The Role of Economic Motivation in Forest Carbon Accounting

This blog has recently covered the various ways that additionality is calculated in forest carbon projects. We have drawn attention to the differences in how landowner demographics are treated and some of the economic assumptions that are incorporated into the calculations. In a nutshell, past behaviour and economic motivation are factored into economic models that determine a project’s carbon baseline in the form of different discount rates and harvest assumptions based on assumed landowner motivation. Landowner demographics that are assumed to be less purely economically motivated are asigned lower discount rates, which result in longer assumed rotation lengths, less aggressive harvests, and subsequently less additional carbon to sell over the course of a 40 to 100+ year carbon project.

This system is problematic for various reasons, some of which we have already discussed but could perhaps be summarized as setting up a system that rewards past carbon emitting behaviour. From a policy pespective, if one were seeking to change a certain behaviour which has come to be understood as negative, you would not start making certain rewards or incentives available strictly to those committing the negative behaviour. The expected approach would likely involve regulation (stick) with perhaps some incentives (carrots) to soften the blow. This calculus is a bit more complicated in the case of carbon emissions because many of the activities that emit carbon have both positive and negative public outcomes. Industrial agricultural and forestry practices have provided the public with a steady supply of relatively inexpensive food and fiber over the past 5 or so decades, but that model of production has run a profound carbon deficit (among other ecological and social consequences). As the world wrestles with how to arrest the march of terrestrial carbon into the atmosphere, changing this model of production in the face of increasing population and supply demands is an extremely complex issue.

As decisive policy seems to be gettting less politically viable, voluntary and private programs are trying to step up in a big way. These programs have the distinct advantage of not relying on coercion or the stick of regulation to solicit involvement, but they are also in the position of having to appeal to entities whose very business model is built around cost free GHG emissions. Without an economy wide price on GHG emissions, many forms of emission intensive production will likely remain the most economically advantageous business model well into the future. This fact is really what shapes the motivation of participants in a voluntary carbon market. Curently, timberland owners entering into a carbon agreement wherein they sell carbon credits to emitters incur a significant sacrifice in potential income because timber remains much more valuable than carbon. Essentially, the price difference signals that our society values carbon in being used as forest products more than carbon being stored in forest ecosystems. Knowing this, it is logical to say that anyone entering into a forest carbon project is motivated by more than just economics, whether this is written into their mission statement or not.

The viability of a voluntary offset market depends on having businesses, landowners, investors, and other actors with the flexibility, willingness, and motivation to do things differently. Some carbon standards even specify that credited activities cannot be economically viable on their own. So how then are we going to discount carbon sequestered by landowners we deem to be alternatively motivated? As long as sequestering carbon is less profitable than activities that emit it, carbon market participants will of a nature be alternatively motivated or they wouldn’t be participating at all. Trying to asign a precise value to the level of this alternative motivation introduces unneeded complexity to already complex projects and transactions, and slows the pace of climate progress.

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Previous Blog Posts:
https://climatetrust.org/baselines-and-additionality-in-forest-carbon-projects/

https://climatetrust.org/objective-economic-additionality-v-subjective-behavior-predictions/