Carbon Primer

Forest Carbon Trading and Marketing in the United States

6. Trading and Marketing U.S. Forest Carbon Offset Projects

a. Trading Forest Carbon Credits

Of the three markets described above, the only one available to organizations located in the U.S. for trading forestry offset credits is the CCX. Broader goals of the CCX exchange include building market institutions and infrastructure, developing human capital in environmental trading and establishing the viability of a multi-sector and multi-national system for GHG emissions trading. CCX members that cannot reduce their own emissions can purchase credits from those that make extra emission cuts or from verified offset projects. Eligible forest offset projects include forestation and forest enrichment, combined forestation and forest conservation projects, and urban tree planting²⁷. Membership in the CCX includes five North American and four Brazilian integrated forest products companies operating both manufacturing facilities and managing forest lands²⁸. The CCX has registered forest offset credits from Costa Rica, Brazil, and numerous states in U.S., and is currently considering registering forest offset projects in Belize and Bolivia. General eligibility requirements under the CCX forestry offset program include:

Afforestation, reforestation and forest enrichment projects initiated on or after January 1, 1990 on unforested or degraded forest land.
Forest conservation projects may be eligible to earn CCX CFI offsets if they are undertaken in conjunction with forestation on a contiguous site.
Demonstration that entity-wide forest holdings are sustainably managed.
Demonstration of long-term commitment to maintain carbon stocks in forestry.
Use of approved methods to quantify carbon stocks.
Independent third-party verification of carbon stocks (where required).

Since its first trade in December of 2003, the CCX has expanded its electronic exchange platform capacity to include the European Climate Exchange that accounted for 70% of the market share of exchange platform activity in the EU market in 2005, the Montreal Climate Exchange in Canada, and the New York Climate Exchange and Northeast Climate Exchange to develop carbon financial instruments relevant to the RGGI. Figure 1 provides an overview of the CCX market design.

Figure 1 - Overview of CCX Market Design

Chicago Climate Exchange Members

Binding commitments to cut emissions or buy project-based offsets (e.g. Forestry) or allowances from Members with excess cuts;
Standardized emission monitoring and reporting protocols, NASD to audit
Renewable fuels treated as zero-carbon
Annual true-up and audit
Voluntary, self-governance and self-regulatory exchange

Chicago Climate Exchange Offset Providers

Offset providers/Offset Aggregators:

Continuous no-till
Grass and tree plantings
Methane combustion

Aggregators (e.g. Farm Bureaus) bundle, document and trade offsets produced by individual producers
Verifiers (private contractors): conduct in-field verification (process is audited by NASD)
Market-makers, voice brokers to provide market liquidity

CCX Registry

The CCX Registry is an electronic database that serves as the official holder of record and transfer mechanism for Carbon Financial Instruments owned by Registry Account Holders.

CCX Electronic Trading Platform

The Chicago Climate Exchange Trading Platform’s fully electronic functionality does not require intervention or assistance from brokers.

b. Voluntary Markets for Forest Carbon Credits

Marketing of voluntary forestry offset credits to buyers has been conducted in a variety of transactions. The World Bank became the first multilateral organization to become a member of the CCX in 2006. In June, the World Bank Group announced that it offset 100 percent of its GHG emissions produced by its Washington, D.C. operations and business transportation tracked from its headquarters in fiscal year 2006. CCX Carbon Financial Instruments equivalent to 22,000 MTCO₂ of the World Bank Group’s emissions were acquired and retired. These verified and registered credits originated from a reforestation project in Costa Rica owned by the Precious Woods Group, a sustainable forest management company based in Switzerland with operations in South and Central America²⁹. The Costa Rican project represents the world’s first ever registration and trade of carbon credits from a forestry offset project.

The Pacific Forest Trust worked with the van Eck Forest Foundation to register California’s first forest carbon project with the CCAR, achieving emission reductions of more than 500,000 MTCO₂ from sustainable management on 2,100 acres of working forestlands. Carbon emissions reductions registered and certified by the CCAR can be sold to businesses and other entities seeking to offset their own emissions, thus generating a new source of sustainable forest revenue. The Conservation Fund, Nature Conservancy, and California Coastal Conservancy are working on a similar project for the 23,000 acre Garcia River Forest³⁰.

Another example of marketing voluntary forestry offset projects includes the National Carbon Offset Coalition (NCOC). The NCOC is a member of the Department of Energy’s Big Sky Carbon Sequestration Partnership with a charter to propose and test strategies for a national carbon credit trading system for terrestrial offsets. The NCOC is comprised of seven Montana non-profit corporations. The NCOC program is designed to assist landowners in planning carbon sequestration activities and documenting the resulting Carbon Sequestration Units in a manner that adheres to international standards and protocols, and meets the needs of potential buyers. As a CCX aggregator, the NCOC brings agricultural and forestry offset projects into the CCX trading platform for its clients.

The Carbonfund purchases and retires verified reforestation project CO₂ emission reductions on behalf of its clients. The Carbonfund does not sell or trade project emission reductions.

Offset funding provided to The Climate Trust is used to select, contract, purchase and manage reforestation offset projects over the life of enforceable contracts. Offsets are transferred to and owned by the client as a corporate asset and can be used to meet GHG regulatory requirements or can be "banked" for use in meeting future requirements.

Twenty-five U.S. electric power companies, under the PowerTree Carbon Company, invested $3 million to establish six bottomland hardwood reforestation projects in Louisiana, Mississippi, and Arkansas with a goal of sequestering 1.6 million metric tons of CO₂ while providing important wildlife habitat and clean water co-benefits. These projects expect to provide sequestered carbon at a cost of less than US$2/MTCO₂ that will be shared with these power companies. These projects are eligible to be registered with the DOE’s 1605(b) program.

A comparison of the types of forestry projects that can participate in each of the primary U.S. registries is provided in Table 2.

Table 2 – Forest Project Types Within the U.S. Registries

DOE 1605(b) Registry (Voluntary)	California Climate Action Registry (Voluntary)	Chicago Climate Exchange (Voluntary)	RGGI Registry (Mandatory – active in 2009)
Managed forests, forest restoration, afforestation, reforestation, agroforestry, short-rotation woody biomass plantations, low-impact harvesting, protecting existing forests from conversion to other uses, and urban forestry.	Forest conservation, conservation-based management, and reforestation.	Afforestation and reforestation, forest conservation, managed forests, and urban forests.	Afforestation.

7. Forestry Project Accounting Issues for U.S. Registries

²⁷http://www.chicagoclimatex.com/news/publications/pdf/CCX_Forest_Offsets.pdf
²⁸http://www.chicagoclimatex.com/about/members.html
²⁹http://www.preciouswoods.com/index.php?option=com_content&task=view&id=220&Itemid=2&lang=en
³⁰http://www.pacificforest.org/news/pdf/vanEck-AP-Story-July-06.pdf
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