The 'Hidden' Social Costs of Forestry Offsets

An evaluation of carbon offsets in forestry accounting for the (commonly-neglected) amount of time it takes trees to remove carbon from the atmosphere.

Colin Hunt and Seth Baum, 2009. The 'Hidden' Social Costs of Forestry Offsets. Mitigation and Adaptation Strategies for Global Change, vol. 14, no. 2 (February), pages 107-120.

Pre-print: Click here to view a full pre-print of the article (pdf).

* Covered at Forest Carbon Portal

The article quantifies the size of 'hidden' social costs that are incurred by forestry offsets in the voluntary market that promise to offset present emissions sometime in the future. It does this by estimating the difference between the social costs of carbon (C) emitted and of costs offset by removal of C from the atmosphere by reforestation/afforestation. All current attempts to make forestry offsets more reliable focus on quality control rather than the mismatch of the timing of emissions and their offset. Recommendations that follow from the analysis are twofold. First, that markets for carbon dioxide equivalent (CO2e) removals by voluntary offsets should be confined to the annual incremental removals actually achieved. Second, the promoters of voluntary offsets projects should declare the annual stream of carbon credits and debits expected so that buyers can place a present value on such projects.

Non-Technical Summary: pdf version

Background: Forestry Offsets for Climate Change Mitigation
Carbon offsets are in an increasingly popular means of reducing atmospheric greenhouse gas concentrations. You can voluntarily offset your emissions by paying someone else to do the job. In the case of forestry you pay someone to remove some greenhouse gas from the atmosphere by planting trees. Forestry offsets are a large and growing market worldwide but have been subject to various criticisms, mainly relating to quality control, rather than to timing.

What are the 'Hidden' Social Costs of Forestry Offsets?
Offsets purchasers are often striving to become carbon-neutral, i.e. to offset as much greenhouse gas as they emit. However, being carbon-neutral is not the same as being cost-neutral, i.e. to offset the cost to society of emissions. Forestry offsets, as they are typically implemented, are not cost-neutral. This is because the standard approach to forestry offsets results in a time lag between the emission of greenhouse gases and their removal. Forestry offsets are usually (but not always - see the Chicago Climate Exchange) sold ex ante and take several decades to take effect. In the meantime, the gases not offset are causing climate change and imposing a cost on society. This is the 'hidden' social cost of forestry offsets, 'hidden' because it is ignored in the standard evaluations of forestry offsets.

Estimating the 'Hidden' Social Costs of Forestry Offsets
The Hunt-Baum paper attempts to estimate the hidden costs of forestry offsets. The authors adapt from the 'DICE' integrated assessment model, which is widely used to estimate the social costs of carbon, and compare these with the profile of carbon sequestration by forests. For our test case (tropical Northern Queensland, using a discount rate declining from 4% to 2% over 100 years), we estimate that achieving cost-neutrality requires an approximately 27% increase in the area of forestry to be planted.

The major recommendation of the paper is that forestry offsets should be sold only after they have achieved the removal of CO2e from the atmosphere, thereby avoiding hidden social costs. In addition, the paper recommends that developers reveal the carbon sequestration profile of their forestry offset products; thereby enabling more accurate comparison with other types of offsets.

Created 5 Sep 2009 * Updated 29 Jul 2013