August 30, 2014 by Rahul Rana
Forestry is one of the five project types approved to generate offsets eligible for use by compliance entities to meet up to 8% of their compliance obligations, and has thus far generated the largest volume of credits. However, forestry projects face unique challenges in the California cap-and-trade program, owing to the rigorous requirements of the protocol and the long-term commitment required to generate offsets for compliance use. CaliforniaCarbon.info discussed these issues and more with Chris Kelly, the California Program Director of The Conservation Fund. Since 2007, the Fund has registered three forest-based carbon offset projects under early action protocols developed by the Climate Action Reserve and adopted for early action by the Air Resources Board, and is developing a new project to be verified under the US Forest Project Protocol. Altogether, the Fund has been issued more than 4,000,000 early action eligible CRTs over more than a dozen reporting periods going back to 2007.
CaliforniaCarbon.info: The Conservation Fund has been active in forest carbon protection since before the days of cap and trade. What were the challenges you faced in transitioning from a voluntary to a compliance set-up?
Chris Kelly: The Conservation Fund was among the first to respond to California’s call for “early action” to combat climate change when we registered the Garcia River Forest project in 2007 with the Climate Action Reserve shortly after the Air Resources Board endorsed the first conservation-based forest management protocol. Since then, the Fund has worked closely with ARB, CAR and our many offset purchasers to develop additional projects and to demonstrate that forest protection and stewardship can, and must, be part of California’s program to reduce emissions. As with any path-breaking effort, the process has been challenging. Being at the forefront can often feel like driving a train while the tracks are still being laid, and we are still navigating the final leg of our journey from the voluntary to the compliance program. I am confident that ARB ultimately will recognize the pioneering work done by CAR and the commitments made by early participants in the forest-based carbon offset market and bring these early action projects into the compliance program.
CC.info: ARB has designed a highly rigorous offset program which goes to great lengths to uphold the integrity of offset credits and the emission reductions they represent. Are there instances when you feel these measures in turn prevent the market from hitting its full potential?
CK: The Fund has developed forest carbon projects under each of the protocols adopted for use under the regulation. From the outset, we have supported ARB and CAR’s efforts to ensure the transparency and integrity of the offsets created under the applicable protocol. We believe it is essential to the continuation of the program that the public have confidence that the emissions reductions are real and have a lasting and meaningful impact on mitigating climate change. To that end, we have worked closely with ARB, CAR and the purchasers of our projects to meet or exceed the applicable standards.
At the same time, it is important to implement the program in a way that encourages innovation and the early development of projects that can serve as models and through which the regulators and market participants can learn which methods best achieve these goals. I believe this was one of the California Legislature’s key objectives when it directed ARB to encourage early action and provide appropriate credit for early voluntary reductions. To meet this directive, ARB needs to implement the regulations in a way that maintains public confidence while not stifling innovation and investment in high quality offset projects. We are still working through the process of bringing our early action projects into the regulatory program. While that process has been demanding and time consuming, we believe that its successful completion will send an important signal to the market that the program works as the legislature intended.
Stepping back, it’s important to remember that California is creating something unprecedented and hugely important – a comprehensive program to reduce emissions in one of the world’s largest and most complex economies that recognizes the importance of including forests in the solution set. So while we should strive for the most rigorous program possible, we also need to implement the program in a way that provides the transparency and certainty necessary to encourage forestland owners and investors to commit to the long-term obligations that the regulation requires.
CC.info: ARB has yet to declare post-2020 emission targets for the program, and there is also no legislative mandate for the program to continue beyond 2020. Would you say the lack of mid-term certainties is affecting your ability or willingness to commit to doing offset projects?
CK: Yes, it is vitally important that ARB provide a longer horizon for the state’s GHG reduction program, particularly for forest-based offset projects. Under the regulations, forest project developers must commit to sequester the credited carbon for 100 years. Forest landowners won’t make that kind of commitment where there is no foreseeable offset demand beyond 2020. Just last year we financed the permanent protection of a 20,000 acre forest in Northern California in part with an upfront investment in the project’s future carbon offset production. This year, I am not sure we could find similar investor interest. So, yes, the knowledge that there will be a demand for carbon offsets beyond 2020 is vitally important to our ability to finance and develop new forest carbon projects.
CC.info: There is said to be a lack of verifiers for compliance-grade forestry projects, with only two (SCS Global Services, Environmental Services) being particularly active. With the need to rotate verifiers and the benefits of having the same project verified by more than one different verification body, have you heard anything about whether other verification firms are looking to enter this space?
CK: We have heard that there are additional verifiers interested in providing verification services for forest-based carbon offset projects, but to date we are only familiar with the two you mention. The lack of verifiers has at least a couple of consequences – first, the available verifiers are busy and the verification process understandably takes a long time. Also, because we have used both verifiers for our initial verifications and regulatory desk reviews, we currently have concerns about the availability of independent verification services necessary to shorten the invalidation period under the regulation. We are anxious to see verifiers come into this space, but we understand why they may be reluctant to set up shop given the uncertain demand for their services after 2020.
CC.info: There has been some renewed interest in including offsets generated by REDD projects in the cap-and-trade programs. As a US-based forest project developer, what are your thoughts on including international forest credits in the program?
CK: The Fund currently does not work outside of the US so we don’t have much familiarity with REDD projects. That said, it does seem that forest offset projects should be based on legal and regulatory institutions sufficient to ensure that forest ownership and forest management practices are consistent with the assumptions made in the baseline. California, for example, has perhaps the most rigorous forest practices rules in the US and they provide clear standards as to what constitutes “business as usual” and therefore make it easier to determine what changes in forest management practices are additional and should be credited. With respect to REDD projects, it seems very important that they be based on a robust legal and regulatory framework so that all credited offsets are real, additional and enforceable. And, of course, nothing beats a California redwood forest for secure carbon capture and sequestration!
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