1. Gordon Smith April 6-9, 2009 5th Forestry and Agriculture Greenhouse Gas Modeling Forum Shepardstown, West Virginia Leakage Accounting in Forestry and Agriculture

2. Outline Concepts, current practice & offset supply implications Needed research and modeling

3. Outline Concepts, current practice & offset supply implications Needed research and modeling

4. Leakage definition Displacement of emissions from project area to outside project acrea Kyoto accounting: Increased emissions within the project boundary Caused by project activity

5. Cause of leakage If a project reduces supply of a good without reducing demand, the market will replace much of the lost supply Leakage greater for smaller projects because no price increase decreasing consumption If replacement supply creates new emissions, leakage occurs Emissions per unit of production may be higher, lower, or same as pre-project emissions

6. Factors affecting leakage rate Project type/activity Project location GHG accounting rules Project size External economic changes Example: FASOM GHG shows US forest management large sink or source across recent variation in agricultural product prices

7. Leakage by activity: Agriculture Plowing to no-till: Little or none May reduce yield in some situations, displacing production Reducing fertilizer use: Little or none May reduce yield, displacing production Changing fertilizer use: None (possibly positive?) Changing manure management: None

8. Leakage by activity: Forestry Avoided deforestation: High Forest management: Depends Generally high if reduces harvest May only shift emissions in time May be negligible if harvest maintained Afforestation: Depends Significant if causes clearing elsewhere May be negligible if combined with forest management* *EPA. 2005. Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture, EPA 430-R-05-006.

9. Current treatment of leakage Econometric estimates with cross- sectoral interactions (EPA Climate Leaders) Address specific activities (CDM) Ignore (1605(b), RGGI) State that should be dealt with, but give no guidance (CCAR) Assign flat rate (VCS)

10. Leakage varies by program Climate Leaders40.6% CCAR (proposed forestry rules) 24% CCXNot addressed RGGINot addressed CDMGrazing analysis Florida afforestation example

11. Rules affect offset supply Reducing number of offsets credited increases cost of creating each offset Want policies to make actors responsible for their actions Credit actual GHG benefits Don’t credit actions without GHG benefit

12. When GHG benefit occurs Current rules credit forest rotation extension with GHG benefit as carbon stock increases within project boundary Leakage indicates GHG benefit occurs when harvesting resumes Credit actual GHG benefits Don’t credit actions without GHG benefit

13. Credit timing effect When award offsetManagement change commitment Harvest resumption Project years offsets accrue11-2035 Tons CO2e/acre credited19.4 Levelized $/ton CO2, Year 11$9.17$31.12 Florida: extend pine rotation 20 to 35 years 6% discount rate

14. Policy recommendations Assign low-leakage activities zero leakage rate No-till, fertilizer N2O, manure management Deforestation fee (not offsets) Applies to all conversions, including small areas Fee set according to average carbon stock, by potential forest type and site productivity

15. Forest management Determining project additionality and baseline is problematic Modeled baseline depends on wood product prices Cap sector, not voluntary opt-in Baseline can be set at average carbon stock by forest type and site productivity, avoiding problems of modeling profit-maximizing management Avoids additionality and leakage problems Smaller ownerships more likely to sequester; need to identify how small to set property size threshold for inclusion in cap

16. Policy recommendations If forest management is capped, can assign afforestation zero leakage Rewards entities that do good If no cap on forest emissions, more research is needed…

17. Outline Concepts, current practice & offset supply implications Needed research and modeling

18. Forest management research US mapping of potential forest type and site productivity Quantification of average carbon stocks, by forest type and site productivity Tool for overlaying map and land parcel boundaries to set baseline for each ownership

19. Forest management research 2 Decadal variation in C stocks at property scale, relative to average How long and how far do C stocks go below average because of normal harvest, and how does this vary by ownership size? Natural disturbance How many ownerships go below average C stock because of natural disturbance, how far, and how does this vary by ownership size?

20. National-scale monitoring Needed for REDD Terrestrial C quantification protocols For all land cover types Must detect small % change Must be repeatable Must be do-able by developing countries Desirable to be compatible with developed country methods

21. “Factoring out” Can carbon effects of natural disturbance be separated from effects of human actions? Used retrospectively to determine compliance with REDD & A1 targets Use to allocate REDD payments between entities that control lands and national governments At minimum, inventory “unmanaged” forest

22. Global modeling How comprehensive must accounting be to avoid having to estimate leakage? What other sectors should be addressed to limit leakage? Which countries (for international leakage)?

23. Comprehensive accounting What land types must be counted to get realistic counts? Peat estimated to be 6% of global emissions: how measure area and depth of loss? Develop inexpensive protocols for non-forest lands Avoid things like recent Russian claim of a new billion ton sink

24. REDD program design What are effects of alternative consequences for later reversal of REDD? Cost in tons of emission Cost in dollars to meet net emission target

25. Program evaluation What REDD programs work, and why? Do soil protection programs enhance soil carbon stocks? Do educational programs affect GHG emissions? No-till, fertilizer management, water management

26. Model calibration What is correlation between actual behavior and profit maximizing behavior? Necessary for constructing mitigation supply curves

27. Most important needs Support comprehensive GHG accounting Methods for counting, esp. non-forest lands Volatility of fluxes Address fears of cap on forests Which landowners have deficits from natural disturbance, and for how long? Show banking can cover normal management Climate feedbacks on unmanaged forest REDD: effects of alternative consequences for reversals

28. Gordon Smith Ecofor LLC 206.784.0209 13047 12th Ave NW Seattle, WA 98177 USA Thank you