CERAWEEK: Forestry-based carbon solutions 'will be a huge market' in reaching net-zero

Nature-based carbon solutions in forestry are going to be a necessary component for hitting net-zero targets at both the global level and for individual companies, according to a March 10 panel of offset traders.

According to the US Environmental Protection Agency, global greenhouse gas emissions have totaled 50 billion mt in recent years. Yet Stanford University researchers have estimated that nature-based carbon solutions — including reforestation, afforestation, and improved land management — have the opportunity to reduce and sequester around 10 billion mt/year of CO2 by 2030.

"We really believe that nature-based solutions can achieve 10 billion mt/year," said Hannah Hauman of the commodity trading house Trafigura during the CERAWeek by S&P Global Commodity Insights conference in Houston. Trafigura launched a carbon trading desk last year and announced March 10 it was purchasing credits from a mangrove restoration project in Pakistan that could sequester an estimated 142 million mt of CO2-equivalent over a 60-year period.

"We see it as not only an incredibly efficient way of sequestering carbon but actually required to achieve any semblance of net-zero," she said.

There are a variety of forestry-related project types that can help ramp up global carbon sequestration and removal capacity, each with its own advantages and disadvantages.

REDD+ projects generate carbon credits by protecting existing forests from deforestation; forest management projects create credits by tending to the health of a forest's ecosystem to help maximize that forest's sequestration capacity; and afforestation, reforestation, and revegetation projects add plant cover to different ecosystems.

But these projects have drawbacks. For instance, REDD+ projects have a patchy record over exaggerating project performance rates and overissuing credits, or underreporting performance and under-issuing credits, said Sam Gill, CEO of the carbon offset rating company Sylvera. These shortcomings aside, REDD+ projects also have the greatest potential to bring high volumes of carbon credits to compliance or voluntary carbon markets, Gill said.

"The math requires that this will be a huge market," Gill said. "It's not an if, it's a when. So now is the time to start educating yourself on this market — how it's going to function, how it's unpacking."

According to S&P Global, the assessed price of nature-based carbon capture credits — a basket assessment that reflects credit prices issued by forestry, farming, and land management projects — was $9/mt of CO2e March 9, a price that has fallen from a $16/mt peak in January.

Despite the huge potential, the nuances of nature-based projects and the markets that finance them remain unknown to an increasing number of companies that are making net-zero commitments, panelists said.

According to Hauman, much of this activity is happening within voluntary markets, a rapidly evolving space that is growing according to no single set of standards. Last year, total transactions across the voluntary market exceeded $1 billion, according to Ecosystems Marketplace.

"What we see in the voluntary market are corporates making net-zero commitments, but are not completely clear in terms of what specification that will be," Hauman said. "We very quickly see this voluntary market evolving into its own form."

Hasslacher Norica Timber, an Austrian lumber company, is one such company with aims to become carbon neutral through forest-management projects. Its Chief Operating Officer, Kohla Herwig, drives that effort and says that the carbon solutions industry should play a large role in spreading awareness.

"I think education is probably the most important thing," Herwig said during the panel. "It has to start with the industries, and it has to start with the government."