Manage your forest to maximize the carbon dioxide it captures and stores, and make money doing it. That's the service Finite Carbon is seeking to provide U.S. forest owners – and it's promising to foot the bill at first.

Now it's up to the markets to determine what the service is worth. And those markets include both voluntary and regional ones that now exist in the United States, as well as a potentially nationwide market that could emerge if Congress passes a carbon cap-and-trade bill it's now debating.

The Wayne, Penn.-based startup sees plenty of opportunity, however. And its founders believe its business model – offering to cover the costs of developing the offset projects and finding buyers for them, then taking a cut of the payments that go to the forest owners as a result – could give it a head start in a market that is still in the process of being born.

"Forestry worldwide is estimated to be responsible for 20 to 25 percent of overall CO2 emissions," Scott Nissenbaum, Finite Carbon's president, said. "You can't have an effective climate change strategy without taking forestry into account. It's just too big."

Nissenbaum wouldn't reveal how much money the company has raised in a series A round with TL Ventures and from founders, only to say that it's the "several millions of dollars" range. (PEHub put the TL Ventures investment at $2 million).

As for how the startup would secure the financing to carry out its business plan of covering the up-front costs of bringing carbon credit-worthy projects to market, he said he believes there's a pent-up demand.

"There are lots of large compliance entities out there that are starting to recognize they're going to be regulated," Nissenbaum said. "The earlier they can secure this, the greater the value can be."

There remain many uncertainties, of course, including whether or not a national cap-and-trade program is even passed into law. But Finite Carbon is betting that it will – and that utilities, big manufacturers and other large-scale emitters of greenhouse gases will want to buy their credits in advance of the market taking off.

At first, Finite Carbon will be serving U.S.-based voluntary markets like the Climate Action Reserve or Chicago Climate Exchange, as well as U.S. regional mandatory markets like the Regional Greenhouse Gas Initiative started last year in the Northeastern U.S. or The Western Climate Initiative being set up by seven western states and four Canadian provinces (see Green Light post).

While international forests and markets will doubtless play a critical role in curbing the growth of greenhouse gases in the longer run, their implementation has been fraught with uncertainty and allegations of fraud, as this Reuters report from June points out.

Europe has had a cap-and-trade system in place since 2005, and carbon trading in that system stood at about $100 billion last year, Nissenbaum said. But so far forestry has represented a tiny fraction of the credits traded in it, he said – perhaps because of some of the verification problems associated with claiming credits in faraway rain forests of Brazil or Indonesia.

But the United States is a different story, he said. With a more stringent system for verifying the carbon value of projects, forestry-based offsets have made up about a third of the hundreds of millions of dollars of credits traded in U.S.-based exchanges last year, he said.

Voluntary markets aren't anything to sneeze at, given the pressure that corporations are under to reduce their carbon footprints and make good on green promises they're making (see Carbon Accounting: It's All About Appearances).

But if the climate and energy bill passed by the House last month and now being debated in the Senate does end up becoming law with some form of cap-and-trade provision, the picture could radically change, he said (see Come Get 'Em: Gov't Plans to Give Freebies Under Cap-and-Trade).

The version passed by the House could boost the domestic offset market to about $20 billion a year, about half of it within the U.S.'s borders, he said (see a summary of the House version of the bill).

The Senate's Environment and Public Works Committee – which has already seen a rocky start to the debate on the overall climate and energy bill – is set to meet on Tuesday to discuss how credits for farmland and forests could be incorporated into an overall cap-and-trade program (see Senate Hearing on Climate Change: A Grouchy Start).

One big question about forest carbon credits is whether or not they help reduce overall carbon dioxide in the atmosphere, or represent an easy out for emitting industries.

Nissenbaum insists that, in the United States at least, forestry carbon projects are held to strict standards based on longstanding regulation of, and expertise within, the forestry industry.

"The opportunity for malfeasance and fraud is pretty limited and pretty controlled," he said, adding that there were strict protocols in place.

But would forest owners claim credit for leaving untouched trees they didn't plan to harvest anyway? That isn't typically the way they work, said Sean Carney, Finite Carbon's vice president of carbon finance.

"There are some pretty well-identified sustainable forestry practices that you can adopt that result in increased carbon stocks as well," he said.

In fact, given that the global economic recession has depressed the price of timber, giving forest owners a way to bring carbon credits to market could be an important way to subsidize sustainable harvesting, Nissenbaum noted.

Finite Carbon's team includes long-time forestry management experts and the developer of several forest carbon credit programs approved by the Climate Action Reserve – formerly known as the California Climate Action Registry.

It could bode well for forestry carbon trading if that program serves as a model for a national cap-and-trade scheme, Nissenbaum said, given that the Climate Action Reserve has boasted some of the highest prices for forestry-based offsets.

"From a monetization standpoint, right now there is a lot more demand for offsets, specifically Climate Action Reserve offsets, than there is supply. We've had interested buyers ... wanting to acquire that stream when it's approved," he said.

Other businesses have sprung up to manage the trading of credits for reducing carbon dioxide emissions, like World Energy, which opened its World Green Exchange in April (see A Shopping Mall for Carbon Credits). 

And Forest Carbon in the United Kingdom specialized in forestry carbon credits for the European market.