Biofuels and the Time Value of Carbon: Recommendations for GHG Accounting Protocols

The quantification of the carbon dioxide emissions impact associated with land-use change for biofuels production is complicated by the fact that the carbon costs from land-use change and the avoided emissions from substituting biofuels for fossil fuel in transport occur over an extended period of time. Estimating the net carbon impact therefore requires a method for aggregating the increased and avoided emissions that play out over time into a single figure. The choice of accounting method can have a significant impact on the resulting net emissions measure for specific land-use options such as biofuels production. This in turn will influence the relative desirability of different land management scenarios for a given piece of land. Traditional cost-benefit analysis regularly uses discounting to compare and aggregate monetary units over time. However, extrapolation of this approach to assess physical units of carbon dioxide emissions released or avoided in the future is not straightforward. Selection of an appropriate discount rate for physical carbon units requires a consideration of multiple additional variables. These include rates of carbon accumulation and decay in the atmosphere and estimates of the marginal damages arising or avoided from changes in atmospheric carbon stocks.

Accounting recommendations for quantifying the emissions impact of land-use change for biofeedstock production

1. Ideally, a GHG accounting method for land use change associated with biofeedstock production should explicitly analyze the expected damages associated with those fl ows over time. The corresponding monetary units associated with this damage can then be discounted to determine how the impacts of future flows compare to those of the present.

2. There is little theoretical justification for discounting physical carbon flows. Discount rates used for physical carbon units are not analogous to monetary discount rates such as interest rates or the social rate of time preference. They therefore should not be selected based solely on an extrapolation of how those financial discount rates are usually applied.

3. The “project horizon” should be considered independently of the longer atmospheric “impact horizon” when selecting appropriate discounting horizons. In the context of biofuels production, the “project horizon” refers to the period of time over which feedstock cultivation will occur (and benefits from displaced transport fossil fuel realized). The “impact horizon” refers to the period of time over which impacts of increased or decreased emissions are felt in the atmosphere.

4. The impact horizon should be applied as a rolling target that is measured relative to the year of emissions, which can occur at any point over the project horizon, rather than as a fixed target that is measured relative to year 0 of the project. Atmospheric impacts are therefore fully accounted for, whether the emissions or emissions savings occur at the end of the project or at the beginning.

5. When it is necessary to bypass the full-cost accounting suggested in #1, selection of a next-best discount procedure for carbon units may need to consider: a range of possible discount rate values beyond those normally used for financial discounting (including zero or negative numbers); different discount figures for the two distinct time horizons; and non-constant numbers such as declining discount rates for the longer impact horizon.

6. Salvaged carbon from acreage reversion or revegetation should not be considered as part of the GHG accounting protocol for land-use conversion for feedstock production. Carbon benefi ts associated with revegetation are not guaranteed when acreage is initially converted to biofuels production, and should more appropriately be considered a benefit associated with a future form of land-use change should such conversion occur.