Swedish forest owners struggle with their profitability. Low timber prices, the lowest in Europe, are not only annoying the forest owners, but it has also made them think of alternatives to selling the timber through the traditional channels. One alternative that has been mentioned several times, is carbon storage – getting paid for letting the forest be. Could that be true? Is it a myth? Is it doable?
Getting paid to let the forest stand
Yes, it’s true, doable, and it’s here! You know, those fantastic things you hear about that make you think: “That’s too good to be true.” Normally they are too good to be true = they are not true. But sometimes they are and here is one example.
Better paid than felling
So it happens, we have written about this forest owner before. Ronnie Johansson is a typical (theoretically anyway) south Swedish forest owner with a little over 100 hectares of forest land that he manages himself.
In his forest, there are large areas of bad pasture that have grown into forest land. This has been properly thinned and Ronnie has thought a lot about how to gain more profit out of it before the final felling that lies many years ahead. Via friends, he encountered a company that was working on its environmental profile.
The company, which sells large digital screens, had already done “everything” to limit its CO2 emissions by green electricity, fossil-free heating, electrical cars, more environmentally friendly production, etc. But still, there were CO2 emissions that they didn´t know how to get rid of. So, they hired an environmental consultant who calculated how much CO2 emissions they still had and suggested how to compensate for that.
30,2 tons of carbon = 3 hectares
The consultant concluded that the company’s “rest” (except for what was already compensated for) emissions were 30,2 tons of CO2 per year. This was for heating with bioenergy and green electricity, but mainly (23,9 tons) for the manufacturing and freight of the imported screens.
The company didn´t want to get involved in any carbon storage projects in far-away countries, they wanted to do that locally and with full transparency. They also wanted to be able to see the carbon storage area with their own eyes at any time. The choice was a piece of south Swedish forest land that was leased from Ronnie.
The consultant calculated that 30,2 tons of CO2 correspond to approx. 3 hectares of average south Swedish forest land. A growth of 7,5 cubic meters per hectare corresponds to 5,6 tons of dry matter. Each ton stores 1,8 tons of CO2 which gives approx. 10 tons of CO2 per hectare and year. According to this equation, 3 hectares were needed to store 30,2 tons of carbon annually.
Consequently, the company wanted to lease a suitable forest area for 30 years. Large enough to cover the CO2 emission and stable enough to remain over time without having to recalculate. The carbon that already exists in the stand, is not included in the calculation just like the carbon that is stored in the ground.
30-year contract with revision every five years
The lease contract is for 30 years, but every five years a revision will take place. The forest owner shall provide the right amount of forest land according to the contract, and if parts of the stand are damaged by a storm, etc., he must replace the damaged area with other areas.
Price and volume are renegotiated every five years. If the company manages to reduce its CO2 emissions, it can decrease the area in the lease.
The price is decided by the price for emissions exchange which is 825,50 SEK per cubic meter, or per 10 tons. For the 3 hectares, this gives 8.255 SEK (approx. 810 USD) per year to the forest owner.
Ronnie has chosen two sites of altogether 3 hectares that will be used for this carbon storage. The sites are dominated by 35 – 45-year-old pine (Pinus silvestris) and have been thinned recently. They will require no further actions during the next 30 years. The normal age for final felling in this type of stand is 80 + years, so the margin is good.
With or without the carbon storage, and the income from that, no actions would have been taken in those two sites for the next 40 – 50 years anyway. So, this is certainly a way of making “new money” from your forest land.
Too good to be true?
The unique thing about this deal is that Ronnie has managed to make a deal directly with a company that needed carbon storage, without middlemen. It´s a simple solution for everybody involved, but there are probably “green-washing” issues to be discussed concerning this. On the other hand, we live in a free World where companies are willing to pay forest owners for such solutions, and forest owners are willing to set aside forest land for it.
Ronnie is simply using his right as owner to do what he wants with his forest land. In this case, using 3 hectares as carbon storage through a 30-year lease. It’s not forbidden, and no authority must approve or give a permit. Furthermore, the land is still 100 percent owned by Ronnie including the growth that will continue during the lease. When the time comes, he can clear-fell the sites and take the profit from that. The timber can be processed into lumber that continues storing the carbon.
One could say that Ronnie can both eat the cake and keep it.
Does it pay off?
“Are you joking?” was the spontaneous comment from Ronnie. 8.255 SEK per year and hectare for 30 years is far more than forestry actions will ever bring. And the forest is still there!
Maybe a thinning will give some 8.000 SEK per hectare, but that is one time. In this case, the forest owner (Ronnie) is guaranteed over 8.000 SEK per year for at least five years. An extraordinary deal that is difficult to match. For a forest owner, there shouldn’t be any doubts about a deal like this. Especially in this case where one thinning is already made, and the profit for that is cashed in.
Fantasy prices?
The price in this example may seem exaggerated but it is based on the current price for CO2 emission. There are daily price updates for emission exchange within the EU/ETS, and the price is approx. 800 SEK per ton CO2, which means 8.000 SEK if the forest stores 10 tons per hectare as mentioned above. The CO2 tax is higher, approx. 1.200 SEK per ton, so the price in this example seems fair. However, most important is that the buyer, in this case, the screen delivery company, finds it fair and are willing to pay. It´s simple: you have a deal when the seller and buyer are both satisfied.
Ronnie points out that the price is set to encourage the company to reduce its CO2- emissions. The revision every five years give the company the chance to lower the cost of carbon storage if they have managed to reduce the emissions. The deal can also be canceled with a one-year notice if the company finds a better solution.
What speaks against it?
Getting paid for doing nothing or doing what was planned to do anyway. One might think that it would have been better if the forest owner tried to increase the carbon storage in the forest in question. Like letting the forest stand 10 years extra before the final felling, planting a forest on an unused field, fertilizing some forest land, etc. If a forest owner just does what he or she always does it doesn’t create any extra carbon storage just because they get paid for it.
It´s true, but from the forest owner’s perspective: Why should he or she not do it? A forest owner has every right, within the law, to make a profit from his forest whether it´s a hunting lease, tourism, wood deals, or carbon storage. And in this case, the company that buys the carbon storage is not doing it just to be able to continue letting carbon out in their business. They had reached the end of the line after doing everything in their power to get rid of the emissions in their business, but they needed help to reach their goal. So, for them, this was the solution.
The forest industry
The forest industry is of course nervous that “their” raw material should be left standing in the forest. If the forest owner can make more money on that, it may be a risk. But carbon storage doesn’t necessarily mean that no wood comes out of the forest. In Ronnie’s case, the sites that are left were not supposed to generate any wood for the next 40 – 50 years anyway. So, here the loss of raw material is zero. When the time comes, these sites will be felled as planned.
However, if the carbon storage is tighter connected to the growth, it will be interesting. In that case, the forest must be denser after thinning than it is today. More trees must be left and less will come out for the industry. In the short run that will decrease the flow of pulpwood to the mills. It can only be good for the forest owner: First, they get paid for carbon storage, and then the pulpwood prices will go up (logically).
From the forest industry’s perspective, the damage can be vast. More wood will be left in the forest and to get the wood they will have to pay more for it. For the forest owner, there seem to be only possibilities.
Something for the forest owners’ associations
The scenario in the example with Ronnie seems to be only positive for the forest owners. A question that occurs is why the Swedish forest owners’ associations are not interested in carbon storage in the forest as an alternative for their members. One obvious explanation is that two of the major three forest owners’ associations in Sweden also are forest industries. They are sitting in the same situation as the rest of the forest industry – they need the raw material from the forest.
But the forest owners’ associations should act in the best interest of its members, the forest owners. Ronnie made a deal directly with a company he happened to know about. Not every forest owner can count on that kind of luck. A function where buyers and sellers of carbon storage could easily find each other would make it easier. The forest owners’ associations have what it takes to be that function. To help the members get a better profit from their forest land and in the meantime (hopefully) force the wood prices to go up. That should be the obvious task of the associations. If it breaks through, you can be sure that a lot of middlemen and agents for this kind of service will turn up.
What comes next?
Ronnie is a pioneer. The deal he has made is controversial. In Swedish forums, like the sister-site Skogsforum.se, he has been called everything name from genius to a fraudster. The forest industry, including the forest owners’ associations, hates it. Some forest owners hate it too, but most forest owners love it. The pie-throwing is in full swing.
It´s exciting, to say the least. But still – it´s just a business deal between two parties that have agreed on something. There is nothing illegal about it. Just two parties that have exchanged service and money. Both are happy. So, why the fuzz?
It´s difficult to say if this will ever break through. Spontaneously, all forest owners should go for it and immediately start looking for companies with a bad conscience. Ronnie has already received requests for carbon storage from other companies. It´s also a fact that many companies today have bounteous budgets for environmental profiling and should be willing to pay for carbon storage in the forest.
On the other hand, the forest industry will do everything in its power to prevent development that risks less wood coming out from the forest. The question is if this will somehow be regulated by the authorities in the future. If nothing else to protect the industry.
Time will tell. We will have to wait and see.
More on the subject
Here you can read previous articles on the subject:
Does carbon sink have a financial value
This article is a summary of an article signed Torbjörn Johnsen at Skogsforum.se
Photos: Torbjörn Johnsen
