|Ensuring the permanence of credited GHG reductions and GHG removal enhancements of the forest project in the California carbon offsets market|
|Saturday, 22 September 2012 14:46|
Permanence is generally a subjective and an abstract notion, but considering legal categories it is simply measured as 100 years.
According to media (Point Carbon) project developer Finite Carbon has registered a forest project that has issued 200,000 offsets eligible for use in California’s cap-and-trade system.
In this context it is useful to note that forest projects capable of generating offsets eligible for use in California’s cap-and-trade system must comply with ‘Compliance Offset Protocol U.S. Forest Projects’ (Protocol) adopted by the California Air Resources Board (ARB) on 20 October 2011 and among requirements imposed by the said Protocol can be found also an interesting as well as demanding one, pertaining to the permanence of credited GHG reductions and GHG removal enhancements.
Mechanisms ensuring permanence of forest project under the California cap-and-trade
Permanence of forest project GHG reductions and removals under the California cap-and-trade regulations is generally addressed through three mechanisms:
1) the requirement for all offset projects to monitor onsite carbon stocks, submit annual offset project data reports, and undergo third-party verification of those reports with site visits at least every six years for the duration of the project life;
2) the regulatory obligation for all intentional reversals of GHG reductions and GHG removal enhancements to be compensated for through retirement of other compliance instruments;
3) the maintenance by ARB of a special Forest Buffer Account to provide insurance against reversals of GHG reductions and GHG removal enhancements due to unintentional causes (including natural disturbances such a fires, pest infestations, or disease outbreaks).
Intentional and unintentional reversals
GHG reductions and GHG removal enhancements can be “reversed” if the stored carbon associated with them is released (back) to the atmosphere. Many biological and non-biological agents, both natural and human-induced, can cause reversals. Some of these agents cannot completely be controlled and may therefore result in an unintentional reversal, such as natural agents like fire, insects, and wind.
Other agents can be controlled, such as the human activities like land conversion and over-harvesting. Under the Protocol, reversals due to controllable agents are considered intentional.
“Intentional Reversals” and “Unintentional Reversals” are defined by the California regulations in the following way:
“Unintentional Reversal” means any reversal, including wildfires or disease that is not the result of the forest owner’s negligence, gross negligence, or willful intent.
“Intentional Reversal” means any reversal caused by a forest owner's negligence, gross negligence, or willful intent, including harvesting, development, and harm to the area within the offset project boundary.
The Offset Project Operator or Authorized Project Designee is required to identify and quantify the risk of reversals from different agents based on offset project-specific circumstances. The resulting risk rating determines the quantity of ARB offset credits that the project must contribute to the Forest Buffer Account to insure against unintentional reversals.
Identifying a reversal
The Offset Project Operator or Authorized Project Designee must demonstrate, through annual reporting and periodic verification, that stocks associated with credited GHG reductions and GHG removal enhancements are maintained for a period of time considered to be permanent (i.e. according to what was said above for a period of 100 years).
If the quantified GHG reductions and GHG removal enhancements in a given year are negative, and ARB offset credits were issued to the Forest Project in any previous year, it is considered a reversal, regardless of the cause of the decrease. Planned thinning or harvesting activities, for example, may cause a reversal if they result in a negative value mentioned above.
Insuring against reversals
Unintentional reversals are insured against by contributing a percentage of ARB offset credits to a Forest Buffer Account. The amount of the contribution is based on a project-specific risk evaluation.
A Forest Buffer Account is a holding account for ARB offset credits issued to forest project, which is administered by ARB. All forest projects must contribute a percentage of ARB offset credits to the Forest Buffer Account any time ARB offset credits are issued by ARB for verified GHG reductions and GHG removal enhancements. Each forest project’s contribution is determined by a project-specific risk rating.
If the forest offset project is terminated due to an unintentional reversal ARB will retire from the Forest Buffer Account a quantity of ARB offset credits equal to the total number of ARB offset credits issued (and where applicable, all early action offset credits issued to the offset project) over the preceding 100 years.
If the forest offset project has experienced an unintentional reversal and its actual standing live carbon stocks are still above the approved baseline levels, it may continue without termination as long as the unintentional reversal has been compensated by the Forest Buffer Account.
A Forest Buffer Account therefore acts as a general insurance mechanism against unintentional reversals for ARB offset credits issued to forest projects. The Offset Project Operator or Authorized Project Designee must, however, continue contributing to the Forest Buffer Account in future years.
Offset Project Operator or Authorized Project Designee must notify ARB and the Offset Project Registry, in writing, of the unintentional reversal and provide an explanation for its nature within 30 calendar days of its discovery.
If the forest offset project is terminated due to an unintentional reversal another offset project may be initiated and submitted to ARB or an Offset Project Registry for listing within the same offset project boundary.
Contributions to the forest buffer account
ARB offset credits will be contributed to the Forest Buffer Account based on the reversal risk rating for a project as determined by the requirements and methods in the Protocol.
The risk rating must be determined prior to listing, and recalculated in every year the project undergoes verification. Forest owners who record a so-called Qualified Conservation Easement in conjunction with implementing a forest project will receive a lower risk rating.
Disposition of forest projects after an intentional reversal
Requirements for intentional reversals in short are as follows:
If an intentional reversal occurs, the Offset Project Operator or Authorized Project Designee must, within 30 calendar days of the intentional reversal:
- give notice, in writing, to ARB and the Offset Project Registry, if applicable, of the intentional reversal; and
- provide a written description and explanation of the intentional reversal to ARB and the Offset Project Registry, if applicable.
Within one year of the occurrence of an intentional reversal, the Offset Project Operator or Authorized Project Designee must also submit to ARB and the Offset Project Registry, if applicable, a verified estimate of current carbon stocks within the offset project boundary.
If an intentional reversal occurs from a forest offset project, and ARB offset credits have been issued to the offset project, the forest owner must submit to ARB for placement in the Retirement Account a quantity of valid ARB offset credits or other approved compliance instruments, in the amount of metric tons of CO2e reversed within six months of notification by ARB.
Notification by ARB will occur after the verified estimate of carbon stocks has been submitted to ARB, or after one year has elapsed since the occurrence of the reversal if the Offset Project Operator or Authorized Project Designee fails to submit the verified estimate of carbon stocks.
If a reversal lowers the forest offset project’s actual standing live carbon stocks below its project baseline standing live carbon stocks, the forest offset project will be terminated by ARB or an Offset Project Registry.
If the forest offset project is terminated due to any reason except an unintentional reversal, new offset projects may not be initiated within the same offset project boundary, unless otherwise specified in a Compliance Offset Protocol.
So, permanence apparently can be shaped by the regulatory regime as a quite manageable issue. Nevertheless, regulatory burden and responsibility that weigh on the forest project developers are significant.