Global climate change is a widespread and growing concern that has led to extensive international governmental discussions and negotiations. The response to this concern has focused on reducing emissions of greenhouse gases (GHGs), especially carbon dioxide, and on measuring the carbon absorbed and stored by forests, soils, and oceans so as to create a market in which the mitigating instruments (“carbon offsets”) can be bought and sold.
A critical part of the carbon sequestration cycle takes place naturally within forests. Forests exchange large amounts of carbon dioxide (CO2) and other gases with the atmosphere and store carbon, in various forms, in trees and soils. Carbon stored in plants or soils is called “sequestered carbon.” Carbon returned to the atmosphere when it has been used by trees or other organisms as energy for life is called “respired carbon.”
Within the forest, healthy trees undergo the process of “Carbon Exchange” through a chemical process called photosynthesis, in which plants use sunlight to convert nutrients into sugars and carbohydrates. Carbon dioxide (CO2) is one of the nutrients essential for building the organic chemicals that comprise leaves, roots, and stems. All parts of a plant—the stem, limbs and leaves, and roots—contain carbon, but the proportion in each part varies enormously, depending on the plant species and the individual specimen’s age and growth pattern. As more photosynthesis occurs, more CO2 is converted into biomass, reducing carbon in the atmosphere and sequestering (storing) it in plant tissue (vegetation) above and below ground.
In addition to Carbon being sequestered in vegetation, carbon is also sequestered in forest soils. Carbon is the organic content of the soil, generally in the partially decomposed vegetation (humus) both on the surface and in the upper soil layers, in the organisms that decompose vegetation (decomposers), and in the fine roots. The amount of carbon in soils varies widely, depending on the environment and the history of the site. Soil carbon accumulates as dead vegetation is added to the surface and decomposers respond. Carbon is also “injected” into the soil as roots grow (root biomass increases).
Emissions trading or “Cap and Trade” is a government-mandated (Compliance Markets) or Voluntary (Non-Compliance Markets) with the end goal of controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants. As of 2017, over 40 national and 25 subnational jurisdictions representing almost a quarter of global greenhouse gas emissions are putting a price on carbon. Over the past decade, the number of jurisdictions with carbon pricing initiatives has doubled.
On average, carbon pricing initiatives cover about half of the emissions in these jurisdictions, which translates to a total coverage of about eight giga tons of carbon dioxide or about 15% of global emissions (a fourfold increase over the past decade).
“CAP” refers to the cap on greenhouse gas emissions and is a limit backed by science. Companies pay penalties if they exceed the cap, which gets stricter over time. Their limits are determined by a number of production factors, which are set on a per-industry basis.
“TRADE” refers to the market for companies to buy and sell allowances that permit them to emit only a certain amount. Trading gives companies a strong incentive to save money by cutting emissions.
Thus, companies are allowed to pollute to a certain point, and the total amount of the cap is split into “allowances,” each permitting a company to emit X ton(s) of emissions, with X defined as emission limits for each company within industries that emit GHGs. The government then distributes allowances to the companies, either for free or through an auction. The cap typically declines over time, providing a growing incentive to become more and more efficient.
However, if a company exceeded its given allowance, it will have one of three choices 1) Purchase additional allowances through the California exchange, 2) Purchase carbon offsets from private markets, with one carbon offset or one Allowance equaling one ton of carbon dioxide, or 3) Pay a fine.
The Creation of Carbon Offsets
NAP, through its management of its venture funds, creates carbon offsets through carbon forestry via the implementation of an Improved Forest Management Program (IFM), which is designed based upon the carbon protocol or market in which the Carbon Offsets will eventually be sold (See Figure 2). The IFM’s purpose is to enhance carbon sequestration through better forestry management and the harvesting of timber into durable wood products.
NAP’s projects will be managed to produce high quality, verifiable carbon offsets that meet the standards of the markets in which they are expected to be sold. These markets include organizations that are required by law to participate in mandated carbon reduction and mitigation compliance programs or that have established voluntary carbon offset programs. It is anticipated that NAP’s managed projects will be sold primarily in the mandatory offset market through the exchange operated by the California Air Resources Board (CARB), which is California’s “clean air agency” and is a cabinet-level department of the California Environmental Protection Agency.
Forest Carbon Project Development Process
Forest carbon projects entail a detailed and technical project development process supported by detailed project design plans (which describe how the project meets the requirements of a protocol and includes descriptions for additionality, a description of the baseline and project scenario, monitoring plan etc.). These project design plans are audited by an independent third-party verifier who confirms that the project plan is compliant with the standard and any applicable regulations. Over time the project is verified to ensure that the project is being carried out as described in the project plan and that the carbon offsets created are real, permanent, and additional.
Our approach to IFM projects includes the following:
For Forests – (Improved Forest Management – (IFM)):
For Grasslands – (Improved Grassland Management – (IGM)):
