Teddy Reynolds' Program Notes for Capital Ideas -- Live!
Teddy Reynolds, Reynolds Forestry Consulting - RFC, Inc., Magnolia, Arkansas
July 18, 2007

1) What are Carbon Credit Offsets and what timberlands qualify for selling Carbon Credits?

Carbon that is sequestered (pulled out of the atmosphere) by trees during photosynthesis is now considered a valued offset to the carbon that is put into the atmosphere by industries reliant on fossil based fuels for energy. Industries that have joined the Chicago Climate Exchange have voluntarily made legal obligations to reduce carbon emissions 6% by 2010 with the ultimate goal to become carbon neutral some time in the future. This will be accomplished with a combination of real reductions in emissions and the purchase of offsets. The Carbon Credits are marketed to US based companies on the Chicago Climate Exchange, which operates similar to Wall-Street.

Currently there is only one approved program by the Chicago Climate Exchange for trees which is for all “afforested” pine and hardwood timberlands in the United States planted after January 1, 1990. Afforested means trees planted in previously non-timbered areas; for example, tracts that were pasture or row-crops prior to being planted. A minimum stocking of 250 trees/acre is required for signup.

Currently there is a new program under review to include working forests; which includes all forestland regardless of origin, and is expected to be approved and activated within a year.

2) What returns can a timberland owner receive from participating in selling carbon credit offsets on their timberlands?

Carbon credits are currently selling for approximately $3.50/metric-ton on the Chicago Climate Exchange. As an example, Loblolly pine plantations 0-5 years of age sequester 2.2 metric-tons/acre/year while plantations 11-15 years of age sequester 7.8 metric-tons/acre/year.

The signup period and payments are retroactive through 2003 and end in 2010. For example, if you enlist a 100-acre Loblolly pine plantation that was 11-years old in 2003, then you will receive payments for sequestered carbon from 2003 to 2010. Based on current carbon trading rates, during the 8-year signup a 100-acre Loblolly pine plantation will yield $21,945.

However, it should be noted that carbon payments will be reduced by 20% held back in an insurance pool to cover carbon credits potentially lost to catastrophic events during the 8-year sign-up, and refunded at the end accordingly.

3) How does a landowner enlist and what are the fees?

Landowners can enlist through aggregators such as Iowa Farm Bureau and Delta Institute, who have purchased seats on the Chicago Climate Exchange and sell the carbon tons in large metric ton blocks. The aggregators charge an 8-10% commission and the Chicago Climate Exchange charges a fee of 20 cents per ton.

If you enlist less than 2000 annual tons with an aggregator, then all you basically need to provide is contact information, verification of ownership acreage and planting confirmation; however, the verification requirements increase when you enlist over 2000 annual sequestered carbon tons. Is the program worthwhile for qualified landowners? Yes, as it can increase your real annual internal rate of return by as much as 1.6%. It’s better than a free interest bearing checking account.

Related web sites and resources:
1) Chicago Climate Exchange Website: www.chicagoclimatex.com
2) Delta Institute - www.delta-institute.org
3) Iowa Farm Bureau - www.iowafarmbureau.com
4) George Rheinhardt, NRCS State Forester; Email: George.Rheinhardt@ar.usda.gov; Office: 501-301-3137 ex.3143.