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Q&A: Scott Nissenbaum, Finite Carbon

When the American Carbon Registry announced in late September its approval of an improved forest management methodology related to carbon sequestration, Scott Nissenbaum had good reason to celebrate.

His company, Wayne-based Finite Carbon, developed the groundbreaking methodology. In addition, the non-profit ACR's support is another small step for the country's leading forest carbon project developer, a little more than a year old, in its quest to provide landowners with a single-source, end-to-end solution for the creation and monetizing of carbon offsets.

"The end result is a methodology that balances concerns of commercial operability, environmental integrity and cost, all of which are crucial for high-quality projects to be developed on a scale that will have an impact," says Nissenbaum, Finite Carbon's president who first made his mark in Greater Philadelphia as a venture capitalist for more than a decade with Novitas Capital.

The methodology--officially known as the Improved Forest Management Methodology for Quantifying GHG Removals and Emission Reductions through Increased Forest Carbon Sequestration on U.S. Timberlands--unleashes a forest-full of possibilities in a very young and still-developing market. There are only five forest carbon projects registered and verified in the U.S. Finite Carbon's methodology is the first to specifically target industrial timberlands and is expected to be included as an eligible project type under both House and Senate cap-and-trade bills.

While federal cap-and-trade legislation is still facing an uphill battle and some have declared it dead, Finite Carbon, which has secured contracts for two million carbon offsets valued at $12 million, is moving forward with or without it.

Flying Kite (FK): What's the most important thing that's happened to Finite Carbon in its first year?
Scott Nissenbaum (SN): Finite Carbon has been able to establish itself as the No. 1 carbon forest developer in the U.S.--the biggest fish in a small pond but when you look at the dynamics of carbon offsets in the U.S., hopefully that can be a big fish in a big pond. When you look at the overall size of carbon markets, it's expected to reach $300 billion in 2020.

We have 11 projects under the Climate Action Reserve, more than double our nearest competitor. We've evaluated 2.5 million acres of land and issued proposals for 35 projects. The demand is there. We have to expand the supply, and groups like us have to go out and do that. We're off to the races. Our goal was to get in front of landowners and educate them. We've learned what they want and we're able to craft a solution for them. We perform the work and pay for all the costs on their behalf. In the early days, the EPA said it believed that 81 percent of all carbon offsets would come from improved forest management, so we do feel we're out ahead.

FK: The majority of your projects are located in South Carolina. How do you decide where you locate them?
SN: It's based on our ability to educate the landowners and make them comfortable--forest landowners are pretty conservative by nature. It starts with our relationship with consulting farmers. They know the land and have established a relationship with the landowners. We then work with them to educate their clients and help them become our clients. It's a win-win for everyone. The consulting forester adds revenue, the landowner gets revenue, and we get the offset and sell them for environmental benefits. We've been particularly successful in South Carolina because of the dynamics of the timber market there.

We attend forestry shows and try to educate consulting foresters, and they educate us in what works and where it works. Some forests are more conducive to carbon projects than others. The market really hasn't embraced the concept of a pure industrial forest yet, but market dynamics are changing and making it easier for managed forests. You have to find the right mix of forest type, location and use of land. The person best able to decide that is the consulting forester, who often manages tens of thousands of acres.

FK: So what geography is best-suited for carbon offsets?
SN: We look anywhere where there's well-stocked, privately owned forest, like along the Appalachian Trail from Maine to West Virginia. Institutional pine plantations are not a good match. You really want hardwoods, which are out West, in some older, well-stocked forests, even in Alaska, and there are some good target markets in the Great Lakes region, too. The reality is we don't have the manpower to get to all of those places right now, so South Carolina has been our No. 1 market, with Maine probably second.

FK: What path do you see Finite Carbon taking in the near future?
SN: Our vision isn't to be a project developer, but when we step back and look at the carbon forest market in the U.S., last year it looked a lot like landowners were interested in adding a carbon revenue stream to their overall land strategy. But they didn't understand what it meant and didn't want to risk capital to make it happen. On the other hand, you have carbon offset buyers with a heavy preference toward forestry who are sometimes willing to pay a 100-percent premium. Everything in between is squishy--the protocols are unclear, regulations are unclear, development and trading are unclear. What we've had to do is step in to develop those processes, fill the gaps and provide certainty.

We've always been involved in developing protocols that are environmentally and industry friendly and will meet federal requirements when they come. We're going to provide the necessary solutions to enable transactions between the landowner and buyer. When there's a mismatch we'll correct it. That aims us in a variety of directions. The key piece is to provide flexibility to the landowner. We need to get people acting now so we see positive environmental benefits in the process. You're asking people to make 40-year commitments in a market that doesn't have certainty or liquidity. We want to bring to the market certainty, liquidity and flexibility, as well as the financial services products to allow that to occur. Ultimately, carbon will be the largest commodity traded in the world.

FK: How will you prepare internally for that day?
SN: We have a great institutional investor in TL Ventures. We don't envision needing additional capital, but our plan is to be No. 1 in the market. We haven't formalized a strategy for funding and we don't have to, which is a good position to be in. I would expect we'll have some kind of growth capital round in 2011.

JOE PETRUCCI is managing editor of Flying Kite. Send feedback here.

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