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1 year ago NCX response: Where the methodology is not explicitly prescriptive, it is expected that project developers will implement appropriate safeguards to avoid adverse selection. For example, NCX signs a legal agreement with landowners that affirms their willingness to harvest the volume they are instead credited with deferring. We look forward to working with other developers and academic researchers to explore methods of measuring adverse selection directly in the future. Projects are additional when the carbon stocks in the project scenario are greater than the carbon stocks expected under the baseline scenario–this is the basis for any carbon project verified against any standard. Because additionality, and therefore, creditable carbon is dependent on an accurate baseline, eligibility is limited to forests that are truly at risk of being harvested in the next year. Deferring that harvest results in additional carbon in the landscape. Our business as usual model is a hierarchical statistical model that predicts one-year harvest risk and intensity based on FIA training data and a suite of covariates that include geographic, biological, economic, and sociological factors. Partial pooling across forest types ensures that the model is able to leverage the similarity and ubiquity of covariate relationships across the forests of the continental U.S. while still allowing for regionally specific differences. Predicting behavior of any type, which is the basis for any forest carbon program, is not straightforward, and depends on models whose performance can be measured. Our revised methodology requires the propagation of model uncertainty through to calcation of final credits, as well as reporting of benchmarking for all models.
Commenter Organization: The Lyme Timber Company
Commenter: Jim Hourdequin
2021 Deferred Harvest Methodology Section: Additionality
Comment: Higher Additionality Risk resulting from Short-Term Activity Periods and Targeting Smaller NonIndustrial Landowners: The Proposal implies that one of the goals of the methodology is “opening carbon markets to smaller-size landowners with historically low rates of participation”. While this may well be a worthy goal for reasons unrelated to climate, the combination of a shorter timeframe and the targeting of smaller land ownerships make it much more difficult to establish realistic baseline conditions. Small, non-industrial landowners have many reasons for owning land, and according to several studies, income from timber harvesting ranks relatively low among their priorities. They tend to harvest episodically and in most years do not harvest at all. While it may be theoretically possible to predict an aggregate level of harvest by all non-industrial landowners in a given region, I am not convinced that we have adequate tools to predict the likelihood of harvesting by the subset of landowners who elect to participate in a 1-year harvest deferral program. Thus, I believe that “adverse selection” – participation by landowners who would not otherwise be harvesting in the year – is a serious risk to a 1-year accounting period. While adverse selection can be addressed in certain markets(insurance, for example), it’s not clear that the buyer orseller in a carbon market has an incentive to fully address the risk because neither suffers a loss because of the adverse selection (in contrast, if an insurer misprices an insurance product relative to the pool of insurance buyers it targets, it ultimately suffers an underwriting loss). Thus, it’s incumbent on the protocol standard to fully study this area and develop a high degree of confidence in baseline projections. The evaluation of adverse selection risk is far simpler and more robust on larger land ownerships and/ or in consideration of harvesting over longer time periods. As land ownership area increases, the likelihood that the owner is financially motivated also increases and consequently the likelihood that timber harvesting would otherwise occur increases. In addition, larger landowners are more likely to have data on historical activities, which enables calibration between predicted baseline activity and historical activity. Finally, the predictability of activity over a series of years– say a commitment over 10 years – should be improved relative to a one-year period for any size landowner, but especially so for the non-industrial landowner who is well calibrated to not generating income in any given year and therefore not particularly sensitive to income in one year over another.
Proposed Change: No Proposed Change