Ryan’s notes

Timber CEO Wants to Reform Flawed Carbon-Offset Market


  • The problem with carbon markets, he says, is that weak rules have created strong incentives for landowners to develop offset projects that don’t actually change the way forests are managed, and therefore do little to help the climate. Most forest carbon projects, including some from Lyme, fall into this category, Hourdequin says. “I believe in being intellectually honest about it,” he says.

  • When a carbon project developer informed Lyme several years later that it could sell carbon credits on the already protected land, Hourdequin could scarcely believe it. After all, the company had already been compensated to safeguard the forest. It was legally prohibited from cutting any of the trees. Any carbon revenue it received would have zero impact on the atmosphere. “We kind of scratched our heads and said, ‘Really? You can do this?’

    • Double-counting

  • One deal netted Lyme about $20 million for minor changes to a forest in West Virginia. After purchasing a huge hardwood forest there in 2017, it put together a carbon project on 47,000 acres of forbidding terrain. Some of the land is so rugged and steep, Hourdequin says, the trees can be extracted only by helicopter, which is prohibitively expensive. Nonetheless, California’s carbon market would pay Lyme handsomely to preserve these little-threatened trees.

    • Additionality

  • For Lyme, though, $20 million wasn’t necessary to maintain this higher volume of trees, because it didn’t make economic sense to cut them. “Society probably didn’t need to pay us for that,” Hourdequin says.

  • All told, it would require $60 per ton to set up an offset project that could have real climate benefits.

  • Price signals from the $1 billion trade in offsets aren’t promising. Ecosystem Marketplace, which tracks the industry, reported an average price last year of $3.37 per ton. Some buyers are willing to pay more—Microsoft Corp. says it averages $20 per ton, and Bill Gates spends $600 per ton to neutralize emissions from his private jet—but many others are paying less. Delta Air Lines Inc. declared itself carbon neutral last year after purchasing 13 million offsets at a cost of $30 million, or about $2.31 per ton.

    • When Delta Air Lines paid for carbon offsets, they paid about $ 2.50 / ton (2021)

    • When Microsoft paid for carbon offsets, they paid about $ 20 / ton (2021)

    • Jim Hourdequin, a timber CEO, believes the true cost of carbon offsets from not cutting down trees is about $ 60 / ton, with half of that coming from measurement and administration (2022)

  • “It can be argued,” he said, “that carbon markets have paid the landowner to not do what they were not going to do.”

  • Even if Hourdequin were to find buyers at $60 per ton, it’s not clear that Lyme’s new approach to offsets would be good enough. Reducing harvests on working timberlands could cause another landowner somewhere else to cut more trees to fill the demand for lumber, a phenomenon known as “leakage.” Various carbon market rules try to address this by docking the number of credits granted to certain forest projects by anywhere from 10% to 40%. But many experts say the actual leakage rate is much higher.

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