NCX Guides
Landowners can earn income from the carbon credits that their forests produce.
How should you evaluate different forest carbon programs to find the right one for you and your land?
There’s a lot of hype around “carbon credits” and “climate-smart” forest management. In this guide, we’ll help you separate the hype from the reality. When you understand where the money is coming from, how these deals are structured, and what the risks and rewards are, you’ll be able to make an informed decision about which programs might be a good fit for you and your land.
What kinds of forest carbon projects are there?
There are three major kinds of forest carbon projects available to private forest landowners today.
-
01 Improved Forest Management (IFM)
Suitable for already forested areas, these projects pay landowners to reduce timber harvesting and grow older, more carbon-rich trees.These “IFM” projects are the focus of this guide.
-
02 Tree Planting (ARR)
As trees grow, they pull carbon from the sky. You may see these carbon projects referred to as “ARR” which stands for “Afforestation, Reforestation, and Revegetation.” See NCX’s Guide to Tree Planting for more details.
-
03 Avoided Conversion
These programs pay to prevent forestland from being converted into non-forest uses (like suburbs). These programs are fairly rare in the US but are more popular overseas.
How do you get paid for forest carbon?
There are different types of payment structures for participating in a forest carbon project. Each structure has pros and cons so it’s important to understand them and make an informed decision based on your risk tolerance and goals for your land.
Per acre lease rate
This common structure pays an agreed-upon per acre lease rate to use your land for the carbon project.
Revenue share
As the developer sells carbon credits, you can receive a percentage of the revenue from those sales.
Hybrid approach
Some projects allow for a base lease rate plus revenue share from carbon credit sales or additional incentives for performance if your project does well.
How do carbon credits get created?
If your project is designed to produce carbon credits, you should know the basics of how the number of credits are determined. Although there are a wide variety of different “methodologies” used to implement forest carbon projects, they all boil down to a fairly simple concept:
Carbon Credits = Carbon Stock – Carbon Baseline
Or in plain English, the number of carbon credits you get is based on how much carbon you have stored in your trees, minus how much carbon you would have had in a “business as usual” scenario without participating in the forest carbon project. This equation gets calculated multiple times over the course of your project and changes to your carbon stock or carbon baseline can significantly reduce the number of carbon credits your project generates – and how much you get paid!
THE MARKET
Why do people buy forest carbon?
Why does it seem like “carbon” has gotten so big in the past few years? One of the major catalysts has been a surge in Fortune 500 companies setting “carbon neutral” or “net zero” goals where they promise to reduce their carbon emissions and then buy “carbon credits” to make up for any remaining carbon that they emit into the atmosphere.
The US government is also a major source of funds for carbon projects. Through a variety of programs, the US government pays for landowners to implement “climate-smart” (their term) practices in the hope that they will increase the amount of carbon stored on their land. Right now, there is $100M+ being distributed through Inflation Reduction Act grants with the express purpose of promoting “climate-smart” forest management.
There are also some companies (in California, Washington, and Oregon) that have state regulatory requirements to purchase carbon credits to offset their carbon emissions. However, this market tends to not be a good fit for most landowners because of the onerous compliance requirements and burdensome bureaucratic procedures.
Where can forest carbon projects happen?
Tree planting projects require that you have land that has been unforested for 10+ years or was recently affected by natural disaster.
Improved Forest Management and Avoided Conversion programs require… that you have a forest!
Eligibility for most IFM programs also requires:
A credible risk of harvest – The whole theory of IFM projects is that they change harvest plans to store more carbon. So if your forest is unlikely to be thinned or harvested (too young, too far from a mill, etc.), you likely won’t be a good fit.
At least 20 acres of forest – Most project developers prefer to work with larger landowners to minimize their operational overhead. However, some programs are available for landowners with as few as 20 acres.
Currently, most forest carbon programs have limited availability and are concentrated in just a few regions (like the Southeast). NCX constantly monitors the availability and eligibility requirements of each program so that you don’t miss out on new forest carbon opportunities in your area.
Who is involved in a forest carbon project?
In addition to you and other landowners who host carbon projects, there are many different players that support the creation of carbon projects. The process can be pretty long and complicated.
Carbon Buyer
The end-buyer of your credits is typically a corporation with a carbon commitment. There may also be carbon brokers who intermediate between you and the end buyer. Your project developer may also help market your credits (for a fee) or may buy the credits from you directly as part of your contract.
Project Developer
Your project developer will be your closest point of contact throughout the process. They are basically the “general contractor” who handles the paperwork, the logistics, and compliance elements of the projects. Although you may be tempted to save money by being your own project developer, NCX’s recommendation is that you don’t try to do this yourself.
Certification Body
There are a small number of certification bodies (Verra, Gold Standard, ACR, CAR) that set the rules for the vast majority of forest carbon credits. Most buyers of carbon credits restrict their purchases to credits which are approved by these certification bodies. Your project developer will develop your project according to an approved “methodology” from one of these certification bodies
Validation & Verification Bodies (VVB)
This is yet another independent group that checks that the project developer is following the certification body’s methodology rules.
Risks, Rewards, and Restrictions
Because forest carbon markets are evolving rapidly, these projects tend to carry a wider range of risks than more traditional markets like timber.
Risks
Carbon projects present opportunity, but also significant risk to the parties involved, including you. There are a variety of risks that you should consider before signing up: natural disasters like fire, floods, and pests, the financial security of the project developer, carbon price fluctuations, and carbon market perceptions. All these variables affect your carbon project. Make sure you have a strong understanding of how a carbon contract addresses each.
Rewards
On the other hand, carbon programs can come with significant rewards. Some programs are structured to make regular payouts over time. Others offer a lump sum upfront. Others may offer a share of carbon credit revenue or even payment in the form of carbon credits themselves. Forest carbon programs also tend to “stack” well with other programs for wildlife conservation or recreational use.
Restrictions
Finally, make sure you understand what you’re giving up when you participate in a forest carbon project. Most obviously, these programs restrict your ability to harvest timber. Evaluate your carbon vs. timber economics to make sure that you’re not leaving a ton of money on the table. Landowners have received carbon offers that seem good, but are only 10% of what timber harvests could provide. NCX can help you evaluate this tradeoff.
Find the right program for you
NCX makes it easy to compare forest carbon programs.Create a free account to get started today.
