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MICHIGAN FOREST CARBON OFFSET AND TRADING PROGRAM
2008 ENROLLMENT HAS STARTED.
The following is intended to provide information as of January 14th, 2008. It is our best understanding to date.
- Grossman Forestry Company & Grossman Forestry Tree Farm Group have initiated a new inovative program in cooperation with the Delta Institute -- with funding from the Michigan Forest Stewardship Program.
Grossman Forestry Company will provide services to Grossman Forestry Tree Farm Group Members or Grossman Forestry Company Clients, other Michigan landowners should contact their consulting forester and/or the Delta Institute.
The initial enrollment period was from January 1, 2007 to January 22, 2007.
1st year enrollment = 23 landowners, 47,050 acres, median ownership = 180 acres.
Attachment A: Frequently Asked Questions (January 2008)
What is the Chicago Climate Exchange?
The Chicago Climate Exchange (CCX) is North America’s only, and the world’s first, greenhouse gas emission registry, reduction and trading system for all six greenhouse gases.[1] CCX is a self-regulatory, rule-based exchange designed and governed by CCX Members. Members make a voluntary but legally binding commitment to reduce greenhouse gas emissions.
What are forest carbon offset credits?
Exchange forestry offset credits (XFOs) are carbon credits issued to forestry projects registered with the Exchange. The CCX issues XFOs based on increases in carbon stocks or avoided deforestation - quantified in metric tons of carbon dioxide equivalent (CO2e) - realized during the project period.
How does the sale of forestry carbon offset credit on the CCX reduce emissions of greenhouse gases?
Members of the CCX are legally bound to reduce emissions of greenhouse gases in accordance with the CCX rules. The Chicago Climate Exchange bases its rules on “cap and trade” emissions reduction strategies similar to the U.S. sulfur dioxide trading program. All Exchange members must show a 6% reduction by 2010, with at least 3% of the reductions from changes to facility operations. Members have the option of purchasing carbon credits remaining 3% required reductions may include purchases of carbon offsets. The fact that members are required to obtain reductions through changes to their operations guarantees that real emissions reductions will occur.
What forestry practices are eligible for the program?
Eligible forestry practices include:
Forestation: Forestation projects includes afforestation or reforestation initiated on or after January 1, 1990, on land not forested, or on forest land that had been degraded or unforested on December 31, 1989. The quantity of carbon credits (XFOs) to be issued to a CCX-registered forestry project shall be based on the annual increase in stored carbon (expressed in metric tons of carbon dioxide equivalence) on eligible sites included in the project during years 2003 through 2010.
Non-Industrial Working Forests: Projects in the U.S. involving working forests - forested land harvested in accordance with a sustainable forest management plan that is part of a CCX-approved forest stewardship program - may earn XFOs. The quantity of XFOs issued to a CCX-registered forestry project is based on the net annual increase in stored carbon (expressed in metric tons of carbon dioxide equivalence) above the baseline level. The baseline level, as well as annual carbon sequestration, is calculated by inputting data from the carbon inventory (conducted in accordance with the guidelines outlined in Attachment E) into the US Forest Service Forest Vegetation Simulator (FVS) or other CCX approved method.
Conservation Lands: Projects in the U.S. involving conservation lands - forested lands that have permanent legal protection via conservation easements – may earn XFOs. The quantity of XFOs issued to a CCX-registered forestry project is based on the net annual increase in stored carbon (expressed in metric tons of carbon dioxide equivalence) above the baseline level. The baseline level, as well as annual carbon sequestration, is calculated by inputting data from the carbon inventory (conducted in accordance with the guidelines outlined in Attachment E) into the US Forest Service Forest Vegetation Simulator or other CCX approved method.
What is the enrollment process?
The first step to enrolling eligible lands in the Managed Forest Carbon Offset and Trading Program is to complete an enrollment application and sign the forestry offset (XFO) contract. The XFO contract gives the Delta P2/E2 Center, LLC the right to trade carbon credits on your behalf through 2012. Second, obtain sustainable certification for your forestlands. For most landowners, this is accomplished by joining an American Tree Farm Certified Group, sponsored by a local forester. Then, gather a copy of your approved Forest Stewardship Plan, a signed letter of intent to manage your forestland according to your sustainable forest management plan, the signed letter of intent to maintain the enrolled project lands in an approved sustainable certification program, and aerial photos or maps of the property. Once you have compiled all the required documents, send them to the Delta P2/E2 Center. Finally, contact a “qualified” forester about conducting the carbon inventory on your property. You are responsible for hiring a qualified professional forester to conduct the property level carbon inventory. Since you are paying for the inventory, either directly to the forester or indirectly through the Technical Assistance Fund, it is worthwhile to get several quotes, as rates among qualified foresters will vary.
Once the inventory is complete, the Delta P2/E2 Center enters the information into a proprietary database and runs the Forest Vegetation Simulator to determine the carbon baseline and the annual carbon sequestration rate for the property. Delta multiples the carbon sequestration rate by the number of enrolled acres to quantify the tons of carbon available for trading on the CCX. For properties with multiple forest stands, Delta calculates the tradable tons of carbon by using the weighted average sequestration rate for each stand on the property. Because you can only trade the net annual increase in carbon sequestration for the stand, as predicted by the model, Delta sells your carbon credits 12 to 14 months after the inventory has been completed. In other words, you cannot sell carbon credits until the forest has a year’s worth of growth. Prior to trading, an independent, third-party verifier reviews the inventory, database, and Forest Vegetation Simulator to ensure that the project owner has met all requirements and that the Delta P2/E2 Center has accurately applied the model. After approving the verification results, the Exchange releases the carbon credits to the Delta P2/E2 Center. Delta combines your credits with others, creating tradable quantities for CCX members to purchase. Once Delta sells the credits, the revenue - minus fees, verification cost and technical assistance debt - is returned to each landowner. Delta reports revenue from carbon credit sales to the Internal Revenue Service, so expect to receive a 1099-form each year.
As the project owner, you will be required to provide the Delta P2/E2 Center with yearly updates to the stand, such as new tree planting, harvesting, or catastrophic loss (see Attachment F). The Delta P2/E2 Center uses this information to update its database and re-run the Forest Vegetation Simulator.
What are long-lived wood product protocols?
When a landowner harvests timber according to a sustainable forest management plan, they reduce the short-term, carbon sequestration potential of the forestlands. A timber harvest could be thought of as a “carbon emission” since the land’s ability to sequester carbon is reduced. However, when trees are milled into wood products, such as dimensional lumber or plywood, much of the carbon dioxide remains sequestered in the product. To quantify this long-term carbon benefit, the Chicago Climate Exchange created long-lived wood product protocols. These protocols allow Delta to quantify the amount of carbon dioxide that remains sequestered indefinitely from wood products. The long-lived wood product protocols should make it easier for smaller landowners to harvest timber without fear of creating an annual carbon deficit.
Who conducts the property level inventory?
A landowner hires a “qualified”, professional forester to perform the carbon inventory. For purposes of this agreement, a “qualified” forester is any forester that is: 1) a Certified Forester through the Society of American Foresters; 3) a State Registered Forester; or 4) a member of the Association of Consulting Foresters. In Michigan, certified Forest Stewardship Plan Writers are also considered “qualified” foresters for this program. The forester must provide proof of their credentials at the time they submit the carbon inventory data to the Delta P2/E2 Center. For this program, Delta will manage the inventory data. Property owners will have access to the inventory data. To establish the carbon baseline accurately, the forester must perform the carbon inventory during the dormant season.
What are the participation fees?
All landowners pay the aggregation and CCX Offset Registration and Trading Fee. In addition, some landowners will pay fees for sustainable forest plan development or carbon inventories. Technical assistance funds may be available for carbon inventories. Government cost-share funds may be available for forest plan development. Please consult with a qualified forester for funding options. All fees are collected upon the sale of credits.
- Inventory Development: If you do not have an adequate inventory, you must obtain one. If you are having a sustainable forest management plan written, your forester may be able to incorporate the carbon inventory into the plan at a reduced cost. Although you are responsible for the inventory and forest plan development costs, you can request technical assistance funds to pay for the carbon inventory. However, you cannot request technical assistance funds to cover the costs of developing a sustainable forest management plan.
- Aggregation Fee: The Delta P2/E2 Center collects a 10% aggregation fee or service fee to cover the program operating costs, data management, and forest modeling. The aggregation fee is applied to the gross revenues from the sale of carbon-offset credits. The landowner pays this fee every year their credits are sold.
- CCX Transaction Fee: The CCX charges a fee of $0.20 per metric ton of carbon trades. The landowner pays this fee every year their credits are sold.
- Verification Costs: The landowner pays all verification costs, proportional to the amount of credits the landowner contributes to the enrollment pool. If a landowner contributes 10% of the credits in the enrollment pool, they are responsible for 10% of the verification costs. The Delta Institute will hire the CCX-approved verifier and negotiate the total verification costs. The landowner pays their share of verification costs in the first and last years in which their credits are sold, and then in any subsequent years as determined by the CCX.
- Technical Assistance Funds: If a landowner used technical assistance funds, they must repay the technical assistance loan before they receive any revenue.
What is the Technical Assistance Fund?
The Michigan Department of Natural Resources has established a limited, revolving Technical Assistance Fund to assist forest landowners with the costs of developing the initial carbon inventory. A landowner can only request technical assistance funds for working forest projects. Afforestation or reforestation projects are not eligible for technical assistance funds.
The Delta P2/E2 Center manages the Technical Assistance Fund and pays the initial carbon inventory costs for landowners who request technical assistance funds. Landowners should inform their forester that they have requested technical assistance funds, allowing the forester to invoice Delta for the carbon inventory work. After receiving and approving all contracts, documentation, and inventory data, Delta pays the forester with technical assistance funds. The landowner repays their technical assistance ‘debt’ through the annual sale of carbon credits. Thus, the Technical Assistance Fund is self-perpetuating, providing funds each year for carbon inventories. Because technical assistance funding is limited, Delta disburses funds on a first-come first-served basis. As a way of minimizing technical assistance debt, Delta encourages landowners to pay a portion of the carbon inventory costs. Depending on the market price of a carbon credit and the cost of the carbon inventory, landowners with smaller acreages may not realize any profits over the contract period. Please contact the Delta P2/E2 Center prior to enrollment for an estimate of the revenue potential of your forestlands. Finally, a Michigan Forest Stewardship Plan and a signed Exchange Forest Offset Contract are required to receive technical assistance funds.
What is the Michigan Forest Stewardship Program?
The Forest Stewardship Program is a voluntary program that encourages non-industrial, private forest landowners to manage their property. Through the Forest Stewardship Program, landowners will increase the benefits they derive from their property while conserving it for the future. To enroll, a landowner must meet the eligibility requirements outlined in the Forest Stewardship Act of 1990; be a non-industrial, private forest landowner; and must own at least 12 acres, with at least 5 acres in forests or 5 acres to be planted with trees. If eligible, a landowner completes the Forest Stewardship Assessment Form, which leads to Forest Stewardship Management Plan. A certified plan writer must complete the Forest Stewardship Management Plans.
A Forest Stewardship Management Plan is a comprehensive plan that contains the following elements:
§ Clearly stated long-range goals and objectives that reflect forest stewardship ethics;
§ Michigan’s Stewardship Ethic;
§ Maps showing current conditions, soil types (including soil descriptions), and locations of proposed activities;
§ A short overview of the property, discussing items such as major forest cover types, landforms, topography, wildlife use, threatened & endangered species, etc;
§ Description of each management unit, including goals and objectives, vegetative cover types, soils, forest density, age and condition, an evaluation of resource elements present, detailed descriptions of planned management activities, and precautionary steps to protect value resource elements;
§ Schedule of recommended management activities for all stands over the next 10 to 20 years;
§ Appendix of technical information to help landowner implement management recommendations
Once the plan is complete, a landowner can use the plan recommendations as a guide to implementing best forest management practices. However, plan implementation is voluntary. The landowner decides which, if any, recommendations to implement. The Michigan Department of Natural Resources encourages plan implementation, but does not monitor or enforce the extent to which landowner do or do not implement their Forest Stewardship Plans.
What are the yearly reporting requirements?
Participating landowners are required to submit yearly update reports, documenting any changes in the carbon stocks of the property (See Attachment F). Landowners should report events such as timber harvesting, afforestation/reforestation, natural disasters (wind-throw, forest fires, insect & disease outbreaks), property development (home construction, land divisions, pond construction) and changes in ownership. Delta uses this information to recalibrate the Forest Vegetation Simulator. In some cases, another carbon inventory may be required to re-establish the carbon baseline. Again, the landowner is responsible for this cost. Technical assistance funds are not available for recalibration inventories. Delta shares this information with the Michigan Department of Natural Resources.
Who will verify my practices and when? How frequently?
An independent, third party verification firm - with expertise in forestry practices and approved by the CCX - conducts desk and field verification for all forestry projects. Verification is intended to confirm the reported species mix and characteristics, verify enrolled acreage, confirm that forest management practices on enrolled land are in conformance with the program criteria, and identify any acres not in compliance with eligibility criteria.
When will I be paid and how frequently?
Because your lands are aggregated with other lands, Delta does not know when the credits generated by your land are actually sold. We sell the aggregated pool of credits, returning to each landowner in the pool, a percentage - proportional to the amount of credits each landowner contributes to the pool – of sale revenue. Thus, if your land contributes 1% of the credits in the overall pool, you will receive 1% of the revenue from each sale. This method allows each landowner to receive greater revenue from increases in market prices. Because, carbon credits are a commodity, the price may fluctuate over time. Delta reserves the right to hold credits, while waiting for a higher market price. The credits are always sold at the market rate – you are never locked into a certain sale price. You can expect to be paid 30 days after Delta sells all the credits in your enrollment pool. Each enrollment pool is eligible for sale 12 to 14 months after you enroll, to allow for forest growth and timber harvesting.
What are the consequences if I do not continue sustainable forestry management practices until the end of the contract period?
The contract contains stipulations for non-compliance with the forestry management plan. Non-compliance with the contract would require the project owner to return a quantity of the carbon credits for the project years or pay an amount equal to the cost of the credits. Additionally, the CCX may ban the project owner from future participation on the Exchange.
What is the Reserve Pool?
The Chicago Climate Exchange requires every landowner to place 20% of annual credits into the reserve pool. The reserve pool is your insurance policy against carbon losses on your property. At the end of the contract period, the CCX releases the unused reserve pool credits to Delta for sale on your behalf. Reserve pool provisions are detail in the XFO contract.
What happens if there is a net loss in carbon stocks due to harvesting?
Landowners earn offset credits for managed forest projects on the basis of net changes in carbon stocks on eligible sites included in the project during each of the years 2003 through 2012. The net change in carbon stocks is defined as the increases in carbon stocks due to growth (as determined by a CCX-approved model) minus the quantity by which carbon stocks decreased due to harvest, pest, fire and adverse weather events. If a timber harvest removes more carbon from the enrolled project lands than is sequestered through annual growth on the enrolled project lands, i.e. the net change in carbon stocks is negative, then the Project Owner has a carbon deficit for that year.
If a carbon deficit occurs prior to the sale of offset credits and only impacts the initial baseline of the enrolled project lands, then those lands are excluded from future projections of annual changes in carbon stocks until the quantity of carbon stocks in these stands reaches the reported quantities of the initial baseline.
If a carbon deficit occurs after the first year of enrollment for landowners that are part of an aggregated pool of projects and the landowner has sold credits then the landowner’s carbon deficit will be shared equally among the other landowners in the enrollment pool. The Delta P2/E2 Center, LLC, will automatically deduct the carbon deficit from each landowner’s XFOs. Additionally, the stands showing the carbon deficit are excluded from future projections of annual changes in carbon stocks until the quantity of carbon stocks in these stands reaches the reported quantities of the initial baseline.
Therefore, when planning a timber sale, please consider the impact on the carbon stocks. You do not want to remove more carbon through a harvest than you are annually sequestering!
What happens if there is a net loss in carbon stocks due to uncontrolled, catastrophic events?
Each CCX managed forest project must place 20% of the offsets it earns into a CCX Forest Carbon Reserve Pool. Such offsets remain the property of the landowners (pool participants in the case of aggregated projects) until released to the project owners by the CCX near the end of the market period. Accumulated offsets in the Forest Carbon Reserve Pool are used to compensate for any catastrophic losses. In cases of adverse weather events or outbreaks of fire and pest damage which reduce the quantity of carbon stocks on the enrolled project land (but do not impact the baseline level), the landowner shall document the quantity of timber destroyed by fire, pest or adverse weather event and surrender an equivalent amount of Carbon Financial Instrument (CFI) from the Forest Carbon Reserve Pool.
In cases of adverse weather events or outbreaks of fire and pest damage which reduce the quantity of carbon stocks on the enrolled project land below the documented baseline level, the landowner shall document the quantity of timber destroyed by fire, pest or adverse weather event and surrender an amount of CFIs in the Forest Carbon Reserve Pool equal to the amount destroyed by the catastrophic event. However, the CFIs in the Forest Carbon Reserve Pool represent the maximum amount that the landowner can lose in a catastrophic event. These stands are excluded from future projections of annual changes in carbon stocks until the quantity of carbon stocks in these stands reaches the reported quantities of the initial baseline.
All reports of significant damage caused by pest, fire and adverse weather events are subject to audit by a CCX-approved verifier.
What is a Carbon Financial Instrument?
A Carbon Financial Instrument or CFI is term given to carbon offset credits when the credits are traded on the Chicago Climate Exchange. One (1) CFI is one hundred (100) metric tons of carbon offset credits. For purposes of this agreement, CFIs also include carbon offset credits recognized by any established and recognized entity that validates carbon offset credits. Those institutions include, but are not limited to, the California Climate Action Registry, and the Voluntary Carbon Standard. Should the Project Owner and the Delta P2/E2 Center, LLC, decide to pursue registration of CFIs through a standard setting organization other than CCX, the registration and qualification requirements for that entity shall be substituted for the references herein to CCX.
Can I cancel my contract?
You can cancel your contract through a mutual agreement with the Delta P2/E2 Center.
[1] The six types of greenhouse gases covered under global warming policies and in trading programs are: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride (SF6), perfluorocarbons (PFCs), and hydrofluorocarbons (HFCs).
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