Carbon Offsets and Forestry – How the Market for Innovation is Shaping Up

Nature-based carbon offsets, including reforestation and protection projects, have become increasingly attractive to corporates who are looking to showcase green credentials and meet carbon reduction goals. In 2019, the Global Center on Adaptation and the UK Committee on Climate Change highlighted the previously underestimated ability of our natural systems to protect us against climate change. As a result, nature-based climate solutions, including Afforestation (planting trees or sowing seeds in barren areas to create forests) and Reforestation (planting of native tree species in depleted areas) projects have become increasingly attractive. We’ll be discussing this in more detail at our upcoming Cleantech Interactive on 17 June.

In the meantime, we need to ask ourselves a few important questions:

• Are carbon offsets via forestry projects effective?
• Can these projects scale?
• How is technology assisting this market?

Attractiveness

For high-emission industries, such as airlines, oil and gas companies, hydrocarbons are central to the business models and are difficult to abate. In theory, offset programs can help these companies reduce their net emissions, as seen in some examples below:

June 2020: UPS to match the carbon offsets of all packages shipped via its carbon-neutral program during the month of June.

• May 2020: Global fashion media company Conde Nast announced it was to become carbon-neutral by 2030, utilizing carbon offsets when mitigation is not possible.
• May 2020: Porsche Canada launched its carbon offset program for Porsche owners, Porsche Impact.
• March 2019: Eni SpA committed to eliminate all carbon dioxide emissions from its oil and gas exploration and production operations by 2030 by planting forests.
• October 2019: BP invested $5 million in the forest carbon offset firm Finite Carbon.
• October 2019: Shell launched a carbon offset scheme for fuel customers using its fuel card. Offsets will be purchased via forestry projects across the world including the Cordillera Azul National Park Project (Peru), the Katingan Peatland Restoration and the Conservation Project (Indonesia) and GreenTrees Reforestation Project (USA).
• October 2019: British Airways committed to offset all domestic flights from 2020 following its commitment to become carbon neutral by 2050.

The rise in consumer demand combined with new business models is facilitating afforestation and reforestation (A/R) projects and non-formal forest protection. In addition to this, innovations such as technologies to autonomously measure carbon sequestration, optimize tree survival and encourage sustained corporate engagement are being developed to improve the service offerings and value proposition of forestry offsets.

Offset Market

The global carbon offset market grew by 34% to $215.1 billion in 2019 after seeing 56% growth in 2018. There are two types of carbon offset markets: compliance and the voluntary carbon market (VCM). Interestingly, the compliance market was valued at a miniscule  $191 million compared to the $52 billion of the total carbon market.

Growth of Forestry Projects

There is growth in both VCM and A/R offset volume.  In 2018, issuances of A/R offset transactions rose by 342% and remains the most popular VCM offset.

This popularity rise is attributed to international media focus on tree-planting combined with the idea that A/R projects are easier to explain to buyers. Additionally, forestry has numerous social and environmental benefits other than just carbon sequestration, benefits that include ecosystem conservation and social heritage protection.

Cheaper offset projects exist, with the average A/R offset price at $3.2/tCO2e in 2018, compared to $1.7/tCO2e for renewable energy projects. For companies, the corporate social responsibility (CSR) element is usually the primary reason for investing in forestry projects so the higher price point is not a deterrent.

Business Models

Emerging start-ups are either providing or brokering forestry offsets as a service, using technology to improve reforestation, deploying forest protection to reduce the costs of off-set projects and offering ancillary services like forestry monitoring.

In October 2019, Finite Carbon, the provider of carbon offset services, raised $5 million in a Series A round with exclusive investment from BP. We spoke to Sean Carney, President, Finite Carbon,  who said the company’s  A/F projects are smaller parts of larger portfolios, as forestry credits are expensive and the A/F market is nascent. With the sharp rise in investment in VCM and forestry, he warns of a lag between supply and demand as it takes 6-12 months to source long-term commitments from landowners. Ignacio Gimenez, Board Member at Finite Carbon, will be joining at at Cleantech Interactive on 17 June.

Land Life Company develops biodegradable tree incubators and provides carbon offsets via A/F projects. The company also use drones, AI and geospatial data to optimize tree planting and survival. In March 2019, they entered a joint venture with Shell to launch a data-driven reforestation project in Spain, planting and monitoring over 300 hectares of degraded land. Cleantech Group spoke with Jurriaan Ruys, co-founder and CEO of Land Life Company, who expressed similar challenges to Finite Carbon, with forestry offsets at higher price points. Landlife Company charge in the range of  $16 – $27 per ton of carbon.  Jurrian will be joining us as a speaker at the 17 June edition of Cleantech Interactive.

UK-based, CLevel also provides carbon offsets via A/F projects, but acts as retailers partnering with project developer CommuniTree. Current customers include the Body Shop, British Gas and Ecover. CLevel has also partnered with flight search tool SkyScanner to pilot a flight offset program. Cleantech Group spoke to Darren Howarth, CEO at C-Level, who said, “Globally, these kinds of projects receive less than 3% of climate funding even though they could deliver a third of the emissions reductions needed to hit the 1.5 degree Paris targets. One reason is due to a fear that the emission reductions they deliver risk being reversed.”

 Technology is also helping to reduce the cost of monitoring carbon. Cleantech 50 to Watch company, Pachama has developed satellite and LiDAR-based carbon storage estimation software. This will enable remote calculations of carbon sequestration, thus encouraging  forest conservation and expansion. In January 2020, Pachama raised $4.1 million in a Series A round led by Saltwater Capital and Lowercase Capital.

Challenges

Better Place Forests provide tree protection services as an alternative to cemeteries. They also partner with a reforestation project developer One Tree Planted, who boast planting trees for $1, to offer offset for cremation. In June 2019, Better Place Forests raised $12 million in a Series A round. Unlike the other retailers, Better Place Forests do not offer certified carbon credits. In criticism of the current carbon credit system,  CEO Sandy Gibson said, “Over 70% of the cost of tree planting goes to the legal and monitoring fees to obtain a carbon credit. You could plant ten times the number of trees we are without the formal credits.” Better Place Forests opt for a mass planting method and plan to develop a VCM accreditation methodology based on the law of averages over exact science. “An obsession with perfect is costing us good and I believe forestry is pretty good,” Gibson added.

 

And Finally…

For corporate emitters where carbon is integral to their operations, offsets offer an opportunity to engage in climate action. However, offsets should not act as a free pass for inaction. Corporates risk greenwashing if they do not couple offsets with actions to mitigate emissions as well. Additionally, carbon offsets only account for CO2 emissions and ignore the other harmful greenhouse gases including methane, nitrous oxide and fluorinated gases.

For forestry projects, wildfires also present a significant risk, especially with rising temperatures and increasing developments in high-risk areas.

2019, 15 countries proposed legislation to have net-zero emissions by 2050. In total, 24 out of 28 EU countries and key US states such as California have all made similar commitments towards carbon neutrality. Corporates have also made bold commitments to cut carbon. In January 2020, Microsoft pledged to go retrospectively Carbon Negative (back to its founding in 1975) via seeding new forests alongside soil carbon sequestration, direct air capture and BECCS. These commitments are only possible via carbon offsets as countries and corporations cannot mitigate all emission.