FCWG Policy Platform - Goal One
America’s forests and forest products are a proven carbon sequestration and storage “technology” to provide the negative emissions we need to slow climate change. Today, U.S. forests and forest products annually sequester and store almost 15% of U.S. carbon emissions from burning fossil fuels. New research suggests we could nearly double this natural carbon capture with the right actions. Best of all, this climate action through forests will build on the nearly 3 million jobs in America’s forest sector and bring broad co-benefits to our communities, from clean air and water to wildlife and outdoor recreation.
of U.S. carbon emissions from burning fossil fuels are stored annually from forests and forest products
The Forest-Climate Working Group (FCWG) was founded in 2007 to provide a unified voice across the U.S. forest sector that can help America capture this remarkable opportunity. Our member organizations reflect the wide diversity of actors who help to conserve and manage America’s forests every single day: private landowners, forest products companies, state foresters and other government agencies, forestry, conservation and wildlife non-profits, carbon finance, and academic researchers.
This platform outlines how policymakers can help private forest owners and public land managers grow the powerful climate solutions in America’s forests and forest products while delivering other environmental and economic benefits. Our recommendations fall in four key areas:
Maintain and Expand Forest Cover
More forests equate to more carbon being sequestered. That is why the foundation for forest carbon mitigation is to maintain the forest cover that we have, and to expand forests back into places where they have been lost to events like wildfire and clearing for agriculture. This includes expanding urban forests. Within this goal we provide diverse recommendations that advance conservation of private forests, including tax policies and markets supportive of private ownership. We also provide recommendations to expand forest cover on public and private land, including in cities, through diverse policy catalysts for reforestation and afforestation.
Private Forest Conservation:
- Retain or enhance tax policies to retain working forests including but not limited to:
- The current federal capital gains tax treatment of timber income.
- The permanent federal tax credit for conservation easements on working forests.
- Enhance existing funding and policies for retaining private forests, including but not limited to:
- USFS Forest Legacy Program.
- USFS Community Forest program.
- Including dedicated funding levels within the Land and Water Conservation Fund for USFS and DOI acquisition and easements (e.g. national parks, refuges, relevant BLM units).
- Provide market-based incentives for the purchase of easements and other interests in land for forests of high carbon value at risk of conversion (assuming a cap and trade or carbon tax policy).
Private Forest Reforestation:
- Maintain the existing federal tax deduction for replanting after harvest.
- Maintaining Conservation Reserve Program authority and funding to support reforestation of marginal or abandoned agriculture land.
- Direct resources at areas and forest owners identified as lacking robust forest stocks
Public Forest Reforestation:
- Increase appropriations for reforestation through SFS/Vegetation and Watershed Management account.
- NEW: Lift or eliminate the cap on the Reforestation Trust Fund.
- NEW: Grant the USFS authority to implement post-fire reforestation treatments for up to three years on lands unlikely to recover naturally – similar to the Burned Area Rehabilitation program at Department of Interior.
- NEW: Establish a new federal matching grant program for states, local governments, tribes and NGOs to implement climate-informed reforestation.
Expand Urban Forests:
- Increase funding for the USFS Urban and Community Forestry Program.
- NEW: Establish a new matching grant program, prioritized for underserved cities and neighborhoods, to plant urban forests as a complement to the technical assistance provided by USFS through the Urban and Community Forestry Program.
Deep Dive into the Policy Options
Landowner Tax Credit for Private Forest Carbon Actions
A transferable tax credit could incentivize carbon sequestration in privately-owned forests, with credits provided for increased carbon sequestration. With transferable tax credits, if the value of the tax credit is higher than the taxpayer’s tax liability, he/she can sell or transfer the excess credits to any other taxpayer. Making the tax credit transferable creates many more opportunities for financial gain for the landowner, as they are not limited by their own tax liability. While the Federal Tax Code section 45Q incentivizes carbon capture and storage in the energy sector through a tax credit, it does not provide a similar incentive for the forest sector.
The proposed landowner tax credit outlined below includes two options for landowner participation, which gives the landowner choice and flexibility:
- Practice based option: the tax credit is determined by approved practices the landowner implements (selected from approved USDA list). We recommend practices be determined on a regional basis.
- Performance based option: tax credit is determined by carbon sequestration performance above a baseline.
The practice-based approach can appeal to smaller landowners and is USDA’s comfort zone. The performance-based approach works better for large forest owners, offers opportunities at scale, invites innovation, and is USDA’s aspiration.
If crafted well, a landowner tax incentive for forest carbon sequestration could increase the return on investment to private forest owners for carbon sequestration and catalyze further efforts by private forest owners in being a solution at scale on climate.
Proposed Legislative Outline:
(note: we have intentionally left the credit values blank below, to enable a conversation with various stakeholders and policy makers about the appropriate values)
The purpose of this Act is to provide tax credits for carbon sequestration and storage in the private forest land sector.
Tax Credit shall be rewarded based on one of the following two options, with the performance-based option delivering a higher tax credit value to the landowner (more work for landowner, higher confidence in tons delivered):
- Practice based option: the tax credit is determined based on practices the landowner implements (selected from USDA approved list):
- [X]% of the cost of the forest carbon practice. USDA will develop tiers (likely 3 – high, medium, low) of practices based on estimated tons of carbon sequestered. Practice tiers will be developed regionally.
- Performance based option: tax credit is determined by carbon sequestration performance (measured tons) above a baseline by the landowner.
- $[XX] per ton of carbon produced by landowner, as verified by a registry recognized by USDA or alternative verification approach approved by USDA. (Bennett bill starts at $22/ ton, 45Q is between $20-50/ton).
Recommended requirements of any tax credit issued under this proposal:
- Ensure the tax credit is transferable to a third party so that it can be monetized. Avoid limitations on transferability.
- Ensure receipt of the credit is treated as a qualifying REIT asset and sale is qualifying REIT income.
- Allow for an increase in tax credit for limited resource, socially disadvantaged and veteran producers, and other historically underserved producers, including as defined in other USDA Farm Bill programs in section 2279(e) of title 7.
- While the IRS will implement the tax credit itself, USDA should house the measurement/practices side of the program. The Secretary of Agriculture would be responsible for further program determinations (i.e. practices approved, carbon values of those practices, etc.), with the tax credit administered by the IRS.
- Ensure the tax credit can be issued to the landowner when a landowner is participating in an aggregation model, in which the landowner sells his/her carbon rights to the aggregator (i.e. where the landowner is not technically selling their carbon, an entity is doing it on their behalf—but entity can give them proof of carbon tons the landowner is generating).
- Allow landowners that are and aren’t participating in the voluntary carbon markets to participate in the tax credit provided the tons incentivized under this credit aren’t already being retired under a state or federal compliance carbon accounting framework.
- Achieve real mitigation benefits in terms of additionally, verification, and permanence while minimizing unnecessary burdens on landowners that deter participation, consider impacts on the entire forestry value chain, avoid requiring co-benefits, and recognize the benefits of active, sustainable forest management. To optimize benefits for carbon and landowner participation, avoid complexity and burden that adding additional incentives for co-benefits typically creates. This is a tax credit for carbon benefits. Landowners can get those incentives through a multiple of other programs.
- Recognize and utilize existing registries to account for carbon and direct/ encourage the Secretary to identify and/ or develop other means to account for real, measurable increases in carbon sequestration with credible criteria for additionally, verification, and permanence that reduce unnecessary burdens on landowners and address hurdles to landowner participation in existing protocols. Areas for innovation include evaluating ways to use sequential sampling, remote sensing, and aggregation to better leverage existing forest inventory methods and reduce field sampling requirements for verification and evaluating more flexible options on permanence and project area changes.
- Address lifecycle of carbon questions to avoid conflicts with other carbon sequestration tax credits (i.e. a tax credit for building with low carbon materials) and with carbon credits sold in cap and trade programs. Ensure the policy addresses issues of double counting/ double paying for same carbon tons.
- To qualify for the tax credit, if lands are reforested, they must be on appropriate sites with appropriate species for the region, and appropriate methodologies. USDA will provide further specifications for these qualifications.
- To ensure basic co-benefits—clean water, habitat, and sustainable management parameters etc. – are addressed, landowners must have a credible management plan.
- To help offset the cost, consider including a transfer fee to the Treasury if a landowner opts to sell or transfer unused credits. In Virginia, there is a transfer fee equal to 5% of the credit amount transferred. Transfers and credit allocations between pass-through entities, (s-corporations, LLCs, etc.) are usually also subject to the fee.
- Recognizing that for many family forest owners, especially for limited resource, socially disadvantaged and veteran producers (including forest owners), accessing a tax credit such as this will require significant education and technical assistance, this tax credit should be paired with investments in assistance to such landowners.
DRAFT Tax Credit Bill from Senator Bennet (D-CO) which includes two parts:
- Quantification Credit: Establishes a 30 percent tax credit for the cost of quantifying baseline and annual carbon sequestration levels for agriculture, rangeland, forest, and wetlands.
- Outcomes Credit: Creates a dollar per ton tax credit based on the amount of carbon sequestered. The amount of the credit is tied to the funding levels for carbon capture and storage in the 45Q tax credit for carbon sequestration and utilization from industrial sources
- 45Q tax credit provides a tax credit on a per-ton basis for CO2 that is sequestered. Updated by the Bipartisan Budget Act of 2018, the 45Q tax credit provides an incentive of $50 per metric ton for CO2 geologic storage and $35 per metric ton for CO2 used for enhanced oil recovery (EOR) or enhanced natural gas recovery (EGR) by 2026. The party eligible to claim the tax credit is the owner of the capture equipment. That party must physically or contractually ensure the storage or utilization of the CO2 or CO and may elect to transfer the credit to another party that stores or puts the CO2 or CO to beneficial use.
- VA Land Preservation Tax Credit: Virginia allows an income tax credit for 40 percent of the value of donated land or conservation easements. Taxpayers may use up to $20,000 per year through 2020 and $50,000 per year in subsequent tax years. Tax credits may be carried forward for up to 13 years. Unused credits may be sold, allowing individuals with little or no Virginia income tax burden to take advantage of this benefit. The transferability feature of Virginia’s tax credit program is especially valuable to landowners with little or no state income tax liability, enabling them to sell their tax credits for income. Responsibilities for oversight of the LPTC program are shared by the Virginia Department of Taxation (TAX) and the Virginia Department of Conservation and Recreation (DCR).
Remove the Cap on the Reforestation Trust Fund
America’s national forests are facing significant challenges from a changing climate. While it is federal policy that national forests must be reforested after severe wildfires and other catastrophic events, the US Forest Service has been unable to meet this goal for decades. Up to 7.7 million acres of our National Forests are in need of reforestation, with over 1.3 million in need of immediate attention. The recent increase in severe forest fires has significantly increased the acres of National Forests in need of reforestation. Reforesting National Forests will yield significant climate mitigation benefits by sequestering carbon in growing trees. In fact, if reforested our National Forests could sequester 6,078,815 tons of C02 equivalent annually.
Congress established the Reforestation Trust Fund (RTF) in 1980 to reforest the National Forest System after wildfire and other disturbances, but USFS access is capped at $30 million per year by the original authorizing legislation. The RTF is funded by existing tariffs collected on a discrete set of timber and wood products. These tariffs now regularly exceed $100 million annually, with a recent high of $178 million. Removing the RTF cap would allow USFS full access to these collected tariffs, which would significantly increase annual funding available to USFS for reforesting national forests. For every $1 million invested in reforestation, an estimated 39.7 jobs are created. Further, the RTF is currently matched at a 3:2 ratio by other funding sources, which would increase the impact of eliminating the cap.
The REPLANT Act will maintain and expand national forest cover by eliminating the cap on the Reforestation Trust Fund (RTF) which would significantly increase USFS resources to reforest national forests in need as well as address future needs. It would achieve this goal by removing the cap on the RTF and requiring the USFS to address the 1.3 million acre reforestation backlog within 10 years while ensuring best forestry practices.