Carbon credits' value may grow
Forest owners could see green if emissions capped
By Clay Carey, The Tennessean, December 30, 2008
Bellevue resident Ed Polk hangs onto 350 acres of forestland, not to market its timber but because he loves wildlife and wants to preserve a sense of Tennessee wilderness for future generations.
But soon, he and fellow owners of wooded land may be able to earn money from their trees anyway, simply because they're there — soaking up carbon that otherwise would escape into the atmosphere and potentially warm the Earth.
As industries that pollute face the possibility of government sanctions if they don't reduce their emissions, they may be willing to pay landowners to claim the trees' ability to store carbon.
In exchange, landowners like Polk would be asked to keep doing what they already are: Just take care of the woods.
"It would be hard for anybody to pass up (annual payments) for forest land that has very little value," said Polk, whose stand is in northwest Dickson County. "It's certainly something I would consider."
The process, called carbon trading, has the potential to become big business for Tennessee forest owners.
What's traded are known as carbon credits.
The forest owners can amass the credits because they have an abundance of trees, which absorb carbon dioxide from the air, releasing the oxygen and storing the carbon in their wood and leaves. The fewer trees and plants, the theory goes, the more carbon stays in the atmosphere — leading, many scientists say, to global warming.
The potential buyers are businesses that release carbon dioxide and have a voluntary interest in balancing their emissions.
Those who sell credits can expect to be paid about $1 for every metric ton of carbon their trees consume. A typical acre of forestland in the Southeast produces two or three credits a year, so at today's prices, carbon credits on a 100-acre forest are only worth $200 to $300.
That probably puts the market out of reach unless an owner has hundreds of acres.
Waiting May Pay Off
Tennessee has an estimated 14 million acres of forestland, about 80 percent of it in private, non-industrial ownership, according to the state Department of Agriculture.
Officials there say the market for carbon credits is still developing, and is at best speculative. So state forestry officials are urging landowners in Tennessee to proceed with caution.
"It's just like the gold rush, where early on you had these wild price claims," said John Fenderson, environmental affairs and public outreach forester with the Tennessee Department of Forestry.
If forest owners get into long-term commitments with carbon traders now when credits are cheap, they could lose thousands in potential revenue. "These companies are lining up to try to buy these credits at a lower rate," Fenderson said. "Right now … it's best to sit on the sidelines."
Concept Has Critics
Carbon trading plays into a system known as cap-and-trade, intended to gradually reduce global carbon emissions. It's now voluntary in the United States, but Congress is considering making it mandatory for businesses — which could open up the carbon credit market to forest owners.
Under cap-and-trade, a business would be allowed a particular level of emissions. A lower-level polluter that comes in well under its cap could sell or trade its unused allowance to a company not able to reduce emissions fast enough to meet increased federal standards.
The concept has its critics, in terms of both policy and science.
In May, Tennessee U.S. Sen. Bob Corker criticized cap-and-trade, saying that such legislation would push up the prices of gasoline, electricity and other commodities.
And it may not make sense to use trees to offset fossil fuel pollution, said Adam Taylor, an assistant professor and forest products extension specialist at the University of Tennessee. When trees die, they release the carbon they've accumulated over the years through decomposition or burning, he said.
"My personal opinion is that forestry offsets are not a good idea," Taylor said. "You really are not, geologically speaking, doing anything about climate change."
Credit Prices Could Rise
Carbon credits are essentially commodities. Trading takes place on the Chicago Climate Exchange, which employs brokers known as carbon aggregators. A landowner who wants to sell carbon credits must contract with the exchange for five years.
The brokers also help forest landowners follow market standards. They receive a fee in return.
But not everyone who owns wooded property can automatically start selling credits to brokers. To get into the market, a property must have a stewardship plan that has been certified by a forest certification firm.
And, at $1 per metric ton of stored carbon, the average credit price is too low for many forest owners to start dealing credits.
It isn't worth the cost of keeping credit certifications active, said John Ross, a member of the Tennessee Forest Commission who owns about 7,500 acres of forestland in Hardin County.
But prices for credits could skyrocket if the federal government mandates a cap-and-trade system that would require industries that spew pollution over a certain level to buy credits to offset their emissions.
Fenderson said most in the industry expect that to happen; if it does, carbon credit prices could rise to $20 a ton over the next decade.
"At that price, it really starts looking more attractive," said Ross, who has talked with aggregators about his carbon credits but hasn't inked a deal to sell them. "There's a lot of potential there."
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