Extension Report

Baldwin County Office

302A Byrne Street

Bay Minette, AL  36507

Beau Brodbeck

Regional Extension Agent

Forestry, Wildlife & Natural Resources

October 28, 2008

Carbon Credits; Why? How? And What AreThey?

Carbon credits.  Why? How? And what are they?  These are many of the questions that arise when the relatively new concept of trading carbon credits as a means for reducing global warming.  The science, concepts, and markets are complex and confusing.  To understand the concept of carbon credits, it is important to review some of the driving forces behind this new multibillion dollar market. 

A concept that has caused much debate and is a major driving force behind carbon credits is “global warming”.  Research over the past few decades has begun to indicate that there may be an unnatural warming of the average measured temperature of the Earth’s surface.  Increases in temperature, according to the “Intergovernmental Panel on Climate Change”, of 1 to 2 degrees Farenheight have caused speculation about the impacts on the environment and overall life on Earth. 

A driving force behind the theory of global warming and a second major concept in the carbon credit program are “greenhouse gases”.  Greenhouse gases are comprised primarily of water vapor, carbon dioxide, methane, and ozone among many others.  These gases absorb and emit the sun’s heat forming an important component of the atmosphere.  It is this atmosphere that keeps the planet warm and inhabitable.  The concern of an unbalanced system has risen with the dawn of the industrial revolution and the excessive burning of fossil fuels.  

Industrialization has significantly increased sources of greenhouse gases like carbon dioxide (CO2), methane, and nitrous oxide.  Carbon dioxide comprising up to 26% of greenhouse gases, second only behind water vapor according to “The Center for Atmospheric Research”, has become one of the focal points behind the carbon credit exchange program.   While CO2 is natural, the excess emitted by burning fossil fuels may be unbalancing the natural system and causing the recent warming effects. 

So, how does this all relate to a market exchange of carbon?  If you remember your high school science, carbon is a primary element in most living organisms on Earth, including trees.  Power, automobile, steel, cement and an endless list of companies create carbon emissions in the form of CO2 among other greenhouse gases.  In the case of carbon dioxide, trees absorb it at an estimated rate of 48lbs per year or 2 tons per acre per year and store the carbon in the leaves, branches and trunks, according to the Alabama Forestry Commission.  Forests are natural sources of absorbing and “storing carbon”.  Industrialization’s burning of fossil fuels (creating CO2) and deforestation (the natural absorbing and storing mechanisms) have begun to elevate CO2 in our atmosphere causing rising temperatures.

The carbon credit program was created in response to these scientific findings and formalized by an international agreement during the Kyoto Protocol in 1997.  This protocol calls for a 5.2% reduction of greenhouse gases compared to emissions in 1990, according to a release from “United Nations Environment Programme”.  This same release explains that when compared to projected emission in 2010, this would be an actual reduction of 29% (note, more people mean more industry thus more emissions).  This program was signed and ratified by 179 countries leaving only a few small undeveloped countries and the United States not participating. 

In response to the Kyoto Protocol, industries operating around the world now have a mandatory obligation to reduce greenhouse gas emissions enforced by each participating country.  Each country and local business is given a quota of how many metric tons of carbon they are allowed to produce.  Anything over that amount is either reduced by using cleaner technology or “offset” through a carbon credit exchange program to cover the excess.

For many industries, reducing emissions may be very difficult or economically unfeasible.  Thus a carbon credit exchange program was formed whereby businesses can sell and purchase carbon credits.  Carbon credits known as “offsets” can help large businesses like automobile industries buy credits to offset their shortfalls while companies with additional credits can sell.

Carbon credits can take many forms in the market place and have created new technologies and innovations.  Examples vary from reducing methane on swine farms in the developing world to developing low-emission machinery.  More recently JP Morgan has ventured into the market by developing and selling efficient wood burning stoves in many African countries, according to Marc Gunther of Fortune Magazine.   Gunther explains that each stove generates a reduction of carbon dioxide of 2 to 3 tons per year, generating carbon credits worth $10 to $15 per credit or total revenues of $100 billion last year.

Closer to home carbon credits can be generated on forestlands.  Alabama is rich in forests resources, according to the Alabama Forestry Commission, having 69% of total land area covered in forests making for a potential sizeable market in Alabama.  Through forest practices like aforestation (planting trees on old agriculture fields), long term forest preservation in “conservation easements”, or in long term sustainable forest management carbon credits can be obtained.  Carbon credits while being voluntary in the United States are beginning to find a market with American industries wishing to portray a “green” image.

In 2003, the Chicago Climate Exchange (CCX) was formed to

provide carbon credits for American industries interested in participating.  CCX is actively trading and providing opportunities for forestland owners around the country.  However, CCX does not directly purchase carbon credits but rather works through “aggregators” or companies actively seeking carbon credits and aggregating them into bundles that are sold on CCX.  Aggregators prepare the projects, measure the data (i.e. how many tons of carbon your aforestation is creating), secure the contract, and monitor the system to ensure compliance. 

Alabama already has one 8 acre parcel of land registered and sold on CCX with many more possible over the next few months as various aggregators are active in Alabama.  Several aggregators are currently available to landowners interested in participating and can be located on the CCX webpage.  The value of a metric ton of CO2, however, has fluctuated on CCX over the past few months rising as high as $7.50 and falling to a current value around $1.40 per metric ton of CO2.

With elections underway, regardless of the candidate elected, there is a strong possibility of a mandatory greenhouse gas emissions reduction program in the United States.  The Forest Landowners Association recently wrote that there is legislation currently in Congress with substantial bi-partisan backing of a possible mandatory program. This may lead to major changes in the carbon credit market as it shifts from voluntary to mandatory that all landowners should pay close attention to if they are interested in participating in this new market.  For additional information, go to the Chicago Climate Exchange webpage at:  www.chicagoclimatex.com/

Email address: brodbam@auburn.edu

Phone: 937-7176 or 943-5611, ext. 2222

Issued in furtherance of Cooperative Extension work in agriculture and home economics, Acts of May 8 and June 30, 1914, and other related acts, in cooperation with the U.S. Department of Agriculture. The Alabama Cooperative Extension System (Alabama A&M University and Auburn University) offers educational programs, materials, and equal opportunity employment to all people without regard to race, color, national origin, religion, sex, age, veteran status, or disability.

~Back~