How Much Should I be Paid to Manage Forest Carbon?

For family forest owners interested in providing carbon offsets, it can be difficult to determine what is fair compensation when enrolling in a forest carbon payments program.

Who are Family Forest Owners?

About 70% of the forestlands in the US are under private ownership, but family forest owners can be very different in terms of ownership reasons, ownership size, and management practices. What most owners agree on is that they enjoy owning forests for their beauty or scenery, protecting wildlife habitat, biodiversity, and nature, as well as financial investment. 

The size of private forest parcels has been generally decreasing over the last century, and the number of small family forest owners has increased. Timber harvesting on these lands has also generally decreased due to unfavorable harvesting and market conditions for some owners. Many owners are looking to secure other sources of revenue from their land (e.g., hunting leases) to help support the costs of forest management and pay property taxes. Owners also enjoy the benefits of having direct access to other forest products (e.g., maple syrup, mushrooms) and ecosystem services (e.g., recreational opportunities, clean water supply). Some owners hope to keep their forest in the family so it can be enjoyed by future generations. 

A 2018 survey by the National Woodland Owners Association found very few forest owners were familiar with forest carbon programs, but two-thirds were concerned about climate change. Many forest owners hope to use forest carbon payments as a way to help pay for the costs of forest ownership. Making forest ownership economically viable is one of the best ways of encouraging investment in forests and keeping forests as forests.

Private forests are not only important to forest owners, but also help protect environmental quality for the greater public. Incentives for protecting environmental quality are available for forest owners through state and federal programs as well as markets. A recent study by Frey (2021) estimated that in the US, total payments to forest owners for water quality and watershed protection, wildlife habitat, and carbon sequestration and storage services averaged $3.3 billion per year or about $7.16 per acre. Many payment programs focus on properties located near urban areas or agricultural lands and support the protection of water and wildlife resources. The value of carbon offset markets has been increasing, however, suggesting that payments for carbon sequestration programs could become more widespread.

Carbon Markets

Market demand for carbon credits has increased steadily since the early 1990s. Buyers have traditionally been large industries (e.g., steel and energy production) that are required by the state to reduce their greenhouse gas emissions in order to meet regional goals for air quality (i.e., regulated, cap and trade markets). Today, private companies (e.g., Microsoft, Amazon, Disney) and individuals are looking to voluntarily offset their own carbon footprint to help improve Environmental, Social, and Governance (ESG) ratings. Most project developers working with non-industrial forest owners arrange transactions on the voluntary carbon market. About 35% of the carbon credits sold on the voluntary market include forestland as the primary mechanism to store additional carbon.

Historically, timber has been the most valuable asset associated with private forests, and this is often still the case for many forests. The approach used by many carbon programs is to pay owners to delay harvest, which can lead to a delay in timber revenues. Carbon payments are intended to help compensate for the delay, but what is a "good deal" can be different across owners and forest types. 

Values-based Decision Making

Forest stewardship is often seen by forest owners as a type of balancing act. Owners want to enhance the non-monetary benefits associated with forest ownership, but they also need to make forest ownership financially feasible. As a result, some take advantage of any new payment opportunities, and some are willing to consider options as long as they are a good fit for how they want to use their land.  

Research has found that some owners approach forest ownership as an investment in timber production, whereas other owners are multi-objective and/or conservation-focused. Owners with financial and multi-objective reasons may be more likely to factor opportunity costs into their decision-making. Opportunity costs represent the value of an alternative outcome that is lost when taking a specific action. Landowner choices are also a function of the size of the forest they own. Due to differences in financial feasibility, forest landowners with larger acres (over 500 acres) tend to have timber management objectives, while those with smaller acres (100 acres) tend to have amenity-related or heritage ownership objectives. 

Carbon programs that offer contracts to family forest owners are still very new. As a result, there is very little real market data on what landowners are willing to accept as payment. A recent study by Sharma et al. (2021) examined forest owners’ choices about hypothetical carbon markets by reviewing survey studies collected over a 20-year period. They found that forest owners throughout the US were willing to accept anywhere between $6.00 per acre and $280 per acre per year for managing carbon. In other words, up to half of forest owners were willing to accept up to 75% less compared to the other half of forest owners. The study found that variation in owners' choices was based on the priority given to timber production and the length of the contract. Also, owners with smaller properties (less than 20 acres) preferred slightly higher payments compared to owners with larger properties. The other important factors that explained owners' choices were associated with opportunity costs. 

Opportunity costs are sometimes difficult to define for private forest lands because the importance given to an outcome can be different from person to person. For example, an owner may reject a long carbon contract because they are worried about how it will affect their property values in the future, if they decide to sell the property. In another example, a forest owner may be concerned that delaying harvest for too long may increase the risk of storm damage or disease in the stand, thereby reducing the market value or aesthetic value of the stand. The perceived risk of losing out on something important can vary and helps explain why some people need to be paid more, or why some choose to wait and see how it goes for others.

What Is Your Approach?

It is indeed useful to consider what other forest owners consider acceptable compensation when opportunity costs are not well understood. The study by Sharma et al. (2021) also investigated which payment levels may be preferred by specific categories of forest owners based on their management priorities and risk perceptions. 

One kind of forest owner was described as a "passive" forest owner. This owner enjoys having forests on their property and using the forest, but they infrequently manage or harvest the forest. One reason for not being more active in management is the belief that a forest is able to take care of itself. Another reason is that the owner is still waiting for more preferred investment options to become available. For these reasons, the passive owner may prefer shorter carbon contracts, just in case a better opportunity comes along. Owners who fit this description (and have more than 20 acres) were estimated to accept between $6.52 and $13.08 per acre per year for contracts that require a management plan and restrict harvesting for periods of less than 20 years.

Another kind of forest owner was described as a conservation-oriented forest owner. This owner may see their forest as a legacy that they want to leave to their family and friends. Many have already worked with a professional forester and made a management plan to help ensure certain management goals are achieved. When financially possible, they invest in making forest improvements, which may or may not involve timber harvesting. They are also willing to make long-term commitments to help ensure their forest is conserved into the future. Owners who fit this description (and have more than 20 acres) were estimated to accept between $4.94 and $14.64 per acre per year for contracts that restricted harvesting for periods of more than 20 years.

The final category of forest owner described by Sharma et al. (2021) is the timber production-oriented forest owner. This owner sees their land as an important financial asset, with timber production being a key investment option. They may already have harvest rotations scheduled as part of their long-term plans for sustainable timber production. Delaying harvest may increase risks to timber quality if there is a natural disturbance (e.g., storm, disease, fire) in the future. Owners who fit this description (and have more than 20 acres) were estimated to accept between $33.33 and $66.88 per acre per year for contracts that restricted harvesting for periods less than 20 years.

In reality, most forest owners could identify with all these categories depending on which part of their property is being considered and what they have been able to do with their forest. Also, these values should not be a substitute for a long-term financial plan. Investing in opportunities that help increase the value of the land and the forest in the long-term (i.e., land expectation value) is generally more sustainable. Delay harvest schemes are generally a good financial option for owners when the contracts are short enough that the current owner also benefits from the eventual harvest, and when the stand has a high percent of merchantable trees per acre. Forests that have been high-graded (i.e., Most of the merchantable trees have been removed) generally benefit from a longer contract (to help grow more merchantable trees) if the incentives are used to help manage tree regeneration and stand health (e.g., thinning, invasive species management). Stands with low-grade or low-value wood would not qualify for delay harvest schemes and may be better suited for carbon projects that support restoration or the production of climate-smart wood products (e.g., bioenergy, biochar). In short, finding a program with a good fit means taking into consideration the condition of the forest and the long-term financial objectives of the owner.

Closing Thoughts

• The preferred payments for the hypothetical carbon programs described in this article represent data collected from landowners in the past. However, the benefits and costs of forest ownership may be different in the future, due to changes in market opportunities and climate change. This means that what owners value and are willing to accept as payment for carbon in the future may also change.
• It is important for landowners to consider the taxes for a carbon program. There is no universal classification for carbon payments yet, which means sometimes they are considered a capital gains tax while others are considered income tax. This classification will impact the tax rate, so it is important to work with a legal professional while filing your taxes. Additionally, we encourage you to ask tax-related questions when working with a project developer. 

This article was produced by the Forest Owner Carbon and Climate Education (FOCCE) program. What do you think? Please take this short survey.

If you have any questions or are interested in collaborating with FOCCE, please reach out to Melissa Kreye at mxk1244@psu.edu

 Related Articles and Resources 

• Conversions Commonly Used to Compare Carbon and Timber Values
• Long-Term Financial Planning for Timber and Carbon
• What Should I Think about Before Signing a Forest Carbon Contract?
• How to Manage Forests for Carbon
• The Economic Value of Private Forests and Climate Change Mitigation

Article Information Sources

• Frey, G. E., Kallayanamitra, C., & James, N. A. (2021). Payments for forest-based ecosystem services in the United States: Magnitudes and trends. Ecosystem Services, 52, 101377.
• Khanal, P. N., Grebner, D. L., Munn, I. A., Grado, S. C., Grala, R. K., & Henderson, J. E. (2017). Typology of nonindustrial private forest landowners and forestry behavior: Implications for forest carbon sequestration in the southern US. Small-Scale Forestry, 16(3), 419-434.
• National Woodland Owners Survey dashboard.
• Ricke, K., Drouet, L., Caldeira, K., & Tavoni, M. (2018). Country-level social cost of carbon. Nature Climate Change, 8(10), 895-900.
• Sharma, S., & Kreye, M. M. (2022). Forest Owner Willingness to Accept Payment for Forest Carbon in the United States: A Meta-Analysis. Forests, 13(9), 1346.
• Zhang, Y., Zhang, D., & Schelhas, J. (2005). Small-scale non-industrial private forest ownership in the United States: rationale and implications for forest management. Silva Fennica, Vol. 39 (3): 443-454.
• Financial Times (2020) Carbon offset market progresses during coronavirus.