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Developers of nature-based carbon projects in North America are still searching for ways in which voluntary carbon markets can value the co-benefits of projects, like improved biodiversity and economic development, that are supplemental to their climate benefits.
"The reality is that there's so much more to so many of these [carbon] projects that aren't as easily quantifiable in the same way that the carbon unit is," Stephen Donofrio, managing director of Ecosystems Marketplace, said during a May 4 presentation. "But when we think about carbon credits, we think about them having a holistic, dynamic and rich ability to achieve multiple benefits beyond just climate goals."
Ecosystems Marketplace, a carbon market intelligence group under the conservation non-profit Forest Trends, is preparing to release a report overviewing the "beyond-carbon" benefits of nature-based carbon credits. Such benefits could manifest in a variety of ways, from expanding habitat for endangered species and decreasing wildfire risk, to improving social well-being and economic development in local communities.
For instance, a carbon project in the Florida Panhandle that increases forestland could simultaneously improve habitat for the endangered Florida Panther, a cougar species that requires habitat with ample forest coverage. Or a carbon project could implement forest management practices in ways that reduce wildfire risk while improving the sustainability of the local timber markets.
Buyers have clearly demonstrated interest in carbon credits bundled with these co-benefits, said Senior Vice President Nathan Pruitt of the American Forest Foundation. But there are challenges to quantifying the value of these supplemental benefits.
"The premium right now is not at all clear," Pruitt said. "We know how much companies are willing to pay for a high-quality carbon benefit, but we don't know if the premium for those co-benefits... is going to pay for the work it takes to scientifically and credibly quantify those benefits."
Platts, part of S&P Global Commodity Insights, assesses the value of carbon credits generated by nature-based projects trading across the voluntary carbon market. As of May 8, Platts CNC -- a basket assessment that reflects the most competitive nature-based carbon credit prices -- was assessed at $1.45/mt CO2e. Nature-based carbon credit prices have been declining throughout 2023. A year ago, Platts CNC was assessed at $10.90/mt CO2e.
Buyers interested in purchasing carbon credits bundled with co-benefits should expect prices to be much higher than those assessed for their carbon benefits alone. These premiums would fund new systems set up to quantify, certify and implement those co-benefits. According to Zach Parisa, CEO of the carbon forestry startup Natural Capital Exchange, or NCX, these could multiply credit costs by four.
"If we were to work with a community to balance things like carbon retention, social well-being and biodiversity, carbon credits off of that projects would cost something like 4X what it would be if we were simply optimizing for carbon," Parisa said during the May 4 presentation. "If we're not paying for those other outcomes beyond carbon on the same economic footing, then we're not going to get those outcomes."
Quantifying those co-benefits can be incredibly complex and case specific. The methodologies developed to measure the ecological or social impacts of one project will be different for another.
"As we work with communities and make fair payments to them to change how land is managed, we have the potential to change the surface of the Earth," Parisa said. "But done poorly, I think we get what we have right now -- confusion in the carbon markets, where we're struggling to even define what a ton of carbon looks like and what biodiversity is going to look like in a fair market."
UN biodiversity summit
Efforts are underway within the international community to create new biocredit markets for nature preservation projects. World leaders met in Canada last year for the UN's biodiversity summit to help shape emerging markets that could bring new financing to the fight against biodiversity destruction.
As envisioned, a voluntary biodiversity credit market would mirror and run in parallel to the existing voluntary carbon market. Whereas the carbon market helps capital flow to carbon reduction projects, a biodiversity market would help finance environmental conservation and restoration projects, especially those led by indigenous and local communities.
Last year, the International Institute for Environment and Development, a UK think tank, reported that demand for biocredits is growing among private investors and governments. But challenges for designing and implementing a biocredit market that avoids the pitfalls experienced by carbon markets remain ahead. Those challenges include how to measure a unit of biodiversity, how to generate demand for them, and how to ensure that the indigenous and local communities driving biodiversity projects are receiving revenue from that market.