Questions to Ask Before Joining a Carbon Program
Questions
If you are thinking about joining a forest carbon payments program, here are some things to ask before signing on the dotted line.
What kind of market does the project sell into?
In the US, forest carbon offset projects are either sold on the voluntary market or the California-Quebec market. Both markets have been growing consistently for the last decade and are expected to eventually provide more robust compensation for participating landowners in the future. In 2022, sales for nature-based carbon offset projects on the voluntary market ranged anywhere from $3 to $7 per metric ton of CO2e (carbon dioxide and greenhouse gas equivalents). The California-Quebec Carbon Market had CO2e sales approaching $28 per metric ton in November 2021, but the projects on this market don't typically involve family forest owners. The wide range in prices is due to variations in the types of assurances associated with the carbon project and the protocols used to guarantee that a carbon offset has been produced. Payments to landowners provided through voluntary markets can provide some extra income to help reduce management expenses, but to help determine this, it is important to have a financial plan.
How long is the contract?
Contract length is typically determined by the protocols used by the project developer. Protocols accepted on the voluntary market tend to have more flexibility and offer contracts that range from one year to 30 years. Protocols accepted on compliance markets (e.g., California-Quebec market) often have long contracts (100+ years) and typically don't include family forest owners. It is important to consider how the length of the contract fits with your forest and your goals for your forest.
What happens in the case of a land transition?
The average landowner is over 60, which means it is important to think about what will happen to a forest after the owner passes on. This is especially important given the length of some carbon contracts. Some carbon programs set up commitments that are tied to the deed (like a conservation easement), so the new landowner will have to continue in the carbon program, but they will be the ones receiving payments. Other programs may not be tied to the deed. In this case, if the new owner does not continue in the project, then the previous owner (or their estate) may become responsible for paying back all the payments received for storing carbon, as well as a fee for early withdrawal. In that case, it may be safer for current owners to require the next owner to stay in the contract, but having a lean on the title may also affect property values.
What happens in the case of an accidental release?
An "accidental release" is when the sequestered carbon sold is unintentionally released into the atmosphere through an act of nature that cannot be prevented or foreseen. Examples include an emerald ash borer outbreak, which kills almost all the ash in an ash-dominated forest. Windstorms and wildfires can also damage stands, which affects how trees grow and the expected amount of carbon stored in the future. In most cases, the project developer keeps a pool of unsold carbon credits to help buffer the impact of accidental release associated with their program in the future. Here, the project developer assumes the risk, and the landowner is not held responsible. However, not all project developers are able to assume all forms of risk, so some programs may still hold landowners responsible for certain unforeseen events. Be sure to find out how a program defines accidental release and what your responsibilities are.
What happens if there is an intentional release?
An "intentional release" is when the landowner knowingly releases carbon in violation of their contract. This could happen when the value of other land uses exceeds the value of the timber and carbon payments (e.g., development). Depending on the contract, there may be points in time (e.g., every 6 years) where the landowners can withdraw from the contract with limited contract termination fees. However, owners will be expected to repay the income they received from providing carbon sequestration services.
How much will I get paid, and what is the payment schedule?
Some programs are transparent and advertise upfront how much money the landowner will make. Other programs require the owner to invest some time working with their representatives to figure this out. Before signing up, always be sure to establish how much money you will make or how much you are willing to accept if you are required to place a bid. Also, payments are not always delivered on an annual basis or in a lump sum. This can make it hard to compare different types of contracts because payments made in the future are generally worth less than payments delivered today. For example, a program advertising $300 a credit may be very appealing, but if that is paid over a 100-year contract, it may have less value compared to one paying $100 a credit over 10 years. Investors will often use the Equivalent Annual Annuity Approach (EAA) to compare projects with different time periods, payment levels, and interest rates. If you plan on making enrollment decisions based primarily on financial compensation, it may be a good idea to get professional advice.
How is verification done?
Most voluntary programs use a third-party auditor to ensure the carbon is actually sequestered. Auditors may use remote-sensing (aerial images from planes or satellites) or have a professional occasionally go into your forest to conduct on-the-ground measurements. Often by signing up for a project, you are giving permission for the auditor to access your land. So, it is important to understand what your commitment is and to work with the project developer to make sure verification works with your land uses. For example, if you own the forest to hunt deer, you probably do not want an auditor in your forest during deer hunting season.
What happens if a carbon program goes bankrupt?
Most carbon programs are very new. Projects with a weak business plan or few investors could downsize or go bankrupt. It is prudent to understand your responsibilities as an active partner and how payments could be impacted if the developer goes under.
What happens to your data?
Data about your land (who owns the land, how the owner manages/intends to manage, and what rights the landowner owns, etc.) can be valuable private information. It is always best to know what is happening to your data, if it is being sold to other companies, or how it is safely stored.
Who is buying the carbon credits?
The voluntary market is an open market, so the buyers could be anyone, including corporations, NGOs, government agencies, or private individuals. Some project developers work with specific buyers to supply customized carbon offset projects to meet designated social responsibility goals. Talk to your program representative to determine who receives the carbon credits you help generate.
Wrap-up
While forest carbon projects are an appealing new way to generate revenue from a forest and address climate change, it is very important to balance the requirements of the project with goals for your forest. If the program does not line up with your goals, do not sign up for it. The marketplace is changing rapidly, and new programs are coming online almost every day. If current programs do not align with your goals or ethics, a new one may start soon that is a better fit.
The 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 FOCCE Articles
- How Much Should I be Paid to Manage Forest Carbon?
- How to Manage Forests for Carbon
- The Economic Value of Private Forests and Climate Change Mitigation
- Case Study 1: Two Landowner’s Experiences Comparing Forest Carbon Payment Programs
- Case Study 2: Three Landowner’s Experiences with Incentives for Climate-Smart Forestry in Pennsylvania and Mississippi
