Generating Carbon Credits from Wetlands

Glenn Barnes is a senior project director at the Environmental Finance Center at the University of North Carolina.  Glenn is the project manager of the Sustainable Finance for Wetland Programs project funded by the U.S. Environmental Protection Agency.

Carbon offsets from wetlands are now eligible to be traded in greenhouse gas markets in the United States.  In order for carbon credits to be traded in either regulated or voluntary markets, there has to be an accepted protocol to measure the carbon reduction from wetlands or other measures.  This past fall, two protocols were adopted, the first ever in the United States.

The first standard deals specifically with the restoration of degraded deltaic wetlands of the Mississippi Delta and was created by the American Carbon Registry.  Carbon credit sales from these deltaic wetlands could bring $5 billion to $15 billion into the region over the next 40 years.  The second standard is a national standard for wetlands restoration and conservation created by Verified Carbon Standard (VCS) as part of their Agriculture, Forestry and Other Land Use standards.

By using these standards, individual sites can now determine their baseline emissions, ability to sequester or otherwise offset carbon dioxide and other greenhouse gases, and, once verified by an independent entity, sell the certified credits to interested buyers.

There are two mandatory cap and trade systems in the country right now: the Regional Greenhouse Gas Initiative, or RGGI, that covers nine northeast states, and a new program in California that officially launched this past January 1.  Neither RGGI nor the California program currently allows for carbon offsets from wetlands, however.

So any sales of carbon credits from wetlands in the United States would come from the voluntary market, where buyers interested in reducing the greenhouse gas impact of their activities purchase reductions from a seller with certified credits.  VCS runs a voluntary carbon market, as does the Chicago Climate Exchange.  Entities holding carbon credits from wetlands would need to seek out borrowers and negotiate prices for the offset sales, with the sponsor of the market setting ground rules and ensuring that credits are not double-counted.

These prices can vary greatly, from as low as $1 per ton of carbon dioxide equivalent reduced to as high as $15 per ton reduced.  This variability in prices presents some risk for potential sellers of carbon credits from wetlands, especially an entity that wishes to finance restoration or protection of wetlands through the future credit sales.  If an interested buyer agrees, it is possible to arrange a pre-sale of carbon credits on the voluntary market, so that a project can move forward with more certainty about future carbon credit revenue.

Another potential concern of using wetlands to offset carbon dioxide and other greenhouse gases is that the offset potential varies greatly depending on geography, hydrology, and other factors.  Wetlands are very effective at sequestering carbon dioxide, but they can also release large quantities of methane, a potent greenhouse gas.  In fact, some wetlands may actually be net emitters of greenhouse gases.

A 2009 study by an environmental economist at the U.S. Department of Agriculture’s (USDA’s) Economic Research Service found that only 7 percent to 35 percent of wetlands studied could have carbon offset values that exceed the cost of restoring the wetland and the opportunity cost of moving the land out of agricultural production depending on wetland type and location.

While there are uncertainties, states and tribes may wish to further study their potential revenue from carbon credit sales as another means of financing their wetland programs.