The New Carbon Economy: Economic Opportunities in BC for Living Carbon

Issue
Synopsis

On December 8th, 2008, two events on opposite sides of the world coincided to potentially broaden the scope of silviculture in BC forever. In Poznan, Poland, the United Nations Framework Convention on Climate Change (UNFCCC) agreed to include a protocol for carbon offset forestry projects, Reduced Emissions from Deforestation and Degradation (REDD).

On December 8th, 2008, two events on opposite sides of the world coincided to potentially broaden the scope of silviculture in BC forever. In Poznan, Poland, the United Nations Framework Convention on Climate Change (UNFCCC) agreed to include a protocol for carbon offset forestry projects, Reduced Emissions from Deforestation and Degradation (REDD). This adds to the existing UNFCCC tools of Improved Forest Management (IFM) and Afforestation, Reforestation and Restoration (ARR). Now a full suite of carbon protocols to help contain climate change forms a continuum of opportunities, from protecting existing carbon sinks to creating new ones and in between, encouraging a mix of micro-protection and micro-sink activities across larger forest estates.

Also on December 8th, the BC government passed the first "Emission Offset Regulation" as part of their target of a 20% reduction in 2004 greenhouse gas emission levels by 2020. With the international negotiations adding biophysical analysis of forest metrics for reducing and offseting emissions, the BC legislature established the legal framework to use these tools.

Existing standing natural forests, especially old ones with large stores of carbon and high annual sequestration rates, which reduce atmospheric CO2, are best kept as growing sinks. Converting old growth natural forests (with pools of carbon in the canopy, understory, roots, soil, woody debris, and stems) into second growth stands for fibre or bioenergy, results in a reduction of the forest carbon reservoir and large net carbon emissions. One fifth of the world's annual emissions come from deforestation or degradation of forest carbon stock. Consequently, it is just as important to tackle emissions from forest disturbances as it is from our tailpipes. Preventing immediate emissions is also more important than creating sinks whose benefits may not be realized for decades. It is this resulting emphasis on conservation that creates forest sector anxiety about forest climate action.

Limiting emissions as much as possible for forest activities in managed forests is important. IFM proposes changes in BC's "business-as- usual" forest practices, e.g., longer rotations, fewer trees, less roads, and higher protection levels, which also give rise to economic impact concerns. In BC, the fear is that replacing harvesting with protection, or introducing new IFM practices, will cost BC jobs. What will this mean in terms of work? No one is confused about the employment and development impact of creating more sinks on already degraded lands through ARR. These protocols add activity and jobs that did not exist before. They also have precise definitions argued painstakingly through the international negotiations i.e., IPCC (Inter-governmental Panel on Climate Change) and CDM (Clean Development Mechanism), to determine how much carbon projects sequester on an annual basis. We understand now that it can take a few decades to achieve substantive carbon sequestration rates causing reduced value from future sink price discounting.

In addition to UNFCC project rules, the North American Forest Carbon Protocol project has developed a principle of no net harm to biodiversity for any projects.

The implications of all of this for jobs and the economy are manifold. Professional foresters will inherit new skilled jobs in the quantification and valuation of carbon for different forest ecosystems. BC is Canada's most ecologically complex province and will require professionals who can measure and accurately extrapolate the future carbon storage and sequestration rates in the province's widely varying ecosystems. We will need experts in soils and biodiversity as well as carbon and trees. The "no net harm to biodiversity" principle in all international standards will also require monitoring. Since projects will have to be integrated into other ecosystem value generation opportunities, professionals with a broad understanding of multiple forest values, including biodiversity, habitat, soil stability, water quality, and atmospheric carbon exchanges will be needed.

The more labour-intensive and long-term tasks of managing, thinning where appropriate, removing invasive species, and stewarding

the forests will generate an ongoing annual revenue stream that compliments the annual return in carbon from those activities. You may wonder how thinning can create climate benefits. Thinning, in some types of high disturbance ecosystems, can reduce fuel loading to make a forest more fire proof, so this can be silviculture with a byproduct. It may create a new generation of local entrepreneurial silviculturalists that have long-term commitments to regions. Not only will these projects create revenue for silviculture contractors, they will help nature to continue to store carbon.

In the case of REDD projects in mature natural forests, the carbon revenues are immediate and can be large. However, since harvest jobs may be lost, it will be important for these conservation offset revenues to be re-invested by communities to develop alternative socio-economic pursuits.

Since we are just starting out, pilots in BC will have to be quantified for their local economic impacts. Gary Bull, of the Faculty of Forestry at UBC, states, "Carbon management is moving rapidly from concept to practice in virtually all sectors of the economy. This simultaneously creates new challenges and new opportunities. Although the science is reasonably well understood, the implications for forest operations in BC are still largely unknown among forest managers."

There is a growing recognition that the market for tradable carbon credits has presented a new and important, measurable economic value to provide incentives for conserving forests or improving management and restoration of forests. Researchers are developing pilots to assess the opportunities and impacts within different management scenarios.

Three Improved FM Scenarios

A recent economic study by Simon Fraser University forestry researchers examined three different forest management scenarios in the Fraser Valley TSA of Southwestern BC. These were:

1. Business-as-usual - logging proceeds according to current guidelines for old-growth forest within the range of the spotted owl in BC;

2. Increased conservation - all forest stands that currently meet minimum requirements for suitable spotted owl habitat are preserved or removed from the timber harvesting land base; and

3. Increased plus expanded conservation - protection of forests currently suitable for spotted owls plus adjacent logged areas that with time will develop into suitable owl habitat.

 

For each scenario, using three different sets of log price assumptions, the researchers calculated the economic values for timber, recreational use of forests, non-timber forest products, and carbon storage. The results indicate that, in 72 of 81 different projections, increased conservation makes better economic sense for locals and their neighbours, than does business-as-usual. The study stated, "... there would be a net benefit rather than an opportunity cost associated with increased preservation of old growth forests. In other words, the benefits of preservation in terms of increased recreational opportunities, non-timber forest products, and carbon sequestration and storage outweigh the costs in terms of lost producer surplus from timber harvesting."

 

"The economic impact concerns associated with conservation have kept the province from moving forward with a full spectrum of forest climate actions."

 

The estimated values attributed to increased conservation are conservative. The study did not factor in ecosystem services such as provision of clean water, erosion control, and flood regulation. Also the trade-offs were not "all or nothing". Both scenarios of increased conservation would continue to produce some timber: 1.07 to 0.6 million m3/yr compared to 1.3 million m3/yr for the status quo.

Various experimental management plans have also been developed for forests in Chilliwack, Hope, Gulf Islands, and Sunshine Coast through the University of BC Forestry Department. Modelling different management scenarios, researchers found optimal scenarios that maximize both carbon and ecosystem service values.

 

Nature Conservancy - Canada's Pilot Project

Actual carbon valuation is being undertaken on Darkwoods, a 55,000 hectare tract of forest in the South Selkirks, between Nelson and Creston, which has been purchased by the Nature Conservancy of Canada. Carbon pools are being valued under international compliance standards. It could well be the first extensive forest estate evaluated for compliance carbon offsets in BC. Land trusts, First Nations, municipalities and other land managing agencies are initiating several other pilot projects looking at opportunities for carbon management and conservation offsets. These projects are predominantly voluntary and proprietary, but point to an emerging body of professional expertise and potential projects.

For these new forest carbon economy initiatives to fully benefit rural BC, they have to rise on an international tide of potential future trading beyond the borders of the province. There are good indications that this is already happening.

BC's partner in the Western Climate Initiative, California, has developed the first pilots in three carbon activities: avoided degradation offsets (REDD-equivalent); Improved Forest Management; and Afforestation, Reforestation and Restoration (ARR), which have been registered with the California Climate Action Registry through the Garcia, Van Eyck and Lompico Headwaters Forest Project. BC has established its own Pacific Carbon Trust to assist the public sector in becoming carbon neutral by 2010 and next year. The government has indicated that they will be passing legislation for zero net deforestation by 2015. The California Forest Carbon Protocols for the Climate Action Reserve (CAR) may well provide the model for BC's forestry protocols, which are currently being drafted.

Trading Markets

Nationally, the Montreal Climate Exchange (MCEx), a joint venture between Chicago Climate Exchange and the Montreal Exchange, was launched in May 2008 to serve the evolving Canadian emissions markets as policy guidelines continue to develop, and the federal government issued a draft Guide for Protocol Developers on August , 2008. With developments in the US, the Waxman Markey Act was passed in June by the House of Representatives and the cap and trade program is currently being discussed. The US Senate is poised to pass a complementary climate and energy bill, so that the President can combine the legislation from the two houses and commit the US to new targets and actions so that it can engage constructively in the UNFCCC talks in Copenhagen. Internationally, higher caps and new carbon activities are set to be implemented, and countries that ratify the protocol and qualify will be able to offset carbon emissions through forestry projects.

The Climate Exchange Company (the world's leading specialist exchange for trading emissions and environmental services) posted their returns for 2008, indicating a 2.6 times growth in volumes in 2008, and 2009 is still growing fast in a time of economic recession. The international carbon trading market was valued at more than $60 billion USD in 2008, more than double that of 2007. The international market for carbon is expected to hit $3 trillion USD by 2020. Based on recent estimates of the global cost of carbon, the carbon stored by BC's forests is worth between $500-$750 billion CDN, which compares to the timber valuation made by the MOFR several years ago.

 

The Research Context

Industry, to date, has only undertaken a few forest carbon projects in BC. The situation is predicted to change very rapidly due to investors demanding accountability for carbon emissions and government requiring reporting for their accounting of carbon. Although the BC government has not originated any forest carbon projects, a three-year strategic plan to address ecological research, climate forecasting, ecosystem monitoring, and policy evaluation has been implemented through the Future Forest Ecosystems Initiative, where carbon is identified as a key element of the ecosystem processes and ecosystem services. Policy and research are being generated on climate change issues. Meanwhile, ecosystem-based management is being applied on the ground and expertise is developing on the coast. Although the protocols for IFM for carbon can differ from the new ecosystem-based management being implemented on the Coast, the two approaches are complementary and can be developed in conjunction with one another.

Much of the delay due to policy concerns that the carbon economy could have economic impacts through reduced timber supplies on Crown tenures may be addressed by the pilots. Clearly, the timing and therefore the present value of such impacts would depend on whether existing, harvestable timberlands or already logged lands are involved. If mature timber was involved, the first thing to consider is whether it is economically harvestable in the foreseeable future, or whether the timber is in a less operable area (e.g., where timber is of marginal quality and may be removed from the existing forest road network). There may also be existing rules that preclude harvesting, for example buffers next to riparian areas could have a formal covenant.

The protection of mature timber within operable areas in order to generate carbon credits could result in restricting harvest and therefore have broader economic impacts. However, even protection of mature, operable timber may not necessarily result in immediate harvest reductions and economic impacts for several reasons. For example, in certain market conditions (like now, particularly on the Coast), the actual, current harvest may be significantly less than the allowable harvest. Timber supply modeling would be necessary to better estimate the timing of harvest impacts (i.e., harvest flow impacts). The main point is that while assessing impacts of timber protection, it would have to be determined whether existing economic activity would be immediately reduced, or rather that potential activity in the future would be less. Delays in timber harvest impacts would also mean that transition programs from conservation revenue sharing for firms, workers, and communities would have more time to take effect.

Finally, with economic incentives for increasing biomass through ARR, more lands that are either understocked or not planted could be managed better for carbon. A spatial analysis of the potential degraded lands that could be restored may offset possible mature forests pulled out of timber projection for conservation, and with a major silviculture management investment, could result in no net loss of productive forest lands in the forest estate.

The economic impact concerns associated with conservation have kept the province from moving forward with a full spectrum of forest climate actions. But given the net neutral to positive economic impact for rural communities of planning using both conservation and ARR tools across a forest estate, and the benefits to the silviculture industry, these issues should no longer hold BC back.

The business of offsets might well outstrip any political resistance and certainly in BC, the markets are poised, coming from a variety of different sectors. It may be that incremental silviculture activity, required to implement forest carbon management across forest estates, will once again be a part of BC's future. As incremental silviculture is similar to harvesting, in that it has considerable economic spin-off benefits - increasing employment and government revenue as well as supporting a service industry in rural areas - the BC forest sector along with the strong labour interests in BC and government should all welcome this new forest carbon economy.

Briony Penn is a conservation consultant living in BC. She can be reached at penn@saltspring.com.
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