The potential of urban tree plantings to be cost effective in carbon credit markets

By Melissa R. McHale, E. Gregory McPherson and Ingrid C. Burke
Fort Collins, CO (May 1, 2007)- Emission trading is considered to be an economically sensitive method for reducing the concentrations of greenhouse gases, particularly carbon dioxide, in the atmosphere. There has been debate about the viability of using urban tree plantings in these markets. The main concern is whether or not urban planting projects can be cost effective options for investors.


We compared the cost efficiency of four case studies located in Colorado, and used a model sensitivity analysis to determine what variables most influence cost effectiveness. We believe that some urban tree planting projects in specific locations may be cost effective investments. Our modeling results suggest that carbon assimilation rate, which is mainly a function of growing season length, has the largest influence on cost effectiveness, however resource managers can create more effective projects by minimizing costs, planting large-stature trees, and manipulating a host of other variables that affect energy usage.
None of the Colorado case studies were cost effective enough to compete in today’s carbon credit markets. At this time, rates in active markets range from $3 to $13 (www.CO2e.com) and all of these studies significantly exceeded that range in costs by $100 or more. Furthermore, if energy effects were not accounted for, cost efficiency decreased.
However, a more in depth analysis of the Denver case study shows that it is not impossible for an urban tree planting project to be cost effective and perhaps even a competitive program according to today’s market standards. If the Denver case study had the assimilation rate associated with the southern growth zone then the cost/tonne CO2 was reduced to $33. On the other hand, if the Denver study consisted of only small trees, the cost/tonne CO2 would increase to $1051. This huge variation created by simply changing one variable in this analysis verified that the cost effectiveness of urban tree planting projects is highly dependant on location and management decisions. Although $33 a credit is still higher than average rates in markets today, this lower rate was achieved by changing only one variable; if the Denver study was in the southern growth zone and consisted of all large trees then the cost decreased even more to $23/tonne. Furthermore, buyers in voluntary markets have been paying relatively higher prices for credits and are willing to pay more for credits associated with highly sustainable, socially beneficial projects (www.CO2e.com).
Highly variable costs have also been found for rural- based carbon offset projects. The estimated costs per tonne of CO2 sequestered for converting agricultural land to forests throughout the eastern US has been found to range from $10-$400 per tonne (Brown et al., 2005; Walker et al., in press). The variability is dependant on the length of afforestation, the costs associated with planting and project development, and most significantly opportunity costs, or the earning potential lost from the conversion of land from agriculture to forest. Most of the urban case studies in this analysis also fall within that range, which shows that urban projects have competitive potential with other carbon offset projects.
There are several key decisions that forest managers can make to influence cost effectiveness. Although community forests are potentially acceptable and marketable solutions to storing CO2, only very few, specifically designed urban tree planting projects would be cost effective at this time. Our modelling results suggest that projects in the southern growth zone and/or projects that include energy-related carbon benefits are more likely to be cost effective according to today’s markets.
As markets become established, credit prices are expected to increase, and foresters will have a better chance of fully funding tree planting projects in communities, as well as being able to monetarily manage those forests until maturity. Moreover, it is important to consider that there are other benefits associated with urban trees, and because of these added benefits, investors may be willing to spend more per credit than they would for other projects dedicated to only reducing atmospheric CO2 concentrations.

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The potential of urban tree plantings to be cost effective in carbon credit markets