State Forest Carbon Incentives and Policies


photograph of a forest with sunlight through the trees


Forestland has significant carbon sequestration and storage capabilities, which can be used to offset greenhouse gas emissions. As forests face increasing threats, state policymakers are working to maintain healthy forests, to support sustainable management practices and increase carbon sequestration and storage.

Forests in the US

The U.S. Forest Service defines forestland as land that is one acre or greater in size and has at least 10 percent tree cover. By that definition, the United States has approximately 766 million acres of forestland covering about 33 percent of the nation’s total land area. Forests are split almost evenly between the Eastern (55 percent) and Western (45 percent) halves of the country contain more than 800 species of trees. Although significant regional changes have occurred over the nation’s history, the total area of forestland has been fairly stable for the past 100 years.

Alaska has the most forestland of any state, but Maine and New Hampshire have the highest percentage relative to their total land area. Nebraska and North Dakota have the lowest percentage of forestland.


Percent of total land area that is covered by forests by state.
Source: U.S. Forest Service, 2012.

Global Context

According to the United Nations Food and Agriculture Organization, forests cover approximately 31 percent of the world’s land surface, or 9.8 billion acres. The United States ranks fourth on the list of most forest-rich countries, following Russia, Brazil and Canada. 

Deforestation is continuing at a high rate worldwide, mostly from conversion of forestland to farmland. Between 2000 and 2010, an estimated 32 million acres of forest were lost, though afforestation and natural expansion reduced net forest loss to 12.8 million acres. Deforestation rates are highest in developing countries with tropical climates, such as Indonesia and the Democratic Republic of Congo. By contrast, most developed countries with temperate ecosystems are experiencing stable or increasing forest stocks.

Who Owns America’s Forests?

According to a 2012 report from the U.S. Department of Agriculture, 58 percent of U.S. forestland is privately owned—by individuals, families, Native American tribes, corporations, nonprofit organizations and other groups. The other 42 percent is under the control of federal, state and local governments. Ownership patterns vary by region, with private ownership dominating in the North and South and public ownership dominating in the Rocky Mountains and Alaska. 

Ownership of U.S. Forestland by Percentage graph

The United States is home to an estimated 11 million private forest landowners. Ninety-five percent of those are classified as family and individual ownership with average holdings of 98 acres. America’s family forest owners are a diverse mix of people who have many reasons for owning land. According to the 2015 National Woodland Owner Survey, families cited beauty, legacy, privacy and wildlife as their top reasons for maintaining their land as forest.

Corporations own a smaller share of private forests, but individual holdings are much larger—averaging 775 acres. The largest concentration of corporate acreage is found in the South, where the primary use is timber and other forest products.  

Benefits of Forestry

Maintaining healthy forests and sustainable forest practices produce numerous benefits for the natural environment, energy production and rural communities. These benefits include: biomass feedstock, timber and forest products; water, soil and air quality improvements; and rural employment opportunities. 

Woody Biomass

Woody biomass is organic mass from trees and shrubs used as fuel to produce either heat or electricity. Sustainable forest practices and industries can generate woody biomass from roots, wood, bark and leaves as by-products from forest thinning, harvest and mill residues, trees damaged or at risk of wildfires, insects and disease, and other sources such as urban wood waste. Other sources of biomass include agricultural and food waste, algae and manure. 

bio power plant with storage of wooden fuel biomassIn many instances, woody biomass can be considered a renewable energy source and carbon neutral so long as it complies with state renewable energy definitions. For example, New Hampshire defines biomass as “plant-derived fuel including clean and untreated wood such as brush, stumps, lumber ends and trimmings, wood pallets, bark, wood chips or pellets, shavings, sawdust and slash, agricultural crops, biogas, or liquid biofuels” (N.H. Rev. Stat. Ann. §362-F:2). The state also defines biomass as renewable energy if its incineration meets particulate and other emission standards. New Hampshire categorizes renewable energy sources in different priority classes and distinguishes between existing biomass and new biomass sources, including new incremental generation and biomass co-fired with a fossil fuel source (N.H. Rev. Stat. Ann. §362-F:4). In the 2015 legislative session, Vermont enacted legislation requiring the development of a specific standard to determine when biomass energy could be considered renewable.

In 2014, biomass provided five percent of the energy used in the United States, and 46 percent of that generation was specifically from woody biomass. The National Renewable Energy Laboratory (NREL) has developed maps indicating the availability of biomass resources by county and square kilometer using data from the U.S. Department of Agriculture (USDA), the U.S. Forest Service and EPA. In July 2012, NREL estimated the nation has 500 terawatt-hours of generation potential from biomass, an amount larger than hydropower’s generation potential.

States considering expanding biomass use could examine a number of policies, including tax credits for new or existing biomass facilities and long term power purchase agreements for biomass energy procurement. Incentives could be tailored based on biomass’ value as a renewable baseload energy source and a high jobs-per-megawatt-hour energy source, since biomass typically requires collecting and transportation.

A rapidly growing sector within the biomass industry is wood pellets, an efficient heating fuel made from dried and compacted timber residues. European markets, especially in the United Kingdom, have come to rely more heavily on wood pellets exported from the southeastern United States for renewable electricity generation in recent years. The U.S. Energy Information Administration reports the domestic pellet industry produced 4.4 million tons of pellets in 2014, 73 percent of which was exported to the United Kingdom. Wood pellet exports from the U.S. doubled from 1.6 million tons in 2012 to 3.2 million tons in 2013 and are expected to reach 5.7 million tons in 2015, according to the Natural Resources Defense Council. The pellet industry has experienced scrutiny recently however, as this emerging industry is less regulated and many harvests are completed on private lands.  


More than two-thirds of all forestland in the United States is timberland, meaning it is capable of producing a certain amount of commercial hardwood or softwood. The remainder is either low-productivity forest or forest that is legally reserved from timber harvest. The most reserved land is found in Alaska and the Rocky Mountains, a reflection of public ownership in these parts of the country.

Southern states take the lead with the largest share of timberland at 203 million acres. These forests are also remarkably productive. Making up just two percent of the total forest cover on Earth, they generate 18 percent of the world’s pulpwood for paper and paper-related products and seven percent of its industrial roundwood (lumber in the form of small logs). The Northeast, Upper Midwest, Rocky Mountains and Pacific Northwest also contain large areas of timberland. Foresters carefully manage timberland to determine when and how trees should be harvested and ensure that forests are healthy and productive.

Forests contribute a substantial amount of timber and other derivative products that help drive the U.S. economy. According to the American Forest and Paper Association, the industry employs almost 900,000 workers and is a top 10 manufacturing employer in 45 states. With over $200 billion in building materials and paper products produced each year, the industry makes up four percent of total U.S. manufacturing GDP.

Forests are also a valuable source of non-timber products, such as wild mushrooms, berries, maple syrup, honey, medicinal plants and landscaping materials. 

Environmental Benefits

Beyond biomass and timber, forests also provide critical services, such as air and water purification and flood control. Trees clean the air by intercepting airborne particles and absorbing ground-level ozone, carbon monoxide, sulfur dioxide and greenhouse gases. In fact, a single tree can absorb 10 pounds of pollutants a year, and produce nearly 260 pounds of oxygen—enough for two people. Rates of airborne pollution removal vary based on the pollutant type, leaf season length and precipitation levels.

Mountain forest and lakeForests also clean our water, acting as natural reservoirs, treatment plants and stormwater management systems. Forests process nearly two-thirds of the water supply in the United States. Root systems of trees and other plants keep soils porous and allow water to filter through several layers of soil before entering groundwater. Nutrients, sediment and other impurities are left behind. This same capacity to absorb water helps moderate runoff during rainstorms, thereby reducing erosion.

Many urban areas rely on aquifers and the dense forests above for their drinking water. New York City residents, for example, owe the high quality of their water to dense forests in the Catskill Mountains, more than 100 miles away. Covering approximately 2,000 square miles, the forested watershed contains 19 reservoirs that supply more than one billion gallons of naturally filtered water to the thirsty city each day.


Although 58 percent of all forestland in the United States is privately owned, there are still many public forests. In addition to designated state forests, there are 155 national forests and 20 national grasslands across the country. The majority of these areas are open for hunting, fishing, cross-country skiing, camping, kayaking, hiking and bicycling. Urban forests offer similar recreational opportunities, along with playgrounds for children, running paths and picnic areas.

Forests and Carbon

As forests grow, they sequester carbon dioxide. Sequestration refers to the capture and storage of carbon dioxide by trees and plants through natural processes, such as photosynthesis.  

Forest at sunsetThe country’s forests remove 12-14 percent of total U.S. greenhouse gas emissions each year through carbon sequestration, and offset nearly 16 percent of annual carbon dioxide emissions alone. 

Forests absorb carbon dioxide from the atmosphere and store it in different repositories, called carbon pools, which include trees (both living and dead), root systems, undergrowth, the forest floor and soils. Live trees have the highest carbon density, followed by soils and the forest floor. Each region of the country contains differing quantities of each carbon pool, ultimately shaping regional carbon density. Harvested wood products and landfills also store carbon. 

The Carbon Cycle

The carbon cycle is the movement of carbon through the environment, including soils, vegetation, oceans, the atmosphere and earth’s crust. The cycle is comprised of carbon sources, which release carbon into the atmosphere, and carbon sinks, which absorb and sequester carbon from the atmosphere. For example, organic sources like vegetation absorb carbon dioxide through photosynthesis but when these sources decompose, they release carbon into the soil and atmosphere. Land use changes and burning fossil fuels also release carbon into the atmosphere. 

Carbon Cycle diagram
Source: U.S. Forest Service, 2012.

Carbon Sequestration Potential

The nation’s publicly and privately owned forest and grasslands have tremendous carbon sequestration potential. The U.S. Forest Service calculated the net sequestration of forests in the country to be 866 million metric tons of carbon dioxide per year, or a quantity sizeable enough to offset emissions from 50 million vehicles in a year.

According to the U.S. Forest Service, methods for improving carbon sequestration include avoiding deforestation, afforestation (planting a forest where there was not a forest previously), reforestation or the use of wood-based energy or products. One initiative announced by the USDA in the spring of 2015 will seek to improve carbon sequestration through farming and forestry practices. The program, the Climate Smart Agriculture and Forestry Strategy, will utilize public-private and voluntary partnerships to reduce greenhouse gases by 120 million metric tons—or about two percent of net emissions—by 2025 through 10 identified building blocks. Building blocks include expanding existing conservation programs for carbon storage, protecting privately owned forests, changing the stewardship of federal forests, promoting the use of wood in construction and planting urban forests. As described below, many state policymakers are encouraging forest carbon sequestration initiatives through legislation.

Harvested wood products (HWPs), such as lumber and paper, constitute an additional carbon pool. HWPs do not contribute to greenhouse gas emissions and do not continue to absorb carbon, however the majority of carbon previously stored in HWPs remains sequestered post-harvest. While the specific volume of carbon stored in HWP is dependent on the type of wood and the final wood product, the Pinchot Institute for Conservation reports that 20–33 percent of above-ground carbon is captured in timber harvesting. A report by the U.S. Forest Service, found that HWP contributed an average of 101 million metric tons of carbon dioxide sequestered per year between 2000 and 2008. For comparison, the same report states all forestlands stored 481 million metric tons of carbon dioxide per year during the same period.

Threats to Forests

Forests face multiple threats from invasive insects and diseases, wildfires, drought and urban development. These disturbances, all of which can be compounded by a changing climate, affect the amount of forestland and the rate of carbon sequestration and storage.

Invasive Species

Invasive species can dramatically alter local ecosystems by decreasing biodiversity, out-competing and displacing native plants and animals, and threatening endangered species. Invasive beetles, moths and other insects are destroying millions of trees across the country. Non-native insects have no predators in their new home and the trees have no natural defenses against them. Top offenders include the Asian longhorned beetle, Asian citrus psyllid, brown marmorated stink bug, European gypsy moth and emerald ash borer. In addition to insects, diseases such as sudden oak death, chestnut blight and Dutch elm disease are also devastating forests. 

dead forest after pine beetle attacksThe emerald ash borer is considered the most destructive forest pest ever seen in North America. The metallic green beetle native to Asia and Eastern Russia was discovered in Michigan in 2002 and has since spread to 25 states. As its name suggests, the emerald ash borer infests ash trees, killing them within one to four years. A total of seven billion trees are at risk. Maryland enacted legislation in 2009 (House Bill 796) creating the Emerald Ash Borer Grant Fund. The fund provides helps local governments, businesses and organizations purchase equipment to remove, dispose of and replace trees infested by the beetle. 

Tree pests and pathogens often enter new ecosystems through the movement of firewood. State laws aimed at preventing new infestations often encourage the use of local firewood. For example, Oregon enacted legislation in 2011 (House Bill 2122) preventing individuals from transporting or selling firewood within the state, unless it was harvested in Oregon, Idaho or Washington and has been appropriately treated to remove any hitchhiking pests.  


Each year wildfires consume thousands of acres of forest vegetation, including critical wildlife habitat and other forest resources. In 2015, more than nine million acres burned across the United States, including five million acres in Alaska. For the first time in its history, fire suppression efforts consumed more than 50 percent of the U.S. Forest Service budget.

Forest fireThough healthy forests need fire to a certain extent, the frequency, size and intensity of wildfires has increased dramatically in the past decade, particularly in the West. Forests ravaged by these fires are often so badly damaged it takes years for them to recover naturally. Flooding, erosion and water quality are also of concern under these conditions.


Prolonged drought is also impacting forests around the country. Drought can negatively impact forest inventories by increasing mortality and slowing growth. Forests affected by drought may also be more susceptible to attacks from insects and diseases, not to mention wildfire. Though a dry spell may last only a short time, it can take several years for affected trees to recover.

California’s historic drought has left millions of trees clinging to life, according to a December 2015 study published in the Proceedings of the National Academy of Sciences. Relying on remote sensing technology and satellite imagery, researchers identified 888 million large trees in the state with measurable decreases in water content since 2011. The U.S. Forest Service estimates the drought has already killed at least 12.5 million trees in California’s national forests.


Urban growth is also a concern as forests and farmlands are converted to residential, commercial and other uses. Scientists at the U.S. Forest Service, along with university partners, predict that urban and developed land areas in the United States will increase 41 percent by 2060. Forested areas will be most impacted by this expansion, with losses ranging from 16 to 34 million acres.

Increased development in once forested areas can substantially reduce benefits from forests including clean water, wildlife habitat, forest products and recreation opportunities. This can also exacerbate impacts from other pressures such as pests, disease and fire. The impact of urban growth on forests can be managed through planning and incentives to own and maintain forestland. 

Forest Offsets

An offset is a reduction or absorption in emissions in one place that can be used to compensate for emissions elsewhere. Common forest offsets include afforestation, reforestation, forest management and avoided deforestation. Offsets assign an economic value and compensation to forested land, helping ensure forest conservation. Carbon markets and cap-and-trade programs can authorize offsets to complement emissions in the power or transportation sectors.

Governments and the private sector can also pursue voluntary carbon offsets. The nonprofit organization, Forest Trends, determined the international market for voluntary offsets grew nearly 14 percent from 2013 to 2014. Additionally, the organization states the price of voluntary offsets has declined every year since 2011 and is currently valued at $3.80 per metric ton of carbon dioxide equivalent. The same organization determined that the cumulative market value for agriculture, forest and other land-use offset projects reached one billion dollars in 2013. 

Though forest offset policies provide states with numerous benefits, they also present several challenges. For example, forest offsets can encourage land conservation, better forest management and air and water quality improvements. Offsets can work in conjunction with existing forest management practices or tax incentives for the conservation of forestland. However, offset initiatives, such as afforestation, have the possibility to generate tension with farmers or ranchers if new forestland is converted from agricultural or livestock uses. Successful offset programs require significant monitoring and verification, which can be costly to smaller landowners.

Stakeholders have identified a number of considerations for designing effective forest carbon offset policies. The Forest-Climate Working Group, a coalition of forest stakeholders that includes private forest owners, industry associations, state foresters and conservations groups, has released a series of policy recommendations for forest carbon initiatives. Offset programs should be designed to complement other emission-reduction or sustainable forestry efforts and be specialized for regional dynamics. Offset markets should minimize compliance and transaction costs and determine the entity responsible for these costs, which could be participants, for example. The group also recommends including both private and public lands as eligible sectors. Effective programs must include verification, measurement and address leakage.

State Action

Forest offsets are allowed in the two market-based, cap-and-trade programs in the country. Cap-and-trade programs establish a cap on emissions and either provide an allotment of emissions credits to regulated entities, or simply require all entities to buy credits on a market that was created to trade these credits. Cap-and-trade programs put a price on each unit of emissions, forcing entities to either reduce emissions or buy credits and offsets from entities that can reduce emissions at a lower cost.

In 2006, California established an economy-wide cap-and-trade program through Assembly Bill 32 (AB32), “the California Global Warming Solutions Act,” that took effect in 2012 and is administered by the California Air Resources Board (CARB). AB32 requires the state to reduce greenhouse gas emissions to 1990 levels by 2020. The program has since expanded to be linked with Quebec’s cap-and-trade program and is in the process of linking with Ontario’s cap-and-trade program.

California’s carbon market authorizes businesses to substitute offsets for up to eight percent of total allowable emissions. Authorized offsets include forestry, livestock, agriculture, ozone-depleting substances and other sectors of the economy that are not subject to emissions-capping regulations. Offset projects may be developed outside of California. One offset credit is equivalent to one metric ton of carbon dioxide and offsets are designed to be lower cost options than purchasing emissions credits. However, current offsets prices are close to the price of emissions allowances, weakening their economic incentive. Potential offsets can be verified by several independent registrars. AB32 also includes a Forest Buffer Account to provide insurance against removals or loss of forest due to unintentional and natural causes, such as wildfires.

As of November 2015, CARB has issued 7.2 million forest offset credits for voluntary, early actions taken after 2005 and continuing to 2014. They have also issued 13.8 million forest offset credits for compliance beginning in 2011. Forest offsets represent the largest segment of offset credits issued either for early action or for compliance. The first forest offset project approved for credit issuances was Willits Woods in northern California in 2013, which initially received 1.2 million credits for early action.

Earlier this year, the CARB revised requirements for allowable forest offsets by increasing both the required buffer zone in forest harvest areas and penalties for violations. California regulators recently announced they are considering including international carbon offset projects in the cap-and-trade program, but a final decision has not been reached.

In addition to California, forest projects that sequester carbon dioxide are eligible for offset allowances in the Regional Greenhouse Gas Initiative (RGGI). Established in 2003, RGGI is the oldest mandatory, market-based greenhouse gas emissions reduction program in the country. Nine states currently participate in RGGI: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. RGGI member states developed a model rule, which was adopted via legislation or regulations in each state beginning in 2006.

Allowable offsets in RGGI include energy efficiency, agricultural manure, landfill methane and sulfur hexafluoride management projects. RGGI is a multi-state approach to greenhouse gas emissions reductions that uses a shared tracking allowance system, facilitating cross-state recognition of emissions reductions efforts.

Offset allowances can comprise up to 3.3 percent of a power plant’s compliance obligation for each control period (the current control period is 2015-2017). As of July 2015, no offset projects have been developed under RGGI.

RGGI recognizes reforestation, improved forest management and avoided conversion as eligible project types. RGGI’s guidelines require projects to satisfy a performance test and be independently verified. Offset projects would be credited for 25 years following a project’s commencement. The life of projects is deemed to be 100 years and project owners are responsible for monitoring, verifying and reporting project data for the 100 years after allowances have been awarded. Projects can be located in RGGI states on private, state or municipal land and avoided conversion projects must be on land that is originally privately owned. Projects on tribal lands are eligible in specific instances.

Although Oregon does not have a market-based emissions reduction program, the state has authorized forest carbon offsets (Ore. Rev. Stat. §526.780 et seq.). Oregon permits the state forester to develop contracts with non-federal forest landowners to market, register, transfer or sell forest carbon offsets as a stewardship incentive. The sale of offsets must be at or greater than fair market value for non-federal forest owners. A portion of proceeds is directed to technical, financial and management assistance for non-federal forest landowners and to program administration. Activities eligible for offset credits include afforestation, reforestation and specific forest management practices.

International Action

Forest offsets are implemented internationally in several regions. For example, the Canadian province of Quebec has operated a cap-and-trade program since 2013 and formally linked markets with California’s cap-and-trade program in 2014. The province of Ontario is currently developing a cap-and-trade program and has announced it will link markets with California and Quebec. Additional Canadian provinces, such as British Columbia, also operate offset programs. 

Forest Management Incentives

forests pine treesWhile offset markets have garnered much of the attention, states are supporting increased carbon sequestration and storage and sustainable forest management practices through a number of approaches. Maintaining healthy forests benefits the environment, biomass energy production and the lucrative timber industry.

Tax Incentives

State tax incentives can be an effective tool to encourage the long-term management and retention of private forestlands.

In 2001, the Minnesota Legislature created an incentive program that annually pays enrolled landowners $7 per acre of forested land to offset property taxes (Minn. Stat. §§290C.01 et seq.). Known as the sustainable forest incentive program, eligible landowners must enroll at least 20 contiguous acres of forestland, agree to follow an approved forest management plan and record a covenant pledging not to develop the land.

A forest management plan must include the following:

  • Forest management goals for the land;
  • Inventory of the forest cover types, age and density;
  • Description of soil type and quality;
  • Aerial photo or map indicating the boundaries of the land; and
  • Proposed future conditions of the land and timetable for implementing prescribed activities.

Landowners engaged in forestry or other uses may also qualify for preferential treatment in the assessment of property taxes in several states. In Maine, North Carolina and Vermont, for example, property taxes for forest lands are based on the value of the land in its current use, rather than market value (Me. Rev. Stat. Ann. tit. 36, §§571 et seq.; N.C. Gen. Stat. §§105-277.2 et seq.; Vt. Stat. Ann. tit. 32, §§3750 et seq.). This method allows for valuation of forestland based on the actual use of the property, rather than what the use might be if the property were sold or developed. This results in tax savings for the landowner. As of September 2015, Vermont landowners had enrolled more than 18,020 parcels of qualifying forestland and farmland, about one-third of the state’s total land area. Alternatively, some states tax forestland at a low flat rate – $1 per acre in Indiana (Ind. Code §6-1.1-6-14).

In Georgia, private land used for “good faith subsistence or commercial production of trees, timber or other wood and wood fiber products” is exempt from property taxes (Ga. Code §§48-5-7.7 et seq.). Eligible property may have secondary uses such as the preservation of wildlife habitat, carbon sequestration or restoration of wetlands. Participating landowners must sign a 15-year covenant with the appropriate taxing authority to maintain the property in forest land conservation use.

A number of states encourage the use of conservation easements as a means to protect valuable forestland from conversion to non-forest uses. An easement can be an attractive option for a landowner who wishes to preserve the forest for future generations without giving up private ownership. Under California’s forest legacy program, for example, participating landowners must prepare a management plan including actions to protect soil, water, recreation, timber and wildlife resources. California is one of 15 states offering a conservation easement tax credit, which allows landowners to claim up to 50 percent of the fair market value of donated land.

Other Incentives

States can also establish funds to support the productivity and health of privately owned forests, which will generate carbon benefits. For example, Oregon’s forest resource trust provides financial and technical assistance to qualified private and local government owners to plant trees and improve management of forestlands for timber production and environmental purposes (Or. Rev. Stat. §§526.695 et seq.). A similar program in North Carolina assists landowners with practices that improve tree growth and overall forest health (N.C. Gen. Stat. §§106-1010 et seq.). Between 1978 and 2009, participants planted 1.2 million acres of trees.

Kentucky’s forest stewardship incentives fund is used to provide financial assistance to landowners for development of management plans and for practices including reforestation, afforestation, soil and water protection, wildlife habitat improvement and forest recreation (Ky. Rev. Stat. §149.340). Michigan has a similar fund in place (Mich. Comp. Laws §324.51305).