For centuries the monetary value of forested land has been realized only when trees are felled, when standing timber is turned to finished lumber. With the onset of climate change, the economics of traditional forestry are being disrupted by monetizing the role of forests as sequesters of CO2 and storehouses of carbon to address the warming climate.
Carbon harbored in standing trees has become a virtual commodity in the form of credits traded on global markets between forest landowners and commercial entities seeking to offset their greenhouse gas emissions. In managing a forest for capturing and storing carbon timber, harvests are reduced to reap the value of the carbon in standing trees.
Reduced timber harvests shrink employment and investment in traditional forestry industries while transferring income earned by foresters, loggers, truckers, mechanics and sawmills to the investors and traders plying the carbon markets.
According to the NH Timberland Owners Association, employment in the forest products industry numbers more than 7,200 and generates annual output valued at $1.6 billion.
At the same time, the timber tax, levied and collected by municipalities at 10% of the stumpage value when trees are cut, is a source of local revenue, particularly in Coos County where it funds a quarter of public expenditures. All together, timber taxes returned $3.7 million 2019.
Property easement
The issue came to the fore in 2022 when Bluesource Sustainable Forest Company — now Aurora Sustainable Lands — acquired 146,400 acres of the Connecticut Lakes Headwaters Working Forest, the largest privately owned forest in the state. With 1.65 million acres in 14 states, Aurora calls itself “the largest private forestland owner focused entirely on climate mitigation.”
Although the forest is privately owned, since 2003 the state has held a conservation easement on the property. Along with conserving open space, protecting natural resources and fostering wildlife habitat, the easement affirms that foremost among its purposes is “to retain the Property as an economically viable and sustainable tract of land for the production of timber, plywood and other forest products.”
Shawn Hagan, regional director for forest operations at Aurora, has indicated that for the year ending 0n April 30, the timber harvest would be reduced by between 12,000 and 14,000 cords, less than half the average harvest of 29,000 to 30,000 cords during the past five years.
Patrick Hackley, director of the NH Division of Forests and Lands, said that Aurora has filed an operating plan for the forest for the year May 1, 2023, to April 30, 2024, along with a 10-year stewardship plan for the property. These plans are being reviewed by state officials to ensure the company’s plans comply with the purpose and provisions of the easement.
Meanwhile, U.S. Senator Jeanne Shaheen, who as Governor partnered with then-U.S. Senator Judd Gregg, in acquiring and crafting the easement, as well as Governor Chris Sununu, following the situation.
The inventory of forested land suited to trading in carbon credits is not confined to the North Country or to large tracts of corporately owned forest. All together, 82% of land in the state is forested, and 94% of that is classified as timberland that is producing or capable of producing crops of wood.
Approximately 3.5 million acres — nearly three-quarters of all forested land — is privately owned with families holding, by far, the largest share. Moreover, private forests hold three times more carbon than public lands, while on average public lands hold 10% more carbon per acre than private forests. More than 800,000 acres of forest in private ownership consists of parcels of less than 100 acres, while parcels of 100 to 500 acres amount to another 600 acres.
Carbon credits
Any number of carbon trading entities, conservation organizations as well as commercial enterprises, offer programs to landowners with as little as 10 acres, though most require a minimum of 30 or 40 acres.
The Family Forest Carbon Program, offered by the American Forest Foundation in partnership with the Nature Conservancy, enrolls properties 30 acres or more for a minimum of 20 years. Forest Carbon Works, another conservation organization, caters to landowners with 40 acres or more. Other commercial entities are bundling smaller parcels into more marketable larger tracts.
The prospect that a significant share of forest acreage could be enrolled in carbon credit programs has prompted several controversial legislative proposals to address this change in the management of the state’s greatest natural resource.
HB 1687, sponsored by Rep. Arnold Davis (R-Berlin), would impose a moratorium suspending participation in carbon trading programs for two years, “to enable the General Court to develop a plan for the use of natural resources.” The bill cites authority granted to the Department of Environmental Services by two statutes: RSA 125- J, referring to the federal Clean Air Act, and RSA-O, referring to the Regional Green House Gas Initiative (RGGI).
When the bill came before the House Science, Technology and Energy Committee, Rep. James Tierney (R-Groveton) explained that Aurora traded on the market administered by the California Air Resources Board, where credits apply against the emissions of California industries and contracts run for 100 years.
”How can we lock our forests for 100 years,” Tierney asked, “when New Hampshire gets no returns from this activity. “At the same time, he wondered, “How do we tell property owners what they can and cannot do with their property?” The bill, he said, would provide “time to figure out how to regulate this business.”
Speaking in support of the moratorium, Mark Brady, county administrator in Coos County, said that carbon trading would not only “collapse the timber tax” but amount to “a fundamentally different way of looking at our natural resources.” Carbon traders, he warned, “are backed by big money and don’t really care about us.” He warned the state could lose control of its forests, which offer a wide variety of recreational uses to the public, and “change our way of life.”
Hackley reminded the committee the challenge is to “balance landowner’s rights and the public interest.” Without taking a position on the bill, he said that Aurora’s acquisition of the Connecticut Lakes Headwaters Forest, which is governed by easement, is “not a compelling reason for a moratorium” and added “it is not within our authority.”
A number of landowners expressed strong opposition to a moratorium. Tom Thomson, of the Thomson Family Tree Farm in Orford, said the Connecticut Lakes Headwaters Forest is “not representative,” explaining that he shares his 2,400 acres with the public and doubted whether prohibiting him to enter a carbon credit contract was even legal.
Likewise, Stephen Wood, of Poverty Lane Orchard in West Lebanon, said a moratorium was “unwarranted, not necessary to conduct a study of the issue and going to make a lot of people angry.”
Speaking plainly, Don Gorman of Deerfield, former chairman of the NH Libertarian Party, said flatly, “I own this land. Don’t tell me what to do with it. We can’t buy NH and shut it down.”
Matt Leahy of the NH Society for the Protection of Forests, which owns 63,000 acres of forest in 100 municipalities, acknowledged “carbon markets generate a lot of concern,” but added that they also represented a source of income defrays the costs of owning and managing forests. He called a moratorium “a blunt instrument” for addressing the issue.
Charles Levesque of Innovative Natural Resources Solutions, LLC, who has followed the carbon markets closely, told the committee that only 10 properties covering less than 200,000 acres are currently enrolled in carbon credit programs. That number includes the 146,400 acres of the Connecticut Lakes Headwaters Forest, where Aurora must comply with the terms of the easement. “It’s not growing at a fast pace,” he said.
Levesque explained that, apart from restricting use of the land for an extend period, landowners bear costs associated with measuring the stock of carbon on their property. These costs are offset by the sale of credits, but because credit prices are volatile, returns may not meet expectations.
“This is a developing market,” said Executive Councilor Joe Kenney, whose district incudes the largest share of forest. “We have no information. No one can say who is in this program and who isn’t. This is a tough topic that begs for a study committee.”
Jasen Stock, Executive Director of the NH Timberland Owners Association, also opposed the moratorium. “Carbon management can work with sustainable forest management,” he said. Instead, he suggested the state compile a registry of properties enrolled in carbon programs, perhaps by requiring contracts to be recorded on the property deeds.
Bill amendment
Following the lead of the Rep. Michael Vose (R-Epping), who chairs the committee, the bill was amended to replace the moratorium with two provisions. First, it would require the Department of Revenue Administration (DRA) to undertake a study of the impact of carbon credit programs on timber tax revenues by November 1, 2024.
Second, the Division of Forest and Lands would be charged with creating and maintaining a public registry of land enrolled in carbon credit programs. The registry would include the ownership of the property, its location and acreage, the identity of the carbon credit program, the date of enrollment and the term of the contract.
“This is all very new, but this will get us started,” Vose said.
Meanwhile, two other bills — HB 1484 and HB 1709 — both sponsored by Rep. Eamon Kelley (D-Berlin) sought to mitigate the impact of reduced timber harvests and timber taxes on municipal budgets. “It is imperative that any solution to this situation recognizes the staggering cost local communities will bear when viewed over the entire period of the contracts,” he said.
HB 1484 would make forest land enrolled in carbon credit programs ineligible for the current use program, by which those properties are assessed at their current use as opposed to their fair market value. The current assessment ranges for forest land with documented stewardship for white pine are between $74 and $111 per acre and for hardwood between $39 and $59 per acre.
When the bill was heard by the House Ways and Means Committee, it met with stiff opposition. Thomson called the bill a “knee jerk reaction” that is inconsistent with the current use program. The sale of carbon credits, he said, does not amount to a change in the use of the land, which would remain open space, which is the purpose of the program.
Stock, echoed by Rob Johnson of the NH Farm Bureau, told the committee that the current use program has successfully served its intended to preserve open space and should not be used to serve other policy purposes. Levesque noted the bill would only apply to those landowners yet to enter a carbon contract. Apart from the sponsor, no one spoke in support of the bill, which the committee reported “Inexpedient to Legislative.”
HB 1709 would replace the timber tax on land under carbon contracts with a 10% tax based on the value of the estimated stumpage above baseline when the contract expires divided either by 50 or the length of the contract, whichever is shorter.
Land subject to property tax
When the bill was heard by the House Resources, Recreation and Development Committee, Blake Stansell, president of Aurora, balked, explaining that the company paid the business profits tax, business enterprise tax and timber tax. The land, which is enrolled in the current use program, is also subject to property tax. As proposed, he said the tax would be the first of its kind in the country.
Stansell said the company has agreed to reimburse towns for foregone timber tax revenue in 2024 and 2025. Moreover, he reminded the committee that the Connecticut Lakes Headwater Forest is the most closely regulated property in the company’s portfolio. Stansell assured the committee the company intended to manage the property in compliance with the terms of the easement.
Stansell reminded the committee that the previous owner of the forest, the Forestland Group, enrolled in a carbon credit program in 2013. He said that Aurora would continue to harvest timber, remarking that “the way you generate carbon credits is through a healthy forest. A managed forest is a healthy forest.” He acknowledged that the character of the workforce would change “with mire technical jobs and less of the guys running chainsaws.”
Stock described the bill as “a square peg in a round hole.” Unlike the timber tax, he said, the billl requires assessment of an “intangible,” forest carbon, which would prove “incredibly complex,” not least in matching its assessed value to its market price.
Stock suggested that the timber tax statute, RSA 79.5, authorizes municipalities to tax standing timber. The statute reads: “Whenever it shall appear to the assessing officials that a town or city is unreasonably deprived of revenue because of the failure of an owner to cut standing wood or timber when it shall have arrived at the degree of maturity most suitable for its use, such standing wood or timber shall be taxed in the same manner as general property.”
However, Attorney Jonathan Frizzell, who represents Coos County, has cautioned that applying the statute would likely lead to lengthy and costly litigation with no assurance of success. He said he was not aware the law had ever been applied. “It’s all about property rights,” he said.
Kelley amended his bill to establish a forest commission of 13 members, including three lawmakers, officials from the Department of Revenue Administration, Division of Forest and Lands, the University of New Hampshire, a member of the Current Use Board, an assessor and the executive director of the NH Association of Conservation Commissions.
The commission would draw on the reports of the DRA and Division of Forest and Lands undertaken according to the amended HB1967. The commission would tasked with measuring the impact of carbon credit programs on local and state revenues as well as exploring alternatives to the timber tax Like HB 1697, the amendment would charge DRA with adopting rules to implement RSA 79:5.
As lawmakers on three different legislative committees have learned it is a lot easier for trees to capture and store carbon than for lawmakers to strike a balance between harvesting timber and trading carbon.