Are “High-Quality Credits” Always Aligned with Climate Progress?
Spring in the Maine woods is sunshine. It’s returning songbirds, fiddlehead foraging and frog choruses at night. Enough that I feel hopeful, despite the natural disasters that pummeled our state this winter, despite the small ski and snowmobile businesses going under from lack of snow, despite the coming onslaught of ticks unchecked by deep cold.
I’m also hopeful because the tens of millions of taxpayer dollars invested in New England’s climate-positive future are beginning to pay off. 2023 saw the Biden administration designate a federal tech hub for advanced forest bioproduct manufacturing here in my home state of Maine. The first US manufacturer of high-performance, bio-based building insulation opened here that same year, and New England architects can now use cross-laminated timber (CLT) made from regional trees. This long-lived form of mass timber could potentially create carbon sinks in urban areas, and make dense “smart growth” more affordable and attractive. Both the bio-based insulation and the CLT can massively reduce embodied building emissions. Wood-based composites developed in New England can now compete with fossil-intensive materials in wind turbines, bridges, electronics, and packaging - all of the critical infrastructure for a fossil-free future that so far has been just out of reach, and too politically polarized. Maine forests are, literally, building a bipartisan path to progress in the fight against climate change.
Scaling these crucial innovations to achieve our nation’s climate goals obviously comes with a number of challenges. I never thought that the growth of forest carbon markets could be one of them - until a badly-botched project in New Hampshire threatened exactly the kind of infrastructure that we need to attract investment in climate-positive forest manufacturing. This wasn’t just any project, but a project by one of the largest forest carbon developers in the U.S. And the mistakes that the developer made weren’t accidents. The developer’s actions put them and our entire industry on a collision course with state and local governments. Now the deep (and well-earned) distrust of forest carbon markets that I’ve seen in the South is growing here, too. How much could the coming political and social backlash set our industry back?
We can and must address stakeholder concerns and our own low standards for stakeholder engagement now. Large corporate timberland owners globally are betting big on higher future carbon prices to diversify their portfolios. New ACR projects listed in Maine from 2023 to 2024 amounted to 500,000 acres - approximately the aggregate acreage harvested in the state each year - and tripled Maine’s enrolled acreage. Manulife Investment Management alone plans to invest $500 million in forest carbon projects, with their first project located here in Maine.
Is the forest carbon market undermining our public investments in a climate-positive future? I haven’t seen any data demonstrating that - yet. We may be able to balance increased domestic forest enrollment and increased demand for affordable, climate-positive forest products on the scales required to fight climate change. We may be able to enhance production of climate-positive forest products through more nuanced, tech-enabled carbon credit programs in the future. But the forest carbon industry in the U.S. needs to address three fundamental issues to ensure that its long-term impact is, in fact, climate-positive:
1) Inherent conflicts between the incentives facing project developers and the needs of our forestry, conservation, and climate-positive construction sectors
2) Lack of guidance, incentives, and will to build inclusive coalitions with key stakeholders
3) Lack of government oversight of carbon projects
Whatever happened to improved forest management?
I should say that my job depends on the success of forest carbon markets. I love my job. Before returning to research at Renoster I spearheaded sustainability statistics for one of the world’s largest timberland asset managers, and I developed projects for one of the world’s most reputable carbon project developers. And I realized that there is a deep, terrifying mis-match between the global scale at which major land owners and project developers decide to allocate land to forest carbon, and the regional scale at which we need to grow and manufacture low-carbon alternatives to our current industrial materials. My job is, in part, to point to ways to resolve that mis-match.
The profitability of traditional forest investments is closely tied to demand from the construction and consumer goods industries, which in turn are highly sensitive to the boom and bust cycles of the wider economy. However, the long-term and intensive investments that forestry requires are constants. Road maintenance, silvicultural treatments, forest health monitoring, site preparation and replanting costs, and harvesting itself can all sum to hundreds of dollars per acre per year. Timber is still a profitable and relatively steady asset class, but diversifying away from intensive forestry to bet on high future carbon prices is certainly tempting.
Spring in Maine - or anywhere else in US Forest Service Region 1 - is mud season. Mud season means melting snow, soft ground that could sink a skidder for days, vernal pools protected by law. It means no harvesting, another seasonal disruption that contributes to the high per-unit cost of forestry in the Northeast relative to the other US wood baskets. Trees grow faster in the South, bigger in the West. Closer to major ports. Closer to cheaper labor pools. If you’re a major timberland owner looking to diversify your portfolio, or if you’re large-scale forest carbon investor, the Northeast looks like a great place to bet on a growing forest carbon market - you’ll incur a relatively low opportunity cost when harvesting stops. This is not to say that large-scale forest carbon projects are only happening in the East. However, those projects do represent a more significant portion of our overall potential timber production in New England. They have a much greater potential chilling effect on the forest sector investment needed to make climate-friendly products like CLT a widespread reality.
This is where the logic of forest carbon markets comes close to falling apart. Ideally, forest carbon projects would shift land use and forest management incentives towards more overall carbon sequestration vis-a-vis more forestry. More forestry would reduce conflict between forest carbon projects and other climate-positive forest uses. The economics could play out something like this: scarcity of harvestable timber results in higher regional timber prices, such that regional landowners are able to invest more in the growth rate and quality of their own trees (intensification) or to invest more in afforestation and reforestation. We do see some evidence of these positive, or “inverse” leakage effects - especially when large projects lower harvest levels only gradually, or are located in regions where commercial timber species have very short rotation ages (see an explanation by Renoster’s chief scientist here). Regional landowners and the forest industry then have the time and flexibility to adapt.
However, large-scale, investor-backed project developers and landowners are ultimately under pressure to deliver returns first and to improve forestry/climate outcomes second. Even impact investment funds must be profitable to retain investors. Combine the project developers’ need to generate returns, the extreme downward market pressure on carbon credit prices, and the potentially high costs of practicing improved forestry, and what you get is a strong incentive not to practice improved forestry. You get a strong incentive to spend as little on forest management (including harvesting) as possible. You may even begin to equate the accumulation of biomass from a very-low-harvesting approach with net benefits to the climate and to society - and existing Improved Forest Management methodologies would incentivize you to reach this conclusion.
“Beyond the ‘Illusion of Preservation’”(2024) provides a highly-nuanced, ecosystem-science based perspective on why that logic doesn’t work. This report builds from the 2002 Harvard Forest publication articulating why not cutting forests is not the same thing as having a positive environmental impact. Present-day perspectives from the western US can be found in this excellent LinkedIn post. Given the perverse incentive structure facing forest carbon developers and standard-making registries (whose earnings are directly tied to the number of credits they sell), it’s not surprising that they have so far neglected to adopt policies supporting landowner and forest industry adaptation.
Some of the barriers to adaptation are fairly obvious: Forest markets are global in nature - there are limits to how much buyers will tolerate regional price increases due to supply decreases before importing from other regions. Importation diverts resources from adaptation measures like afforestation. Afforestation is incredibly expensive, especially when you’re competing with would-be vacation-home owners for the land. Even if you could find the money, trees take a long time to grow. Most loggers and mills would be long gone by the time that new trees reached maturity. Both contract loggers and mills run on very thin margins - moving across the region to find woodlands outside of forest carbon projects will not be sustainable. Yet if the forest carbon industry causes a sharp decline in forestry industry capacity, we’ll render our own projects non-additional while massively increasing market leakage. Is that a bet we’re willing to make?
“All hell is gonna break loose”
This February (2024) brought the first subtle acknowledgement of this issue by a major project developer. I wanted to be thrilled when Anew’s VP of Business Development announced her company’s decision to commission expert assessments about the regional market impact of all future projects. We were in a GreenBiz session titled “How to Champion High-quality, High-impact Carbon Credits”, where the theme was not supporting investment in improved forestry so much as denouncing “aggressive harvesting” (not the same thing). But here was a nod to the reality that “aggressive harvesting”, even if it came with underinvestment in regeneration/ climate-friendly silviculture, was playing an important role in the regions where they operate.
I don’t know how many others in the audience knew that Anew had just learned this lesson the hard way - the debacle received scant coverage in carbon circles. If this new market assessment protocol was meant to address the root cause of their misstep, it was a bandaid fix, a way for Anew to avoid its bigger stakeholder engagement problem. Although now it’s not just their problem - it’s the problem of New England’s entire forest-based climate solutions community.
Carbon markets largely exist in a moral and legal gray area when it comes to stakeholder engagement. They are meant to attract private investment by turning specific forms of conservation - typically a non-profit endeavor - into revenue-generating opportunities. Yet major carbon credit standards also “require”, to varying extents, transparency, auditability, and responsiveness in stakeholder engagement that are rarely seen in the private sector.
This odd experiment in pro-social capitalism doesn’t have enough guard rails to really work. To their credit, most registries have broad definitions of “stakeholder” - basically anyone who may be affected by a project, ever. Not to registries’ credit, they tend to provide no objective process for identifying them. On the plus side, they allow developers to choose the most appropriate forms of engagement given local context. However, the CARB- and ICVCM-approved American Carbon Registry (ACR) - the registry in our case study - provides no benchmark for determining when engagement is adequate - that call is left entirely to the auditors. Registries ultimately set projects up to fail at stakeholder engagement by allowing developers to delay engagement until well after the project has been planned, or even started. Any stakeholder feedback collected at this point will be very difficult for developers to include or address. Maybe that’s kind of the point.
I think I heard the word “stakeholder” mentioned only once during the entire hour of the “High-Quality Credits” panel. Project developers face a lot of stakeholder engagement disincentives in the absence of registry rules/ enforcement. If you were a project developer, why would you risk finding out about negative impacts of your project - even negative impacts on other climate solutions - if you would then be required to report them and address them? Why should you, with your team of ecology and remote sensing experts, have to listen to the concerns and ideas of rural communities with far less formal education, who are easily written off as “backwards” and “ignorant”, and who have no agency? Why should you make them aware of the fact that carbon registries have grievance redress mechanisms? How convenient that you, the developer, gets to choose who receives that bit of information. How convenient that most of these communities have no idea how much money you’re about to make from altering (to varying degrees) their environments, economies - even identities. The power imbalance between you and these communities is vast even if your project is located in the U.S.
Despite the obvious loopholes and surficial disincentives, there are project developers striving to do stakeholder engagement right - it’s become a bit of a truism that projects that engage communities early and equitably have a higher chance of long-term success, that time and effort spent gaining community buy-in saves time and money in the end. I should note that there was also a GreenBiz panel (not specific to carbon markets) titled “Community-Centered Decision Making for a Just Transition”. But it’s also true that creating that kind of engagement is challenging, intimidating, and might seem unnecessarily inconvenient to returns-focused carbon investors and their project developers. Common preconceived notions about the value of stakeholder feedback, or about the willingness of rural, working-class communities to collaborate on climate action, provide convenient excuses not to face stakeholders. They allow us to cover up our discomfort and fear with our expertise and moral authority.
Here is where I would highly (HIGHLY) recommend Keeping Forests director Laura Calanderella’s professional guide to facilitating conservation collaborations - Our Next Evolution is short, engaging, and eminently practical for anyone in our industry. And if developers can’t act on all of her recommendations for facilitating true collaboration to advance climate action, there are lots of organizations and trained professionals dedicated to doing exactly that. Hire them. I promise it’s cheaper than re-inventing an entire project. I promise it’s easier than restoring stakeholder relationships years into the future.
Anew has been learning the costs of poor stakeholder engagement since the fall of last year (2023), when their violation of a state easement landed them in a New Hampshire State investigation and sparked regional concern about the entire forest carbon industry. The simplified timeline below draws from the project’s ACR documentation, from my personal discussions with stakeholders at one of three major impacted mills, from personal communication with a member of the statutory Citizens Committee of the state easement in question, and from reporting by New Hampshire Public Radio.
The short version: Anew was warned many, many times that their management plan was out of compliance with State law and that going forward with the plan would generate pushback from lawmakers and from local communities. They were told that their plan would damage the regional forest industry. They began implementing it anyway, causing significant (if temporary) economic damages in an economically vulnerable community, and endangering the futures of both forest carbon and climate-positive wood products in New England.
Case Study Timeline
May 2023:
- Bluesource Sustainable Forest Company, LLC lists to renew ACR 199 (first crediting period 2013 - 2023). Now pay attention, because the ownership structure here is confusing. The organization listed on the listing document is Bluesource, but the corporate entity identified at stakeholder engagement events was Bluesource acquirer Aurora Sustainable Lands ("Aurora"). Aurora itself is a joint venture between Anew Climate ("Anew") and several investment groups, and the email provided on the listing document is from Anew ("@anewclimate.com"). Anew itself is owned by impact investor TPG.
- The project property’s manager re-negotiates an off-take agreement with the local sawmill, one of the region’s largest employers (and one of the few that doesn’t depend on tourism).
- Milan Lumber Co. supplies thousands of home builders and manufacturers throughout the Northeast. The timber deliveries that the property manager has just confirmed will supply up to a third of Milan’s annual processing volume. These two entities have had a strong relationship for decades.
- Milan Lumber Co. supplies thousands of home builders and manufacturers throughout the Northeast. The timber deliveries that the property manager has just confirmed will supply up to a third of Milan’s annual processing volume. These two entities have had a strong relationship for decades.
June - August 2023:
- The property manager tells Milan Lumber that they will not honor the spring offtake agreement. Unknown to Milan is that the property owner is reducing harvests by ~50% more than the harvest reductions under the previous carbon project. Milan Lumber is forced to temporarily lay off ~30 people in response and loses more than $2 million in revenue.
- Aurora begins presenting their proposed management plan (which is already being implemented) to select stakeholders, including with local town councils and with members of the State-appointed committee that makes recommendations for management of the easement. They are perceived to be telling the locals how the project will work rather than soliciting feedback.
- The public access and recreation management plan for the new carbon project, but not the forest management plan, is approved by the State.
- A sitting U.S. senator and a committee member who both helped to write the easement both separately tell Aurora that the extremely low levels of harvesting in the management plan are out of compliance - Aurora will be directly undermining public investment in timber as an ecosystem service. The committee member bluntly tells them that “all hell will break loose” if Aurora proceeds without modifying their plan.
January 2024:
- I (the author) visit Milan Lumber to answer managements’ carbon market questions. I learn that: Aurora leadership have never met with mill leadership; no representative of the carbon project has yet communicated with the mill leadership about how the project will operate; mill leadership have never been told about the project registry’s grievance redress process. (Whether or not local leaders had been told about the grievance redress process is unknown to me at the time of writing.)
April 2024:
- The NH Department of Natural and Cultural Resources, with the help of the NH Attorney General's office, formally rejects Aurora's proposed management plan.
May 2024:
- Local County Commissioners explicitly call out the fact that Aurora’s carbon project would have enriched members of the 1% of the global population who own the majority of the world’s assets, at the expense of the working class in an economically vulnerable region. They ask the State to set up more public input sessions about the potential impact of forest carbon projects on local stakeholders.
Aurora/Anew, technically, does not seem to have deviated from the requirements of ACR because the above events take place prior to validation. They did more stakeholder engagement than the previous carbon project developer (who did none), and they may well have intended to honestly represent stakeholder comments in their validation report (although their staunch refusal to incorporate constructive feedback from well-informed, supportive stakeholders into their proposed management plan suggests otherwise). We may never know if they intended to assess and address the long-term economic damages that the State of New Hampshire was unwilling to ignore.
Anew is set to become the largest forest carbon project developer in New England, and I had hoped for the sake of my home region that we would find more humility, more long-term thinking, more best practices behind Anew’s cloak of climate action. Ignoring stakeholders hasn’t worked out well for large renewable energy developers, and it’s not going to work for forest carbon, either.
TPG and other “impact” investors might do well to keep in mind that New England could increase harvest area and still increase our regional sequestration capacity (by >3 million tonnes per year by 2050!) if we were to decrease our rate of urban sprawl. If a carbon project isn’t contributing to conservation in areas at high risk of development, or if it isn’t enabling ecological forestry (which existing forest carbon methodologies admittedly don’t really support), an alternative investment in wood-based manufacturing of climate-positive products could potentially generate much greater environmental and social benefits.
States must be more than stakeholders
We shouldn’t be surprised that forest carbon markets have struggled to achieve integrity, lower transaction costs, and become widely accessible in the absence of regulation - what market has? Regulation facilitates market growth in large part by setting standard definitions, minimizing information asymmetries, and aligning stakeholder interests. Strongly encouraging companies to internalize their externalities. You all know this.
Imagine a scenario in which Anew/Aurora had been required to list their project with the State at the same time as listing with the registry. Imagine if, rather than hiring external consultants, Anew could have obtained third-party leakage and additionality estimates from the State. Imagine if these estimates were based on both field data and remotely sensed data collected by state agencies and the U.S. Forest Service, that was then fed into the same global forest sector models long used by the U.S. EPA to understand the implications of biomass energy. Anew could have paid a fee in return for these assessments, strengthening state and federal agencies’ abilities to monitor and coordinate active management for climate-related challenges to forest health. This fee could also pay for third-party stakeholder outreach and education, such that all stakeholders would know their rights under carbon registry rules. State agencies could coordinate economic impact assessments according to standard methods (i.e. IMPLAN) for projects exceeding certain size or volume reduction thresholds. Project uncertainty and transaction costs could both be much lower than they are today. Higher credit prices could make up for any decrease in the number of issued credits resulting from more credible accounting.
I’m not saying that the above scenario is the ideal way to coordinate domestic forest carbon (although it might be). I’m not saying that we should relive the chaos of Article 6 on a domestic scale, or mire our projects in some NEPA-like process. I am saying that states have a significant financial stake in optimizing forest production, forestland conservation, and forest climate adaptation.
I’d be remiss for not pointing out the stakeholder education already underway by state-led coalitions (I’m thinking specifically of Securing Northeast Forest Carbon). States seem to recognize their responsibility to ensure that forest carbon projects contribute a net benefit to their climate mitigation plans and to their citizens. According to former Obama sustainability lead Michelle Moore,
“... clean energy and climate action became the markers of an affluent urban lifestyle that left everyone else out… If we fail to question the values at the center of our energy systems [or carbon projects], we risk creating a dystopia that… replicates the health and wealth disparities of the past.”
State regulations may be able to succeed in forcing developers to “question the values at the center” of our projects where registries and auditors have failed. State involvement may actually be critical in securing a long-term social license to operate for forest carbon. As a general example, state regulations on timber harvesting have been key to improving social acceptance of the forest industry in recent U.S. history. States must therefore move from learning about carbon markets to deciding how forest carbon project developers must fit into their economic development and climate action plans - or else it will continue to be the other way around, to everyone’s detriment.
In conclusion
Stakeholder engagement is not a replacement for the cutting-edge forest economics and remote sensing tools that Renoster is working to bring to carbon markets, to inform resource allocation between carbon and other forest products. Additionality and leakage are fundamentally economic concepts, dependent on a deep understanding of both local and global forest product markets. But stakeholder engagement uncovers context rarely visible in analysts’ data sets - context necessary to understand where a project might do more harm than good. Realizing the full climate mitigation and adaptation potential of our forests requires a more collaborative approach than carbon registries currently mandate.
References
- Nepal P, Prestemon JP, Ganguly I, Kumar V, Bergman RD, Poudyal NC. (2024). The potential use of mass timber in mid-to high-rise construction and the associated carbon benefits in the United States. PLoS ONE 19(3): e0298379. https://doi.org/10.1371/journal.pone.0298379
- Ignatiadis et al. (2021). Operationalizing sense of place to evaluate potential conflicts in natural resource-dependent rural economies. Journal of Environmental Policy and Planning 23(4): https://doi.org/10.1080/1523908X.2020.1858769
- https://acr2.apx.com/mymodule/reg/TabDocuments.asp?r=111&ad=Prpt&act=update&type=PRO&aProj=pub&tablename=doc&id1=199
- https://www.nhbr.com/state-rejects-aurora-10-year-carbon-credit-plan/
https://indepthnh.org/2024/05/31/coos-county-commissioners-want-3-public-sessions-on-carbon-credit-impacts-on-logging/
- Susskind, L., Chun,J., Gant, A., Hodgkins, C., Cohen, J., Lohmar, S. (2022, June). Sources of opposition to renewable energy projects in the United States, Energy Policy, 165, https://doi.org/10.1016/j.enpol.2022.112922.
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