Month: February 2025

Why the WRI No Harvest Counterfactual is the wrong approach for carbon accounting in forests.

by

By Brent Sohngen (sohngen.1@osu.edu)

Have you ever wondered who owns the trees? Historically, of course, most observers would agree the trees belong to the landowner who can do with them what they wish. However, because 50% of the wood dry matter in trees is composed of carbon, the answer to this question is set to become less clear under some new rules proposed by the World Resources Institute for their Greenhouse Gas Measurement Protocol.

This new protocol will govern how companies and people who own forestland count the carbon in their forests. WRI is proposing to use an approach that only counts carbon when a stand is cut, ignoring any carbon changes that happen in forests owned by people who do not cut some stands, but instead let them grow. This approach uses what is called a stand-by-stand no-harvesting counterfactual to measure the effect of wood harvesting.

Figure 1 illustrates how the approach works. A growing timber stand is accumulating carbon from time-period 1 to 15 and is then cut. There is a harvest emission, shown by the immediate reduction in carbon. The forest begins to regrow either through planting or natural regeneration. At some point down the road, depending on the species, the new stand will have as much carbon as the original stand would have had if left alone.

The idea of the no-harvest counterfactual is to assume the level of carbon in an unharvested forest follows the hatched line and calculate the emissions associated with the difference between harvesting and not harvesting that stand.

Figure 1: Stand-by-stand no-harvest counterfactual

There are many problems with this no-harvest counterfactual approach. Mostly it is wrong because all wood harvesting is done in mature stands, which only become mature because someone left them alone long enough to get older. The WRI GHG protocol ignores any of this growth (what happens before t=15 in the figure). It focuses solely on the harvesting event, failing to account for the observed fact that landowners hold many trees they do not harvest, plant trees on old farms, let trees regenerate naturally on pastures, hold trees instead of growing crops, grazing, or building subdivisions and box stores. There are real opportunity costs with holding trees, but the WRI GHG Protocol assumes all these activities, and the associated costs, are irrelevant.

So why do they propose this scientifically challenged approach? Here’s my take.

First, WRI doesn’t want to provide carbon-based incentives for companies to grow and cut trees, especially in planted stands. This was clear in an article WRI scientists published in Nature in 2023 and the opinion piece by two of the nation’s most esteemed ecologists in the same issue. The general idea of this approach is that any tree harvesting is bad, including the millions of cubic meters harvested every year for fuelwood uses by folks in developing countries.

This approach – sometimes known as Proforestation – misses fundamental economic realities associated not just with supply and demand for wood, but also with emerging carbon markets. Economic studies have shown that wood market incentives increase carbon in forests (Tian et al. 2018). They have also shown that efficient carbon policies would incentivize lots of avoided deforestation, lots of reforestation and afforestation, lots of avoided old growth harvesting, and lots of improved forest management often coming in the form of extended timber rotations (Sohngen and Mendelsohn, 2003; Austin et al, 2020; Favero et al., 2020).

In these studies, more wood harvesting happens with carbon incentives over time because more carbon in forests means there is also more wood to harvest. Increased supply in turn lowers wood prices. Intensive plantations make up only about 10-15% of the new area in forests, even with high carbon prices. The rest of the carbon gains are predicted to happen in natural forests, where compensation levels for carbon would be large enough to support significant efforts to ward off fires.

Second, WRI has an additionality problem. For decades, people in carbon markets have argued for a strong additionality test, whereby tons of carbon sequestered by companies in the timber business cannot be used to offset fossil carbon emissions because the trees were grown for timber not carbon. The additionality problem arises because WRI and others cannot reconcile an accounting standard that would let a company use tons generated on its own forest as an offset against its own emissions with an approach that does not allow those tons to be sold in carbon markets due to additionality.

Concern about additionality is understandable, but plenty of approaches have been developed to handle it, including following the advice of van Kooten et al. (1995).

Third, WRI is worried that more scientifically appropriate approaches – such as the standard of measuring changes in stocks over time like the US Forest Service does for the US as a whole – will confer benefits on landowners for carbon fertilization and climate change, which have elevated the stock of trees (Davis et al., 2023). It is completely accurate that measuring carbon gains with stock changes over the area owned will credit landowners for carbon gains that are partly attributed to carbon fertilization or climate change. This means that people who hold forests could receive carbon benefits 15-25% larger than otherwise because of carbon fertilization and climate change.

Far from being a liability, as WRI claims, this is exactly what we should want because it means landowners are adapting to climate and market incentives.

Paying for the benefits of carbon fertilization, or in the case of the GHG Protocol, including them in insets generated from a land-based inventory, is the correct approach precisely because it encourages efficient behavior with respect to the atmosphere by landowners.

Rather than leading to more emissions, incentives that embody carbon fertilization values would reduce deforestation, increase afforestation, increase reforestation, reduce fire risks, and increase forest rotation ages. A recent US EPA report found that carbon sequestration would be 28% greater under policy incentives when carbon fertilization benefits are part of the incentives rather than ignored (USEPA, 2024).

In conclusion, WRI’s proposed GHG Protocol approach is the wrong policy approach. If the approach were correct, it could be extended to all forests for carbon accounting, but it makes no more sense in aggregate than it does as applied to a specific forest operation. Ultimately, it aims to reduce the value of carbon embedded in forests, constituting a legal “taking” of a resource in the United States that is worth billions.

WRI seems to have concocted this no-harvest counterfactual approach simply to limit how forest-owning companies count the carbon gains they provide. But it doesn’t work. In contrast, the economic literature illustrates that carbon incentives based on IPCC carbon accounting will lead to more of all forests. WRI should use this far more efficient, and environmentally sound, approach.

 

Reversing Deforestation in Latin America: How USAID has helped.

by

By Brent Sohngen (sohngen.1@osu.edu)

Watching the current turmoil at USAID is more than sad. Not only is it devastating to hard working people and their families in all corners of the earth, but it will also have long-term implications for the welfare of people in other countries where economic development sorely lags. Yes, we can ignore the plight of others and focus only on ourselves. But the America I know has never been like that. I hope it doesn’t change. I fear it has.

Let me give one example of the type of work of USAID does. You can read more about it and other examples in the book I co-authored with Douglas Southgate Reversing Deforestation: How Market Forces and Local Ownership are Saving Forests in Latin America (Stanford University Press, 2024).

For years, USAID has supported community forestry in the Maya Biosphere Reserve of northern Guatemala. I wrote a bit about this project in an earlier blog post: Is timber harvesting in the tropics sustainable?

Back in the 1990s as Guatemala’s long-running civil war came to a close, there was discussion about what to do with land in the north of the country. The area contained an enormous wealth of Maya history locked up in buildings covered by half a millennium or more of rainforest growth. Lots of people had moved to the area to escape violence and more people were coming in search of a better life. An agricultural frontier was moving north towards the region along the recently paved road, shifting forests to farmland with significant losses of cultural Maya relics to the private black market.

Some people argued the entire northern part of the country should be turned into a giant set-aside, or national park. Fortunately, their arguments didn’t prevail and a more pragmatic approach emerged. This approach included setting some parks aside, while at the same time creating community forestry operations – where forests would be managed for timber and non-timber forest products by local groups.

USAID supported this institutional approach of providing limited ownership of forestland for forest management. The limited ownership occurred in the form of 20-year contracts with local groups. USAID supported efforts to manage these forests scientifically, using forms of selective harvesting in 30- to 40- year rotations which would help maximize value and regeneration of the most important species, Mahogany.

USAID supported entrepreneurship at timber mills that would receive the logs and turn them into boards, sometimes drying them before shipping them to other parts of Guatemala or the world. Famous rock bands have used the wood for their guitars because it’s sustainable. With support from USAID, local business groups would meet periodically to develop marketing strategies.

I haven’t spent an enormous amount of time in northern Guatemala. But the time I have spent has taught me that entrepreneurial spirit is alive and well there. With limited ownership of the land and forest resources through community forestry, full ownership of timber mill capital, and an eager willingness to work, members of the community forestry operations were well off.

As part of my research, we have shown that these efforts slowed deforestation (Fortmann et al., 2017) and increased incomes (Bocci et al., 2018).

Maybe it would have happened without USAID. I don’t know? What I do know is that USAID helped it happen by adapting the time-honored U.S. model of fee simple ownership and encouraging local community ownership because they are philosophically consistent. Back in the 1990s, people in that organization sensed an opportunity to encourage local ownership and help local organizations become better business people.

Who knows what the “new philosophy” at USAID, or whatever some new agency like it is called, will bring? It’s got a tall bar to get over to beat what USAID accomplished in the past.

 

Housing Prices and Tariffs on Canadian Softwood Lumber

by

by Brent Sohngen (Sohngen.1@osu.edu)

Click here for roughly 5 minute podcast version of this post [Global Forest Podcast]

Understandably, there has been confusion and concern in the marketplace due to the weekend decision by the Trump Administration to impose tariffs on imports from Canada and Mexico (updated: The tariffs on both Canada and Mexico have been paused for 30 days). While exposure is significant in the automobile manufacturing sector, the housing sector will also be affected. Since the Great Recession earlier this century, the US has not built enough houses to keep up with demand. Due to limited supply of new homes, housing costs have risen disproportionately in the economy.

One factor possibly limiting the supply of new homes may be the high cost of wood, which makes up 15-25% of the cost of building and finishing a home in the U.S. A few years ago, buyers in the US experienced two significant, but short-term run ups in the price of lumber. Although we think more about our next meal than the wood frames supporting our living rooms, these price increases drove home just how important wood is in our daily lives.

What may come as a surprise to many is that the US imports about 30% of our softwood lumber, nearly all of which comes from Canada. It’s not like we don’t have enough trees in the US. We have more than enough actually. According to the US Forest Service, we grow nearly twice what we remove for timber every year. Even for softwoods – the preferred wood for framing a house – we harvest only about half what grows every year. Yes, fires have been increasing, but they are not coming close to putting a dent in the massive supply of wood piling up in US forests.

We import so much wood from Canada for a couple of reasons. First, Canada has an abundance of spruce, pine, fir (SPF) species that are extremely well suited for the US housing market. Since the Canadian market is so much smaller than the US market, much of their wood harvest makes its way through the US border. The dominant softwood type in the US, Southern pine, can be used to build houses too, but is less preferred by builders.

The US has similar types of trees in its northern tier – from Maine to Minnesota and the Pacific Northwest – but not enough is available on private land to compete with the sheer volume available in Canada. Significant quantities of the preferred SPF types are available on federally owned Forest Service lands, but timber harvesting on those lands has been limited since the 1990s. In fact, the US began importing large quantities from Canada in the 1990s precisely because the US shut down timber harvesting on federal forestlands in the west when the Northern Spotted Owl was listed as threatened.

A second reason why we import so much wood from Canada is that they subsidize timber harvesting. Nearly all forest land in Canada is technically owned by the King of England, but it is managed by the provincial governments. Timber harvests happen on land that is leased to the timber sector. When companies pay less than market rates for the timber they harvest, they are gaining a subsidy at the expense of Canadian taxpayers. When this wood makes its way to the US, it lowers prices, and benefits consumers, but it harms woodland owners and timber mill owners.

This issue of subsidies for Canadian softwood has been a long-running dispute between the US and Canada, reaching back into the 1980s at least. Since then, there have been periodic tariffs imposed by the US government and voluntary export limits by the Canadian government. During the first Trump administration, tariffs were imposed on Canadian softwood lumber. The Biden Administration maintained tariffs and increased them from 8% to 14.5% in August 2024. This most recent act seems to increase tariffs to 39.5%.

It is hard to imagine that these subsidies will not cause further increases in prices for lumber in the United States, especially the SPF material that is used so widely in construction. Most of us recall the very high prices for lumber from 2021 and 2022. These price spikes were driven by market factors well beyond the tariffs – including constraints in labor markets, difficulties in shipping goods from country to country, and other factors – but tariffs took their toll. And prices haven’t fallen back to their pre-pandemic levels. The most likely effect of tariffs on lumber prices it that they will increase. Estimates with the Global Timber Model suggest that US lumber prices could increase 2-5% in the coming weeks.

The effect on housing will take some time to play out, but higher prices will not be inconsequential. Framing lumber is 15-20% of the cost of building a new home in the United States. Other wood products are used throughout modern homes, in cabinets and other components. If wood prices increase 2-5%, the cost of a house could increase up to 1%. This does not sound like much, but in a market that is already “behind” in producing enough houses to keep up with American demand, it can have an important impact.