Earlier this month, the Task Force for Scaling Voluntary Carbon Markets released its final report outlining various steps that project developers, carbon standards, investors, companies and governments can take to help scale the voluntary carbon market. 

The Task Force was initiated by Mark Carney, the UN Special Envoy for Climate Action, based on the realization that the voluntary carbon market must grow by at least fifteen times (and likely more) between now and 2030 to enable the aggressive climate action we need to meet the goals of the Paris Agreement and avoid the worst impacts of climate change. 

The report highlighted themes including use of long-term offtake agreements, improving additionality, and addressing the financing gap for carbon projects, all critical components of a successful, transparent carbon program that AFF has been working through in the development of the Family Forest Carbon Program.

Below is a summary of the findings and recommendations from AFF on how companies can utilize these recommendations, including – among other things – working with and through the Family Forest Carbon Program (FFCP) to achieve their climate goals.

Long-Term Offtake Agreements

“The Taskforce encourages companies to send long-term demand signals (via, for example, long-term offtake agreements)” (p. 23). 

Procuring credits through long-term offtake agreements, rather than by year-on-year spot purchases, enables project developers to access more traditional financing, accelerating project development and the supply of credits. 

The Family Forest Carbon Program works with companies to procure carbon credits via these long-term commitments.  Amazon signed the first offtake agreement with the program in 2020, and we anticipate additional agreements in 2021. 

These agreements allow AFF to raise the capital necessary to recruit landowners and incentivize them to change their management behavior and implement new practices, in order for them to produce the carbon credits for companies. 

FFCP Recommendation for Companies:  Whether it’s the FFCP or another project, ask if you can procure credits through long-term offtake agreements. They send a signal to investors that your company is serious about achieving your goals and making long-term, strategic carbon sourcing plans, rather than relying on the market in any given year. This also reduces your exposure to pricing and volume risk, as demand for high-quality carbon credits increases. Last, these agreements enable companies to catalyze projects, rather than buying the credits off a project that has already been launched.  This adds to the value of the resulting claims for most companies.

Improving Additionality

“The Taskforce recommends the establishment of “Core Carbon Principles” (CCPs) for a ton of verified carbon, avoided, reduced or removed…[including]…  concepts such as additionality, permanence and what constitutes sufficient buffers are kept up to date to maintain confidence of all participants.” (pg. 72-73) 

Additionality can be thought of as whether the climate benefit achieved by a project was the result of the finance provided by the carbon market or whether “it would have happened anyway.”   Proving the additionality of a carbon project is critical to the transparency of the project and involves defining concretely the evidence that would suggest why the project is – or isn’t – additional. 

To prove additionality and rigor in the FFCP, the Nature Conservancy, TerraCarbon and the American Forest Foundation co-developed a new carbon Improved Forest Management methodology under Verra’s Verified Carbon Standard (VCS). While, the methodology was built specifically for the FFCP, it will be available for other programs worldwide. 

One of the methodology’s many innovations is related to additionality. 

Historically, Improved Forest Management projects have used modeled baselines.  This means they build a model of what that “alternate universe” looks like, and they compare their project’s observed results to that baseline.  While a modeled baseline is a trusted and rigorous methodology from a scientific perspective, its accuracy is dependent upon the accuracy of the assumptions used to build the model.  When those assumptions prove false, the result can be a dramatic over- or under-estimate of actual climate impact. 

The FFCP is the first program to use an observed baseline.  This means our carbon accounting approach isolates a single variable – the presence of a contract between the FFCP and an enrolled landowner – and observes the difference in carbon stocks as a result of that variable.  Carbon stock changes are measured on enrolled plots and compared to matched control plots. The control plots are constructed by weighting a composite of similar U.S. Forest Service Forest Inventory and Analysis (FIA) plots.

This results in a true estimate of what carbon benefits are a direct result of the FFCP – versus carbon benefits that are purely coincidental, or part of the “background noise” going on in the landscape.  Additionality claims of this quality – made under a recognized carbon standard and third-party verifier such as the VCS, enables the FFCP to meet the threshold for quality established by the growing voluntary market.

FFCP Recommendations for Companies:  Whether FFCP, or another project, ask about additionality.  If it seems questionable, it will likely seem questionable to the broader marketplace and your stakeholders.  Carbon projects with third-party verified carbon credits, such as FFCP, contain robust requirements regarding additionality, and can give you assurance that the projects process for determining additionality is legitimate.

Addressing the Finance Gap for Carbon Projects

“Financing for carbon credit projects should increase, especially as the market becomes more liquid; interim blended finance is required to support some supply scale up (pg 7)”

The Task Force’s report identifies the lack of project finance as an obstacle to scaling voluntary markets.  Ideally, banks and other supply chain financiers would provide structured finance approaches to developers, based on expected cashflow from offtake agreements. But this can be difficult to justify in the short-term, especially without clear increased data and transparency. 

At the FFCP, we realize the urgency of de-risking investments in carbon projects.  That’s not because these projects are any more or less risky than others – it’s because the relative newness of the market makes it hard for any investor or project developer to have developed a track record that gives them the confidence they need to unleash financing at scale.  

We believe that the federal government can and should play an important and catalytic role in this area. AFF and TNC have been working with policymakers at the federal and state governments level to develop policies that could de-risk these transactions and facilitate the flow of private investment into carbon projects.  This would be a win-win-win:  a win for governments, who leverage private investment to achieve vital public goods, like healthy forests; a win for developers, who get the access to the finances they need to scale up carbon projects; and a win for investors, who can now include carbon investments in mainstream portfolios.  Some of the government actions we are advocating for are loan or bond guarantees, subsidies or tax incentives for developers or declarations of federal or state governments that they will serve as a buyer of last resort for carbon credits. 

FFCP Recommendations for Companies:  Discuss the role of carbon credits in your company’s climate strategy with your government relations colleagues. Is it a big role?  If so, has the GR team thought about how they can help advocate for these policies to spur credit generation? 

The overarching message of the Task Force’s report is clear:  we are collectively not going to address climate change without a robust, healthy and rapidly growing voluntary carbon market.  And we are not going to achieve that market without all of us – companies, governments, investors, NGOs, and project developers – doing our part to make them a reality.

We at AFF look forward to working with you on these crucial issues.  If you have any questions or want to more about the above, don’t hesitate to contact John Ringer, Director of Carbon Market Development at AFF.