Rent Seeking and the Smoke and Mirrors Game in the Creation of Forest Sector Carbon Credits: An Example from British Columbia

From a cost standpoint and as demonstrated in this paper, it is beneficial to permit forest-sector carbon offsets in lieu of carbon dioxide emissions reduction. Such offsets play a role in voluntary markets and Europe’s Emission Trading System. However, problems related to additionality, leakages, duration and impermanence, high transaction costs, and governance raise important questions about the validity of most carbon offset credits from forestry. Using data for a forest estate in south-eastern British Columbia owned by the Natural Conservancy of Canada (NCC), we construct a forest management model to demonstrate that the planned NCC management program yields questionable forest carbon offsets. NCC management results in slightly less annual carbon sequestration than leaving the forest as wilderness, but sustainable commercial management of the site sequesters between 8 and 270 thousand tonnes of CO2 more per year than NCC management. Because commercial exploitation was the counterfactual used to justify the NCC carbon offsets, offsets were subsequently sold to non-arms-length buyers, and numbers of carbon offsets are highly sensitive to assumptions, one can only conclude that the carbon offsets generated by this (and probably many other) forest conservation projects are simply spurious.