Turning Forests into Carbon Banks

For decades, Lock Haven, Pa., has secured its municipal water supply from 5,200 acres of city-owned forest in northern Pennsylvania’s Appalachian Mountains. In the past, the city kept its water rates down by logging hemlock, hardwoods and other timber from the property. But this summer, Lock Haven figured out that it could achieve more sustainable financial benefits from the property. The city realized it stands to reap a lucrative windfall simply by preserving the forest.

In a deal with The Nature Conservancy's Working Woodlands program, Lock Haven expects to bring in $1.4 million over the next decade by selling credits the forest will earn for sequestering carbon dioxide gases. In addition, Lock Haven will still harvest timber from the forest -- just more selectively.

For a city of 9,700 residents with a $1.9 million yearly water and sewer budget, that extra income will be a useful bonus. "It gives us an opportunity to develop a little bit more revenue by using the carbon market," says Lock Haven City Manager Richard Marcinkevage. "The only downside I can see is you have to make a 50- to 60-year commitment for the property."

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That's a deal many forest owners are already accepting. Around the country, farmers, ranchers and other landowners are earning extra cash by taking advantage of a fledgling market for carbon sequestration offsets. They're signing long-term commitments to store carbon in forests and grasslands; earning credits they can sell to industries and other ventures looking for "offsets" to mitigate their own carbon emissions.

Bethlehem, Pa., has also teamed with The Nature Conservancy to adopt sustainable logging practices and generate carbon credits from 22,000 acres of protected watershed. In Northern California's Humboldt County, the Pacific Forest Trust manages 2,200 acres of redwood forest to sequester 185,000 metric tons of carbon, equivalent to keeping 123,000 cars off the road for a year. The trust brought in $2 million by selling the offsets to socially conscious businesses and individuals, including U.S. House Speaker Nancy Pelosi and former Gov. Arnold Schwarzenegger. Coca Cola, Google, Disney and other major corporations have been burnishing environmentalist credentials by buying offsets for their own CO2 emissions.

Next year, the carbon market could be reset when California's new cap-and-trade program begins limiting how much greenhouse gas emissions the state's major industrial plants can release. The state Air Resources Board will be auctioning CO2 allowances, and its regulations allow facilities to buy offsets from forests, dairies, swine farms and other carbon-capturing operations.

So far, the nonprofit Climate Action Reserve has registered 164 projects for California offset credits, including 16 landowners who have pledged to meet California's stringent standards for absorbing carbon by preserving timber stands for a hundred years. California's state parks agency signed up to accumulate offsets by replanting trees that burned nine years ago when a wildfire swept across the 24,000-acre Cuyamaca Rancho State Park in San Diego County. Arcata, Calif., has qualified for offsets from a 290-acre redwood forest the city bought 60 years ago to save its watershed from destructive logging. Last month, Maine's Downeast Lakes Land Trust teamed with Finite Carbon Corporation, a carbon broker, to qualify 19,118 acres in Grand Lake Stream's forest as the first forestry project California has certified in another state.

California has also set rules that eventually could let municipal governments sell offsets accumulated by "urban forests" along city streets and around buildings. Near Los Angeles, Santa Monica has planted a thousand pines, cedars and other broadleaf trees to measure the benefit for the next hundred years. But that project's carbon revenues will be minimal at best, maybe $500 a year, and the costs on monitoring and maintaining the trees for a century will be substantially higher. "Trees grow slowly, and it takes an awful lot of time to generate a lot of credits," says Gary Gero, president of the Climate Action Reserve. "I don't think it's a cash cow that's going to fill in a city's deficit."

For now, brokers who specialize in carbon trades are looking to work with conscientious landowners and public agencies prepared to dedicate large contiguous forest tracts to storing carbon over a full century. Carbon emission allowances currently sell on existing private markets for roughly $15 per metric ton, while offsets go for a discounted $10 to $12 a ton. In November, the profit potential could be clarified when California begins auctioning 2013 allowances to companies that must comply with the carbon cap starting in January.

Arcata expects selling offsets will initially earn the city $400,000 or so, but "four months from now we'll know a lot more about the outcome," says Mark Andre, the city's environmental services director. Arcata's community forest will remain a splendid public blessing, but carbon trading could also turn those towering redwoods into durable capital assets.