The concept of woodland carbon units (WCUs) is simple. Your client plants trees and thus captures (or sequesters) carbon, helping to contain or reduce what others emit. ‘Emitters’ of carbon wish to – or must by local law – reduce their carbon emissions. Hence, they are willing to ‘buy’ the carbon sequestration your client’s planting entails.
WCUs are an attempt to set up some demi-official process, to bring order and transparency – and to reward, financially, tree-planters. You register your planting, claim units and, over the years, prove them. When proved, they are sold. The buyer ‘retires’ the units bought and claims these as an emission offset. But there is a thicket of caveats.
Who sets the rules?
WCU is run by a commercial data provider, IHS Markit, under the title of the UK Land Carbon Registry. The overall framework is in the Woodland Carbon Code. The registration and marketing function is governed by IHS Markit’s rules and procedures.
Does all tree-planting count?
No. The idea is that it must be new planting – no previous woodland on site in the preceding 25 years. So, replanting an existing acreage of forest – normally obligatory under one’s felling licence – does not count. Nor does compulsory planting imposed as a planning condition elsewhere.
Can anyone register and claim?
No. For unexplained reasons, the Registry forbids individuals to register (though one notices settlement trustees on the Register). There is, though, a process by which (corporate) agents may register designated sub-accounts, and this – needless – device seems to allow individuals to indirectly register and benefit.
Start right away?
No. The project has to be mapped, outlined, and the carbon saving should be estimated before pre-approval. There are some odd features. Unobjectionable are: some estimate of the pre-planting sequestration (if more carbon is released by the act of planting, there’s no gain). Long term governance conditions apply – just like the current woodland grants. Environmental and water impacts must be assessed. More controversial are conditions over local wildlife and community benefit. Given the British propensity to object to any new proposal, a landowner is thus held hostage to considerations quite unconnected to the efficacy of carbon capture.
As well as these steps, the further hurdle of ‘additionality’ must be leapt. ‘Carbon finance’ must meet at least 15 per cent of project cost; and it must be shown, without this contribution, planting would not be financially optimal. This seems to rule out charitable and socially-conscious self-financing landowners from being able to register and claim. This outcome is inexplicable, bears no relation to carbon capture and has been much criticised.
So far, so good. The project thus qualifying is considered ‘validated.’ Planting begins and the potential carbon registered as Pending Issuance Units (PIUs). A ‘unit’ is one tonne of CO2e (Carbon Dioxide Equivalent).
The trees grow. At year five, the achieved carbon absorption must be externally ‘verified.’ There seem to be currently three auditors offering this service. At this point the carbon number will be modest – the bulk of capture will happen in years 16 – 35. At year 15 and ten-yearly thereafter, this is repeated. In this way PIUs slowly become WCUs and carry assurance of sequestration.
What if the trees grow slow or fast?
With slower growing the verified growth will undershoot the PIUs. Conversely, if growth exceeds expectations, the awarded WCUs may not exceed the PIUs, so the overshoot is lost.
Where and how is carbon sold?
To call it a global carbon market is a misconception. There are said to be 250 separate ones. The price in these varies from £5 – 50. Since the units aren’t interchangeable, these discrepancies, and the resulting inefficiencies, will persist. This obvious confusion is being addressed by the Taskforce on Scaling Voluntary Carbon Markets (a January 2021 paper) under Mark Carney, the former governor of the Bank of England. This should bring about the much-needed rigor for making units ‘fungible’, but further actions are needed.
How is the planting turned into money?
The approved and planted project attracts PIUs – potential tonnes of carbon. These may be sold on creation. What the attraction is for a buyer is hard to see. The buyer has nothing to use, but the hope five to 55 years ahead of then receiving audited emerging WCUs (that may undershoot but cannot exceed the purchased PIUs) at each time point. Possibly a PIU buyer presents these as though they are achieved, as opposed to contingent, offsets. However, recent prices of £10 – 20 per PIU are observed.
Are all WCUs available to sell?
No. At the point of audit verification, a portion of the WCUs are permanently withheld – placed into ‘buffer’ – and the total buffered stock built up is used to meet the loss of trees elsewhere through storm, fire and disease. Details are irritatingly imprecise, but the idea is to ensure awarded WCUs cannot be criticised for overstating what has truly been captured by all registrants.
WCUs do, therefore, substantiate sequestration. A buyer may use them, and such units are then ‘retired’ from the register. Such a sale is bilateral, the emitting buyer seeking out the registrant owner and negotiating a private purchase; pricing is undisclosed, which detracts from utility. Tilhill, the respected forestry managers, anecdotally reported modest private sales – covering less than 3,000 hectares. The CO2 e sold equated to around 450t/ha, pricing undisclosed.
IHS Markit refers to the availability of an auction process but it has failed to respond to Solicitors Journal’s requests for information on this and other topics
Is the Register robust and useable?
For solicitors familiar with Companies House and the Land Registry, the UK Land Carbon Registry, under IHS Markit, has many deficiencies. It includes entries from overseas companies. It mixes WCUs with the separate Peatland Code in a single list. There is no geographical search function (such as would enable one to tabulate all projects in Devon, say), and the detail that is filed is useless for identifying the parcel/s concerned. There is no cadastral, OS or Land Registry data and plans if filed lack orientation. Since the object of a register is to guard against misidentification and double-selling, these omissions are unacceptable.
That global warming and carbon reduction are critical is barely disputed now. For 20 years, governments have tried a disparate, unconnected patchwork of measures. There are a handful of transparent, public, carbon markets – Intercontinental Exchange (ICE), International Swaps and Derivatives Association (ISDA), International Emissions Trading Association (IETA) and European Federation of Energy Traders (EFET) – which for that market provide price visibility.
Experts differ as to the means of mitigation. Some argue industries must be forced to reduce and not allowed the softer route of offsetting.
There is much political theatre but little enforceable legislation, resource to enforce nor much evident will to enforce.
The UK government has announced the barely credible target of 30,000 hectares per year of new planting for the next 30 years – this would cover in that time three times the county of Northampton.
Registering WCUs costs little – professional, validation, ‘audit’ and registry fees – and registered projects are rising fast. Whether what is registered converts into worthwhile cash in five or 35 years’ time is uncertain. It will require fungibility of units across markets, increased international and national ‘grip’ and an improved registry
The British tree planter’s sequestration is gleefully counted as a credit in our national tally, but the planter has hitherto been unrewarded. WCUs offer a currently imperfect answer.
Keith Wallace is a solicitor with Reed Smith and a forester reedsmith.com...