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NR&ESU05.final 8/18/05 12:46 PM Page 20 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. NR&ESU05.final 8/18/05 12:46 PM Page 21 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. NR&ESU05.final 8/18/05 12:46 PM Page 22 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. NR&ESU05.final 8/18/05 12:46 PM Page 23 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 8/18/05 12:46 PM 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. NR&ESU05.final 8/18/05 12:46 PM 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.