Leaves of Gold
As a new market for carbon credits takes root, East Texans wonder if they really can get paid just for owning trees
They stood lined up against the wall, some beckoning with lusty promises of easy riches. Just sign on the dotted line, they said, and the money’s yours. “Guess What? Now Money DOES grow on trees,” read one of their printed solicitations.
They are called aggregators, this new breed of entrepreneur. They had descended on the Texas A&M University Agricultural Research and Extension Center in Overton this September day to sell skeptical East Texas landowners on the notion that there is opportunity in global warming for those who own trees. Tall, healthy, carbon dioxide-gulping trees.
With acres of piney woods that almost equal the combined forestland of New England, East Texas is emerging as a favorite hunting ground for players in the booming market for carbon credits. That’s what brought about 200 people to the Texas, Louisiana, and Oklahoma Carbon Credit Conference, where experts and those who claimed to be began mapping out this uncharted territory.
A carbon credit is quantified as a single metric ton of sequestered carbon dioxide. Growing trees naturally sequester CO2 from the atmosphere through photosynthesis, storing it in their tissue. So anyone owning a lot of young trees conceivably owns a lot of carbon credits. Reminiscent of the scouts for oil and gas companies who prowled East Texas during the early oil days, carbon credit aggregators are now plying the area. They aim to bundle rights to as many carbon credits as possible and sell them to companies or people who need a way to offset their production of global-warming gasses.
The carbon offset market is new, and most of its rules have yet to be written. Since federal lawmakers have yet to enact serious climate change legislation, no one is sure how much carbon credits might be worth in the future. By the end of the eight-hour conference on September 28-the biggest yet in East Texas-farmers and loggers had a taste of the market’s Wild West nature. Alternately adorned in business suits and blue jeans, conference attendees were simultaneously curious and skeptical about the possibility of making money for doing what they’ve always done anyway-grow trees.
If it’s green and growing,” Tom Boggus told the crowd, “it’s storing carbon.” Boggus, associate director for resource development with the Texas Forest Service, told attendees it was pointless to debate whether pollution is linked to climate change. “Global climate change is a fact because the policymakers say it is, regardless of what you may think.”
Increasingly, public opinion and science are aligning. Hybrid SUV commercials and Web sites like carbonneutral.com and begreennow.com that offer “carbon neutrality” have proliferated. Consumers are invited to figure their “carbon footprints,” the amount of CO2 they produce, by tallying facts like their utility payments and makes of cars. To offset their footprint, visitors can pay a sum that will supposedly go to programs combating greenhouse emissions, like planting trees. Although the American greenhouse-gas market is unregulated, Congress is reviewing proposals to hold businesses accountable for their pollution. For the first time, U.S. industries could be required to deal with their environmental consequences in a systematic fiscal way. Overnight, a market worth tens of billions or perhaps $100 billion a year could be created.
Many environmentalists fear that carbon offset programs serve as public relations tools for industrial companies wanting to claim environmental consciousness. Offsets can’t neutralize all the excess emissions, and environmentalists contend that programs like carbon credits are temporary Band-Aids on a sore that should be sewn shut. In their opinion, governments and companies should stop burning fossil fuels and implement alternative energy programs. In any case, will East Texas tree farmers see real income for their trees, or just the promise of a check from an overnight Internet company?
Carbon credits were worth very little, about $1.85, as the Observer went to press, according to the Chicago Climate Exchange Web site, down from $4 in April. Most owners are not willing to relinquish control of their land and deal with loads of paperwork for an extra few thousand dollars a year. Typical of this attitude was George Leonard of Sandy Creek Ranch in Winnsboro. “I’m sure there will be some who do well in it,” he said. “For others, it’ll be like anything else that’s too much paperwork. I participate in very few farm programs because I don’t like all the paperwork and people telling me how to do what I do.”
With government regulation on the horizon, it is in the landowner’s interest to hold out on signing a contract until the market stabilizes.
If you’re not at the table,” Steven McComb told the conference crowd, “then you’re on the menu.” McComb is an analyst with the Chicago Climate Exchange (CCX). McComb’s sharp Canadian accent stood out amidst the slow-drawling crowd as he urged attendees to sign their land into offset contracts. A financial institution, the CCX acts like a stock market to facilitate trading in offsets such as carbon credits. Companies like E.I. Du Pont de Nemours & Co. and Sony Corp. sign contracts that commit them to meet annual greenhouse gas reductions or buy the difference in offsets from a CCX-sanctioned aggregator. The aggregator brokers the deals between companies and offset providers like small-scale tree farmers in East Texas.
In a typical aggregator contract, the landowner agrees not to harvest a set amount of timber for a specified time, say 10 years. The landowner is paid a yearly sum, after the aggregator and CCX take their cuts, by a business purchasing offsets to counterbalance pollution. Different contracts include various contingency plans for acts of God such as fires. Although the plan sounds like a win-win, it has several problems.
For one thing, right now it’s risky. Landowners who sign contracts pegging carbon credits at $3 might see prices rocket to $30 after regulatory legislation is passed, and owners could be stuck with the lower price. Also, the majority of payouts might not come until the contract expires, possibly 10 years or more down the line. With years of fees and paperwork required of the landowners, the final payout needs to be worth more than a few thousand dollars.
“Where there is a scarcity in product or resource,” McComb said during his slide show, “then it has value.” Trouble is, in the immature offset markets, no one is sure yet what carbon credits are actually worth.
After presentations from agricultural scientists, a Texas Forest Service representative, and the CCX economist, attendees took a lunch break. With a $10 barbecue meal roiling in their stomachs, they resumed listening as aggregators from companies like Dogwood Carbon Solutions of Missouri and AgraGate Climate Credits Corp. of Iowa pitched their programs.
“We have never turned anyone down for being too little,” Nolan Alders of AgraGate said, going for the landowners with few acres. “This has hurt us, but we like to help the landowner.” With coiffed silver hair and a good-old-boy smile, Alders worked the crowd like a politician.
There’s not a lot here for me, but it’s very interesting,” landowner Mark Friend said. His forest, he said, is comprised of old trees, and its carbon-storing capacity is negligible. “All my land is old forest, and I don’t have any room to plant. For my property, my biggest effort is toward thinning. However, I would buy land to reforest if the prices for carbon credits went up. Potential for carbon credits could make a difference in purchase price. If prices went up, I would be more inclined to speculation.”
Like most landowners at the conference, Friend was waiting to see how the government decides to regulate industrial greenhouse emissions.
In the lobby outside the auditorium, Matt Baker, a Texas Tech department chair in agricultural education and communication, urged caution. Though the High Plains around Lubbock are his field of study, the thin, bespectacled Baker came to learn more about the ever-changing carbon market. He marveled at what he saw and gave credit for progress in other countries to the Kyoto Protocol, an international agreement to reduce pollution that the U.S. hasn’t signed.
“I think landowners really have to be careful that committing to a contract today based on today’s market could change tremendously with upcoming federal legislation and maybe a greener Congress and presidency,” he said. “European prices are $30 versus $3 here, all because of Kyoto, without a doubt. If the U.S. were to sign that agreement, then things could change drastically. Once again, you want to be very careful about locking any price in for a long period of time. Or even a short period of time.”
Though the East Texas conference presented CCX as the only viable carbon market, landowners have other options. “As a landowner, you should approach everything with a great deal of caution in terms of what you’re signing and the aggregator you’re working with,” Baker said. “Other aggregators are going directly to the companies and perhaps not going through the CCX at all. There are other markets out there, and you need to look closely and scrutinize. I give the CCX a lot of credit for taking initiative and being the first national presence we’ve had in North America to really try to get something going, but are they still relevant in today’s market or will they be relevant in six months? I don’t know. The emission market is really a perfect segue between politics and science, and it’s a very complex science.”
Though small, initiatives like the CCX help generate public awareness that economics has a role in preserving the environment. “I think it’s really important to have financial incentives in these programs,” said Joel Brown, a rangeland ecologist. “This is really the beginning of the ecosystem services model, where we actually try to move what is a benefit of good land management, whether it’s clean water, clean air, or climate regulation. We try to move those things from individual landowners into a marketplace. It’s important at this stage for carbon sequestration, but in the long run it’s really important to learn how to market environmental or ecosystem services in a broader arena.”
As the sun retreated beneath the East Texas pine woods, landowners headed for the parking lot. Most seemed to think the carbon offset market needs to mature a little before they start leasing out land.
“It’s a good program for our environment,” said Leonard, the landowner from Winnsboro, “and nothing is more incentive than to have a return or possible return for your efforts. You do so much as just a good old boy, but then when they give you an opportunity to get some greens back, it makes it a little better.”
Stayton Bonner is a writer based in Austin.