Skógarkolefni - Forest Carbon Code and sequestration in context

Forest carbon projects contribute to just one of a hierarchy of actions that can help to combat the effects of climate change. Before considering carbon sequestration projects, organizations need to:

  • Measure: Understand and measure their carbon footprint (Scope 1, Scope 2 and where possible Scope 3 emissions), in line with the ÍST TS 92:2022 Carbon offsetting: Specification with guidance.
  • Science-based targets: Set targets to reduce emissions in line with Icelands commitment to reach Net Zero by 2040.
  • Reduce: Take action to reduce Scope 1, Scope 2 and where possible Scope 3 emissions in line with targets.

Further guidance for companies considering buying carbon units is anticipated soon from the Voluntary Carbon Markets Integrity Initiative, The International Carbon Reduction and Offsetting Accreditation og The Nordic Dialogue on Voluntary Compensation.

Scope of Skógarkolefni – Forest Carbon Code

The Code sets out requirements for voluntary projects in Iceland that aim to sequester carbon through forest creation.

It accounts for:

  • carbon sequestration and emissions for new forest creation, within the forest area boundary.
  • whether established by planting or natural regeneration.
  • under various management regimes from minimum intervention woodland to regimes including thinning and final felling.
  • emissions outside the forest area boundary because of the project going ahead.

It does not account for:

  • additional carbon sequestration due to changes to the management of existing forests.
  • carbon stored in forest products.
  • the carbon saved when substituting wood products or fuels for other products or fuels with a larger carbon footprint.

Where does the Code fit in?

Skógarkolefni – Forest Carbon Code is the voluntary standard for forest creation projects in Iceland in the International Carbon Registry (ICR). Carbon sequestration resulting from validated projects will contribute to Iceland’s national targets for reducing emissions of greenhouse gases. Corresponding Adjustments, described in Article 6 of the Paris Agreement, are not currently made for Skógarkolefni – Forest Carbon Code. Forest Carbon Units cannot currently be used in compliance schemes (e.g., the EU Emissions Trading Scheme).

National Policies - Carbon Policy, Finance, Markets; Challenges

The emissions profile of Iceland is a bit unusual. Heating and electricity generation come from renewable sources of hydro and geothermal energy and Iceland has big potential in carbon removal from the atmosphere by afforestation. The biggest emitters in Iceland, excluding land use, are industrial processes, transport, agriculture, fisheries, and waste management.

Iceland aim is to achieve carbon neutrality by 2040 and to cut greenhouse gas emissions by 40% by 2030 under the Paris Agreement. Iceland has committed to cut emissions by 55% by 2030 as part of a common effort by 29 European states. Iceland collaborates with the EU (and Norway) to implement a comparable climate policy. Included in the agreement is participating in emissions trading (EU-ETS). Iceland has also committed to a Climate Action Plan containing 48 actions leading to one million tCO2e decrease in carbon emissions in sectors under the EU effort sharing regulation (ESR) like transport, agriculture, fisheries, waste management, etc. The Icelandic Government estimates to spend a minimum of ISK 46 billion (325 million USD) in climate actions in the period 2020-2024.

The Climate Action Plan means more money for afforestation projects, both for farmers in the grant scheme and landowners preferring to work with private funding on carbon projects. The Climate Action Plan has raised ambition within the private sector with more investment in carbon projects.

Heavy industry in Iceland, mostly aluminum and ferrosilicon smelters, are part of the European Union Emissions Trading System (EU ETS). These companies were allocated emission allowances as follows in 2020: Alcan Iceland 243.501 tCO2e, Alcoa Iceland 438.837 tCO2e, Century Aluminum 346.434 tCO2e, Elkem Iceland tCO2e 310.730 and PCC Iceland 62.059 tCO2e. The EU ETS is the only compliance market available in Iceland.

Iceland introduced a national carbon tax of 30 USD/ton in 2009. The main goal was to raise funds after the financial meltdown in late 2008, growing to 50 USD/ton in 2021.

Skógarkolefni – Forest Carbon Code (FCC) is the only voluntary carbon standard in Iceland. FCC only deals with afforestation projects. The first carbon offsets became available in the International Carbon Registry in january 2023. Carbon codes are under development by the Wetland Fund for wetland reclamation and CarbFix for Carbon Capture and Storage (CCS).

Company Reporting of Emissions

Verified Forest Carbon Units from Skógarkolefni – Forest Carbon Code projects can be used by companies to compensate for their greenhouse gas emissions.

All organizations are encouraged on their own initiative to measure their greenhouse gas emissions and to issue a report thereon. The TS 92:2022 Carbon offsetting: Specification with guidance sets out a process for voluntary reporting of gross emissions. The guidance also encourages organisations to compensate for their emissions by purchasing Forest Carbon Units or other internationally recognised carbon units.

Other Carbon Standards

Global Voluntary Carbon Standards include:

Verra's Verified Carbon Standard 'Agriculture, Forestry and Other Land Uses' programme covers afforestation, reforestation and revegetation, agricultural land management, improved forest management and reducing emissions from deforestation and forest degradation.

Verra also manages the Climate, Community and Biodiversity Standard which focusses on the social and environmental impacts and co-benefits of land-based climate change mitigation projects. It sets standards to ensure that projects include environmental and social safeguards to avoid harm and improve the livelihoods and biodiversity of local communities. This standard doesn't create carbon credits, but a project can be jointly certified as VCS and CCBS to ensure the wider benefits of the carbon project.