SilviaTerra’s NCAPX program has revolutionized access to forest carbon markets for landowners of all sizes. One feature of the program is that landowners choose the prices at which they are willing to participate, and then “bid” those prices into the program. This blog post will outline how landowners should approach this choice of price, and will also reference some recent studies that have been published on the topic.
To start, let’s review a summary of key points about the program:
- Once you’ve enrolled in the program, you’ll receive an Eligibility Report, which informs you how many Harvest Deferral Credits (HDCs) your property is able to supply to NCAPX this year.
- NCAPX is intentionally designed to give landowners the flexibility to bid the HDC prices that work for their specific economic situation. Landowners can submit bids ranging from $1-30 per HDC. If the landowner’s bid is accepted, the landowner will enter a binding contract to defer harvest at the accepted price and volume.
- When a landowner’s bid is accepted, the price they’ll be paid will be the same as or higher than the price they bid. Within landowner cohorts based on location and size, the price paid to each landowner will be the same. Therefore, it is in the landowner’s best interest to first determine the HDC prices that truly work for them, knowing that if their bid is accepted, the landowner will be paid that price or higher.
Process for determining an HDC bid price:
To determine their HDC bid prices, landowners should consider following this 3-step process:
- First, estimate the stumpage revenue that could be generated from selling the timber you’re considering bidding into NCAPX as HDCs.
- Then, calculate the economic cost to you of waiting to earn that revenue 1 year later. This is most easily done by multiplying the revenue by a “discount rate”, which embodies the time value of money. Discount rates of 4-5% are commonly used in this setting, though ultimately it’s an individual decision.
- Divide this total “economic cost” by the number of HDCs you’re planning to bid to determine the HDC price.
Landowners with relatively low HDC prices under this framework will naturally want to know if they would be better off bidding a higher price instead. Since prices are set at a cohort level, landowners need not be concerned about bidding a “too low” price and missing out. Nonetheless, SilviaTerra is willing to share that as of today, bids between $8-$14 are likely to be accepted on the exchange.
Internet searches for a “fair” carbon price will uncover a wide range of answers. NCAPX is designed to make sure that market prices from buyers are transmitted as directly as possible to landowners. We will always advocate for landowners to first understand the economics of their own property before deciding whether or not carbon market participation is right for them.
Let’s walk through a specific example to illustrate this decision-making process:
- The Ramon Family owns 100 acres of plantation pine and 40 acres of mixed hardwoods. They enroll all 140 acres in NCAPX for a free eligibility assessment. Their 100 acres of pine are deemed eligible, and they are assessed 20 Harvest Deferral Credits (HDCs).
- With input from their consulting forester, the Ramon Family had been estimating they would harvest 500 tons of timber from those pine acres in the coming year, selling a combination of 80% pulpwood (400 tons) at a net price to the landowner of $7 per ton, and 20% sawtimber (100 tons) at a net price to the landowner of $22 per ton. This means that in total, the Ramon Family expected to receive about $5,000 for their timber.
- Forgoing this $5,000 for a year imposes an economic cost on the family, since if they harvested today, they could spend or save that cash. At a discount rate of 4.5%, they can estimate this economic cost to be about $225.
- Since deferring their timber harvest would yield 20 Harvest Deferral Credits from NCAPX, they can now divide $225 by 20 to produce a starting bid price of $11.25 per HDC. To settle on a final bid price, they could consider whether to make any adjustments downward (for example, if they are passionate about forest conservation and want to make sure they get to participate) or upward (for example, if they want a little extra buffer for testing out a new program).
Numerous factors determine the price a landowner should seek to be paid in order to sell HDCs and defer their timber harvest. The example above illustrates just one scenario that could occur on a pine-dominated property in the U.S. Southeast, and each landowner will differ with respect to their timber and their personal economics. SilviaTerra will continue to share materials that help landowners evaluate if and how to participate in the NCAPX program.
As a reminder, the program does not charge any fees to landowners, and enrolling for a free eligible carbon assessment requires no commitment for further participation. Interested landowners and their representatives should go to ncapx.silviaterra.com/create-account to begin the enrollment process. Feel free to reach out to the SilviaTerra team at email@example.com with any questions about the program.