Tuesday, December 29, 2009

Paying companies not to cut down trees

If you want to understand how tricky - and important - climate change agreements are, take a look at forests.

At meetings like the Copenhagen summit, governments and industry are working hard to build advantage into any agreements.

The big picture is that annual emissions limits of some kind will likely be set.

And a cap and trade system will let people make money if they find ways to cut production of greenhouse gases.

A B.C. pulp mill, for example, might now be producing 150,000 tonnes of carbon dioxide a year burning oil and gas.

Switching to wood waste as fuel for much of the year could reduce that by 100,000 tonnes. Under a cap-and-trade system, the company could then sell those credits to another company - perhaps an oilsands developer - that wanted to exceed its cap.

Europe already has a carbon market. Based on prices there - about $18 a tonne - the pulp company could sell the credits today for $1.8 million. . (All the numbers are based on real-world examples.)

It's an incentive to find ways to cut greenhouse gas emissions. As caps are reduced, the credits will be more valuable. B.C.'s carbon tax is based on a value of $15 tonne now, doubling in the next three years.

Cutting down trees generates a lot of greenhouse gases. Trees, as big plants, take in carbon dioxide and produce oxygen. The carbon dioxide is stored in the wood.

So a giant coastal red cedar represents a big carbon sink. The trees can live 1,400 years. That's long time to be sequestering carbon.

Here's where it gets complicated and interesting. An old red cedar could weigh 1,000 tonnes. If you were about to cut down the tree, you could - depending on the carbon rules - get paid $18,000 a year to put the chainsaw away.

Imagine thousands of square kilometres of coastal forest and the carbon credits to be sold from private land, First Nations territory and Crown land.

With the right rules, there is big money to be made and a chance for B.C. to increase emissions from other sources because of its forests.

But negotiating the right rules - part of the Copenhagen process - is tricky.

If the tree falls down and rots, or is burned in a forest fire, all that carbon is eventually released. Global warming means forests are degrading more quickly - so quickly Canada doesn't want forest emissions to be counted under a cap and trade system.

There are a lot of questions. Should B.C. be able to claim credits for not cutting trees in existing? If a company chooses not to log 100 acres of woodland, how are carbon credits determined?

Should companies that produce lumber, which continues to hold carbon, claim a partial credit? What's the greenhouse-gas reduction value of replanting trees to absorb carbon over the next few centuries?

Those questions will be sorted out over the next few years by negotiators in expensive suits. Billions of dollars rest on the outcomes.

And a lot of jobs. The forest industry has struggled for at least a decade. Now companies could have a financial incentive not to log.

The theory is that other areas of the economy will benefit and grow. But the company selling the carbon credits could invest the money anywhere. The buyers could be in another province or U.S. state.

The stakes are remarkably high. And the potential for building in ways to game the system is huge.

Despite all that, cap and trade is an important part of any effort to reduce emissions. The system will encourage innovation and allow flexibility for companies or countries that face challenges in meeting the targets necessary to greenhouse gas reductions. (A carbon tax, like British Columbia's, achieves some of the same goals although with a narrower focus.)

But defining, winning agreement on and managing an effective, equitable system is going to be a big challenge.

Footnote: B.C. was the only province to increase industrial greenhouse gas emissions in 2008. One exception was the pulp and paper industries, as mills took down time because of poor markets. Once the cap and trade system is in place, the chance to sell credits will be another incentive to reduce operations when times are tough.


Anonymous said...

The cedar tree math is off by at least a factor of 10. A tree 3m in diameter at the stump and 40m tall would amount to about 100 m3 above ground. In very rough terms a m3 of wood is equivalent to about 1 tonne of CO2 equivalent (less for cedar which is less dense than most others). So you might get $1500 if you could guarantee that nothing will happen to the tree in the next one hundred years. (Note that 100 m3 of average quality wood could generate > $30,000 in forest products some of which continue to store the carbon and substitute for fossil-fuel-intensive buidling products. Dig around for some interesting stuff on substitution and other benefits of wood at www.naturallywood.com)

paul said...

Hey anon, thanks for the post.
My numbers were rough, for sure. I checked more and found a wood volume of 450 cubic metres was not extreme for an old cedar. Using your assumptions, that's about $9,000 in carbon credits at current values. Does that seem reasonable to you?

cubic metres of wood volume is not extreme.

Anonymous said...

Looking at it it another way, a typical highway logging truck hauls 30-40 cubic metres of logs. It would be a very very very large cedar tree indeed to be the equivalent of 11-15 logging truck loads; I would suggest a world record tree!

Regardless of how big either of us think a cedar tree can get, the reality is that your average red cedar tree, even if an old one, is much smaller and no one should be thinking they are going to get thousands or even hundreds of dollars for every tree they don't cut.