William Hohenstein <WHOHENST@malloce.oce.usda.

gov>
10/05/2001 05:33:08 PM

Record Type: Record

To: Kameran L. Balley/CEOIEOP. Phil CooneylCEOIEOP

cc:

Subject: Kameron/Phll:

Kameron/Phil:

Here is a summary of recent Senate legislation on carbon sequestration.

5.769 and 5.765 go together and address international tax credits

5.785 is Brownback's domestic legislation
5.820 is the Wyden Craig f~rest bill

5.1255 combines 5785 and 8.820

I also have the testimony of Chris Risbruidt of the Forest Service on 5.820. However, I only have It in
hard copy and would need to fax It to you. Could I get your fax number? '
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f~:Lo7 CEQ 007622

S. 769

Short Title: International Carbon Conservation Act

Sponsors: BROWNBACK, Reid, Lugar, Dewine

Date: April 24, 2001

Goals:

To establish a carbon sequestration program within the Department of Commerce to enhance

international conservation, to promote the role of carbon sequestration as a means of slowing the
buildup of greenhouse gases in the atmosphere, and to reward and encourage voluntary
pro-active environmental efforts.

Description

Provides for a mechanism to report international forestry and other carbon sequestration

projects;

Creates an implementation panel within CommercelNIST, chaired by the Chief of the

Forest Service;

The panel can approve carbon sequestration projects into the program, making them

eligible for the following:

• An extension of credit from the Export:lI:tnport Bank of the United States of up to

75% of the practice costs;

• Owners of land on which projects take place to obtain insurance for the project
from the Overseas Private Investment Corporation;

• Investment tax credits provided under a separate bill (S. 765)

Requires the Forest Service to develop criteria for prioritizing and evaluating the

acceptability and benefits from project proposals; .

Requires that carbon sequestration actions are additional to what would have occurred

without the effort;

Pros and Cons:

Allow for voluntary reporting of current projects in developing countries for potential
future credit;
Does not address the issue of what could happen to the information reported under this
program at some future point;
Requires that criteria be established to address issues related to whether the project is

CEQ 007623

 providing additional benefits over what would have happened anyway;

• Excludes projects where the primary purpose is growing timber for commercial harvest
and projects that replace native ecological systems with commercial plantations;
• Subsidizes the costs ofintemational actions (versus domestic action) through cost-sharing
and insurance.
• Could help gain support for US approaches to addressing climate change in developing
countries;
Detennining the carbon sequestration that results from preservation of forest lands is
extremely difficult - it requires an Agency to determine the likelihood that lands would
be converted to other uses and that carbon would be emitted. There are large areas of
land that are not likely to be converted from forests to other uses over the next 30 years ­
The implementation panel may be required to determine the eligibility of such lands on a
case by case basis.

CEQ 007624

S. 765

Short Title: Carbon Sequestration Investment Tax Credit Act

Sponsors: BROWNBACK, Reid, Lugar, Dewine

Description:

Allows the investments of eligible taxpayers in international carbon sequestration

projects approved by the implementation panel established under S. 769, to receive
investment tax credits equal to $2.50 for each ton sequestered.

Sets limits on credits of50% ofthe investment from the eligible taxpayer for each year.
An overall cap on the program is set at $200 million/year of credits.

• Taxpayer receiving cost-sharing or insurance under S.769 are 110t eligible;

Provides for recapture of credits if the taxpayer violates a term or condition ofthe
approval ofthe project, or if the taxpayer adopts a practice that would defeat the purpose
ofthe carbon sequestration program. The percent oftax recaptured declines over time
and disappears after 30 years.

Issues/Questions

• Investments in carbon sequestration projects can be" front-loaded, with much ofthe
investment happening in the first year(s), carbon sequestration benefits may accrue over a
long period. The limitation of credit to 50% of investments in a given year, may
discourage projects with high up-front investments. An amortization schedule for initial
investments might address this problem.

• Sections 3 and 4 ofS.769 allow the owner/operator of properties where carbon

sequestration projects occur to receive cost-sharing and insurance. These mayor may not
be the eligible taxpayers for which this provision applies. The limitations on th~ use of
cost-sharing and insurance along with tax credits can be circumvented if the owner
operators named in Sections 3 and 4 ofS.769 are different from the eligible taxpayer
named in S.765.

Pros and cons

Provides incentives for actions regardless of the availability of future credits for
greenhouse gas offsets;

.Provides incentives for actions internationally that may not be available domestically;

CEQ 007625

S. 785

Short Title: Carbon Conservation Incentive Act

Sponsors: BROWNBACK, Murkowski, Johnson

Date: April 26, 2001

Description: The Secretary of Agriculture will establish a carbon sequestration program to

permit owners and operators of land to increase catbon sequestration.

Sets a limit on:

• the maximum number of acres: 20,000,000

minimum contract length: 10 years

• maximum t<;,tal payments per person: $50,~00/year

maximum rental payments per acre: $20
maximum cost-sharing ofpractices: 50% under carbon contract
100% from all sources

May be opened to the conservation reserve program or wetlands reserve program at the

discretion of the Secretary of Agriculture;

Includes, forest preservation, afforestation, soil management, and others. Allows any
conservation practice that is determined by the Secretary to be appropriate for increasing
carbon sequestration. .

Establishes an Advisory Panel to assist the Secretary in carrying out the Act.

C9mpliance provisions provide for repayment of, or adjustments to rental payments and

cost-share payments for violations of contracts.

• The Secretary of Agriculture consults with the Administrator ofEIA in developing forms
to monitor changes, and report to the public on benefits and compliance.

Payments include cost sharing of treatments and rental payments. Rental payments are
determined through submission ~fhids or other mechanisms determined by the Secretary.

• The Secretary can take other environmental factors into account in selecting bids.

Pros and cons

• Provides payments that can be specifically linked to the amount of carbon sequestered.

• Linked to carbon sequestration - not available for other agricultural greenhouse gas

CEQ 007626
 offsets

• The per acre cap places forestry projects at a disadvantage - these projects may cost more
per acre (given land is being taken out of crop production) but also sequester more carbon
per acre (2-6+ tons/ac)

• The carbon credits are kept separate from other payments - although there are no
provisions for private sector funding of projects.

CEQ 007627
S. 820

Short Title: Forest Resources for the Environment and Economy Act

Sponsors: WYDEN, Craig

Date: May 3, 2001

Description

Requires a report from the Secretary of Agriculture on the quantity of carbon in the
National Forest System, the potential to increase carbon storage on national forest lands,
and the role of forests in the carbon cycle and contributions of US forestry to the global
carbon budget.

.Requires guidelines on accurate reporting of voluntary greenhouse gas sequestration from

tree planting and forest management decisions.

• Sets up an Advisory Council to advise the Secretary of Agriculture developing guidelines

and in implementing other provisions ofthe bill.
. .
• Establishes forest carbon cooperative agreements between USDA and states, local
govermnent, Native American tribes, private and non-profit entities.

• Establishes a Forest Carbon Revolving Loan Program to provide assistance to States.

Loan funds can be financed by civil penalties collected under section 113 ofthe Clean
Air Act and Section 309 (d) ofthe Federal Water Pollution Control Act without further
appropriation;

• Allows State loan funds to accept and distribute private funds - recognizes that all
reductions in greenhouse gases associated with projects funded by loans are attributable
to the non-Federal entity that provided funding for the loan.

Loans can be used for purchasing and planting trees other costs associated with tree
planting, forest management, monitoring, measurement and verification.

Loans cannot be used to pay for owner labor, the purchase of capital equipment, (or land
rental- implied).

Loans are repaid at the time ofharvest or based on schedules set up by the State, and are
proportional to the percentage decrease in carbon stock.

Allows loans to be canceled iflands are put into permanent conservation.

CEQ 007628
Pros and cons

Requires the development of reporting guidelines, national carbon stock inventories, and
an assessment of opportunities to sequester carbon on Federal lands.

Does not include agricultural carbon sequestration in the cooperative agreement or State
loan programs;

Does not allow loans to be used to pay land rental rates - perhaps the most significant
component of forestry investments;

The values of the loans or cooperative agreements do not appear to be directly linked to
the amount of carbon sequestered by projects;

Does not require annual appropriations - can be funded from civil penalties collected
under the CAA and FWPCA.

Provides an innovative mechanism to incorporate private sector financing.

CEQ 007629
S. 1255

Short Title: Carbon Sequestration and Reporting Act

Sponsors: Senator WYDEN for himself and Senator BROWNBACK

Date: July 26, 2001

Description:

The bill is comprised of three titles. Title I establishes a Carbon Advisory Council. Title II of
S.1255 allows establishes a forest carbon program. Title ill establishes a carbon sequestration
program. Titles IT and ill are essentially the same as S. 820 and S. 785.

Title I. Carbon Advisory Council Under Title I, a Carbon Advisory Council is established to:

• advise the Secretary of Energy on developing and updating guidelines for accurate
reporting of greenhouse gas sequestration from soil carbon and forest management
actions;

evaluate the potential effectiveness of the guidelines in verifying carbon inputs and
outputs from various soil carbon and forest management strategies;

estimate the effect of implementing the guidelines on carbon sequestration and storage;
and

• assist the Secretary in preparing a required annual report.

Title II. Forest Carbon Program. Under Title IT, the Secretary ofAgriculture may enter into a
cooperative agr~ement with willing landowners to carry out forest carbon activities on private,
state, and Indian tribe land. As part of this program. the Secretary, in collaboration with State
Foresters and representatives of nongovernmental organizations, shall provide assistance to
States to establish a revolving loan program to carry out forest carbon activities on nonindustrial
private forest land. .

• Interest rates that will be established by States and should to encourages participation of
nonindustrial private forest landowne-,;,; ",:. the program and provide a net rate of return of
not more than 3 percent.

The loan obligations should be repaid to States at the time ofharvest ofland covered by
the program or in accordance with a repayment schedule determined by the State. The
obligation should also repaid at a rate proportional to the percentage decrease of carbon
.stock.

CEQ 007630
• The loan agreement shall include provisions that provide for private insurance, or that
release the owner from the financial obligation for any portion of the timber, forest
products, or other biomass that is lost to insects, disease, fire, storm, flood, or other
circumstance beyond the coqtrol ofthe owner; or cannot be harvested because of
restrictions on tree harvesting imposed by the applicable Federal, State, or local
government after the date ofthe loan agreement.

• The loan agreement shall provide that, until the loan is paid in full by the participating
owner or otherwise terminated in accordance with this section, all reductions in
atmospheric greenhouse gases achieved as the result of the loan shall be attributed to any
non-Federal entities that provide funding for the loan (including the State or any other
person or nongovernmental organization that provides funding to the State for the .
issuance of the loan).

Title ill. Carbon Sequestration Program. Under Title ill, the Secretary of Agriculture is allowed
to establish a carbon sequestration program to encourage owners and operators of land to adopt
land management practices which increase carbon sequestration.

• Payments include both cost sharing of treatments and rental payments.

• Rental payments are determined through submission of bids or other mechanisms

determined by the Secretary.

• Maximum:
total payments per person ($50,000/year),
rental payments ($20 per acre),
cost-sharing of practices (50% under carbon contract), and
number of acres (20,000,000).

• °
The minimum contract length is 1 years.

Criteria for determining the acceptability of contract offers shall address: forest preservation and
restoration and afforestation; biodiversity enhancement; high-storage crop production; .soil
erosion management; soil fertility restoration; wetland restoration; no-till.farming practices;
conservation buffers; improved cropping systems with winter cover crops; and any other
conservation practices the Secretary determines to be appropriate for increasing carbon
sequestration.

CEQ 007631