Methodologies Tame Forest Carbon Jungle

18 August 2009 | Richard Wineberg is rhapsodizing about trees. His firm, Terra Firma Carbon, owns several hundred acres of timberland in Indiana and North Carolina in hopes of managing it as a healthy forest. Browsing the bookshelf in his Chicago office, crammed with classics on silviculture, Wineberg describes teaching himself forestry over the last few decades.

“It’s more art than science,” he says. “Forestry comes from looking over your woods very carefully. You can see the forces at work in the woods when you look at it.”

From reforestation and afforestation (A/R) to reduced emissions from deforestation and degradation (REDD), more land-use methodologies have been submitted to voluntary standards in the last twelve months than were approved under the Kyoto Protocol’s Clean Development Mechanism (CDM) since the CDM Executive Board was formed in 2003, based on a review of standards’ websites. At least nine have been approved under the CDM since 2005, but more than a dozen are taking shape under voluntary standards such as the Voluntary Carbon Standard, Climate Action Reserve (CAR – formerly CCAR, the California Climate Action Registry) and others vying to become the standard for a new generation of voluntary carbon projects.

Wineberg, 57, plans to be an early adapter. After decades preaching and practicing sustainable forest management, he’s negotiating his first avoided deforestation project in Brazil. While optimistic that he can apply the new methodologies, he’s concerned forest management will not conform to rigid protocols.

“There’s no simple answer to anything in forestry,” says Wineberg who seems as likely to consult a walk in the woods as a yield table for decisions about forestry. “Every piece of land is different. You don’t want to make the perfect the enemy of the good in this business.”

Forest Carbon Methodologies

For now, business remains uncertain. The majority of forest carbon credits have been transacted in the voluntary carbon markets. As the primary source of demand for forest-related sequestration credits (and the only one for REDD), voluntary markets have had an historical affinity for charismatic projects like A/R – still the single largest category of biological carbon sequestration projects.

The market for voluntary offsets is expanding at an unprecedented rate: global voluntary markets more than tripled between 2006 and 2007 reaching a value of $331 million in 2007, according the 2008 State of the Voluntary Carbon Markets report. Yet the relative number of forest carbon credits that were traded last year declined from the year before. Representing 36% of over-the-counter transactions in 2006, forestry credits, which maintaining transaction volumes, dropped to 18% of such trades in 2007. Why? The reason may in part be due to skittishness about evolving rules of the game and long-term demand.

That may soon change. The pending US climate bill, known informally as Waxman-Markey, currently includes land based offsets. New Zealand and Australia are considering them, and even the EU has softened its stance on REDD. The worry, it seems, is that the credits must be real and fungible with the rest of the carbon market to win global acceptance.

At the same time, New project methodologies are arriving to guide the conversion of stored carbon to credits.

Standards such as the US Regional Greenhouse Gas Initiative (RGGI), the Environmental Protection Agency’s Climate Leaders, CAR, Chicago Climate Exchange (CCX), the Government of Alberta, American Carbon Registry, the Voluntary Carbon Standard, and CarbonFix, among others, have published forest-carbon methodologies (also called protocols), with revisions on the way. The number of projects is on the rise as well. Although the CDM has only registered 6 forestry projects out of 1,750 registered projects – mostly reforestation – at least 52 projects are registered or in the pipeline in the voluntary markets according to the Forest Carbon Portal.

The world, it seems, is finally awakening to Wineberg’s vision of managing forests for ecosystem services, especially the carbon in its biomass – so long as it can be measured, monitored and verified. When the UNFCC convenes it’s the next Conference of Parties in Copenhagen this December, REDD and other forms of terrestrial carbon credits will be a central element of the international climate agenda. Negotiators are set on curbing some of the 18% of the world’s greenhouse gasses (GHG) emitted by land use change and tropical deforestation each year. It is almost certain that whatever mechanism emerges, in some way it will rely on rigorous, science-based carbon methodologies to finance forest carbon credits.

What’s So Great about Methodologies?

Methodologies, like roadmaps, give project developers specific routes to achieve creditable emission reductions. Some are tied to specific scenarios such as reforestation of species in the tropical pasturelands. Almost all of them share measures to ensure the environmental integrity of emission reductions through the use of baselines, additionality, permanence, monitoring, verification and transparent accounting. These principles guide rules articulated in the methodologies’ detailed equations and procedures.

Yet methodologies do more than serve as technical blueprints. They underlie trust in markets for forest carbon offsets, says Derik Broekhoff, policy director at CAR, which is busy developing its own GHG reduction project protocols in the United States, including forestry.

“They’re important primarily because anytime you’re talking about carbon offsets, an intangible commodity, it’s really hard for buyers to know what they’re getting if you don’t have a methodology,” says Broekhoff.

Standards organizations like CAR ensure the quality of their credits, but methodologies theoretically guarantee the level of standardization so buyers and sellers know they are exchanging a real asset: additional, verifiable, and permanent GHG offsets. Without this, buyers would be forced to research the quality of every credit, and poor quality projects would blend in with credible one.

This rigor comes at a price.

A major complaint voiced by project developers is a tendency to favor perfectionism over practicality. Even authors of the methodologies agree. In the early days of the CDM, says Lucio Pedroni of Carbon Decisions, who has co-authored CDM-approved methodologies for AR projects, “a lot of effort was spent to capture minimal changes in carbon stocks, just to give the impression that we are perfect in a world that is never perfect.” This led to methodologies where, as CDM rules dictate, almost every carbon source was considered – from gasoline use to fence posts.

“Projects have to be perfect beyond what is needed for a credible market,” he argues. While this was feasible in industrial projects, this approach simply doesn’t work in forestry.

To simplify the methodologies, Pedroni has joined a recent effort to draft ‘modular methodologies’ for REDD under the VCS. If validated (posted for review here), the modules will represent a new approach: simplified, modular methodologies that can be rearranged or modified if projects differ slightly from one another. In the past, forest carbon methodologies (costing upwards of $100,000 to create) were so specific that applied to only a handful of potential projects, and developers were unable to restrict and license the use of their methodologies to recoup their investment. This hardly provided incentives for standardized and ongoing innovation.

By contrast, the REDD modules are split into the essential components of a viable forest carbon project – baseline, additionality, measuring and monitoring and other categories – that can be amended without revalidating the entire methodology.

“In the end,” claims Pedroni, “simpler methodologies are better for the climate. It’s better to have 1200 projects and ten that are not additional, than to have two that are perfectly additional.”

Financing the Future

Paying for these methodologies is still a challenge. While firms are poised to pour millions into the promise of the new market, large investors have traditionally steered away from forestry offset projects (only two of the 50 projects publically listed by EcoSecurities are in the sector). Yet a recent study by EcoSecurities found that forestry offsets purchased in the last ten years are comparable to volumes transacted in 2008 alone, and that projected demand is igniting a global search for credible projects, as well as close scrutiny of the potential of methodologies.

Eron Bloomgarden, president of environmental markets at Equator, a firm investing in timberlands and environmental assets, says the market has taken a wait-and-see approach to investing in forest carbon credits.

“The goal posts are still moving with many of the forest protocols,” he says. “It’s important these protocols need to be rigorous, yes, but they need to be workable and flexible to incentivize action.”

Bloomgarden’s reading of CAR’s recently-revised protocols highlights issues like permanence, which could extend monitoring liability for up to 100 years, as promising but potentially problematic.

“Overall, they’re pretty good protocols,” he says. “But I’m not sure how workable they are for large volumes of credits. The practicality of the protocols remains to be seen. The jury is still out.”

There will soon be no lack of choices. Various protocols address the same major issues, but in different ways, and offer project-specific frameworks. The CDM, for example, which approved its first A/R additionality and baseline methodology in 2005, now lists nine forest carbon methodologies and 13 ‘tools,’ or guidelines for specific project tasks, as well as two ‘consolidated methodologies’ combining all of it into a streamlined package.

Of the voluntary standards, RGGI has approved carbon sequestration through afforestation activities following its own “Model Rule”. The EPA’s Climate Leaders Program released its A/R methodology in 2008; the CCX has a “rulebook” governing afforestation, long-lived wood products, and sustainably managed forests; and the Voluntary Carbon Standard has at least one methodology approved, as well as eight undergoing validation, not to mention acceptance of CAR and CDM methodologies making it one of the most comprehensive sets of methodologies available.

Picking a Winner

So, how to choose? Voluntary market developers will find their choice of methodologies dictated by standards that certify certain activities. The CDM is limited to A/R in developing countries, while the VCS credits four categories – Afforestation, Reforestation and Revegetation (ARR), Agricultural Land Management (ALM), Improved Forest Management (IFM) and REDD – under its land-use methodologies. After clearing the eligibility hurdle, methodologies (and the standards that certify them) must be marketable. A 2008 survey of project developers found that public credibility and the permanence of CO2 storage were most important issues for forest carbon project, followed by the practicality of carbon accounting and transparency.

Which methodologies, and standard, will win out is not clear. Competition and market demand are driving the latest round of innovation, and project proponents are advancing new methodologies around the world. A few innovative ideas are taking root: more default values are being considered to streamline accounting; permanence measures like risk discounting and buffer pools are replacing unpopular temporary credits used by the CDM; performance standards that set a target for an industrial process are gaining favor under standards like the VCS; and the modular approach to methodologies promises to make modifications easier and less expensive. There’s even momentum toward crediting based on sectoral benchmarks or performance (CDM and VCS) under UNFCCC negotiations.

What works depends on their performance over the next few years and decades.

“We still have a lot to learn,” says Alexia Kelly in the World Resources Institute’s (WRI) Climate and Energy Program who is following the development of the US climate bill’s treatment of offsets. “In my mind, that’s the one thing that is missing: 20 years of project data to know the actual emission reductions that will occur [from methodologies]. That’s what we really need to really judge the effectiveness of a given protocol. We’re still groping in the dark.”

In the meantime, the voluntary market continues to push innovation as international negotiators advocate for methodologies to ensure the integrity of their crediting scheme. But Pedroni, who has seen this process before at the CDM, warns against sacrificing needs of the market for the comfort of strict but unworkable methodologies. Entering the UN climate negotiations in Copenhagen this December, the world has yet to make decisions about the tradeoff between certainty and pragmatism.

“What’s the right balance?” he asks. “We have not found that yet.”

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