30 year offset scheme could be as high as 26 per cent. Over a 100 year scheme, costs not covered are estimated at about 20 per cent.

The study suggests that up to 35 per cent more forest area may be required to convert a carbon-neutral offset into a “cost-neutral” equivalent (i.e. taking full account of the additional social costs accrued early in the offset period), depending on the length of the project.

To prevent forestry offset projects accumulating such social costs, the researchers suggest that future removals of carbon should not be credited to the present. Instead, offset schemes should only trade the actual amount of carbon stored each year (or its equivalent in terms of CO2 removals) in the growing forest. This offset can then be credited against an equivalent contemporary emission of CO2.

The authors also recommend that developers of forestry projects disclose the annual incremental removal and release of CO2 expected over the life of the offset. This allows for clearer accounting of the present value of voluntary forestry offsets than is currently possible, and would allow their value to be more easily compared with that of competing investments. For example, it would allow for the calculation in the increase in forest area to achieve cost-neutrality and for the imputation of risk factors for possible future adverse events, such as forest fire.

The researchers suggest that a credit/debit scheme of this type, backed by insurance or a government guarantee of permanency, should improve the confidence of buyers of forestry credits in national and international markets and make the voluntary market for forestry offsets more harmonious with forestry offsets in regulated schemes. However, equally important for short-term policy, the research also clearly makes the point that energy efficiency measures deliver greenhouse gas abatements more quickly than forestry.

Source: Hunt, C. and Baum, S. (2008) The ‘hidden’ social costs of forestry offsets. Mitigation and Adaptation Strategies for Global Change. 14:107–120.

Contact: colinhunt@bigpond.com and  sbaum@psu.edu