Reducing Carbon Emissions using Private Forests

Payments for storing forest carbon on private lands is expected to play an important role in climate change policy. There are a number of challenges, however. One challenge is the cost of measuring and monitoring carbon sequestration on forest lands. Another is opportunity costs, or landowner interest in acquiring revenues by changing their management practices.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 rural 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 payment 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 to 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.

This article was produced by the Forest Owner Carbon and Climate Education (FOCCE) program.

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 and Resources

• Forest Carbon Pools
• Methods for Estimating Carbon in Forests
• Carbon Accounting in Forest Management
• How Much Should I be Paid to Manage Forest Carbon?
• What Should I Think about Before Signing a Forest Carbon Contract?
• The Economic Value of Private Forests and Climate Change Mitigation

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 (PDF).

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