Rising CO2 prices sees US carbon farming compete with timber

Quantum Commodity Intelligence - The rapid increase in companies adopting net zero targets over the past few years will heavily impact the US forestry industry, with rising carbon values edging out timber production in certain regions of the US, an industry panel heard Wednesday.

In 2019, there were 500 net zero commitments by companies across the US, a figure that had trebled within a year, with a recent report by McKinsey suggesting demand for carbon credits could increase 15-fold by 2030.

Such a rise in demand, however, will have a big impact on the country's timber industry, according to panellists speaking at the Corporate Investment into Forestry and Biodiversity conference Wednesday.

"That rate of increase (of net zero targets) is actually gaining momentum. That's a tremendous amount of demand that will support carbon," said Keith Balter, who heads up market analysis at the Hancock Natural Resource Group, one of the biggest managers of US agricultural real estate.

Balter said that such a hike in the value of forested land would open up alternative revenue streams for timberland owners as sequestering carbon becomes more profitable than supplying timber.

"At $20/mt there is no way that you can compete with those carbon values on a commercial basis for timber production in the southwest (of the US)," he said, adding that in other regions, such as the northeast, the lake states and the Pacific Northwest timber production could still compete.

Bob Izler, director and professor at the University of Georgia, told the panel landowners in some areas of the US were coming under pressure to build solar farms on the land, but that a rising price of carbon could see that change.

"Some agricultural lands have been converted from annual row crops to solar farms... I am not sure at what scale, but that wasn't something we counted on as a competing end-use 20 years ago," he said.

Carbon prices globally, depending on whether they are for use in mandatory schemes or in the voluntary market, have risen sharply over the past few months.

And that is starting to cause some concerns from buyers, according to Bettina von Hagen, CEO of Ecotrust Forestry Management, a consultancy and project developer in the forestry sector.

"There has been some concern about the rising cost of carbon over the past few months, whether that be in the regulatory or voluntary markets, the rise is anything between 30 to 100%," she said.

Von Hagen added that there was a trend now towards different pricing mechanisms in offtake agreements to limit volatility in a way that benefits both the buyer and the project developer.

The rise in carbon farming due to higher prices is becoming more of an issue, with Australia in December announcing a review of whether to ban projects that produce carbon from more than a third of the land on a farm if there is evidence it hits food production.