By Col. S. Edward Boxx, USAF (ret)
President, Tyler County Forest Landowners Association
Time Magazine recently announced Elon Musk, CEO of Tesla and SpaceX, as “Person of the Year.” Interestingly, one of his business practices is becoming more prevalent in Tyler County. Private forest landowners (small and large holdings) can sell “carbon credits” through virtual markets. These chits function as permits for a business to release a specific amount of carbon dioxide (CO2) or other greenhouse gases. One carbon credit equals the emission of one ton of CO2.
Surprisingly, Mr. Musk’s company Tesla does not profit from selling its popular electric cars but from selling carbon credits to other car manufacturers. Last year, Tesla earned over $1.6 billion from carbon credits alone. So how do local forest landowners make and sell carbon credits? Per the Texas A&M Forest Service, “Forests accumulate carbon when trees absorb CO2 from the atmosphere during photosynthesis, becoming a carbon sink. The carbon from CO2 is then stored for a long time as woody biomass, leaf litter, deadwood and soil organic carbon.” Thus, an East Texas timber landowner can offset carbon producers by maintaining a healthy and sustainable forest. Furthermore, owners can create an additional income by deferring their timber harvest for a specific amount of time (one year, for example) and selling their carbon credits. Harvest Deferral Credits (HDCs) are simply units that express the carbon content of the landowner’s trees instead of, for example, their bulk (like green tons). It is much like weighing timber on the way to the mill, but instead of wood tonnage, they represent the environmental benefit of a delayed cutting. These forest HDCs are then converted to business carbon credits.
Companies specializing in carbon credits conduct a remote, google earth-like assessment using satellite imagery. Based on a sophisticated algorithm, they will determine the HDCs on a property (for example, a 50-acre tract in southern Tyler County may show 100 HDCs). If landowners choose to defer a timber harvest, they can enroll and bid their HDCs on an open exchange. Say, for example, bids started at $5 - $8 per HDC, the landowner can choose to enter some, all, or none of their acreage. (The bidding process helps determine the private landowner’s motivation and price point for deferring a harvest. For example, a landowner may delay harvesting at $8.00 per HDC but not at $5.00). So in the illustration above, the fictional southern Tyler County 50-acre landowner would earn at least $500.00 (100 HDCs X $5.00) or potentially $800.00 (100 HDCs x $8.00) if they agree to not harvest for one year. Some common questions are, “Does a non-merchantable thinning (as outlined in a management plan) or a natural disaster (hurricane) count against a landowner?” It, of course, all depends on the contract and the company, but as a rule of thumb, property owners are not penalized.
Another frequent question, “Can I get HDCs on the 200 acres of seedlings I just planted? Unfortunately, “usually, no,” because it is – as you probably already surmised - not harvestable (they are seedlings). While selling carbon credits may not be for every landowner, they offer potential advantages. First, they allow the Jeffersonian-inspired tree farmer the option to participate or not participate. Private forest owners can sometimes feel powerless to the ebbs and flows of macroeconomic forces out of their control, such as lumber prices, mill capacity, and logger availability.
Here the landowner stewards can make their own decisions on their forest fiefdoms, empowering the independent property owner. Secondly, besides the additional cash influx - a good thing when a landowner needs to convince the IRS their acreage is indeed a “business” and not a “hobby,” – the income shows it is a working farm. Even though a Form 1099 must be filed with the IRS, the annual earned income, while not life-changing, can help offset taxes and other fixed expenses. Carbon credits allow for a more diversified timber business portfolio combined with other aspects of forest stewardship such as hunting, pond management, beekeeping, eco-tourism, or timber harvesting. Thirdly, going on the record (tax return and in practice) as a “net-zero” entity (meaning you are absorbing carbon instead of producing it) makes the role of the Tyler County private landowner even more significant. Besides owning most of the timber in Texas, individual landowners can develop an Elon Musk-like approach to their enterprises.
Currently, Texas manufacturers are in search of Texas-produced carbon credits – so not only are the landowners maintaining healthy and sustainable forests, but they are also supporting Lone Star businesses and entrepreneurs.
The carbon credit marketplace continues to evolve rapidly and may involve more agribusinesses. Mr. Rob Hughes, Texas Forestry Association (TFA) representative, recently informed Tyler County landowners, “Other carbon initiatives include carbon sequestration in the soil under rangeland (grassland) and efforts to restore the open pine canopy with bluestem understory.” So, if you want to know more about carbon credits, please “save the date” and join us Saturday, 19 March at the Tyler County Forest Landowners’ Association’s Spring 2022 General Meeting. You can check our website for updated venues and times (https://tcforest.org/events.htm). We hope to feature a professional carbon credit speaker with other forestry experts. The event includes lunch and a chance to network with other timber professionals and Tyler County landowners.
Disclaimer: the carbon credit information provided above is for illustration and educational purposes only and is not intended as professional, forestry, or legal advice.