Feature Article

05/01/2023

What Are Carbon Credits?

Carbon credits, also known as carbon offsets, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of one ton of carbon dioxide or the equivalent in other greenhouse gases.

The carbon credit is half of a so-called cap-and-trade program. Companies that pollute are awarded credits that allow them to continue to pollute up to a certain limit, which is reduced periodically. Meanwhile, the company may sell any unneeded credits to another company that needs them. Private companies are thus doubly incentivized to reduce greenhouse emissions. First, they must spend money on extra credits if their emissions exceed the cap. Second, they can make money by reducing their emissions and selling their excess allowances.

Proponents of the carbon credit system say that it leads to measurable, verifiable emission reductions from certified climate action projects, and that these projects reduce, remove, or avoid greenhouse gas (GHG) emissions.

  • Carbon credits were devised as a mechanism to reduce greenhouse gas emissions.

  • Companies get a set number of credits, which decline over time, and they can sell any excess to another company.

  • Carbon credits create a monetary incentive for companies to reduce their carbon emissions. Those that cannot easily reduce emissions can still operate, at a higher financial cost.

  • Carbon credits are based on the cap-and-trade model that was used to reduce sulfur pollution in the 1990s.

  • Negotiators at the Glasgow COP26 climate change summit in November 2021 agreed to create a global carbon credit offset trading market.

How Do Carbon Credits Work?

The ultimate goal of carbon credits is to reduce the emission of greenhouse gases into the atmosphere. As noted, a carbon credit represents the right to emit greenhouse gases equivalent to one ton of carbon dioxide. According to the Environmental Defense Fund, that is the equivalent of a 2,400-mile drive in terms of carbon dioxide emissions.

Companies or nations are allotted a certain number of credits and may trade them to help balance total worldwide emissions. “Since carbon dioxide is the principal greenhouse gas,” the United Nations notes, “people speak simply of trading in carbon.”

The intention is to reduce the number of credits over time, thus incentivizing companies to find innovative ways to reduce greenhouse gas emissions.

How much does a carbon credit cost?

Carbon credits have different prices, depending on the location and market where they are traded. In 2019, the average price for carbon credits was $4.33 per ton. This figure spiked to as much as $5.60 per ton in 2020 before settling to an average of $4.73 in the first eight months of the following year.

How large is the carbon credit market?

Estimates of the size of the carbon credit market vary wildly, due to the different regulations in each market and other geographical distinctions. The voluntary carbon market, consisting largely of companies that buy carbon offsets for corporate social responsibility (CSR) reasons, had an estimated value of $1 billion in 2021, according to some figures. The market for compliance credits, related to regulatory carbon caps, is substantially larger, with estimates ranging as high as $272 billion for 2020.

The Bottom Line

Carbon credits were devised as a mechanism to reduce greenhouse gas emissions by creating a market in which companies can trade in emissions permits. Under the system, companies get a set number of carbon credits, which decline over time. They can sell any excess to another company.

Carbon credits create a monetary incentive for companies to reduce their carbon emissions. Those that cannot easily reduce emissions can still operate, but at a higher financial cost. Proponents of the carbon credit system say that it leads to measurable, verifiable emission reductions.

Forest Carbon

Carbon is the basic building block of forests. Trees and other vegetation naturally absorb carbon dioxide (CO2) through the process of photosynthesis and store it as biomass in the trunks, roots, and leaves. Carbon absorbed by plants can be transferred to soil through decomposing roots, leaves, and wood, where a portion of it can remain for long periods of time. Carbon dioxide (CO2) is the most important greenhouse gases (GHG) released into the atmosphere that drives rising global temperatures, so the absorption and storage of carbon within forests plays a critical role in mitigating climate change and limiting the impacts in our ecosystems and communities.

The Forest Service’s efforts in monitoring carbon in forests and grasslands produces the authoritative research, analyses, and tools for estimating carbon stocks and tracking their change over time across the nation. This contributes to international reporting on National Greenhouse Gas Inventory to the United Nations Framework Convention on Climate Change (UNFCCC), forest sustainability reporting for the Montreal Process, carbon assessments across National Forests and Grasslands, and beyond.

Carbon Stewardship

The Forest Service is a pioneer among federal agencies in the integration of climate adaptation and mitigation in land management. This approach highlights the importance of managing climate risk through adaptation for stabilizing carbon stocks in grasslands and forests, while balancing a wide range of other ecosystem benefits in managing carbon uptake and storage in forests and grasslands.

Definition

The Forest Service defines carbon stewardship as actions that are informed by carbon science that provide for increased carbon uptake and storage or increased stabilization through land-use and vegetation management strategies. Thoughtful carbon stewardship seeks to optimize carbon within the context of ecosystem integrity and climate adaptation, not to maximize carbon at the expense of forest health or habitat. Carbon stewardship involves:

  • The intentional analysis of the effects of management actions on carbon uptake, storage, and stability.

  • Balancing carbon benefits with other ecosystem benefits.

  • Considering landscape-scale ecosystem function and resilience.

  • The net enhancement of ecosystem carbon uptake and storage.

  • Avoided emissions from disturbance or tree mortality (carbon stabilization).

Carbon stewardship principles align with the Forest Service’s holistic approach to land management, which supports our multi-use mission to steward national forests and grasslands for the benefit of current and future generations.  These principles include:

  1. Emphasize ecosystem function and resilience.

  2. Recognize carbon sequestration as one of many ecosystem services.

  3. Support diversity of approach.

  4. Consider system dynamics and scale in decision making.

  5. Use the best information and analysis methods.

Description

Carbon stewardship requires a broad definition because ecosystem carbon responses to land management actions may be different across site conditions and ecosystems. The following elements of carbon stewardship are further described to help determine if proposed actions that can reasonably be expected to provide carbon benefits over the life of the project.

Timescale of carbon benefits

Carbon benefits are not limited to immediate increases in carbon stocks but may be realized over a variety of time scales. Carbon responses may include near-term increases in carbon stocks or carbon benefits that take many decades to occur.

Carbon stability

Carbon stewardship actions may be in response to assessments that indicate current conditions are out of alignment with the carbon carrying capacity of the system. For example, overstocked forests that are a legacy of past fire suppression has resulted in elevated risk of tree mortality and severe wildfire. In these landscapes, reducing tree densities will decrease carbon to lower the risk of carbon losses from mortality and fire.  These actions can provide carbon benefits since the remaining ecosystem carbon is expected to have greater stability and a longer residence time in the system. Carbon stewardship actions that increase carbon stocks in live vegetation, dead wood, and soils should not elevate the risk of disturbance that would cause widespread carbon emissions back to the atmosphere.

Climate adaptation

Actions that provide adaptation benefits through reduced risk of unintended climate impacts can provide carbon benefits through avoided carbon emissions. Some disturbances or forest health issues may also decrease carbon uptake through plant growth. While not all adaptation actions provide carbon benefits, there are many actions that address risks to ecosystem health that sustain or improve the capacity of systems to sequester carbon.

Carbon optimization

While national forests and grasslands can play an important role in climate change mitigation through land management, balancing the numerous environmental benefits provided by healthy ecosystems is paramount to achieving our mission. Carbon stewardship aims to optimize carbon benefits on the landscape in a way that recognizes the importance of achieving other management objectives. Maximizing ecosystem carbon stocks can create undesirable tradeoffs with other environmental benefits, and in some landscapes may result in lower carbon benefits where carbon stability is compromised. Maximizing carbon is therefore not necessary, and is often counter to, achieving effective carbon stewardship.

Carbon Assessments

The Forest Service is the primary agency in the U.S. that collects and analyzes data on U.S. trees, the carbon they store, and emissions back to the atmosphere after they are harvested or die. Forest Service scientists study how land management, land uses, and land changes affect carbon in the landscape and ways to increase carbon storage. The Forest Service has always led efforts to practice, develop, and demonstrate sound and sustainable management of forest-based resources. The management of forest carbon is no exception.

The Forest Service Forest Inventory and Analysis (FIA) program is the basis of national greenhouse gas estimates from forest land use and land use change. FIA estimates on the carbon content among forest types are used by policy makers at local, state, and national levels to estimate the carbon benefits from land management activities and inform climate change mitigation measures.

The Forest Service has developed regional carbon assessment reports to help forest managers and the public understand how much carbon is stored in forest ecosystems and harvested wood products. The baseline forest carbon reports draw information from the FIA program to provide carbon stocks and trends. These reports also provide estimates of carbon stored in harvested wood products over longer time periods depending upon the availability of data. These assessments are provided as a nationally consistent data set with which we can better understand geographic differences and important trends.

­Should We Ditch Forest Carbon Credits in 2023

At its heart, the concept of forest carbon credits aims for the good. Carbon credits provide a way for companies to quantify their carbon output and responsibly manage it. They’re often positioned as ethical, forward-thinking, and important to the future of sustainability.

Many often question the legitimacy of carbon credits altogether, wondering if companies merely use them as a veneer to conceal their ongoing pollution.

What’s the real story behind forest carbon credits? And what can we do to better account for carbon if credits are not fitting the bill?

The ‘Good Idea’ of Forest Carbon Credits

There are differing levels of carbon offsets, credits, and related topics. Providing forest carbon credits relies on a specific methodology to work.

Picture a landowner who has significant forested land on their property. They're potentially considering cutting the forest down for some purpose like a housing development or an agricultural conversion.

Instead of cutting the forest down, the government or another broker comes along. They offer to pay the landowner a certain amount to keep the forest standing. This is how the land becomes designated as a forest carbon credit area.

Carbon emitting companies can now buy these credits from the forest landowner. Rather than reducing their actual emissions, they buy credits from this conserved forest land.

The idea is that buying credits enables companies to continue their operations while still actively investing in offsetting the pollution they create. Investing in this process also usually comes with a commitment to improving operations and reducing carbon output over time.

Calling Forest Carbon Credits into Question

With this explanation in mind, why would anyone think of these credits as a bad thing? After all, aiming toward sustainability with a practical policy ought to help meet carbon goals.

The philosophical aim of forest carbon credits is certainly an admirable one. And in many cases, it operates by design in allowing companies to invest in the future while scaling to meet carbon goals.

The problem arises, mostly, in relation to companies with no intentions of actively reducing their carbon footprint. Instead, the push seems to come towardhitting those ‘net zero’ targets relative to carbon emissions.

Practically all companies will proudly announce their corporate aim toward reaching net zero. However, if companies are just pushing their on-paper objectives without making the necessary logistical shifts, what’s really changing?

The common term for this is ‘greenwashing’ – a kind of do-nothing platitude where companies make no actual adjustments to reduce their carbon footprint.

Greenwashing and Real Carbon Mitigation: Where Do Credits Stand?

The problem of greenwashing, and carbon credits in general, is directly where ResourceWise President and CEO Pete Stewart focuses his critique. According to his predictions:

1. Carbon credits – of any type – only provide justification to pollute more.

Why not simply keep the pollution machines churning if a company can easily buy their way out via carbon credits? And why not obscure exactly how forest carbon credits are measured to appear green and ethical while failing to change anything to support sustainability?

This connects to the greenwashing indictment many carbon credit issuers have faced, and they have rightfully come under a higher level of scrutiny. Unfortunately, these criticisms continue to compound across many of the largest carbon credit companies and issuers.

For instance, an investigation from The Guardian showed that up to 90% of the credits offered by one of the leaders in setting carbon standards were simply ‘phantom credits.’ They were not real in any tangible way and were not helping to offset carbon pollution beyond the numbers in a spreadsheet.

If polluters now have a way to look sustainable and preserve their corporate image without changing, they’re probably not going to change.

2. Carbon is actually stored longer in finished products like lumber and cross-laminated timber and not in the stump.

Understanding how carbon offsets work goes beyond the measurement of trees in a forest. Yet forest carbon credits set their sights solely on those forests and their stumps – ignoring the wood itself after it leaves the forest. Therefore, it neglects accurate carbon counting in these next phases of trees.

Additionally, the designated forests are still sold to developers to be used or harvested based on the landowner’s wishes. In many cases, this could mean ongoing harvests of this lumber every 10-20 years depending on the type of wood.

Carbon credits don’t account for the stored carbon in all this harvested timber over the years. At best, then, carbon credits serve as a short-term solution with wildly ambiguous measurements of how carbon is actually conserved.

As Stewart described it, “The carbon is stored longer in the finished product, especially lumber and cross-laminated timber. And it is certainly simpler to measure these amounts. Delaying harvests and getting paid for the carbon stored on the stump works until the tree dies. But this raises an obvious question: then what?”

Making Changes to Better Address the Problem

To get past these challenges, the only achievable path forward with forest carbon credits is to get real and get honest about them. Carbon credits as they stand nowcan’t move us toward meeting any of our collective carbon goals. We need to readjust our expectations in several different ways:

  • Incorporate more accurate measurements for carbon. This includes better identification about how carbon is stored in wood beyond the forests.

  • Improve measurements and reporting mechanisms. Until we have some sort of standardized system with reliable metrics, misconduct and ambiguity will worsen.

We will likely see continued reports about ambiguities and phantom numbers when it comes to forest carbon credits. As credibility continues to diminish, where will the concept of credits inevitably go? Let’s hope it will redirect toward a more accurate method for reducing carbon emissions across the board.

 

 

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The Great Lakes Timber Professionals Association (GLTPA)

Provides proven leadership in the Lake States Forest products industry for over 70 years. GLTPA is a non-profit organization proud to represent members in Michigan and Wisconsin and is committed to leading Forest Products Industry in sustainable forest management.

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