Risk and returns of selling trees for carbon credits

Damien O’Sullivan
Department of Agriculture and Fisheries

If you are interested in selling trees for carbon credits, you need to do your own research, identify possible opportunities and tread carefully. If you are still interested read on!

Increasing evidence now points to the earth warming as a result of increases in greenhouse gases. These greenhouse gases are water vapour, carbon dioxide (CO2), methane, nitrous oxide, and ozone. Greenhouse gases come from natural sources and human activity. These gases have varying levels of greenhouse impact so emissions are standardised to carbon dioxide equivalents (CO2-e) to ensure they are comparable.

The release of carbon from burning fossil fuels is one of the main contributors to greenhouse gas emissions. In a list of 214 countries burning fossil fuels in 2007, Australia ranked 15th from the top, producing 1.35% of the world’s carbon emissions. In contrast the USA is responsible for 19% and China 22% of the world’s carbon emissions(1). As a result of increasing population and affluence there has been a rapid yearly increase in the amount of CO2-e being released into the atmosphere, with agriculture contributing significantly through past land clearing practises, nitrous oxide emissions from fertiliser usage and methane emissions from livestock.

Agreements like the Kyoto protocol attempt to cap the amount of CO2-e that is being released by signatory countries. To meet the Kyoto protocol commitment countries can use carbon sinks whereby they can continue to produce CO2-e for example in power generation, but offset this emission using a carbon sink. A carbon sink is where CO2 is removed from the atmosphere and stored for a period of time.

Planting trees for forestry is currently the main carbon sink used in Australia. Trees absorb carbon. About 50% of the dry weight of tree roots, branches, trunks and leaves is carbon.

The carbon trading system involves the issuing of carbon credits for afforestation and reforestation activities that meet a set of strict guidelines. Credits are issued to individuals or companies growing compliant forests and these credits can be sold to a carbon emitter such as a power company, using them to ‘offset’ a power station’s CO2-e emissions. Common guidelines that must be met to generate carbon credits with forestry include:

  • One carbon credit represents one tonne of CO2 stored for at least 100 years.
  • The trees must have been ‘planted’ since 1990. Areas with regrowth following past clearing events are not considered to be ‘planted’.
  • The trees must not have been planted on land that has had old growth forest cleared from it since 1990.
  • Should the carbon be lost within 100 years from a plantation for which a carbon credit is claimed (by fire, disease, logging or another event), that lost carbon credit will have to be replaced immediately by purchasing from another source.

As you can see from this, many landowners may find it difficult to lock up land for this period of time (equivalent to four generations) and guarantee all of the above. Currently Forests NSW are selling carbon credits and complying with the above requirements.

An additional complexity is generated by the existence of various ‘qualities’ and prices of carbon credits based on the level of verification. A power station facing the possibility of having its emissions capped is likely to purchase only high quality verified carbon credits to ensure they are accepted as offsets by a regulatory authority.

So how much is a carbon credit worth?

Already there are over 17 companies selling carbon credits in Australia. For example if you fly from Brisbane to London by plane the flight emissions would be 2.8 tonnes of CO2-e. To buy carbon credits from one particular company to sequester (store) the carbon emitted would cost (@$25/tonne) $70 to eliminate your carbon travel debt. Another site was selling carbon credits for $16.50 a tonne.

How much carbon is there in a tree? What could I earn per hectare?

The amount of carbon in a tree of a particular size can be estimated using a tree carbon calculator. For example a hardwood eucalypt tree with a circumference of 100cm measured at a height of 130cm above the ground represents 322kg of carbon or 1,182kg CO2-e.

Studies in the Kingaroy area have found a substantial carbon sink in both trees and soil which varies considerably with the type of vegetation. In a four year old plantation of spotted gum planted on ex-pasture land, there was estimated to be approximately 11.1t C/ha (40.7t CO2-e/ha) in the trees and 178.3t C/ha (654.4t CO2-e/ha) in the soil organic matter (Table 1).

Table 1: Amount of carbon in the soil under various vegetation types at Kingaroy.*

Soil depth (cm) Tonnes of carbon per hectare (t CO2-e/ha)
Crop Pasture 4 year old plantation Native vine scrub
0–110 78.2 (287) 154.9 (568.5) 178.3 (654.4) 218.4 (801.5)

Note *: Table 1 is from Mathers N, Dalal R, Moody P and Mareseni T (2006) Carbon sequestration: a case study from the South Burnett. Proceedings of ‘Managing the Carbon Cycle’, Kingaroy Forum, 25-26 Oct 2006.

In the four year period after the trees were planted on ex-pasture soil, the trees fixed carbon in the soil of:

= plantation soil C less pasture soil C
= 178.3 – 154.9
= 23.4t C/ha

In addition to this the carbon fixed by the trees themselves of 11.1t C/ha. Hence the total carbon sequestered in the spotted gum plantation over four years is:

= 23.4 + 11.1
= 34.5t C/ha or 126.6t CO2-e/ha.

With a purchase price of $23 per tonne of carbon credits, the sale price could be estimated at $20 a tonne (allowing for sale commission), giving an income of:

= 126.6t CO2-e at $20/tonne
= $2534/ha at year 4

However, schemes trading in soil carbon are only now being developed and it is unclear how they will be considered in the future. Additionally, most schemes allow only a percentage of the carbon sequestered to be sold and have payments staged over a number of years. There may also be significant measurement and verification costs. Planting trees on pasture land and foregoing grazing income to achieve this result may not be economical especially as the carbon needs to be locked up for a guaranteed 100 years.

Over the 25 year rotation of a hardwood plantation, total carbon stocks may build up to 414t CO2-e/ha in the trees and 881t CO2-e/ha in the soil. However tree harvesting and decline in carbon stocks between tree rotations need to be taken into account.

Planting trees onto cropping areas also has potential to sequester large amounts of carbon, particularly as the soil carbon is starting from a low base.

What other alternatives are there?

Some producers in south-west Queensland have benefited from carbon trading already without planting trees, by selling their rights to clear timber and emit carbon. Rio Tinto, who purchased these carbon credits, wanted to reduce their carbon footprint. Six landowners with a total of 12,060ha and permits to clear agreed to give up their permits in exchange for Rio Tinto’s investment.

The trees are legally protected by a binding agreement attached to the title of the land (known as a profit-a-prendre), which means that even if the land is sold the trees must stand for 121 years.

The amount of carbon in the area was measured by surveying the height and density of the timber and estimating its carbon holding capacity. For one landholder this resulted in a payment of one million dollars. However due to changes in legislation regarding tree clearing permits this is no longer an option for landholders and investors.

In the future there may be options for using regrowth to generate carbon credits.

Where to now?

In short, there is still a long way to go to reduce the risks for landholders. Some people have already been paid for trees on farm and there are possibilities for other opportunities. But carbon trading is a complex subject and there are still issues around how we measure carbon, whether soil carbon is recognised, and whether all or only some land types and regions have potential to sequester carbon.

The Australian Government has established the Carbon Farming Initiative which is a carbon offsets scheme to provide new economic opportunities for farmers, forest growers and landholders and help the environment by reducing carbon pollution.

The Carbon Farming Initiative includes:

  • Legislation to establish a carbon crediting mechanism;
  • Fast-tracked development of methodologies for offset projects; and
  • Information and tools to help farmers and landholders benefit from carbon markets.

This is still work in progress and it will ultimately determine how and if the rural community can benefit from carbon trading.

Thanks to Steven Bray at DAF Rockhampton for editing this page.

Websites for thought

1. http://en.wikipedia.org/wiki/List_of_countries_by_carbon_dioxide_emissions

Further information