Preparing for the Carbon Market: Forestry Offsets

1. Preparing for the Carbon Market: Forestry Offsets Where are the State and Federal Policies on Forestry Offsets Headed? What isComing Over the Horizon? Linc Cannon Oregon Forest Industries Council April 21, 2009

2. “In the long term, a sustainable forest management strategy aimed at maintaining or increasing forest carbon stocks, while producing an annual sustained yield of timber, fibre or energy from the forest, will generate the largest sustained mitigation benefit.” IPCC 4th Assessment Report (2007) From: Forestry. In Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer (eds)], Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

3. Put another way… Sustainable Forest Management can best contribute to reduction of atmospheric carbon by: • Maintaining Forest Stocks • Keep Forestland in Forest Use • Reforestation • Increasing Forest Stocks • Afforestation • Active Management to Increase Growth Rates • Rotation Age • Sustainable Production of: • Forest Products • Bioenergy, biofuels, biochemicals

4. How it all fits together:Managed Forest Carbon Effects

5. How it all fits together:Forest Carbon Effects

6. Wood Product Life Cycle (from CCAR) http://www.climateregistry.org/resources/docs/protocols/agendas/CCAR_Workshop_February3.ppt Imported Recycling wood product Harvested Long - term wood Mill Landfill wood product products Landfill - Short -term wood products Substitution Biomass Forest Energy Green Bldg

7. Private Forest Carbon Reduction (Offset) Opportunities Keep Forests in Forest Use(avoided conversion) AfforestationConservation Forests (longer rotation) Forest Management (reforestation, increased yields) Forest products and landfill Bioenergy & biofuels (renewable energy credits/green tags) Energy substitution (green building) Cobenfits? Federal Forests Avoided wildfire emissions Feedstock for bioenergy & biofuels Increased sequestration from active management

8. The Multi-Billion Dollar Question! Will Private Forests Managed for Sustainable Wood Production Get Credit (Offset Payments) for Their Contributions to Reducing Atmospheric Carbon??

9. Cap & Trade - Forestry Offsets • Regions • Regional Green House Gas Initiative • (RGGI) • Midwest GHG Reduction Accord • Western Climate Initiative (WCI) • States • California • Washington • Oregon • Utah • Federal

10. U.S. Regional GHG Reduction Initiatives

11. Regional Greenhouse Gas Initiative RGGI

12. RGGI • First mandatory, market-based effort in the United States to reduce GHG emissions. • Cap and then reduce CO2 emissions from the power sector 10% by 2018. • Compliance obligations begin in 2009 • Sell emission allowances through auctions • 2nd Auction – 12/17/08, 31.5 million allowances @ $3.38 = $106.5 million

13. RGGI Forestry Offsets • Draft Recommendations (May ‘08) • Conservation & Managed Forests • FIA Average Regional Inventory Baseline • Forest Products • Above Business As Usual “BAU” • Biomass Plantations • Displace Fossil Fuel Use • No Avoided Deforestation • NOT included in Dec ‘08 Model Rule • Afforestation only, permanent easement

14. Western Climate Initiative WCI

15. WCI Recommendations (Sept 2008)General Regional cap and trade program framework WCI ONLY recommends, it’s up to states/provinces to adopt! • Phase 1 takes effect in 2012 • Phase 2 takes effect in 2015

16. WCI Recommendations (Sept 2008)Offsets Offsets = Emission reductions outside the cap • Limited to no more than 49% of total emissions reductions from 2012 to 2020 • Priority offset types for investigation • Agricultural • Forestry • Waste management

17. WCI Recommendations (Sept 2008)Key for Forest and Forest Products • Forestlands are not included under the cap • Carbon neutral biomass emissions • determined by each state • Cogeneration unresolved • Biofuel exempt, with possibility that upstream emissions could still be counted • Priority consideration for Forestry offsets • WCI Offsets Working Group

18. WCI Work Plan (Feb 2009) Offset Protocols (Ag, Forestry, Urban Waste) Forestry Offset Types to be Evaluated Afforestation Reforestation Forest Management Forest Preservation/Conservation Forest Products Urban Forestry “The Committee will aim to identify those stakeholders with knowledge, experience and resources to be directly involved in the appropriate protocol task teams”

19. California

20. California • AB 32 (2006) Mandates • 1990 GHG emissions levels by 2020 • 80% reduction from 1990 levels by 2050 • California Air Resources Board (CARB) adopts AB 32 Scoping Plan on December 11, 2008 • identifies cap and trade program as one of the main strategies to reduce GHG emissions • Must adopt cap and trade regulation by Jan 1, 2011 • Program begins in 2012 • Rule development coordinated with WCI timeline

21. California Climate Action Registry Climate Action Reserve • What is the Climate Action Reserve? • CCAR program to register and track carbon offset projects throughout the U.S. • Established as its own name, but co-branded with CCAR • Intended to be the premier place to register carbon offset projects for North America (VCS approved) • Until now, U.S.-based projects only • Expanding to Mexico and Canada

22. California Climate Action Registry Climate Action Reserve Draft Forest Project Protocols (Dec 2008 & Jan 2009) Eligible Forest Project Types • Afforestation • Improved Forest Management • Natural Forest Management Practices • Mixed native species, multiple ages, multiple scales • Baseline • BAU regulatory baseline modeled on forest practices regulations • Reference is FIA average mean stocking • Additionality is above and beyond Business as Usual (BAU) • Allows limited credit for harvested wood products • Minimum 100 year duration • No credit for wood in landfills • Avoided Conversion • Immediate site specific threat • Conversion uncertainty discount

23. California Climate Action Registry (CCAR) Forest Protocols Process/Timeline • Original protocols recognized afforestation and conservation forestry project types • Draft Revised Forest Project Protocols (December 2008) • Public workshop on wood products quantification and other miscellaneous items on February 3, 2009. • Additional two week public comment period to address wood products or other protocol issues. Concluded on February 20, 2009 • Final draft delivered to CCAR on March 8, 2009 • Final Forest Project protocol to CCAR Board in April 2009

24. Washington

25. Washington House Bill 2815 (2008) • GHG Emission Reduction Targets • 1990 GHG emissions levels by 2020 • 80% reduction from 1990 levels by 2050 • Directs the Department of Ecology to develop and implement a program to limit statewide greenhouse gas emissions. • Authorizes a reporting system to monitor greenhouse gas emissions. • Directs the Department of Ecology to develop a design for a regional multisector market-based system to limit and reduce greenhouse gas emissions, in coordination with WCI. • Climate Advisory Team to provide a report to the Legislature by December, 2008

26. Washington Forest Sector Workgroup On Climate Change Mitigation - HB2815 (2008) Diverse Stakeholder Group, Consensus Process, DNR/DOR Report (December • Priorities • Conversion • Active Forest Management/Harvested Wood Products • Afforestation/Reforestation • Substitution • Avoided Emissions • Biomass Energy

27. Washington Report – Forest Sector Workgroup On Climate Change Mitigation (Dec 2008) • Avoided Conversion • Cluster development (w/ permanent easement) • Transferable Development Rights (TDRs) • Urban Forests • Forest Management • Offsets Beyond BAU • Include Harvested Wood Products • Exclude wood in Landfills • Non-offset Carbon Storage Incentives • Funded by carbon auction revenues • Revisit if not created or appropriately funded • Can recognize co-benefits

28. Washington • Washington state Governor Chris Gregoire told reporters in Washington D.C. on February 23 she hopes her state will pass a bill setting a mandatory cap on greenhouse gas emissions and enabling it to participate in emissions trading in the Western Climate Initiative (WCI). • Gregoire has warned that it would not bode well for other WCI states if the Democratic-controlled Washington legislature fails to pass the bill. • “If I can’t get the job done I fear we will have others that can’t. That’s why failure is not an option for us.”

29. Washington HB 1819 (2009) • Authorizes the Department of Ecology to create an allowance trading program. • Creates a cap-and-trade work group. • Creates criteria for the cap, allowances, and offsets. • Specifies the emissions covered in the allowance trading program. • Requires the Department of Ecology to develop a design for the auctioning of the state's allowances. • Sets compliance obligations and penalties. • Creates the Climate Protection Account. • Sets reporting requirements for fuels. • Is Dead…

30. SB 5735 (2009) • Functionally caps emission from the only coal plant (Transalta) in Washington • Allows use of offsets (up to 49%) to meet emissions reductions requirements • 14 page bill, 1/3 dealing with forest offset language. • Study and make recommendations

31. Oregon

32. Oregon HB 3543 (2007)Global Warming Strategy • Carbon emissions reduction goals: • 10 percent below 1990 levels by 2020 • 75 percent below 1990 levels by 2050 • Examine cap and trade systems • Develop strategy for educating the citizens • Track economic, environmental, health, and social impacts

33. Oregon • Global Warming Commission • Natural Resources Committee • Forestry Subcommittee • Forest Carbon Stakeholders Group (facilitated) • Woodlands Carbon Company • SB 80 (2009) – DEQ Cap and Trade • HB 2186 (2009) – DEQ Alternative Measures • Oregonians for A Balanced Climate Policy • Balanced Carbon Reduction Act

34. Forest Carbon Stakeholder Group Comments to WCI – July 2008 “Our deliberations have led us to believe that a properly structured forest carbon offset program can provide significant ecological, social, and economic benefits in addition to offsetting GHG emissions…” American Forest Resource Council – Associated Oregon Loggers – Boise Cascade - California Forestry Association - Defenders of Wildlife - Ecotrust - Forest Capital Partners - Lone Rock Timber Company – Oregon Forest Industries Council – Oregon Small Woodlands Association - Oregon Woodland Cooperative - Roseburg Forest Products – Mark Copeland - The Collins Company - The Conservation Fund – The Nature Conservancy in Oregon – Washington Forest Protection Association – Weyerhaeuser Company

35. From Governor Kulongoski’s testimony at the February 5th hearing on SB 80 Over the last year I have – like you – been listening to those still in denial who argue that SB 80 is not the right approach to address the issues around CO2 emissions. Their answer to the climate change debate has been to promote fear and confusion …  They argue against a cap and trade and other parts of this proposed package by claiming now is not the time to make significant changes with a fragile economy, or let the federal government deal with this issue….  You may recall that the same coalition of Salem Beltway naysayers made similar arguments about the Renewable Portfolio Standard bill in the 2007 session…

37. Oregonians for Balanced Climate Policy American Chemistry Council -- American Forest and Paper Assn -- Associated Oregon Industries -- Associated Oregon Loggers -- Building Owners and Managers Association -- IBEW Local 48 -- Industrial Customers of NW Utilities-- Oregon NFIB -- Northwest Food Processors Assn -- Northwest Industrial Gas Users -- Northwest Propane Gas Assn -- Northwest Pulp and Paper Assn -- Oregon Association of Realtors -- Oregon Cattlemen’s Association -- Oregon Dairy Farmers Association -- Oregon Farm Bureau -- Oregon Forest Industries Council -- Oregon Home Builders Association --Oregon Metals Industry Council-- Oregon Refuse and Recycling Assn --Oregon Rural Electric Coop. Assn-- Oregon Seed Council --Oregon State Building Trades Council-- Oregon Trucking Associations -- Oregon Wheat Growers League-- Oregonians for Food and Shelter --Umatilla Electric Cooperative

38. SB 80/HB 2186 Metamorphosis • Cap and Trade • Hard Cap (no trade) • Hard Cap (with offsets) • Hard Cap (with off ramps) • Soft Cap??

39. Oregonians for Balanced Climate Policy SB 80 Messages- April 21, 2009 • Legislature needs to slow down harmful and costly climate change legislation. Oregon cannot solve global climate change on its own. • The U.S. EPA recently classified carbon as a harmful pollutant. The federal government is taking steps now to press for carbon reductions. • Utilities estimate that to meet the pie-in-the-sky carbon reduction goals in SB 80, it would cost nearly $17 billion in higher electricity costs--$12.5 billion for PGE and $4.5 billion for PacifiCorp. Oregonians cannot afford increased costs, which result in lost jobs and higher unemployment. • Legislators should not leave major climate change policies in the hands of state agencies. They need to have all the proposals on the table, and know all the costs and benefits before making a decision. Elected officials should set economic policy, not unaccountable bureaucrats. • We should not fund large, new state programs at the expense of existing programs that protect our air and water. • The federal government is moving ahead quickly on climate change. Oregon should find out how it can benefit from a program like this before jumping head first into a duplicative and costly program.

40. Oregonians for a Balanced Climate PolicyAlternative Legislative Proposal “Balanced Carbon Reduction Plan of 2009” • Electric Sector Alternative (PUC) • Forest and Agricultural Offsets • Emissions Performance Standards • Transportation Sector Alternative • Alternative Measures

41. Woodland Carbon Company • An aggregation organization providing access to the Chicago Climate Exchange for certified members of the American Tree Farm System in Oregon. • One of three National Tree Farm pilot programs that will be established in 2008 as models for other Tree Farm organizations that wish to enter the forest carbon market. • WCC will operate as a sub-aggregator to the National Carbon Offset Coalition (NCOC) that will bring aggregated pools of eligible forest projects to the Chicago Climate Exchange (CCX).

42. Utah

43. Utah “Beltway Naysayers” • HR3, a non-binding resolution urging Gov. Jon Huntsman Jr. to withdraw Utah from the multistate Western Climate Initiative cleared Utah’s House on Tuesday, February 24, 51-19. • Sponsor Rep. Mike Noel, R-Kanab said the measure would send a message to Utah’s chief executive that he overstepped his bounds by participating in energy policy that could affect the economic health of many of the state’s businesses.

44. National

45. Chicago Climate Exchange - CCX • North America’s only greenhouse gas (GHG) trading system. • Launched in 2001. Modern web-based trading platform. • Only Members can buy and sell on CCX. • Trading launched in 2003; Currently trading emissions dated 2003 through 2010. • Trading rules managed by expert committees drawn from CCX members. • Info at www.chicagoclimatex.com

46. CCX Forest Offset Project Types • Afforestation – Planting trees on land that has not been in forest for the previous 10 years or more. A land use change that creates new forest lands. • Reforestation – Planting trees on forest land where the forest was destroyed and is not naturally regenerating. • Sustainable Forest Management – Changing forest management so as to increase forest biomass and retain it for long periods. • Harvested Wood Products – Credit for the amount of wood that will remain in use or in landfills 100 years after it is harvested.

47. National • President Obama’s 10-year budget plan includes $645 billion from 100% auction of GHG allowances (2012-2020) in a national cap and trade program. • Cap and Trade Legislation this year? • Waxman/Markey is currently in markup • House Energy Chair Waxman wants a bill out of Committee by End of May • Senate Environment Chair Boxer is drafting bill, probably for consideration later this summer

48. Society of American Foresters Preferred Forest Offsets Policy Options for a national carbon trading program • Afforestation. Planting trees on suitable land that has been in another land use for 10 or more years (including riparian forests, windbreaks, mined land reclamation, etc.). • Reforestation. Planting trees on former forestland where forests damaged through natural events have not begun to regenerate after two years. • Forest management. Managing forests sustainably under either a sustainable forest management standard or other suitable criteria • Forest products. Providing credit for the carbon that remains out of the atmosphere in harvested forest products at the end of 100 years. Carbon credit values and their assignment can be determined between a landowner and a timber buyer via contractual arrangements. • Forest conservation. Protecting forests from land-use change with conservation easements, contracts, or other legal instruments

49. American ForestFoundation (AFF)Forest-Climate Working Group (FCWG) Begun in December 2007 to build consensus on how forests can play a meaningful role in addressing climate change. Co-chaired by Drue DeBerry (AFF) and Jad Daley (the Trust for Public Land) it has broad representation from virtually all sectors of the forest community—the forest products industry, conservation and wildlife groups, foresters, private forest owners, academics, and carbon finance groups. In order to build and achieve consensus, the organizations engaged in a series of Dialogues on forest-climate issues in 2008. More info available at http://www.affoundation.org/ccs_carbon.html

50. Binational Forest Carbon Standards Committee (FCSC) The Forest Carbon Standards Committee (FCSC) was formed by a binational group of stakeholders familiar with the suite of forest carbon offset protocols and standards that have been developed to date and the difficult issues that forest managers face in complying with the demands of emerging greenhouse gas emission programs.