Forests in US Programs: Promising, but the Key is Implementation – Weekly Policy Commentary

Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.

There is a good chance that the next administration will initiate a national program to reduce greenhouse gas emissions. As discussed in this week’s commentary by Kenneth Richards, ideally, the forest sector would be included in this program, as studies suggest there is potential to sequester in trees a substantial amount of carbon at relatively modest cost. Unfortunately, however, there are challenging design issues that need to be overcome before an effective forest sequestration policy can be implemented.

As the U.S. government develops a program to reduce the country’s net emissions of greenhouse gases, it will be important to consider the role that forests and the forestry sector can play. Through photosynthesis, trees act as biological scrubbers for carbon dioxide, removing the gas from the atmosphere, storing the carbon as biomass, and returning the oxygen to the atmosphere.Many forestry practices contribute to this carbon sequestration, including preventing deforestation, modifying harvest practices to reduce soil disturbance, reforesting harvested timberland, implementing new management methods such as extended rotations, and managing fire more effectively to avoid catastrophic loss. Perhaps more important, converting marginal or abandoned cropland and pastureland to forest stands can contribute significantly to increased carbon sequestration. Although carbon sequestration alone will not drastically mitigate our carbon emissions, it can serve as a significant and cost-effective component. A 2005 study by the Pew Center for Climate Change reviewed nearly a dozen studies of the cost of carbon sequestration in the United States. Once the individual studies were adjusted for comparability, the results suggested that as much as 500 million tons of carbon per year—about 30 percent of national emissions—could be sequestered at a cost of $25 to $75 dollars per ton of carbon ($7 to $21 per ton of carbon dioxide). With carbon capture and geological storage costs approaching $150 per ton, forest carbon sequestration appears quite cost-effective. Several of the climate change bills introduced in the 110th Congress have addressed various aspects of forest carbon sequestration. For example, S. 3036, a bill sponsored by Senator Barbara Boxer (D-Cal.), would set aside 4 to 5 percent of all allowances to reward forest and agriculture projects. Up to 15 percent of an emitter’s emissions could be covered by offset allowances.

Kenneth R. Richards is an associate professor at the Indiana University’s School of Public and Environmental Affairs. His research interests include climate change policy and environmental policy   implementation. He has served as an economist at the Council of Economic Advisers, the U.S. Department of Agriculture’s Economic Research Service, and the U.S. Department of Energy's Pacific Northwest National Laboratory.

The challenge for promoting forest carbon sequestration is designing a program that reliably induces landowners to protect and expand their forest carbon inventories. There are two basic approaches to encourage forestland owners to sequester more carbon: results-based programs and practiced-based incentive systems. Each has its virtues and limitations.

Results-Based Approach

The results-based approach focuses on the amount of carbon actually sequestered by individual landowners and allows for innovative strategies customized to local circumstances. It would create incentives that closely coincide with the sought-after outcomes. The incentives might take the form of payments or subsidies from the government or offset credits under a cap-and-trade program.

Under a results-based approach, the government and program participants must employ some mechanism to estimate, report, and verify the actual carbon sequestration achieved by forest management changes. To win popular and political support—particularly if credits that can be used to meet obligations under a cap-and-trade program are allocated to individual landowners—it will be necessary to develop procedures that assure the public that estimates of carbon gains are accurate.

The first and perhaps most challenging element of estimating the impact of a carbon sequestration project is developing a reference case—that is, estimating how much carbon would have been stored on a site in the absence of the program. Most of the practices that increase forest carbon sequestration are familiar activities that are already integral to land-use management. For a particular area of land, it can thus be difficult to say which practices would have been used anyway, even if government policy had not influenced management decisions. The requirement that the project go beyond the reference case is sometimes referred to as additionality. Since the reference case cannot be observed—after all, it did not happen—sequestration project evaluators have to rely on professional judgment to estimate business-as-usual carbon sequestration.

Project evaluation is also vexed by problems with leakage—that is, countervailing offsite effects that decrease the true carbon sequestration gains of a project. For example, a project developer might protect a particular area of forest from harvest to reduce the release of carbon from the site. But if, in response to market demand, a timber company simply cuts elsewhere instead, the carbon sequestration gains of the project have been lost. Also problematic is the fact that forest carbon can be released back to the atmosphere if the wood decays or burns; it is not necessarily as permanent as other kinds of emissions reductions.

Yet another problem involves verification. Project evaluation is hard enough when the professional has no financial or personal interest in the project. But when the individual developing the sequestration project is also charged with evaluating it, as is often the case, there is an inherent conflict of interest.

The methods used to evaluate carbon offsets are supposed to lead to results that are additional, verifiable, permanent, and enforceable. Although this may sound like a demanding standard, it is not enough. What is really needed is an approach that is independently reproducible—that is, the results of the analysis do not vary with the analyst. None of the current protocols or estimation procedures has been tested to see whether they comply with this standard. Senator Boxer’s bill is the first to require that the methods used to assess offsets be tested and verified by teams of independent experts before the methods can be used to earn allowances.

Practice-Based Approach

An alternative to the results-based approach is a practice-based incentive system, similar to the programs that have been used for environmental stewardship under the Farm Bills. Under this scheme, landowners are paid for adopting specific practices that are thought to be correlated with high levels of carbon sequestration—for example, converting highly erodible cropland to forest stands. The advantage of this approach is that it avoids potentially costly and contentious carbon measurement issues. The disadvantage is that the incentives for carbon sequestration are dulled; landowners’ first priority is implementing the practice, not sequestering carbon.

Government Production Approach

A more radical option that has received virtually no attention is for the government (federal or state) itself to acquire land and adopt carbon-sequestering practices. This is what the government has done in many hazardous waste cleanups. Although there may be substantial political resistance to the government’s expanding its holdings of land, the “government production” approach offers the advantage of practicality. It reduces problems of asymmetry of information, makes it easier for the government to pursue multiple objectives such as biodiversity and recreation, and allows the government to adjust its practices without extensive renegotiation of terms with private parties. The disadvantage, of course, is that a government production approach dulls incentives for efficiency and innovation.

We have been working for a decade and a half to overcome the challenges of a results-based offset program, but the issues persist. While we may be able to overcome these difficulties with additional experience and experimentation, it is likely that policymakers should consider alternatives. Further developing programs that use the input-based and government-production approaches may well prove more fruitful in the long run. In any case, forest carbon sequestration is so promising, we must make a continued, diligent effort to find workable systems.