Forest Carbon Markets: Potential and Drawbacks

Forest Carbon Markets: Potential and Drawbacks
July 3, 2008
Ross W. Gorte
Specialist in Natural Resources Policy
Resources, Science, and Industry Division
Jonathan L. Ramseur
Analyst in Environmental Policy
Resources, Science, and Industry Division

Forest Carbon Markets: Potential and Drawbacks
Forests are major carbon sinks (storehouses), and activities that alter forests can
release or sequester carbon dioxide (CO2), the most common greenhouse gas (GHG).
Some carbon markets have been formed under mandatory GHG reduction regimes,
such as the Kyoto Protocol and various regional and state initiatives in the United
States. Other markets have formed for voluntary efforts to reduce GHG emissions.
Offsets, or credits for sequestering carbon or reducing emissions in unregulated
sectors, are typically allowed in both mandatory and voluntary markets. Forestry
activities are among the largest-volume and lowest-cost opportunities for generating
Various forestry activities may be feasible for carbon offsets. Afforestation
(planting trees on open sites) and reforestation (planting trees on recently cleared
sites) are the activities most commonly included for offsets. Some propose that the
carbon stored in long-term wood products, such as lumber and plywood, could be
credited as carbon offsets, and mill wastes often substitute for fossil fuels to produce
energy; however, short-term products (e.g., paper) and the biomass left in the woods
after timber harvesting release carbon, making the net carbon effects uncertain.
Some forest management practices also might qualify for carbon offsets; certified
sustainable forest practices provide a system of assured, long-term forests, while
activities to increase tree growth face many of the same concerns as long-term wood
products. Finally, deforestation is a major source of GHG emissions, accounting for
as much as 20% of anthropogenic emissions. Thus, avoided deforestation, especially
in the tropics, potentially provides an enormous opportunity to reduce GHG
emissions. However, avoided deforestation is particularly prone to leakage (see
below), as well as many of the concerns about forest carbon offsets generally.
Forestry projects may offer considerable market opportunities for carbon offsets,
but several issues have generated concerns and controversy. One concern, especially
for compliance markets, is whether the project is additional to business as usual. An
activity that is common practice or industry standard, or a project that is required
under current federal, state, or local laws, cannot be used as an offset. Functional
carbon markets also require cost-effective practices to verify carbon sequestration.
Current measurement and monitoring practices are costly and have several
implementation challenges. Another concern is that, compared to other types of
offsets, forestry projects present the greatest risk of leakage. Emission leakage can
occur if carbon sequestered in one location (e.g., by avoided deforestation) leads to
carbon release (e.g., from increased harvesting) in another location. Product leakage
could occur if forest carbon sequestration encourages use of more carbon-intensive
substitutes (e.g., cement or steel). Forest carbon projects are expected to generate
offsets for decades. Some are concerned that the sequestration will subsequently be
negated by human activity (e.g., change in land use) or a natural occurrence (e.g.,
forest fire or disease). Although there are legal and accounting mechanisms that can
address this concern, implementing these options may present challenges, particularly
for projects in developing nations. Finally, forward crediting to allow early credits
for expected sequestration faces many of the same concerns about not fulfilling
ex pect at i ons.

Forest Carbon Markets..............................................1
Compliance Offset Markets......................................2
Kyoto Protocol............................................3
European Union’s Emission Trading Scheme....................5
Regional Initiatives in the United States........................5
Mandatory U.S. State Requirements...........................6th
Proposals in the 110 Congress...............................6
Voluntary Offset Markets.......................................7
Retail Offsets.............................................8
Chicago Climate Exchange..................................8
Reporting and Registry Programs.................................8
1605(b) Reporting Program..................................9
California Registry.........................................9
The Climate Registry.......................................9
USDA Guidelines........................................10
Forestry Projects for Offsets........................................10
Afforestation and Reforestation..............................10
Long-Term Wood Products.................................12
Forest Management.......................................13
Avoided Deforestation.....................................14
Potential Drawbacks of Forestry-Related Projects.......................15
Additionality ................................................15
Verifiability .................................................16
Measurement ............................................16
Monitoring ..............................................16
Enforcement .............................................16
Leakage ....................................................17
Emissions Leakage........................................17
Product Leakage..........................................17
Permanence .................................................17
Forward Crediting............................................18
List of Figures
Figure 1. Trading Volume and Market Value of the
Clean Development Mechanism (2005-2007)........................4
Figure 2. Estimated U.S. GHG Mitigation Totals by Activity:
Annualized Averages, 2010-2110................................11

Forest Carbon Markets:
Potential and Drawbacks
Forests are major carbon sinks — repositories of vast amounts of carbon.
Activities that alter forests — create, enhance, or destroy them — significantly affect
the amount of carbon dioxide (CO2) in the atmosphere. Forests store about 45% of
terrestrial carbon, and were estimated to sequester 2.6 billion metric tons (tonnes) of
CO2 per year in the 1990s, about a third of annual anthropogenic carbon emissions
from fossil fuel and land use changes.1
Concerns about global climate change and its impacts on the environment and
the economy are encouraging policy-makers and stakeholders to explore a range of
opportunities that would reduce emissions of CO2 and other greenhouse gases
(GHGs).2 Reducing deforestation and increasing the amount of carbon stored in
forests are approaches that have generated considerable interest for their ability to
support climate change mitigation.
Congress is considering climate change legislation that would, among other
things, provide financial incentives for parties to reduce GHGs or sequester (store)
CO2.3 The possible use of forests to sequester CO2 is part of this larger debate over
GHGs and climate change.
This report describes current markets for forest carbon sequestration, the
potential for using forest to offset other sources of GHG emissions, and the
drawbacks related to forest carbon sequestration efforts.
Forest Carbon Markets
The potential economic and environmental impacts of global climate change
have led many to consider regulating GHG emissions from various sources, and to
seek ways to ameliorate their own GHG emissions. Projects that sequester GHGs or
reduce GHG emissions from unregulated economic sectors, such as forestry, can
generate offsets, or credits, to sell to regulated entities or to those who wish to reduce
their carbon footprints. In either case — for regulated entities or for voluntary

1 Gordon B. Bonan, “Forests and Climate Change: Forcings, Feedbacks, and the Climate
Benefits of Forests,” Science, v. 320 (2008): 1444-1449.
2 Other greenhouse gases include methane (CH4), nitrous oxide (N2O), hydrofluorocarbons
(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). In general, emissions of
these gases are measured in carbon-equivalents or CO2-equivalents.
3 See CRS Report RL34436, The Role of Offsets in a Greenhouse Gas Emissions
Cap-and-Trade Program: Potential Benefits and Concerns, by Jonathan L. Ramseur.

reductions — forestry activities (e.g., afforestation, reforestation, and avoided
deforestation) present opportunities to offset GHG emissions.
Offsets are commonly project-based initiatives involving specific projects or
activities whose primary purpose is to reduce, avoid, or sequester GHG emissions.4
Parties can develop offsets from a wide variety of activities, such as renewable
energy and agricultural projects,5 but forestry-related projects offer the most
potential, in terms of volume of GHGs avoided or sequestered.
Offsets, or credits earned by an offset project, would likely be the currency of
most forest carbon markets. Offsets are the measurable avoidance, reduction, or
sequestration of CO2 or other GHG emissions. Forestry projects as offsets raise a
number of concerns. To be credible, the emissions reduced, avoided, or sequestered
must be additional to business as usual (i.e., what would have happened anyway),
verifiable, and permanent. These concepts, and the problems that arise in assuring
credible forestry, are discussed later in this report.
One concern for offset markets, in addition to the drawbacks discussed below,
is the potential for double-counting the offsets — that is, that sellers might try to sell
the same offset to multiple buyers. Thus, compliance markets, and some voluntary
markets, require some type of reporting and registration for offsets. This has led to
incentives for independent reporting and registry programs, as discussed below.
Compliance Offset Markets
A mandatory GHG reduction program, such as a cap-and-trade system, could
allow covered entities (e.g., power plants) to use offsets to comply with their GHG
emissions cap. For example, a regulated entity could purchase offsets, rather than
reducing direct, onsite emissions, if the offsets are less expensive. Assuming that the
tonne of CO2 reduced, avoided, or sequestered through an offset project equates to
a tonne reduced at a regulated source, the objective to reduce GHG emissions is met.
For global climate change, it does not matter where or from what source the
reduction or sequestration occurs: the effect on the atmospheric concentration of
GHGs would be the same.
Although forestry-related projects are eligible as offsets in several existing or
developing compliance markets, forest projects have, to date, played a negligible
role. If the recent cap-and-trade proposals (discussed below) are any indication,
however, interest in allowing forestry offsets in a compliance regime is growing.

4 Because offset projects can involve various GHGs, they are quantified and described with
a standard form of measure, usually metric tons (tonnes) of CO2-equivalents (mtCO2-e).
5 See CRS Report RL34436, The Role of Offsets in a Greenhouse Gas Emissions
Cap-and-Trade Program: Potential Benefits and Concerns, by Jonathan L. Ramseur.

Kyoto Protocol.6 The United Nations Framework Convention on Climate
Change (UNFCCC) is the primary international agreement to mitigate climate change
by reducing GHG emissions. The Kyoto Protocol established a framework for
Annex I countries (developed countries, including the United States) for “reducing
their overall emissions of such gases [GHGs] by at least 5% below 1990 levels in the
commitment period 2008 to 2012.” Although the United States originally signed the
Kyoto Protocol, it later rejected participation, and thus is not bound by its goals. As
of November 2007, 174 nations and the European Union were parties to the treaty,
although major industrializing countries (notably China, India, and Brazil) were not
To increase flexibility, the protocol includes two mechanisms — the Clean
Development Mechanism (CDM) and Joint Implementation (JI) — that allow certain
forestry activities to generate offsets.
Clean Development Mechanism. The CDM is a project-based mechanism
that permits Annex I countries under the Kyoto Protocol to earn credits for use in
achieving their emission targets. It is the only mechanism that allows Annex I
countries to earn credits for actions in non-Annex I countries (developing countries
such as India or China). For forestry projects, the CDM includes only afforestation
(planting trees where none were previously growing) and reforestation (replanting
trees on recently cleared forest sites).7 Further, project developers can only earn
credits for additional projects — those that would not otherwise have occurred (if
reforestation is required by a country’s laws, for example, the reforestation project
cannot earn credits under the CDM).
The CDM is the largest compliance offset market in the world. Both the trading
volume and market value of the CDM have grown substantially in recent years. (See
Figure 1.)
Although the forestry sector was initially expected to play a significant role in
the CDM, that has not been the case. An IPCC report stated that although the
forestry sector can make a “very significant contribution to a low-cost mitigation
portfolio ... this opportunity is being lost in the current institutional context and lack
of political will to implement and has resulted in only a small portion of this potential8
being realized at present.” Indeed, of the offsets issued under the CDM to date,
afforestation and reforestation have accounted for a combined 0.3%.9

6 See CRS Report RL33826, Climate Change: The Kyoto Protocol, Bali “Action Plan,” and
International Actions, by Larry Parker.
7 See UNFCCC, Conference of the Parties, Seventh Session — “the Marrakesh Accords”
— 2001, Decision 11.
8 Intergovernmental Panel on Climate Change, Climate Change 2007: Mitigation.
Contribution of Working Group III to the Fourth Assessment Report (2007), p. 543.
9 Put another way, of the 1,033 registered projects, only one is forestry-related. United
Nations Environment Programme, Capacity Development for the Clean Development
Mechanism (“CDM Pipeline”), at [].

Figure 1. Trading Volume and Market Value of the
Clean Development Mechanism (2005-2007)

1 000 14 Mar
800 ns)12 V
me o 10 alu
600olutric t8e (
e 6 billi
400ding Vn mon
aillio4 eu
200Tr ( m 2 ro
0 0
200 5 20 06 200 7
Trading VolumeMarket Value
Source: Prepared by Congressional Research Service with data from Point Carbon, Carbon 2007, and
Carbon 2008, at [].
Joint Implementation. JI is also a project-based approach for countries to
earn credits toward their emission targets under the Kyoto Protocol. JI projects are
conducted jointly between two Annex I countries. A broader array of forestry
activities can earn credits than under CDM; in addition to afforestation and
reforestation, avoided deforestation and forest management that enhances carbon
sequestration can qualify as JI projects. As with CDM projects, credits are only
earned on projects that otherwise would not have occurred. JI has a much smaller
market than CDM, with about 13 million tonnes traded in 2007 (compared to more
than 900 million tonnes for CDM).10
Ongoing Kyoto Developments. The concerns about tropical deforestation
and Third World contributions to GHG emissions were among the issues discussed
at the 13th Conference of the Parties to the UNFCCC (COP-13) and the 3rd Meeting
of the Parties to the Kyoto Protocol (MOP-3) held in Bali, Indonesia, December 3-11
14,2007. The United States participated in discussion at Bali, as a party to the
UNFCCC and as an observer to the Kyoto Protocol. Among the outcomes of the Bali12
negotiations was an Action Plan that included:
Policy approaches and positive incentives ... [for] reducing emissions from
deforestation and forest degradation [REDD] in developing countries; and
[identifying] the role of conservation, sustainable management of forests and
enhancement of forest carbon stocks in developing countries ...
10 Point Carbon, Carbon 2008, at [].
11 See CRS Report RS22806, The Bali Agreements and Forests, by Ross W. Gorte and
Pervaze A. Sheikh.
12 UNFCCC, Decision -/CP.13 — Bali Action Plan, at [

The negotiations also led to a decision on forests and deforestation.13 The
decision encourages various efforts, including demonstration projects, to reduce
GHG emissions from deforestation and forest degradation, financial and technical
support for those efforts, and improved measurement and reporting of GHG
reductions that result from such efforts. Some argue that the most important result
of the Bali negotiations, however, is that avoided tropical deforestation will be
included in any agreement on post-Kyoto (after 2012) actions on global climate
European Union’s Emission Trading Scheme. Members of the
European Union (EU) are implementing the requirements of the Kyoto Protocol
through the EU’s Emission Trading Scheme (ETS).14 Private parties subject to the
ETS cap cannot purchase forestry offsets. However, EU governments can purchase
eligible forestry offsets, from afforestation or reforestation projects, to meet their
Kyoto Protocol commitments, up to 1% annually of their country’s base year (1990)
emissions.15 The World Bank has reported that global transactions of land use, land
use change, and forestry offsets have only accounted for 6% of this allowable limit
(i.e., 0.06% of EU carbon emission reductions).
Regional Initiatives in the United States. Even though the United States
is not a signatory to the Kyoto Protocol, many states are participating in regional
initiatives for mandatory reduction of GHG emissions. Twenty-three states have
joined one of three regional partnerships that would require CO2 (or GHG) emission
Set to take effect in 2009, the Regional Greenhouse Gas Initiative (RGGI) is a
partnership of 10 Northeast and Mid-Atlantic states that creates a cap-and-trade
system aimed at limiting carbon dioxide emissions from power plants.16 RGGI
allows for five types of offset projects to generate emission credits, including
afforestation. RGGI participants agreed to continue to develop other offset projects,
“including other types of forestry projects, and grassland revegetation projects.”17
Seven western states (and three Canadian provinces) have formed the Western
Climate Initiative (WCI), which set a regional economy-wide GHG emissions target

13 UNFCCC, Decision -/CP.13 — Reducing Emissions From Deforestation in Developing
Countries: Approaches to Stimulate Action, at [
14 See CRS Report RL34150, Climate Change: The EU Emissions Trading Scheme (ETS)
Enters Kyoto Compliance Phase, by Larry Parker.
15 See European Union Directive 2004/101/EC (Oct. 27, 2004); Kyoto Protocol, Decision

17/CP.7 (Nov. 2001).

16 The 10 states are Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Also participating are the
District of Columbia, the Canadian province of New Brunswick, and “Eastern Canadian
Provinces.” See [].
17 RGGI Memorandum of Understanding, at [].

of 15% below 2005 levels by 2020.18 Although the WCI logistics are in the early
stages, “in each of the opportunities for stakeholder engagement on the design of a
cap-and-trade system for the Western Climate Initiative, there has been strong
support for including an offset program.”19
In addition, six states (and one Canadian province) signed the Midwestern
Greenhouse Gas Reduction Accord, which would establish a multi-sector GHG
cap-and-trade program in the Midwest.20 As with the WCI, this program is still in
the early development stages.
Mandatory U.S. State Requirements.21 Several U.S. states have individual
programs that currently or will soon mandate reductions in CO2 or GHG emissions.
For example, starting in 1997, Oregon has set standards for CO2 emissions from new
power plants; the plants can meet these standards by constraining emissions directly22
or by purchasing offsets from a nonprofit organization (the Oregon Climate Trust).
This organization has developed three forestry-related offset projects, which account
for 21% of current offsets. To date, all of the new facilities have chosen to purchase
offsets instead of constraining onsite emissions. Washington passed similar
legislation in 2004. In addition to these current requirements, California, Hawaii, and
New Jersey have passed legislation that would establish statewide reduction
programs. These programs are still in development.
Proposals in the 110th Congress. Members have introduced several
legislative proposals that would establish a GHG emissions reduction program, such
as a cap-and-trade system.23 Almost all of the cap-and-trade programs would allow
for the use of offsets to varying degrees, thus creating a compliance offset market.
Many of the proposals that allow offsets would include forestry-related activities as
eligible offset projects.24

18 Participants are the states of Arizona, California, Montana, New Mexico, Oregon, Utah,
and Washington, and the Canadian provinces of British Columbia, Manitoba, and Quebec.
Observers include the states of Alaska, Colorado, Idaho, Kansas, Nevada, and Wyoming,
the Canadian province of Saskatchewan, and the Mexican border states of Baja California,
Chihuahua, Coahuila, Nuevo León, Sonora, and Tamaulipas. For the text of the agreement,
see [].
19 Western Climate Initiative, Draft Design Recommendations on Elements of the Cap-and-
Trade Program (May 2008).
20 Participants are the states of Illinois, Iowa, Kansas, Michigan, Minnesota, and Wisconsin,
and the Canadian province of Manitoba. Observers include Indiana, Ohio, and South
Dakota. The text of the accord is available at [
r e sol u t i ons/ GHGAccor d.pdf .]
21 For more information see CRS Report RL33812, Climate Change: Action by States to
Address Greenhouse Gas Emissions, by Jonathan L. Ramseur.
22 See [].
23 For more information on these bills, see CRS Report RL33846, Greenhouse Gas
Reduction: Cap-and-Trade Bills in the 110th Congress, by Larry Parker, Brent D.
Yacobucci, and Jonathan L. Ramseur.
24 See CRS Report RL34436, The Role of Offsets in a Greenhouse Gas Emissions

Voluntary Offset Markets
Voluntary markets are exchanges of offsets by entities not subject to emissions
caps. In contrast to compliance markets, forestry-related and other land use projects
have played a much larger role in voluntary markets. A 2007 study found that, of the
different offset categories in the voluntary market, forest sequestration accounted for
the largest percentage (36%) of transaction volume.25 The primary components of
the voluntary market are “retail” offsets and offsets generated through the Chicago
Climate Exchange, both of which include forestry projects.
In the United States and elsewhere, a growing number of organizations and
individuals not subject to mandatory emission caps are buying or selling offsets.
These exchanges are voluntary, because there is no requirement for these parties to
curtail their GHG emissions.26 Buyers may be interested in offsetting some or all of
their GHG emissions from various activities, reducing their “carbon footprint,” or
becoming “carbon neutral.” Buyers might also be preparing for future mandatory
federal GHG emission reductions, getting into the market while prices are relatively
low with the expectation that today’s carbon offsets will be usable to achieve future
federal emission ceilings or caps. Sellers are interested in receiving income for
various activities, which, without the voluntary market, would likely not occur.
There is currently no registry or tracking system that follows all exchanges in
the voluntary market. For this reason, the precise size or value of the voluntary offset
market is unknown. However, a series of World Bank reports provides estimates for
recent years indicating that the size of the market has increased rapidly every year
since 2004.27 In 2006, the market size was roughly 20 million metric tons of CO2-
equivalent (mtCO2-e).28 The World Bank report cites forecasts of increasing growth
in coming years. One projection (described as “optimistic” by the World Bank)
estimated that the volume of transactions in the international voluntary market would
be 400 mtCO2-e by 2010.29 To put this figure in context, U.S. GHG emissions were
approximately 7,054 mtCO2-e in 2006.30

24 (...continued)
Cap-and-Trade Program: Potential Benefits and Concerns, by Jonathan L. Ramseur.
25 Katherine Hamilton, Ricardo Bayon, Guy Turner, and Douglas Higgins, State of the
Voluntary Carbon Markets 2007: Picking Up Steam (Washington, DC: Ecosystem
Marketplace and New Carbon Finance, 2007).
26 See CRS Report RL34241, Voluntary Carbon Offsets: Overview and Assessment, by
Jonathan L. Ramseur.
27 See, for example, The World Bank, State and Trends of the Carbon Market 2007
(Washington, DC: May 2007), at [
Resources/Carbon_T rends_2007-_FINAL_-_May_2.pdf].
28 Another study estimated the size in 2006 at approximately 24 mtCO2-e. Katherine
Hamilton et al., State of the Voluntary Carbon Markets 2007.
29 The 2007 World Bank report (p. 41) cites ICF, Voluntary Carbon Offsets Market: Outlook

2007 (2007).

30 EPA, “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2005.”

Retail Offsets. In general, the voluntary offset market refers to retail or “over-
the-counter”31 offsets that may be purchased by anyone. Purchasing a retail offset is
as simple as online shopping. More than 170 organizations — private and nonprofit
entities — develop, provide, or sell retail offsets to businesses and individuals in the32
voluntary market. The quality of the retail offsets in the voluntary market varies
considerably, largely because there are no commonly accepted standards. Some
sellers offer offsets that comply with standards generally regarded as quite rigorous,
such as the CDM or the Gold Standard.33 Other sellers offer offsets that meet the
seller’s self-established guidelines, which may not be publicly available. These
self-established protocols can vary considerably, raising questions of integrity.34
Chicago Climate Exchange. The Chicago Climate Exchange (CCX) was
established in 2003 as a trading system for buyers and sellers of offset projects to
reduce GHG emissions.35 Buyers (i.e., GHG emitters) make voluntary but legally
binding commitments to meet GHG emission reduction targets; those who emit more
than their targets comply by purchasing CCX Carbon Financial Instrument (CFI)
contracts, which can be generated by qualifying carbon offset projects (from sellers).
CCX has standardized rules for CFI contracts, including forestry projects, and
requires third-party verification for projects. Eligible forestry projects include
afforestation, reforestation, reduced deforestation and forest degradation, forest
management to increase stand-level and landscape-level carbon density, and long-
term carbon storage in wood products.
CCX has guidelines and rules for determining eligible projects and their
resulting carbon offsets. However, recent studies have been critical of the quality of
the offsets generated by the CCX.36
Reporting and Registry Programs
In general, GHG reporting and registry programs allow facilities to submit and
officially record emissions data. The primary incentive appears to be the opportunity
for participants to create an official record of reduced or sequestered emissions,

31 Hamilton et al., State of the Voluntary Carbon Markets 2007.
32 Environmental Data Services, The ENDS Guide to Carbon Offsets (London, 2008).
33 The Gold Standard was developed by a group of nongovernmental organizations. The
Gold Standard sets requirements beyond the CDM, but only applies to renewable and energy
efficiency projects. See [].
34 Several studies have analyzed the offset sellers and provided recommendations; see, for
example, The ENDS Guide to Carbon Offsets; Anja Kollmuss and Benjamin Bowell,
Voluntary Offsets For Air-Travel Carbon Emissions Evaluations and Recommendations of
Voluntary Offset Companies; Tufts Climate Initiative (revised Apr. 5, 2007); Clean Air-Cool
Planet, A Consumer’s Guide to Retail Carbon Offset Providers (Dec. 2006), prepared by
Trexler Climate + Energy Services.
35 See [].
36 See The ENDS Guide to Carbon Offsets; Anja Kollmuss, Helge Zink, and Clifford
Polycarp, Making Sense of the Voluntary Carbon Market: A Comparison of Carbon Offset
Standards (Stockholm Environment Institute, Mar. 2008).

which the parties hope will count as emissions credits in future mandatory reduction
programs. At a minimum, participants typically receive some public recognition for
their efforts, which may help promote an organization’s environmental stewardship
1605(b) Reporting Program. Section 1605(b) of the Energy Policy Act of
1992 (P.L. 102-486; 42 U.S.C. §§ 13201, et seq.) created a program of voluntary
reporting of GHG emissions, reductions, and sequestration. The U.S. Department of
Energy, with assistance from other departments, established guidelines for reporting
estimated emissions, reductions, and sequestration; the guidelines were revised and
updated in 2006.
The program has been criticized, because facilities need only report reductions
and/or sequestration, instead of reporting all emissions.37 In other words, a company
can submit a record of tons sequestered at one location, but continue to increase
emissions at other sites. This may present a concern in subsequent years, if these
companies are allowed to receive credit for these reductions or sequestration, and
apply the credit towards compliance with an emissions cap.
California Registry. The California Climate Action Registry is a private,
nonprofit organization for voluntary reporting of GHG emissions and reductions,
initially formed by the State of California in 2001. Registry members (currently more
than 300 corporations, government agencies, and other organizations) voluntarily
measure, verify, and report emissions using registry standards and tools. The Climate
Action Reserve is a division of the registry to establish standards for voluntary
carbon reductions. The registry and reserve include forestry protocols for the forest
sector (for organizations and landowners to account for entity-wide forest carbon
stocks and emissions), for forest projects (for carbon sequestration projects by
landowners), and for certification (for third-party verifiers to assess reported GHG
data). 38
The Climate Registry. The Climate Registry was launched on May 8, 2007.
As of May 31, 2008, 39 states have joined the registry to support both voluntary and
mandatory reporting schemes in the participating states. The Climate Registry is
modeled on the California Climate Action Registry, with a goal of providing “an
accurate, complete, consistent, transparent and verified set of greenhouse gas
emissions data supported by a robust reporting and verification infrastructure.”39
Neither the California Registry nor the Climate Registry directly facilitate market
transactions, but the information provided could provide a consistent basis for
calculating carbon offsets.

37 See Pew Center on Climate Change, Greenhouse Gas Reporting and Disclosure: Key
Elements of a Prospective U.S. Program, In Brief (Number 3), at [http://www.pewclimate.
org/ docUploads/policy_inbrief_ghg.pdf].
38 See [].
39 See [].

USDA Guidelines.40 The 2008 farm bill (the Food, Conservation, and Energy
Act of 2008, P.L. 110-246) contains a new conservation provision to facilitate the
development of markets in environmental services. It directs the U.S. Department
of Agriculture to develop technical guidelines for measuring environmental services
from farms and forests. The provision specifically includes carbon in environmental
services, in recognition of the need for uniform standards and consistent measures
of emissions reduction and carbon sequestration in the agricultural and forestry
sectors. These technical guidelines are likely to provide a consistent basis for carbon
reporting and for offset projects in both voluntary and compliance markets.
Forestry Projects for Offsets
Several types of forestry projects might qualify as offsets for compliance or
voluntary carbon markets. The capacity of forestry projects to provide offsets is
substantial, with higher carbon prices increasing the number of economically feasible
projects. One study estimated that U.S. forestry projects could sequester more than
100 million mtCO2-e at a carbon price of $5 per tonne or as much as 1,200 million
mtCO2-e at $50 per tonne, as shown in Figure 2.41 Subsequent changes in law and
policy, as well as changes in energy, carbon, and forestry markets and different
assumptions, would lead to different conclusions. Still, this potential is significant
when compared to the 7,054 mtCO2-e of U.S. emissions in 2006.42
The inclusion of projects in other countries would affect the quantity and price
of offsets. This is particularly significant for forestry, since tropical deforestation and
forest degradation have been estimated to cause as much as 20% of anthropogenic
carbon emissions. Whether to include international projects in compliance schemes
has been subject of extensive debate. (See “Avoided Deforestation,” below.) In
addition, international forestry projects may face more significant problems than
domestic projects, as discussed below.
Afforestation and Reforestation. Establishing stands of trees is one of the
most basic objectives of forestry. Afforestation is planting tree seedlings or preparing
an area for tree seeding on sites that have been without trees for several years
(generally a decade or more), such as pastures or recently abandoned or retired
cropland. Reforestation is similar, but applies to sites recently cleared of trees, due
to timber harvesting or a natural disaster.

40 See CRS Report RL34042, Environmental Services Markets in the 2008 Farm Bill, by
Renée Johnson.
41 U.S. Environmental Protection Agency, Office of Atmospheric Programs, Greenhouse
Gas Mitigation Potential in U.S. Forestry and Agriculture, EPA 430-R-05-006
(Washington, DC: Nov. 2005), p. 4-21.
42 EPA, “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2005.”

Figure 2. Estimated U.S. GHG Mitigation Totals by Activity:
Annualized Averages, 2010-2110

600.0 Tons
400.0n M
AfforestationForest management
Source: Prepared by Congressional Research Service with data from U.S. Environmental Protection
Agency, Office of Atmospheric Programs, Greenhouse Gas Mitigation Potential in U.S. Forestry and
Agriculture, EPA 430-R-05-006 (Washington, DC: Nov. 2005), pp. 4-21.
Afforestation and reforestation are common forestry activities included in
trading schemes for forest carbon sequestration offsets. Successful projects must
result in established stands to qualify as an offset. Planting failures can result from
disease or adverse ecosystem conditions. Forest stands generally sequester more
carbon than sites without forest cover. Forest biomes store as much as 10 times more
carbon in their vegetation than do non-forest biomes, usually at least for decades, and
for centuries in some ecosystems. Afforestation will generally sequester more carbon
than reforestation because of the carbon release from the site clearing prior to
reforestation. (See “Long-Term Wood Products,” below.) Afforestation can provide
a broad array of other environmental benefits (e.g., improved water quality and
habitat for native animal species), if the newly established tree stands restore a
historically native mix of species. Plantations, including plantations of exotic
species, probably provide less carbon storage than natural mixed forests, but can still
be beneficial, especially if fast-growing species are used for products to displace
harvests of natural forests (reducing deforestation).
The opportunities for afforestation are best in areas with long histories of land
clearing for agriculture and other uses — Europe, North America, China, India, and
the like. Some countries or regions with substantial open land may have limited
opportunities for afforestation because of their arid conditions (e.g., central Asia,
Sudan). In other areas (such as the United States), strong demand for corn and other
agricultural products (e.g., soybeans or oil palms) to produce ethanol or biodiesel
may also limit afforestation opportunities.

Long-Term Wood Products. Some have suggested that harvesting timber
for long-term wood products should be included as possible carbon offsets. Lumber,
plywood, and other solid wood products can store carbon for many years, ranging
from 10 years for shipping pallets to 100 years or more for buildings.43 Sawmill
wastes are almost entirely used for paper or energy (burned as a substitute for fossil
fuels). Paper products have a relatively brief duration, often releasing their carbon
in less than a year, but paper often is recycled, reducing the carbon release as well as
reducing the demand for wood from the forest.44
The wood left on the site after harvesting timber for wood products is more
problematic. Some carbon may be added to the soil through decomposition, but
much of the carbon left on the site returns to the atmosphere over time — a few
minutes if the slash (tree tops and limbs) is burned; weeks, months, or even years if
the slash rots.
Wood product harvests from natural tropical forests generally release more
carbon than do harvests from plantations and temperate and boreal forests. Native
tropical forests have much greater tree species diversity, and thus generally have a
greater percentage of the biomass on a site remaining after a timber harvest. Reduced
impact logging (RIL) is a collection of practices and techniques intended to reduce
the environmental damage of logging, especially in the tropics, that can ameliorate
the carbon release from tropical logging.45 One source reported that RIL reduces
wood waste by more than 60% and soil disturbance in roads, landings, and skid trails
by almost 50%.46 However, one barrier to increased use of RIL is illegal logging in47
the tropics.
The net carbon consequences of timber harvesting for wood products have been
debated extensively, with little resolution. Some argue that harvesting increases
carbon sequestration by storing carbon in long-term products and sequestering large

43 Kenneth E. Skog and Geraldine A. Nicholson, “Carbon Sequestration in Wood and Paper
Products,” in The Impact of Climate Change on America’s Forests: A Technical Document
Supporting the 2001 USDA Forest Service RPA Assessment (Linda Joyce and Richard
Birdsey, tech. eds.), Gen. Tech. Rept. RMRS-GTR-59 (Ft. Collins, CO: USDA Forest
Service, 2000), pp. 79-88.
44 Skog and Nicholson, “Carbon Sequestration in Wood and Paper Products.”
45 See Dennis P. Dykstra, Reduced Impact Logging: Concepts and Issues, FAO Corporate
Document Repository, at [].
46 Tropical Forest Foundation, “Reduced Impact Logging,” at [http://www.tropicalforest ril.html ].
47 See CRS Report RL33932, Illegal Logging: Background and Issues, by Pervaze A.
Sheikh. See also Patrick B. Durst and Thomas Enters, “Illegal Logging and the Adoption
of Reduced Impact Logging,” paper presented at Forest Law Enforcement and Governance:
East Asia Regional Ministerial Conference (Denpasar, Indonesia: Sept. 11-13, 2001), at
[ h t t p :// eap/eap.naf/Attachme nts/FLEG_S6-5/$File/ 6 + 5 + D u r s t +

amounts of carbon in reforestation.48 Others have determined that the carbon
released in harvesting operations substantially exceeds the additional carbon
sequestered by reforestation.49 Both conclusions may be valid in certain
circumstances; the consequences probably depend on many factors, such as the
products made and the amount and treatment of the carbon left on the site. Thus,
whether timber harvesting for wood products could be a carbon offset is uncertain.
Forest Management. Forest management includes a variety of practices.
Some are aimed at enhancing growth of the commercially desirable trees. Other
plants compete for space, light, water, and nutrients. The undesirable vegetation can
be killed chemically (with herbicides), mechanically (with machines or tools), or
sometimes by fire (with prescribed burning). The net result, regardless of the tool,
is that the carbon from the dead vegetation is released by burning or decomposition.
One study found that mechanical thinning increased total carbon storage in dense,
young stands, where competition had significantly reduced growth rates; elsewhere,
it released carbon by reducing canopy cover and disturbing soils.50 This is significant
because many forest carbon models project carbon sequestration as a fixed
percentage of commercial timber volume, not of total biomass on the site. In
contrast, using fertilizers can enhance total vegetative growth without disturbing the
soil, although many fertilizers are derived from fossil fuels and thus might not result
in total net carbon storage. In sum, forestry practices to enhance growth apparently
increase carbon sequestration in some circumstances, but not in others. This limits
generalizations about potential of forestry practices to offset GHG emissions and
raises questions about including growth enhancement for carbon offset projects.
Another significant practice is certified sustainable forestry. The sustainability
of forests has long been an issue of environmental concern. In 1994, the Working
Group on Criteria and Indicators for the Conservation and Sustainable Management
of Temperate and Boreal Forests was formed to develop internationally accepted
measures of sustainable forestry.51 The 12 member countries, representing 90% of
the world’s temperate and boreal forests, agreed in 1995 on a set of criteria and
indicators to measure forest conservation and sustainable management; these are52

presented in the Santiago Declaration.
48 John Perez-Garcia, Chadwick D. Oliver, and Bruce R. Lippke, “How Forests Can Help
Reduce Carbon Dioxide Emissions to the Atmosphere,” in U.S. House Resources
Subcommittee on Forests and Forest Health, Hearing on H.Con.Res. 151, Sept. 18, 1997
(Washington, DC: GPO, 1998), Serial No. 105-61, pp. 46-68.
49 Harmon et al., “Conversion of Old-Growth Forests,” and Peter M. Vitousek, “Can Planted
Forests Counteract Increasing Atmospheric Carbon Dioxide?” Journal of Environmental
Quality, v. 20 (Apr.-June 1991): pp. 348-354.
50 Paul Schroeder, “Can Intensive Management Increase Carbon Storage in Forests?”
Environmental Management, v. 15, no. 4 (1991): pp. 475-481.
51 See [].
52 See []. The Montreal
Process excludes the forests of Europe (except for the Russian Federation), which have been
addressed separately, under the Helsinki or Pan-European Process.

Several systems have been developed to certify that forests are being managed
sustainably, consistent with the criteria and indicators developed through the
Montreal Process and similar processes for other forested regions. The systems
include programs from the Forest Stewardship Council (FSC), the Sustainable
Forestry Initiative (SFI), and the Programme for the Endorsement of Forest
Certification (PEFC). Although the programs differ in many details, they have many
elements in common, such as using RIL, reforesting after harvests, protecting water
quality, maintaining habitats for rare species, and preserving native peoples’ rights.
Furthermore, most require long-term planning for forested areas and independent,
third-party monitoring to assure that implementation is consistent with the system’s
requirements. Most systems also require chain-of-custody reporting to assure that
wood products claiming to be from sustainable forests actually come from certified
forest lands.
Forest certification clearly provides a legally enforceable standard for forest
management that could establish a permanent contract for sustainable production. It
clearly produces environmental benefits and provides carbon sequestration when
compared to unregulated timber harvesting. However, quantification of the carbon
offsets that might result from forest certification, reflecting the variation in forest
types and traditional forestry practices, poses a challenge.
Avoided Deforestation. As noted above, tropical deforestation is estimated
to account for about 20% of global anthropogenic GHG emissions. Thus, avoiding
tropical deforestation has great potential to reduce GHG emissions. Since tropical
deforestation is currently external to carbon compliance requirements, it could be a
substantial source of forest carbon offsets. At the project level, preventing
deforestation is a relatively simple, straightforward action — contracts, easements,
and other legal instruments can be created to assure that a site is not cleared of its
timber. However, avoiding deforestation is particularly prone to leakage —
deforestation of another site to provide the desired products or outcomes. This issue
is discussed below.
Some of the leakage problem can be addressed by determining offsets for
avoided deforestation at the national or regional level; this approach is used for some
CDM and JI offsets. Proponents of including aggregate national total for avoided
deforestation argue that (a) it lowers compliance costs, since avoiding deforestation
can be substantially less expensive than active forestry or other emission reduction
or sequestration efforts; and (b) it provides compensation to developing tropical
Third World nations. Opponents argue that (a) it would be a disincentive to, and
would raise eventual costs for, developing countries to participate in global GHG
emission reduction efforts; (b) it would benefit the political elite of developing
nations, while their indigenous peoples would be further disenfranchised; and (c) it
would delay technological development and implementation to reduce GHG
emissions in the industries that cause the emissions.53

53 See CRS Report RL34436, The Role of Offsets in a Greenhouse Gas Emissions Cap-and-
Trade Program: Potential Benefits and Concerns, by Jonathan L. Ramseur.

Potential Drawbacks of Forestry-Related Projects
Although forestry-related projects may offer considerable opportunities to
mitigate climate change, several issues with offsets and with forestry projects have
generated controversy. The primary concern is the integrity and credibility of offsets
generated by forestry activities. To be credible, a forestry offset should provide a net
CO2 reduction or sequestration equal to an emission reduction from a direct emission
source, such as a smokestack or exhaust pipe. This issue is critical, particularly if the
offsets are to be used in an emissions trading program.
Implementing this objective imposes challenges for all offset types, but forest
offsets generally present more hurdles than other projects. To generate credible
offsets, projects must be additional to what would have occurred without the
incentive supplied by the carbon market; they must be verifiable (i.e., measurable and
enforceable); they must control or adjust for leakage; and they must address the issue
of permanence. Forward crediting is proposed by some to accommodate the long
period of carbon accumulation in forests, but others are concerned about assuring
payments only for actual carbon sequestration. These issues are discussed below.
Additionality is a significant factor in determining offset integrity. Indeed, if
a project is not additional, it cannot qualify as an offset in a compliance market.
Additionality means that the offset project is an activity beyond what would have
occurred under a business-as-usual scenario. In other words, in the case of a forestry
project, would the sequestration have happened anyway?
A test of additionality would examine whether the offset project would have
gone forward in the absence of the forest carbon market. For instance, does the
activity represent a common practice or conform to an industry standard? Is the
forestry project required under other federal, state, or local laws? Would the
sequestration project generate financial gain (i.e., be profitable) due to revenues from
outside the offset market?54 For example, in the United States and Canada,
reforestation following a timber harvest would generally not qualify as an offset,
because most states and provinces require reforestation. Similarly, disposal of
sawmill waste by burning to produce energy, and displace the use of fossil fuel,
would not qualify as an offset, because all U.S. sawmills burn their waste (except for
what is sold for paper production) for energy.
Additionality is at the crux of an offset’s integrity, but applying the additionality
criterion may present practical challenges. Assessing a project’s additionality may
involve some degree of subjectivity, which may lead to inconsistent additionality
determinations. For instance, it may be impossible to accurately determine “what
would have happened anyway” for some projects. Data on historic deforestation are
sketchy, at best, making it difficult to assess whether an avoided deforestation
program would be additional.

54 See World Resources Institute, The Greenhouse Gas Protocol for Project Accounting
(Dec. 2005), at [].

The forest carbon sequestration must be real and measurable. That is, the
forestry project — afforestation, avoided deforestation, etc. — must actually occur
and have a quantifiable amount of carbon sequestered. Meeting these objectives
requires measurement, monitoring, and enforcement.
Measurement. Measuring forest carbon sequestration can be problematic.
Various approaches have been taken, including tables, models, and protocols for
estimating carbon sequestration by various practices in different locales. A common
limitation is that many estimators use commercial timber volume as the basis for
carbon stored, but the relationship between commercial volume and carbon
sequestered may not be linear. For example, thinning is a forestry practice intended
to increase commercial volume by concentrating the same total growth on fewer
commercial stems.55 Total growth also varies widely from site to site, depending on
a host of localized physical and environmental factors. Thus, many observers
recommend, and some existing carbon markets require, field measurements to adjust56
the estimated carbon storage to on-the-ground reality. One problem is that field
measurements are expensive and subject to sampling error.
Monitoring. To verify that sequestration projects are meeting their stated level
of sequestration, some level of monitoring is required. For enforceable contracts,
periodic monitoring is essential to assure that the contract is fulfilled. For
agreements larger than projects, such as avoided deforestation for an entire
landholding or country, periodic monitoring becomes more important and more
difficult. Remote sensing (e.g., satellite imagery) and field sampling are common
practices for monitoring large-scale changes, but both are expensive and both are
subject to sampling error. The two practices are commonly used together, with field
sampling to assure the on-the-ground accuracy of remotely sensed data.
Enforcement. Often, the reality of a project is assured through an enforceable
contract, such as an easement attached to the forested property to require continued
forest cover. Many existing forest carbon markets require third-party verification for
forest carbon credits. For some markets and practices, assurance of sustainable forest
management can be obtained through forest certification. A number of organizations,
such as the Forest Stewardship Council (FSC), the Programme for the Endorsement
of Forest Certification (PEFC), and the Sustainable Forestry Initiative (SFI), have set
standards and rely on independent third parties for certification of sustainable forest

55 See David M. Smith, Bruce C. Larson, Matthew J. Kelty, and P. Mark S. Ashton, The
Practice of Silviculture: Applied Forest Ecology, 9th ed. (New York, NY: John Wiley &
Sons, Inc., 1997).
56 See, for example, The Wilderness Society, Ecology and Economics Research Department,
Measuring Forest Carbon: Strengths and Weaknesses of Available Tools, Science & Policy
Brief, No. 1 (Washington, DC: April 2008).

Leakage “occurs when economic activity is shifted as a result of the emission
control regulation and, as a result, emission abatement achieved in one location that
is subject to emission control regulation is [diminished] by increased emissions in
unregulated locations.”57 In the context of forestry-related offsets, the opportunity
for leakage exists on two fronts: emissions leakage and product leakage.
Emissions Leakage. Compared to other offset types, forestry projects,
particularly those that sequester carbon by curbing logging, likely present the greatest
risk of leakage.58 For example, if large landowners or countries agree to preserve
their forests, wood processors might simply shift their harvests to neighboring
landowners or countries. As a result, the total harvest (total deforestation) might be
unchanged, even though particular landowners or countries might have avoided
deforestation of their forests. The only recognized solution is for a majority of59
landowners or countries to agree to participate in a program to reduce deforestation.
Product Leakage. Forest products face another type of leakage: product
leakage. Producing long-term wood products, such as lumber and plywood, uses
much less energy — and thus emits fewer GHGs — than comparable quantities of
alternative products used to build homes and other structures, such as concrete and60
masonry walls and steel and aluminum framing. Thus, avoided deforestation might
lead builders to replace wood with other more energy-intensive, GHG-emitting
products. The net carbon consequences of such a shift are unclear.
For forestry-related projects, one concern is that the projected sequestration will
be halted or reversed. Forest offset projects are typically expected to generate offsets
(via sequestration) for decades. Some are concerned that the emission offsets will
be subsequently negated by human activity (e.g., change in land use) or a natural
occurrence (e.g., forest fire, disease, or pestilence).
Permanence is especially problematic for forests, because forests are composed
of living organisms — they are born (seeds germinate), they grow, and eventually

57 U.S. Environmental Protection Agency, Office of Air and Radiation, Tools of the Trade:
A Guide To Designing and Operating a Cap and Trade Program For Pollution Control,
EPA430-B-03-002 (June 2003), Glossary.
58 Nicholas Institute for Environmental Policy Solutions, Harnessing Farms and Forests in
the Low-Carbon Economy: How to Create, Measure, and Verify Greenhouse Gas Offsets,
Zach Wiley and Bill Chameides, eds. (Durham, ND: Duke Univ. Press, 2007), pp. 18-19.
59 Brian Murray and Lydia Olander, A Core Participation Requirement for Creation of a
REDD Market, Nicholas Institute for Environmental Policy Solutions, Short Policy Brief
(Durham, NC: Duke Univ. Press, May 2008).
60 Jim Bowyer, Steve Bratkovich, Alison Lindberg, and Kathryn Fernholz, Wood Products
and Carbon Protocols: Carbon Storage and Low Energy Intensity Should Be Considered
(Dovetail Partners, Inc., April 28, 2008).

they die. This life cycle varies widely, depending on the tree species; for example,
aspen and Southern yellow pines rarely grow older than 200 years, while Douglas-fir
and many live oak species commonly grow for more than 1,000 years, and
bristlecone pines can live for more than 4,000 years. Nevertheless, trees die
eventually, and their carbon is converted to wood products, contributed to the soil,
or sent into the atmosphere.
Permanence can be achieved for forest projects by providing for mitigation or
a buffer against natural losses. An analysis of four particular carbon offset market
standards found that one required a 10% buffer (i.e., only 90% of the estimated
carbon offset could be sold); another required a 30% buffer, while the other two used
variable buffers (from 5% to 60%) depending on an assessment of the risk of the
project.61 For landowners or countries, carbon sequestration permanence can be
achieved through sustainable forestry practices, with reforestation following any and
all carbon removals to assure stable or increasing carbon storage.
Forward Crediting
Many biological sequestration projects, such as afforestation or reforestation,
present a unique challenge because of the significant time gap between the initial
project activity (e.g., planting trees) and the actual carbon sequestration. Although
the project may generate considerable offsets in aggregate, the offsets are produced
gradually, over the course of many years or decades. Tree growth patterns follow a
traditional S-shape, with slow growth in the early years, accelerating for many years
to decades, before tapering off to an eventual maximum. The age at which growth
has reached its maximum varies widely among species — as short as 200 years for
short-lived species (e.g., aspen and Southern pines), and more than 1,000 years for
long-lived species (e.g., western hemlock and Douglas-fir). However, even old-
growth forests that have little or no additional tree growth apparently continue to
sequester carbon in the soils.62
This aspect of sequestration projects raises the question of how sequestration
offsets should be distributed. Should they be allotted as they are produced — on an
annual basis — or should they be allotted up front in an aggregate sum, based on
expected future sequestration? The latter option is referred to as forward crediting.
Forward crediting entails risk, because there is some uncertainty about whether
the offsets will actually be realized. This risk can be addressed through discounting,
much as the permanence risk is addressed through buffers: by retaining a percentage
of the offsets that are expected over the course of the project to accommodate

61 Eduard Merger and Alwyn Williams, Comparison of Carbon Offset Standards for Climate
Forestation Projects Participating in the Voluntary Carbon Market: A Comparison of
Climate, Community & Biodiversity Standard (CCBS), CarbonFix Standard (CFS), Plan
Vivo Systems and Standard, and AFOLU Voluntary Carbon Standard (VCS) (Christchurch,
New Zealand: Univ. of Canterbury, May 2008).
62 See, for example, Mark E. Harmon, William K. Ferrell, and Jerry F. Franklin, “Effects on
Carbon Storage of Conversion of Old-Growth Forests to Young Forests,” Science, v. 247
(Feb. 9, 1990): pp. 699-702.

unexpected events (e.g., slower vegetative growth than anticipated). Whether such
discounting is necessary for forest carbon offsets, and if so how much the discount
should be, are as yet undetermined.