Reducing Effects of Climate Change: Lowering atmospheric concentrations of greenhouse gases—such as carbon dioxide, methane, or nitrous oxide—by avoiding, reducing, or sequestering emissions of the forestry and land-use sector helps to mitigate the harmful effects of climate change and promote climate adaptation. As climate change threatens both human and natural systems, pursuing this strategy offers significant benefits to people and planet (1).
Natural Climate Solutions: Carbon can be sequestered in engineered, biological, and hybrid solutions. This strategy involves biological solutions, also known as natural climate solutions, to reduce greenhouse gases through conservation, restoration, and improved management practices in forestry and land-use projects. Although many different natural climate solutions have been identified, carbon markets generally focus on a few specific, investable methods within the forestry and land-use sector.
Several markets offer standards certification. Markets offering certifications include Verra’s Verified Carbon Standard (VCS), Climate Action Reserve, Gold Standard, Plan Vivo, and the American Carbon Registry.
Since the Kyoto Protocol lacks an enforcement mechanism, other national and regional programs have taken an increasingly prominent role in regulating carbon emissions. Most notably, carbon markets—each with their own regulations and requirements—are found in Australia, Brazil, California, Colombia, the European Union, India, Japan, Kazakhstan, Mexico, New Zealand, Norway, Ontario, Quebec, the northeastern United States (Regional Greenhouse Gas Initiative), South Africa, and South Korea.6 Compliance markets have facilitated close to USD 1.6 billion in forestry carbon transactions since the early 2000s (3).
Fighting a Warming Climate: International climate assessments, such as those made by the Intergovernmental Panel on Climate Change (IPCC), have demonstrated that increasing emissions are warming the earth’s climate. Business-as-usual—a continued high-emissions scenario—could mean an increase of up to 4.8°C in global temperature by year 2100 relative to pre-industrial levels, creating enormous negative effects for the planet (1). To reduce the worst impacts of climate change, 195 countries signed the Paris Agreement to limit average global temperature rise to below 2°C. The IPCC’s latest report outlines the scale of the problem, underscoring the immense detrimental effects of even a rise of 2°C (7):
These projected scenarios highlight the importance of investing in scalable solutions for carbon reduction to mitigate the worst effects of a warming climate. Land use and agriculture currently account for one quarter of all worldwide greenhouse gas emissions and can provide one-third of emissions reductions (1,8). All pathways to achieving global climate goals include natural climate solutions.
The Planet: The planet is the primary beneficiary of the avoidance, reduction, and sequestration of carbon. Removing anthropomorphic carbon restores the planet’s natural regulation of its atmosphere. An unhealthy planet affects all living organisms, including people, since we depend on its resources.
At a more detailed level, the IPCC predicts a warming climate will exacerbate existing inequalities in society, leaving low-income people, women, and those in developing countries most at risk (1).
Low-Income People: The IPCC expects climate change to reduce economic growth, potentially deepening the effects of poverty in both developed and emerging markets. Low-income people also have fewer options for climate adaptation, leading to potential displacement from their communities (1).
Women: Climate change will have significant impacts on human health, widening gender-based health disparities. These effects will be especially pronounced in low- and middle-income countries where women already receive less health care (9).
Developing Countries: Many developing countries are in geographic areas at high risk for the impacts of climate change, such as drought-related water and food shortages or increased flood damage to infrastructure and settlements. Effects of a warming climate, including reduced food production, increased spread of vector-borne diseases, and additional heat-related human deaths, can overwhelm already limited public infrastructure (1).
Current Trends: Voluntary carbon markets, compliance carbon markets, and REDD+ programs offer different geographic opportunities for investors pursuing this strategy.
Global Opportunities: Opportunities to sequester carbon are spread throughout the world, with different solutions best suited to and most affordable in different regions. For example, reforestation, which offers the largest potential for sequestering carbon, could be cost-effective on 678 million hectares worldwide, with sizable opportunities in degraded areas, such as Brazil’s Atlantic Rainforest or the Mekong river basin in Southeast Asia (8). Meanwhile, reducing carbon by avoiding forest conversion—one of the more affordable natural climate solutions—is most relevant in areas with significant, intact forest that is at continued risk of deforestation, such as the Amazon and Congo basins or the Indonesian peatlands (11).
Investing in natural climate solutions to reduce carbon emissions helps reduce the effects of global warming. Carbon credit certification standards address a project’s additionality, meaning they aim to measure whether it reduces carbon that would not otherwise be reduced without the investment (12). Investors must also ensure that projects limit leakage to other, nearby areas, for which the investor may be held responsible (12).
Human and natural systems alike will benefit from less carbon in the atmosphere. Sequestering carbon can play a leading role in solving the challenge of global climate change through its potential to provide 37% of the cost-effective carbon mitigation needed through 2030 (8). Of this 37%, one-third can be sequestered at a cost of USD 10 per ton of carbon dioxide, thus offering substantial opportunities for large-scale investment (8).
The amount of change depends on the amount of carbon sequestered, any additional co-benefits, and the assurance of the project’s permanence.
Examples of impact from projects aligned with this strategy include the following:
In the Pará state of Brazil, the CIKEL Brazilian Amazon REDD APD Project cancelled planned deforestation, instead moving forward with limited forest-management activities, such as low-impact logging. This REDD project, certified by Verra’s Verified Carbon Standard and validated by the Rainforest Alliance, has helped to avoid more than nine million metric tons of carbon dioxide emissions (13).
In Queensland, Australia, the Moombidary Forest Regeneration Project helped restore permanent native forests. Australia’s Emissions Reduction Fund issued the project 500,000 Australian Carbon Credit Units, equivalent to a reduction of 500,000 metric tons of carbon dioxide emissions (14).
External Risk: Investors should consider external risk factors generally involved in forestry and land use, including both environmental challenges, such as tree mortality, insect outbreaks, fire, or extreme weather events like floods or droughts, and human-induced challenges, such as violence, corruption, illegal harvesting, and pollution. The changing climate may increase the likelihood of environmental and human-induced challenges for land-use projects (1). It is best practice to insure against potential damage caused by fire, tree diseases, insect outbreaks, and extreme weather events.
To help mitigate price fluctuations, carbon markets can implement a “safety-valve” mechanism to limit the range of realized carbon prices, thereby protecting investors and consumers (25).
Drop-off Risk: Carbon sequestration is particularly at risk of reversal, which occurs when carbon is released back into the atmosphere through later events, such as from the felling of a tree (15). Reversal may be intentional or unintentional and caused by human or natural events. Investors can limit human-caused reversal by ensuring the permanence of the carbon sequestration project, for example through long-term land ownership or incentives for local communities to protect the land. Many carbon certification standards require projects to clearly address drop-off risk, known more specifically in this context as permanence (12).
All of these risks may lead to a financial loss for the investor. Loss of certification for the project or future projects may present the most salient immediate risk. Poor management of an investment can also tarnish an investor’s reputation and credibility.
Offsets from a certified project often mitigate some of these risks by shielding investors from unintentional reversals (such as plant disease) through buffer pools, which hold a portion of the project’s credits in reserve to cover unexpected disturbances. However, the investor and project developer could be held responsible for intentional reversals (16).
INVESTMENT 1: In the Tambopata region of Peru, an innovative model funded by the Althelia Climate Fund and implemented by a Peruvian NGO protected more than 590,000 hectares of forest to avoid four million metric tons of carbon emissions. Paired with an agroforestry system, the project has restored an additional 4,000 hectares of degraded land and supports livelihoods for 1,150 people. Another benefit includes a habitat for more than 30 high-conservation-value species. The financing made available by the Althelia Climate Fund is repaid by revenues from the sale of carbon credits and by a share of revenues from agroforestry activities, mainly certified cocoa (17).
INVESTMENT 2: In 2009, the Livelihoods Carbon Fund invested in a 10,000-hectare reforestation program in Senegal to sequester 600,000 metric tons of carbon over 20 years. Under the leadership of the Senegalese NGO Océanium, 100,000 local villagers helped to plant 80 million mangrove trees in the estuaries of the Casamance and Siné Saloum rivers in what is the largest mangrove-restoration program in the world today. Ten years later, the program has impacted more than 550,000 people, with local villagers reporting an estimated 4,200 tons per year increase in fish stocks and a 10% increase in crop yield due to reduced salinity in rice fields. These positive impacts create a strong community incentive to the restore and conserve this natural ecosystem (18).
Core Writing Team, Rajendra K. Pachuari, and Leo Meyer, eds. Climate Change 2014: Synthesis Report. Geneva: Intergovernmental Panel on Climate Change, 2014.
Hamrick, Kelley, and Melissa Gallant. Voluntary Carbon Market Insights: 2018 Outlook and First-Quarter Trends. Washington, DC: Forest Trends, August 2018.
Hamrick, Kelley, and Melissa Gallant. Fertile Ground: State of Forest Carbon Finance, 2017. Washington, DC: Forest Trends, December 2017.
United Nations Framework Convention on Climate Change (UNFCCC). Clean Development Mechanism Methodology: Booklet. Bonn: UNFCCC, November 2018.
Partnership for Market Readiness (PMR) and International Carbon Action Partnership (ICAP). Emissions Trading in Practice: A Handbook on Design and Implementation. Washington, DC: World Bank, 2016.
International Emissions Trading Association (IETA). The World’s Carbon Markets: A Case Study Guide to Emissions trading. Washington, DC: IETA, January 2018.
Masson-Delmotte, Valerie, Panmao Zhai, Hans-Otto Pörtner, Debra Roberts, Jim Skea, Priyadarshi R. Shukla, Anna Pirani et al., eds. Global Warming of 1.5°C: An IPCC Special Report. Geneva: Intergovernmental Panel on Climate Change, 2018.
Griscom, Bronson W., Justin Adams, Peter W. Ellis, Richard A. Houghton, Guy Lomax, Daniela A. Miteva, William H. Schlesinger et al. “Natural Climate Solutions.” Proceedings of the National Academy of Sciences 114, no. 44 (October 31, 2017): 11645–650.
Sorensen, Cecilia, Virginia Murray, Jay Lemery, and John Balbus. “Climate Change and Women’s Health: Impacts and Policy Directions.” PLoS Medicine 15, no. 7 (July 10, 2018): e1002603.
“About FCPF,” Forest Carbon Partnership Facility (FCPF), https://www.forestcarbonpartnership.org/about-fcpf-0.
Watson, James E. M., Tom Evans, Oscar Venter, Brooke Williams, Ayesha Tulloch, Claire Stewart, Ian Thompson et al. “The Exceptional Value of Intact Forest Ecosystems.” Nature Ecology & Evolution 2, no. 4 (April 1, 2018): 599–610.
Verra. VCS: Agriculture, Forestry and Other Land Use (AFOLU) Requirements. Washington, DC: Verra, June 2017.
“Cikel Brazilian Amazon REDD APD Project Avoiding Planned Deforestation, Brazil.” Verra: VCS Project Database. https://www.vcsprojectdatabase.org/#/project_details/832
“Moombidary Forest Regeneration Project.” Australian Clean Energy Regulator, Emissions Reduction Fund, Project Register. November 16, 2018. http://www.cleanenergyregulator.gov.au/ERF/Pages/Emissions%20Reduction%20Fund%20project%20and%20contract%20registers/Project%20register/ERF-Project-Detailed-View.aspx?ListId=%7b7F242924-BF02-45EE-A289-1ABCC954E9CE%7d&ItemID=433
Galik, Christopher S., and Robert B. Jackson. “Risks to Forest Carbon Offset Projects in a Changing Climate.” Forest Ecology and Management 257, no. 11 (May 10, 2009): 2209–16.
“Compliance Offset Protocol: U.S. Forest Projects.” California Air Resources Board. June 25, 2015. https://www.arb.ca.gov/cc/capandtrade/protocols/usforest/usforestprojects_2015.htm.
“Tambopata-Bahuaja Biodiversity Reserve, Peru.” Ecosphere Plus: Our Projects. https://ecosphere.plus/tambopata.
Livelihoods Funds. “The Proof by 10: Results of the Study on the Social Impacts of the Largest Mangrove Restoration Project of the Livelihoods Carbon Fund in Senegal.” News release. April 17, 2019. http://www.livelihoods.eu/the-proof-by-10-results-of-the-study-on-the-social-impacts-of-the-largest-mangrove-restoration-project-of-the-carbon-livelihoods-fund-in-senegal.
Minx, Jan C., William F. Lamb, Max W. Callaghan, Sabine Fuss, Jérôme Hilaire, Felix Creutzig, Thorben Amann et al. “Negative Emissions—Part 1: Research Landscape and Synthesis.” Environmental Research Letters 13, no. 6 (May 22, 2018): 063001.
“Agroforestry,” U.S. Department of Agriculture (USDA), https://www.usda.gov/topics/forestry/agroforestry.
Merriam-Webster, s.v. “Carbon Dioxide,” accessed March 2019.
“Greenhouse Gas Emissions.” United States Environmental Protection Agency (EPA). Accessed May 2019. https://www.epa.gov/ghgemissions/overview-greenhouse-gases.
Brown, Ellen, Nigel Dudley, Anders Lindhe, Dwi R. Muhtaman, Christopher Stewart, and Timothy Synnott, eds. Common Guidance for the Identification of High Conservation Values. Oxford: HCV Resource Network, October 2013.
“What is Peat?” International Peatland Society. Accessed May 2019. http://www.peatsociety.org/peatlands-and-peat/what-peat.
The Brattle Group. “CO2 Price Volatility: Consequences and Cures.” 2009. http://files.brattle.com/files/6342_co2_price_volatility_january_2009.pdf
This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.
Burivalova, Zuzana, Çağan Hakkı Şekercioğlu, and Lian Pin Koh. “Thresholds of Logging Intensity to Maintain Tropical Forest Biodiversity.” Current Biology 24, no. 16 (August 18, 2014): 1893–98. https://doi.org/10.1016/j.cub.2014.06.065.
Jose, Shibu. “Agroforestry for Ecosystem Services and Environmental Benefits: An Overview.” Agroforestry Systems 76, no. 1 (May 1, 2009): 1–10. https://doi.org/10.1007/s10457-009-9229-7.
Hartley, Mitschka J. “Rationale and Methods for Conserving Biodiversity in Plantation Forests.” Forest Ecology and Management, Forest Ecology in the next Millennium : Putting the long view into Practice, 155, no. 1 (January 1, 2002): 81–95. https://doi.org/10.1016/S0378-1127(01)00549-7.
Gilroy, James J., Paul Woodcock, Felicity A. Edwards, Charlotte Wheeler, Brigitte L. G. Baptiste, Claudia A. Medina Uribe, Torbjørn Haugaasen, and David P. Edwards. “Cheap Carbon and Biodiversity Co-Benefits from Forest Regeneration in a Hotspot of Endemism.” Nature Climate Change 4, no. 6 (June 2014): 503–7.
Panfil, Steven N., and Celia A. Harvey. “REDD+ and Biodiversity Conservation: A Review of the Biodiversity Goals, Monitoring Methods, and Impacts of 80 REDD+ Projects.” Conservation Letters 9, no. 2 (2016): 143–50.
Siikamäki, Juha, and Stephen C. Newbold. “Potential Biodiversity Benefits from International Programs to Reduce Carbon Emissions from Deforestation.” AMBIO 41, no. 1 (February 1, 2012): 78–89.
Romañach, Stephanie S., Donald L. DeAngelis, Hock Lye Koh, Yuhong Li, Su Yean Teh, Raja Sulaiman Raja Barizan, and Lu Zhai. “Conservation and Restoration of Mangroves: Global Status, Perspectives, and Prognosis.” Ocean & Coastal Management 154 (March 15, 2018): 72–82.
Ferraro, Paul J., Kathleen Lawlor, Katrina L. Mullan, and Subhrendu K. Pattanayak. “Forest Figures: Ecosystem Services Valuation and Policy Evaluation in Developing Countries.” Review of Environmental Economics and Policy 6, no. 1 (January 1, 2012): 20–44.
Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.
Amount of greenhouse gas (GHG) emissions avoided or sequestered during the reporting period.
Organizations should footnote relevant details on the assumptions/methodologies used in calculating the emissions avoided or sequestered.
The amount of greenhouse gas emissions is calculated through a carefully monitored process, and should include all emissions avoided, reduced, or sequestered. For details on how to calculate all the emissions avoided or sequestered refer to the regulations for compliance markets or certification standards such as Verra’s Verified Carbon Standard, Climate Action Reserve, Gold Standard, Plan Vivo, or American Carbon Registry.
The amount of greenhouse gas emissions avoided or sequestered is the most essential indicator for this strategy. This measurement is the key determinant of impact from the project from a carbon perspective.
Area of land with a protected land status as of the end of reporting period.
Organizations should footnote the methods applied to ensure protected land status. See usage guidance for further information.
Project boundaries should be clearly demarcated and monitored throughout the project. In monitoring deforestation risk, investors can consider using Global Forest Watch Pro (https://pro.globalforestwatch.org/).
The land protected through carbon offsets will often require assurance of permanence, although the exact time will depend on the certification standard.
Describes third-party certifications for products/services sold by the organization that are valid as of the end of the reporting period.
Organization should footnote the certification name, certifying body, and date since the product/service has been continuously certified for all product/service level certifications obtained by the organization.
The product here refers to the carbon certification. Other third-party certifications can also be included, such as Verra’s Climate, Community & Biodiversity Standard, Forest Stewardship Council (FSC) certification, Rainforest Alliance Sustainable Agriculture Standard, or Fairtrade Certified.
Additional certifications are an important layer of information that can command a higher price on the carbon markets. These certifications show the impact of the project beyond carbon, such as to biodiversity or community development, among others. Credits can be created, traded, or sold, traded by an organization.
Area of land that is protected from deforestation as of the end of the reporting period.
Organizations should footnote the methods applied to measure avoided deforestation.
If pursuing a carbon strategy in forested areas, this metric can show the area of forest where the project can claim to have helped avoid deforestation.
Area of land that has been reforested by the organization during the reporting period.
Organizations should footnote all assumptions used.
Land can be restored through a variety of different techniques, such as agroforestry, silviculture, or reforestation. The total area should be carefully measured using GPS data points to measure progress over time.
If pursuing a carbon strategy using restoration techniques, this metric can show the area of land that has benefited from additional trees.
Indicates whether the organization implements a strategy to manage its interactions with local communities affected by its operations.
Organizations should footnote the relevant details about their community engagement strategy, and how it is being implemented. See usage guidance for further information.
One way to consider which communities to engage is to look at historical land titles. LandMark (http://www.landmarkmap.org/) provides data on indigenous and community land rights. In engaging the community, a consent process should be put in place to ensure that the community as a whole endorses the project, as opposed to a few elite members.
Forest conservation projects will often require involving traditional landowners, or others from the community who rely on the land. The carbon project should take care to ensure the community’s support for the project. This type of community involvement is especially important for REDD+ projects. In addition, to deliver long-term impact on local communities and the forests they depend on, a community engagement strategy is an important first step to understand which services the project can best provide for the community (e.g., training, access to market, tenure, etc.). Metrics can then be formed around the successful delivery of these individual goals.
Number of full-time equivalent employees working for enterprises financed or supported by the organization as of the end of the reporting period.
Organizations should footnote all assumptions used. See usage guidance for further information.
This measurement should be relatively easy to measure by analyzing a business’ daily operations. This metric focuses on formal jobs provided by the business.
Forest conservation projects will often bring new jobs to local communities, creating new prosperity at the local level. Since employment is generally easy to measure, it functions as a proxy for the development of shared prosperity between the business and the community, and can help determine the long-term involvement and interest of the community.
Area of land with a permanently protected land status as of the end of the reporting period.
Organizations should footnote the methods applied to ensure protected land status. See usage guidance for further information.
This measurement will depend on the definition chosen for “permanently protected land”. In some cases, land may be designated as a national public park, a private reserve, or hold other long-term guarantees such as through certification status.
Permanently protected land ensures the forest will survive across generations. This metric is especially important in voluntary carbon markets to ensure the permanence of the carbon credit.
Indicates whether the organization has undertaken biodiversity-related assessments to evaluate the biological diversity present on the land that is directly or indirectly controlled by the organization.
Organizations should footnote details about what the assessments evaluate. See usage guidance for further information.
Depending on what kind of biodiversity the project is interested in measuring, a variety of different resources can help with biodiversity assessments, including the Integrated Biodiversity Assessment Tool (https://www.ibat-alliance.org/).
A biodiversity assessment helps assess which flora and fauna species are supported by the project. This type of an assessment can support strategic thinking of which sections of a forest to conserve. It should be a first step toward creating a more targeted biodiversity metric relevant to the investment strategy.
Indicates whether the organization has been found to be out of compliance with any local labor, tax, or environmental regulations during the reporting period.
Organizations should footnote all assumptions used.
To understand the local compliance measures, refer directly to each compliance market’s regulations.
When looking to invest in forest carbon for compliance markets, it is important to ensure the project’s compliance with any local government regulations.