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Regulatory Round-up:The impact of forest fires on the compliance offset market

November 2, 2020 by Ayesha Ahmed

Wildfire season is now coming to a close in California, but it has been one of the deadliest seasons yet in terms of loss of life, loss of structures, and loss of carbon credits from unintentional carbon emissions. This article reviews the mechanisms behind increased wildfires, and the significance of this for California’s forestry offset sector.

Wildfires have been a recurring phenomenon across California since the 1930s. These fires ought to hold a critical place in revitalizing the ecosystem, if they were allowed to happen in a controlled and regulated manner through natural or human-made safeguards. The fires aid the natural cycle of the trees’ growth and replenishment, by encouraging the proliferation of tree species like lodgepole pines, clearing forest floor vegetation, restoring nutrients so new plants can grow, removing disease-ridden trees, and improving the habitat for wildlife.

Wildfires are generally encountered during Fall, Summer and draught seasons, when parched fallen branches and dried out vegetation become flammable under high geographic temperatures. However, waves of forest fires in recent times have become highly destructive and irrepressible both due to global warming and a lack of forest management during the COVID-19 pandemic. The origins of the fires can be broadly limited to the following findings:

  1. Weather fluctuations: California gets most of its moisture during Fall and Winter. Its vegetation then proceeds to dry during Summer as a result of scarce precipitation and naturally rising temperatures. The vegetation finally serves as kindling for fires, wherein it leaves behind long and vast trails of fuel for the fire to consume.
  2. Forest preservation / Fire suppression: Many California fires are burning in places with more plants to incinerate, resulting from better preservation of trees. Counterintuitive in essence, but the United States and especially California, have a history of forest fire suppressions which have made present-day fires worse.
  3. The Santa Ana winds: Each fall, heavy breezes known as the Santa Ana winds bring dry air from the Great Basin area of the West into Southern California. These help in intensifying the wildfires.
  4. Human-made causes: The right conditions for a wildfire can be ascribed to many natural causes like the bizarre lightning strikes that decimated the LNU Lightning Complex in August; however, recent times depict that more often than not, human negligence plays a prominent role in triggering forest fires. For instance, downed power lines have many started many wildfires. Also, in the 2018 Carr Fire, the state’s sixth-largest of all time, was unleashed when a truck blew its tire, while the rim scraped the pavement sending out sparks. One of the most unfortunate trigger was a forest fire ignited by smoke-generating fireworks as part of a gender-reveal party consuming thousands of acres east of Los Angeles.

Ongoing California forest fires in 2020 have already burnt nearly 4 million acres, but the annual fire season is far from over. State-wide fatalities tallied to 31, with more than 9200 structures destroyed. August was recorded as the warmest season this year, setting the stage for the extraordinary streak of massive wildfires that have lasted through the Summer.

Five forest fires are in the 20 most massive wildfires in the state’s history:

  • the August Complex (a leviathan in state history)
  • the SCU Lightning Complex
  • the LNU Lightning Complex
  • the North Complex
  • the Bear Complex

As their names suggest, these forest fires become intractable when smaller fires combined into unified blazes. Weeks of bone drying hot air crisps out the vegetation which goes aflame as part of interwoven extreme weather events.

CaliforniaCarbon.Info has mapped out the forest fires with respect to current forestry offset projects:

Furthermore, CaliforniaCarbon.Info’s latest report ‘WCI Near-Term Emissions Forecast and Sector Review: 2018-2021 ‘The End of the Trend’ conducted an historic assessment of the scale of California’s fires:


The report states “This year’s [2020] wildfire season in California has left behind an unprecedented scale of destruction. A total of 3.8 million acres have been destroyed with over 8,000 incidents of fire. The burn acreage in 2020 is more than the last three years combined, though with a similar number of individual incidents as in 2018. The intensity and scale of the fires has increased due to even dryer conditions in the state’s forests, and other climactic reasons. Authorities have cited the absence of proper forest management practices, but acknowledge the probable impairment of operations as a result of the COVID-19 pandemic.”

Wildfires Have a Costly Impact

The west coast fires have speedily consumed homes, businesses, and other installations, in addition to wildlife habitats. According to the National Geographic, the fires decimate everything in their path annually, and the smoke carries toxic chemicals hundreds or thousands of miles, all the while leaving an alarming amount of carbon in the atmosphere. Toxic smoke due to ongoing forest fires has already caused air quality to plummet to dangerous levels in California, Oregon and Washington. Depending on the severity and location of a wildfire, mitigation can come with a hefty price tag. Factors affecting state and local budgets in the long-term may include: replacement of lost facilities and associated infrastructure, watershed and water quality mitigation, sensitive species and habitat restoration.

Immediate Reporting Requirements for Forest Offset Project Operators

Under the ARB’s Cap-and-Trade offset methodology, if an unintentional reversal due to external calamities such as wildfires occur, then the project operator has a responsibility to provide written notice of the reversal to both CARB and the Offset Project Registry. An explanation needs to be presented, reflecting on the nature of unintentional reversal within 30 days from the incident discovery. Moreover, the project operator has to complete a verified estimate of prevalent carbon stocks inside the offset project boundary in less than 23 months since the unintentional reversal, once again reporting data to CARB and the relevant registry. Failure to comply with reporting requirements may result in the imposition of penalty by CARB.

CARB Re-accounting

Contemporary offset methodologies, including CARB’s compliance program, assign a forest buffer account that reserves offset credits to the offset project. It is deployed to in situations of credit reversal, as explained above. Credit reversal equates to the release of carbon back into the atmosphere, and are primarily attributed to natural causes like wildfires and pest infestation.

Once the CARB (Or Registry, in the case of non-compliant projects) declares that an unintentional reversal occurred, then these entities will withdraw the appropriate amount of credits from the Forrest Buffer Account (FBA).  Thus, the FBA acts as an insurance policy against the desecration of offset forest projects. When projects are initially registered, an analysis is conducted based on the localized likelihood of reversal, and this review allots a percentage of offsets issued from the project into the FBA. In theory, the aggregated buffer account aims to more than balance out any credit reversal that might occur. Presently, the FBA holds approximately 25 million credits. This is becoming a point of concern for CARB, as the continuation of forest fires across California would mean that the FBA’s bank of credits is fully depleted. Regarding the Lionshead Fire, if the fire were to burn all 24,000 acres of the Confederated Tribes of Warm Springs’ forest offset project, then CARB would require to withdraw around 2.6 million credits from the FBA. This means that approximately 10% of the current FBA would be exhausted, during a single fire, on a single offset project.

Time is a Key Player

Upon enquiry as to whether any of the recent projects had been affected due to California fires, New Forests confirmed that one of their client’s properties suffered from the recent LNU Complex Fire and the ongoing Glass Fire. The New Forests developer stated that:

“In the case of the Trinity Timberlands project, a fire in 2015 affected around two-thirds of the carbon project area. Once it was safe to do so, the area was reviewed to calculate the on-site live carbon stocks, and it was determined that they had decreased to below the “baseline” of the project and the project was terminated. The area is thus no longer a carbon project. As a result of the termination and reversal, the forest buffer account then worked as intended, and around 850,000 credits were retired from the account to ensure the integrity of the same number of credits that had been issued to the project. Overall, this process took several years, and so we would anticipate any impacts from 2020 fires may also take several years before ultimate project outcomes and retirements from the buffer account are finalized.”

Conclusion

Forestry offset projects are an important part of our toolbox to sequester carbon dioxide and so limit our net annual emissions, but as wildfires increase in frequency, regulators need to ensure the permanency of emission reductions. The significance of CARB’s incentives to encourage fire reduction strategies are yet to be determined, whilst the forest buffer account and credit reversal methodologies are a good failsafe for the system, as long as the buffer account remains in credit. Due to the increase in wildfires, the calculations determining contribution to the FBA may have to be recalculated to account for the higher incidence of fire.

There are some challenges with how current procedures to reversals work, but they are primarily related to the need for accuracy and reliability in the system – this means it takes time. Once a wildfire has affected a carbon project site, it can take up to two years after that event before the unintentional reversal is quantified. It is prudent that over time this risk-based approach is reviewed to ensure it is fit for purpose and that the buffer account remains able to fund any compensation needs.


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