Opportunities to Generate Cash Flow for Family Forests

Dick Kempka, The Climate Trust
As published by GreenBiz – July 27, 2016

There has been significant discussion about the merits of stacking conservation payments over the past few years. A simple explanation for credit stacking is when landowners are paid for conservation practices on their property that provide multiple benefits to the environment. Examples of credits types that might be stacked include: endangered species, water quality, wetlands, and carbon. Environmental credit stacking will be an important factor for forestland owners to consider as they attempt to generate adequate cash flow for their properties, and as the regulated carbon market grows.

One key issue that always seems to arise in the credit stacking debate is the potential for double-counting. For instance, being required by law to do one thing, such as the creation of a wetland mitigation bank, but also receiving a second payment for another credit type, such a carbon. No one disputes that restoring a single property can deliver several ecosystem benefits, however, how these benefits are measured, and whether they can all be “counted” as ecosystem credits is often debated. The Electric Power Research Institute’s (EPRI) most recent work on credit stacking attempts to sort out these issues, and suggests multiple benefits can be quantified while still being scientifically legitimate. An example is that the same agricultural practice can generate a measurable nutrient credit from reduced fertilizer use, as well as create a carbon offset without double-counting.

The majority of forestland in the U.S. is privately owned by “families,” including: individuals, trusts, estates, family partnerships, and other private groups. Sometimes these family forest owners are more formally referred to as “nonindustrial private landowners.” This group is distinguished from industry owners because they do not own or operate a wood processing facility. It is interesting to note that family forest owners account for 92 percent of private forest owners, and hold 62 percent of the private forestland (35 percent of all forestland) in the U.S. An estimated 11 million private forest owners collectively control over 50 percent—or about 423 million acres in the U.S. Many of these privately-owned properties have, or will soon be, passed to heirs, or sold to the next generation of owners.

The largest regulated carbon market in the U.S. is the cap and trade system in California, where over 23 million forest carbon offsets have been issued over the past few years, predominantly from private lands. Understanding the size of the private land sector, ownership trends, products, purpose in ownership, and their willingness to participate in environmental markets is the first step in quantifying ecosystem service payment potential for landowners.

In many parts of the U.S., large family-owned timber properties are being sold for timber industry use or conglomerated for economic reasons. This is a problem, as these lands are critical to reaching sustainable forest management goals in the U.S., primarily due to the large acreage under single ownership, and the consistency of the land passing down through generations.

Nationally, the average size of family holdings is 25 acres, however, 53 percent of family forestland is owned by people with 100 acres or more. The primary objective of most of these landowners is to generate adequate cash flow for their property because it is a family investment. It is also common for owners to have multiple objectives for the property, such as preserving natural beauty, privacy, protection of nature, passing land on to heirs, or simply a desirable location for their primary residence. Policies and programs that reward sustainable management are vital for continued long-term stewardship of family forests, or they could potentially go the way of family farms that have been absorbed by larger corporate farming operations.

Working forests on private lands can produce a wide range of products. Large trees typically produce the most economic value when harvested for use as plywood, pilings, poles, and veneer. Smaller tress are less valuable, and used for pulp and paper products, composite products, and renewable energy.   Limbs, branches, and bark removed during harvesting can be sold for renewable energy.

Another important, but lower-profile benefit provided by working forests is carbon sequestration. Because forest owners grow more trees than they harvest, each year forests help remove enough carbon dioxide from the atmosphere to offset 13 percent of U.S. emissions—helping the country to meet our national and international climate goals. Another little known fact is that private forestlands in the U.S. filter more than a quarter of U.S. drinking water, in addition to providing 60 percent of wildlife habitat for species at-risk of decline or extinction, and a home for 40 percent of all bird species.

The Climate Trust has initiated a new program that targets family forestland owners for carbon credit payments in exchange for agreeing to sustainably manage their property. The Trust can provide up to 50 percent of the payment upfront to the landowner based an estimated 10-year carbon stream. Properties that are considering long-term easements for forests tracts are great candidates for carbon payments. It is important to note that landowners are not required to stop harvesting trees to be eligible for forest carbon projects, rather, they have to agree to a long-term timber management plan and harvest below annual growth. Currently, The Trust’s program targets larger family forests—3,000 acres or more—but a new strategy for smaller landowners is also in the works.

Carbon programs may also be coupled with some state and federal government programs that provide payments to forestland owners for conservation practices, such as USDA’s Natural Resources Conservation Service Wetland Reserve Program, and the U.S. Forest Service Forest Legacy Program (FLP). Currently, the Forest Service is drafting new language addressing ecosystem markets for Forest Legacy projects, and the California Air Resources Board is assessing how the use of FLP funds will impact eligibility for a forest carbon project under their Compliance Offset Protocol. Additionally, many states offer forest preservation incentive programs. For instance, the state of Oregon is more than 44 percent privately owned, and has several financial incentive programs available for private landowners through the Oregon Department of Forestry.

Family Forestland Owners should carefully consider which payment for conservation services program may be the right fit for them. Each program has unique criteria in terms of length of contract, size of payment, and eligibility qualifications for each landowner. Clearly understanding these criteria will allow landowner enrollees to fully exploit each program while retaining maximum flexibility as credit stacking issues are clarified.

As these public and private conservation programs expand, so to will the opportunities to pursue environmental credit opportunities that will result in sustainable forestland management practices. Aligning environmental credit rules and policy is certain to benefit scientists, regulators, and investors, in addition to providing increased cash flows to conservation-oriented landowners. Now is the time for landowners to make their move.

Image credit: Flickr/Bill Automata