California’s forest carbon offsets buffer pool is severely undercapitalized

Abstract

California operates a large forest carbon offsets program that credits carbon stored in forests across the continental United States and parts of coastal Alaska. These credits can be sold to buyers who wish to justify ongoing emissions, including in California’s cap-and-trade program. Although fossil CO2 emissions have effectively permanent atmospheric consequences, carbon stored in forests is inherently less durable because forests are subject to significant socioeconomic and physical risks that can cause temporarily stored carbon to be re-released into the atmosphere. To address these risks, California’s program is nominally designed to provide a 100-year guarantee on forest carbon claims based on a self-insurance program known as a buffer pool. Projects contribute credits to the buffer pool based on a suite of project-specific risk factors, with buffer pool credits retired as needed to cover carbon losses from events such as wildfire or drought. So long as the buffer pool remains solvent, the program’s permanence claim remains intact. Here, we perform an actuarial analysis of the performance of California’s buffer pool. We document how wildfires have depleted nearly one-fifth of the total buffer pool in less than a decade, equivalent to at least 95 percent of the program-wide contribution intended to manage all fire risks for 100 years. We also show that potential carbon losses from a single forest disease, sudden oak death, could fully encumber all credits set aside for disease and insect risks. These findings indicate that California’s buffer pool is severely undercapitalized and therefore unlikely to be able to guarantee the environmental integrity of California’s forest offsets program for 100 years.

Managing nature-based solutions in fire-prone ecosystems: Competing management objectives in California forests evaluated at a landscape scale

“…In California's case, CARB's IFM forest offset protocol officially addresses wildfire and other natural disturbance risks via the buffer pool and attempts to promote risk reduction via a reduction on a project buffer pool contribution. Yet our research finds that most of the projects are not managing fuels, while previous research has found that CARB's buffer pool is undercapitalized for the expected carbon reversals (Badgley et al, 2022). This highlights a need to test assumptions of whether official policy intentions manifest on landscapes.…”

Hurricanes pose a substantial risk to New England forest carbon stocks

“…For example, California's cap‐and‐trade program, one of the largest regulatory markets for carbon offset credits, has created a buffer pool consisting of 8%–12% of the credit to account for losses from natural risks (California Air Resources Board, 2015). However, 95% of California's buffer pool set aside to mitigate fire risk (2%–4% of all credits) has been depleted in less than 10% of the credits' 100‐year commitment (Badgley, Chay, et al., 2022).…”

“…Using forest carbon as an offset for actualized emissions requires an adequate accounting of risks, to ensure that the forest carbon is additional, verifiable, and permanent (Badgley, Chay, et al, 2022;Roopsind et al, 2019). While there are considerable concerns regarding the actualized additionality and verifiability of forest offset credits, permanence is an exceptionally vulnerable aspect with regard to the viability of using temporary forest carbon pools to offset realized emissions (Haya et al, 2023;Pan et al, 2022).…”

Systematic review of the actual emissions reductions of carbon offset projects across all major sectors

“…While the studies in our sample analyse wind projects, the ndings likely extend to other renewable energy projects which feature similar capital structures, such as utility-scale solar, hydro and biomass 30 . Ultimately, the ndings of several scholars, such as Haya 31 , question whether accurate, veri able ex-ante projections can even be constructed for renewable energy projects, such as wind 32 or hydropower 33 . It is important to note, however, that existing offset studies exclusively focus on utility-scale renewable projects and may not extend to small-scale projects.…”