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November 17, 2014
An environmental bent for law firm

Drummond Woodsum lawyers help Appalachian Mountain Club cash in on uncut trees

Photo / Tim Greenway
Photo / Tim Greenway
Drummond Woodsum lawyers, left to right, Richard Spencer, David Kallin, and William Plouffe along the Back Cove in Portland.

Glossary: How to tell a trade from an offset

Allowance: A government-issued authorization to emit a certain amount of carbon. In a "compliance" carbon market, such as California's, an allowance is commonly designated as one ton of carbon dioxide (CO2) per year. The total number of allowances distributed to all entities in a cap-and-trade system is determined by the size of the overall cap on emissions.

Auction: A method for distributing emission allowances in a cap-and-trade system whereby allowances are sold to the highest bidder.

Cap: A government-mandated ceiling imposed on greenhouse-gas emitters — for example, power-generating plants or industrial factories — to be achieved within a specific time-frame.

Cap and trade: A compliance system that sets an overall limit on emissions, requires entities subject to those limits to hold sufficient allowances to cover their emissions and provides broad flexibility in how they meet their cap. Compliance can be achieved by reducing emissions at their regulated facilities or by purchasing emission allowances (or credits) from the government or from other entities that have either reduced their emissions in excess of their compliance obligations.

Carbon sequestration: The long-term storage of carbon dioxide or other forms of carbon to either mitigate or defer global warming due to the accelerating accumulation of heat-trapping greenhouse gases such as carbon dioxide in Earth's atmosphere. Trees remove carbon dioxide from the atmosphere through the natural process of photosynthesis and store the carbon in their leaves, branches, stems, bark and roots. Approximately half the dry weight of a tree's biomass is carbon.

Credits: Emission reductions achieved by projects outside the compliance system or by entities within the system that have achieved reductions beyond their regulated standard. Credits can be distributed by the government for either type of emission reductions.

Emissions trading or trade: The buying and selling of credits or allowances created under an emissions cap program on greenhouse gases such as carbon dioxide and methane.

Offset: A verifiable reduction of carbon achieved by a project outside the regulated carbon-reduction system that can be transferred and used by a regulated emitter of carbon to meet its cap obligation.

Sources: Center for Climate and Energy Solutions, American Forests

AMC strikes balance between conservation and timber-harvesting

Since the 1990s, when paper companies began to sell off large blocks of timberland in Maine's North Woods, nonprofit conservation groups such as The Nature Conservancy and The Appalachian Mountain Club have taken on the new, expanded role of becoming land owners themselves. With investments in the tens of millions of dollars, they've had to learn how to balance conservation with the new challenges of deriving income from timber sales, contributing to local economies and encouraging public recreation.

"Managing forest land is definitely something new for us," says Dave Publicover, AMC's senior staff scientist since 1992. "There's been a lot of learning. We've been involved in forestry discussions since the end of the 1990s, but once we took on forestland management on the scale that we have, we watch things like lumber markets and mill closings a lot more closely than we ever did before. In a lot of ways, it increases our credibility."

Publicover is in charge of forest management planning for the 37,000-acre Katahdin Iron Works tract AMC bought from the International Paper Co. in 2003 and the 29,500-acre Roach Pond tract purchased from Plum Creek Timber Co. in 2009. Both properties are part of AMC's Maine Woods Initiative, a $52 million land conservation plan in the 100-Mile Wilderness region that stretches from Greenville to Baxter State Park.

The goal of the initiative, says Publicover, is to address the region's ecological and economic needs through outdoor recreation, resource protection, sustainable forestry and community partnerships.

AMC recognizes that timber management must be a key element of that project, he says, given the importance of the forest products industry to the local economy and its need to pay off the loans it needed to buy almost 70,000 acres of Maine forestland. But it also wants to demonstrate how conservation and wilderness-based recreation can co-exist with sustainable timber-harvesting.

Publicover says AMC hired Old Town-based Huber Resources Corp. as its forest management consultant soon after its 2003 Katahdin Iron Works purchase. The resulting plan designated 10,000 acres as an "ecological reserve" in the northern part of the tract and roughly 15,700 acres as a "general management" area for timber-harvesting.

AMC is managing the ecological reserve as a "forever wild, non-motorized backcountry recreation area" with no harvesting of trees, he says. The relatively young forest there will, over time, grow into a late successional forest that provides habitat for bird species like the pileated woodpecker and mammals like the marten that only thrive in older woods.

Some revenues from the sale of carbon offset credits in the voluntary market, Publicover says, will be set aside by AMC to support a stewardship fund, with the rest supporting the "long-term viability of the Maine Woods Initiative's multiple goals."

But there's an educational bonus as well.

"It also demonstrates the viability of this type of project," he says. "Carbon markets have the potential to help support the conservation of forestland, by encouraging owners to hold onto their trees longer and still make money."

— James McCarthy

In his legal work for the Appalachian Mountain Club and the Maine Appalachian Land Trust, David Kallin has "walked the walk" and then some. This summer he hiked the entire 2,185-mile Appalachian Trail with his wife, their two children and the family dog.

It's not every law firm that would embrace the idea of one of its practice leaders taking off for six months to go for a long walk, but Drummond Woodsum gave him the leave of absence with only one stipulation: He had to write a blog about the hike while he was on the trail.

Drummond Woodsum is an example of a law firm harnessing the interests of its associates to strengthen its legal practice.

"It's exciting for us," says Richard Spencer, another member of the Portland law firm's land use and conservation practice group, who a few years ago spent three months in Mongolia helping local herdsmen successfully oppose potentially destructive gold-mining permits in sensitive river areas. "It combines our professional interests with our personal interests. For all of us in the practice, it's been great to have the opportunities to amplify what we are personally involved in by the work that we do for our clients."

Making money from uncut trees

A recent example is the legal work that Kallin and the practice group did in helping AMC qualify for carbon sequestration credits for a 10,000-acre ecological reserve within the 37,000-acre Katahdin Iron Works tract it purchased from the International Paper Co. in 2003 for $17 million. In July, AMC sold those credits — based on the 100,000-plus carbon tons sequestered, or stored, in the growing trees of its reserve above the baseline year of 2007 — for an undisclosed sum to The Climate Trust, a Portland, Ore., nonprofit that specializes in carbon financing.

That deal is only the second one to be completed in Maine. The first was Down East Land Trust's sale of nearly 200,000 carbon offset credits on 19,000 acres in eastern Maine in 2013, which the Finite Carbon Capture Corp. had estimated would be worth more than $2 million when it registered the project with California's Climate Action Reserve the year before. Both Maine projects are among a handful that have been completed nationwide.

AMC and The Climate Trust estimate that the carbon credits sold in July are the equivalent of removing 21,000 gasoline-powered cars from the road. As those trees continue to grow for the next century, which is a condition of the carbon sequestration plan it certified with California's Forest Project Protocol, AMC will have the opportunity to sell an estimated 10,000 to 15,000 carbon emission credits each year.

"You have a monitoring and verification requirement for that 100-year period, and that's factored into what you are selling those credits for," says Kallin. "You often get a large initial bump of credit, particularly if you exceed the regional norm [for allowing trees to reach their maximum carbon storage capacity]. AMC has sold that initial bump of credits and they have a contract to sell the future credits as well."

Helping AMC meet its objectives

Drummond Woodsum has been helping AMC with its Maine forestland holdings for more than a decade, providing the legal services for the nonprofit's purchase of the Katahdin Iron Works tract — a deal leveraged with $16.5 million in New Markets Tax Credits handled by CEI. It also helped AMC with its 2009 purchase of the 29,500-acre Roach Pond tract from Plum Creek Timber Co. for $12 million — a deal that took advantage of $11.07 million in New Markets Tax Credits, also through CEI.

By using a financing tool designed to spur economic activity in distressed communities — with investors benefiting from a 39% federal income tax credit — AMC was able to quickly replace short-term variable interest loans with a fixed-term loan that reduced its costs. The NMTC deals, in turn, have advanced AMC's Maine Woods Initiative, a long-range, $52 million plan for a region extending from Greenville to Baxter State Park that combines sustainable forestry, outdoor recreation, nature resource protection and support of local communities and businesses.

"We've been working with AMC for a decade on their Maine Woods Initiative," Spencer says. "If you stay on top of what the emerging possibilities are for financing, it can give you an edge." The sale of carbon offset credits in July is the latest chapter of the AMC's emergence as a major Maine landowner.

Dave Publicover, AMC's senior staff scientist since 1992, admits the nonprofit initially had not considered the possibility that its 10,000-acre ecological reserve in the Katahdin Iron Works tract might also generate revenue as a carbon sequestration project.

First and foremost, he says, the goal was to allow the relatively young forest around the West Branch of the Pleasant River to eventually become an ecologically stable old-growth forest with improved habitats for certain plants, birds and animals. Only later did he and others at AMC realize that plan might offer more benefits in the emerging cap-and-trade carbon offset markets.

"We'd been thinking about carbon sequestration possibilities in a general sense since the mid-2000s, when we began taking steps to reduce our own carbon footprint," he says. "At some point we asked the question, 'How much carbon are we storing in our forest?' We quickly realized it was a significant amount."

Even so, he says, it took a few more years to act on that realization — in part, because the market for carbon offset credits was in its infancy.

"It was in a 'wild west' phase," Publicover says, "and the standards were not well developed."

As a nonprofit whose mission is primarily conservation, he adds, AMC now sees its carbon sequestration project as a great opportunity to demonstrate how owners of major tracts of Maine's forest might benefit from a new revenue stream that would encourage longer rotations and a greater number of mature trees.

Publicover acknowledges the process of getting certified as a sequestration project under California's forest protocol is by no means simple.

"It was by far the most challenging and complex project I've ever worked on," he says.

Kallin was Drummond Woodsum's point man in researching California's regulatory framework and then advising AMC on the steps it needed to take to qualify for carbon offset credits during a six-month "early action" window for projects outside of California.

A key element that worked in AMC's favor is a provision allowing projects already under conservation easement in the baseline year of 2007 to qualify for sequestration. Without that allowance, Publicover says, AMC's relatively young forest would not meet the "additionality" clause requiring that a project sequester more carbon than would otherwise be stored under its forest management plan; as an ecological reserve in which no harvesting is planned, all the carbon that can be stored will be stored in those 10,000 acres.

Huber Resources Corp. in Old Town and the nonprofit Pacific Forest Trust assisted AMC in putting together the plan that met California's guidelines. Drummond Woodsum provided the legal assistance for structuring the eventual sale of AMC's carbon offset credits and then helped negotiate the purchase-and-sales agreement with The Climate Trust.

"One of the advantages of our land use and conservation practice is that we have tax attorneys and transaction attorneys we can tap who have much deeper expertise than what you'd typically find in a much smaller practice," Kallin says.

Kallin acknowledges cap-and-trade marketplaces in the United States are still new enough to have some uncertainty about their long-term prospects. If the carbon offset market continues to grow along with the price of credits, he says, it's likely to encourage other large-scale forestland owners to consider carbon sequestration as a management option.

"If you are in this program, it doesn't mean you totally can no longer cut trees," adds William Plouffe, who brings 30 years of experience to Drummond Woodsum's land use and conservation team and whose "personal" work includes stints as AMC vice president, president of the Maine Appalachian Trail Land Trust and vice chairman of the Appalachian Trail Conservancy board of directors.

The key to gaining carbon credits, he says, is simply to create a forest-management plan with less tree harvesting, or with longer periods between harvesting, than would otherwise occur on the property. Or, it might involve planting tree species that do a better job of capturing carbon.

"One of the things that's interesting about Maine is that we have very little federal ownership, and yet, we have these fabulous landscapes," says Plouffe. "It takes creativity and people who care about Maine and are willing to stand up and fight for conservation."

"There is a lot of minutia to any legal agreement," says Kallin. "So when you can feel good about the 'big picture' aspects of your work, that's a big plus."

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