Written by marketingscoops

Small-Scale Forestry and Carbon Markets

Small landowners across the world have the potential to use their land in the fight against climate change while making money in the process — -but only if the carbon market lets them in.

To slow the destructive impacts of climate change, the world needs to reduce its net carbon emissions: according to the most recent report from the Intergovernmental Panel on Climate Change, emissions need to decline by 45% from 2010 levels by 2030 in order to limit global warming to 1.5 degrees Celsius. While technological solutions will play an important role in this process, nature also offers a powerful tool: trees.

Trees pull carbon dioxide out of the air and store it, creating ‘negative emissions’ that can help offset carbon released from energy production and other processes. To incentivize the use of forests for negative emissions landowners need a way to document and sell trees as carbon credits. For small and private landowners, turning trees into carbon credits and selling them on the market is a hurdle too big to overcome.

Carbon markets offer a way for anyone to pay for carbon removal as a way of reducing their environmental impact or total balance of carbon emissions. Carbon credits are purchased from forestry, solar, cookstove or any projects that help reduce the total amount of carbon in the atmosphere. In this way, they offer an incentive for landowners to keep their forests alive and healthy, rather than using them for timber, grazing, or other uses:

With a high enough price, helping forests grow can be more lucrative than cutting them down. The Afognak Forest Carbon Project, for example, is expected to earn millions of dollars over 30 years through better land management of the over 8,200 acres owned by the American Land Conservancy and the Rocky Mountain Elk Foundation in Alaska.

For small-scale landowners, however, the math doesn’t always work out. While it is estimated that over a third of all American forest land is owned by individuals, each property averages only 66 acres. This makes embarking on a forestry project a very different experience for small scale landowners versus those that command large swaths of forest. Highly specific knowledge and an upfront capital investment is required to sell carbon credits from a forest.

Landowners need to develop a plan for how they will increase carbon dioxide uptake on their properties. The most common examples are increased tree planting or improved land management. The fees for professional planners and feasibility assessments can be tens of thousands of dollars — -a sizable upfront cost for a small-scale landowner.

Many forestry projects turn to investors to help with such upfront costs, but small-scale landowners have a greater challenge. Projects with smaller returns may not have enough capital to cover assessment costs and still provide value to investors.

For example, projects with less than 1500 acres aren’t expected to recover the cost of fees to sell on California’s carbon market. Additionally, smaller plots of land have a higher risk of being wiped out by disease or natural disaster. As a result, investors may prefer to stick with larger forestry projects and reduce their chance of losing the carbon credits they purchased.

Disparate carbon market standards and verification systems are challenging.

Landowners need to be confident that their land management plans will net them sufficient earnings through the carbon market to undertake the project to begin with. Small landowners may not have the time or expertise to deal with credit systems that can vary by market, location, and time. What’s more, the carbon credit verification and trading process comes with even more fees, eating into already thin margins.

Even for large-scale landowners, navigating the carbon credit verification system can be a challenge. Different carbon markets have different standards for earning credits. For example, projects participating in the California Air Resource Board’s market need to keep their captured carbon sequestered for 100 years, while users of the American Carbon Registry need only do so for 40 years. Different markets can also trade at different prices.

Novel financing mechanisms, opportunities for automation and sharing best practice guides for forestry projects provide a way forward.

Easing the pathway into carbon markets for small landowners is key to making productive use of their vast and diverse acreage. Luckily, many means of lowering the barrier exist and are currently being explored. Different financing options, including by lumping several small forestry projects into one larger one, could help attract investors; several carbon markets allow for such aggregation, though with constraints.

Automating components of the land management planning and verification process, for example through the use of remote sensing and artificial intelligence, could bring costs down as well. Finally, ensuring that clear, accurate, and up-to-date guides to forestry projects are easily available to landowners would ensure that they are always making the most-informed decisions about their land.

While getting small landowners on board is crucial, it is important that the standards for carbon credits don’t degrade in the process. Financial incentives make forestry projects feasible but what matters for the planet is just how many tons of carbon dioxide end up back in trees, not how much money was made from them.

As a key proponent of forestry projects, Sādu is aware of the barriers to scaling these solutions. Some of Sādu’s Sustainability Partners prefer to allocate capital towards nurseries and employment training programs rather than applying for international certifications like Verra, REDD+ and Gold Standard. This is a clear signal that the current certification process is not a fit for all types of projects.

As climate change continues so will the need for ecosystem conservation and carbon sequestration. Additionally, initiatives like 1t.org and LEAF Coalition, which mobilize capital for nature-based solutions to climate change, will continue to create an increased demand for forestry projects. In order to meet this demand the incorporation of small scale forestry projects into verified carbon markets will be necessary.

Service providers of GIS and remote sensing tools like Pachama, Planet, and Natural Capital Exchange, who use satellite imagery to estimate the amount of carbon sequestered by forests, are quickly reducing the barriers to entry for projects of all sizes.

These solutions, in combination with community-based verification apps like Greenstand or Treedom, and algorithmically determined carbon price research by The Cambridge Centre for Carbon Credits (4C) will result in a more robust data set by which the value of forestry credits can be determined. If this data is applied to small forestry projects nature-based carbon credits will become easier to access for both consumers and producers.

Sādu is building a solution to leverage this newly available data for our app users. Our goal is to make it easy to understand the positive impact of investments into forestry projects of all sizes. Once achieved, increased transparency and improved market access will result in longer living forests and a more diverse group of investors benefiting from the growth of the carbon market.

By: Brittany Salas

Co-founder & CEO Sādu. Invest in your health, save trees. #SaduApp #NFTrees. Previously #ClimateTech VC & corporate innovation. @nyucga alum.

Source: Small-scale Forestry and Carbon Markets | by Brittany Salas | Dec, 2021 | Medium

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