Carbon and woodland: increasing opportunities

Realising value

5 September 2014

With audited carbon schemes for woodland now well established, opportunities are increasing. Andrew MacDermott explains


Optimism surrounding eco-system services, biodiversity offsetting and voluntary carbon markets has been building over recent years, particularly within the Rural sector as a potential resource provider to these markets. However, these mythical gravy trains have appeared to remain just that, with little translation into tangible schemes. But with the UK government-supported and independently audited carbon schemes for woodland now well established, the tide could be turning and opportunities growing.

In January, Environment Secretary Owen Paterson hinted that development on ancient woodland sites could be mitigated by the creation of new woodlands. While this theory of direct environmental exchange went down like the proverbial lead balloon, the general principle is a growing reality as the UK struggles to mitigate the environmental effects of the past 200 years since the industrial revolution and the continued thirst for a carbon-heavy lifestyle.


While directly replacing fossil fuels or materials with high embedded energy with forest products is a clear transaction, defining the carbon benefits from standing woodland is an issue

The ability for woodland to act as a carbon sink is well established. The Combating climate change – a role for UK forests report (2009), commissioned by the Forestry Commission and also known as the Read Report, cited exciting examples of carbon abatement from woodland, as well as the overarching statement that there is "a clear need for more woodlands". Particular reference was made to productive woodlands' ability to develop carbon stocks while also providing output that can substitute carbon-rich alternatives in energy supply and build materials.

Developments in recent years include a marked increase in the use of wood for energy through biomass systems, encouraged by the Renewable Heat Incentive and increased consciousness of the embedded energy in materials. Woody biomass in particular is no longer a fledgling sector and an almost common fuel choice for rural estates.

While directly replacing fossil fuels or materials with high embedded energy with forest products is a clear transaction, defining the carbon benefits from standing woodland is an issue. It is clear that such habitat represents a staggering carbon sink; however, how much carbon is this really accruing annually, how much is it worth and is it truly carbon abatement if it is incidental, protected and enduring?

New carbon

The real opportunities focus on the creation of new woodland. This is undeniably additional 'new carbon'. As such, it can be justified to make a difference to carbon sequestration and therefore provide a tangible product when valuing and marketing the resource.

The Forestry Commission is developing a method by which woodland creation for carbon can be recognised and quantified. The Woodland Carbon Code (WCC) was launched in July 2011 and global financial information services provider Markit has about 113 registered projects recorded, increasing the validity of the process of registry, trading and retiring of credits.

Carbon graph

Figure 1: DECC's previous (October 2012) and updated (September 2013) short-term traded sector carbon value for policy appraisal in real 2013 terms , £/CO2e (Source DECC)

To demonstrate 'additionality' (carbon sequestration over and above that captured anyway in the absence of a given project or activity), schemes must receive most of their funding based on the production of carbon for sale. This can be directly related as pre-sold carbon rights or be the landowner's investment in the potential of long-term carbon values.

A standard hectare of broadleaved plantation may sequester around 400 tonnes of carbon dioxide equivalent (CO2e) across a project lifetime of 100 years. Many factors influence the rate of sequestration, and previous land use and potential leakage from the project must be considered. However, a net gain in carbon is inevitable and the WCC has provided an agreed way of quantifying this, presenting a previously untapped opportunity for added value to new plantations.

Importantly, registration of projects must be within 2 years of planting commencing, and subsequent validation and periodic verification by independent auditors are required to ensure that projects meet their claims. This adds rigour to the scheme from the purchaser’s perspective and enables potential buyers to have confidence in offsetting their emissions securely within the UK.

Social responsibility

As legislative and commercial pressure increases to improve the environmental performance of business, corporate social responsibility (CSR) has become a familiar concept and many organisations now see environmental sustainability as a badge of innovation and key marketing element. Also, since 2013, all quoted companies have to report their greenhouse gas emissions. Along with this, they can demonstrate where reductions or savings have been made and this may become a requirement for all large companies from 2016. While this does not dictate that reductions must be made, it creates a culture whereby companies can be held accountable for their emissions and those claiming green credentials will need to illustrate this through the figures.

Marketing

Carbon sequestration registered under the WCC can be listed and marketed online via Markit. The use of carbon units generated through woodland creation under WCC is therefore ideal particularly for UK-based organisations that require both tangible carbon sequestration and home-grown projects they can sell to their customers and employees.


Unlike other carbon-abatement options, woodland creation offers many other benefits and its permanence is the legacy of those who invest in it

The crux is clearly the value of the carbon. Current markets are primarily based on buyers such as those mentioned above, voluntarily purchasing carbon to mitigate the effects of their operations. The CSR departments of large companies such as Marks & Spencer and Stagecoach Group have invested in various projects in the UK, with average prices between £3-£10/t CO2e, and with the average global price of woodland carbon in January 2014 at £6/t CO2e. However, this varies significantly depending on the project and site. Most sites selling carbon aim to finance the cost of establishment directly and therefore significantly undervalue the resource.

The Department of Energy and Climate Change predicted that values for traded carbon (carbon that is part of the EU Emissions Trading Scheme and generally seen as lower value than that from non-traded schemes such as the WCC) is set to rise substantially from 2020 (see Figure 1). The value of carbon outside the EU Emissions Trading Scheme, such as woodland carbon, is valued above this as a free market entity and there are developments with the potential to affect this value even further.

Emissions reduction

Homes are a source of substantial carbon debt, not only in the building phase, but in energy use during their life cycles. The Zero Carbon Hub is tasked with delivering the government’s aspiration of all new housing to be zero carbon from 2016. While changes to manufacturing, built-in energy-saving measures and renewable energy brought into development provide substantial emission reductions, it is unlikely that all these can be directly and cost-effectively mitigated on-site. Recognising this, the Zero Carbon Hub has been working on Allowable Solutions, which will enable up to 30% to be offset off-site. It is anticipated that carbon registered through the WCC and listed on the Markit registry will be one such solution, along with options such as retrofitting energy-efficiency measures in old housing.

Based on non-traded carbon, the estimated value of buying carbon to support this offsetting is currently given a central price of £60/tCO2e by the Zero Carbon Hub with a range of £36t-£90t/CO2e.

Such values offer the potential to realise a real return on the investment (ROI) made in woodland creation. The Combating climate change report puts a cost on woodland creation of about £26/tCO2e, allowing reflection on this potential ROI. In addition to purely carbon sequestration, the woodland created can provide multi-purpose benefits such as landscape enhancement and provision of fuel and other forest products, recreation and biodiversity, which all have their own values – some more tangible than others.

Conclusion

Woodland can now offer another layer of value to both private landowners and wider society. The quantification of this resource has created a valuable opportunity and the potential to be a real driver for woodland creation. Unlike other carbon-abatement options, woodland creation offers many other benefits and its permanence is the legacy of those who invest in it. The decision to put trees in the ground is not simple and, given the complexities of current land use, a long-term view is needed.

However, with an eye on developing trends, this long-term decision could secure an uncharacteristic short-term return, setting it in good stead as an asset in any investor's portfolio. As a potentially lucrative opportunity, woodland creation must be a key consideration for land management decision-makers. For those involved in the valuation and transfer of land, including new woodland, an understanding of whether carbon has been registered, and where any reporting rights lie, is also worth careful consideration.

Andrew MacDermott is a Senior Forestry Consultant and Forestry and Woodland Services Manager at multidiscipline environmental consultancy Lockhart Garratt, with a focus on all matters relating to trees, woodland, forestry, ecology, landscaping and green infrastructure

Further information

Related competencies include Forestry and woodland management, Land use and diversification, Sustainability