A Publication of WTVP

Scott Settelmyer is the managing director of TerraCarbon LLC, a Peoria-based advisory firm that supports the development of forest- and land-based projects to reduce greenhouse gases. Recognizing the power of markets to reduce greenhouse gases and deliver environmental and social co-benefits, Settelmyer, a Peoria native and former chief financial officer of the Chicago Climate Exchange, and Dr. Bernhard Schlamadinger, one of the world’s leading forest carbon experts, formed the company in 2006.

Tell us about your background.

My educational and professional background is in finance and capital markets. Prior to founding TerraCarbon, I was the CFO of the Chicago Climate Exchange; treasurer for Alltel Corporation (a Fortune 250 telecommunications company based in Arkansas); and a manager at Arthur Andersen in Chicago and London. I attended the University of Illinois in Champaign-Urbana, where I received a bachelor’s degree in finance, and the Stuart School of Business at the Illinois Institute of Technology in Chicago, where I received a master’s degree in financial markets and trading. I’ve been married for more than 20 years to my wife, Lynne, and we have two sons, Zach (15) and Joe (9).

How did your career path lead you to central Illinois and the start of TerraCarbon?

I am originally from central Illinois. I attended grade school and high school in Peoria, and my parents still live here. In 2006, after leaving the Chicago Climate Exchange, I returned to Peoria with my family with plans to start a new business that would help channel investment into market-based solutions to address climate change. I was introduced by a friend to my cofounder, Bernhard Schlamadinger (now deceased), an Austrian who was one of the world’s leading experts on forests and climate change. After several meetings with each other and with potential clients, we formed TerraCarbon to advise nonprofit organizations, companies, investors and multi-lateral institutions around the world on developing market-based forest projects and programs. We were convinced that forests were important, not only because they played a significant role in the global climate (absorbing carbon dioxide as they grow, and releasing it when they are destroyed), but also because forests deliver valuable biodiversity, water and community co-benefits which have not yet been fully appreciated.

What are your responsibilities as managing director of TerraCarbon?

As managing director, like many small business owners, my responsibilities are broad, but can be categorized into three main areas: (1) hiring and building a team of experts that work well together and with our clients, (2) meeting with our current and prospective clients and structuring our service offerings and business model to meet their needs and objectives, and (3) ensuring we deliver high-quality work and advice that helps our clients achieve their ultimate goals related to the implementation, registration, issuance and/or sale of carbon credits from their forest restoration or conservation projects. I am lucky to work with a talented team of individuals who share a passion and commitment to the success of our clients and their projects.

How does being located in Peoria impact what you do as a company? How do you operate on an international scale?

Being located in Peoria was a personal choice. My wife and I both appreciated the easy living and family-friendly aspects of Peoria. From a business perspective, Peoria has been a convenient place from which to operate. With advances in telecommunications and frequent flights from the Peoria, Bloomington and Chicago airports, I can affordably stay in regular contact with our staff and clients around the world. By way of example, our current portfolio includes projects in Brazil (4), Chile (3), Belize (1), Peru (1), and the U.S. (2). From a hiring perspective, we have been flexible with where our staff lives, also because of these same advances in communications and air travel options.

How has TerraCarbon championed the concept of offsetting greenhouse gas emissions?

Carbon offsets or credits are a tool to lower the cost of achieving greenhouse gas reductions. They represent reductions in greenhouse gases from certain activities that can be used to compensate or offset the emissions of a regulated entity (to meet requirements under a compliance program) or an unregulated entity (as part of a voluntary effort). TerraCarbon’s business is based on helping to develop carbon offsets from land and forest restoration and protection activities. For many offset buyers, forest carbon credits are more attractive than credits from other sectors (for example, industrial or landfill gas destruction) because they generate additional environmental benefits (climate, water and biodiversity) and are therefore easily related to sustainability objectives and messaging. As a company, we “walk the talk” and are committed to offsetting the greenhouse gas emissions that we generate from our travel and office usage. Last year, we offset nearly 200 percent of our emissions with forest carbon offsets.

Discuss TerraCarbon’s approach in its mission to restore and protect forests and ecosystems.

Forests provide valuable benefits to society, but these benefits have not been well measured or rewarded. The carbon markets are exciting because they offer a way to value the climate benefits provided by forests and offer incentives to landowners to keep these forests intact. While we are currently focused on measuring and monetizing the climate benefits of forests, we are now also talking to clients about using similar analyses to quantify and value the water and biodiversity benefits provided by these systems.

How do you measure the worth—monetary, carbon or intrinsic—of a forest?

There are well-established, scientific relationships between the size of the tree (measured by its diameter) and the amount of carbon stored in a tree. In the case of a reforestation project, we estimate the amount of carbon dioxide removed from the atmosphere by the trees (in metric tons) by taking periodic measurements of the trees. In the case of a forest protection project, we measure the amount of carbon already stored in the forest, and then forecast the likely amount of deforestation and subsequent release of carbon dioxide emissions that would be avoided by the project. Today, the markets place a value of $5 to $15 on each ton of emission reduction, depending on the market (compliance vs. voluntary) and the other environmental co-benefits (water and biodiversity) generated by the project (voluntary markets only).

How has the recession impacted the carbon trading field?

The voluntary market has weathered the recession well, as many corporate buyers have maintained previous offsetting commitments and financial buyers continue to invest in “pre-compliance” offsets with a view toward growth in the number of compliance markets. The main current compliance market in the EU has seen prices fall significantly as the recession has resulted in lower industrial emissions and contributed to a near-term oversupply of carbon compliance instruments.

What is the status of relevant policy in the field today, nationally and internationally?

Internationally, the world’s governments have agreed to negotiate an international climate change agreement by 2015 that would enter into force in 2020, although there are many issues to resolve, including how the effort will be shared. Many countries believe that emissions trading will be an important tool to reduce greenhouse gas (GHG) emissions. For example, the EU has had a cap-and-trade system to regulate GHG emissions in place since 2005. Australia and South Korea have also passed legislation that will establish cap-and-trade systems. Developing countries, including Brazil and China, have announced plans to pilot state and provincial-level cap-and-trade systems in the next couple of years. In the U.S., California is set to launch its cap-and-trade system starting in 2013.

How can our world best deal with climate change without sacrificing economic growth?

The choice between economic growth and dealing with climate change is a false choice. In fact, our future economic and social well-being is best secured by addressing climate change now, before more adverse and costly impacts are felt. Pricing carbon emissions to incentivize reductions is a sensible approach to deal with climate change, but one that will lead to a reallocation of resources and opposition from those businesses and industries most affected.

What other causes are near and dear to your heart?

Education and the environment are two causes that are very important to me. I sit on the board of directors of the Peoria Public Schools Foundation, which provides targeted support to supplement and enhance the educational experience of public school students in Peoria. I am also an avid supporter of the efforts of The Nature Conservancy in central Illinois. The Nature Conservancy’s Emiquon Preserve near Lewistown is an amazing place, and as one of the nation’s largest floodplain restoration projects, it is a showcase environmental project right here in central Illinois. iBi