A Big Loophole in Cap and Trade

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Sierra Pacific issued a press release in September about its 60,000-acre project, constituting 3% of the company's landholdings. The endeavor would absorb an additional 1.5 million tons of carbon dioxide over the next five years—"in excess of what would have otherwise occurred," the company claimed. In a separate statement, California Governor Arnold Schwarzenegger said the effort would be equivalent to removing 300,000 cars from the road for a year.

A close look at Sierra Pacific's plans reveals that the company may create less additional environmental benefit than advertised. Under long-standing California conservation rules—which predate requirements related to global warming—the company filed a plan in 1999 committing to how it would conduct logging over the next 100 years. Sierra Pacific estimated that the volume of trees on its land, measured in conifer timber feet, would nearly triple, from 17.8 billion in 1999 to 50 billion in 2079.

In carbon-project documents released in early November, Sierra Pacific is proposing to seek credit—and get paid—for some of the same increased volume of trees it had promised in 1999.

Sierra Pacific executives object to the question of whether their offset sales will result in additional environmental protection. "We don't have to do what we said we were going to do [in the 1999 state forestry filing] until we sign the carbon agreement," says Edward C. Murphy, a Sierra Pacific forest manager. "Because we were smart enough to figure out how to increase carbon [reduction] before it became a rule, we shouldn't get credit for it? ... It's a nonsensical question."

Other offset project developers concede that the approach is a work in progress. Chris Kelly, California program director of the Conservation Fund, a nonprofit in Arlington, Va., has established two large forestry projects in California's system and has nearly sold out the offsets through 2015, raising an expected $17 million from a range of companies. But Kelly's group had purchased the land in 2004 and 2006 with state-subsidized loans—and with the agreement that it would not intensively harvest the land. Having agreed to preserve the trees several years ago, the fund will be paid for making the same guarantee again.

"We're working with the protocol that the state gave us and followed it to the letter," Kelly says. He argues that it's important to get some kind of climate regulation in place, even if flaws have to be ironed out later: "What California is trying to do is get something out there that we can all work with."

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Elgin is a correspondent in BusinessWeek's Silicon Valley bureau.

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