Enabling carbon credit funded restoration of beetle forest; is it possible?

Issue

Carbon Credits were quite the rage a few years ago. Grand hopes abounded for a tool with which to finance large scale forest restoration, create employment and enable the human race to reverse damage brought on by dirty energy and historical deforestation.  Why not incentivize corporate polluters to reduce emissions while reforesting the earth? Unfortunately, achieving this dream was not quite as easy as hoped, as political will flagged and many western nations became preoccupied with the financial crisis.

Though a number of forest conservation projects have recently achieved success, various factors have stymied the progress of carbon funded reforestation in BC; slow growing northern forests, governments slow to define carbon rights and low prices offered for forest based offsets, among others.

One of the most discouraging impediments has been the “dissing” of the whole idea of reforestation-based carbon credits by environmental groups. The fear seems to be that acknowledging any restoration project benefits will shift the public’s focus away from conservation and energy-sector emissions. This unfortunate and shortsighted approach has spooked corporate sponsors and pushed funding toward non-forestry options with a fraction of the co-benefits. Though every major carbon offset standard in the world now allows reforestation-based offsets, the damage lingers.  An example that stands out is that of a BC-based credit union being advised by a prominent enviro group to steer clear of forestry offsets. The credit union’s quest for local offsets ended in the purchase of methane capture carbon credits from a garbage dump in the Maritimes. Not really the warm and fuzzy photo op they were looking for. But I digress.

The Mountain Pine Beetle epidemic has left millions of hectares of BC forests damaged and deforested.  The scale of the problem is such that traditionally funded reforestation can only happen slowly, as the cost of a meaningful campaign is beyond provincial means. Given the considerable challenges in putting these types of projects together, there’s a need for a much more diverse approach to funding and stakeholder involvement. Making a financial case for annually issued (ex-post) offset models is problematic on all but the most productive sites, so combining additional sources – i.e. leveraging existing government funding, bio fuel initiatives and biodiversity funds - is critical.

Early this year a Request For Proposals (RFP) to initiate carbon credit funding of beetle forest restoration was tendered by the BC Ministry of Forests (MOF). Unfortunately it bore little fruit because participants couldn’t square the risks and rewards. As a follow up MOF has another RFP in the works for this Fall that is building on some of the better ideas from the initial round. So what is the missing piece that will enable projects to move forward?

 

Map_of_Beetle_kill_as_of_2011.pdf

Source: B.C. Ministry of Forests, Lands and Natural Resource Operations, Feb 2012

Our group presented an idea that would see a project with revised roles, built around a recently minted structure in the carbon market known as a “Program of Activities” or PoA. The PoA represents a “plug and play” approach that allows smaller scale project implementations to go ahead by accessing offset documentation and carbon modeling as components of a larger, overarching project. Long-time forest carbon proponent Joseph Pallant of CPS Carbon Project Solutions Inc. connected the dots between the new PoA carbon market tool, and the huge challenge of restoring the beetle forest. Instead of a single company taking on the entire task (and risk) of developing the project, certifying the carbon offset documentation and trying to plant enough trees to dent the beetle kill, this route would select an organization to fill a more focused role as the “Coordinating Entity” and project manager. This entity would undertake the required carbon diligence to create a PoA offset project, and then open the door for silviculture contractors across the province to do what they do best. This presents a lower risk proposition to the contractors, and removes the need for them to retain specialized carbon consulting expertise to access a new financial stream.  The approach alleviates the substantial costs of starting from scratch on project design documents and stands to incentivize reforestation at a level befitting the magnitude of pine beetle devastation. Positive noises have been made, and we hope that the Ministry is able to further catalyze movement on carbon-financed reforestation in British Columbia later this Fall.

These positive developments aside, there should be no illusions that carbon offset revenue is a magic bullet, guaranteed to single-handedly finance large-scale reforestation in the province. As alluded to earlier, the slower growing temperate forest simply takes its time in removing CO2 from the atmosphere for storage in tree trunks, branches, leaves and soil. As the carbon market has converted from ex-ante offset calculation suitable for the voluntary market (think crediting 50 years worth of growth as offsets in year one) to ex-post (annual crediting of proven growth) that befits a regulated compliance market, a basket of incentives are surely needed to make reforestation happen at scale.

The following are potential pieces of the puzzle that could be combined to pave a new avenue for reforestation in BC:

The Pacific Carbon Trust (PCT)

The Pacific Carbon Trust is a Crown corporation created to deliver quality, made-in-BC greenhouse gas offsets to help clients reduce their carbon footprint and drive the growth of BC's low-carbon economy. Deeply engaged in catalyzing collaborations between industry and carbon market players, they are tasked with ensuring delivery of over 800,000 tonnes of offsets a year. With the ability to sign long-term delivery contracts for BC-based offset projects, this group acts as secure buyer and injects the much needed price certainty needed to finance your project.

There are challenges with putting PCT reforestation projects together, which have stymied the sector to date. The financial challenge of undertaking high upfront development and implementation costs that must be recouped over long payback periods creates a classic business conundrum. Because PCT offsets must be ex-post and highly standardized, project development costs are significant even before you put the first tree in the ground. Uncertain international recognition of BC’s Forest Carbon Offset Protocol and an illiquid market for excess offsets beyond a guaranteed PCT buy also complicate the life of a project developer.

Having said this, there is a clear desire on the part of the PCT to make reforestation offset projects work. In this context, there is good opportunity to move forward on projects that have complimentary funding schemes. If we can compile the winning conditions for a project in the beetle forest, there may be hope for projects financed through a hybrid of PCT compliance credits, voluntary offset sales and other revenue generators.

Voluntary Market opportunities

An example of a home-grown voluntary market is the new Tree Canada program called “Grow Clean Air”. This program represents an opportunity to do small projects through Canadian corporate sponsors. Though the size of these projects is small in scale they are opportunities to work through process, methodologies and prescriptions relevant to the larger scale projects.  This has allowed proponents to work through some of the complexities of carbon funding.  Small projects like these help to enhance and develop the overall carbon market by demystifying and debunking some of the misconceptions.

Zero Net Deforestation funding

The Zero Net deforestation (ZND) legislation is an interesting piece or government policy that recommends an annual average deforestation rate of 6000 hectares from non-forestry activity be balanced by afforestation of an equal amount of “ex forests” that lack funding.  ZND has a streamlined structure that provides a good opportunity to restore less productive forest ecosystems. An ability to replace hectare for hectare with no growth and yield comparisons and no trading of an actual asset represent a simplified route to voluntary funding. Although set up to replace deforestation with afforestation, a creative interpretation of the act through the yet-to-be-drafted regulations could make it applicable for Mountain Pine Beetle restoration.

Unfortunately a lack of any legislative teeth and flagging corporate budgets for environmental PR projects seem to have put ZND on the back burner.   ZND had some good initial interest from the corporate world. BC Hydro spent considerable time kicking the tires, but has shelved involvement pending recent restructuring and shifts in environmental priorities. Some political and/or corporate champions could revitalise this orphaned piece of legislation.

The Draft BC Cap and Trade Bill

In the case of provincial commitment to a cap and trade system under the Western Climate Initiative (WCI), demand for forest offsets will be given a boost via a more liquid and volatile carbon market. Demand models for the California + Quebec WCI markets (going live January 1, 2013) suggest that forestry will reduce cost of compliance for capped entities. There is some low hanging fruit, but the cost of many ecosystem-based interventions is higher than often assumed. Having an inventory of BC-based projects in development and delivery stages allows for efficient contributions to a cap and trade market if and when it matures. Linking protocols will be of particular importance to the insertion of BC carbon offsets into a wider continental market.

In summary, there is a public and corporate appetite for simple, accessible carbon offset projects.  People like trees and forests. The beetle forest offers an opportunity for a range of small to landscape-scale projects that would create employment, involve forest-based and First Nations communities and restore ecosystem functionality. Many of the up front impediments such as costly legal agreements and science-based design documents can be dealt with through the capable processes of the Ministry of Forests and the Pacific Carbon Trust. There’s a strong case for using existing public funding of pine beetle restoration to leverage a much larger carbon credit-funded restoration program – by providing technical support and risk mitigation. BC has a unique opportunity to use cutting-edge, cost-effective restoration through existing, local silviculture contractors, professional forestry services and carbon offsetting firms.

As stated in the baseball movie, Field of Dreams, “Build it and they will come.” Or more to the point: Reduce the risk, give support and they will invest. With luck, we can get this whole carbon credit thing going again, and use it to restore our forests.

Tony Harrison has spent the past 3 years collaborating to develop projects with multiple funding sources for the carbon market. Tony is co-owner of Zanzibar Holdings Ltd., a long time silviculture contracting firm, and a co-founder of River Forest Carbon Inc.  tonyzanzibar@gmail.com

Feature