Energy Companies Invest in Forests

Carbon Offset Investments Gain Popularity

Cutting down trees used to be the main way to profit from forests. Now, as companies look for ways to offset their carbon emissions, they are seeing the benefits of keeping forests intact. Fossil fuel firms are now paying landowners to keep forests standing and their rates are comparable to what mills pay for logs.

California implemented a cap-and-trade system to encourage companies to gradually reduce emissions over time. So far California is the only US state with these laws, but big energy companies are speculating that other states may soon follow suit. They are investing in large swaths of forests to prepare for if and when other states create cap-and-trade initiatives.

Cap-and-Trade Systems

A cap-and-trade system means that a government issues a limited number of permits that allow companies to produce certain levels of emissions. These “caps,” are lowered each year, which means the price of permits goes up. This pushes companies to gradually reduce their emissions and invest in cleaner technology because these practices eventually become cheaper than buying emissions permits.

A cap-and-trade system also rewards companies investing in carbon-offset credits, which is why energy companies are eager to preserve forests. BP (BP), for example, spent hundreds of millions of dollars purchasing 40 million California offset credits over the past four years. BP is not only investing in offsets to counter its own carbon emissions, but is making plans to trade them to other companies looking to offset their emissions.

Benefits for Energy Companies

Investments in forests are likely to help energy companies in a number of ways. They will help companies navigate cap-and-trade regulations, assist with public relations, and potentially help attract investors.

From an environmental standpoint, forests left intact lock in carbon, which has numerous benefits. Old-growth trees are also a useful way to prevent wildfires, because they do not burn as easily as small trees that come up after a forest has been cleared. Energy companies, investors, and environmental activists will be eager to see if other states follow California’s lead and implement cap-and-trade systems, and what impact that would have on the environment and on the energy industry.

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