Land intended for subdivision or recreational developments before the recession could still yield good returns if used for tree farming because of new environmental policies that are likely to promote carbon credit trading.

Property owners are allowed to harvest their trees and take those profits. The only difference is they would have to abide by environmental stewardship guidelines, and, in return, receive payments. Some programs even allow a third party to pick up the production costs.

However, the Tennessee Department of Agriculture urges property owners to study the market before entering into these contracts. Carbon credit trades are a commodity item and have pricing volatility, said John Fenderson, the environmental affairs and outreach coordinator for the Tennessee Department of Forestry.

Prices that were as high as $7.40 per metric ton of carbon credit last summer were less than $2 on Thursday morning, according to the Chicago Climate Exchange (CCX). That price could go in the range of $20 a metric ton if Congress approves a national cap and trade system that would require industries that emit pollutants to offset the environmental damage by buying carbon credits, he said.

“There are any number of people willing to lock up credits at current rates with the stated benefit of providing free trees and maintenance and management and that sort of thing for 50 years or longer, kind of along the lines of a permanent conservation easement,” Fenderson said. “We are advising landowners to really take stock and learn more before they sign anything or get into long-term contracts because of the specter of a mandatory cap and trade program, which will cause the price of carbon credits to increase.”

On the vine

The intention of the program is to promote environmental stewardship and decrease the effect of greenhouse gases. The programs allow for aforestation (allowing trees to grow naturally), reforestation (planting seedlings) and third-party management, in which landowners allow someone else to do the planting, maintenance and harvesting.

“With the current market price range, you’d probably want at least 1,000 acres to make it worthwhile,” Fenderson said. “Some have gotten in with 100 acres. It all becomes a math problem that each individual landowner has to sort out.”

If the price goes to $20 a metric ton, the program would be feasible for landowners with smaller tracts, Fenderson said.

The CCX began offering futures trades in November that allow investors to gamble on the likelihood of a federal mandatory cap and trade program.

Companies are already buying the credits, Fenderson said, even though there is no mandatory program.

The CCX set a new record for total daily volume last Friday when 9,538 contracts were traded. The yearly volume has increased from 171 contracts traded in 2005 to 484,320 contracts in 2008.

Fenderson said the concept of carbon trading is relatively new to Tennessee tree farmers and property owners.

“Three is an increased level of interest, particularly because some people, some being probably a handful or less, have received payments for their credits,” Fenderson said.