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% 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.

Current forest carbon offset buffer pools do not adequately insure against disturbance-driven carbon losses

“…The inadequacy of the current buffer pool estimates is much larger for older forests, such as those likely to be enrolled in avoided conversion or improved forest management, but still substantial in younger forests. This central finding that current forest offset protocols do not adequately consider risks to forest permanence aligns with substantial recent work in other regions and globally (W. R. Anderegg et al, 2020Badgley, Chay, et al, 2022;Coffield et al, 2021;Cooley et al, 2012;Galik & Jackson, 2009;Gren & Aklilu, 2016;Hurteau et al, 2009;Wu et al, 2023).…”

“…The potential for NbCS is considered to be largest in tropical forests where there is widespread interest in leveraging NbCS efforts to reduce and stop deforestation through Reducing Emissions from Deforestation and Degradation (REDD+) efforts (Griscom et al, 2020;Haya, Alford-Jones, et al, 2023;Roopsind et al, 2019). Despite the potential for NbCS, widespread quality concerns about ongoing efforts (W. R. Anderegg et al, 2020;Badgley, Chay, et al, 2022;Coffield et al, 2022;Haya, Alford-Jones, et al, 2023;Stapp et al, 2023;West et al, 2023) highlight the urgent need of rigorous carbon cycle science underpinning the tools and protocols that fund and implement NbCS projects.…”

The social value of offsets

“…In the absence of a comprehensive dataset of offset failure rates, we draw inference from related literature to shed light on failure risk. The Supplementary Materials (S8) show that observed and recommended buffers for failure of offsets imply values of φ = [0.001, 0.002, 0.01] for τ 2 = 50, a reasonable period for regrowth, based on buffers ranging from 5 -40% 31,32 . Estimated business risks (termination of contracts and political risks) 8/13 imply φ = [0.01, 0.04], with higher rates in Asia, Latin America and Central and Eastern Europe compared to Europe and North America 33,34 .…”

Canada’s Green Gold: Unveiling Challenges, Opportunities, and Pathways for Sustainable Forestry Offsets

“…However, there are debates about Quebec's approach. It may overestimate the benefits of temporary carbon storage because it disregards the prolonged presence of emitted CO 2 in the atmosphere and neglects the albedo changes associated with reforestation [127]. The wide application of ton-year accounting in Canada and the world needs further discussions and future studies.…”