Santa Cruz Mountains Carbon Cooperative Frequently Asked Questions

Planning for the Carbon Cooperative (Carbon Co-op) program is currently underway. In the meantime, please review the following frequently asked questions about the project.

1. What is the purpose of the Carbon Co-op?

The goals of the Carbon Co-op are 1) to protect the Santa Cruz mountains forests and the many ecological services they provide and 2) to enable private forest landowners in the Santa Cruz mountains to participate in the carbon market. To date, the carbon market largely excludes smaller forest landowners because of high project development and management costs. The Carbon Co-op will overcome these financial barriers by aggregating multiple small ownerships into larger projects, resulting in long-term forest protection and financial rewards for landowners.

2. Who manages the Carbon Co-op?

The Carbon Co-op is currently being designed by Sempervirens Fund and WRA, Inc., with support from the Gordon and Betty Moore Foundation and with previous support from the California State Coastal Conservancy. Ultimately, the Co-op may become a program within Sempervirens Fund or another existing organization, or may become a standalone non-profit. The decision on who manages the Carbon Co-op is still in the planning phase.

3. How are carbon credits calculated?

Carbon credits will be calculated using the American Carbon Registry’s Improved Forest Management methodology. The American Carbon Registry (ACR) is a nonprofit organization founded in 1996 and was the first private voluntary greenhouse gas registry in the world. ACR remains one of the leading organizations for defining carbon crediting (i.e. offset) standards and methodologies and maintains a registry for carbon credit transactions. Credits issued by ACR are internationally regarded as credible and rigorously calculated, validated and verified.

4. How do I know if my property is eligible for participation in the Carbon Co-op?

The Carbon Co-op will follow the eligibility rules of the American Carbon Registry: Enrolled properties must be non-federally owned forestlands that are legally harvestable. Additionally, the Carbon Co-op will require that enrolled properties are located in the Santa Cruz mountains (San Mateo, Santa Clara, and Santa Cruz Counties) and are at least 40 acres in size. This requirement is based on the fact that enrolled properties must be eligible for timber harvest and timber production zone properties must be 40 acres or larger. Some exceptions may apply. There is no maximum limit for the size of enrolled properties.

5. What are the land management restrictions of the Carbon Co-op?

Our current expectation is that the Carbon Co-op will prohibit commercial timber harvesting on enrolled properties. The reason for this restriction will be to maximize the amount of carbon credits and revenues generated by the program and to streamline the project design across enrolled properties to reduce costs. Prohibiting commercial timber harvest is also consistent with the goal of the Carbon Co-op to protect the forest and associated ecological services.

It is possible that the Carbon Co-op could allow commercial timber harvest on enrolled properties in the future, if requested by individual landowners, but this will be a policy decision for the managing entity of the Carbon Co-op and has not been decided on at this point in time. If commercial timber harvest were to be allowed in the future, those properties would need to be certified by the Forest Stewardship Council, the Sustainable Forestry Initiative, or the American Tree Farm System, consistent with the American Carbon Registry’s requirements.

Certain forest health management activities such as removing invasive species, creating defensible space, and reducing fuel loads through active vegetation management are expected to be allowed, encouraged, and facilitated by the Carbon Co-op. Management activities that result in significant forest thinning are not expected to be allowed because of the impact on carbon crediting and added complexity to the project design, even if these activities are intended for forest health as opposed to commercial sale of timber. The type and extent of forest management activities that will be allowed on enrolled properties is still being determined.

6. What if a landowner wants to remove a few trees for firewood or for hazard mitigation?

Removing a few trees on the property will have a negligible effect on carbon crediting and will be allowed on Carbon Co-op enrolled properties.

7. What are the monitoring requirements for enrolled properties?

Enrolled landowners must allow Carbon Co-op contractors and third-party verifiers onto their property to conduct inventories and periodic monitoring, about once every five years. Any site visits will be coordinated with landowners by the Carbon Co-op management in advance.

8. Is a conservation easement required on the property?

A conservation easement is not required on the property. If there is already a conservation easement that restricts development on the property, the property may still be enrolled in the Carbon Co-op, as long as there are no timber harvest restrictions in the easement. Easements that impose timber harvest restrictions will need to be reviewed on a case-by-case basis and may not qualify for the Carbon o-op.

9. What is the length of the Carbon Co-op participant contract?

Consistent with the American Carbon Registry methodology, participating landowners will enter into a 40 year contract with the Carbon Co-op. The first 20 years of the contract is the crediting period, when the project is generating credits. After the first 20 years, the project may be renewed to continue generating credits. Following the crediting period, an additional 20 years of monitoring and reporting are required to ensure the durability of the carbon credits and the corresponding carbon sequestration and conservation benefits.

10. What if an enrolled landowner decides to exit the Carbon Co-op?

The Carbon Co-op is designed with the intention that enrolled landowners participate for the full 40-year contract term. If a landowner chooses to terminate his/her agreement with the Carbon Co-op, he/she will be required to replace all of the credits that his/her property has generated during the contract term at the present market rate.

11. What if there is a fire (or other natural disaster) on an enrolled property?

The Carbon Co-op will include an insurance mechanism to replace credits lost due to a natural disaster. Individual landowners will not be responsible for replacing credits lost due to a natural disaster on their property. However, if the damage to a landowner’s property is significant, it is possible that the property will no longer be eligible to generate carbon credits and the property may be dis-enrolled from the Carbon Co-op at no cost to the landowner. In this case, the landowner would no longer receive carbon credit payments.

12. If a landowner enrolls a timber production zone (TPZ) property in the Carbon Co-op, would he/she lose tax benefits associated with the TPZ designation?

Individual landowners should review their own specific Timberland Production Zone (TPZ) contract and consult with their tax advisor in order to determine any tax implications from enrollment in the Carbon Co-op, prior to enrolling. However, Sempervirens Fund did contract a separate law firm that specializes in tax issues to research this question and their opinion was that the risk that landowners who participate in this program would lose their TPZ tax status and associated benefits is very low. In addition, the Carbon Co-op development team contacted Santa Cruz County to inquire whether the County would change the TPZ designation of Carbon Co-op enrolled properties. The County responded that they would not rezone TP land, nor would they consider a 40-year contract to not harvest any sort of violation of TPZ designation expectations.

13. Can a landowner sell or transfer the enrolled property to a new owner?

If a landowner enrolled in the Carbon Co-op chooses to sell or transfer their property to a new owner, the terms of the contract will remain attached to the land. As long as the new landowner is not a federal entity, there are no anticipated issues with the project continuing on the property that is under new ownership. If the first landowner, or the subsequent landowner, chooses to leave the program due to the sale, he/she will be subject to the program exit requirements described above.

14. What are the expected costs of the Carbon Co-op?

The Carbon Co-op will incur costs associated with project development (i.e. inventories, credit calculations, and project design documentation) and ongoing program management (i.e. administration, enrollment, monitoring, reporting, and credit sales). The bulk of upfront project development costs are expected to be covered by a philanthropic contribution and ongoing costs are expected to be paid for by carbon credit sales. The landowners will not be expected to directly pay for any of the initial or ongoing program costs, except for a one-time Carbon Co-op application fee of $100.

15. What will Carbon Co-op landowner participants be paid?

The profits (i.e. revenues – cost) of the program will be paid out to landowner participants on an annual basis. Each landowner will be paid based on the number of acres they have enrolled in the program because credits will be calculated based on a credit per acre average for the region. The inventories that were conducted in the Santa Cruz mountains during the Carbon Co-op feasibility study indicated that a project in the region would likely generate 2.0 to 2.5 credits per acre.

A credit price will be agreed to with the credit buyer prior to the launch of the program. The target price range for Carbon Co-op credits is $10 to $20, based on the many co-benefits of a forest carbon project in the Santa Cruz mountains – like protection of biodiversity and water quality services – and based on conversations with credit buyers to date. Therefore, annual revenues would be $20 to $50 per acre. As stated above, annual program costs will need to be paid for with these revenues, and the remaining amount will be distributed to landowners. Once the Carbon Co-op aggregation methodology is fully developed, we will be able to accurately estimate program costs and project landowner payments. Payment terms will be clearly defined in landowner contracts with the Carbon Co-op.

16. What are the benefits of becoming a Carbon Co-op member?

In addition to providing payments to landowners, the Carbon Co-op may provide landowner participants with member benefits such as: access to discounted contractors and consultants, access to shared equipment, and educational resources and seminars for forest management. Members will be expected to participate in annual meetings to receive updates and provide input on Carbon Co-op management.

17. Who will buy Carbon Co-op credits and why?

The Carbon Co-op will sell credits to buyers who are purchasing credits voluntarily, not to satisfy regulatory requirements. The vast majority of credit buyers in the voluntary market are private sector companies. Most often these companies are motivated to purchase carbon credits in order to meet internal greenhouse gas reduction goals. Increasingly, corporate credit buyers are demonstrating a preference for carbon credits that are produced from projects “close to home” (i.e. near headquarters) and have associated co-benefits, like protection of biodiversity.1 These trends bode well for the Carbon Co-op given that the Santa Cruz mountains are in close proximity to Silicon Valley – where many climate change conscious companies are headquartered – and because of the important co-benefits associated with the program.

18. Are landowners responsible for selling their credits?

No, landowners are not responsible for selling their credits. The credits generated by the forest carbon project will be owned by the Carbon Co-op entity and the Carbon Co-op will be responsible for ensuring that the credits are issued by the registry and sold to a buyer. The Carbon Co-op will enter into a credit purchase agreement with a credit buyer (or broker) that will commit the buyer to purchasing a certain number of credits at a predetermined price prior to the launch of the program.

19. What if the credit buyer sells the credits to someone else who uses the credits to offset additional pollution?

Double-counting of credits is not allowed and tracking systems are in place to prevent it from occurring. When a credit buyer purchases credits and applies those credits toward offsetting their emissions (or carbon footprint) this action is tracked by the carbon crediting registry that sold the credits and those credits become “retired” (i.e., cannot be resold as offsets to another entity.)

20. When will the Carbon Co-op be up and running?

The Carbon Co-op program design will be completed in the summer of 2018. At that point, Sempervirens Fund will decide whether or not to launch the program. If Sempervirens Fund does decide to launch the Carbon Co-op, the aggregated forest carbon project will be implemented in early 2019.

21. Why is the Carbon Co-op located in the Santa Cruz mountains? From a climate change mitigation standpoint, wouldn’t it be more effective to focus on halting deforestation in the tropics?

The Santa Cruz mountains are home to the coast redwood trees, which are particularly effective at sequestering carbon sequestration and therefore very important to protect for climate change mitigation. Furthermore, the Santa Cruz mountains provide habitat for biodiverse species, maintain water quality for surrounding watersheds, and offer valued recreational opportunities and a rich quality of life for residents and visitors. The carbon market provides mechanisms for protecting these additional ecological and social “co-benefits.”

Additionally, the Carbon Co-op will use an American Carbon Registry (ACR) methodology to calculate carbon credits. This methodology is peer-reviewed and recognized internationally as being credible and robust. Given that climate change is a global issue, an approved credit produced on one continent has the same effect as a credit produced on another continent. While combating deforestation in the tropics could lead to a greater volume of carbon credits (through avoided deforestation) than the Carbon Co-op, there are also legal and logistical barriers to addressing deforestation in the tropics. In contrast, in the Santa Cruz mountains property rights and timber harvest regulations are clearly defined and the social capital and technical capacity exist to implement the Carbon Co-op.

22. How does the Carbon Co-op differ from a conservation easement and why would a landowner choose to do one over the other?

A conservation easement is a more costly approach to conservation on a property-by-property basis compared to the Carbon Co-op. Conservation easements can cost $20,000 - $30,000 at a minimum. Another difference is that conservation easements provide tax benefits as opposed to a direct payment to the landowner, like the Carbon Co-op. A conservation easement offers permanent and perpetual protection for the forest, while the Carbon Co-op offers greater flexibility for landowners given the shorter timeline (40 years) and the option to exit the program.

Sources:

Hamrick, K., & Gallant, M. (2017, December). Fertile Ground: State of Forest Carbon Finance (Rep.).