The Redwood Forest Foundation, Inc. (RFFI) a not-for-profit organization owns the Usal Redwood Forest Company, LLC (URFC) as a wholly owned subsidiary. URFC purchased the Usal Redwood Forest with a $65 million commercial loan from Bank of America, part of the bank’s 2007 $20 billion environmental investment initiative. RFFI is guarantor of that loan. This transaction is an aspect of RFFI’s bold use of innovative market-based strategies to improve the ecology and economy for the benefit of the regional community.
RFFI’s primary strategy for paying off the loan was through sustainable timber harvest focused on restoration, along with what we call “ecosystem services.” By this, we mean other income sources from the forest that at the same time maintain and restore the environmental attributes of the forest. In 2011, RFFI sold a conservation easement on the Usal Redwood Forest, i.e., gave up the property’s development rights assuring that the forest would remain an intact forest in perpetuity. The revenue from the sale of the conservation easement went to pay down the debt. It was anticipated that carbon credits would be sold as part of the pay down strategy, but it was unclear how much revenue RFFI could generate from offset sales.
Carbon Credits To Generate Revenue
In 2006, California passed the Global Warming Solutions Act, AB 32. As a result, the California Air Resources Board (CARB) created the California Cap and Trade program, a market-based regulatory structure designed to reduce greenhouse gases (GHGs) from multiple sources, including forests. Under the cap and trade program, firm limits or caps on GHGs were set for achieving AB 32 goals. Large industrial companies (“covered entities”) were then assigned an emission cap, and were required to mitigate any emissions in excess of that cap either by emission reductions or the purchase of carbon allowances from the state. Allowances are issued by CARB, are purchased through an auction, and can be used by covered entities to directly satisfy any emissions reduction obligations.
The original program required reduction of GHG emissions to 1990 levels by 2020, when AB 32 was due to sunset. In 2017, the law was extended to 2030, with the requirement of an additional GHG reduction of 40% by 2030.
In addition to purchasing allowances, a covered entity can also meet up to 8% of their emission target through the purchase of “offset” credits. Under this system, one metric tonne of carbon emitted by the company is offset by one tonne of carbon that is sequestered through a registered offset provider such as a forest landowner. CARB-approved forest offsets can be provided by any United States landowner who complies with strict CARB protocols that assure such sequestration is real and verifiable. Once registered, offset credits are traded on an open market. URFC trades primarily in forest carbon offsets.
How A Forest Carbon Offset Project Is Developed
Offset project registration is voluntary and the process to register carbon credits is rigorous and expensive. It first involves establishing a forest inventory that will be used for measuring carbon sequestration. Next, a project design document is created that calculates and establishes a “baseline.”
The term ‘baseline’ represents the general historic management on Usal and surrounding timberlands. Then, the project developer measures the amount of carbon sequestered as a result of their forest management practices. Said differently, they measure what “additional” amount of carbon is sequestered above what would otherwise be harvested under the baseline. Finally, the project design and inventory are verified by an independent third-party verifier.
Once the developer registers a carbon offset credit, they are then obligated by regulation to maintain that credit for 100 years. This means that their forest management and harvest practices must not exceed a level that would allow that sequestered credit to be released into the atmosphere.
In Usal’s case, registration took over six years and was completed in 2016. At that time, URFC registered offset credits from the 2007 Usal purchase date through 2014, a total of 3,918,782 credits. (Each credit represents one metric tonne of carbon sequestered). This made Usal the largest offset project in the United States at the time, and earned us the Climate Action Reserve 2016 Project Developer of the Year award.