Abstract
Although forest carbon offsets can play an important role in the implementation of comprehensive climate policy, they also face an inherent risk of reversal. If such risks are positively correlated across projects, it can affect the integrity of larger project portfolios and potentially the entire offsets program. Here, we discuss three types of risks that could affect forest offsets—fat tails, micro-correlation, and tail dependence—and provide examples of how they could present themselves in a forest offset context. Given these potential dependencies, we suggest several new risk management approaches that take into account dependencies in reversal risk across projects and which could help guard the climate integrity of an offsets program. We also argue that data collection be included as an integral part of any offsets program so that disturbance-related dependencies may be identified and managed as early and to the greatest extent possible.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Explore related subjects
Discover the latest articles and news from researchers in related subjects, suggested using machine learning.Notes
This is seen by calculating the correlation, ρ, between two portfolios of N projects with σ giving the covariance between individual projects: \( \rho \left( {\sum\nolimits_{{i = 1...N}} {{X_i}}, \sum\nolimits_{{i = N + 1...2N}} {{X_i}} } \right) = \frac{{{N^2}\rho {\sigma^{{^2}}}}}{{N{\sigma^{{^2}}} + N(N - 1)\rho {\sigma^{{^2}}}}} = \frac{{N\rho }}{{1 + (N - 1)\rho }}. \) This goes to 1 as N → ∞.
References
Brumelle S, Stanbury WT, Thompson WA et al (1990) Framework for the analysis of risks in forest management and silvicultural investments. For Ecol Manag 36:279–299
Chomitz KM, Lecocq F (2004) Temporary sequestration credits: an instrument for carbon bears. Clim Pol 4:65–74
Dale VH, Joyce LA, McNulty S et al (2001) Climate change and forest disturbances. BioSci 51:723–734
Ellis J (2001) Forestry projects: Permanence, credit accounting and lifetime. OECD Environment Directorate International Energy Agency, Paris
EPA (2005) Greenhouse gas mitigation potential in U.S. Forestry and Agriculture. US Environmental Protection Agency, Office of Atmospheric Programs, Washington, DC
EPA (2010) EPA analysis of the American Power Act in the 111th Congress. US Environmental Protection Agency, Office of Atmospheric Programs, Washington, DC
Galik CS, Jackson RB (2009) Risks to forest carbon offset projects in a changing climate. For Ecol Manag 257:2209–2216
Gamarra JGP, He F (2008) Spatial scaling of mountain pine beetle infestations. J Animal Ecol 77:796–801
Gardiner BA, Quine CP (2000) Management of forests to reduce the risk of abiotic damage—a review with particular reference to the effects of strong winds. For Ecol Manag 135:261–277
Holmes TP, Huggett RJ, Westerling AL (2008) Statistical analysis of large wildfires. In: Holmes TP et al (eds) The economics of forest disturbances: Wildfires, storms, and invasive species. Springer, Dordrecht
Hultman NE (2006) Geographic diversification of carbon risk—a methodology for assessing carbon investments using eddy correlation measurements. Glob Env Change-Human and Policy Dimensions 16:58–72
Kent G, Thoumi G (2010) Forest carbon is in the climate bill, but how do we insure it? With Trees! Ecosystem Marketplace
Kim M-K, McCarl BA, Murray BC (2008) Permanence discounting for land-based carbon sequestration. Ecol Econ 64:763–769
Kousky C, Cooke RM (2009) Climate change and risk management: Challenges for insurance, adaptation, and loss estimation. Resources for the Future, Washington, DC
Laurikka H, Springer U (2003) Risk and return of project-based climate change mitigation: a portfolio approach. Glob Env Change-Human and Policy Dimensions 13:207–217
Malamud BD, Millington JDA, Perry GLW (2005) Characterizing wildfire regimes in the United States. PNAS 102:4694–4699
Mignone B, Hurteau M, Chen Y, Sohngen B (2009) Carbon offsets, reversal risk and US climate policy. Carbon Bal and Manag 4:3
Millar CI, Stephenson NL, Stephens SL (2007) Climate change and forests of the future: Managing in the face of uncertainty. Ecol Appl 17:2145–2151
Murray BC, Olander LP (2008) Addressing impermanence risk and liability in agriculture, land use change, and forest carbon projects. Nicholas Institute For Environmental Policy Solutions, Durham
Romme WH, Despain DG (1989) Historical-perspective on the yellowstone fires of 1988. Bioscience 39:695–699
Routledge RD (1980) The effect of potential catastrophic mortality and other unpredictable events on optimal forest rotation policy. For Sci 26:389–399
Seidl R, Rammer W, Jager D, Lexer MJ (2008) Impact of bark beetle (Ips typographus L.) disturbance on timber production and carbon sequestration in different management strategies under climate change. For Ecol Manag 256:209–220
Spring D, Kennedy J, Mac Nally R (2005) Optimal management of a flammable forest providing timber and carbon sequestration benefits: an Australian case study. Austr J Agri Res Econ 49:303–320
Strauss D, Bednar L, Mees R (1989) Do one percent of forest fires cause 99-percent of the damage. For Sci 35:319–328
Subak S (2003) Replacing carbon lost from forests: an assessment of insurance, reserves, and expiring credits. Clim Pol 3:107–122
Acknowledgments
Support for the work of Carolyn Kousky and Roger Cooke on this paper was provided by NSF Grant # 0960865. The authors likewise appreciate the valuable feedback provided by two anonymous reviewers.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Cooley, D.M., Galik, C.S., Holmes, T.P. et al. Managing dependencies in forest offset projects: toward a more complete evaluation of reversal risk. Mitig Adapt Strateg Glob Change 17, 17–24 (2012). https://doi.org/10.1007/s11027-011-9306-x
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11027-011-9306-x