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Using Carbon Sequestration Projects
to Offset Greenhouse Gas Emissions
Margaret A. Yowell and Jessica K. Ferrell
A
s global agricultural and industrial development advance, the concentration of heat-trapping greenhouse gases (GHGs)—including
carbon dioxide, methane, nitrous oxide, and
chlorofluorocarbons—continues to increase.
Human activities increase GHG concentrations,
which in turn increase global temperatures and influence
the global climate. While GHG emissions perpetuate climate change, increasing, maintaining, and preserving the
integrity of naturally occurring carbon “sinks” and “reservoirs” may help slow climate change. Oceans serve as
carbon reservoirs by storing GHGs, while plants serve
as carbon sinks by actively capturing carbon out of
the atmosphere. Mature forests and oceans tend to
be carbon reservoirs. They remain in equilibrium with
the atmosphere unless disturbed, when they then release
carbon and contribute to GHG concentrations in the
atmosphere.
This article addresses: (1) methods by which agriculture and forestry sectors in the United States can increase
carbon reservoirs by sequestering carbon in forests, grazing, and croplands, and engaging in best management
practices (BMPs) to limit carbon emissions; and (2)
emerging business opportunities for investors and industry
to partner with agriculture and forestry sectors engaged in
carbon sequestration and emission-reducing practices.
The Kyoto Protocol to the U.N. Framework
Convention on Climate Change (Protocol) came into
force on February 16, 2005. The Protocol addresses
global warming and imposes binding commitments on
parties to reduce carbon emissions to specified levels and
thereafter maintain these capped levels. It employs the
“cap and trade” system that is the foundation for air
emission trading programs. Under this system, carbon
sequestered by one party may be used to offset emissions
in another party’s territory, facilitating parties’ abilities to
comply with the Protocol. Only Protocol parties may
participate in the flexibility mechanisms. Because the
United States is not participating in the Protocol,
American companies operating only in the United States
cannot participate in the Protocol-driven international
Ms.Yowell is a partner and Ms. Farrel is an associate
with the Marten Law Group PLLC in Seattle.They may
be reached at [email protected] and jferrell@
martenlaw.com, respectively.
carbon trading market. Despite this, there is still reason
for domestic companies, even those that are not active
internationally, to consider generating and investing in
carbon emission credits.
Although the Bush administration opposes the
Protocol, various bills have been introduced in Congress
to establish some form of carbon cap-and-trade program.
These include the pending McCain-Lieberman bill (S.
139) that would establish a trading system aimed at
reducing carbon emissions from utilities, refineries, power
plants, and other commercial entities. This bill failed in
the Senate in 2003, and given the current political opposition, federal regulation of carbon dioxide emissions is
not likely to emerge in the near future. Pressure continues to increase politically, however, to do something to
address global climate change, and common thinking is
that carbon emissions will eventually be restricted in the
United States.
In 2004, for example, the attorneys general of twelve
states and three cities filed suit against five utilities that
emit a large percentage of the carbon dioxide emitted by
utilities in the United States. This is, in part, an attempt
to force federal regulation of GHGs as pollutants. See
State of Conn. v. Am. Elec. Power Co., No. 1:04-05669LAP, at *1–2 (S.D.N.Y. filed July 21, 2004) (seeking
relief under federal or, in the alternative, state public nuisance common law). The targeted companies have filed
various dispositive motions seeking to dismiss the suit at
the outset and a decision from the court is pending.
Although regulation of carbon dioxide emissions at
the federal level does not exist yet, the U.S. Department
of Energy (DOE) has developed guidelines for reporting
emissions under its Climate Vision and Voluntary
Greenhouse Gas Reporting programs. Moreover, state
statutes have been adopted that establish mandatory mitigation requirements for U.S. businesses operating domestically. These statutes and voluntary participation in the
DOE’s programs, regional mitigation programs, and private initiatives are currently driving the domestic carbon
emissions trading market.
Massachusetts, New Hampshire, New Jersey, and
Maine enacted the first statutes requiring stationary
sources to report and reduce direct emissions of carbon
dioxide and methane. Other states have now followed
their lead. Currently, Wisconsin requires large emitters
to report carbon dioxide emissions. Connecticut,
20 • Natural Resources & Environment • American Bar Association • Summer 2005 • Volume 20 • Number 1
“Using Carbon Sequestration Projects to Offset Greenhouse Gas Emissions” by Margaret A. Yowell and Jessica K. Ferrell, published in Natural Resources & Environment,
Volume 20, No.1, Summer 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be
copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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Georgia, Illinois, Maine, Oregon, Texas, and Washington
emissions, and also establishes the Climate Trust—a nonrequire GHG emissions to be reported and inventoried.
governmental organization that receives payments from
Massachusetts, New Hampshire, Oregon, and
power plants, which it invests in GHG projects to avoid,
Washington impose binding GHG emissions reductions
displace, and sequester carbon dioxide emissions.
on utility companies. In addition to regulating carbon
GHGs lend themselves to emissions trading because
dioxide emissions from vehicles, California developed a
they mix uniformly—a ton emitted in Washington has
comprehensive voluntary reporting program, the
the same effect in Washington as it does on the other
California Climate Action Registry. New Hampshire and
side of the planet. When companies move their emisWisconsin also have established voluntary registries for
sions-intensive activities from regulated states to nonregemission reporting, and Massachusetts joined New
ulated states, however, “leakage” occurs, resulting in low
Hampshire as the second state with a cap-and-trade sysemissions reductions or increased emissions overall.
tem meant to facilitate compliance with carbon dioxide
Therefore, regional efforts work more effectively from a
emissions reductions imposed on power plants. Bills that
scientific standpoint than discrete, state-by-state prowould address GHG emissions are pending in the followgrams (while international programs like the Kyoto
ing states: Arizona, Hawaii, Minnesota, New York, Rhode
Protocol work best from a scientific perspective). For this
Island, and Vermont. On the other hand, Alabama,
reason, regional efforts are beginning to get attention.
Illinois, Kentucky, Oklahoma, West
Northeastern states launched a
Virginia, and Wyoming passed laws
Regional Greenhouse Gas Initiative
explicitly prohibiting mandatory
and are developing a cap-and-trade
reductions in GHG emissions.
program to reduce power plants’ carThe specifics of this state legislabon dioxide emissions, as well as a
Regional partnerships
tion suggest the range of approaches
Regional Greenhouse Gas Registry.
that can be used to address GHG
Massachusetts’ Climate Protection
continue to develop the science, Plan (CPP) affirms the Climate
emissions. Starting in March 2004,
the State of Washington requires
Action Plan adopted by the New
new power plants to mitigate 20 perEngland Governors and Eastern
agronomical research,
cent of their carbon dioxide emisCanadian Premiers in 2001. The
sions. Washington’s carbon reduction
CPP seeks to meet Kyoto Protocoland legislative support
law codifies the framework for a carinspired regional targets of decreasbon emissions trading platform by
ing emission levels to 1990 levels by
necessary to a successful
providing broad criteria for mitiga2010, decreasing to 10 percent
tion projects that utility companies
below those levels by 2020, and
may develop to meet their reduction
reducing GHG emissions far enough
carbon trading program.
obligations. Eligible mitigation projto eliminate dangerous threats to
ects include forest preservation,
the climate. California, Oregon,
financing alternative energy and effiand Washington are working
ciency projects, and landfill gas
together to reduce global warming
recovery.
pollution through the Governors’
In 1993, Oregon established the Forest Resource Trust
West Coast Global Warming Initiative. In 2003 and
(FRT) to reforest underproducing lands. With the partic2004, DOE named seven states and multiple Indian
ipation of nonindustrial private landowners owning 10 to
nations, universities, private companies, organizations,
5,000 acres of eligible land, FRT pays owners stand-estaband Canadian provinces to participate in seven publiclishment costs; in exchange, owners agree to share a fixed
/private-sector partnerships within its carbon sequestrapercentage of the net timber harvest revenues from
tion program. These regional partnerships continue to
forests created by FRT. The Oregon Department of
develop the science, agronomical research, and legislaForestry hopes FRT can effectively use forestry-based cartive support necessary to a successful carbon trading
bon offsets to generate funding for a carbon market.
program.
Active for almost ten years, FRT has enrolled 889 acres
and 28 total projects since 1995. Or. Dep’t of Forestry,
The Emerging Carbon Market
Forest Resource Trust Accomplishments, available at
www.odf.state.or.us/divisions/management/forestry_
As a result of this state activity, DOE’s voluntary GHG
assistance/trust/frtaccomp.asp?id=50201040203 (last
reduction programs, and the expectation of eventual fedvisited June 23, 2005).
eral regulation of GHG emissions, the features of a
Oregon administrative rules provide for sequestering
domestic carbon market are beginning to emerge.
atmospheric carbon in wood to comply with air quality
Complete definition of a domestic market depends on the
objectives and compensate for carbon dioxide emissions.
resolution of several important implementation issues.
Oregon law now requires power plants to reduce GHG
The U.S. Environmental Protection Agency identifies
Number 1 • Volume 20 • Summer 2005 • American Bar Association • Natural Resources & Environment • 21
“Using Carbon Sequestration Projects to Offset Greenhouse Gas Emissions” by Margaret A. Yowell and Jessica K. Ferrell, published in Natural Resources & Environment,
Volume 20, No.1, Summer 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be
copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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baselines, leakage, and duration as three key issues requirinvolves analysis of and recommendations for increasing
ing resolution before implementation of a GHG offset
carbon storage potential based on principles of soil sciprogram, which is critical to any carbon market. The
ence, silviculture, and forest ecology). Through consultaU.S. experience with acid rain and other trading protion, FSI can estimate the land’s carbon budget by analyzgrams will guide the developing domestic carbon market.
ing its carbon storage based on past, present, and future
Several factors, such as an accurate emissions inventory
potentials of annualized rates of sequestration. Ultimately,
and a fair baseline against which to measure reductions,
FSI can expose the carbon credits generated to the approremain in flux.
priate markets. FSI provides reviews for both buyers and
Domestic trading markets for carbon credits created by
sellers with components of the reviews differing depending
agriculture and forestry sequestration projects already
on one’s role in the marketplace.
have emerged, however. The Chicago Climate Exchange
(CCX) is a self-regulatory exchange that trades GHG
Carbon Sequestration Opportunities for
emissions. While CCX membership is voluntary, more
Agricultural and Forestry Sectors
than forty-five corporations, municipalities, and other
entities that emit GHGs from faciliThe GHG trading and offset proties in North America are participatgrams described above could prove
ing in the exchange and have made
favorable for farmers, ranchers, and
binding reduction commitments.
members of the timber industry by
GHG trading and offset
The CCX system consists of an
providing supplemental income
online trading platform, a clearing
through carbon sequestration pracand settlement platform, and the
tices. Economic evaluation of the
programs could provide
CCX registry. CCX began continucarbon sequestered by farmers, ranchous electronic trading of GHG emisers, and foresters suggests that all
farmers, ranchers,
sion allowances on December 12,
three sectors could compete in both
2003. Its reduction commitments
national and international carbon
and members of the timber
and trading rules apply from 2003
markets, albeit in the latter only to a
through 2006. The market platform
limited extent because the United
covers emissions from facilities
States has not agreed to the Kyoto
industry with supplemental
owned by CCX members of carbon
Protocol. This participation is being
dioxide, methane, nitrous oxide,
enhanced by state and U.S.
income through carbon
Department of Agriculture carbon
hydrofluorocarbons, perfluorocarbons,
storage projects that develop carbon
and sulfur hexafluoride.
sequestration practices.
equations to establish soil carbon
CCX lists the following projects as
models, and by their collective
eligible for offsets: landfill methane
research and development efforts
destruction in the United States;
that continue to improve the reliaagricultural methane destruction in
bility of both carbon storage potential and valuation of
the United States; carbon sequestration in U.S. forestry
that potential. Taking advantage of this opportunity
projects; carbon sequestration in U.S. agricultural soils;
through legislation could also help states manage resource
and fuel switching, landfill methane destruction, renewbases, gain competitive advantages, and provide an addiable energy, and forestry projects in Brazil. In January
tional revenue stream to help alleviate the pressure on
2004, CCX traded 82,800 metric tons (mt) of carbon
state budgets if such activities are applied to state-owned
dioxide, at prices between $0.90 and $0.98 per mt of carlands.
bon dioxide. Throughout 2004, prices ranged from $1.62
Carbon emission reduction credits (CERCs), measured
to $1.87 per mt. Prices hovered around $1.60 per mt
in metric tons of sequestered carbon, represent the
between February 28 and March 4, 2005.
amount of carbon stored by the sequestration practice. A
Several organizations also now offer brokerage services
10,000 square meter (m2) forest with a sequestration rate
to assist buyers and sellers with carbon offset and credit
of, for example, 6 tons per 10,000 m2 per year that
transactions. For example, the National Carbon Offset
matures at year seventy, yields a total of 420 tons of carCoalition headquartered in Butte, Montana, facilitated a
bon. International Carbon Bank & Exchange, available at
trade between the Salish and Kootenai Tribes of Montana
www.icbe.com/ (last visited June 23, 2005). But once
and the London Office of Sustainable Forestry
generated, CERCs must be calculated and verified against
Management in 2000. Forest Securities, Inc. (FSI) offers
a carbon accounting standard before they may be sold
management, scientific, economic, and brokerage services
into an emissions trading market.
for a range of climate change initiatives, domestically and
Estimates of the value of carbon emissions in 1999
internationally. FSI has more than 15 million acres of
ranged from $15 to $348 per mt. In 2002, studies put
forestlands under “consultation” around the world. (In
the nonweighted average price paid per metric ton of
the context of carbon sequestration, “consultation”
22 • Natural Resources & Environment • American Bar Association • Summer 2005 • Volume 20 • Number 1
“Using Carbon Sequestration Projects to Offset Greenhouse Gas Emissions” by Margaret A. Yowell and Jessica K. Ferrell, published in Natural Resources & Environment,
Volume 20, No.1, Summer 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be
copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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carbon dioxide at $4 in a buyer’s market created by legal
earn supplemental income through use of BMPs. In fact,
uncertainties surrounding emission reduction requirein the increasingly regulated carbon trading environment,
ments. In 2004, parties ranging from PacifiCorp, a
some commentators discourage farmers from agreeing to
power company in the Pacific Northwest, to C*Trade, a
long-term contracts that lock in a low carbon credit
sustainable energy developer, agreed on a trading price of
price, as they expect the price of credits only to rise.
roughly $8 per mt, while CCX reported prices consisThe worth of this supplemental income to carbon
tently under $2 per mt.
credit suppliers in the agricultural sector depends upon
Forests and cropland may offer the most promise in
the cost to change practices, and whether the returns
terms of carbon sequestration. Although policy and cost
increase after a short enough period to offset those costs.
factors remain to be fully resolved, agricultural studies
In addition, it can take cropland twenty to thirty years to
suggest that changes in rotation and tillage practices proachieve equilibrium after its conversion back to, for
vide the most cost-effective carbon sequestration processexample, a native ecosystem. Additional storage after
es. Certain types of tilling and organic farming increase
reforestation may take between sixty and one hundred
the potential of agricultural land to serve as carbon sinks
ten years. The point at which an ecosystem reaches
and sequester carbon. American forests have constituted
equilibrium and begins storing carbon in addition to
a significant carbon sink since at least the 1950s but, due
that stored through the former land use depends upon
to poor ecosystem management practices in agriculture
the starting state of the land. Expert consultants can
and forestry, the rate of sequestration
estimate the economics of this
is decreasing. Alternative practices
conversion.
aimed at sequestration on both public
Policy considerations and potenand private lands could increase both
tially hidden costs also factor into
While several organizations decisions to actively sequester addithe amount of carbon storage and the
rate at which soils and forests store
tional carbon in crop or grazing land.
actively establish and assess
carbon. Farming and ranching carFor example, industries required to
bon sequestration activities include
purchase carbon credits may supply
tree planting; forest preservation;
farmers with operating materials. As
agricultural and forestry
land conversion and restoration;
regulatory costs for supply companies
improved water and fertility manageincrease, farmers may pay for that
projects as GHG offsets,
ment; and improved cropping systhrough increased fuel and fertilizer
tems, including the use of conservacosts. In addition, some farmers
states have yet to agree on
tion tilling on croplands. These may
flood their land after harvest, providbe carried out as subsidized projects,
ing seasonal habitat for migratory
which may in turn be used as GHG
birds. Although environmentally
a binding uniform national
offsets for GHG emissions from
beneficial, this practice precludes
another entity, such as a power plant.
some carbon sequestration BMPs.
or regional standard.
Agronomists and soil scientists estiPolicymakers must weigh many commate that U.S. croplands could
peting interests, such as the relative
sequester more than 200 million metimportance of GHG reduction and
ric tons of carbon (mmtC) per year
creation of wildlife habitat in novel
from acreage conversion and use of BMPs. They estimate
ways, as well as both opportunity and hard costs of
the overall carbon sequestration potential of U.S. grazing
sequestration against its public benefits.
lands to be between 29 and 110 mmtC per year over a
Sustainable forestry management results in increased
twenty-five-year period. R.F. Follett et al., Research and
sequestration of carbon, and carbon credits are also traded
Development Priorities, in THE POTENTIAL OF U.S.
for stored carbon, such as standing forest land. Timber
GRAZING LANDS TO SEQUESTER CARBON AND MITIGATE
companies can benefit from reducing logging and modifyTHE GREENHOUSE EFFECT 427, 431 (2001).
ing harvesting schedules, instead allowing a standing forAgriculture activities themselves produce at least 20
est to continue sequestering carbon most effectively.
percent of manmade greenhouse effects. Holly L.
Forest landowners can increase carbon storage through
Pearson, Climate Change and Agriculture: Mitigation
the following conservation practices: reforesting underOptions and Potential, in CLIMATE CHANGE POLICY: A
producing lands; managing woodlands to conserve soil
and improve growth; improving forest health and reducSURVEY 307, 307 (Stephen H. Schneider et al. eds.,
ing fire risk; and restoring and protecting wetlands.
2002). The agriculture sector has the ability to mitigate
Landowners can then obtain a forestry carbon offset, a
these effects through use of Best Management Practices
transferable certificate verifying the amount of carbon
(BMPs). If a farmer generates a total carbon reduction by
dioxide removed from the atmosphere and stored as carchanging to sequestration-increasing practices, brokerage
bon in the forest, and sell that certificate to power comfirms calculate that change into CERCs. Farmers owning
panies that are regulated or voluntarily enrolled in GHG
carbon-productive and/or large tracts of land stand to
Number 1 • Volume 20 • Summer 2005 • American Bar Association • Natural Resources & Environment • 23
“Using Carbon Sequestration Projects to Offset Greenhouse Gas Emissions” by Margaret A. Yowell and Jessica K. Ferrell, published in Natural Resources & Environment,
Volume 20, No.1, Summer 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be
copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
NR&ESU05.final
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Page 24
reduction programs. Because the Pacific Northwest is
one of the most productive areas in the United States for
carbon sequestration, it is no surprise that Pacific
Northwest states have adopted GHG programs that foster
carbon sequestration.
For wood products to be counted as part of the carbon
budget rather than a carbon loss, timber companies must
keep records of logs sorts, markets, and other products to
enable accurate assignment of values to those products.
Members of both timber and agricultural sectors have the
option of agreeing to carbon easements on their land
once they implement sequestration practices, or simply
selling the carbon credits generated by BMPs. Carbon
brokerage firms known as “aggregators” assess carbon
sequestration inventories through biological assessments
and assist landowners and forest stewards by providing
recommendations for increased carbon storage benefits.
These include improved logging practices, conversion of
pasture to forestry, and lengthening rotation cycles.
Aggregators include conservation organizations, farming
coalitions, and consultants.
After the initial period of assessment, carbon storage
quantity estimates, and eligibility, the broker aggregates
the carbon offsets, and then markets and sells either carbon rights to the land to industry partners or carbon credits generated by the landowner to interested investors and
utilities companies. If the aggregator brokers an easement, it pays the landowner up front for the easement,
and then conveys the carbon rights to the investor in a
separate agreement. Because most carbon benefits are
not realized until the ten- to forty-year tree growth period, up-front forest projects may amount to approximately
$10 per mt for a new forest, exceeding the $6 per mt cost
estimated for agricultural projects. The long-term worth
of sequestration projects in both forestry and agriculture
depends upon the sequestration capability of the land, the
up-front costs to maximize that capability, the duration of
the project, and factors driving the demand for credits
created by sequestration projects. All of these variables
drive the price of easements and carbon credits to the
aggregator, investor, and regulated entity.
Hard costs for developing carbon credits in the farming, ranching, and forest sectors include up-front
expenses required for reforesting, afforesting, and otherwise converting lands to uses that result in greater carbon storage; continuing maintenance, monitoring, and
verification of actual storage convertible to CERCs; and
long-term capital investments required for a successful,
long-term storage project. Benefits flow to both the
project managers, presumably farmers, ranchers,
foresters, and brokers, and the public at large.
According to soil scientists, farmers benefit from
improved soil quality and a lesser susceptibility of soil to
erosion; the public receives multiple off-site societal
benefits like decreased water pollution, improved habitat conditions for wildlife and, of course, mitigation of
the greenhouse effect. R.F. Follett et al., Research and
Development Priorities, in THE POTENTIAL OF U.S.
GRAZING LANDS TO SEQUESTER CARBON AND MITIGATE
THE GREENHOUSE EFFECT 431, 434–36 (2001).
A recent study conducted for the Pew Center on
Global Climate Change provides an in-depth analysis of
such costs, as well as of factors affecting them and the
effects of discount rates. See Robert N. Stavins &
Kenneth R. Richards, The Cost of U.S. Forest-Based
Carbon Sequestration 5–33 (Jan. 2005), available at
www.pewclimate.org/docUploads/Sequest%5FFinal%2Epdf
(last visited June 23, 2005). The Pew Study synthesizes
prior ad hoc valuation studies that varied widely in their
cost estimates and provides central tendencies of normalized marginal costs of carbon sequestration projects. It
concludes that prior studies (not including regional studies, because inclusion would unrealistically oversimplify
the analysis by assuming that regional characteristics typified national characteristics) converge at the conclusion
that, for projects sequestering 300 million tons of carbon
annually, supply functions cost between $25 and $75 per
short ton of carbon; for projects sequestering 500 million
tons of carbon annually, costs range from $30 to $90 per
short ton.
The Buyer’s Market for Carbon Credits:
Investors and Regulated Entities
While several organizations actively establish and
assess agricultural and forestry projects as GHG offsets,
states in the United States have yet to agree upon a binding uniform national or regional standard. Various industries—including utilities companies, sanitary services,
textile mills, chemical companies, concrete and metal
industries—participate in DOE’s voluntary GHG reporting program established by Section 1605(b) of the Energy
Policy Act of 1992, 42 U.S.C. § 13385 (2000). These
industries use DOE program standards when submitting
EIA-1605 or EIA 1605EZ forms to DOE, which record
emissions and reductions. For more information, see
DOE Energy Information Administration, Voluntary
Reporting of Greenhouse Gases 2003, xi (Feb. 2005); and
Guidelines for Voluntary Greenhouse Gas Reporting, 70
Fed. Reg. 15,169 (Mar. 24, 2005) (to be codified at 10
C.F.R. pt. 300). In addition to DOE’s voluntary GHG
reporting program, the U.S. Department of Agriculture,
the Department of the Interior, and other federal agencies
responsible for carbon management in forest and agricultural lands of the United States have designed monitoring methods to collect data on carbon sequestration,
including the NASA Ames CQUEST application. This
is a combination of NASA remote sensing technology,
ecosystem process modeling, and field-based measurements that characterizes land management impacts on
the carbon cycle.
In addition, Oregon has required the development of
a forestry carbon offset accounting system “as a means
of consistently reporting forestry carbon offsets.” O R.
24 • Natural Resources & Environment • American Bar Association • Summer 2005 • Volume 20 • Number 1
“Using Carbon Sequestration Projects to Offset Greenhouse Gas Emissions” by Margaret A. Yowell and Jessica K. Ferrell, published in Natural Resources & Environment,
Volume 20, No.1, Summer 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be
copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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Page 25
REV. STAT. § 526.783 (2004). The state forester is to
ies. Carbon sequestration activities now need policy
develop the system to register, transfer, and sell forestry
guidance to become a widespread economic reality.
carbon offsets, but the statute provides only that the
The decision to not participate in the Kyoto Protocol
state forester “[u]se accepted principles and standards
will continue to affect development of a domestic carrelating to the creation, measurement, accounting, marbon market in several ways. While U.S. companies
keting, verifying, registering, transferring and selling of
with facilities in participating countries are regulated by
carbon offsets used as mitigation for carbon dioxide
the Protocol, they can also participate in the internaemissions” consistent with State Board of Forestry
tional Kyoto Protocol emissions trading market by, for
rules. Id. Though not yet standardized, these modeling
example, sponsoring emission-reducing projects in
and statutory tools, in combination with regional partdeveloping countries. In contrast, American companies
nerships designed to formulate workable models for
operating only in the United States cannot participate
domestic GHG accounting, may facilitate realistic carin emissions trading or any of the Kyoto Protocol’s other
bon trading within non-Protocol parties through
flexibility mechanisms, so companies in participating
forestry and agriculture sequestration projects in the
countries cannot purchase carbon credits from, for
near future.
example, U.S. sequestration projects to meet their emisSome electric utilities and oil
sions reductions under the Protocol.
companies operating in unregulated
The price of carbon credits from
states are also building up credits in
Protocol-eligible projects on the
anticipation of GHG emissions reguinternational market may therefore
lation. American Electric Power
outpace the price in the United
As mitigation requirements
(AEP), for example, voluntarily parStates. Because of this lower cost,
ticipated in DOE’s Climate
U.S.-based power companies that
become more widespread and are subject to mandatory state GHG
Challenge program. This program
has now evolved to the Climate
reduction requirements will likely
Vision program under the Bush
purchase less expensive, domesticala standardized verification
administration. AEP planted 15 milly produced carbon credits on the
lion trees in five years and developed
system is established, the U.S. U.S. market to comply with state
a Climate Action Project in Brazil
regulations, rather than Protocolexpected to sequester 1 mmtC over
eligible credits created by internacarbon market will build
forty years. In addition, the U.S.
tional sources. Companies may also
utility provider Entergy entered into
invest in CERCs as a way of buying
an agreement with Blue Source, Inc.
buyer and investor confidence. time to develop emissions-reducing
in 2002 to purchase geologic carbon
technology or for public relations
sequestration credits to meet volunreasons.
tary carbon dioxide limits. In the
Another issue potentially affectPacific Northwest, Portland General
ing the development and use of carElectric and PacifiCorp have both
bon sequestration projects in this
sought similar means of offsetting carbon dioxide emiscountry and elsewhere is the physical limits of carbon
sions since the early 1990s.
sequestration. Some scientists warn that its benefits may
If a power company enters into an agreement with a
be short term. Once a carbon sink reaches equilibrium, it
landowner to reforest, adopt BMPs, or otherwise increase
is storing the maximum amount of carbon of which it is
the land’s carbon sequestration potential, the company
capable. At this point, project managers must continue
can claim credit for reducing carbon dioxide emissions.
BMPs to ensure not only that the sink continues storing
Therefore, in addition to investors, both regulated power
its maximum, but that no carbon is released back into the
companies and companies that have voluntarily commitatmosphere through fire, pests, human activity, and varited to emissions reductions drive demand for CERCs.
ous effects of climate change itself.
As mitigation requirements become more widespread
and a standardized verification system is established, the
The Future of Carbon Sequestration
U.S. carbon market will solidify further and build buyer
and investor confidence. As long as agriculture and
A standardized verification system for non-Protocol
timber sectors carefully assess their options and minimize
carbon credits created by sequestration projects does not
up-front costs for sequestration practices (or ensure that
yet exist. This absence, along with the lack of wideinvestors or utilities companies pay those costs), carbon
spread binding emissions reductions, currently limits the
credits could provide a significant supplemental income
demand for carbon credits in the United States, creating
to boost agricultural and forest economies, facilitate mitia buyer’s market with a low price tag on carbon credits.
gation compliance, and help mitigate the greenhouse
The science and economics behind carbon sequestration
effect.
has developed despite this, albeit in largely ad hoc studNumber 1 • Volume 20 • Summer 2005 • American Bar Association • Natural Resources & Environment • 25
“Using Carbon Sequestration Projects to Offset Greenhouse Gas Emissions” by Margaret A. Yowell and Jessica K. Ferrell, published in Natural Resources & Environment,
Volume 20, No.1, Summer 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be
copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.