Pennsylvania's Potential for Reducing Carbon Emissions using Private Forests

The Regional Greenhouse Gas Initiative (RGGI) recently released a report on the economic potential of implementing limits on power sector carbon pollution in six states (Burtraw et al., 2019). If these recommendations are put into legislation Pennsylvania may see significant economic opportunities paired with carbon emission reductions. This report also comes at a time when Gov. Tom Wolf introduced Pennsylvania's first statewide carbon emission reduction plan (Klummer, 2019).  

While opportunities such as these appear to be growing, payments for forest carbon still have a limited role in climate change policy. One challenge is high transaction costs, or the cost of measuring and monitoring carbon sequestration on forest lands. Another is opportunity costs, or landowner interest in acquiring higher revenues through other types of land uses during market fluctuations.

There are also challenges with ensuring that the carbon sequestered through a payments program would not have been sequestered otherwise (i.e., additionality). At the same time, investors need assurances that the carbon will remain sequestered into the future. This tends to promote the use of long contracts, which some forest owners may find less desirable. Despite these challenges, advocates of climate change mitigation are continuing to look to private forest lands for solutions.

Are carbon markets good for forest owners?

Opportunities for forest owners to generate additional revenues could always be considered a good thing. However, if funding for forest carbon programs comes from government coffers (i.e., taxpayers) there is the question of who will benefit, and is the redistribution of wealth fair? Some may advocate that government funded programs should not only work to optimize carbon sequestration, but also help enhance economic growth in poorer communities. 

A study in the Central and Southern Appalachian Region of the United States examined this exact question. Researchers found that incorporating economic impacts in the targeting criteria, along with promoting cost-efficient conservation, produced only a small sacrifice in forest carbon benefits suggesting a dual-purpose program can be a viable option (Cho et al., 2019).

Does it matter who implements the program?

While government sponsored programs may work to make market opportunities more fair, research has found that many forest owners prefer to work with a non-profit organization, compared to a for-profit group or a government agency (White et al., 2018).

Support for reducing government involvement in private lands is not uncommon among landowners. However, the overall effect of implementing organization on a forest owner's decision to enroll in a carbon market tends to be less compared to other factors such as potential revenues, contract duration, and early withdrawal penalties. 

What kinds of prices are acceptable?

Some carbon markets are structured by assigning prices to a volume of atmospheric carbon. Other market programs associate payments with specified management activities, understood to increase carbon sequestration (e.g., delay in harvesting). In either case, forest owners tend to consider price in the context of annual value per acre.

Prices for forest carbon sequestration can vary across regions due to variation in management costs, opportunity costs and landowner preferences for contract design. In Vermont, forest owners needed an average of $5 to $15 per acre per year to participate in a carbon program (White et al., 2018). In Massachusetts, about 5% of participants would sell for a payment of $15 per acre per year; about 13% would sell for $30 per acre per year, and about 33% would sell for $50 per acre per year. In South Carolina, forestland owners' mean willingness to accept was considerably higher at $67 per acre per year (Alhassan et al., 2019). 

For payment programs to be sustainable it is important that they be economically efficient, or the price is set near the minimum amount that a forest owner is willing to accept as compensation (Ferraro, 2008). To help determine prices, survey-based methods can be used to assess which payment levels will be accepted by most landowners. Screening contracts and bidding strategies are another approach to setting prices and tend to be more flexible in helping match payments levels with individual forest owners. A more flexible price setting strategy may be important as forest owner preferences for factors, such as contract length, can also have an important influence on prices, which is discussed in the next section.

Does contract length affect the price?

Longer contracts ensure the permanence of carbon sequestration benefits. However, forest owners may resist longer contracts due to opportunity costs associated with other land uses. The following studies examine how contract length may influence forest carbon prices.

In South Carolina, contract duration was found to be a very important concern to forest owners considering a carbon market, especially since the California market required a 100-year commitment (Alhassan et al., 2019). Conversely, a study in Vermont found that small forest owners tended see revenues as the more important contract feature, compared to contract length. Depending on other program characteristics (e.g., payment levels, penalties) up to 40% of landowners were willing to accept a program with a 100-year commitment (White et al., 2018). A similar study in Massachusetts found that some forest owners even preferred longer contracts, however the researchers declared that these respondents were not randomly selected, and respondents may have already been inclined to support the programs on offer (Fletcher et al., 2009).

Findings suggest that the conditions where contract length has a modest effect on price is when owners have an existing interest in preserving ecosystems, have positive attitudes toward carbon sequestration benefits and trust in climate change science. One may consider that forest owners with these characteristics may already be taking voluntary actions to sequester carbon, without the need for incentives. This highlights the importance of designing programs that are strategic in attracting forest owners who are concerned about contract duration, because of their desire to maintain the option to pursue different investments.

For example, a recent study by Juutinen et al., (2018) investigated the feasibility of offering a short-term carbon payment in boreal forests. In this scheme forest owners sell temporal carbon credits based on carbon storage for one year and reissue them annually. Optimization models found that this scheme can have a profound effect on the timing and intensity of thinning and rotation length, and result in a higher timber yield and profitability. Importantly, they also found the short-term mechanism may be feasible only under high carbon prices.

How can transaction costs be reduced?

Forest owners can strategically optimize carbon revenues by planting fast-growing trees and enrolling in carbon offset markets where prices are based on volume of carbon sequestered (rather than per acre payments). The challenge, however, is in accurately and efficiently quantifying their forest carbon stocks. A sampling strategy that minimizes costs and human effort would likely be preferred.

A study by Chen et al., (2019) claims that the fixed-area plot strategy can be time consuming, expensive, and is often less accurate. They found that Horizontal point and Basal Area Factor (BAF) sampling could be a more efficient sampling design for estimating carbon and significantly reduced overall inventory costs. In this case, basal area is estimated by counting trees rather than measuring tree diameters.

Who is currently offering forest carbon programs in PA?

The Nature Conservancy (TNC) and the American Forest Foundation (AFF) are seeking to launch the new Family Forest Carbon Program (FFCP) in California and in selected states in the central Appalachian region. The FFCP will offer rural landowners' incentives that will help owners defray the cost of important forest management practices, and provide owners the opportunity to generate additional income.

Program participants are expected to work with professional foresters to implement one or more practices that align with the landowner's management goals. The recommend forest management practices have been scientifically demonstrated to enhance carbon sequestration. Those interested in participating or investing in the FFCP should contact Elizabeth Vranas at evranas@forestfoundation.org  or go to the American Forest Foundation's "Sequestering Carbon from Family Forests" article.

In conclusion, the role of private forests in climate mitigation continues to be a subject of great interest to many. However, for market opportunities to move forward on private lands there is still work to be done in bridging the gap between researchers, forest owners and the practitioners who implement climate change mitigation programs.

Citations

Alhassan, M., Motallebi, M., & Song, B. (2019). South Carolina forestland owners' willingness to accept compensations for carbon sequestration. Forest Ecosystems, 6(1), 16.

Burtraw, D., Palmer, A., Paul, A., Picciano, P. (2019) State Policy Options to Price Carbon from Electricity.

Chen, Y., Yang, T. R., Hsu, Y. H., Kershaw, J. A., & Prest, D. (2019). Application of big BAF sampling for estimating carbon on small woodlots. Forest Ecosystems, 6(1), 13.

Cho, S. H., Soh, M., English, B. C., Yu, T. E., & Boyer, C. N. (2019). Targeting payments for forest carbon sequestration given ecological and economic objectives. Forest Policy and Economics, 100, 214-226.

Fletcher, L. S., Kittredge Jr, D., & Stevens, T. (2009). Forest landowners' willingness to sell carbon credits: a pilot study. Northern Journal of Applied Forestry, 26(1), 35-37.

Ferraro, P. J. (2008). Asymmetric information and contract design for payments for environmental services. Ecological economics, 65(4), 810-821.

Juutinen, A., Ahtikoski, A., Lehtonen, M., Mäkipää, R., & Ollikainen, M. (2018). The impact of a short-term carbon payment scheme on forest management. Forest policy and economics, 90, 115-127.

Klummer, F. (2019). "As U.S. carbon emissions spike, Pa's Gov. Wolf announces first statewide reduction plan." Philadelphia Inquirer

White, A. E., Lutz, D. A., Howarth, R. B., & Soto, J. R. (2018). Small-scale forestry and carbon offset markets: An empirical study of Vermont Current Use forest landowner willingness to accept carbon credit programs. PloS one, 13(8), e0201967