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California's success in the socio-ecological practice of a forest carbon offset credit option to mitigate greenhouse gas emissions

  • Chaeri Kim
  • Thomas DanielsEmail author
Research Article

Abstract

The mitigation of climate change through the reduction in greenhouse gas emissions has become a central goal of international policy. An estimated 27 cap-and-trade programs to reduce carbon emissions exist worldwide. But only a small number of them use a forest carbon offset credit option. In 2012, California created a forest carbon offset credit option as part of its greenhouse gas cap-and-trade program. The offset credits have come primarily from US forests that meet requirements for additional, verifiable increases in carbon storage through improved forest management. California, with the help of its cap-and-trade program and modest carbon offset option, has met its initial goal for lower carbon emissions. This case study reveals a gap in socio-ecological practice research on a forest carbon offset credit option by identifying seven measures of success. These seven measures show how a forest carbon offset credit option can enhance a cap-and-trade program to reduce greenhouse gas emissions. Countries and regions that are using or contemplating the use of a forest carbon offset credit option can employ these seven measures to design, evaluate, or upgrade their forest carbon offset programs.

Keywords

California Cap-and-trade Carbon Forest carbon offset credits Greenhouse gas emission Offsets Mitigation Socio-ecological practice research 

1 California’s cap-and-trade program and forest carbon offset credits

Scientists have formulated the theory of climate change to explain that increasing concentrations of greenhouse gases are producing warmer global temperatures, and to predict catastrophic results to life on earth if the concentration of greenhouse gases reaches a level of 500 parts per million of carbon dioxide (CO2), the main greenhouse gas (Jones 2017). By 2017, CO2 concentrations topped 410 parts per million for the first time in millions of years (Kahn 2017, p. 1). The Paris Agreement of 2015 underscored the urgency of mitigating greenhouse gas (GHG) emissions to limit the increase in global temperatures to less than 1.5 degrees Celsius over pre-industrial levels (The White House 2015; UNFCCC 2015, p. 4). The Intergovernmental Panel on Climate Change has sounded the alarm that “Global warming is likely to reach 1.5 °C between 2030 and 2052 if it continues to increase at the current rate” (IPCC 2018, p. 10).

So far, two general approaches have been advocated to incentivize GHG mitigation: a cap-and-trade program and a carbon tax. Although a carbon tax has won the support of most economists, such a tax has proved politically unpopular, especially in the USA (Gleckman 2018). A cap-and-trade program to reduce GHG emissions was first adopted by the European Union in 2005 (European Commission 2019). As of 2019, 27 GHG cap-and-trade emissions trading programs have been put in place (ICAP 2019, p. 4).

1.1 The cap-and-trade program in California

Under a cap-and-trade program, an emitter is given or must purchase an amount of annual emissions allowances known as the cap. The emitter can reduce its emissions below the cap and sell the remaining allowances, or if the emitter has exceeded the emissions cap, the emitter must purchase allowances from other emitters who have created allowances by reducing emissions below their caps or else face a fine. To be effective, the annual emissions caps must decline over time to compel emitters to reduce overall emissions. For example, the USA used the cap-and-trade approach to significantly lower sulfur dioxide emissions in the 1990s (Daniels 2014, p. 98).

California’s Global Warming Solutions Act of 2006 (Assembly Bill 32 or AB 32) set a goal to reduce GHG emissions to 1990 levels by the year 2020. In 2016, this goal was met and extended to 40% below 1990 levels by 2030 (Danigelis 2018, p. 1). In 2012, the California Air Resources Board (CARB), the state agency responsible for regulating air quality and for implementing AB 32, launched a cap-and-trade program to reduce GHG emissions (Anderson et al. 2017). The USA produces about 15% of the world’s GHGs from fossil fuels, second only to China which emits about 30% (USEPA 2017, p. 4). California is the most populous US state with 40 million people, is the third largest state by size, and has a gross domestic product of $2.7 trillion, which places it as the fifth largest economy in the world, just behind Germany (Associated Press 2018, p. 1). California emits more CO2 than any state besides Texas (USEIA 2018, pp. 1–2). Thus, reductions in GHGs in California are important if the USA is to meet its previously stated goal of an 80% reduction in GHGs from 1990 levels by 2050 (Daniels 2014, p. 120).

1.2 Forest carbon offset credits

Forests provide ecosystem services in the form of carbon sinks. One recent study estimated that the world’s forests and other ecosystems could generate more than one-third of the necessary GHG reductions to keep global temperatures below 2 degrees Celsius out to 2030 (Griscom et al. 2017, p. 11645). Forest carbon offsets are a socio-ecological practice, using a design with nature approach to help reduce net GHG emissions. A small number of countries and regions have offered forest carbon offset credit options in their GHG cap-and-trade programs. When purchased by emitters, the offset credits count toward a certain amount of the emissions allowances. The main benefits of forest carbon offsets are threefold. First, offsets help emitters stay under their emissions caps. Emitters, in effect, buy some time and flexibility to make adjustments to their production processes, technologies, and behavior to reduce their emissions. Second, the sale of offsets makes feasible improved forest management to store additional carbon. Third, the green infrastructure and ecosystem services of forests help reduce net GHGs over a long time, up to 100 years or more (Anderson et al. 2017, p. 364).

In designing their cap-and-trade program, California enabled emitters to purchase offset credits to meet up to 8% of their emission allowances, beginning in 2013 (CARB 2013a). California envisioned that at least some of the offsets would come from improved forest management on privately owned forests—primarily through longer harvesting regimes—to store additional carbon. This was America’s first “legally enforceable ‘compliance’ offset program for existing forests” (Anderson et al. 2017, p. 359).

The performance of the California’s forest carbon offset program is important for understanding whether a forest carbon offset credit option can work with a cap-and-trade program and, if so, how other countries and regions might use offset credits from private forests in their cap-and-trade programs. In addition, the performance of California’s forest carbon offset credit option may have implications for a nationwide GHG cap-and-trade program. For instance, in 2010, Congress nearly enacted a national cap-and-trade program to reduce carbon dioxide emissions, with farmland and forests as generators of offset credits (Lehmann 2010, p. 1).

This paper presents a two-part hypothesis: (1) a carbon offset program can help to implement a cap-and-trade program for reducing greenhouse gas emissions, and (2) California’s cap-and-trade program has made effective use of forest carbon offsets as part of its successful effort in reducing greenhouse gases.

2 Forest carbon offsets around the world

Forest carbon offset payments have been used since the 1980s to mitigate climate change (Brown and Adger 1994, p. 220). Several companies have voluntarily purchased forest carbon offsets outside of cap-and-trade programs to lower their overall carbon footprint (van der Gaast et al. 2018, pp. 45–46). According to one study, as of 2015, forest carbon offset projects had protected an estimated 60 million acres of forests across the globe, and almost $900 million was spent in 2015 alone on forest projects that would reduce net greenhouse gas emissions (Goldstein and Ruef 2016, p. 3).

Article 5 of the Paris Agreement underscores the importance of forests in sequestering carbon and mitigating climate change. Article 5 “encourages parties to take action to implement and support [forest preservation], including through results-based payments” (UNFCCC 2015, p. 23). According to one report, “Forests present the largest opportunity for carbon sequestration in the North American land sector” (America’s Pledge Initiative on Climate 2018, p. 121).

By comparison with other forest carbon offset programs, the California program appears far more robust in terms of the number of forested acres generating credits, carbon equivalent emissions reductions, and interest both from emitters in purchasing forest carbon offset credit options credits and from forest landowners in supplying credits.

2.1 The regional greenhouse gas initiative in the U.S.

America’s first mandatory cap-and-trade program to reduce GHG emissions, the Regional Greenhouse Gas Initiative (RGGI), was established in 2005 and consists of nine northeastern states. RGGI has auctioned off emissions allowances only for power plants and factories and initially provided for carbon offsets only for afforestation (planting trees on open land), but then added offsets for improved forest management and avoided conversion in 2013. The auctioned allowances have averaged less than $5 a ton of CO2e, and few, if any forest carbon offset credits have been created or sold (Daniels 2010, p. 467; RGGI 2019). The RGGI experience demonstrates one of the potential drawbacks of an offset program, namely the price of a ton of GHG is not high enough to attract forest owners to create offsets. In contrast to RGGI, the European Emissions Trading System, the world’s largest cap-and-trade program to reduce GHG emissions has experienced low carbon prices and does not offer forest carbon offset credits but is moving toward offering them (European Commission 2019, pp. 1–4; Muuls et al. 2016, pp. 4–5; Popkin 2019, p. 280).

2.2 Forest carbon offsets in other countries and regions

Among the countries and regions that do include forest carbon offset credits in their government-run cap-and-trade programs, there has been relatively little activity (ICAP 2019). Some cap-and-trade programs, such as in China and Quebec, are looking to add forest carbon offsets (Ibid., p. 11).

South Korea has mainly used a voluntary approach for companies to purchase offset credits in return for income tax breaks from the government. Between 2013 and 2018, more than 210 forest carbon offset projects were approved on 20,158 hectares of forestland to offset 5,825,114 tCO2 of GHG emissions (Han et al. 2019, p. 368). South Korea began a cap-and-trade program in 2015 which includes a trading program in carbon offsets. Emitters can offset up to 10% of their emission reduction obligations by purchasing offset credits. As of 2018, however, only four projects totaling 43 hectares have been registered, all involving public agencies rather than private forest owners (ibid.).

China’s forests are owned by the state government or village cooperatives; there are no privately owned forests. China’s pilot carbon trading programs in seven jurisdictions allowed capped entities to use offset credits, including forest credits, to meet up to 10% of their total compliance obligations (Duan et al. 2014, pp. 529, 543). China’s nationwide cap-and-trade program, initiated in 2017, does not yet have a forest carbon offset component (ICAP 2019, p. 73).

New Zealand enacted a cap-and-trade system in 2008, which allows trading forest generated carbon offset credits. Owners of post-1989 forests may voluntarily sell carbon offset credits, but owners of pre-1990 forests must pay for the harvesting of more than 2 hectares (Manley and Maclaren 2012, p. 35; Forestry New Zealand 2019, pp. 1–2). Thus, the offset program favors afforestation and reforestation but not improved forest management of older forests.

Saitama, a neighboring prefecture of Tokyo, Japan, established its cap-and-trade program in 2011. The program allows capped entities and allows emitters to acquire forest carbon offsets without limits (ICAP 2019, p. 114). The forest carbon offset credits from forests inside the Saitama region receive 1.5 times the value of other offset credits. In FY2016, the Saitama program achieved a 28% reduction in emissions below base year emissions; however, the role of forest carbon offsets was not available (ibid.; The World Bank 2012).

Quebec adopted a cap-and-trade program in 2013 for GHG emissions (CARB 2013b). As of 2019, Québec is looking to create an offset credit program for afforestation and reforestation to add to its five existing offset categories through which emitters can meet up to 8% of their total compliance obligations (ICAP 2019, p. 45).

2.3 The policy and science debate about forest carbon offsets

Carbon offsets have sparked some controversy. Critics contend that carbon offsets merely offer a way for emitters to buy their way out of required emissions reductions, rather than adopt GHG reducing technologies or make changes to their business operations (Kintisch 2008, p. 5885). Also, an offset credit that is generated from a project far away from the State of California, such as a forest in the State of Maine, does not have a direct effect on improving air quality in California. Environmentalists want emitters to reduce their local emissions first which will benefit Californians (Baranzini et al. 2016, p. 2). In addition, a carbon mitigation project may receive offset credits when carbon reductions may have occurred even without the offsets (i.e., “no additionality”) (Anderson et al. 2017, p. 361; Gillenwater et al. 2007, p. 86). Finally, a forest that has been certified for offset credits may not be able to deliver the expected level of carbon sequestration because of the impacts of climate change (drought, pests, diseases, and wildfires) on forests (Galik and Jackson 2009, p. 2209; Popkin 2019, p. 280).

Proponents of offset credits argue that emitters will still have to make significant reductions in their emissions because emitters can meet only a small percentage of their reduction obligations through purchasing offset credits (Anderson et al. 2017, p. 361). The offsets offer companies some flexibility in adjusting to lower emissions over time, and companies must still bear the cost of purchasing offsets. In addition, improved accounting methods for forest carbon sequestration have provided a more solid basis for determining carbon offset credits and trading them (van der Gaast et al. 2018, p. 44). And in terms of ecology, offsets require better forest management practices that also have long-term benefits not only for GHG mitigation but also for wildlife and water quality (Anderson et al. 2017, p. 363).

2.4 Previous research on California’s forest carbon offset credit option

To date, the literature on California’s carbon offset program has focused on the mechanics of the program rather than the outcomes, for example (Jenkins 2013; Jenkins and Smith 2013; Hsia-Kiung et al. 2014; Kelly and Schmitz 2016). Anderson et al. (2017) found that California’s offset program has provided additional carbon emissions reductions beyond a business-as-usual management approach. They concluded that in 2015 the certified forests across the US produced additional carbon reductions, equal to 4.4 million tons of carbon dioxide equivalent, or a modest 1% of California’s total carbon equivalent emissions (Anderson et al. 2017, p. 360). More data now exist on the California offset program to provide a more in-depth analysis of its performance and offer greater insights into how a carbon offset program can work as part of a cap-and-trade program to reduce GHG emissions. This article addresses the gap in the literature with a detailed analysis of 6 years of data on the performance of the California’s forest carbon offset credit program as a socio-ecological practice to “bring about a secure, harmonious, and sustainable socio-ecological condition serving human beings’ need for survival, development, and flourishing” (Xiang 2019, p. 7). In short, can a design with nature approach to mitigating GHGs through forest carbon offsets produce beneficial results?

3 Seven questions for evaluating a forest carbon offset program

To test the hypotheses that a carbon offset program can help to implement a cap-and-trade program and that California has made effective use of forest carbon offsets as part of its successful effort in reducing GHGs, we asked the following seven questions.
  1. 1.

    In California, how many carbon offsets are emitters purchasing compared to the 8% limit on their overall compliance obligations? An offset program should enable emitters to meet only a small amount of their emissions reduction obligations in a cap-and-trade program. Otherwise, emitters may have little incentive to reduce their emissions and may simply purchase offsets to meet a significant portion of their required reductions. If offsets account for only a few percentage points of emissions reductions, then either the demand from emitters for carbon offsets is weak or the forests are not generating enough offset credits to meet the demand. If offsets purchased are close to the 8% limit, then the offset program is meeting its intended purpose.

     
  2. 2.

    For how long are the forest carbon offset credits available? A carbon offset program should have a relatively short life. Because the emission caps for emitters should shrink over time, similarly the opportunity for emitters to purchase offsets should decline in order to compel emitters to make internal adjustments to reduce their greenhouse gas emissions.

     
  3. 3.

    Have privately owned forests generated an adequate amount of offset credits to meet the demand? If forests are to be a main source of offset credits, then it is important to know whether forests can produce a supply of offset credits that meets the demand for them. If forests cannot produce a sufficient amount of offset credits, it is important to identify why that has happened. If relatively few forest carbon offset credits have been sold, then perhaps forestland owners are not attracted to creating offset projects, or emitters are buying allowances at auction from the state or from other emitters or are achieving internal reductions in emissions. Finally, if few forest carbon offset credits have been sold, then perhaps the forest carbon offset credit program has failed to serve its intended purpose;

     
  4. 4.

    What assurances are there that forest owners will sequester carbon in an amount originally certified for carbon credits? If carbon credits overstate actual carbon sequestration, then the carbon credits are unreliable and net emissions reduction goals are not likely to be met;

     
  5. 5.

    What is the price of the offsets as a measure of the relative attractiveness of purchasing offset credits compared to buying allowances at auction from the state or from other emitters? In short, are the offset credits a cost-effective way to help emitters meet their emissions caps? If the price of offsets is lower than the price of allowances, then emitters will tend to prefer purchasing offsets. If the price of offsets is higher than the price of the allowances, then emitters will prefer to purchase allowances;

     
  6. 6.

    What are the size and location of the forests that are generating offset credits? The size of forests selling offsets will reflect the cost of certification of the offset credits. Given the cost of going through the CARB certification process for creating the offset credits, large commercial forests are expected to comprise the majority of offset credit generators. The payment for the carbon offsets should ideally result in a capture of carbon near to the emitter buying the offset. But in creating the forest protocol, the State of California anticipated that private forests in California would not be able to produce all of the offset credits demanded by California emitters. Forests cover about 700 million acres or one-third of the USA, with an estimated 441 million acres in private ownership (USDA 2014a, p. 3; b, p. 7). Most of the private forests are located east of the Mississippi River, and a large majority of the 191 million acres of America’s publicly owned national forests are found in the western states. Nationwide, forests account for 90% of carbon sinks and annually sequester the equivalent of about 10 to 15% of all US carbon emissions (USDA 2016a, p. 1; USEPA 2017, p. 2). US forests have the potential to sequester much more carbon (Yardley 2009, p. 22). Yet, the more California forests are sequestering carbon and generating the credits for the reduction in statewide net GHG emissions, the better the statewide air quality is likely to become. That is, a reduction in GHGs is closely correlated with air quality improvement (Daniels 2014, p. 120).

     
  7. 7.

    How does the offset payment process work? How much are forest landowners being paid for the offset credits, and how can the sale of offset credits and other sources of revenue make carbon sequestration part of a private forest owner’s business plan? It is important to understand the financial incentives that forest carbon offset credits can provide to induce forest landowners to generate forest carbon offset credits.

     

To answer these questions, we analyzed the California carbon offset data from 2013 through 2018 available from the CARB and the three aggregators of forest carbon credits: American Carbon Registry, Climate Action Reserve, and Verra. In addition, we conducted semi-structured interviews with key actors in the carbon offset credit markets, including staff of CARB and the Climate Action Reserve as well as a financial advisor who works with forest carbon credits. We also compared the performance of the California forest carbon offsets to other countries that are using forest carbon offsets.

4 Operated together in California the two programs of cap-and-trade and forest carbon offset credits

The California cap-and-trade program set a statewide limit or cap on greenhouse gas emissions that decreases each year (see Table 1). California companies have their own individual annual emissions caps set by the CARB that decrease over time. A company has four options to remain under its allowance cap: (1) Upgrade its facilities to release less CO2e; (2) Buy allowances from other companies that have reduced their emissions below their cap; (3) Buy allowances at CARB carbon auctions, which occur four times a year; and (4) Purchase carbon offset credits from an array of projects, including CARB-certified forests (CARB 2015a, pp. 1–2).
Table 1

California annual carbon allowance budget and maximum offset credits.

Source: California Code of Regulations (2017a, p. 77). California Assembly Bill AB 398, pp. 8–9

Compliance period

Year

Allowance budget (MTCO2e)

Maximum permissible offset credits 8% 2013–2020; 4% 2021–2025; 6% 2026–2030

1

2013

162,800,000

13,024,000

2014

159,700,000

12,776,000

2

2015

394,500,000

31,560,000

2016

382,400,000

30,592,000

2017

370,400,000

29,632,000

3

2018

358,300,000

28,664,000

2019

346,300,000

27,704,000

2020

334,200,000

26,736,000

4

2021

320,800,000

12,832,000

2022

307,500,000

12,300,000

5

2023

294,100,000

11,764,000

2024

280,700,000

11,228,000

6

2025

267,400,000

10,696,000

2026

254,000,000

15,240,000

2027

240,600,000

14,436,000

7

2028

227,300,000

13,638,000

2029

213,900,000

12,834,000

8

2030

200,500,000

12,030,000

2031

193,800,000

After 2020, no more than one-half of offset credits may be sourced from projects that do not provide direct environmental benefits within California. This will further reduce the use of offsets from forests outside of California

California’s forest carbon offset credits are generated through CARB-approved offset projects developed by forest owners often with the help of projects aggregators and transacted in carbon markets (see Table 2). The CARB issues a forest owner one offset credit for each metric ton of carbon that a certified forest can sequester above a baseline level. A certified forest may be located anywhere in the lower 48 states and in some parts of Alaska. A forest owner and a project developer receive payment when they sell their offset credits to emitters through carbon markets. An offset project can receive payments for a minimum of 10 years or a maximum of 30 years.
Table 2

CARB offset credits issued, 2013–2018.

Source: California Air Resources Board (2018a, p. 1)

Project type

ODS

Livestock

US forest

Urban forest

MMC

Rice cultivation

Total

Compliance % of total

11,911,959

3,704,173

99,267,605

2,983,324

117,867,061

10%

3%

84%

0%

3%

0%

100%

Early action % of total

6,336,710

1,695,029

13,276,494

2,879,684

24,187,917

26%

7%

55%

0%

12%

0%

100%

Total % of Total

18,248,669

5,399,202

112,544,099

5,863,008

142,054,978

13%

4%

79%

0%

4%

0%

100%

Table 2 includes all offset credits issued including offset credits placed in ARB’s Forest Buffer Account, offset credits returned to an Early Action Offset Program’s forest buffer pool, and offset credits subsequently invalidated

ODS Ozone Depleting Substances, MMC Mine Methane Capture

A forest certified to create carbon offset credits must result in GHG emission reductions that are real, additional, quantifiable, permanent, verifiable, and enforceable (CARB 2014, p. 4). The practices proposed must truly sequester carbon and the amount of carbon stored must be additional, that is, above a business-as-usual baseline. CO2 equivalent emission reductions must be quantified and verified. The carbon sequestration project is required to be irrevocable for at least 100 years (Anderson et al. 2017, p. 364). Finally, the carbon sequestration must be accountable and legally enforced (ibid.).

The CARB set annual allowances for emitters over eight compliance periods (see Table 1). At the end of each compliance period, an emitting facility must report its emissions levels, emissions cap, allowances, and any CARB-approved offset credits, which must equal the emitter’s total permitted GHG emissions for that compliance period (California Code of Regulations 2017a).1 In 2018, the CARB announced that companies had achieved full compliance for years 2015 through 2017 (CARB 2018b, p. 1).

The CARB can approve six project types to generate offset credits: Ozone Depleting Substances (ODS), Livestock, US Forest, Urban Forest, Mine Methane Capture (MMC), and Rice Cultivation (see Table 2). In addition, the CARB had approved Early Action Offset Credits that were developed under voluntary carbon offset markets prior to the cap-and-trade program. Beginning in early 2015, the early action projects transitioned to the CARB’s regular offset credit program (CARB 2014, p. 22).

4.1 California’s forest carbon offset credits program

The CARB’s US Forest Projects Protocol has three types of forest projects that can generate offset credits: Reforestation, Avoided Conversion, and Improved Forest Management (IFM) (CARB 2015b, pp. 11–13). Reforestation refers to the restoration of tree cover to desired stocking levels and has limited 30-year commercial opportunities. Avoided Conversion relies on a qualified conservation easement or the transfer of land to federal ownership to ensure that the forestland cannot be converted to non-forest uses. A conservation easement is a legally binding agreement in which a landowner voluntarily sells or donates the right to develop his land, except for forest uses and open space, in perpetuity (Daniels 2014, p. 290). IFM seeks to increase carbon stocks on forested land by using sustainable management, such as a longer than usual harvesting regime (Kelly and Schmitz 2016, pp. 99, 106; Anderson et al. 2017, p. 362).

Forest carbon offset credits are based on a combination of factors, including the forest type, acreage, climate, site productivity, forest stocking, and planned harvest. The offset credit project cycle consists of four stages: listing, reporting, verification, and issuance (CARB 2014, p. 11). First, an offset project must be listed in one of the three CARB-approved Offset Project Registries: American Carbon Registry (ACR), Climate Action Reserve (CAR), or Verra. These registries aid in issuing offset credits and ensuring that all aspects of a project comply with CARB standards.

It may take up to 4 years to receive the offset credits for a project.2 An initial reporting period generally takes 6 to 24 months, verification takes up to 11 months, registry review takes about 1 month, and the CARB review takes from one to 12 months.

Each forest project contributes credits to a buffer pool (or buffer account), based on a project’s risk rating. The total risk score is an estimation of the project’s unavoidable reversal risk, such as from wildfire. Credits are removed from the buffer and sold as the risk of the forest not meeting its sequestration targets declines.

5 How has the forest carbon offset credit option performed?

There are seven main measures of the performance of a carbon offset credits program in general and specifically for the California forest carbon offset credits program:
  1. 1.

    How many carbon offsets and, specifically, forest carbon offsets are emitters purchasing compared to the limit on their overall compliance obligations? In California, emitters have been allowed to purchase offsets for up to 8% of total compliance obligations. For 2015, California emitters met their obligations using 92.1% allowances and 7.9% offset credits (CARB 2016, p. 321). Thus, the sale of offset credits has been an important and successful element of the California cap-and-trade program and helped the state meet its 2020 GHG reduction goal by 2016.

     
From 2013 to late 2018, the US forest projects accounted for 84% of the offset credits issued, and IFM projects produced more than 90% of the forest carbon offset credits (see Tables 2, 5). By late 2018, the CARB had issued more than 93 million carbon offset credits to 79 US forest projects (see Tables 3, 4).
Table 3

ARB offset credits issued to US forest projects by year.

Source: California Air Resources Board (2018a, pp. 1–39), American Carbon Registry (2018b, p. 1) and Verra (2018, p. 1)

Year

Credits issued

Credits held in buffer

% Change in credits (%)

2013

1,649,864

1,214,092a

2014

6,020,082

491,280

265

2015

13,845,794

824,850

130

2016

12,789,903

3,891,539

− 8

2017

28,072,609

7,392,354

119

2018

50,165,847

8,094,557

79

Total

112,544,099

18,823,161

 

Credits held in buffer serves as an insurance policy in case the forest project fails to perform over time

aCredits held in buffer for 2010–2013 includes early action buffer credits

Table 4

ARB forest carbon offset credits issued by state, number of projects, credits issued, and total project area, 2013–2018.

Source: California Air Resources Board (2018a, p. 1), Climate Action Reserve (2018, p. 1), American Carbon Registry (2018a, p. 1) and Verra (2018, p. 1)

Project Site

# of projects

Total credit issued (excluding buffer)

% of total (%)

Total project area (acres)

% of total (%)

ALASKA

2

22,102,498

23.58

671,806

18.73

CALIFORNIA

29

17,304,710

18.46

310,092

8.65

WASHINGTON

2

12,374,085

13.20

453,547

12.65

ARIZONA

2

9,231,669

9.85

131,904

3.68

WEST VIRGINIA

3

6,811,129

7.27

176,505

4.92

MAINE

6

4,352,136

4.64

142,806

3.98

NEW MEXICO

1

3,719,171

3.97

221,822

6.18

VIRGINIA

5

2,937,460

3.13

125,889

3.51

MICHIGAN

1

2,514,594

2.68

219,204

6.11

SOUTH CAROLINA

5

2,053,391

2.19

32,304

0.90

OREGON

3

2,012,922

2.15

597,859

16.67

NEW YORK

2

1,907,756

2.04

170,965

4.77

NEW HAMPSHIRE

2

1,562,957

1.67

148,576

4.14

WISCONSIN

3

1,515,780

1.62

55,134

1.54

NORTH CAROLINA

6

1,006,592

1.07

9103

0.25

GEORGIA

1

729,216

0.78

78,319

2.18

MASSACHUSETTS

1

640,002

0.68

9715

0.27

TENNESSEE

2

510,571

0.54

10,535

0.29

ARKANSAS

1

278,080

0.30

15,810

0.44

MISSOURI

1

137,536

0.15

3919

0.11

MISSISSIPPI

1

18,683

0.02

928

0.03

Total

79

93,720,938

 

3,586,742

 

There were 29 Early Action projects and 65 Compliance projects. Fifteen Early Action projects transitioned to Compliance Projects, so 94 − 15 = 79 total compliance projects. We used the California Air Resources Board data for this table, which differ somewhat from the three Offset Project Registries

https://www.arb.ca.gov/cc/capandtrade/offsets/earlyaction/projects.htm, December 26, 2018

  1. 2.

    For how long are the forest carbon offset credits available? The California carbon offsets are available until 2030 (see Table 1). Both the carbon offset program and the cap-and-trade program have a limited life designed to compel emitters to reduce their emissions. There is a possibility that the cap-and-trade and carbon offset programs could be renewed beyond 2030 to force additional reductions in GHG emissions.

     
  2. 3.

    Have privately owned forests generated an adequate amount of offset credits to meet the demand? Yes. In 2017, the 8% offset limit equaled 29,632,000 tons of CO2 equivalent and a total of 28,072,609 offsets credits were issued to US forests that year (see Tables 1, 3). In 2018, a total of 49,711,284 offset credits were issued and the 8% limit for emissions reductions obligations was 28,664,000 tons (see Tables 1, 3). In addition, there are 76 forest projects covering 2.6 million acres that have been submitted for offset credits, but not yet certified by the CARB (American Carbon Registry 2018a, p. 1; Climate Action Reserve 2018, p. 1; Verra 2018, p. 1). These results point to an adequate supply of offset credits from US forests to meet the demand of California emitters for offset credits into the near future.

     
  3. 4.

    What assurances exist that forest owners will sequester carbon in an amount originally certified for carbon credits? To create carbon offset credits, a GHG emission reduction must meet six criteria: Real, additional, quantifiable, permanent, verifiable, and enforceable (CARB 2014). Annual reporting is required. In addition, a certified forest must contribute offset credits to a buffer pool or buffer account, based on a project’s risk rating. The buffer is reduced, and credits become available for sale over time as the risk of failure to achieve sequestration goals declines. The CARB can invalidate credits for up to 8 years after their issuance if projects violate CARB guidelines (CARB 2014, p. 19; California Code of Regulations 2017b).

     
  4. 5.

    What is the price of the offsets as a measure of the relative attractiveness of purchasing offset credits compared to buying allowances at auction from the state or from other emitters? The offset credits have been sold at prices about 10 to 15% lower than the auctioned California carbon allowances. One reason is that the offset credits are less fungible due to the percentage offset limit per emitter and are prone to invalidation risks from natural disasters or mismanagement by the forest operator (Jenkins 2013, p. 7).3 This price advantage has made the purchase of offset credits attractive as indicated by the fact that emitters have purchased credits close to the 8% limit on their emissions reduction obligations.

     
The CARB allowance auctions started from a floor price of $10 per metric ton of CO2 equivalent in 2012 and the floor price has increased by 5% annually (CARB 2019). Allowances sold for an average of $15.80 per ton of carbon dioxide equivalent in November of 2018 (CARB 2018c, p. 3). Carbon offsets initially sold for about $9 a credit, or 10% less than the auction price.4
  1. 6.

    What are the size and location of the forests that are generating offset credits?

     
The average size forest certified for offset credits is more than 45,000 acres (see Table 5). The forest sizes vary widely from 521 acres to 506,729 acres. The average size of a participating forest in California is 10,693 acres, and the non-California forests averaged 63,266 acres. Overall, the large average forest size suggests that many of the participating forests are industrial forests with commercial timber production and a lumber mill on the property.
Table 5

CARB offset credits issued by activity type and forest size (in acres), 2013–2018.

Source: California Air Resources Board (2018a, pp. 1–39), Climate Action Reserve (2018, p. 1), American Carbon Registry (2018a, p. 1) and Verra (2018, p. 1)

 

Acreage

Minimum

Maximum

Average

Total acres

Activity type

Improved forest management

521

506,729

48,617

3,487,218

   

97%

Avoided conversion

282

78,319

11,058

99,524

   

3%

Project site state

California site

1422

47,981

10,693

310,092

   

9%

Non-California site

282

506,729

63,266

3,276,650

   

91%

Data of project area are based on each project’s Offset Project Data Report and Application for Listing Project (excluding non-forest areas)

Of the 21 states that have generated forest carbon offset credits, California accounted for 36% of all forest projects that generated offset credits and just under 9% of the forest acres. Forests outside of California have produced 81% of the forest carbon offset credits issued so far (see Fig. 1 and Table 4). Without the participation of forest owners outside of California, the carbon offset program would not generate enough offset credits to meet the demand. California forest owners have received offset credits on 310,092 acres, a small fraction of both the state’s 13 million acres of private forestland and the five million acres of forests owned by timber companies (University of California 2016, p. 1). These numbers suggest that California has the potential to generate considerably more carbon offsets, especially if commercial timber companies decide to participate. Forest owners in other states have generated offset credits on 3.2 million acres.
Fig. 1

ARB forest carbon offset credits issued by states, 2013–2018.

Source: California Air Resources Board (2018a)

California allows a maximum of 224,816,000 metric tons in offset credits to be created from 2019 to 2030 (see Table 1). Thus, far 3.5 million acres of forests have produced offset credits equal to almost 100 million tons of GHGs (see Table 2). To create another 225 million tons worth of offset credits would require roughly 8 million more forest acres, assuming that forests would account for all of the new offset credits. With an estimated 441 million acres of private forests in the USA (USDA 2014a, p. 3), there appears to be ample capacity for private forest owners nationwide to create adequate offset credits for the California GHG cap-and-trade program.
  1. 7.
    How much are forest landowners being paid for the offset credits, and how can the sale of offset credits make carbon sequestration part of a private forest owner’s business plan? The carbon offset program generates revenues for forest owners, most often in a large payment in the first year and then a level payment each year for the next 29 years (see Table 6). For example, the average number of initial year credits issued to forest projects in 2016 was 413,000. These credits would be worth about $4.5 million if all were sold on carbon markets. But forest owners and project developers must have the capital to put together an application to the CARB for the certification of credits. This upfront cost tends to favor large forests that can generate a large number of offset credits and hence accrue considerable revenue once the credits are sold.
    Table 6

    Average forest carbon project offset credit revenue by US region.

    Source: Jenkins (2015, p. 38)

    Region

    First year $/acre

    Annual $/acre

    California/Pacific Northwest

    $800–1200

    $20–40

    Inland West

    $200–1000

    $10–20

    Southeast Hardwood

    $200–800

    $10–30

    Southeast Softwood

    $140–200

    $10–20

    Lake States

    $100–400

    $5–20

    Northeast

    $100–250

    $5–10

     

Table 6 suggests that for a California forest owner of 10,000 acres, the revenue from the sale of offset credits is an initial payment of at least $8 million plus $200,000 a year over the next 29 years, or another $5.8 million for a total of $13.8 million or $1380 per acre. By comparison, a forest owner in Maine with 10,000 acres would receive an initial payment of at least $1,000,000 and annual payments of $50,000 over the next 29 years, or another $1,450,000 for a total of $2,450,000 or $245 an acre.

Table 6 does not include income from annual harvests that are allowed but must not exceed annual net biological growth. The sale of timber can provide a forest owner with an income stream in addition to the stream of offset payments.

At least three of the 79 forest carbon offset projects to date involved forests permanently protected through the sale of conservation easements funded in part by the federal Forest Legacy Program. Congress created the Forest Legacy Program in 1990 to make matching grants to state and local governments and land trusts of up to 75% of the cost to purchase conservation easements to privately owned forests. By the end of 2015, the Forest Legacy Program had provided $722 million out of a total of $963 million spent to permanently protect 2.5 million acres from non-forest uses at a cost of about $386 per acre (USDA 2016b, p. 1). A forest under a permanent conservation easement meets one of the key criteria for generating carbon offset credits: Avoided Conversion. Moreover, improving forest practices to generate offset credits combined with sustainable harvests is likely to produce a much higher stream of income for 30 years than the harvesting and sale of timber alone.

Forest owners therefore can potentially receive three streams of income: (1) the sale of a permanent conservation easement; (2) the sale of offset credits; and (3) the sale of timber based on a sustainable forest management plan. These three streams strongly encourage the continuation of well-managed forests and the resistance to selling forests for residential and commercial development.

6 A high achiever program responsive to policy and science debates

6.1 A high achiever program

The California program appears far more robust than other forest carbon offset programs in: (1) the number of forest acres generating credits; (2) carbon equivalent emissions reductions; and (3) interest both from emitters in purchasing forest carbon offset credits and from forest landowners in supplying credits. There has been relatively little activity reported in government-operated forest carbon offset programs (Han et al. 2019, p. 368; ICAP 2019; RGGI 2019). Previous research on the California’s forest carbon offset credits focused mainly on the mechanics of the program (Kelly and Schmitz 2016; Anderson et al. 2017). One study found that in 2015 certified forests produced additional carbon reductions equal to 4.4 million tons of carbon dioxide equivalent, or a modest 1% of California’s total carbon equivalent emissions (Anderson et al. 2017, p. 360). The current study goes well beyond that study by analyzing 6 years of data which show that 3.5 million acres of certified forests has generated carbon offsets of more than 93 million tons (see Table 4). Moreover, California emitters could purchase offset credits for up to 225 million tons from about 8 million acres of certified forests by 2030, a situation that looks plausible. Prices for carbon were too low—under $6 a ton—to entice forest landowners to sell carbon offsets in the Regional Greenhouse Gas Initiative (RGGI 2019). The prices paid for carbon offsets in California have generally exceeded $10 a ton and have risen over time. The prices appear to have been affordable for emitters to purchase and attractive for forest landowners to create and sell the offsets (CARB 2019, p. 3; CARB 2018d, p. 3). With the help of the carbon offset program, California GHG emitters have complied with the GHG reduction caps (CARB 2016, p. 321). In turn, the state achieved its GHG reduction goal for 2020 by 2016 (Danigelis 2018, p. 1).

6.2 The program in the face of the policy and science debates

The policy and science debate about offsets features three main issues: (1) Whether the sellers of offsets can produce additional and verifiable carbon sequestration from improved forest management (Anderson et al. 2017, p. 361; Gillenwater et al. 2007, p. 86); (2) Whether climate change will hinder forests certified for offset credits from meeting the contracted amount of carbon sequestration (Galik and Jackson 2009, p. 2209; Popkin 2019, p. 280); and (3) The reality that an offset credit generated from a forest far away from the State of California does not improve air quality in California (Baranzini et al. 2016, p. 2).

To address the additionality and verification of offset credits, California has established a rigorous annual monitoring and reporting protocol on certified forests from which offset credits have been sold (CARB 2014, pp. 10–14). California also places some certified credits in a buffer account and releases those credits over time as a forest meets its designated sequestration levels (CARB 2014, pp. 18–19). It is important to note that accounting for forest carbon sequestration has improved recently, making the determination of tradable offset credits more reliable (van der Gaast et al. 2018, pp. 44–45).

The effects of climate change on the capability of certified forests to sequester carbon are uncertain. The California’s forest carbon offsets are required to be in place for at least 100 years (Anderson et al. 2017, p. 364). Nonetheless, this is not a long time to withstand the conditions of drought, wildfire, disease, and pests that are exacerbated by climate change and can reduce expected carbon sequestration in forests.

Forests certified for carbon credits in other states do little for improving air quality in California. Yet, California forests receive a higher per acre rate for forest carbon offset credits as an incentive for owners of California forests to sell offset credits (see Table 6). Still, forests outside of California have generated the more than 81% of the total certified offset credits (see Table 4).

7 Lessons

The seven measures of the performance of the California forest carbon offset program generally support the hypothesis that (1) a carbon offset program can help to implement a cap-and-trade program to reduce GHG emissions, and (2) California’s cap-and-trade program has made effective use of forest carbon offsets as part of its successful effort in reducing greenhouse gas emissions. With the help of the carbon offset program, California GHG emitters have complied with the GHG reduction caps (CARB 2016, p. 321). In turn, the state achieved its GHG reduction goal for 2020 by 2016 (Danigelis 2018, p. 1). Forest carbon offsets have been the main type of offset credits acquired by California emitters. Meanwhile, California emitters are meeting a small portion of their GHG emissions reduction obligations in a cost-effective way, below the cost of purchasing allowances from the state auctions. This limits the economic dislocation of complying with the cap-and-trade program.

The California experience with forest carbon offset credits is significant beyond California (ICAP 2019). The state is the equivalent of a country with its 40 million people, substantial GHG emissions, large economy, and extensive territory, including major forest resources. This case study shows countries and regions how a successful carbon offset program works as a small but important element in an effective cap-and-trade program. The price of emission allowances and carbon offsets are key components. The price of emission allowances must be high enough to compel emitters toward reducing their GHG emissions. The price of offset credits must be lower than the cost of allowances to attract emitters, but high enough for private forest owners to generate offset credits. Also, it helps to have large private forests participate in the offset program because of the cost of the offset verification process and the need to generate a substantial amount of offset credits.

Countries and regions that already use a forest carbon offset credit program can see how California has performed according to the seven questions derived in this article and these programs can perform a similar evaluation of their own forest carbon offset programs. For countries and regions that have cap-and-trade programs but do not have a forest carbon offset program, this paper suggests ways for policy makers to create such a program to make a cap-and-trade program more effective. For example, the European Trading System does not have a forest carbon offset component, yet Europe contains extensive forests that could generate offset credits. The European Trading System has been criticized for producing mixed results: some GHG reductions but a low carbon allowance price, with “ample room for improvement” (Muuls et al. 2016, p. 9).

Still at issue is whether carbon offsets should be traded across national boundaries in an international market (Baranzini et al. 2016; Ramstein et al. 2018, p. 34). In 2017–2018, California and Québec linked their cap-and-trade systems in joint auctions of emissions allowances, and California emitters may purchase allowances but not yet forest carbon credits from Quebec as of late 2018 (CARB 2018a, d, pp. 1–2).

8 The socio-ecological practice research on forest carbon offset credits in California and beyond

The need to mitigate GHGs has led to the creation of cap-and-trade programs to reduce GHG emissions in several countries and regions. A small number of countries and regions also offer a forest carbon offset option to give emitters greater flexibility in meeting their emissions reduction caps and to take advantage of the ecosystem services of forests as carbon sinks. This study fills a gap in the socio-ecological practice research on how a design with nature approach to greenhouse gas mitigation can successfully enhance a cap-and-trade program to mitigate GHG emissions. Forests, properly managed, have a great ability to sequester carbon and reduce net GHG emissions. In addition, there are co-benefits for wildlife management and water resource protection (Anderson et al. 2017, p. 363). This study suggests that using nature to sequester carbon through a forest carbon offset program can be a small but useful component of a cap-and-trade program provided that the offset program meets several measures. Offsets must be a small part of the overall emissions reductions; their availability must decline over time along with lower emissions caps; the supply of offsets created must be able to meet the demand for offsets; the offsets created must be additional and verifiable over time; the price of offsets must be competitive with the purchase of emissions allowances from a government agency or other emitters; and the price of offsets must be high enough to attract private forest owners to generate offset credits.

Although the California carbon offset program is still young, the performance so far is encouraging. Yet, this case study has limitations that will require future research. First, the current study covers only 6 years. The evaluation of California’s forest carbon offset program will need to continue through its end date of 2030 to determine whether California can meet its greenhouse gas reduction goal and whether America’s privately owned forests can generate enough offset credits and at acceptable prices. Monitoring forests that have sold offset credits will be critical to determine if the forests are indeed sequestering carbon in the contracted amounts. Finally, the amount of credits supplied by California forests is important to track because California forests that sell offsets will also benefit California air quality. If the California forest carbon offset program continues to perform well, it can also continue to serve as a model for countries and regions that are using or looking to use carbon offsets from private forests as part of a cap-and-trade program to reduce GHG emissions.

Footnotes

  1. 1.

    Information provided by Stephen Shelby, an administrator at the CARB Compliance Offset division. Personal communication January 24, 2017.

  2. 2.

    Information provided by Sarah Wescott, a program associate with the Climate Action Reserve, a California Offset Project Registry. Personal communication, November 2, 2016.

  3. 3.

    Information provided by Dylan Jenkins, vice president, at FiniteCarbon Portfolio Development. Personal communication February 11, 2017. Information provided by Stephen Shelby, an administrator at the CARB Compliance Offset division. Personal communication January 24, 2017.

  4. 4.

    Information provided by Sarah Wescott, a program associate with the Climate Action Reserve, a California Offset Project Registry. Personal communication, November 2, 2016.

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Copyright information

© Springer Nature Singapore Pte Ltd. 2019

Authors and Affiliations

  1. 1.Department of City and Regional Planning, School of DesignUniversity of PennsylvaniaPhiladelphiaUSA

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