Forest Carbon Opportuni0es for Minnesota. Working Forests & Carbon June 9, 2010 Palisade, MN

Transcription

1 Forest Carbon Opportuni0es for Minnesota Working Forests & Carbon June 9, 2010 Palisade, MN

2 Outline 1. What is an offset and why does it matter? Offset quality criteria 2. What does a registry do? 3. Minnesota offset opportunities Focus on forest management 4. ACR Forest Carbon Project Standard v2.0

3 American Carbon Registry First and largest U.S. private voluntary GHG registry Founded 1997 by Environmental Defense Fund and Environmental Resources Trust Over 30 million tons issued to date 2008: most widely used voluntary registry in the world (State of the Voluntary Carbon Market 2009) Established industry standard system of transparent on-line reporting and serialization of verified project-based offsets Since 2007 part of non-profit Winrock International

4 Winrock carbon exper0se Internationally recognized team of forest carbon experts Nobel prize winners for contributions to Intergovernmental Panel on Climate Change reports CDM Afforestation/Reforestation Working Group Terrestrial carbon analyses, methodologies, protocols, methods manuals for USDA, U.S. Forest Service, USDOE 1605(b) Two DOE Regional Carbon Sequestration Partnerships USAID, World Bank, International Tropical Timber Organization Electric utilities and conservation groups For USEPA: Scoping and ranking ag/forestry GHG mitigation activities Developing new Climate Leaders methodologies

5 What is an offset? Reduction / removal / avoidance of GHG emissions that is used to compensate for GHG emissions that occur elsewhere Project-based GHG reductions occurring in uncapped sectors, used by regulated entity for compliance Critical for cap-and-trade cost containment One offset represents the reduction or removal from the atmosphere equivalent to one metric ton of carbon dioxide Specific project type and vintage Verified and serialized

6 Voluntary and pre compliance offsets Voluntary Value based on perceived quality Buyers want the story behind the project Marketing or reputational benefit Regulatory approval not necessary May not be verified, registered or retired Variable quality Pre-compliance Value based on compliance recognition Registered in approved early action program Meet rigorous set of standards Independently verified Players want to gain experience, hedge against future requirements, help shape regulations

7 What is Cap and Trade? Market-based mechanism to efficiently reduce emissions Government sets cap on emissions for covered sectors Program administrator (EPA) creates allowances and distributes via allocation or auction Each year capped entities must hold allowances = prior year emissions Compliance: Reduce GHG emissions on system Purchase allowances from other regulated entities Purchase allowances from Government at auction Purchase offsets

8 American Power Act Source: Environment Northeast

9 Sec. 734 Posi0ve List Projects that reduce, flare or use methane: Projects that reduce CO2 emissions or increase sequestra6on in agriculture, livestock, forestry, land use: Methane from mines, landfills, natural gas Reduce fugi0ve emissions in oil & gas sector Manure management, anaerobic diges0on, waste aera6on Afforesta0on/reforesta0on, improved forest management, reduced deforesta0on, urban forestry Agricultural, grassland, and rangeland sequestra0on and management Avoided conversion of grassland/rangeland/forest Management/restora0on of peatlands and wetlands Conserva0on of marine coastal habitats N2O emission reduc0on (fer0lizer produc0on and/or use) Biochar produc0on and use Recycling and waste minimiza6on Carbon Capture & Storage (with or without enhanced oil recovery) Destruc6on of ozone deple6ng substances Small off grid renewable electricity Projects reducing the GHG intensity of agricultural produc0on

10 Early Ac0on Offsets Sec. 740 Early Offset Supply Criteria for Qualified Early Offset Programs: fair, but less than ideal clarity Projects started back to 2001; crediting for 2004 through 10 years later or applicable Crediting Period Offsets usable (bankable) for compliance pre-compliance investments creating offset supply overlapping into early years of program Sec. 788 Early Action Recognition 1% of allowances = 45 million tons/year 1/3 for early offsets (under Sec. 740 programs) and entity-level reductions, distributed per formula 2/3 for state cap-and-trade programs, distributed pro rata Trade-in for allowances

11 Offset quality criteria Additional: Offsets must be in addition to reductions and removals that would have occurred under current laws and regulations, current industry practices, and without carbon market incentives Surplus: Project action is beyond regulatory requirements Real: Project action yields after-the-fact, quantifiable and verifiable GHG emissions reductions and/or removals Permanent: Atmospheric benefit is permanent, or reversal risk is assessed and mitigated to make nonpermanent offsets fungible with other offsets, on-system reductions and allowances

12 Offset quality criteria Net of leakage: Leakage is an increase in GHG emissions or decrease in sequestration outside the project boundaries that occurs because of the project action Direct: Project Proponent owns or has control over the emissions sources or sinks Independently verified: Verification by an approved thirdparty verifier accredited for the relevant scope Have the rules been complied with? Is the GHG assertion free of material misstatement? Serialized: Transparent accounting and tracking of all issuances and transactions ensures the same reduction is used only once

13 Why does it ma^er?

14 What does a registry do? Bank with accounts for depositing, transacting, retiring offsets Serial numbers for tracking Tons can be bought and sold many times but only used (retired) once Gatekeeper on quality Set standards for what can get on registry Certify requirements have been met Buyers know what they re getting that it s real, has compliance value, etc. Publish standards, protocols, methodologies Cookbook project proponents must follow to register a project Manage third-party verification Provide public transparency on standards, project documents, issuances, transactions, retirements

15 And not do? Develop projects Own or transact offsets Broker or serve as intermediary in transactions Buyers and sellers Project proponents/aggregators and landowners Set prices Create derivatives, futures, options, etc. Verify projects

16 Issuance and transac0on volumes through 2009 Metric tons CO2 equivalent Total Tradable ERTs 24,866,694 Registry Activity ERTs Issued ERTs Retired ERTs Traded ,928, ,867 1,579, ,938,812 1,684,387 2,609, ,847, ,432 1,570, ,027,146 7, , ,580, ,000 30,222,161 2,405,276 5,868,669 Total

17 Project types (registered and in pipeline) Forest carbon: afforestation/reforestation, Improved Forest Management, U.S. avoided conversion, REDD Various agricultural and rangeland activities Livestock manure management Landfill gas CCS / enhanced oil recovery Fuel switching Industrial gas substitution Truck stop idling Fugitive methane in oil & gas production, processing, transmission

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19 Voluntary and quasi voluntary programs Program Description U.S. tons to date (million metric) CCX Membership Program with commitment to emissions reductions; use of exchange platform for trading 82.3 ACR Founded 1997 by EDF and ERT. Since 2007 part of Winrock International, headquartered in Arkansas CAR Founded in 2008 as a parent organization to CCAR, a California-based non-profit established in VCS Founded in 2006 as a non-profit incorporated in Switzerland. Washington D.C. headquarters established in

20 Protocol development process ACR publishes general and sector-specific standards Flexibility in methodology choice Use ACR-published methodology Use approved CDM methodology Propose/modify existing methodology (e.g. EPA, VCS) Submit new methodology for approval Public consultation and anonymous scientific peer review of all standards and methodologies Shortest time to market and lowest cost Emphasis on scientific rigor Balance environmental integrity with commercial flexibility

21 Recent and forthcoming standards, methodologies and tools ACR Standard v2.0 Published Feb 2010 Forest Carbon Project Standard v2.0 Published Jun 2010 Livestock Manure Management Project Standard & Methodology Conversion of High-Bleed Pneumatic Controllers in Oil & Gas Systems Public comment closed, peer review in progress Published March 2010 Improved Forest Management Forthcoming Reducing Emissions from Deforestation and Degradation Forthcoming Landfill Gas Combustion Project Standard & Methodology Forthcoming Reducing N2O Emissions through Fertilizer Management Forthcoming Improved Grazing Land Management Biochar In development Scoping Coastal Wetland Restoration In development Panda Standard AFOLU specifications, IFM methodology, Grassland Improvement Methodology In development ACR Tool for Risk Analysis and Buffer Determination In development ACR Tool for the Demonstration and Assessment of Additionality in Forest Carbon Project Activities Forthcoming

22 Minnesota terrestrial sequestra0on opportuni0es Improved Forest Management Avoid conversion of forests and peatlands Peat: 4.25 billion tonnes (750 tonnes/acre) stocks Forest: 1.6 billion tonnes (99 tonnes/acre) Peatland and prairie restoration Convert marginal agricultural land to grassland, forest, short-rotation woody crops Agricultural soil sequestration (reduced till, cover crops etc.) Fertilizer management to reduce N2O emissions Livestock manure management Biomass to liquid biofuels and to electricity/heat/steam (fossil fuel displacement) Wildfire risk reduction

23 Minnesota terrestrial sequestra0on opportuni0es

24 Minnesota forests ~16 million acres (over 30% of state) Diverse forest types Aspen, northern hardwoods, spruce, birch dominate Significant public ownership 58 State forests (4.1 million acres) County, municipal and local: 2 million acres Federal: 2 million acres Private non-industrial: 5.8 million acres Forest industry:1.2 million acres

25 Minnesota forests

26 MN forest harvest

27 MN forest harvest

28 MN cer0fied forests Million acres All certified forests 8.4 Total FSC 6.7 Total SFI 7.2 Dual certification 5.5 Public FSC or SFI 7.4 Private FSC or SFI 0.9

29 Improved forest management Extending rotation lengths in managed forest Increasing forest productivity by thinning diseased or suppressed trees Managing competing brush and short-lived forest species Increasing buffers or other set-asides (beyond regulatory requirements) Increasing the stocking of trees on understocked areas Increasing carbon stocks in harvested wood products Improving harvest or production efficiency Shifting from shorter- to longer-term wood products

30 ACR Forest Carbon Project Standard v2.0 Published following public comment and scientific peer review Supersedes v1.0 Used in combination with approved methodologies and tools

31 Scope Project location: worldwide Ownership: private, public (municipal, county, state, federal, or other), and Tribal AR Establishing, increasing and restoring vegetative cover through the planting, sowing or human-assisted natural regeneration of woody vegetation IFM Activities to reduce GHG emissions and/or enhance GHG removals, implemented on lands designated, sanctioned or approved for forest management REDD Reduction in GHG emissions from the avoided conversion of forest to non-forest use or avoided degradation of forests remaining as forests

32 Basic eligibility criteria Start Date: generally November 1997 or later Minimum Project Term: 40 years Crediting Period (validity of baseline and additionality): 20 years for AR and most IFM, 10 years for REDD Real: reductions/removals exist prior to issuance; no forward crediting Direct emissions: Proponent owns/controls sources and sinks; clear land and offset title

33 Basic eligibility criteria Land eligibility for AR: No clearing of trees in last 10 years Exclusion does not apply to fire, disturbance, or removing vegetation for site preparation Additional Permanent Net of leakage Community & environmental impacts assessed; any negative impacts documented and mitigated Independently verified

34 Accoun0ng guidance Defining boundaries GHG sources and sinks Significance testing and de minimis guidance Physical and temporal boundaries Precision target of ±10% of the mean at 90% confidence Uncertainty deduction if target not achieved Aggregated projects have same target, achieved at level of project overall

35 Carbon pools included and excluded Carbon pools Above-ground biomass Selected (Required, Conditional or Excluded) Required Below-ground biomass Required Major carbon pool subjected to the project activity. Belowground biomass subsequent to harvest is not assessed with the simplifying assumption that all is immediately emitted Dead wood Conditional Dead wood stocks can be conservatively excluded in all instances EXCEPT where slash stocks are burned as part of forest management. Justification / Explanation of choice Major carbon pool subjected to the project activity Alternatively, project proponents may elect to include the pool Litter Excluded Litter is conservatively excluded as with-project stocks will either be higher than in the absence of the project, or changes in the litter pool will be de minimis as a result of the project Soil organic carbon Excluded Soil organic carbon is conservatively excluded as with-project stocks will either be higher than in the absence of the project, or changes in the soil organic carbon pool will be de minimis as a result of the project Wood products Required Major carbon pool subjected to the project activity

36 Addi0onality GHG reductions and removals exceed those that would have occurred under current forestry laws and regulations, current forest industry practices, and under a business-as-usual scenario Two paths to demonstrate: Regulatory surplus and exceeds performance standard Three-prong test: Regulatory surplus Exceeds common practice for area, forest type, similar landowners Faces at least one implementation barrier: financial, technological, institutional

37 IFM performance standards If regulatory surplus and exceeds benchmark, automatically additional E.g. credit carbon stocks exceeding a regionally defined (e.g. FIA) average stocking level Large bump of up-front credits Over-crediting without undercrediting to balance Possibly no change in practice

38 IFM intensity based performance standard Performance standard factor: emissions per unit output (tco2/ft3) Derived from net emissions and net sequestration, by region and forest type, representing common practice Performance standard factor applied to actual withproject extracted volume to give baseline Defined regionally and updated periodically Avoids having to project business-as-usual into the future Project activity directly monitored Changes in stocks in all carbon pools, harvest emissions, emissions from biomass burning Deductions for leakage and uncertainty Compare to baseline

39 IFM under performance standard Any action to increase sequestration, decrease/delay removals, manage slash, improve milling efficiency, or shift to longer-term wood products lower emissions per unit output than the performance standard baseline

40 Permanence, risk mi0ga0on and fungibility Minimum Project Term of 40 years Minimum term is to ensure activities maintained, monitored and verified over relevant period Required of Project Proponent only; flexibility in landowner contracts Balance time commitment with broad landowner participation Minimum term alone does not provide permanence Risk assessment and mitigation makes forest offsets effectively permanent and fungible with other offsets, allowances and emission reductions Focus on mitigating reversals so atmosphere made whole, rather than obligating landowner to monitor tons on site for 100 years

41 Risk mi0ga0on op0ons Project-specific risk assessment Buffer contribution From project itself ERTs of any other type and vintage Unintentional reversal: Proponent pays deductible ; ACR retires buffer tons for remainder Premium goes up Intentional reversal ( buy-out option ): Proponent replace all issued ERTs for that portion of project Alternate risk mitigation options accepted Insurance or other financial assurances that are equally effective in mitigating losses

42 Leakage (IFM) The displacement of GHG emissions from the project s physical boundaries to locations outside of the project s boundaries as a result of the project action. Activity-shifting leakage: Project Proponent must document that harvest is not being shifted to areas outside project boundaries but within entity landholding Market effects leakage: If yield increases or is maintained (e.g. extending rotations shifts harvest temporally), no market effects leakage deduction If timber production significantly decreased, standard deduction based on where harvest likely to be shifted, and carbon stocks of those forests relative to forests in project area

43 Aggrega0on guidance Key for transaction cost efficiencies (inventory, monitoring, verification, registration) and risk diversification Proponent (here aggregator) commits to minimum term and reversal risk mitigation For inventory and monitoring, precision targets applied at overall project level ±10% of the mean at 90% confidence Use stratification; does not require plots on every landholding Verification (reasonable assurance; ±5% materiality) also at project level Risk-based approach and not all properties necessarily visited

44 Further Informa0on Nicholas Mar0n Chief Technical Officer, American Carbon Registry (703)