FINANCING IMPROVED FOREST MANAGEMENT

Transcription

1 THE NEW BRUNSWICK COMMUNITY LAND TRUST FINANCING IMPROVED FOREST MANAGEMENT EVALUATING THE POTENTIAL OF FOREST CARBON OFFSETTING AS A SELF-FINANCING MECHANISM FOR LAND TRUSTS

2 THE NEW BRUNSWICK COMMUNITY LAND TRUST FEBRUARY 2016 The following report was written and compiled by the New Brunswick Community Land Trust with financial assistance from the New Brunswick Environmental Trust Fund. PREPARED BY EMMA JACKSON CARBON AND STEWARDSHIP COORDINATOR The New Brunswick Community Land Trust (NBCLT) is a nonprofit organization that is committed to supporting ecologically sustainable land-use practices and economic development in rural New Brunswick by helping landowners establish working lands conservation easements on their lands. By holding easements on farmlands and woodlots throughout the province, the NBCLT aims to ensure that they are maintained in sustainable production and available for use by the province s future generations. Page 2 of 95

3 EXECUTIVE SUMMARY Forest carbon offsetting has emerged as a way for landowners to be compensated for sustainable forest management. Carbon offsets are created when individuals or organizations take a voluntary action that results in the sequestration or the prevention of carbon dioxide or another greenhouse gas (GHG) being released into the atmosphere. With forest carbon offsets in particular, there is increasingly an important role for working land trusts, as these organizations can guarantee project longevity through the securement of working lands conservation easements. Many land trusts who own property are also now entering the carbon market as a means to generate revenue for further land acquisitions. While there are several types of forest carbon projects, including afforestation and avoided conversion, Improved Forest Management (IFM) projects are often most in line with the aims and objectives of working land trusts. IFM projects include management activities that increase the overall age, productivity and stocking of the forest. The process of developing forest carbon offset projects and subsequently accessing carbon markets can be difficult, and requires a thorough assessment of market standards and project development costs. To facilitate the process, many land trusts choose to partner with an experienced carbon project developer, such as Finite Carbon or Blue Source, who are often better able to assess project feasibility and navigate an offset program s changing standards. In deciding whether to enter the carbon market, there are four key considerations that both landowners and land trusts ought to take into account. These include whether the landowner is willing to commit to long-term ownership and a long-term contract; whether the land is already held under easement, restricting management activities; the current volume of timber that is being harvested from the land relative to the regional average; and the amount of forestland that is under consideration to qualify for forest carbon offsets. There are two types of carbon markets: compliance markets and voluntary markets. In compliance markets, the buyers are purchasing carbon offsets to satisfy a legal obligation that has been imposed by the State. Participating in the compliance market therefore requires following rigorous standards set by a number of regulatory bodies to ensure that offsets are both legitimate and effective in reducing overall carbon emissions. In contrast, the buyers in voluntary markets are purchasing offsets for corporate social responsibility or marketing purposes, and are not required to do so by law. Voluntary markets also have standards that they must adhere to but these standards are far less rigorous. Page 3 of 95

4 The process of developing a carbon offset project typically includes seven steps: 1) project identification and a feasibility study; 2) program research; 3) project registration; 4) monitoring and third party verification (particularly for compliance offsets); 5) crediting and the issuance of offsets; 6) offset sale; and 7) project maintenance for the duration of the project s lifespan. While the standards that must be followed depend on both the chosen offset program and the market-type, they all generally include stipulations surrounding the concepts of additionality, permanence, leakage, and forest management. Additionality refers to the fact that all Improved Forest Management (IFM) projects have to achieve carbon offsets that would not have otherwise occurred in the absence of the project. Similarly, leakage requires that landowners prove that the existence of a project will not cause production of an emissions-causing product (i.e. timber) to move to an area outside the project boundary. A project s required permanence greatly depends on the offset program and can range between 40 to 100 years. Finally, many programs particularly those belonging to a compliance market require that IFM projects forest activities be certified by a third party standard, such as the Forest Stewardship Council or the Sustainable Forestry Initiative. However, while perhaps well intended, many of these programs remain fraught with issues, including weak management standards. There are a number of costs that must be accounted for in the development and maintenance of a forest carbon offset project, many of which can often be unforeseen. Initial costs, such as those associated with Project Identification, Program Research, and Project Registration, often require hiring external consultants and are therefore quite costly. Following these costs, there are periodic costs associated with project monitoring and verification. These costs should be accounted for in long-term projections, as most projects require annual monitoring. Lastly, there are a number of additional costs that are often left unconsidered, such as legal reserves and additional costs associated with changing standards. Page 4 of 95

5 KEY RECOMMENDATIONS In reviewing case studies of organizations and land trusts that have entered the carbon market with IFM projects, several overarching lessons and key recommendations can be drawn: Navigating carbon markets particularly compliance markets is an extremely complicated process that requires, at a minimum, a basic comprehension of program standards and a degree of technical expertise. As a result, many land trusts and landowners choose to partner with experienced project developers who are able to move the projects through the development process without losing sight of the greater carbon market context. These project developers, which include groups such as Blue Source and Finite Carbon, can help landowners with protocol selection, project design, verification management, and the monetization and commercialization of offsets all of which requires expertise and resources that many landowners and land trusts often do not have. As such, partnering with a project developer can be an extremely wise decision, particularly for those looking to enter the compliance market. Landowners must thoroughly assess whether a forest carbon offsetting project is financially feasible for their property. For smaller properties, for instance, the costs of developing a forest carbon offset project can often exceed the revenue that can be earned. Under certain circumstances, this issue of reaching economies of scale can be overcome by grouping projects together and selling the credits in a lump sum. However, only certain programs allow for project aggregation, making this solution not equally applicable to all projects. In trying to determine the financial feasibility of entering the carbon market, it is critical for landowners and land trusts to consider the long-term costs associated with project monitoring, verification and validation. Many compliance projects will have a project lifetime between years with periodic monitoring being required every 1-6 years. Several of the land trusts and organizations that were spoken to emphasized the importance of setting the necessary revenue aside to cover these periodic costs, noting that without doing so the long-term integrity of a project could be significantly compromised. Landowners must also consider that long-term monitoring costs are not constant and will likely be subject to change, particularly as standards are altered as new information on forest carbon sequestration becomes available. Second to this, the Downeast Lakes Land Trust also recommended that a substantial legal reserve be set aside in the unlikely event of litigation. Finally, while IFM projects do not legally require conservation easements, they can provide an added layer of security against land-use conversion. Under certain programs, easements can lower the necessary buffer pool that must be set aside in the event of a natural disaster or unforeseen event, making a land trust partnership a particularly strategic tool. Page 5 of 95

6 TABLE OF CONTENTS INTRODUCING FOREST CARBON OFFSETS WHAT IS A FOREST CARBON OFFSET? A PRIMER ON CARBON MARKETS CANADIAN CARBON AND THE WESTERN CLIMATE INITIATIVE THE CARBON OFFSET PROJECT DEVELOPMENT PROCESS PROJECT IDENTIFICATION AND FEASIBILITY STUDY PROGRAM RESEARCH PROJECT REGISTRATION MONITORING AND THIRD PARTY VERIFICATION CREDITING PERIOD AND OFFSET ISSUANCE OFFSET SALE PROJECT LIFE CONSIDERATIONS FOR LANDOWNERS AND LAND TRUSTS ADDITIONALITY PERMANENCE LEAKAGE FOREST MANAGEMENT COMPARISON OF PROGRAM REQUIREMENTS DETERMINING THE COSTS OF A FOREST CARBON OFFSET PROJECT FOREST CARBON OFFSET TRANSACTION COSTS SUMMARY OF POTENTIAL COSTS FOR FOREST CARBON OFFSET PROJECTS.. 25 Page 6 of 95

7 CASE STUDY 1 - COMMUNITY FORESTS INTERNATIONAL THE WHAELGHINBRAN CARBON FOREST PROJECT INTRODUCTION TO THE PROJECT PROJECT STAKEHOLDERS THE LOCATION DEVELOPMENT OF THE CARBON MANAGEMENT PLAN VALIDATION AND VERIFICATION PROCESS SAMPLING METHODOLOGY THE BASELINE SCENARIO THE PROJECT SCENARIO DETERMINATION OF THE GREENHOUSE GAS (GHG) BENEFIT LEAKAGE PERMANENCE MONITORING AND REPORTING SECUREMENT OF CONSERVATION EASEMENTS BEST PRACTICES AND LESSONS LEARNED 32 Page 7 of 95

8 CASE STUDY 2 - THE DOWNEAST LAKES LAND TRUST THE FARM COVE COMMUNITY FOREST PROJECT INTRODUCTION TO THE PROJECT PROJECT STAKEHOLDERS DESCRIPTION OF PROJECT STAKEHOLDERS THE LOCATION DEVELOPMENT OF THE CARBON MANAGEMENT PLAN VALIDATION AND VERIFICATION PROCESS SECUREMENT OF CONSERVATION EASEMENTS BEST PRACTICES AND LESSONS LEARNED. 41 Page 8 of 95

9 CASE STUDY 3 - THE CONSERVATION FUND AND THE NATURE CONSERVANCY THE GARCIA RIVER FOREST PROJECT INTRODUCTION TO THE PROJECT PROJECT STAKEHOLDERS THE LOCATION DEVELOPMENT OF THE CARBON MANAGEMENT PLAN VALIDATION AND VERIFICATION PROCESS SAMPLING METHODOLOGY THE BASELINE SCENARIO THE PROJECT SCENARIO DETERMINATION OF THE GREENHOUSE GAS (GHG) BENEFIT LEAKAGE PERMANENCE MONITORING AND REPORTING SECUREMENT OF CONSERVATION EASEMENTS PROJECT COSTS. 49 Page 9 of 95

10 CASE STUDY 4 - THE NATURE CONSERVANCY THE PENNSYLVANIA WORKING WOODLANDS PROGRAM INTRODUCTION TO THE PROJECT PROGRAM STAKEHOLDERS PROGRAM LOCATION INITIAL OUTREACH AND OPPORTUNITY EVALUATION VALIDATION AND VERIFICATION PROCESS PROGRAM COSTS AND THE DISTRIBUTION OF REVENUE AND RISK WORKING WOODLANDS PROJECT: BETHLEHEM, PENNSYLVANIA BETHLEHEM FOREST PROJECT CONSERVATION EASEMENT 55 APPENDICES AND REFERENCES APPENDIX 1: THE WHAELGHINBRAN FOREST WORKING CONSERVATION EASEMENT 56 APPENDIX 2: THE FARM COVE COMMUNITY FOREST PROJECT AGREEMENT APPENDIX 3: THE BETHLEHEM AUTHORITY WORKING WOODLANDS TERM SHEET. 67 APPENDIX 4: THE BETHLEHEM AUTHORITY WORKING CONSERVATION EASEMENT 74 ADDITIONAL RESOURCES 91 REFERENCES 92 Page 10 of 95

11 1.0 - INTRODUCING FOREST CARBON OFFSETS For any landowner, practicing sustainable forestry is a significant investment that often requires foregoing potential profits. In recent years, forest carbon offsetting has emerged as an alternative way for communities and land trusts to generate additional income from their forests, and diversify their portfolio of forest assets, without sacrificing their ecological values. Offset projects tend to align extremely well with land trusts and landowners efforts to plant new forests, actively manage land for sustainable timber harvesting, and restore previously degraded forest ecosystems. Payment for ecosystem services presents an emerging opportunity for the forestry community to balance costs associated with upholding sustainable forest management. The process of developing a forest carbon offset project can, however, be difficult and requires accessing markets and navigating rigorous standards. The profitability of offset projects differs significantly, and depends on many factors that landowners need to consider. For instance, economies of scale determine the feasibility of many projects, and for small landowners, project costs can often exceed the profits that can be made. Despite these challenges, forest carbon offsetting is still a viable option for many landowners and should be strongly considered as a means to finance sustainable forest management. This report provides some general information on forest carbon offsetting that is useful for a diverse range of stakeholders. Its main objective is to consider the opportunities that forest carbon offsetting presents to land trusts in particular. The report begins with a general explanation of what forest carbon offsets are, a primer on carbon markets, and an overview of what landowners and land trusts should consider in developing a forest carbon offset project. The report then looks at several case studies of land trusts and conservation organizations that have developed forest carbon offset projects of their own. Each of the cases that are reviewed are working lands, meaning that the land continues to be actively managed for wood products while generating carbon offsets. Overall, the intention of this report is to assess the potential of forest carbon offsetting as a self-financing mechanism for working lands conservation, and to outline the specific responsibilities that land trusts take on by either selling carbon offsets or by holding conservation easements on carbon offset project lands. Page 11 of 95

12 1.1 - WHAT IS A FOREST CARBON OFFSET? A carbon offset is measured in metric tons of carbon dioxide equivalent (tco2e), and is created when an individual, company, or organization takes a voluntary action that results in the sequestration or the prevention of carbon dioxide or another greenhouse gas (GHG) being released into the atmosphere. There are several different types of forest carbon offset projects. Avoided conversion (AC) projects are those which prevent the conversion of a forest to a non-forest use, afforestation/reforestation (AR) projects are those which involve re-planting degraded forests, and improved forest management (IFM) projects are those which involve actively managing the forest to improve its overall quality. Generally, improved forest management projects include the following types of activities: Increasing the overall age of the forest by increasing rotation ages; Increasing forest productivity by thinning weaker and diseased trees; Managing competing brush and short-lived forest species; and Increasing the stocking of trees, particularly on under-stocked areas. A carbon offset is created when an individual, company or organization takes a voluntary action that results in the sequestration or the prevention of carbon dioxide being released into the atmosphere. Forest carbon projects are intended to provide landowners with an incentive to maintain forest stocking at or above business-as-usual levels. From a landowner s perspective, a carbon offset can best be understood as a forest product and a forest carbon project is essentially a supply agreement where the landowner is compensated for maintaining or increasing a stocking level over a specified period of time A PRIMER ON CARBON MARKETS There are two types of carbon markets: compliance offset markets and voluntary markets. Participating in the compliance market requires following rigorous standards to ensure that offsets are both legitimate and effective in reducing overall carbon emissions. These projects standards are set by a number of regulatory bodies and address topics such as project additionality, permanence and leakage. Voluntary markets also have standards that they must adhere to but these standards are far less rigorous. For many small landowners, reaching the standards necessary to qualify for the compliance market can be prohibitively expensive, thereby reducing their chances of participation. In these cases, entering the voluntary market can be more feasible. Page 12 of 95

13 In contrast to compliance markets, voluntary markets are relatively unstructured and unregulated. As a result, voluntary offsets can often be of a lower standard and typically command a lower price. With these projects the details are negotiated between willing buyers and sellers who often agree on a certain project standard to be followed. Voluntary buyers are typically purchasing offsets for corporate social responsibility or marketing purposes, and are not required by law to do so. With this, the market for voluntary offsets is relatively small, making up roughly 15 percent of the Selling forest carbon offsets on the compliance market is a significant income-earning opportunity for landowners. U.S carbon market. In contrast, the market for compliance offsets is growing rapidly. There are currently two compliance markets in the United States: the Regional Greenhouse Gas Initiative (RGGI) and the California Climate Action Reserve (CAR). In these cases, compliance buyers are purchasing offsets to satisfy a legal obligation they have to lower their GHG emissions, typically imposed by state or provincial cap-and-trade programs. To date, more than 9 million offsets qualifying for compliance use in California have been issued, and this number is expected to reach 230 million offsets by The California GHG emissions trading program, which is administered by the California Air Resources Board (ARB) has emerged as the leading market for forest carbon offset projects. The ARB is the only compliance market that allows for Avoided Conversion and Improved Forest Management projects. This trading program is therefore the best option for landowners who are considering the development of forest carbon offsetting projects. Overall, selling forest carbon offsets on the compliance market is a significant income-earning opportunity for landowners. According to Finite Carbon, notwithstanding the significant management and financial commitments a landowner must adopt to develop and maintain a carbon project, ton for ton compliance grade carbon offset prices are now competitive on a per unit basis with some conventional wood product values (the Consultant, 2013, p.26). Page 13 of 95

14 CANADIAN CARBON AND THE WESTERN CLIMATE INITIATIVE The Western Climate Initiative (WCI) is a non-profit corporation that was established by the governors of five Western U.S states in 2007 to help one another meet their objectives on climate change. The WCI is intended to be a multi-sector, market-based program that reduces greenhouse gas emissions and promotes clean energy investments. In 2007, the five founding states (AZ, CA, NM, OR, and WA) set a regional target of reducing their emissions by 15 percent below 2005 levels by 2020 and agreed to participate in a cross-border greenhouse gas registry to measure and track emissions. Several Canadian provinces soon joined the effort, including Manitoba, British Columbia, Québec and Ontario, while all other U.S states with the exception of California, have since left the Initiative. Ontario and other Canadian provinces are expected to enter this joint cap-and-trade market in the near future, thus increasing demand for carbon offset projects. establishing a GHG cap-and-trade system within their own territory. Once these systems are established, the goal is for them to be linked through intergovernmental recognition agreements, thereby establishing a regional North American carbon market. Currently, the California-Quebec agreement calls for a cap set on the total amount of carbon emissions allowed by the two governments that is gradually reduced over time. Credits are given to emitters or sold in an auction. Emitters can also purchase offset credits from forest carbon projects, methane storage, or emissions-reducing activities. California and Quebec argue that their use of a cap-and-trade program is the best way to reduce emissions while providing incentives for the development of renewable energy sources. The overall objective of the Western Climate Initiative is to create a With the federal government now exerting pressure on the provinces to regional North American carbon market, however, as of yet only Québec establish emissions reduction programs of their own, Ontario and other and California have entered into a joint cap-and-trade market. In order to Canadian provinces are expected to enter this joint cap-and-trade market create this common market, WCI partners must first adopt a regulation in the near future, thus increasing demand for carbon offset projects. Page 14 of 95

15 2.0 - THE CARBON OFFSET PROJECT DEVELOPMENT PROCESS 1) PROJECT IDENTIFICATION AND FEASIBILITY STUDY The first step in bringing a forest offset project to market is determining the type of project that is most compatible with the property in question. If a landowner is inexperienced with carbon markets and does not want to proceed as the project developer, this is the point at which they will contact an experienced project developer to advance the project through the development process. 2) PROGRAM RESEARCH Once the project type has been determined, the next step is determining which forest offset program recognizes the proposed project type. The California Air Resources Board, for instance, recognizes Improved Forest Management projects, yet has a strict set of guidelines that must be followed to qualify. During this research stage, project developers should research the requirements for each program, and determine which is most applicable to their project. They should consider factors such as permanence, leakage and the required land management standards that the project must adhere to. The decision of which standard to follow will also be determined by the amount of land included in the project. Some programs do not allow for project aggregation for smaller properties. To ensure that the project is a good fit for a given program, it s wise to discuss the project with a knowledgeable offset program staff person at this stage. Finally, this is the point where the financial feasibility of a project should be assessed. Landowners should determine whether the revenue from selling the offsets will exceed the cost of creating them. 3) PROJECT REGISTRATION Once an offset program has been selected for the project, the program s standards and methodologies should be reviewed and understood to ensure that the project is developed according to the requirements. At this stage, there will be documentation formalizing various aspects of the project and its management, including monitoring, greenhouse gas accounting, and verification plans, all of which the program will need to approve. When the program has approved all the necessary documentation and the project has been verified according to the program s requirements (typically by a certified third party Page 15 of 95

16 verifier), the project will be registered and can begin generating offset credits. 4) MONITORING AND THIRD PARTY VERIFICATION All carbon offset projects require periodic project monitoring and verification, the timeframe and frequency of which will depend on the standard that is being followed. Typically, monitoring will be required annually to ensure that the land is being appropriately managed and that the project is following the approved plan. Verification is required to quantify the amount of carbon that has been sequestered by a project. In order for offsets to qualify for the compliance market, verification must be conducted by a registered third party verification body. There is usually a maximum allowable time period between verifications, and often at a minimum verification must be conducted before offsets can be issued. Verification can be conducted annually, but for smaller projects where the associated costs can be prohibitive less frequent verification may be possible. 5) CREDITING PERIOD AND OFFSET ISSUANCE Each program has a specific crediting period during which a project is eligible to generate offsets. Programs typically allow renewal of the crediting period if the project owner wants to continue generating offsets, but the number of times the crediting period can be renewed is typically capped. When a project begins generating verified offsets, those offsets are placed in the project s registry account. Each offset is then issued a unique serial number in the registry. This allows for the determination of offset ownership, ensures offsets are not doublecounted, and allows for offset retirement. 6) OFFSET SALE An offset can be sold any number of times before it is retired. Offsets must, however, be retired when owners use them to counteract an equivalent amount of emissions to make sure that no future claims can be made for using those offsets to counteract emissions. The sale of project offsets is typically handled by the project developer or a separate entity that has been contracted to broker a sale. The program ensures that verified offsets are created, while the registry tracks their creation, sale, and retirement. Transactions are conducted electronically. The serial numbers of offsets are transferred from the seller s account to the buyer s account. The cost of the transaction depends on the program, and additional fees apply if a broker is used. Page 16 of 95

17 7) PROJECT LIFE All carbon offset projects must be maintained for a minimum period of time, during which time verification and monitoring must be conducted regularly. The project s term typically begins on the date when the project s emissions reduction or removal activities begin, and ends depending on the program. The American Carbon Registry s project term is 40 years, while the Air Resources Board s and Climate Action Reserve s must continue for 100 years after the last issuance of offsets from a given project. Each program sets its own standards for premature, intentional, and unintentional project termination CONSIDERATIONS FOR LANDOWNERS AND LAND TRUSTS In considering participation in a carbon market, there are four key factors that landowners and land trusts should evaluate to determine whether offsets are a cost effective option. These include: Whether the landowner is willing to commit to long-term ownership of the property and a long-term contract; Whether the land is already held under easement, restricting management activities; The current volume of timber that is being harvested from the land relative to the regional average; and The amount of forestland that is under consideration to qualify for forest carbon offsets. In developing a forest carbon offset project, particular attention should be paid to determining which offset program is most appropriate. Each offset program deals with forest accounting differently in their standards, and the implications of these differences are particularly important for landowners to consider when selecting a program. Typically, there will be a trade-off to consider between the rigour of a program s standards and the expense of developing a project that is able to meet these standards. However, the projects that meet more rigorous standards often in compliance markets can command a higher price on the market, potentially off-setting the additional expense. A landowner should use their discretion and evaluate the projected expense versus the projected returns of their project. Page 17 of 95

18 LOW possibility if your land: Is < 1,000 acres Has recently been heavily harvested and revenue from future timber harvests is necessary to the landowner Is under an existing easement that prevents all future timber harvesting MEDIUM possibility if your land: Is > 1,000 acres but < 2,000 acres Has recently been harvested or has less timber volume compared to other lands in the region Is under an easement that restricts only some timber harvesting HIGH possibility if your land: Is > 3,000 acres Has > 20% more timber volume compared to other lands in the region Is not subject to an easement that restricts timber harvesting Landowner is willing and able to enter into a year contract * The following figure was adapted from the Manomet Centre for Conservation Sciences report entitled Selling Forest Carbon: A practical guide to developing forest carbon offsets for Northeast forest owners In general, landowners and land trusts should be considering the standards set out for additionality, permanence, leakage, and forest management. Unlike other offset projects where CO 2 emissions can be instantly trapped and eliminated, forest projects require long-term management to ensure the physical storage of carbon that takes time to accumulate. As a result, forest carbon offset projects face many accounting challenges that include: 1) ADDITIONALITY Additionality requires that any carbon offsets achieved by a project exceed those that would have otherwise occurred in the absence of the project. It is the amount of additional carbon that is sequestered by the existence of a carbon offset project. Additionality can be difficult to prove and relies on the determination of a baseline scenario (i.e. business-as-usual practices) against which the project scenario can be compared to determine the net change in carbon stocks. Page 18 of 95

19 2) PERMANENCE Permanence refers to a project s ability to sequester carbon from the atmosphere for a significant period of time. Permanence or the project commitment depends on the standard that is being followed. Most offset programs currently require the guarantee of a 40- to 100-year project lifetime. As a result, offset programs are most appropriate for landowners who can commit to one type of forest management for the very long-term. This encumbrance is often guaranteed by placing a conservation easement Under the Air Resources Board, on the property. Forests that are already subject to an Improved Forest Management projects existing easement can still qualify as an offset project but the landowner will likely have to agree to restrictions that do not require and easement but they surpass the current limits set by the easement in order to increase carbon stocks beyond business-as-usual. may receive more offsets by including The Air Resources Board requires that a project maintain this additional layer of protection carbon stocks that are credited to the project as assets for 100 years. Under the ARB, periodic inventories and preventing land-use conversion. verifications are required to ensure that offset stocks and other commitments continue to be met. Under the ARB, Avoided Conversion (AC) projects require a Qualified Conservation Easement naming the ARB as a third party with standing to be placed on the property. IFM projects do not require an easement but they may receive more offsets by including this additional layer of protection preventing land-use conversion. Natural events, such as hurricanes or wildfires, can complicate the requirement of permanence. However, many offset standards specify a percentage of the project land that must be set aside, without earning offset income, in order to provide a form of insurance in case of an unforeseen event. 3) LEAKAGE Leakage refers to a scenario where the existence of a project causes carbon emissions to increase elsewhere. Two common types of leakage are market leakage and activity-shifting leakage. As with other offset criteria, how a project quantifies and mitigates leakage depends on the standard the project is adhering to. Typically a standard requires accounting for leakage only if it is found to be above a certain threshold. Market leakage refers to cases where project activities result in a significant decrease in market supply of an emissions-causing product, such as timber, and production of that product in turn increases elsewhere to compensate for the market shortage. Considering the relatively small size of the carbon market, market leakage is currently far less of a concern than activity-shifting leakage. Activity-shifting leakage occurs when the existence of a project causes production of an emissions- Page 19 of 95

20 causing product (i.e. timber) to move to an area outside the project boundary. Leakage within a landowner s portfolio is relatively easy to control and quantify by requiring that all forestlands under that landowner s ownership be included in any reporting. Leakage that is external to a particular ownership, however, can be extremely difficult, if not impossible, to quantify. 4) FOREST MANAGEMENT Several carbon standards require that projects maintain a management plan that is certified under Sustainable Forestry Initiative (SFI), American Tree Farm System (ATFS), Forest Stewardship Council (FSC), or enrolled under a state/provincial or federal forestry program. Generally speaking, forests must be managed to establish or maintain forest types that are native to the project s eco-region and are of multiple ages and mixed native species. Today, the business-as-usual approach to forest management is to clearcut and liquidate the forest to make the greatest returns possible. It s a practice that is ecologically and economically unsustainable for the communities that forests sustain. -Dale Prest, Community Forests International Page 20 of 95

21 4.0 - COMPARISON OF PROGRAM REQUIREMENTS American Carbon Registry (ACR v.2.1) California Air Resources Board (ARB) Climate Action Reserve (CAR v.3.2) Verified Carbon Standard (VCS v.3) Description ACR is a non-profit carbon market registry that was founded in Eligible forest projects include: Afforestation/ Reforestation Improved Forest Management Reducing Emissions from Deforestation and Degradation The ARB is a state agency responsible for implementing California s cap-andtrade program (AB 32), which took effect in The ARB s Compliance Offset Protocol for Forest Projects was based off of the Climate Action Reserve s Forest Project Protocol v3.2. Eligible forest projects include: Reforestation The CAR is a voluntary carbon offset standard that grew out of the California Climate Registry, a voluntary carbon market that was developed by the State of California in Eligible forest projects include: Reforestation Improved Forest Management VCS was established in 2005 to offer standards and a registry system for creating verified carbon credits for voluntary markets worldwide. Eligible forest projects include: Afforestation, Reforestation & Re-vegetation Improved Forest Management The ACR allows for project aggregation and the addition of lands over time. Improved Forest Management Avoided Conversion The ARB does not allow for project aggregation. Avoided Conversion The CAR allows project aggregation for forest owners enrolling less than 5,000 acres. Reduced Emissions from Deforestation and Degradation The VCS allows for project grouping. Page 21 of 95

22 American Carbon Registry (ACR v.2.1) California Air Resources Board (ARB) Climate Action Reserve (CAR v.3.2) Verified Carbon Standard (VCS v.3) Baseline & Additionality The baseline is established by estimating the carbon that would be stocked on project lands in the absence of the project (i.e. under the businessas-usual scenario) To establish the baseline scenario, the forest owner must model 100 years of expected (businessas-usual) carbon stock changes in each of the forest project s required carbon pools. To establish the baseline scenario, the forest owner must model 100 years of expected carbon stock changes in each of the forest project s required carbon pools. The methodologies used to determine the project baseline differ depending on the project type. They often include recent historical forest management practices, common practices, and evidence of the management practices that would be likely to occur in the absence of the project. Permanence Projects are required to maintain carbon stocks for a minimum of 40 years. A project-specific risk assessment is conducted to determine the amount of credits that must be placed in the buffer pool, secured from an approved alternate source of offsets, or the level of insurance coverage that must be purchased to ensure that the verified offsets are not lost from a natural disaster or other unforeseeable causes. A 100-year commitment from the date of the last credit issuance is required, along will annual monitoring and project verification every 6 years. The percent of credits that must be set aside as a buffer in case of a reversal is based on a projectspecific risk evaluation. The necessary buffer is reduced if there is a qualified conservation easement or deed restriction placed on the property. As with the ARB, a 100-year commitment from the last credit issuance is required, along with annual monitoring and verification every 6 years. The minimum commitment for VCS is 20 years with the option of renewing the project four times for a maximum commitment of 100 years. A project-specific risk assessment is used to determine the percentage of carbon credits that must be set aside as a buffer in case of a reversal. Page 22 of 95

23 American Carbon Registry (ACR v.2.1) California Air Resources Board (ARB) Climate Action Reserve (CAR v.3.2) Verified Carbon Standard (VCS v.3) Leakage Both activity-shifting and market leakage must be assessed, but the specific requirements and thresholds for accounting for, and mitigating this leakage differs by forest project type. Requirements for including activityshifting leakage vary by forest project type Requirements for including activityshifting leakage vary by forest project type. All significant sources of market and activity-shifting leakage that occurs within the country must be assessed DETERMINING THE COSTS OF DEVELOPING A FOREST CARBON OFFSET PROJECT The cost of developing a credible forest carbon offset project and bringing it to completion can be significant. There are several transaction costs that landowners should consider in making the decision to engage in the carbon marketplace. These transaction costs include, but are certainly not limited to: A landowner will have to evaluate the project s total costs in relation to the market price per ton and the amount of credits the project is likely to generate to determine whether their involvement in the market is financially feasible. Initial costs associated with Project Identification, Program Research, and Project Registration. These initial costs often include hiring a forestry consultant to conduct an initial inventory of the property and a forest carbon management plan. These research activities can include very technical work and therefore represent a significant cost in the development of the project. Other initial expenses also include legal advice, third-party forest certification by a registered body such as the Forest Stewardship Council, and third-party verification of the carbon project; The periodic costs associated with Monitoring and Verification. These costs should be included in future projections as monitoring will often be required annually; and Additional costs, such as those associated with project registration and the issuance of offsets on a formal registry should also be considered. These costs are significant, however, they will likely be borne by either the broker or the buyer of the carbon credits. Page 23 of 95

24 If a project intends to qualify for the compliance market, the periodic costs are likely to be higher, and will include the maintenance of an updated forest inventory and management plan, ongoing third party certification of forestry activities, and ongoing third-party carbon project verification (e.g., every 5-6 years, depending on the standard followed). The monitoring and reporting costs will also likely be incurred annually. According to the Manomet Centre for Conservation Sciences, initial costs for projects can easily reach $70,000 to $100,000 depending on the size of the project. Periodic costs can then exceed $50,000 every 5 to 10 years. While these initial expenses are substantial, they are often covered by a carbon broker or buyer in exchange for a share of the credits that will be generated from the project. Overall, a landowner will have to evaluate the project s total costs in relation to the market price per ton and the amount of credits the project is likely to generate to determine whether their involvement in the market is financially feasible FOREST CARBON OFFSET TRANSACTION COSTS The following spreadsheet was adapted from the Manomet Spatial Informatics Group. The expenses are categorized as either initial costs of establishing a forest carbon project or periodic costs of monitoring and reporting throughout the life of the project (e.g years). Additional annual and other project-related costs not included in these two main categories and likely to be covered by a broker or buyer are included at the bottom. Page 24 of 95

25 SUMMARY OF POTENTIAL COSTS FOR A FOREST CARBON OFFSET PROJECT INITIAL COSTS Project Startup Costs ($) Inventory Cost ($/ac) Forest Analysis ($/ac) Forest Certification Cost ($/ac) Startup costs not captured in the categories below, such as meetings, research, initial site assessments, and membership fees. Cost of doing the initial forest carbon inventory. Costs associated with developing growth and yield estimates and harvest schedule for the baseline and project activity. Initial cost to obtain third-party forest certification where required, if not already obtained. Legal Expenses ($/ac) Verification Cost ($/ac) Cost associated with developing contracts and land title adjustments. This can also include the cost of purchasing a working lands conservation easement on the property. Initial third-party carbon project verification cost. Compliance Market Costs ($/ac) Aggregator Initial Cost ($/ac) Additional initial costs (i.e. additional verification, reports, and fees) required for participation in a compliance market. Initial cost associated with projects that are aggregated across more than one landowner; fees paid to aggregator for this property only. PERIODIC COSTS ASSOCIATED WITH VERIFICATION CYCLE Periodic Inventory Cost ($/ac) Cost of conducting future forest carbon inventories. Future Forest Analysis ($/ac) Periodic Certification Cost ($/ac) Periodic Legal Expenses ($/ac) Cost associated with updating growth and yield estimates and the harvest schedule for the project activity and baseline when required. Future periodic cost for third party certification where required and not already obtained. Cost associated with developing future contracts. Page 25 of 95

26 Periodic Verification Cost ($/ac) Future carbon project third-party verification cost. Periodic Compliance Market Costs ($/ac) Additional periodic costs (i.e. additional verification, fees, reports) required for participation in a compliance (cap-and-trade) market. Periodic Aggregator Cost ($/ac) Annual Reporting Costs ($) Annual Membership Fee ($) Ongoing periodic cost associated with projects that are aggregated across more than one landowner (possible fees paid to aggregator). Annual reporting costs for years when not formally third-party verified. Cost for the annual registry membership fee. POST-PROJECT MONITORING COSTS ASSOCIATED WITH MONITORING CYCLE Periodic Monitoring Cost ($/ac) Post-Project Periodic Monitoring Costs ($/ac) TRANSACTION COSTS ASSOCIATED WITH CREDITS TRADED Brokerage Fee ($/tonne) Insurance Cost ($/tonne) Periodic Insurance Cost ($/tonne) Page 26 of 95

27 CASE STUDY 1: COMMUNITY FORESTS INTERNATIONAL THE WHAELGHINBRAN FOREST CARBON PROJECT INTRODUCTION TO THE PROJECT In December 2010, DIALOG, a Canadian architecture firm, approached Community Forests International to see what the organization knew about forest carbon offsetting. Being familiar with the process yet never having completed a sequestration program before, DIALOG and CFI agreed to partner and pilot a project that would offset the firm s greenhouse gas emissions. Prior to its contact with DIALOG, CFI had identified a property in rural New Brunswick that it hoped to purchase. Located 26 kilometres east of Sussex, Whaelghinbran Farm had been managed in such a way as to serve as a model for ecosystem restoration and sustainable land use management in the province. However, with the owners no longer able to maintain the property as a working farm and woodlot, its sale on the open market was likely to result in the liquidation of all merchantable timber. Knowing that carbon offsetting presented an income-earning opportunity that could help save the farm, CFI and DIALOG signed an agreement outlining their process and got to work PROJECT STAKEHOLDERS ORGANIZATION ROLE CONTACT Community Forests International Landowner and Project Developer Dale Prest, Ecosystem Services Specialist, dale@forestsinternational.org, (506) DIALOG Purchaser New Brunswick Community Land Trust (NBCLT) Project Partner and Easement Holder Daimen Hardie, Vice-President, nbclt@forestsinternational.org, (506) Picea Forestry Consulting Carbon Management Plan and Consultant Patricia Amiro, piceaforestry@gmail.com, (902) Page 27 of 95

28 1.2 - THE LOCATION Whaelghinbran Farm is located approximately 26 kilometres east of Sussex, New Brunswick in the community of South Branch. The total area of the project lands is approximately hectares, or 580 acres, and is divided into 5 separate parcels of land, each with its own property identification number DEVELOPMENT OF THE CARBON MANAGEMENT PLAN After signing an Agreement of Offset Purchase with DIALOG on May 4, 2011, Community Forests International entered into negotiations with the owners of Whaelghinbran Farm to develop a purchase strategy that could meet DIALOG s immediate carbon offset demands while financially positioning CFI to purchase the remainder of the property. On October 19 th, 2011, CFI purchased an option to later acquire the land, which served as a security for future ownership. Following this, Picea Forestry Consulting was hired to develop a carbon management plan that would outline how carbon was being stored on the property. Picea Forestry Consulting was hired for its reputation as a regional expert in the development of sustainable and ecologically sensitive forest management plans for woodlots throughout the Acadian Forest Region. The general intent of the carbon management plan was to provide updated information on the property s forest stands and practical guidance on how to continue responsible stewardship and restoration of the natural Acadian Forest. Through field intensive surveys, Picea Forestry Consulting was able to provide CFI and the previous landowners with a detailed, stand-by-stand description of the property. The management plan also provided CFI with the means to meet the Forest Stewardship Council s certification standards for Small and Low Intensity Forests in the Maritime Region, such that on October 19 th, 2011, upon purchasing the option to later acquire the property, Whaelghinbran Farm achieved FSC certification. Page 28 of 95

29 In seeking to develop a comprehensive carbon offsetting project, Picea s carbon management plan was able to provide CFI with the information necessary to draft their own sequestration plan. For example, Picea s findings on natural disturbance patterns, forest cover type, and the distribution of age classes provided CFI with a better understanding of Whaelghinbran Forest s ability to sequester carbon. Picea also put forth a series of forestry management recommendations to help CFI achieve what they had outlined as their management priorities (one of which being maintaining the forest in such a way as to allow for the selling of carbon credits) VALIDATION AND VERIFICATION PROCESS Following completion of the carbon management plan, CFI began the process of quantifying the offsets that would be created by the forest carbon project. CFI used methodologies that had been developed by the Verified Carbon Standard (VCS), which defines itself as a greenhouse gas accounting program used by projects around the world to verify and issue carbon credits in voluntary markets. In using the standards outlined by the VCS, CFI was able to determine that the Whaelghinbran Forest Carbon Project would qualify as an Improved Forest Management (IFM) project. IFM projects increase the amount of carbon stored on project lands by managing for more carbon dense forests than would have otherwise occurred. Whether a project meets these criteria is determined by comparing the management scenario put forth by the project s developer against the management scenario that would have occurred without that developer s involvement and without revenue from the sale of carbon offsets. These two scenarios are known as the project scenario and the baseline scenario, respectively. The following section will outline how CFI determined the Whaelghinbran Forest Carbon Project s GHG benefit (i.e. the amount of carbon that would be offset by the project) SAMPLING METHODOLOGY A carbon project must accurately account for the carbon that is both lost and gained within a project s boundaries. To determine these values, CFI chose to use a sampling methodology developed by the VCS. With this, the following three carbon pools were incorporated into the project s sampling regime: Above-ground live tree biomass Below-ground live tree biomass Forest products Page 29 of 95

30 3.2 - THE BASELINE SCENARIO In auditing the Whaelghinbran forest, Picea Forestry Consulting determined the baseline scenario, which can be understood as the most likely forestry scenario that would occur without the sale of carbon offsets (i.e the scenario that is deemed to be the most financially viable in the absence of carbon revenues). Picea determined the baseline scenario by looking at common forestry practices in the region. It found that when a forested property is sold in southern New Brunswick the most common forestry practice is to liquidate (by means of clear cutting) all or the majority of standing timber in order to recover costs of property ownership and/or costs of harvest and extraction, and to make a profit. Picea also found that this Had Whaelghinbran Farm intensive harvest is often followed by a conversion to monoculture plantations. The costs of such intensive silviculture been sold on the open are often offset by subsidies paid in full, or in part by the provincial government. As Picea notes that the overall objective market [ ] it would have of such a practice is, to increase growth and yield of trees to maximize and speed up profit returns. entered into the industrial forest land base of southern New Brunswick [where] all merchantable timber would have been harvested in the short term and the most likely rotation ages would have been approximately 60 years. However, it was also found that in other instances, there is no activity to follow the intensive harvest, and the forest is left to develop naturally. In this case, a pioneer forest develops consisting of mainly grey birch, balsam fir, poplars, red maple, pin cherry, and white spruce. In both of these baseline scenarios, the rotation of harvest is typically between years depending on the tree species and their economic maturity. With these findings, CFI concluded that, had Whaelghinbran Farm been sold on the open market [ ] it would have entered into the industrial forest land base of southern New Brunswick [where] all merchantable timber would have been harvested in the short term and the most likely rotation ages would have been approximately 60 years. Following this determination of the baseline scenario, CFI referred to data from scientific studies to quantify the amount of carbon that would be stored in the baseline scenario. CFI found that given an average rotation age of 60 years, a generous estimate would be that 50 MgC would be stored on each hectare of Whaelghinbran Forest under an intensively managed, softwood plantation forestry scenario. Page 30 of 95

31 3.3 - THE PROJECT SCENARIO The project scenario details the management activities that would take place throughout the lifecycle of a carbon project. Based on the field sampling conducted by Picea Forestry Consulting, CFI was able to determine the level of stocking held by the Whaelghinbran forest under pre-existing sustainable forest management. To determine the amount of carbon that would be sequestered if CFI were to purchase the property and place an easement on it, CFI had to estimate the carbon stored in both aboveground and belowground biomass. Allometric equations that use tree species and tree diameter were used to estimate the total amount of dry aboveground biomass of the entire tree, while similar equations were used to approximate belowground (roots) biomass. These calculations then provided CFI with an estimate of the total carbon per hectare stored in each stand of the Whaelghinbran Forest DETERMINATION OF THE GREENHOUSE GAS (GHG) BENEFIT The total GHG benefit of a carbon offsetting project is found by calculating the difference between the carbon stored under the baseline scenario, versus the carbon that would be stored under the project scenario. There are two types of GHG benefits; a GHG reduction or avoided emission, and a GHG removal. As an Improved Forest Management project, CFI s GHG benefit fit the category of avoided emission. After determining both the baseline and project scenarios for the Whaelghinbran Forest Project, CFI was able to calculate the amount of these GHG emissions that would be avoided if the project scenario were to move forward. CFI found that by securing title to one parcel of the Whaelghinbran Forest on October 19, 2011, they were able to immediately offset 2110 Mg CO2e LEAKAGE Community Forests International was able to easily address activity-shifting leakage due to the fact that Whaelghinbran Forest is the only property under CFI s ownership. As a result, the organization was able to guarantee that the forest management restrictions they agreed to would not simply shift these carbon-emitting activities elsewhere PERMANENCE DIALOG and Community Forests International agreed upon a 100-year project duration for the Whaelghinbran Forest Carbon Project. This is facilitated by the fact that the New Brunswick Community Land Trust currently holds an easement on the Whaelghinbran Forest property that restricts land use activities on the property in perpetuity. Page 31 of 95

32 3.7 - MONITORING AND REPORTING The Whaelghinbran Forest Carbon Project is not certified by a third party verification body, and as such, Community Forest International in partnership with its voluntary purchaser was able to determine how often monitoring and reporting would be conducted. In following the Verified Carbon Standard, however, CFI set a minimum monitoring period of at least once every 10 years. However, both the conservation easement and the property s FSC certification require that forestry activities be monitored and verified annually, thus ensuring that stewardship of the land continues to broadly follow the carbon management plan SECUREMENT OF CONSERVATION EASEMENTS The New Brunswick Community Land Trust holds a conservation easement on the Whaelghinbran forest property. In 2012, Community Forests International purchased an easement on the first of the four parcels of land. Three more easements were subsequently purchased in 2013 and The easements were granted in perpetuity, and outline a number of permissible land use practices. In terms of forestry management practices, the easement specifies that all woodland management shall be based on the principles outlined in a separate management document, which include stipulations such as the development of multi-aged and multi-specied stands and no clear-cuts greater than a half acre. With regards to carbon offsetting, the easement includes a clause which states that, Nothing in the above shall preclude the use of this land for creating carbon offsets or the production of alternative energy provided these activities fall within the principles of this agreement. However, beyond this statement, the easement does not specify the amount of stocking that must be maintained or any other conditions that must be met with regards to forest carbon offsetting in particular BEST PRACTICES AND LESSONS LEARNED As a project that was traded on the voluntary market, the lessons that Community Forests International learned were particularly unique. From the outset, CFI determined that it would not be financially feasible for their project to receive third party verification. As a result, there is some uncertainty as to whether their interpretation of the VCS standards would stand up to external scrutiny. Additionality, in particular, was viewed as an area of concern since determining the baseline scenario can be extremely subjective, particularly in non-verified scenarios. Beyond this, most lessons that CFI learned were related to the timing and pricing of sales. As a voluntary project, CFI was able to name their price to the purchaser. Looking back, they now believe that their price was likely set too low, potentially compromising the integrity of the project in the future. While this does remain a concern, they feel however that the voluntary nature of their agreement, which allows for Page 32 of 95

33 greater flexibility and smaller long-term costs, will ensure that the project s long-term integrity remains intact. They have noted, however, that if the credits were sold at the same price for a compliance market, the integrity of the project would be severely compromised. In terms of the long-term monitoring of the project, CFI will be able to assess the stocking levels for carbon when they review their forest management practices, which must also occur at a minimum of once every 10 years. They do, however, note that the 100-year timeline is a concern, which places added pressure on the New Brunswick Community Land Trust. The conservation easement that is currently held on the property is only as strong as the NBCLT. If the organization were to dissolve current organizational policy dictates that the easement would be passed on to selected organizations, however, in a worst case scenario in which these preferred organizations have similarly dissolved, current provincial policy does not state that the easement would be upheld by the government, which could compromise the project s ability to store carbon in perpetuity. Page 33 of 95

34 CASE STUDY 2: THE DOWNEAST LAKES LAND TRUST THE FARM COVE COMMUNITY FOREST PROJECT INTRODUCTION TO THE PROJECT In 2009, the Downeast Lakes Land Trust (DLLT) began to evaluate the potential of carbon offsetting, and its ability to participate in the carbon market. In 2010, the Trust entered into an agreement with Finite Carbon, a forest carbon development company that works with landowners to create and monetize carbon credits. From fall 2010 through summer 2012, Finite Carbon and DLLT completed a new timber inventory of the property, analyzed the potential carbon credits available, In 2013, the project registered nearly 200,000 offsets from the 19,118-acre project, which were purchased for $1.5 million. and contracted the Rainforest Alliance to serve as a third-party verifier. In September 2012, the DLLT s Farm Cove Community Forest Carbon Project was completed and registered with the Climate Action Reserve (CAR) as an improved forest management (IFM) project. In December 2012, the project achieved Climate Action Reserve (CAR) verification through the Rainforest Alliance, making it the first IFM forest carbon project outside of California to receive this verification. With this certification, the project was able to qualify for the California Air Resources Board (ARB) greenhouse gas emissions trading program, a compliance offset program that was brought into effect in As a result, in March 2013, the Farm Cove Community Forest Carbon Project became one of only two forest carbon offset projects listed in the ARB s inaugural list of 25 compliance offset projects. As part of this agreement, the Downeast Lakes Land Trust has agreed to follow the California Air Resources Board s Compliance Offset Protocol for U.S Forests, which requires forest management to either maintain or increase forest carbon stocks above the levels assumed under commercial management for 100 years. In 2013, the project registered nearly 200,000 offsets from the 19,118-acre project, which were soon purchased for $1.5 million. Overall, over its 100-year project life, the project is expected to sequester over 800,000 tco2e. Moving forward, the DLLT intends to use carbon credits as a way to finance their ongoing effort to conserve an additional 22,000 acres around Grand Lake Stream, Maine. This parcel, the West Grand Lake Forest, is integral to a 1.4 million-acre corridor of conserved forest, and will move the trust closer to its vision of contributing to the long-term economic and environmental wellbeing of the Downeast Page 34 of 95

35 Lakes region. With this, the Farm Cove Community Forest Project continues to serve as a model for how land trusts across North American can leverage carbon offsetting as a self-financing mechanism both to acquire new lands, and strengthen existing stewardship priorities PROJECT STAKEHOLDERS ORGANIZATION ROLE CONTACT The Downeast Lakes Land Trust Landowner Mark Berry, Executive Director, info@downeastlakes.org, (207) Finite Carbon Corporation Forest Carbon Project Developer Dylan Jenkins, djenkins@finitecarbon.com, New England Forestry Foundation Project Partner and Easement Holder Betsy Cook, Conservation Easement Coordinator, bcook@newenglandforestry.org, (978) x106 U.S Fish and Wildlife Service Funder Tom Chapman, U.S Fish and Wildlife Services, New England Field Office Supervisor, tom_chapman@fws.gov, (603) Rainforest Alliance Third Party Verifier Lawson Henderson, Lead Auditor, lhenderson@ra.org, (506) Environmental Services Inc. Third Party Verifier Janice McMahon, Validation/Verification Services, jmcmahon@esinc.cc, (904) DESCRIPTION OF PROJECT STAKEHOLDERS The Downeast Lakes Land Trust: The Downeast Lakes Land Trust is a community-based land trust located in Grand Lake Stream, Maine. The Trust aims to improve fish and wildlife habitats, protect lakeshores, provide public recreation opportunities, and support sustainable jobs in eastern Maine s forests. The Downeast Lakes Land Trust has conserved 370,000 acres of forests and wetlands since The Trust sees habitat management and timber harvesting as two highly compatible practices, and implements focus species forestry to enhance biodiversity in their working forests. The DDLT s forestry practices emphasize species diversity, and increased stocking which is particularly important in the transitional landscape that they occupy, which is composed primarily of mixed Acadian forest, and northern hardwoods. Page 35 of 95

36 Finite Carbon: Finite Carbon is a developer of forest carbon offsets. They combine project development experience with carbon market knowledge, to assist individuals and organizations in creating and monetizing carbon offsets. They have completed 15 Improved Forest Management Projects on 700,000 acres of land throughout the United States. The Rainforest Alliance: The Rainforest Alliance provides a range of verification services to ensure that carbon projects are conservation-oriented and meet established international standards for carbon sequestration. The Rainforest Alliance is able to audit and certify that projects meet the Climate Action Reserve Standard s (CAR) set of rigorous protocols, guidelines and tools to support the North American carbon market. They are also able to certify whether projects meet the environmental and social criteria set by the Forest Stewardship Council. The Climate Action Reserve: The Climate Action Reserve is a carbon offset registry for the North American carbon market. The Reserve establishes quality standards for carbon offset projects to ensure the environmental integrity and financial benefits of emissions reduction projects. The Reserve also oversees third-party verification bodies, issues offsets generated from these projects, and tracks the transaction of carbon offsets over time. The California Air Resources Board (ARB) Cap and Trade Program: The California Air Resources Board (ARB) administers California s greenhouse gas (GHG) cap-and-trade program. The program is a central part of California s Global Warming Solutions Act (AB 32), which seeks to greatly reduce the state s greenhouse gas emissions. The program involves an enforceable GHG cap on major sources of emissions, such as refineries, power plants, industrial facilities, and transportation fuels that will decline over time. The ARB distributes tradable permits that are equal to the emission allowed under the cap. Regulated emitters may then use approved offset projects to meet up to eight percent of their emissions cap. The overall goal is to lower California s carbon emissions to 1990 levels by 2020, and to another 80 percent below that by THE LOCATION The Farm Cove Community Forest Carbon Project is located on 19,118 acres in eastern Maine near the town of Grand Lake Stream. Located in Washington County, Maine s Downeast Lakes region encompasses more than one million acres of forested lands, and has long been associated with hunting, trapping, and fishing activities that continue to support the region s local economy. The Farm Cove parcel of land is part of a 1.3 million acre international wildlife corridor, and is dominated by native softwoods. Over half of the trees in the forest are years old, with another 20% being over 70 years old. Beyond its 19,118 acres of accredited carbon offsets, the Farm Cove Community Forest also contains 71 miles of lakeshore habitat, a 3,500-acre non-harvested ecological reserve, and a 3,751 latesuccessional forest management area. Page 36 of 95

37 As a land trust that is focused on large landscape conservation, the Farm Cove Community Forest was acquired alongside two other large contiguous parcels of land. The Downeast Lakes Forestry Partnership was a campaign to conserve the Farm Cove Community Forest, the Sunrise Easement, and the Saint Croix Corridor lands that together make up 339,000 acres and encompass 445 miles of lakeshore on 60 lakes and 1,500 miles of riverfront in Washington County. Together, these lands contribute to the 1.3 million acre corridor that spans the Maine-New Brunswick border. With this, the Farm Cove Community Forest makes up only a small portion of this corridor that extends from Nicatous Lake in Maine nearly to Saint John and Fredericton in New Brunswick. The landscape-scale of this conservation effort greatly influenced who owned the project s easements, and how they were distributed DEVELOPMENT OF THE CARBON MANAGEMENT PLAN As a land trust with little experience in the area of carbon offsetting, the Downeast Lakes Land Trust partnered with project developer, Finite Carbon, to develop a carbon management plan for the Farm Cove Community Forest Project and to bring the project to fruition. As with many land trusts, the DLLT viewed forest carbon offsetting as a source of capital to assist with their conservation efforts, and sought to explore their potential for entering the newly emerging market. The partnership with Finite Carbon, in particular, made sense for a number of reasons. As a developer of forest carbon offsets, Finite Carbon works primarily with private woodlot owners who are committed to natural forest management where harvest is less than or equal to growth, and clear-cuts are restricted to no more than 40 acres, which was already satisfied by the trust s management practices. Finite Carbon also works primarily with private woodlot owners who are certified either by the Forest Stewardship Council (FSC), the Sustainable Forestry Initiative (SFI), Tree Farm, or by a state/federally approved management plan. The DLLT had previously received FSC certification, making the trust a fitting candidate. As a land trust with little experience in the area of carbon offsetting, the Downeast Lakes Land Trust partnered with a project developer to develop a carbon management plan for the Farm Cove Community Forest Project and to bring the project to fruition. Landowners that partner with Finite Carbon must also commit to audits, which include annual harvest updates and field verification every six years, and reinventory of the property every 12 years. Overall, Finite Carbon s ideal candidates follow conservationbased forest management; have long ownership tenures; own forests with low net wood values in Page 37 of 95

38 traditional markets; and have well-stocked forests with low intensity management zones criteria that were all largely met by the DLLT. Therefore, having ensured that this was a fitting partnership, Finite Carbon began to assist the DLLT through the process of selling carbon offsets. In developing a forest carbon offset project with a land trust, Finite Carbon follows a project development cycle that includes: Assessing Feasibility Conducting a feasibility study of the forest Inventory of Carbon Stocks Completing an inventory of all carbon stored in the forest Selecting Appropriate Registry/Protocol (e.g. ARB, CAR, ACR, or VCS) Modeling and Documentation Translating inventory into a carbon model and management plan Project Plan Preparing and submitting a project plan to a chosen carbon registry Verification Hiring a third-party project verifier once the plan is accepted and registered Registration Submitting project verification to the registry and receiving allocation of carbon offsets Sales and Support Either marketing and selling in Finite Carbon s proprietary network or engaging top brokers to broaden the sales process As with the Whaelghinbran Forest Carbon Project, the first step was to assess both the economic and environmental feasibility of implementing a carbon offset project. Through field intensive surveys and an overview of the DLLT s existing management plan, Finite Carbon was able to confirm that the DLLT s existing forest management practices were compatible with those necessary to support an offsetting scheme. Following these initial observations, Finite Carbon s experts then completed an inventory of all carbon stored in the Farm Cove Community Forest using carbon credit and sequestration calculations. These figures were then used in the development of a project plan, which was submitted to the Climate Action Reserve in order for the project to be registered on this voluntary market. Page 38 of 95

39 3.0 - VALIDATION AND VERIFICATION PROCESS In order for a project to be listed on the California Air Resources Board, the project requires third-party verification from two separate bodies confirming that it is in conformance with the rigorous protocols set out by the Climate Action Reserve. As such, following the preparation and submission of the Farm Cove Community Forest Carbon Project s project plan to the Climate Action Reserve, Rainforest Alliance was hired as a third party verifier to determine whether the project met the standards established by the CAR. In particular, Rainforest Alliance set out to determine whether the project was in conformance with the CAR Forest Project Protocol Version 3.2, which establishes the standards for Improved Forest Management (IFM) projects. The audit also assessed the project with respect to the baseline and project scenarios presented in Finite Carbon s project design document. From the beginning, Finite Carbon requested that the CAR verification audit be broken into two separate phases. Phase 1 of the audit involved a field verification audit, which emphasized the project s inventory design, methodology, and update procedures, while Phase 2 involved an evaluation of all remaining verification criteria. To begin the verification process, Finite Carbon received an audit plan from the Rainforest Alliance audit team, which included a sampling plan outlining the necessary sampling intensity and the process that would be followed for validation. After the submission of the audit plan, Rainforest Alliance s audit team began a desk review of all project documents to make preliminary assessments of the project s compliance with CAR standards. The documents that were gathered allowed the audit team to evaluate project design, project implementation, and the accuracy of the GHG assertion. As an Improved Forest Management (IFM) project, Rainforest Alliance was tasked with verifying that the project would produce greenhouse gas removals through avoided emissions and increased CO 2 reductions through improved forest management activities. According to the audit, the DLLT typically harvests about 8,000 cords per year of primarily hemlock, along with spruce, mixed hardwoods, fir, and white pine on its 33,700 acres of working forests. The CAR standards mandate that the trust must maintain forest stocking at or above current levels for 100 years, and that no decrease can occur over any consecutive 10-year period. This standard was found to be compatible with the DLLT s goal Page 39 of 95

40 of increasing timber stocking from 18 cords per acre to 22 cords per acre. Under this scenario of stocking increasing above the current 18 cords per acre, the trust would be able to accrue additional offsets. Based on their sampling and review of the project documents, the The project initially Rainforest Alliance s audit team was able to determine with a reasonable received an issuance of level of assurance that the project was in conformance with the Climate Action Reserve Forest Project Protocol. They confirmed that the project 200,000 CAR offsets. plan involved management activities that would maintain or increase However, after receiving carbon stocks over time relative to the baseline scenario put forth. a secondary verification Following this verification, the DLLT also confirmed their commitment to from Environmental have the project verified every six years thereafter a standard required by the Climate Action Reserve and Air Resources Board. With this, the Services Inc., another project initially received an issuance of 200,000 CAR offsets. However, third-party verifier, the after receiving a secondary verification from Environmental Services Inc., another third-party verifier, the project was able to transition to the project was able to California Air Resources Board for the issuance of compliance grade offsets. transition to the California Air Resources Board for the issuance of compliance grade offsets. Overall, Rainforest Alliance and Environmental Services Inc. s verifications both used site-specific allometric equations to predict tree height, biomass, and growth over time in order to validate the offsets being produced from the Farm Cove Community Forest Project. Their verifications provided the project with the credibility it required to be one of the first IFM projects listed on the ARB SECUREMENT OF CONSERVATION EASEMENTS Despite its status as a land trust, the DLLT does not hold the easement on the Farm Cove Community Forest. Rather, in its efforts to conserve this particular parcel of land along with the Sunrise Easement and the Saint Croix Corridor, the DLLT partnered with the New England Forestry Foundation (NEFF) who now holds the majority of the easements on these forestlands. The campaign to purchase these properties began in 2003, with the land and easement purchases being finalized in The DLLT purchased the timber rights for the Farm Cove Community Forest during the term of the option, to ensure that the forest would not be heavily harvested prior to the sale being finalized. Following the acquisition of all project lands, the partners agreed that the NEFF was best positioned to hold a conservation easement over the majority of the Community Forest Land. As a result, the NEFF purchased a 312,000-acre, no-development, sustainable-forestry easement on the lands surrounding the Farm Cove Community Forest. The DLLT provided an endowment to the NEFF for this initial easement. The Sweet Water Trust further acquired a Forever Wild conservation easement over a new 3,560-acre Page 40 of 95

41 parcel at Fourth Machias Lake, thus designating it as an ecological reserve, and the Maine Department of Conservation acquired a public access easement over the same lands to ensure that the public would be able to access these lands for outdoor recreation PROJECT COSTS In total, acquiring the Farm Cove Community Forest land and hiring Finite Carbon cost the DLLT over $34.8 million. The campaign to raise this money began in 2003, with the land and easement purchases being finalized in However, it was not until 2008 that the campaign finally drew to a close. The project itself succeeded in attracting the attention of many large donors, with the largest individual donation totalling $6.2 million. Wal-Mart also contributed $6.145 million to the project through the Acres for America program administered by the Conservation Fund and the National Fish and Wildlife Foundation. Hiring Finite Carbon to develop the forest carbon offset project on the Farm Cove property did not result in any upfront costs to the DLLT. Rather, Finite Carbon was given a portion of the carbon offsets to manage however they best saw fit. The majority of the revenue that the DLLT has received from the Farm Cove offsets is now being used to purchase an additional 22,000 acres along West Grand Lake. Currently, the DLLT is working with the seller of the West Grand Lake property to develop a forest carbon project. This agreement will minimize the sale price for the DLLT and serve as a credit to them CHALLENGES, BEST PRACTICES AND LESSONS LEARNED Despite its many successes, the DLLT faces many challenges as a small conservation organization. In general, the organization greatly relies upon taking on new challenges namely in the form of new land acquisitions in order to renew people s interest in and support for the organization. However, one of the greatest challenges they face is maintaining people s commitment to the organization s efforts during the times when they are not looking to acquire any additional lands. The organization has remarked that it needs to develop an appropriate strategy to transition its supporters from short-term oriented projects to working on projects with long-term goals, such as the management and administration of lands that are currently held under conservation easements. Furthermore, as with many NGOs, obtaining financial support for projects continues to be an ongoing challenge that they remark requires expanding their network of supporters from the local and small scale to regional and largescale partners. In specifically speaking with various parties interested in their carbon project, the DLLT has had many opportunities to reflect on the success and lessons learned from their experience entering the carbon market. Above all, the DLLT has remarked that community buy-in was critical for the project to move Page 41 of 95

42 forward, particularly in terms of raising funds to acquire the property. As they have noted, when support for the 22,000 acre acquisition of keystone habitat called the West Grand Lake Community Forest Project was proposed at a town meeting, the measure passed unanimously, and the community committed to providing a $40,000 investment in the project. The land trust has noted that community support was gathered by supporting local tourism, recreation, and the timber-based economy upon which the community depends. Furthermore, this support for such activities allowed the land trust to build a good working relationship with local government, which was also seen as critical for the project. Furthermore, the DLLT has noted that given its lack of experience in the area of offsetting, the project would not have been possible were it not for its willingness to partner with a full service carbon developer. While the project developer took a portion of the registered compliance offsets, they found that it was well worth it for the value and expertise they brought to the project. They also Above all, the DLLT has remarked that community buy-in was critical for the project to move forward. noted that hiring a project developer could help a land trust overcome a limited staff, which would complicate the implementation of a successful project. Furthermore, the partnership with Finite Carbon was particularly critical when the Air Resources Board began to alter their standards. With their breadth of experience in carbon offsetting, Finite Carbon was able to navigate and manage the ARB s changes. In terms of ensuring that the project is maintained over the long-term, the DLLT has emphasized the importance of setting aside the necessary funds to monitor the project every six years over its 100-year lifetime. They determined this amount based on the initial tonnage that was sold from the first flush of offsets, and then calculated the 100-year maintenance costs associated with this amount. One challenge, however, that the DLLT encountered and will likely continue to face is that the ARB continues to alter its standard, thus resulting in unforeseen costs for both the land trust and the third party verifier. As a result, the DLLT has had to consistently review the amount of revenue set aside for the long-term maintenance of the project. Furthermore, the DLLT has stressed the importance of setting aside a substantial legal reserve in case of litigation. They estimate that this reserve is likely ~15% of total offset revenue. The DLLT has also stressed the necessity of having a strong legal team that is capable of defending the offsets, if necessary. They note that in operating in the compliance market, you are often selling to multi-billion dollar corporations that have large and powerful legal teams, making legal reserve funding all the more necessary. Overall, the DLLT found that the carbon offset project greatly complemented their existing working forest management protocols. Their ability to maintain active forest management while meeting offset requirements made the project mutually beneficial. Key to its success, however, was having enough acreage and forest stocking that allowed for both continued timber harvesting and carbon accumulation. They also noted that as stocking increases, the benefits of the project are likely to increase over time, as additional offsets become available for funding opportunities. Page 42 of 95

43 CASE STUDY 3: THE CONSERVATION FUND AND THE NATURE CONSERVANCY THE GARCIA RIVER FOREST CARBON PROJECT INTRODUCTION TO THE PROJECT In 2004, the Conservation Fund, the Nature Conservancy, the California State Coastal Conservancy, and the Wildlife Conservation Board came together to purchase a 23,780-acre parcel of former industrial forestland in the Garcia River watershed. Today, the Conservation Fund owns and manages the land while the Nature Conservancy holds a conservation easement on the property that protects the land from development and unsustainable harvest practices. Over its 100-year lifetime, it is estimated that the project will absorb and store 4.2 million metric tons of carbon by ensuring high forest growth rates that prioritize the development of larger, denser stands of redwood and Douglas fir. From the beginning, the Conservation Fund and the Nature Conservancy set out to restore the forest to improve biodiversity while providing economic benefits to the community. Knowing that Redwood forests can store more carbon than any other type of forest on the planet, the organizations quickly recognized the potential value of entering the carbon market. In 2007, the first light-touch timber harvest took place in the Garcia River Forest. This practice of individually harvesting inferior trees to allow for stronger trees to grow bigger was chosen for its ability to maximize carbon storage and accelerate the recovery of the forest ecosystem. Adopting this method of conservation-based forest management thus positioned the Garcia River Forest Project to enter the carbon market. In drafting their project plan, the Garcia River Forest Project followed the robust scientific measurement, quantification and monitoring protocols established by the California Climate Action Registry (CCAR now the Climate Action Reserve) a body that sets prescriptive standards for forest carbon projects. As a result, in February 2008, the Garcia River Forest Project received its first verification under the California Climate Action Registry, making it one of the first forests recognized by the CAR as a verified source of carbon credits supporting conservation management. The project was once again verified to the CAR standard in June This recent verification has brought the project s total verified carbon benefits to 1,219,681 metric tons, achieved between 2004 and Over its 100-year lifetime, it is estimated that the project will absorb and store 4.2 million metric Page 43 of 95

44 tons of carbon by ensuring high forest growth rates that prioritize the development of larger, denser stands of redwood and Douglas fir. The Conservation Fund has sold carbon credits for the amount of carbon that was projected to be captured by the forest through to This finance has enabled the Conservation Fund to repay loans that were taken out to protect the land. Furthermore, the additional revenue has allowed the organization to defer harvests when log prices are low and accelerate restoration activities in the forest. The organization s success with the Garcia Forest project has also led to additional projects, totalling more than 70,000 acres owned and sustainably managed on California s North Coast PROJECT STAKEHOLDERS ORGANIZATION ROLE CONTACT The Conservation Fund (TCF) Landowner and Project Developer Chris Kelly, California Program Director, ckelly@conservationfund.org, The Nature Conservancy (TNC) Project Partner, Funder and Easement Holder Louis Blumberg, Director, California Forest and Climate Policy, lblumberg@tnc.org, (415) Zoë Kant, Manager of Carbon Markets, zkant@tnc.org, (703) Eric Haxthausen, Senior Policy Advisor, Climate Change, ehaxthausen@tnc.org, (703) The California State Coastal Conservancy Project Partner and Funder Dick Wayman, Director of Communications, dick.wayman@scc.ca.gov, (510) The Wildlife Conservation Board Project Partner and Funder John P. Donnelly, Executive Director, john.donnelly@wildlife.ca.gov, (916) Scientific Certification Systems Third Party Verifier Christie Pollet-Young, Director GHG Verification, christie.pollet-young@scsglobalservices.com THE LOCATION The 23,780-acre Garcia River Forest is located in Mendocino County on California s north coast. The former industrial forest lies at the heart of the Garcia River watershed, an area of ecological significance that safeguards habitat for rare and threatened species. California s North Coast redwoods to which the Garcia River Forest belongs, is one of the rarest forest environments in the world. The region supports a wide array of species, including northern spotted own, red-legged frogs, mountain beaver, coho and Page 44 of 95

45 Chinook salmon and steelhead trout. Restoring aquatic habitat was an important goal of the Garcia River Forest project. Years of intensive logging had greatly reduced the forest canopy that shades and cools streams, and poorly constructed logging roads had left a build-up of sediment in the streams, making them shallower and less hospitable to salmon. With this, the project was conceived as a combination of stewardship activities, capable of restoring both the forests and streams of the region DEVELOPMENT OF THE CARBON MANAGEMENT PLAN The Garcia River Forest project was never developed purely for the sake of selling carbon offsets. Rather, the land was acquired with the intent of becoming a model site for demonstrating how selective logging could restore critical wildlife habitat and mitigate climate change in the process. However, as one of the most carbon-rich ecosystems on the planet, the intended management of the project aligned perfectly with the forest carbon opportunity. As the landowner and primary project developer, the Conservation Fund consulted the standards set out by, what was at the time, the California Climate Action Registry (now the Climate Action Reserve). In following these standards, TCF was able to determine the baseline and project scenarios. They found that their proposed management changes would result in substantial emission reductions and carbon stock enhancement. Furthermore, their conformance with Forest Stewardship Council (FSC) and Sustainable Forestry Initiative (SFI) standards provided them with the assurance that a third party verifier would likely find their existing management plan to be in accordance with the CAR standards VALIDATION AND VERIFICATION PROCESS While first verified and validated in 2008, the Garcia River Forest project was most recently verified to the CAR standard by thirdparty verifier, Scientific Certification Systems, in June To Image Source: Forbes Magazine Page 45 of 95

46 date, 1,219,681 metric tons of carbon dioxide have been verified, representing carbon benefits achieved from 2004 through SAMPLING METHODOLOGY Since 2004, a random sampling of 1,051 permanent inventory plots has been established and measured within the project area. Sampling has included above and belowground living biomass, standing dead biomass, and lying dead biomass carbon pools. Each year, new plots are added to this sampling to address disturbances that may have occurred since the previous audit. TCF s inventory system allows the organization to measure and monitor carbon stocks associated with the different forest types over time. Overall, the organization s sampling error is less than 5 percent with a 90 percent confidence rate. 3.2 THE BASELINE SCENARIO Guidance for determining the project s baseline scenario was provided by the CAR s Forest Project Protocol 2.1, which is based on the amount of timber harvest that is permitted under the California State Forest Practice Rules. In the case of the Garcia River Forest, it was found that all forested stands outside of the required no-cut riparian zones, and those serving as habitat for endangered species could be harvested. Furthermore, rising land prices in the Pacific Northwest increased the likelihood that the land would be clear-cut as forest owners are increasingly pressured to convert properties into other land uses, such as vineyards and residential subdivisions. According to the Rainforest Alliance, the determined baseline was that, harvests would follow an even-aged management plan, where tree stands were clearcut as they became 60 years or older, followed by single tree selection harvest every 10 to 20 years as stands regained commercial maturity post-clearcut. This baseline scenario would have resulted in 1,062,449 metric tons of carbon dioxide being stored on the property over a 100-year period. 3.3 THE PROJECT SCENARIO In similarly following CAR standards, it was found that the project scenario would result in a significantly greater amount of carbon being stored than in the baseline scenario. Uneven-aged management with selection harvest (i.e. tanoak and low-quality redwood and Douglas fir being harvested to make room for larger It was found that the project scenario would result in a significantly greater amount of carbon being stored than in the baseline scenario. Uneven-aged management with selection harvest was projected to result in double the amount of metric tons of carbon stored, for a total of 2,223,373 metric tons over 100 years. Page 46 of 95

47 trees to grow more quickly) was projected to result in double the amount of metric tons of carbon stored, for a total of 2,223,373 metric tons over 100 years. Under the project scenario, the harvest rate would be less than the growth rate for the first 80 years of the project, allowing surplus volume to accumulate. Thirty-five percent of the forestland was also placed in a no-cut zone. Furthermore, no-cut riparian zones were also increased beyond what they would have been under the baseline. This significant difference in the amount of carbon sequestered qualified the project for IFM status. 3.4 ADDITIONALITY Additionality refers to the amount of carbon dioxide that is captured, stored, or prevented from reaching the atmosphere under the project scenario, compared to what would happen under businessas-usual practices. In the case of the Garcia Forest River Project, the California Climate Action Registry s (CCAR) forest project protocols set a standardized baseline scenario by determining how much logging would be legally permitted under the California Forest Practice Rules. The project scenario of lighttouch logging was then compared to this baseline scenario to determine the greenhouse gas benefit of the project LEAKAGE In following the protocols set out by the CCAR (now the Climate Action Reserve), leakage was addressed by monitoring all of the logging that was done by the landowner, in this case being the Conservation Fund and the Nature Conservancy. This ensured that the landowner was not increasing logging elsewhere to compensate for their decreased logging at the project site. For this particular project, leakage was not of particular concern provided that the land was acquired and managed with the intent of restoring and rehabilitating the forest ecosystem. Furthermore, at the time of acquisition, the Conservation Fund did not own other forest property in California and therefore could not engage in any activity-shifting leakage PERMANENCE As required by the CAR standards, the Nature Conservancy holds a conservation easement on the property to ensure that the forest remains intact and managed sustainably for the project s 100-year duration, and beyond into perpetuity. This conservation easement means that even if the property is sold in the future, it will remain forestland forever. The CAR also requires project developers to account for any unplanned event that results in a loss of carbon stocks in their annual reporting. Any event that results in a loss of at least 20% of carbon stocks requires field sampling to occur within three years of the event to determine the extent of the loss. Page 47 of 95

48 On June 20, 2008, a lightning storm caused a fire in the Garcia River Forest. Fortunately, the Conservation Fund s forestry staff was able to detect and control the fire quickly, resulting in fewer carbon losses than what could have otherwise occurred. In total, 243 hectares were burned and mortality of overstory trees was estimated to be between percent. Following CAR standards, in late 2008, TCF s forestry staff measured the burned area as part of their annual inventory MONITORING AND REPORTING An independent third-party verification body, Scientific Certification Systems, verified the Garcia River Forest Project s initial carbon estimates using the CAR certification. SCS also certified the Garcia River Forest Project under the Forest Stewardship Council s standards for sustainable forest management. Following this verification, annual monitoring of the project area is required by the CAR to ensure that the projected carbon is being stored. A third party will also verify the estimated carbon benefits at least every 5 years, at which point additional verified carbon credits will be issued to the project. This project in particular was unique in that a research collaboration was established between the Nature Conservancy, Carnegie Institution of Washington, Colorado State University, Stanford University, and the University of California, Berkeley. Together, this group established a network of permanent forest inventory plots to track carbon over time. This project thereby demonstrates the potential and merit of establishing strong research partnerships to achieve the monitoring and reporting obligations that landowners must meet SECUREMENT OF CONSERVATION EASEMENTS To ensure that the land is protected from development, the Nature Conservancy holds a conservation easement on the property. This easement protects the forest from unsustainable harvest practices and designates one third of the property as an ecological reserve. The easement does, however, allow for certain harvesting activities to continue. Under the forest s light-touch management program, only onequarter to one-third of the total timber volume in a stand may be removed in order to help restore the ecological integrity of the forest over time. Page 48 of 95

49 5.0 - BEST PRACTICES AND LESSONS LEARNED The Garcia River Forest Project was one of the first projects in California that was able to prove that improved forest management can result in measurable carbon benefits while restoring land to its historical ecological composition. In the case of this project specifically, the IFM practices that were necessary to enter the carbon market also resulted in improved water quality and facilitated old-growth forest conditions. The project greatly demonstrated how biodiversity benefits can be achieved through an IFM strategy that is focused on increasing carbon sequestration. The unplanned fire disturbance that occurred in June 2008 tested the safeguards in place for the project. Fortunately, both the project s environmental integrity and verified carbon credits were not threatened by the disturbance because appropriate safeguards were in place. This incident shows that effective monitoring and appropriately sized buffer pools are critical to ensure the credibility of a carbon project. The unplanned fire disturbance that occurred in June 2008 tested the safeguards in place for the project. Fortunately, both the project s environmental integrity and verified carbon credits were not threatened by the disturbance because appropriate safeguards were in place. This incident shows that effective monitoring and appropriately sized buffer pools are critical to ensure the credibility of a carbon project. Image: Logging crew at work on the Garcia River Forest. Photo by Whitney Flanagan Page 49 of 95

50 CASE STUDY 4: THE NATURE CONSERVANCY PENNSYLVANIA WORKING WOODLANDS PROGRAM INTRODUCTION TO THE PROGRAM In 2009, the Nature Conservancy and carbon project developer Blue Source came together to create the Working Woodlands program in Pennsylvania. The Working Woodlands is a forest conservation program that combines certified forest management with forest carbon offsetting to increase private forest conservation in the state of Pennsylvania. Together, the organizations work with private woodlot owners with The Working Woodlands is a forest greater than 1,000 acres of contiguous forestland to conservation program that combines certified achieve major conservations goals and deliver forest carbon payments throughout the state. With over 70 forest management with forest carbon percent of Pennsylvania s forests being privately held, offsetting to increase private forest the program is viewed as a means to protect these conservation in the state of Pennsylvania. lands from fragmentation, land-use conversion, and unsustainable harvesting practices. The program also Together, the organizations work with private aims to connect landowners in the region with woodlot owners with greater than 1,000 acres professional forestry consultants who can help to develop forest management plans that prioritize the of contiguous forestland to achieve major biological health and diversity of the forests. conservations goals and deliver forest carbon payments throughout the state. The Nature Conservancy s Pennsylvania Forest Conservation Program is a certified Forest Stewardship Council (FSC) group manager, which allows the Conservancy to provide FSC-certified planning and management services to private woodlot owners. The Conservancy works with certified private forest consultants who conduct rigorous forest inventories and develop FSC-certified management plans for landowners who enrol in the program. These management plans are then strengthened with long-term management agreements, such as working forest conservation easements, which ensure the private lands are not converted to non-forest use and that the management of the forest continues to meet FSC standards over the long-term. As a conservation organization, the Nature Conservancy of Pennsylvania holds these easements on landowners properties. Forests that participate in the program are then certified and managed under the Conservancy s FSC certificate, meaning that any products that are produced from the Working Woodlands properties will be FSC certified. Page 50 of 95

51 1.1 - PROGRAM STAKEHOLDERS ORGANIZATION ROLE CONTACT Private Woodlot Owners (with forestlands > 1,000 acres) The Nature Conservancy (TNC) Blue Source Landowners Project Partner, Funder and Easement Holder Forest Carbon Offset Project Developer Josh Parrish, Director of the Working Woodlands Program, josh_parrish@tnc.org, (717) Joe McGurk, Blue Source Project Developer, jmcgurk@cpjcom.com, (203) x PROGRAM LOCATIONS Eligible locations for the Working Woodlands initiative in Pennsylvania include: North Central Highlands Portions of Lycoming, Clinton, Tioga, Potter, McKean, Cameron, Elk, Clearfield and Centre Counties Endless Mountains Portions of Lycoming, Tioga, Bradford, Sullivan, Wyoming and Luzerne Counties Bald Eagle/Tuscarora Portions of Clinton, Lycoming, Centre, Union, Snyder, Huntingdon, Mifflin, Juniata, Perry, and Franklin Counties Northeast PA Portions of Pike, Monroe, Carbon, and Luzerne Counties INITIAL OUTREACH AND OPPORTUNITY EVALUATION For entry into the Working Woodlands program, landowners work alongside the Conservancy s consulting foresters to determine whether their goals and objectives align with the program s. The Conservancy and Blue Source then provide the landowner with a Working Woodlands opportunity summary that is tailored to the landowners property and management objectives. This summary is intended to provide the landowner with an overview of the potential benefits of the partnership. Following this initial outreach phase, a rigorous forest and carbon inventory of the property is conducted to determine current forest conditions. This inventory complies with the FSC s standards, which in turn qualifies landowners for carbon credits and other ecosystem service markets. From the inventory, Page 51 of 95

52 landowners are provided a report that summarizes the current conditions of their forest, the forest product and carbon volumes, and the regeneration potential of their property. Based on this inventory, the Conservancy then develops a custom FSC-certified forest management plan that covers a 10-year duration. The plan provides the landowner with detailed management guidelines that will help them to achieve their objectives while remaining FSC certified. The Nature Conservancy covers the cost of creating this management plan and in return the landowner must sign a long-term working lands conservation easement that restricts development of the property. In terms of carbon offsetting, Blue Source develops the projects to generate offset payments for the program s participants. As with Finite Carbon and other forest carbon project developers, Blue Source works alongside the landowner through all phases of the project development process. From the consulting forester s inventory of the land, they are able to determine both the baseline and project scenarios for the given project, and are then able to register the project with an appropriate offset program. The program is intended to eliminate out-of-pocket and upfront costs for landowners with Blue Source providing the financing for the development of carbon credits VALIDATION AND VERIFICATION PROCESS In the case of the Working Woodlands program, the forest carbon offsets that are created by Blue Source follow the Verified Carbon Standard (VCS), and are typically verified by a third party verification body such as Rainforest Alliance. As offsets that are being sold on the voluntary market, this third party verification is not typically required, yet would likely result in higher revenues for the Nature Conservancy and the private landowner. In this case, Rainforest Alliance follows its usual approach for validation and verification, reviewing both the project documents and conducting a field audit of the property by sampling from forest inventory plots. Interviews with stakeholders are also typically conducted to inform the verification process. Blue Source markets the emissions reductions generated by the project for ten years following the initial registration. Following this ten-year term, the landowner may then choose to continue verifying, registering and selling credits either on its own, with Blue Source, or with another project partner. This will be for the remainder of the year crediting period that is allowed under the Verified Carbon Standard (VCS) or Climate Action Reserve (CAR) PROGRAM COSTS AND THE DISTRIBUTION OF REVENUE AND RISK The Working Woodlands Program is designed for there to be no out-of-pocket costs for landowners to enter into the program. Instead, the Nature Conservancy covers the costs of creating the management plan and pays for the easement that is placed on the property. Blue Source subsequently works with landowners to market and sell carbon credits that are created on the property. The revenue from these Page 52 of 95

53 credits is then used to cover the costs of the Nature Conservancy s forest and carbon inventory, the 10- year forest management plan, enrolment in the FSC certification, and the initial costs associated with accessing the voluntary carbon market. Following this, landowners then earn the majority share of forest carbon revenues, as well as any profits that are earned from products sold off their land. For instance, in the case of a project that was developed for the Bethlehem Authority, Blue Source distributed 70% of the net carbon revenue to the Authority, which was the gross revenue less reimbursement of the thirdparty expenses paid by Blue Source. The FSC certification can often provide landowners with improved market access and increased revenue. However, the Forest Management Plan is only enrolled in the Conservancy s FSC group certificate for the duration of the Carbon Development and Marketing Agreement, which lasts for a minimum of 10 years. In certain cases private companies have covered the project development costs, as was the case with the Bethlehem Forest project. Overall, the Working Woodlands project is intended to give landowners additional financial incentive to manage their forests in a sustainable manner. In terms of risk, Blue Source and the Nature Conservancy assume all risk in case the investments in offsetting are not recouped from carbon revenue due to project eligibility, volume, or marketability issues. However, the private landowner assumes the risk that if management practices implemented during the term of the Carbon Development and Marketing Agreement diverge from the Forest Management Plan (i.e. if carbon volumes fall below a pre-set threshold), it will trigger compensation to Blue Source in an amount equal to Blue Source s anticipated share of net revenue. Page 53 of 95

54 WORKING WOODLANDS PROJECT: BETHLEHEM, PENNSYLVANIA PROJECT STAKEHOLDERS * See Appendix 3 for the Working Woodlands Term Sheet of the Bethlehem Authority The Nature Conservancy, Project Partner: Josh Parrish, Direct of WWP, josh_parrish@tnc.org (717) Bethlehem Authority, Landowner: Stephen Repasch, Executive Director, srepasch@bethlehem-pa.gov (610) Blue Source, Carbon Offset Project Developer: Joe McGurk, jmcgurk@cjpcom.com (917) Rainforest Alliance, Third Party Verifier: Lawson Henderson, lhenderson@ra.org (507) In 2011, following over a year of negotiations, the Bethlehem Authority of the City of Bethlehem entered into a conservation agreement with the Nature Conservancy as part of their Working Woodlands Program. The outcome of the arrangement was the development of a comprehensive FSC-certified forest management plan for a 17,591-acre split parcel of land that is located in Monroe and Carbon Counties. The overarching goals that informed the management activities on the Bethlehem Authority s properties included: Preserving drinking water quality by maintaining and improving watershed security; Improving the capacity of the watershed to produce financial return by enhancing its long-term value and; Promote ecosystem health, diversity and sustainable management by complying with FSC s standards. The project s forest management plan was developed to guide the management activities in both the Wild Creek and Tunkhannock Creek Watersheds properties that are both owned and managed by the Authority. In belonging to the Working Woodlands Program, both properties management plans were developed in accordance with the FSC U.S 2010 National Standard, and received FSC certification under the Nature Conservancy s group certificate. Following this, the Authority worked alongside Blue Source who ensured that the properties were verified to the Voluntary Carbon Standard (VCS), allowing them to be sold on the voluntary carbon market. By sequestering carbon through to 2014, the Authority has received credits for revenue over $320,000 from Chevrolet Corporation. They have also received a commitment from Disney Corporation to buy carbon credits through to The carbon credits sold from the properties were verified by Rainforest Alliance in 2012, with the assessment report being finalized in In reviewing the forest management plan, the Rainforest Alliance noted that the project would, extend the rotation age on the property by approximately 70 years compared to Common Practice, thereby reducing carbon emissions and increasing carbon sequestration. The baseline scenario for comparable forestland involved clear and patch-cut removals of timber, with a re-entry schedule of 30 years or less. With this, it was found that the amount of carbon sequestered under the project scenario greatly exceeded the amount that would be sequestered in the absence of the project. It was also found that the project activity would employ a sustainable level of harvesting (~165 acres per annum) that is secured under a conservation easement held by the Nature Conservancy. According to the FSC-certified management plan, the tract s plantations will be managed to optimize stocking, improve growth, and extend rotations. Overall, in conducting a field assessment and a review of project documentation, Rainforest Alliance found that the project would likely result in an estimated 943,370 tonnes of CO 2 equivalent in emissions reductions over its lifetime, and an average annual amount of emission reduction of 24,189tCO 2 e. Page 54 of 95

55 BETHLEHEM FOREST PROJECT CONSERVATION EASEMENT The Nature Conservancy holds a 60-year term working lands conservation easement on the property. The intention of the easement is to conserve the property and ensure that its forest resources are sustainably managed in perpetuity. According to the Bethlehem Authority, the easement provides that: Image Source: Blue Source The properties will be retained predominantly in their natural, scenic, and forested condition, free of additional forest fragmentation or additional development; any rare plants, animals, or plant communities will be protected; and any use that will significantly impair or interfere with the conservation values or interests of the Authority will be prevented. The easement will assure long-term, professional, independent third-party certified forest management of the property for the production, management and harvesting of economically valuable timber and related forest products while ensuring the conservation values are protected or enhanced. The easement also ensures the protection of forest and other natural resources and allows for the potential of economic return from the protection, management, maintenance, and improvement of ecosystem services provided by the property, including but not limited to the protection of water quality and quantity, carbon sequestration, and the protection of wetlands, rare species and natural communities. In validating and verifying Bethlehem s carbon credits, the Easement was one of the project documents reviewed by the Rainforest Alliance to ensure that the project was in compliance with the VCS requirement for project permanence. The full conservation easement can be viewed in the appendix of this report. Page 55 of 95

56 APPENDIX 1 THE WHAELGHINBRAN FOREST WORKING CONSERVATION EASEMENT THIS CONSERVATION EASEMENT AGREEMENT made as of this day of, BETWEEN: Community Forests International, of 10 School Lane, Sackville, NB, E4L 3J9, hereinafter called the "Grantor" -and- The New Brunswick Community Land Trust Inc./La Société des terres communautaires du Nouveau-Brunswick Inc., a body corporated under the laws of the Province of New Brunswick, hereinafter called the "Trust" WHEREAS the Grantors are the owners in fee simple of certain lands and premises located in the County of Kings in the Province of New Brunswick and more particularly described in Schedule "A" attached hereto (hereinafter called the "Land"); and WHEREAS the Trust is a company incorporated under the Companies Act of the Province of New Brunswick for the following purposes a) To maintain tracts of land in perpetuity in New Brunswick as productive forest land and farm land that are managed on an ecologically sustainable basis, as well as scenic and natural areas to ensure their conservation for present and future generations, and in furtherance of the same: i) To acquire and own lands. ii) To develop, enter into, manage, monitor and enforce conservation easements and development agreements. iii) To educate and inform landowners and the general public of conservation options; and b) To demonstrate and publicize the benefits of the conservation and ecologically sustainable use of productive forestland, farm land and scenic areas; and WHEREAS the Trust is a non-profit corporation which is qualified to hold conservation easements under Section 5 (d) of the Conservation Easements Act, S.N.B 1998, c.c (the "Act"). WHEREAS this Conservation Easement is a voluntary agreement entered into by the owners and the holders under the provisions of the Act. ARTICLE 1 PURPOSE 1.1 This Easement shall be granted for the following purposes: Page 56 of 95

57 a) the protection, enhancement and restoration of natural ecosystems; b) the protection, and restoration of wildlife habitat; and c) the conservation and protection of soil, air, land and water d) the demonstration that the maintenance of ecological values is compatible with ecologically based harvest and management. ARTICLE 2 TIME 2.1 This Easement is granted in perpetuity. ARTICLE 3 LAND USE PRACTICES 3.1 All woodland management shall be based on the principles and structure outlined in the Management document hereto attached as Schedule "B", with the addition of two persons who shall be named by the owner of the land. 3.2 (A) The land cannot be sub-divided (B) The construction of new domiciles, seasonal or year-round, may be erected subject to the approval of the Management Committee outlined in Schedule C. 3.3 (A) The land shall not be used for commercial purposes, unless approved by the Management Committee. The Management Committee should look upon the following activities approvingly; organic farming, restoration forestry, environmental education, carbon offsetting and alternative energy. Any commercial agriculture production will have to be certified organic, according to the regulations of Canada. Non-commercial agriculture activities are excluded from this requirement but should still follow the principals of organic farming. Nothing in the above shall preclude the development of a by-pass pond, not to exceed two (2) acres in size. 3.4 (A) The existing roads and trails may be maintained and improved. However, new roads and trails shall be built only in cases where the forest management committee (see Schedule "B") deems it appropriate. This limitation is not meant to deny reasonable driveway construction to the permitted domicile. 3.5 Nothing in Schedule B shall prohibit the introduction of native species that were extirpated by 19 th and 20 th century agricultural practices. 3.6 The commercial extraction of mineral shall be prohibited. Page 57 of 95

58 ARTICLE 4 RIGHTS AND PRIVILEGES 4.1 The Grantor reserves the right to continue to use the land for all other purposes not inconsistent with this conservation easement. 4.2 The Grantor shall not be in breach of this Agreement if any act or thing contrary to the provisions of this Agreement occurs which is beyond the reasonable control of the Grantor, including without limitation damage caused by fire, flood, earthquake, and damage occasioned by trespassers or others on the Land. The Grantor will take reasonable steps to attempt to halt or remedy any act or thing done or damage occasioned by trespassers or others acting without consent of the Grantor within a reasonable time upon the Grantor learning of the same. 4.3 The Grantor must notify the Trust if they become aware of any substantial damage or destruction to the land or of any action taken that does not comply with the terms of this conservation easement. 4.4 The Trust may publicize the existence of the Easement as it shall see fit. ARTICLE 5 ACCESS 5.1 No access by the general public to the Land shall be permitted at any time except with the expressed prior permission of the Grantor and the Trust. 5.2 The Trust, its officers, employees and agents have the right to enter upon the land at reasonable times, on reasonable notice and in a reasonable manner for the purpose of inspecting the land to ensure compliance with the terms of this conservation easement. ARTICLE 6 OBLIGATIONS 6.1 The Grantor will pay all taxes, rates and fees and all charges for utilities public or otherwise, the non-payment of which may give rise to a lien or charge on the land. 6.2 The Grantor will be responsible for all costs and responsibility for the operation, maintenance and upkeep of the land. 6.3 The Grantor shall carry and maintain adequate comprehensive general liability coverage with the holder being named insured there under and provide the Trust with evidence of such coverage on a continuing basis. Page 58 of 95

59 6.4 The Trust or its authorized representatives will carry out an inspection of the land at least once a year to ensure compliance with this conservation easement. If the Trust becomes aware of any violation of the terms of this conservation easement, the Trust must investigate the situation without delay. ARTICLE 7 NOTICE 7.1 Any notice, demand or request which either party gives to the other party shall be properly given if served personally or mailed by prepaid registered mail to the other party at their respective addresses. The respective addresses of the parties for such purposes presently are as follows: The Grantor: Community Forests International 10 School Lane, Sackville, NB E4L 3J9 info@forestsinternational.org The Trust: The New Brunswick Community Land Trust 10 School Lane, Sackville, NB E4L 3J9 nbclt@nbnet.nb.ca The parties must notify each other immediately, in writing, of any changes of address from those set out above. ARTICLE 8 COSTS 8.1 In the event that a dispute arises between the parties hereto each party shall be responsible for its own legal fees, court costs and all other costs and expenses, which may result from any such dispute. ARTICLE 9 DEFAULT 9.1 In the event of a breach of or default in the obligations of either the Grantor or the Trust the other party may take any action available to it by law shall first give to the defaulting party notice of the default and sixty (60) days (unless in the opinion of the other party because of the nature of the default or other circumstances it is not feasible to delay for the notice period) to remedy the situation or make arrangements satisfactory to the other party to remedy the situation. If the default is not remedied or arrangements made either party, in addition to its own rights, may remedy the default as provided under articles 9.2 and 9.3 Page 59 of 95

60 9.2 If notice of default has been given pursuant to article 9.1 by the Trust to the Grantor and the default has not been dealt whit in the period outlined in 9.1, the Trust may give the Grantor a further notice setting out particulars of the Trust s estimated maximum costs of remedying the default. The Grantor shall have ten (10) days from receipt of such notice to remedy the default or make arrangements satisfactory to the Trust for remedying the default, and if the Grantor does not do so, the Trust, by itself, its agents or contractors, may enter upon the land to cure the default. The Grantor shall reimburse the Trust for all costs and expenses incurred. Such costs and expenses incurred by the Trust shall, until paid, be a debt owed by the Grantor to the Trust. 9.3 If notice of default has been given pursuant to article 9.1 by the Grantor to the Trust and the default has not been dealt whit in the period outlined in 9.1, the Grantor may give the Trust a further notice setting out particulars of the Grantor s estimated maximum costs of remedying the default. The Trust shall have ten (10) days from receipt of such notice to remedy the default or make arrangements satisfactory to the Grantor for remedying the default, and if the Trust does not do so, the Grantor, by itself, its agents or contractors, may enter upon the land to cure the default. The Trust shall reimburse the Grantor for all costs and expenses incurred. Such costs and expenses incurred by the Grantor shall, until paid, be a debt owed by the Trust to the Grantor. ARTICLE 10 GENERAL 10.1 Notice of change of interest: The Grantor shall give notice to the Trust of any intended change in the ownership of the land. Any such notice shall include the name and address of the new party and shall be given at least ten (10) days prior to change of interest Priority of interest of the Trust: The Grantor shall not transfer or permit any mortagee to transfer any ownership interest in the Land without requiring the transferee to acknowledge in writing the priority of this Easement Severability : All provisions of the Easement including each of the restrictions shall be severable and should any be declared invalid or unenforceable, the validity and enforceability of the remaining provisions shall not be affected thereby Applicable law : This Easement shall be governed and interpreted in accordance with the laws of the Province of New Brunswick Assignment: This Easement may be assigned by the Trust, but only to an organization that is qualified to hold Easements under the Conservation Easements Act of New Brunswick or any successor legislation. As a condition of such assignment, the Trust shall require that the conservation purposes that this Easement is intended to advance continue to be carried out. Page 60 of 95

61 10.6 Amendments: This Easement shall be amended only by written agreement between the Grantor and the Trust, their respective administrators, executors and successors Enforcement: The obligations in this conservation easement may be enforced by the holder, the owners and any subsequent owners of the land as provided in the Act. Enurement - This conservation easement shall ensure to the benefit of and be binding upon the owners, subsequent owners of the land, the holder and the successors and assigns of the holder DATED: June 16, SCHEDULE B Sustainable Woodlot Management Purposes Covenants & Easements This Easement shall be granted for the following purposes: a) the protection, enhancement and restoration of natural ecosystems; b) the protection, and restoration of wildlife habitat; and c) the conservation and protection of soil, air, land and water d) the demonstration that the maintenance of ecological values is compatible with ecologically based harvest and management Time This easement is granted in perpetuity. Land Use Practices All woodland management shall be based on the principles and structure outlined in the Proposal ll Management document hereto as Schedule C, with the addition of two persons who shall be named by the owner of the land. The land cannot be sub-divided however buildings may be erected on the land provided they are approved by the Management Committee described in Schedule C. The land shall not be used for commercial purposes, unless approved by the Management Committee. The Management Committee should look upon the following activities approvingly; organic farming, restoration forestry, environmental education, carbon offsetting and alternative energy. Any commercial agriculture production will have to be certified organic, according to the regulations of Canada. Non-commercial agriculture activities are excluded from this requirement but should still follow the principals of organic Page 61 of 95

62 farming. Nothing in the above shall preclude the development of a by-pass pond, not to exceed two (2) acres in size. The commercial extraction of mineral shall be prohibited. The existing roads and trails may be maintained and improved. However, new roads and trails shall be built only in cases where the forest management committee (see Schedule B ) deems it appropriate. This limitation is not meant to deny reasonable driveway construction to a permitted domicile. Nothing in Schedule B shall prohibit the introduction of native species that were extirpated by 19 th and 20 th century agricultural practices. SCHEDULE C Whaelghinbran Farm Management Committee There shall be a management committee who shall operate through consensus. This committee will be composed of Susan Tyler, one woodlot owner who is a member of the SNB Wood Co-op who shall be selected with the mutual consent of Susan, one representative from the civil Parish of Cardwell who shall be selected with the mutual consent of Susan, one representative of CCNB, and one representative of NBCLT for a total membership of six, plus two who shall be selected by the new owner / purchaser. The appointment of both the representative of SNB and the local Cardwell representative shall in the time after the demise or withdrawal of Susan be subject to the mutual consent of CCNB or its designated successor. This committee will determine annual activity plans including harvest schedules on the woodlot. At all times these annual plans shall be such that they result in a positive cash balance at the end of the year. Not withstanding the above, the new owners/purchasers may allow an alternate plan which does not meet the above requirements. Upon the demise, retirement or incapacity Susan her positions will be assumed in the first instance by a general nominee of CCNB and in the second instance by a specific nominee of CCNB who shall reside locally, to wit, within 30 kilometers of the woodlot. Should SNB or CCNB cease to function each shall before winding up its affairs specify an organization of similar intent and purposes to maintain its role on this management committee. The committee shall at all times be guided by and stay within the framework of objectives and activities demonstrated by Clark and Susan over the past 30 years. These objectives shall include but not be limited to the development of multi aged multi specied stands, (similar in composition to the pre European forest of southern NB). However, the management style must at the same time center on continual harvest of trees in a similar style to that practiced by Clark and Susan over the past thirty years. i.e. there shall be no large clear-cuts (over ½ acre) but there shall be a harvest at least once in 5 years. The committee shall use local contractors and workers in carrying out its harvest and other management activities. Page 62 of 95

63 APPENDIX 2 THE FARM COVE COMMUNITY FOREST PROJECT AGREEMENT LAND FOR MAINE S FUTURE FUND PROJECT AGREEMENT (Pursuant to P.L c.514, Sec. A-6) Cooperating Entities: Downeast Lakes Land Trust New England Forestry Foundation, Inc. Project Name and Location: Farm Cove Community Forest Farm Cove Tract and and McLellan Cove Tract, T5 and T6 ND BPP, Washington County Designated State Agency: Maine Department of Conservation Premises Covered by this Agreement: Those portions of T5 and T6 ND, Washington County, Maine, depicted on Exhibit A. Scope (Description of Project): New England Forestry Foundation, Inc, ( NEFF ) and Downeast Lakes Land Trust ( DLLT ) are, jointly and severally, the buyers under an option agreement with Typhoon, LLC, as seller ( the Option ). The Option granted NEFF and DLLT the right to acquire three tracts: the Fourth Machias Lake Tract (purchased in December 2004 with an LMF contribution of $520,000), and two additional tracts, the Farm Cove Tract and the McLellan Cove Tracts, which together constitute approximately 15,250 acres of T5 and T6 ND and are depicted on Exhibit A (the Premises ). As part of their internal project structure, NEFF and DLLT have agreed that they will direct Typhoon to deed the Premises at the May 2005 closing directly to DLLT, and immediately upon receipt of title, DLLT will convey a working forest conservation easement to NEFF on the entire Premises. The Premises lies within the headwaters of the Machias and St.Croix Rivers. The primary use value of the land is the protection of outdoor recreational opportunities along the extensivee undeveloped lake and river frontage and use of the interior for low-impact recreation, hunting, biking, hiking, and other traditional uses for local residents and visitors. As mentioned above, DLLT will manage the Premises as working forest, subject to the terms and Page 63 of 95

64 conditions of working forest conservation easement held by NEFF. DLLT has committed to green certification under the Forest Stewardship Council program or its equivalent for the remaining area of the Premises subject to the working forest conservation easement. This Project Agreement will be recorded at the Washington County Registry of Deeds prior to the deed from Typhoon LLC to DLLT. The conservation easements will be subordinate to this agreement. The easements have been reviewed and are acceptable under the terms of Part II, section H of this agreement. Project Cost: Farm Cove and McClellan Cove Tracts - $7,350,000 LMF Contributing to Cooperating Entity: $730,000 Cooperating Entity Match (as of agreement date): $6,620,000 The following are hereby incorporated into this Agreement: 1. General Provisions 2. Project Application and Attachments by reference 3. Project Boundary Maps depicting boundaries of Premises 4. Other: Conservation Easement to NEFF referenced above The Land for Maine s Future Board, represented by its Chair, (hereinafter LMFB) and the State of Maine, Department of Conservation, represented by its Commissioner, as the Designated State Agency (hereinafter DSA), and the Cooperating Entity, mutually agree to perform this Agreement in accordance with Title 5, Maine Revised Statutes Annotated, Section 6200 et seq., as amended, and augmented by P.L c. 514, Sec A-6, and with the terms, promises, conditions, plans, specifications, estimates, procedures, project proposals, maps, assurances, and certifications incorporated herein by reference and hereby made a part hereof. Subject to the terms hereof and to the availability of funds for this purpose, LMFB hereby promises, in consideration of the promises made by the Cooperating Entity herein, to obligate to the Cooperating Entity the amount of money referred to above, and to tender to the Cooperating Entity that portion of the obligation which is required to pay the LMFB s share of the costs of the above described project. The Cooperating Entity hereby promises, in consideration of the promises made by the LMFB herein, to provide the matching funds and implement the project described above in accordance with the terms of this Agreement. The following special project terms and conditions are added to this Agreement: Page 64 of 95

65 1. Subdivision. The Project Area, including the Premises subject to this Agreement and the property known as the Fourth Machias Lake Tract acquired by Downeast Lakes Land Trust with an LMF contribution and described in a deed recorded December 17, 2004 in Washington Country Registry of Deeds Book 2959, Page 130 and which is subject to a Project Agreement recorded in the Washington County Registry of Deeds in Book 2959, page 118 (hereinafter the Project Area ), including any structures located thereon, must remain as a single parcel, under one ownership, and may not be divided into parcels or lots, except for boundary adjustments to resolve bona fide boundary disputes or as may be approved under Part II, section H subsection (i) must find that the proposed division of the Project Area is consistent with the purpose and objectives of the project as defined in this agreement and its attachments. 2. Transfer. The Premises may not be sold or transferred without prior written Designated State Agency, and then only to a federal, state, or local government, qualified nonprofit organization which is a qualified organization under Section? United States Revenue Code, and a holder under Title 33, Maine Revised Statutes Annotated, Section 476 (hereinafter Qualified Holder ), subject to the condition that the qualified organization expressly agrees to assume the rights and obligations of the Cooperating Entity provided for by this Agreement. 3. Fees. Any entrance fees or user fees for the public s use of the Premises must be approved in advance and in writing by the DSA to ensure that such fees are neither discriminatory nor exclusionary. 4. Management Plan. The Cooperating Entity shall develop and implement, subject to DSA approval, a management to guide management activities on the Premises incorporating the following requirements: a) Sustainable Forestry. If undertaken,, commercial forest management must be designed and implemented to assure a continuing, renewable and long-term source of forest products, to maintain a healthy and biologically diverse forest that supports a full range of native flora and fauna, and to limit adverse aesthetic and ecological impacts, particularly in riparian areas, high elevation areas, and public vistas. b) Public Recreational Access. The Cooperating Entity shall ensure that the Premises are open to the general public. Traditional forms of low-intensity public recreation shall be allowed including hunting, fishing, trapping, hiking, nature observation, picknicking, boating, cross country skiing, snow-shoeing, bicycling, horseback riding, swimming, primitive non-commercial camping,, and outdoor education and nature study, including scientific and archaeological research and observation, and Page 65 of 95

66 enjoyment of open space. The Cooperating Entity shall not prohibit hunting, fishing, or trapping on the Premises, except the two administrative and storage structures permitted within the designated portion of the Premises subject to, and in accordance with, the working forest conservation easement. This Agreement may be signed in any number of counterparts and by each party on a separate counterpart, each of which when taken together shall be deemed an original for all purposes. In witness whereof, the parties hereto have executed this Agreement as of the day of May, THE LAND FOR MAINE S FUTURE BOARD By: Page 66 of 95

67 APPENDIX 3 THE BETHLEHEM AUTHORITY WORKING WOODLANDS TERM SHEET Background BETHLEHEM AUTHORITY CARBON AND MONROE COUNTIES, PENNSYLVANIA WORKING WOODLANDS TERM SHEET The Bethlehem Authority (Authority) seeks to provide excellent quality water for its consumers and has interest and responsibility to optimize the financial performance of the City of Bethlehem s Water System; and The Authority seeks to protect and sustainably manage its +/-12,000 acre Wild Creek Watershed in Carbon and Monroe Counties and +/- 8,500 acre Tunkhannock Creek Watershed in Monroe County; and The mission of The Nature Conservancy (Conservancy) is to preserve the plants, animals and natural communities that represent the diversity of life on Earth; and The Conservancy s Working Woodlands Program is designed to meet the above goals by providing the Authority with Forest Stewardship Council (FSC) certification for improved forest product marketability, options for long-term land protection, restoration and management of exceptional ecological and economic values of priority forests and new sources of revenue from carbon credit sales; and The Authority and the Conservancy wish to enter into a relationship pursuant to which the Conservancy will introduce Blue Source, LLC (Blue Source), with whom the Conservancy s Pennsylvania Chapter has a carbon marketing agreement, to the Authority for the purpose of developing and marketing carbon credits on behalf of the Authority. Therefore, the Conservancy and the Authority intend to agree as follows: The Conservancy will seek to (a) maintain and improve high quality ecological and economic values associated with forests, waters, and barrens on the Authority s properties, and (b) maintain and improve the rate and amount of carbon sequestered on the Authority s properties at no out-of-pocket project development costs to the Authority by: Page 67 of 95

68 Conducting a rigorous inventory of property resources and collecting all data necessary to sufficiently characterize and manage ecological and economic values including forest carbon; Analyzing inventory data and preparing the initial ten (10) year Forest Stewardship Council (FSC) certified Forest Management Plan see Section 2 (note: the Conservancy may, at its sole discretion, cooperate and/or contract with the Authority s forester to conduct the forest inventory and prepare the Forest Management Plan); Enrolling the Forest Management Plan in the Conservancy s FSC group certificate allowing for FSCcertified wood product revenue streams (solid wood, woody biomass, carbon, etc.) for the duration of the Carbon Development and Marketing Agreement (10 year minimum initial period); and Assisting the Authority with major aspects of FSC management plan implementation including but not limited to: identification of preferred service providers, coordination of access to state and federal costshare programs, ongoing interaction and forestry education with the Conservancy s forestry staff and cooperating network of service providers. Yearly Relationship Summary At least one annual meeting between the Authority and the Conservancy is required to review the previous year s forest management activities and activities for the upcoming year and to adjust the Forest Management Plan as appropriate. Additional meetings with the Authority, and the Authority s land management representatives (e.g., forester, logger and other service providers) will be conducted with the Conservancy as needed to ensure successfully compliance with the Forest Management Plan and FSC forest certification standard. No other meetings will be required unless specific review and approval are necessary per the Working Forest Management Agreement. The Authority is invited and encouraged to request the Conservancy s assistance with forest and land management decisions and activities as it deems appropriate and necessary (e.g., assistance with stakeholder outreach and meetings, creation of maps for recreational users, development of publications and outreach materials, etc). No meetings or approvals are required for Authority maintenance, improvements and general operation of the Authority public water systems. Proposed Commercial Terms The Conservancy will provide all FSC management planning and certification services, and Blue Source all carbon development and marketing services (as described in the attached Carbon Opportunity Summary ), at no cost to the Authority in exchange for sharing in future carbon revenues. We will formalize this relationship in two contractual agreements: a Carbon Development and Marketing Agreement and a Working Forest Management Agreement. 1. Carbon Development and Marketing Agreement: This agreement with Blue Source allows Blue Source the right to develop and sell all carbon credits generated by the project and to distribute the proceeds among the Authority, the Conservancy and Blue Source. Key terms include: Page 68 of 95

69 1) Term Blue Source will have the right to market emissions reductions generated by the project for ten years following first registration of credits. This includes all historic vintage tonnes associated with the project. Following this ten year term, the Authority may choose to continue verifying, registering and selling credits (on its own, with Blue Source, or with another partner), for the remainder of the year crediting period allowed under the Voluntary Carbon Standard (VCS) or Climate Action Reserve (CAR). Blue Source will advise the Authority on selection of a crediting period that optimizes for carbon revenues. 2) Scope Forest and soil carbon projects on Authority property. 3) Services Blue Source will lead Tasks I-III as described in the attached Carbon Project Opportunity Summary order to develop and market emission reductions. The Conservancy will lead Task IV. 4) Project Financing Blue Source and the Conservancy shall finance all third party expenses and internal costs associated with Tasks I-IV as described in the attached Carbon Project Opportunity Summary, and assume all risk that these investments are not recouped from carbon revenue due to project eligibility, volume or marketability issues. 5) Risk Allocation Blue Source assumes all risk that its investments in project development are not recouped or delivers suboptimal returns due to less-than-expected carbon revenue for reasons (i.e. volume, eligibility or marketability issues) other than noted below. The Authority assumes the risk that if management practices implemented during the term of the Carbon Development and Marketing Agreement diverge from the Forest Management Plan to the extent that carbon volumes fall below a pre-set threshold, it will trigger compensation to Blue Source in an amount equal to Blue Source s anticipated share of net revenue. 6) Revenue Sharing Blue Source shall distribute to the Authority 70% of net carbon revenues (gross revenue less reimbursement of third-party expenses paid by Blue Source). 7) Extension The Authority retains the right to renegotiate the Carbon Marketing and Sales Agreement after the initial ten (10) year period. Page 69 of 95

70 Should the Authority choose to continue selling its carbon rights beyond the initial ten (10) year exclusive sales and marketing period under this Agreement, the Conservancy and Blue Source will retain a no-cost Right of First Negotiation and Right of First Refusal to match other firm(s) carbon marketing terms. 8) Exclusions The Authority may identify and exclude up to 10% of their Tunkhannock/Monroe County ownership from the 60-year Working Forest Management Agreement. These parcels will be selected from lands lying within the Tunkhannock Lower Watershed and from lands lying outside the Tunkhannock watershed. Parcels to be excluded will be detailed in a map prior to Parties entering Agreements. For purposes of forest inventory, planning, and FSC certification, Working Woodlands will fully integrate excluded lands with protected lands. 9) Termination (Seller s Voluntary Breech) The Carbon Development and Marketing Agreement and the Working Forest Management Agreement will establish processes for the Authority to voluntarily remove certain parcels from the Agreements after the Agreements are consummated. Processes outlining BA s election to remove any part of their property from the project will specify the following: criteria and limits for withdrawal; notification to parties; documentation; expenses and penalties; and dispute resolution. To keep the project advancing in a timely manner, the Authority is requested to execute the Carbon Development and Marketing Agreement with Blue Source and the Working Forest Management Agreement with the Conservancy by September 15, Working Forest Management Agreement: This agreement with the Conservancy commits the Authority to maintaining the property as a working forest and following a third-party FSC certified management plan. Key terms include: A) Term: Sixty (60) years: 10 years initial Carbon Development and Marketing Agreement plus 50 year commitment to land protection and certified forest management. The Authority may also, at any time and with the consent of the Conservancy, enter into a permanent working forest conservation easement, which would replace the Working Forest Management Agreement. B) Subdivision and Development: There shall be no subdivision and land development on the Authority s Carbon and Monroe County properties with the following exceptions: As Bethlehem Authority s mission is to provide quality drinking water to the City of Bethlehem and other residential and commercial water users, any and all structures necessary to provide water to said users is expressly permitted. These include but may not be limited to: pump stations, water pipelines, and improvements and/or replacements to water impoundment and diversion structures. Page 70 of 95

71 Subdivisions and transfers of Authority lands are permitted to qualified organizations or agencies for purposes of land, forest, water, plant, and biodiversity conservation. Such transfers must maintain equivalent or higher levels of natural resource protection. C) Recreational Use: The Authority will retain and control the right of public access to the property. Specifically, the Authority will control and may ascribe hunting and fishing rights either through lease, public access (including but not limited to the PA Game Commission s Forest Game and Deer Management Assistance Programs), or other mechanism consistent with the Forest Management Plan see below. The Authority and its designees will retain right of motor vehicle access on existing forest roads that have historically been used to access the property. Motorized vehicle use under recreational lease scenario to be jointly determined by the Authority and the Conservancy. D) Mining: Sand, gravel, and rock from the properties subject to this Agreement may be utilized for infrastructure improvements on the protected property and in accordance with applicable law and Best Management Practices, provided that the disturbed area for mining does not exceed two (2) acres in size alone or ten (10) acres in aggregate for the Carbon or Monroe properties. No other hard mineral mining is permitted. E) Energy Development: Oil, natural gas, and mineral (OGM): The surface development of oil, natural gas, and mineral resources poses significant risks to both surface and subsurface water resources and as such is incompatible on lands designated for conservation of high-quality drinking water watersheds. Therefore, no OGM development will be permitted accept as noted under (D) Mining above and that meet energy development standards mutually agreeable to both the Authority and the Conservancy and are in congruence with the conservation intent and purposes of the Working Forest Management Agreement. Wind power generation: The Conservancy recognizes the benefits of renewable wind energy and the potential revenues that wind development may generate for the Authority. However, improperly sited wind generation facilities may cause significant impacts to forest and water resources, sensitive habitats and species of conservation concern. The Conservancy has conducted a preliminary assessment of the impacts of wind power generation to the conservation values on Authority lands including but not limited to water and wetland quality, forest condition, and barrens habitats and related plant and animal species and identified many values of conservation concern, the protection and conservation of which is the primary purpose of entering into a Working Woodlands relationship. Therefore, should commercial wind development be pursued by the Authority, the Authority shall agree to follow the minimum standards of the Pennsylvania Wind and Wildlife Collaborative for natural resource protection. Further the Authority shall agree to: (1) Consult early in the planning process with the Game Commission about the presence of Indiana bats, a federally listed species, and any bird species of conservation concern identified in the recently completed Second Breeding Bird Atlas of Pennsylvania; and with the Fish & Boat Page 71 of 95

72 Commission about timber rattlesnakes, a state-listed species. Critical areas for these species should be avoided. (2) Access the Carbon County site from the top of the Plateau rather than from below, to minimize erosion along the 1,100-foot vertical gradient. (3) Communicate with neighbors to minimize any community concerns such as visual and sound impacts. (4) Use existing roads or cleared areas where possible. (5) Preclude the development of wind generation in barrens habitats as identified by the Conservancy and the Pennsylvania Natural Heritage Program. (6) Avoid or offset any new disturbance to large contiguous forest patches (>2,000 acres), as identified in consultation with the Conservancy, and sensitive biodiversity areas, as identified in consultation with the Pennsylvania Natural Heritage Program. F) Agriculture: Agriculture will be allowed on existing agricultural lands subject to state agricultural Best Management Practices to protect soil and water quality. Livestock will be excluded unless allowed by mutual agreement between the Authority and the Conservancy. Restoration of fallow fields to forest and/or barrens will not be precluded. Nothing in this Agreement will preclude the Authority from entering into an agricultural easement on existing agricultural lands. G) Communication: Regular and sufficient communication is needed between all Parties to assess performance and address concerns in a timely manner. At least one annual meeting between the Authority and the Conservancy is required for forest management review and legal monitoring and additional meetings with the Authority, and the Authority s representatives (e.g., forester, logger and other service providers) will be conducted with the Conservancy as needed to ensure successfully compliance with the Forest Management Plan. Blue Source will provide the Authority with periodic updates for the purposes of reviewing past and forecasting potential future performance of the carbon component of the project. H) Forest Management Plan: The Authority will be required to follow a Forest Management Plan meeting the requirements below for the duration of the Working Forest Management Agreement. i) Certification Standard: The Forest Management Plan will meet a highly credible, independent, third-party verified forest certification standard acceptable to both the Authority and the Conservancy. The preferred forest certification system will be specified as the current and regionally applicable Forest Stewardship Council (FSC) Standard and its successors. ii) Cost and Responsibility: Within twelve (12) months of signing the Working Forest Management Agreement, the Conservancy will at its cost and on the Authority s behalf meet the FSC forest management requirement by preparing the first ten (10) year Forest Management Plan including all inventory and data analysis necessary to meet the applicable FSC certification standard. Forest Management Plans prepared beyond the initial ten (10) year Carbon Development and Marketing Agreement period will be completed at the sole responsibility and cost of the Authority for the remainder of the Working Forest Management Agreement unless otherwise agreed upon by the Authority and the Conservancy. Page 72 of 95

73 iii) Review and Approval: Forest Management Plan prepared during the term of the Working Forest Management Agreement by any entity other than the Conservancy will require the Conservancy s review and approval. iv) Components: The Forest Management Plan will have the following minimum components regardless of the forest certification standard in place: Define forest management objectives. Include forest stand descriptions, species, age classes, and volumes. Include descriptions of non-forest habitats including barrens and agricultural lands. Describe means by which forest stands will be managed for and maintained in naturally occurring species. Map forest stands, roads, and outstanding ecological features. Describe strategies to identify and protect and maintain threatened and endangered species, habitats, cultural sites, wetlands and riparian buffers and include location maps of these features. Describe method(s) for adequate forest regeneration of ecologically and economically desirable tree species following timber harvesting. Describe recommended actions for restoring and maintaining high quality barrens including, but not limited to mechanical, prescribed fire, and chemical treatments. Metrics ensuring that onsite carbon stocks at the end of the crediting period under the Carbon Development and marketing Agreement between the Authority and Blue Source are in place for 50 years after the last year carbon is sold under the Carbon Development and Marketing Agreement. v) Harvest Plans: Harvest plans are considered integral to the Forest Management Plan and must be prepared prior to any substantial harvesting operation. Specifically, harvest plans will: follow forestry Best Management Practices, limit no-retention clearcut size, and limit the use of chemicals except for invasive species control and silvicultural purposes. Log yards and skid trails must be described and delineated in the harvest plan. Conservancy staff, the Authority s representative(s) (e.g., forester and harvesting professional) must meet on-site prior to harvesting to review placement, construction, and decommission of log yards, skid trails, and haul roads (when applicable). The Authority will notify the Conservancy at least 60 days prior to any harvesting taking place on the property. Page 73 of 95

74 APPENDIX 4 THE BETHLEHEM AUTHORITY WORKING CONSERVATION EASEMENT TERM CONSERVATION EASEMENT This TERM CONSERVATION EASEMENT made this day of, 2011, W I T N E S S E T H: WHEREAS, THE BETHLEHEM AUTHORITY, a municipal authority, with primary offices at 10 East Church Street, Room 502, Bethlehem, Pennsylvania , hereinafter called the Grantor, is the owner in fee simple of certain real property, hereinafter called the "Protected Property", which has ecological, scientific, educational and aesthetic value in its present state as a natural area which has not been subject to development or exploitation but is currently utilized for the production of potable water, which property is located in Carbon and Monroe Counties, Pennsylvania, and is more particularly described in Exhibit A and shown in Exhibit B attached hereto and incorporated by this reference. WHEREAS, THE NATURE CONSERVANCY, hereinafter called the Grantee, is a nonprofit corporation incorporated under the laws of the District of Columbia as a tax exempt public charity under Section 501(c)(3) and 509(a)(1) of the Internal Revenue Code, qualified under section 170(h) of the Internal Revenue Code to receive qualified conservation contributions, and having its headquarters at 4245 North Fairfax Drive, Suite 100, Arlington, Virginia and a local address at 2101 North Front Street, Building #1, Suite 200, Harrisburg, Pennsylvania 17110, whose purpose is to preserve natural areas for scientific, charitable, educational and aesthetic purposes; and WHEREAS, the Protected Property is comprised of primarily native forest types characteristic of the region that protect the headwaters of Tunkhannock Creek, Wild Creek, the Delaware River, and the Delaware Bay. Interspersed with the hardwood forests are significant stands of mixed conifers and special habitat types including mesic till barrens and wetlands that provide habitat for a multitude of rare species and natural communities; and WHEREAS, preservation of the Protected Property is pursuant to federal, state and local governmental conservation policy and will yield a significant public benefit, specifically the City of Bethlehem (the City ) and citizens of the City and surrounding municipalities support this Page 74 of 95

75 effort as it helps to ensure a high quality drinking water supply for all residents and users of City water; and WHEREAS, the Grantor and Grantee are committed to protecting, conserving and maintaining the forests and the natural resources, including but not limited to high quality drinking water, on the Protected Property, to managing those forests and their associated forest products in an environmentally sensitive manner, to assuring the availability of the Protected Property for forestry and as open space, and to providing, either or both, the Grantor and Grantee with an economic return from forest products, including but not limited to solid wood, wood biomass and ecosystem services; and WHEREAS the Grantor seeks to provide excellent quality water for its consumers and has interest and responsibility to optimize the financial performance of the City s water system; and WHEREAS, the specific conservation values of the Protected Property are documented in an easement documentation report, prepared by the Grantee and to be signed, acknowledged and approved by the Grantor, establishing the baseline condition of the Protected Property at the time of this grant and including reports, maps, photographs, and other documentation (the Easement Documentation Report ); and WHEREAS, the Pennsylvania General Assembly, in enacting the Conservation and Preservation Easements Act, Act 29 of 2001, and as amended thereafter, has recognized the importance and significant public and economic benefit of conservation easements, the purposes of which include, but are not limited to, retaining or protecting for the public and economic benefit the natural, scenic or open space values of real property; assuring its availability for agricultural, forest, recreation or open-space use; and this Conservation Easement is drafted with the intention of conforming with the requirements for said act; and Grantor and Grantee wish to avail themselves of certain provisions of that law; NOW, THEREFORE, the Grantor, for and in consideration of the facts above recited and of the mutual covenants, terms, conditions and restrictions herein contained, does hereby give, grant, and convey unto the Grantee for a term of sixty (60) years, a Conservation Easement over the Protected Property of the nature and character and to the extent hereinafter set forth. 1. Purpose and Term. It is the purpose of this Conservation Easement to ensure that the Protected Property will be retained predominantly in its natural, scenic, forested, and open space condition, free of additional forest fragmentation or additional development; to protect any rare plants, animals, or plant communities on the Protected Property; and to prevent any use of the Protected Property that will significantly impair or interfere with the Page 75 of 95

76 conservation values or interests of the Protected Property described above. Specifically, this Conservation Easement will assure long-term, professional, independent third-party certified forest management on the Protected Property for the production, management and harvesting of economically valuable timber and related forest products while ensuring the conservation values as described above are protected or enhanced. This Conservation Easement will ensure the protection of forest and other natural resources on the Protected Property and allow for the potential of economic return from the protection, management, maintenance, and improvement of ecosystem services provided by the Protected Property. Ecosystem services include but are not limited to carbon sequestration, the protection of water quality and quantity, the protection of wetlands, rare species and natural communities. The Grantor intends that this Conservation Easement will confine the use of the Protected Property to such activities as are consistent with the purpose of this Conservation Easement and shall specifically include Grantor s right and ability to manage and operate the Protected Property in order to produce potable drinking water for the customers of the City s water system. This Conservation Easement shall become effective upon execution by the Grantor (the Effective Date ) and shall terminate sixty (60) years thereafter. 2. Prohibited Uses. Any activity on or use of the Protected Property inconsistent with the purpose of this Conservation Easement is prohibited. Without limiting the generality of the foregoing, the following activities and uses are expressly prohibited except as provided in paragraph 3 below: 2.1 There shall be no constructing or placing of any building, tennis or other recreational court, landing strip, mobile home, swimming pool, fence or sign, asphalt or concrete pavement, billboard or other advertising display or any other temporary or permanent structure or facility on or above the premises except those required by the Grantor for appropriate management and allowed in Paragraph 3 Grantor s Reserved 4 Rights of this Agreement. Except as permitted in under paragraph 3, no new utility poles, towers or sodium vapor lights may be constructed or installed on the Protected Property unless necessary for the production of potable water. Replacement of existing utility poles, towers, or sodium vapor lights unrelated to potable water production will be permitted under this Agreement. 2.2 There shall be no ditching, draining, diking, filling, excavating, dredging, mining or drilling, removal of topsoil, sand, gravel, rock, minerals or other materials, nor any building of roads or change in the topography of the land in any manner except as required for maintaining or improving drinking water facilities or infrastructure as Page 76 of 95

77 described in paragraph 3.1 of this Agreement or as required for forest management and specified in the Forest Management Plan as described in Paragraph 3.4 of this Agreement or as permitted under Paragraph 3.9 of this Agreement. 2.3 There shall be no removal, destruction or cutting of trees, shrubs or plants, planting of non-native trees, shrubs or plants, use of fertilizers, introduction of non-native animals, grazing of domestic animals, or disturbance or change in the natural habitat in any manner except as required for forest management and as allowed in Paragraphs 3.1, 3.4, 3.5, and 3.9 of this Agreement. 2.4 Except as required for forest management and approved in the Forest Management Plan, there shall be no use of pesticides or biocides, including but not limited to insecticides, fungicides, rodenticides, and herbicides, and no use of devices commonly known as "bug-zappers". 2.5 There shall be no storage or dumping of ashes, trash, garbage, or other unsightly or offensive material, hazardous substance, or toxic waste, nor any placement of underground storage tanks in, on, or under the Protected Property; except as permitted under Paragraph 3.1 of this Agreement, there shall be no changing of the topography through the placing of soil or other substance or material such as land fill or dredging spoils, nor shall activities be conducted on the Protected Property or on adjacent property if owned by the Grantor which could cause erosion or siltation on the Protected Property. 2.6 Other than required by the Grantor s obligation to supply drinking water to the City and its customers and in accordance with Paragraph 3.1 of this Agreement, there shall be no pollution, alteration, depletion or extraction of surface water, natural water courses, lakes, ponds, marshes, subsurface water or any other water bodies, nor shall there be activities conducted on the Protected Property or on adjacent property if owned by the Grantor, which would be detrimental to water purity, or which could alter natural water level and/or flow in or over the Protected Property. 2.7 There shall be no motorized recreation including the use of snowmobiles, dune buggies, motorcycles, all-terrain vehicles, jet skis, motorized boats or any other types of motorized vehicles, nor shall the Protected Property be used for any commercial recreational activity, except as noted in Paragraph 3.8 of this Page 77 of 95

78 Agreement. 2.8 There shall be no oil, natural gas, or other mineral resource extraction, development, or transmission ( OGM ) except as permitted in Paragraph 3.5 of this Agreement. Both parties recognize that technological advances may allow for natural gas extraction in the future in such a way as to eliminate the threat to the natural resources on the surface of the land and to the water resources under the Protected Property. Should such technological advancements occur, the Grantor and Grantee agree to evaluate the potential for OGM development at that time. 2.9 The Protected Property may not be divided, partitioned, or subdivided, nor conveyed except in its current configuration as an entity with the following exception; (i) subdivisions and transfers of the Protected Property are permitted to qualified organizations or public agencies for purposes of land, forest, water, plant, and biodiversity conservation and (ii) to related entities under the control of the Grantor who will utilize the Protected Property for the production of potable water and (iii) to any third party who acknowledges, in writing, that it is acquiring the property subject to this Conservation Easement, such subdivisions and transfers must maintain equivalent or higher levels of natural resource protection as established in this Conservation Easement The Protected Property and any portion thereof shall not be included as part of the gross area of other property not subject to this Conservation Easement for the purposes of determining density, lot coverage, or open space requirements under otherwise applicable laws, regulations or ordinances controlling land use and building density. 3. Grantor's Reserved Rights. The Grantor hereby reserves the following rights: 3.1 The right, without limitation, to maintain replace and/or construct structures and facilities that are reasonable, customary, and necessary for the collection, production and distribution of drinking water. 3.2 The right to undertake or continue any activity or use of the Protected Property not prohibited by this Conservation Easement. Prior to making any change in use of the Protected Property, the Grantor shall notify the Grantee, in writing, of such use in accordance with Paragraph 17.5 of this Agreement. Page 78 of 95

79 3.3 The right to sell, give, mortgage, lease, or otherwise convey the Protected Property, provided such conveyance is subject to the terms of this Conservation Easement and written notice is provided to Grantee in accordance with paragraph 17.5 of this Agreement. 3.4 The right to conduct forest management activities on the Protected Property, including commercial activities related to the production of timber and other forest products, together with the right to construct, use and maintain logging roads, and to use motorized vehicles, only as necessary for such operations, provided that such forest management activities are conducted in accordance with the Forest Management Plan, as further described below and in accordance with the following terms; 3.4.a The Protected Property shall at all times be managed in accordance with a written Forest Management Plan to be developed, initially by Grantee, and approved by Grantor. The Grantee shall have the right to review and approve any Forest Management Plan developed after the initial Forest Management Plan prepared by Grantee. 3.4.b The Forest Management Plan shall, at all times during the term of this Conservation Easement, fully meet the Forest Stewardship Council - United States (FSC-US) forest management standard current at the time of the granting of this Conservation Easement and its successors or an alternative standard approved by Grantor and Grantee. The Forest Management Plan shall have the following minimum components during the duration of this Conservation Easement regardless of the forest certification standard in place: 3.4.b (i) Defined forest management objectives in accordance with the Purposes of this Conservation Easement. 3.4.b (ii) Mechanisms to ensure compliance with the Pennsylvania Department of Environmental Protection s (DEP) silvicultural Best Management Practices as defined and described in DEP publication 3930-BK-DEP2322 (Rev. 4/2003) Controlling Erosion and Sediment from Timber Harvesting Operations and its successor publications and guidance. 3.4.b (iii) Descriptions based on statistically rigorous inventories of forest stands, species, stocking, age classes, and volumes. Page 79 of 95

80 3.4.b (iv) Descriptions based on professionally conducted inventories of non-forest habitats including barrens, waters, wetlands, and agricultural lands. 3.4.b (v) Descriptions of current and desired future forest conditions and the means by which forest stands will be managed for and maintained in naturally occurring species. 3.4.b (vi) Professionally prepared maps of forest stands, roads, and outstanding ecological features. 3.4.b (vii) Strategies to identify and protect and maintain threatened and endangered species, habitats, cultural sites, wetlands and riparian buffers and include location maps of these features. 3.4.b (viii) Method(s) to ensure adequate stocking of ecologically and economically desirable tree species following regenerative timber harvesting. 3.4.b (ix) Recommended actions to restore and maintain high quality barrens including, but not limited to mechanical and prescribed fire treatments, provided however, that any prescribed fire treatment shall only be done upon the written recommendation of Grantee and upon the execution of a hold harmless and indemnification agreement between Grantor and Grantee providing for the indemnification of the Grantor by Grantee. The recommended actions must, at a minimum, comply with the Pennsylvania Prescribed Burning Practices Act (Act 17 of 2009) and the standards established by the Pennsylvania Bureau of Forestry and the Pennsylvania Prescribed Fire Council, Training and Standards Committee current at the time of the granting of this Conservation Easement and its successors or an alternative standard approved by Grantor and Grantee. 3.4.c Within twelve (12) months of the granting of this Conservation Easement, the Grantee will, at its sole cost and responsibility, conduct a forest and carbon inventory, prepare the initial ten (10) year Forest Management Plan for the Protected Property to the FSC-US Forest Management Standard, and enroll the Protected Property in the Grantee s FSC Certified Forest Manager Certificate. The Grantee will, at the Grantee s sole cost, provide the Grantor with FSC-US certification for the Protected Property for the initial ten (10) year period of this Conservation Easement except as described in 3.4.d of this Agreement. Page 80 of 95

81 3.4.d If, as determined by a third-party independent forest certification audit, the Grantor has deviated from the recommendations of the initial ten (10) year Forest Management Plan to the extent that the continued certification of the Protected Property under the FSC-US Forest Management Standard is jeopardized and/or precluded, then the Grantee may require the Grantor, at the Grantor s sole cost and responsibility and within six (6) months of the Grantee making such a determination and providing written notification to the Grantor, to conduct all actions that are necessary to certify the Protected Property under the FSC-US Forest Management Standard and that are necessary to monetize forest carbon benefits from the Protected Property and in default of such actions by Grantor, remove the Grantor from the Grantee s FSC Certified Resource Manager Certificate. 3.4.e Harvest Plans must be prepared prior to any substantial forest product harvesting operation. Harvest plans will be reviewed and approved by the Grantee to determine their consistency with the Forest Management Plan and will meet the forest certification standard. In addition, the Grantor and their assigned representatives including, but not limited to the Grantor s forester and harvesting contractor shall meet with the Grantee on-site prior to any substantial harvesting operation to review proposed harvest operations, including but not limited to the placement, construction and decommission of log yards, skid trails, and haul roads. The Grantor will notify and provide the Grantee with a Harvest Plan at least 30 days prior to any substantial harvesting on the property. 3.4.f Notwithstanding anything contained herein to the contrary, the provisions of this Paragraph 3.4 shall in no way be interpreted to preclude the Grantor s right and ability to manage and operate the Protected Property in order to produce potable drinking water for the customers of the City s water system. 3.5 The right to mine sand, gravel and rock solely for infrastructure improvements on the Protected Property, in accordance with all applicable laws and Best Management Practices, provided that the disturbed area for mining does not exceed two (2) acre(s) in size alone or ten (10) acres in aggregate for the entire Protected Property. No other hard mineral mining is permitted except as may be permitted under Paragraph 2.8 of this Agreement. Page 81 of 95

82 3.6 The right to conduct agricultural activities on existing fields as documented in the Easement Documentation Report. Such activities must be done subject to all applicable Agricultural Best Management Practices and under a Nutrient Management Plan or similar document prepared by the appropriate county Soil and Water Conservation District or Natural Resource Conservation Service with highest priority placed on avoiding soil erosion and impacts to water quality. No cattle will be allowed in any wetland or watercourse. Forested areas may not be cleared for additional agricultural use but reforestation of fallow fields is permitted. 3.7 The right to retain and control public access to the Protected Property including the right to assign hunting and fishing rights either through lease, public access, or other mechanism consistent with the goals of the Forest Management Plan as described in Paragraph 3.4 of this Agreement. Recreational motorized vehicle use under a recreational lease scenario will be jointly determined and agreed upon by the Grantor and Grantee and shall only be granted on existing roads and trails, or new roads and trails established for forest management activities and as specified in the Forest Management Plan. 3.8 The right to operate motorized vehicles as necessary and reasonable for forest management activities consistent with the goals of the Forest Management Plan in Paragraph 3.4 of this Agreement and as necessary and reasonable for water production and distribution activities and for the security of the Protected Property. 3.9 The right to enter into commercial wind development. Should the Grantor pursue commercial wind development, the Grantor shall: 3.9.a Comply with permitting/approval requirements established by the Pennsylvania Game Commission (PGC) and US Fish and Wildlife Service (USFWS) for natural resource protection as fully described in the PGC Wind Energy Voluntary Cooperative Agreement, PGC Special Use Permits for Wind Energy Projects, PGC Pre and Post-Construction Monitoring of Bat Populations at Industrial Wind Turbines Sites and the USFWS Wind Turbine Guidelines Advisory Committee Recommended Guidelines (March 4, 2010) ; and 3.9.b Comply with the Pennsylvania Game Commission permitting/approval requirements regarding the presence of Indiana bats, a federally listed Page 82 of 95

83 species, all other federally listed species, and bird species of conservation concern identified in the Second Breeding Bird Atlas of Pennsylvania; and comply with permitting/approval requirements of the Fish & Boat Commission regarding Pennsylvania state-listed species. Critical areas for these species should be avoided; and 3.9.c Make reasonable attempts to Access the Wild Creek Watershed property from the top of the Plateau rather than from below, to minimize erosion along the 1,100-foot vertical gradient; and shall 3.9.d Communicate with adjacent neighbors and stakeholders to minimize community concerns such as visual and sound impacts; and 3.9.e Use existing roads or cleared areas whenever reasonably possible as shown in Exhibits C & D; and 3.9.f Will make best efforts to avoid the development of wind generation in barrens, wetlands, steep slopes, and rocky outcrops as identified on Exhibits C & D and will manage the before mentioned areas to Forest Stewardship Council (FSC) standards described in section 3.4 designated as high conservation value forest or sensitive biodiversity areas in the Forest Management Plan or Easement Documentation Report.; and 3.9.g Minimize new disturbance to large contiguous forest patches as identified on Exhibits C & D. In cases where identified large contiguous forest patches conflict with wind development siting requirements, Grantor will consult with Grantee to offset, minimize and ensure siting has the minimum impact possible The right to enter into commercial solar energy projects or other types of related energy projects, provided that such solar energy projects or other types of related energy projects do not cause a Material Reduction (as that term is defined in the Carbon Agreement) otherwise obtainable on the Protected Property, and the associated infrastructure is located in the open and cleared areas identified on Exhibits C & D The Grantor and the Grantee acknowledge that the exercise of any reserved right enumerated herein by the Grantor shall not relieve the Grantor from Page 83 of 95

84 complying with or obtaining any permit from any applicable governmental authority prior to the exercise thereof. 4. Grantee's Rights. To accomplish the purpose of this Conservation Easement, the following rights are granted to the Grantee by this Conservation Easement: 4.1 The right to preserve and protect the conservation values of the Protected Property as established in the Easement Documentation Report. 4.2 Right of Entry. The right of the Grantee and its agents to enter the Protected Property at all reasonable times and with prior notice and, if necessary, across other lands retained by the Grantor, for the purposes of: (a) inspecting the Protected Property to determine if the Grantor is complying with the covenants and purposes of this Conservation Easement; (b) making scientific and educational observations and studies and taking samples in such a manner as will not disturb the quiet enjoyment of the Protected Property by the Grantor; and (c) monitoring and management activities related to forest management and forest management certification as described in Paragraph 3.4 of this Agreement and as described below. Grantee s right of entry is, however, conditioned upon Grantee holding Grantor harmless and indemnifying Grantor for and against any suits, actions, damages, losses and judgments entered against or incurred by Grantor because of Grantee s entry onto the Protected Property 4.3 Forest Management Compliance. The right to review and approve Grantor s Forest Management Plan and Harvest Plans. These plans will be reviewed at a minimum annually at a meeting between the Grantor and Grantee and as needed to ensure compliance with the forest management standard in Paragraph 3.4 of this Agreement, and at the request of the Grantor or Grantee, with the Grantor s forester, logger and other service providers. Grantee will be notified in writing at least 30 days prior to any harvesting on the Protected Property. 4.4 Monitoring. The right, in accordance with Paragraph 4.2 of this Agreement, but not the obligation, to monitor the condition of the rare plant and animal populations, plant communities, and natural habitats on the Protected Property. 4.5 Enforcement. The right, in accordance with Paragraph 10 of this Agreement, to prevent any activity on or use of the Protected Property that is inconsistent with the provisions of this Conservation Easement and to require the restoration of such areas or features of the Protected Property that may be damaged by any inconsistent activity or use that Page 84 of 95

85 would cause a default by Grantor under the Carbon Agreement (as hereinafter defined). 4.6 Discretionary Consent. The Grantee's consent for activities otherwise prohibited under paragraph 2 of this Agreement, or for any activities requiring the Grantee's consent under paragraph 3 of this Agreement, may be given under the following conditions and circumstances. If, owing to unforeseen or changed circumstances, any of the activities listed in paragraph 2 of this Agreement, are deemed desirable by the Grantor and the Grantee, the Grantee may, in its sole discretion, give permission for such activities, subject to the limitations herein. Such requests for permission, and permission for activities requiring the Grantee's consent under paragraph 3 of this Agreement, shall be in writing and shall describe the proposed activity in sufficient detail to allow the Grantee to judge the consistency of the proposed activity with the purpose of this Conservation Easement. The Grantee may give its permission only if it determines, in its sole discretion, that such activities (1) do not violate the provisions of this Conservation Easement and (2) either enhance or do not impair any significant conservation interests associated with the Protected Property. Notwithstanding the foregoing, the Grantee and the Grantor have no right or power to agree to any activities that would result in the termination of this Conservation Easement or to allow any residential, commercial or industrial structures or any commercial or industrial activities not provided for above, or to prohibit such activities that are consistent with the Grantor s use of the Protected Property for the production of potable drinking water. 4.7 Carbon Sequestration and Ecosystem Services. The Protected Property may be used in connection with and in furtherance of programs related to carbon emissions and/or sequestration credits, nutrient and/or water quality credits, or habitat mitigation banks, or other similar offset, banking, mitigation, or compensation programs. This Conservation Easement does not preclude Grantor and Grantee from entering into separate agreements to inventory, have verified, market and share in the revenue generated by carbon sequestration or other ecosystem services described above provided by the Protected Property. The Parties acknowledge that the Grantor has entered into an Agreement for the Development, Verification, Registration, and Marketing of Greenhouse Gas Emission Reduction Benefits (the Carbon Agreement ) with Blue Source LLC for ten (10) years; the terms and provisions of the Carbon Agreement are incorporated herein by reference. The Grantee reserves Rights of First Negotiation and Refusal to benefit from and to provide services to monetize the programs described in section 4.7 above on and from the Protected Property with respect to any greenhouse gas emission reduction benefits not covered by the Carbon Agreement with Blue Source LLC, including greenhouse gas emission reduction benefits Page 85 of 95

86 after the Carbon Agreement expires and during the remainder of the Term of this Conservation Easement, and for any and all carbon emission credits or compensation arising from the protection and certified management of the Protected Property. 4.8 Management. Grantor and Grantee acknowledge the Grantee may request to manage barrens habitat, and rare plant and animal populations, if necessary to ensure their continued presence and viability on the Protected Property. The Grantor reserves the right to approve or deny such requests; such approval shall not be unreasonably withheld, provided that such approval does not further restrict Grantor s use of Protected Property. Such activities shall be in accordance with management practices of the Grantee, which may include but not be limited to mowing, fencing, trapping and prescribed burning in accordance with Paragraph 3.4b(ix) of this Agreement. Any such management activities shall be set forth in appendices to the Forest Management Plan. 5. Access. Nothing contained in this Conservation Easement shall give or grant to the public a right to enter upon or to use the Protected Property or any portion thereof where no such right existed in the public immediately prior to the execution of this Conservation Easement. 6. Costs and Liabilities. The Grantor retains all responsibilities and shall bear all costs and liabilities of any kind related to the ownership, operation, upkeep and maintenance of the Protected Property and all improvements located on the Protected Property, including the maintenance of adequate comprehensive general liability insurance coverage. The Grantor agrees to release, hold harmless, defend and indemnify the Grantee from any and all liabilities including, but not limited to, injury, losses, damages, judgments, costs, expenses and fees which the Grantee may suffer or incur as a result of or arising out of the activities of Grantor or its lessees on the Protected Property. The Grantee agrees to release, hold harmless, defend and indemnify the Grantor from any and all liabilities including, but not limited to, injury, losses, damages, judgments, costs, expenses and fees which the Grantor may suffer or incur as a result of or arising out of the activities of the Grantee on the Protected Property. 7. Taxes. The Grantor is currently exempt from the payment of any real estate taxes or other assessments levied on the Protected Property. If the Grantor documents and provides reasonable proof the reversal of tax exempt status on all Protected Property is imminent due to the creation and sales of carbon benefits, Grantor recognizes it could terminate the Carbon Agreement between Blue Source, LLC and Grantor. Should the Blue Source, LLC and Grantor Carbon Agreement be terminated for the above cause, Grantee agrees to compensate Grantor at a rate of $25,000 (twenty five thousand) dollars per year for the Page 86 of 95

87 remainder for the Blue Source, LLC, Grantor Carbon Agreement. 8. Title. The Grantor covenants and represents that the Grantor is the sole owner and is seized of the Protected Property in fee simple and has good right to grant and convey the aforesaid Conservation Easement subject to the approval of the City Council and that the Grantee shall have the use of and enjoy all of the benefits derived from and arising out of the aforesaid Conservation Easement. 9. Hazardous Waste. The Grantor covenants and represents that no hazardous substance or toxic waste exists nor has been generated, treated, stored, used, disposed of, or deposited in or on the Protected Property, and that to the best of its knowledge and belief, but without investigation, there are not now any underground storage tanks located on the Protected Property. 10. Grantee's Remedies. In the event that the Grantee becomes aware of a default by Grantor of the terms of this Conservation Easement, the Grantee shall give notice to the Grantor in accordance with Paragraph 17.5 of this Agreement, and request corrective action sufficient to abate such default and if possible, restore the Protected Property to its previous condition at the time of this grant. Failure by the Grantor to cure the default within thirty (30) days after receipt of such notice shall entitle the Grantee to bring an action at law or equity in a court of competent jurisdiction to enforce the terms of this Conservation Easement unless Grantor has commenced action to cure the default within the 30 days and continues to attempt to cure, in which case Grantor shall be given an additional 30 days in which to cure the default; to require the restoration of the Protected Property to its previous condition; to enjoin such noncompliance by temporary or permanent injunction in a court of competent jurisdiction Emergency Enforcement. If the Grantee, in its sole discretion, determines that circumstances require immediate action to prevent or mitigate significant damage to the conservation values of the Protected Property, the Grantee may pursue its remedies under this paragraph without prior notice to the Grantor or without waiting for the period for cure to expire Failure to Act or Delay. The Grantee does not waive or forfeit the right to take action as may be necessary to insure compliance with this Conservation Easement by any prior failure to act and the Grantor hereby waives any defense of laches with respect to any delay by the Grantee, its successors or assigns, in acting to enforce any restriction or exercise any rights under this Conservation Easement. Page 87 of 95

88 10.2 Violations Due to Causes Beyond Grantor's Control. Nothing herein shall be construed to entitle the Grantee to institute any enforcement proceedings against the Grantor for any changes to the Protected Property due to causes beyond the Grantor's control, such as changes caused by fire, flood, storm, earthquake or the unauthorized wrongful acts of third persons. In the event of violations of this Conservation Easement caused by unauthorized wrongful acts of third persons, at Grantee's option, Grantor agrees to assign its right of action to Grantee, to join in any suit, and/or to appoint Grantee its attorney-in-fact for the purposes of pursuing enforcement action Standing. By virtue of the Grantee's acquisition of rights under this Conservation Easement, it shall be entitled, at its option, to standing before appropriate courts of law to pursue remedies for Grantor s default under this Agreement. 11. Parties Subject to Easement. The covenants agreed to and the terms, conditions, and restrictions imposed by this grant shall not only be binding upon the Grantor but also its lessees, agents, personal representatives, successors and assigns, and all other successors to the Grantor in interest and shall continue as a servitude running for a period of sixty (60) years from the Effective Date with respect to the Protected Property. 12. Subsequent Transfers. The Grantor agrees that the terms, conditions, restrictions and purposes of this grant or reference thereto will be inserted by the Grantor in any subsequent deed or other legal instrument by which the Grantor divests either the fee simple title or possessory interest in the Protected Property; and the Grantor further agrees to notify the Grantee of any pending transfer at least thirty (30) days in advance. 13. Merger. The Grantor and Grantee agree that the terms of this Conservation Easement shall survive any merger of the fee and easement interest in the Protected Property. 14. Assignment. The parties hereto recognize and agree that the benefits of this easement are in gross and assignable, and the Grantee hereby covenants and agrees that in the event it transfers or assigns the easement it holds under this indenture, the organization receiving the interest will be qualified as a "holder" under the Conservation and Preservation Easements Act. Grantee shall provide Grantor with notice in accordance with paragraph 18.5 of this Agreement, of any assignment of its interests under the Agreement. 15. Default or Termination of Carbon Agreement by Blue Source, LLC. The Grantor and Grantee acknowledge and agree that Grantor has or is about to enter into the Carbon Agreement, which Carbon Agreement shall be read in pari materia with this Agreement. In the event of a Page 88 of 95

89 default by Blue Source, LLC under the Carbon Agreement, which is not cured under any cure period provided therein, or in the event Blue Source, LLC terminates the Carbon Agreement, as provided therein, Grantor and Grantee agree that the Grantee may assume the obligations of Blue Source, LLC under the Carbon Agreement or find a third party to assume such obligations within 120 days after such Default by Blue Source, LLC. Should Grantee be unable to assume the obligations of Blue Source, LLC under the Carbon Agreement, Grantee agrees to compensate Grantor at an annual rate equal to 50% of the average yearly carbon revenue received or to be received by the Grantor as of the date of such default or termination by Blue Source, LLC and thereafter annually for the remainder of the 10 year Carbon Agreement but in no event less than $25, per year, such compensation to be paid annually by Grantee. Should the Carbon Agreement fail to generate revenue to Grantor as of the date of the default or termination by Blue Source, LLC, Grantee agrees to compensate grantor $25, for the remainder of the 10 year Carbon Agreement, such compensation to be made annually. 16. Eminent Domain. Whenever all or part of the Protected Property is taken in exercise of eminent domain by public, corporate, or other authority so as to abrogate the restrictions imposed by this Conservation Easement, the Grantor and the Grantee shall join in appropriate actions at the time of such taking to recover the full value of the taking and all incidental or direct damages resulting from the taking, which proceeds shall be divided in accordance with the proportionate value of the Grantee's and Grantor's interests, if any 17. Miscellaneous Provisions Severability. If any provision of this Conservation Easement or the application thereof to any person or circumstance is found to be invalid, the remainder of the provisions of this Conservation Easement and the application of such provisions to persons or circumstances other than those as to which it is found to be invalid shall not be affected thereby Successors and Assigns. The term "Grantor" shall include the Grantor and the Grantor's heirs, executors, administrators, successors and assigns and shall also mean the masculine, feminine, corporate, singular or plural form of the word as needed in the context of its use. The term "Grantee" shall include The Nature Conservancy and its successors and assigns Captions. The captions herein have been inserted solely for convenience of reference and are not a part of this Conservation Easement and shall have no effect upon Page 89 of 95

90 construction or interpretation Counterparts. The parties may execute this instrument in two or more counterparts, which shall, in the aggregate, be signed by both parties; each counterpart shall be deemed an original instrument as against any party who has signed it. In the event of any disparity between the counterparts produced, the recorded counterpart shall be controlling Notices. Any notices required in this Conservation Easement shall be sent by registered or certified mail to the following address or such address as may be hereafter specified by notice in writing: Grantor: Bethlehem Authority, 10 East Church Street, Room 307, Bethlehem, PA 18018, Attn: Stephen Repasch, Executive Director. Grantee: The Nature Conservancy, 4245 N. Fairfax Drive, Suite 100, Arlington, Virginia and 2101 North Front Street, Building #1, Suite 200, Harrisburg, Pennsylvania Jurisdiction; Venue. Any and all matters of dispute between the parties to this Agreement, whether arising from the Agreement itself or arising from alleged extracontractual facts prior to, during, or subsequent to the Agreement, including, without limitation, fraud, misrepresentation, negligence, or any other alleged tort or violation of the contract, shall be governed by, construed, and enforced in accordance with the laws of the Commonwealth of Pennsylvania, regardless of the legal theory upon which such matter is asserted. All matters in dispute shall be heard before the Court of Common Pleas of Northampton County, Pennsylvania Coal Rights Notice. The following notice is given to the Grantor solely for compliance with the requirements of the Conservation and Preservation Easements Act, Act 29 of 2001, and as amended thereafter: Notice: This Conservation Easement may impair the development of coal interests, including workable coal seams or coal interests which have been severed from the Protected Property. Page 90 of 95

91 ADDITIONAL RESOURCES Deciding whether to enter the carbon market and undertake a forest carbon offset project is a major decision for land trusts and conservation organizations. The project development process can be complex, costly and time consuming, and should therefore be subject to rigorous research. If you still have questions after reading this document, or think that your organization may benefit from forest carbon credits, we recommend reading the following documents: Selling Forest Carbon: A practical guide to developing forest carbon offsets for Northeast forest owners. A practical how-to for Northeast landowners of all sizes exploring the revenue potential of the carbon marketplace. %20Carbon_Final%20September% pdf Carbon Offsets: Is There a Path to Market? A concise overview for U.S. landowners interested in the carbon marketplace, providing a basic primer of how the market functions, an overview of the development process, and the role of consultants /12/FiniteCarbon-2013-ACF-Consultant-Article.pdf Selling Carbon Offsets: A Potential Source of Funding For Forest Conservation. An overview of forest carbon project development and offset marketing with the land trust audience in mind. Forest Carbon Offsets: A Scorecard for Evaluating Project Quality. This document provides an overview of forest carbon offsets and their challenges, and a comprehensive checklist to evaluate the technical rigor of any forest offset project. default/files/publications_and_tools/forest %20Carbon%20Offsets%2C%20A%20Scorecard%20% pdf Page 91 of 95