Forestry management and Canada’s Kyoto commitment

How carbon forestry initiatives add to Canada’s strategic toolkit for dealing with its Kyoto commitments — and may create growth in a critical traditional sector...

By Peter Ion

Canada’s attempts to meet its national targets under the Kyoto Protocol have been a considerable challenge. As mentioned in the October 2005 issue of CMA Management, as the only NAFTA member to ratify the Kyoto Protocol, policy-makers have been constrained by the competitiveness issues that necessarily have to be addressed. However, this didn’t stop the Federal Government at the time from raising the target for annual emissions reductions from 240 megatonnes to between 270 and 300 megatonnes. Such a rise suggests that, since ratification earlier in 2005, our national scorecard has been stamped ‘must try harder’. If industrial emissions are still on the increase, Canada must find new ways to address the issue. The forestry sector might provide the answer.

Buried deep within the Kyoto Protocol is the ‘Land Use and Land Use Change’ proviso (LULUC), which allows newly-forested land to be used as an absorber of CO₂. Recognizing that the onus for addressing emissions should still rest squarely on the shoulders of industry, an absolute cap was set for each country that forestry management could contribute to the overall national account. Canada currently ‘manages’ 9 megatonnes of carbon per year and is allowed to up this amount to 12 megatonnes. Together with Japan, Canada is the only signatory nation that is below its allowable quota within the Kyoto framework. The major conditions are that the land in question must be newly-forested (since 1990) and that there be a minimum harvest period of 35 years for trees grown on that land. As Canadian forests have experienced a 60% reduction  since records began, (the U.S. forest cover has fallen 90%) , the chance to reverse our losses seems compelling. It could also provide payback for those managing the land.

Natural resources have been used as instruments of change before. Swathes of the Scottish highlands were turned over to fast-growing conifer plantations in the 1980s as high-earners ploughed millions into a tax-deductible scheme. As part of the much-maligned European Common Agricultural Policy, land ‘set-aside’ from agricultural production, ostensibly for wildlife conservation benefits, received healthy compensation to landowners and farmers all too happy to get something for doing nothing. Debt-for-nature swaps were undertaken in a number of developing nations in the ’90s whereby pristine vegetated land with high intrinsic or biological value (based on species rarity) was saved from commercial exploitation in return for debt forgiveness. The concept of the ‘carbon credit’ has taken this a step further in recent years. The sale of such credits from trees grown specifically for this purpose on a Guatemalan coffee plantation to a Mexican automotive plant, for instance, enable the latter to meet its emissions quota. The National Forest Carbon Accounting Project (NFCAP) is the natural successor to this type of scheme.

Modeling carbon initiatives

The NFCAP provides companies undertaking significant new plantations of carbon-sequestering conifers to derive credit based on the absorptive capacity of the trees grown. Industry has understood the value of forestry plantations for some time. Major European power generating facilities invested in the planting of  forested belts on land exposed to the output of their facilities — the trees were an absorber of CO₂ plumes emitted from their stacks, and a green credential on the annual report. In a similar vein to the U.K. Emissions Trading Scheme (now successfully expanded into the European Union), the NFCAP will enable participants to deal in sequestered CO₂ as tradable units of account.

The underlying principles of this scheme focus on the Kyoto-derived elements of ‘leakage,’ ‘additionality,’ and ‘permanence.’ Leakage occurs when a carbon reduction strategy is applied that ultimately results in a greater gain elsewhere at a future date (the fear of large , newly-planted zones providing ‘fuel to the fire’ in the event of a local wildfire or burn can been mitigated through proposed firebreaks — the natural equivalent of computer virus firewalls). Additionality is a requirement that ensures only newly-forested land (after the Kyoto baseline year of 1990) is eligible for inclusion in the scheme and avoids the generation of credit for existing forested lands — something that several signatory nations fought long and hard for inclusion as part of their participation in Kyoto. Permanence in forestry terms ensures that the trees must remain unharvested until 2025 at the earliest .

Forest ‘carbon budgets’ have been the focus of recent cross-sectoral research programs between non-aligned research groups and the private sector. NFCAP is currently attempting to model the forest’s carbon stock changes. The project is a division of Natural Resources Canada that uses data provided by Abitibi Consolidated and the Ontario Ministry of Natural Resources. Tembec Inc. was one of the first concerns to take the model data onto its land base, with interest also being shown by the Moose Cree First Nation. Dr. Werner Kurz , a senior research scientist with the Carbon Accounting Team, claims “by tracking what has happened and what is likely to happen in the future with Canada’s carbon stocks, we will be able to determine the consequences of environmental changes and management activities.”  The carbon-based value of the forest is also high on the research agenda.

Unusually for Kyoto-compliance mechanisms, the Canadian National Forests Sinks Committee has recognized the non-permanence of forest ‘sinks’ and has put forward the concept of temporary credits (not found elsewhere in other Kyoto-compliant industry schemes). The intention is to recognize the capability of trees to make a contribution over terms of less than one year. The principle may be worthy but the average carbon turnover period , reflecting the time taken to convert CO₂ to wood, is somewhere closer to four years when averaged over a typical mixed-species forest and still closer to two years for fast-growing conifers. In that case, the concept of quick credit could undermine the principles of Kyoto.

Finding the payoff

As with the early attempts to set up industrial emissions trading groups in Canada, there have been regional initiatives attempted recently. The Offset Trading System Working Group, for instance, oversees a number of regional greenhouse gas inventories and has recognized some local groups in Eastern Canada. However, at present little activity has taken place. Much the same could be said of the Canadian Council of Forest Ministers 2020 Group, which is charged with committing scientific leadership to social and economic benefit but has yet to fully integrate into the Kyoto framework. By contrast , the Greencover Canada initiative (a five-year program due to end shortly) has succeeded in incentivizing registered landowners to undertake conversions to forestry with payments of $20 to $75 per acre for seeding work and $25 per acre for maintenance work once perennial cover is established .

Perhaps inevitably, the bottom line wins out eventually, even if it’s subsumed within the green credentials of the triple bottom line. What incentive does a 35-year old landowner have to embark upon a planting program that will only bear fruit (literally and figuratively) once he is 70 years old and his sons have left the farm to set up in the city? Analysis has shown that the costs of carbon sequestration are greater if the trees are periodically harvested, rather than left unchecked. Research has also shown that the bulk of the growth that a typical conifer tree undergoes (in terms of its carbon conversion function) occurs in the first 20 years, the rate exponentially declining thereafter. By the same token, the total capacity of a forest to absorb CO₂ increases after periodic thinning, to a level above that if it were left unmanaged. This added value only kicks in after 40 or 50 years in most cases. Thus, managing the property becomes a greater, and critical, expense.

The lower costs of reducing deforestation (compared to increased afforestation) hardly provide any additional incentive. When the uncertainty of interest rate variations, and the opportunity costs associated with agricultural commodity prices are factored in, the landowner has to be something of a visionary to bet the farm on forestry schemes. The added risks to the return of capital invested in carbon-sequestering trees from susceptibility to fire losses , a double whammy for the carbon budget, and insect pest losses are not trivial either, if you consider recent trends in B.C.   

What’s working

Despite the market’s general lukewarm reaction to ethical investment portfolios in recent years, there have been some ambitious and well-subscribed initiatives in the forestry sector. A case in point is the Canadian Boreal Initiative — a multi-stakeholder organization that oversees a range of business-environment alliances geared at responsible forest management. Early in 2005, Tembec Inc. announced an agreement with the environmental organization Forest Ethics to identify endangered forests in which they reaffirmed their commitment to the Forest Stewardship Council (FSC) certification. Terrence Kavanagh, president of Tembec’s pulp, paper and paperboard division, stated that “by engaging with Forest Ethics to achieve positive conservation outcomes, Tembec has significantly expanded the area of FSC-certified forests and increased the availability of FSC-certified products.”

Projects targeting the preservation of the boreal forest may have received fewer headlines than those for the Amazonian rainforest in recent years, but the role of the northern regions in carbon balancing is no less significant. These initiatives are also feeding an industry trend of serving a new brand of demanding stakeholders (as described by Crawford and Scaletta in the October 2005 issue of CMA Management).

Those likely to gain from these forestry initiatives fall into two camps. Organizations feeding the timber industry have shown remarkable gains in recent years, a case in point being Alba Trees in the U.K. In business to manufacture root trainers, a product that houses the early stage seedlings and ‘trains’ them to grow vertically downwards, its central product is delivered as a plastic casing that houses nutrient-rich soil and seedlings in a package no larger than a hardback book. They are in a transplant-ready state to forestry nursery clients. The company’s profitability over the 18 years since its inception has tripled and its plantation land holdings have expanded fourfold.

The other group set to gain from the initiatives are those charged with administering the various schemes. The National Forest Carbon Accounting Project in Canada could experience this directly. The possible administrative burden upon the participants is foreseen as so high that the emerging consensus of opinion (certainly amongst the auditing and verification bodies charged with this responsibility) is that pooling activities among forestry concerns will be required to establish strategically-viable plantation units and to keep the validation and auditing burden to a workable threshold. 

Forestry in Canada has had more than its share of problems to overcome in recent years, from wildfires and infestations through to stumpage barriers and softwood lumber tariff disputes with the U.S. As the end of the first Kyoto commitment period looms, now may be the ideal time to nurture what could become a genuine growth industry from which many other industries could gain benefits.

Peter Ion, M.Sc., MBA (peterion@pacificcoast.net) is an active member of the U.K. Emissions Trading Group and is a freelance technical writer.

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