A number of recent reports have underlined the increasingly critical role that natural climate solutions hold in helping the world stay on a path to limit global warming to 1.5 degrees Celsius. According to Ceres, “we will not meet the goals of the Paris Agreement without protecting and restoring forests and other natural ecosystems and better managing agricultural land.” Yet while natural climate solutions could provide 7 to 14 billion tons of annual mitigation by 2030, current voluntary carbon markets produce less than .5% of that potential. This is because the current state of funding for natural climate solutions (NCS) lags far behind what is needed.
How can we infuse more climate finance into NCS projects to accelerate the pace and scale of the private market, while also working to improve the quality of these projects long-term?
Improvements in remote sensing technology, or the use of distributed ledger technology, to reduce costs and complexities of project monitoring and verification can help, but these advancements are years from being widespread. New methodologies that combine the latest science with intelligent project design, such as with the Family Forest Carbon Program, can also trigger growth through higher trust in the system.
But the greatest tool to scale natural climate solutions is one that already exists - the long-term offtake agreement.
A long-term offtake agreement is a legal contract in which a buyer agrees to purchase a set amount of carbon credits at set price points several years into the future. It is akin to a power purchase agreement (PPA), which has unlocked the development of countless renewable energy projects around the world. And just like PPAs, long-term offtake agreements for forest carbon projects provide clear benefits to companies buying credits, to green investors, to project developers and, most importantly, to the planet.
How Do Long-Term Offtake Agreements Catalyze Forest Carbon Projects?
Natural climate solutions by name, are actions that take place in a forest or ecosystem to improve the quality and productivity of that forest. In other words, given the state of our existing forests, its not enough to let trees sequester carbon on their own. A change in the existing management regime must take place (this change is also key to calculating additionality, as noted in this series).
In the case of family forest owners, most face financial, technical or other barriers that make
implementing improved forest management difficult. Forest carbon projects are the catalyst for change for these owners – providing payments to enact specific forest practices and successfully generate additional carbon sequestration and storage in their forests. Yet for forest carbon projects to support large numbers of small forest holders with this financial assistance – in addition to covering the costs of recruiting landowners, designing the project, and more – takes upfront capital. Only after a forest owner has completed a forest practice, sequestered the carbon, and this carbon has been converted into a verified carbon credit – can the project recoup its cost. This cycle can take many years.
While there is interest from green investors in such forest carbon projects, significant hesitation exists. Even if a NCS project is using a credible methodology for its carbon accounting, future revenues from carbon credit sales are uncertain. This is in part because of nature itself, but also due to the fast-changing situation with the voluntary carbon market. No one can predict the exact demand and pricing of future carbon credits as the market grows.
Long-term offtake agreements provide predictability as to how many carbon credits intend to be sold and the revenue generated by a project in the future. This helps seed confidence in forest carbon projects for investors, de-risking capital investments.
A Win-Win-Win for Carbon Buyers
Long-term offtake agreements are also beneficial to carbon credit buyers.
They provide access to high-quality, verifiable credits at a reasonable price, in an environment where cost is likely to rise as demand outstrips supply.
They assist in long-term planning and strategy formulation for companies, providing a definite picture of costs associated with their climate targets.
They create a space for real, innovative partnerships between companies and project developers that would never exist otherwise in year-by-year purchases on the spot market.
The Family Forest Carbon Program is employing long-term offtake agreements to help scale its work to provide more family forest owners with carbon market opportunities. Already companies have committed to our verified credits via these agreements, and we anticipate others in the future.
Just as the renewable energy sector has been able to overcome scale challenges, so too, can NCS. By repurposing an existing innovative business solution, we can work to make a larger impact on our climate crisis, at a faster rate.
If you are interested in learning more about the Family Forest Carbon Program
and long-term offtake agreements:
October 20, 2021
Family Forest Carbon Program Opens Enrollment Across Pennsylvania, West Virginia, and Maryland
The American Forest Foundation and the Nature Conservancy announce expansion plans for their Family Forest Carbon Program, which empowers America’s rural family forest owners to improve forest health while addressing climate change.
October 14, 2021
Tackling Climate Change with Your Spare Change: A Collaborative Partnership with IvyCo
A new partnership between the American Forest Foundation and technology startup IvyCo gives family forest owners and others a new tool to help increase the potential for their forests as a natural climate solution.
October 5, 2021
Family Forest Owners Empowered to Address Climate Change with New Partnership between REI Co-op, the American Forest Foundation and The Nature Conservancy
REI commits to 6-year contract to purchase verified carbon credits from the Family Forest Carbon Program, an innovative and impact-focused forest carbon project.