04/02/2010

Carbon credits
A greenfield of opportunities

PAPTAC conference
Montreal, February 2, 2010

Project types

• Forest carbon management

– The use of superior forest management practices to enhance carbon
storage in the managed forest
• Afforestation or reforestation
– Generally described as the planting of trees on acreage that hasn’t
been forested for the past 50 years (afforestation) or since
January 1, 1990 (reforestation) according to the definition in the
Marrakesh Accord
– Other jurisdictions have different start dates. The Stabenow Bill in the
US Senate uses January 1, 2009 as a start date
• Avoided deforestation
– The long term preservation of forest that would otherwise have been
harvested

1 PAPTAC Conference – Carbon credits – A green field of opportunities © Deloitte & Touche LLP and affiliated entities.

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Forest carbon management-permanence

• Permanence
– Important to recognize that there are two kinds of reversals,
intentional and unintentional
– On a broad land mass basis, unintentional reversals are predictable
and can best be managed through a set aside
– The credits in the set aside are accounted for separately and
monitored to ensure that the set aside always has a positive balance
– Intentional reversals are a business decision, the value of the fibre is
a known as is the cost of the carbon
– Responsibility for replacing credits lost through intentional reversals
should lie with the land owner
– Given the average residency of carbon in the atmosphere a 100 year
liability period for intentional reversals has been suggested
– This essentially becomes a lien on the property much as a zoning
restriction would
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Forest carbon management-baselines

• The challenge with forest carbon management is that it is a continuous

process that doesn’t have an easily defined start date
• The proposal is to use a broad regional average as a baseline against
which to measure performance
• The baseline should be as broad as possible to respect species and
climatological differences but to avoid the situation where a forest
manager is competing with itself
• Carbon can be measured at a point in time based on a specified
sampling protocol and then the measurement can be repeated
periodically (every 5 years) to measure carbon flux
• The commitment of the project proponent is that the carbon account
would remain positive

3 PAPTAC Conference – Carbon credits – A green field of opportunities © Deloitte & Touche LLP and affiliated entities.

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Forest carbon management-additionality

• There is resistance to granting credits for existing forest management

practices that clearly would have happened anyway
• It is important to consider what is to be rewarded and what behaviour is
to be incented
• If the best forest management regimes are deemed not worthy of
crediting because they are based on existing practices, then they are in
fact being punished for superior performance
• In the same context, the opportunity for the greatest gains, and
therefore credits, then go to the companies that have done the least in
the past and therefore all of their activity will be additional
• This area is frequently beset with regulatory paranoia. It is important to
remember that, on a comparative value scale, forests are managed for
their fibre not for their carbon

4 PAPTAC Conference – Carbon credits – A green field of opportunities © Deloitte & Touche LLP and affiliated entities.

Afforestation/Reforestation issues

• Permanence
– Similar issues exist as with forest management for unintentional
reversals
– In most instances these projects are not commercial so intentional
reversals are less of an issue
• Baselines
– The baseline is relatively straightforward, but the range of start dates
could be problematic
– Land preparation will disturb existing soil and scrub brush carbon so
the project will not normally be positive for carbon until after the first
10 years
– There needs to be consensus on sampling to balance accuracy,
conservativeness and cost

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Avoided deforestation

• The most controversial of the project types, “pay me or I will cut it down”
• Seismic lines are a good example of a project where the incentive
for avoided deforestation was instrumental in the implementation of
the project
• Globally this will be the foundation of program to Reduce Environmental
Degradation and Deforestation (REDD) which will be a significant
source of international credits

6 PAPTAC Conference – Carbon credits – A green field of opportunities © Deloitte & Touche LLP and affiliated entities.

Final thoughts

• Climate change negotiations have more to do with trade issues than

they do with environmental issues
• Canada has a significant advantage because of its land mass and
forests that need to be exploited
• Bio-sequestration can be a source of low-cost credits because the
capital cost is already calculated in the fibre
• This in turn is critical to managing the cost of compliance
• The agricultural lobby is doing a far better job in building political
support for their inclusion in the program

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Contact

Skip Willis
Senior advisor for Climate Change
Deloitte

Phone: 416-601-6150 x 7728

Email: erwillis@deloitte.ca

8 PAPTAC Conference – Carbon credits – A green field of opportunities © Deloitte & Touche LLP and affiliated entities.