Nature-based solutions (NBS) are attracting significant attention from corporations purchasing offsets to neutralize their greenhouse gas emissions. True to their name, these solutions include a variety of project types like grasslands preservation, wetlands protection, soil carbon sequestration and forestry. The landscape of these projects is interesting, and some credits command buyer interest and a price premium while other types of credits are not yet readily available. In this newsletter, Bluesource breaks down the types of nature-based solutions in the market, why some have had more success at generating offsets to date and prospects for future credit generation by project type.

Grasslands Preservation

Offsets from protection grasslands—while highly coveted among buyers—typically require a premium carbon price to be financially viable, as grasslands yield only 0.5-2 metric tons of carbon stored per acre. The American Carbon Registry (ACR) and Climate Action Reserve (CAR) require the placement of a permanent conservation easement on the land in conjunction with the project, which necessitates a high carbon price signal to convince landowners to participate. The higher carbon price justifies the acceptance of a permanent easement, allowing landowners to forgo potential cropland revenue in favor of preservation and sequestration.

Wetlands Protection
Wetlands and mangrove protection or blue carbon projects are frequently requested (perhaps because our name is Bluesource!), but few registered projects exist in the current market. There is one Verified Carbon Standard methodology (VM0033) for the protection of tidal wetland and seagrasses and one for the creation of coastal wetlands (VM0024) but no projects have been developed to date, presumably because too few credits are generated to support project creation. In September 2020, a new blue carbon methodology was developed as a revision to an avoided deforestation protocol (VM0007) that allows crediting for the avoided conversion and restoration of tidal wetlands, mangroves, seagrasses and salt marshes. This new methodology may be the key to unlock financing for blue carbon offsets and develop these projects on a large scale.

Soil Carbon Sequestration
One VCS soil carbon sequestration protocol (VM0021) has existed since 2012, and the Gold Standard has had a soil carbon protocol since 2015, but only one project has been developed to date. To ameliorate this situation, three new soil sequestration protocols are in development now through the Gold Standard, VCS and CAR. These protocols will credit activities such as crop rotation, use of cover crops, low and no-till agriculture and other practices that result in additional carbon sequestered in the soil. These new protocols have the potential to generate a large number of offsets, creating a large contribution to climate change mitigation efforts. It will be interesting to see what buyers are willing to pay for these credits and, based on the demand created, how many projects can implement successfully.

Forestry
Due to the limitations in the supply of the previously discussed nature-based solutions, forestry has become the most widely-used NBS offset. Forestry offset projects are not a monolith; there is a variety of forestry offsets from different types of protocols. CAR’s Avoided Conversion and ACR’s Improved Forest Management Protocols seek to protect the trees that are standing while also crediting the carbon that is stored as these standing trees continue to grow during the life of the project. REDD (Reduced Emissions from Deforestation and Degradation) projects protect standing forests in developing countries and are most often developed under VCS or the Gold Standard protocols. Afforestation and reforestation protocols available under ACR, CAR and VCS credit projects that either grow trees where they have never grown before or regrow trees in areas that have experienced disturbances like logging or fire. Afforestation and reforestation projects have proven difficult to develop as carbon projects due to the high up-front capital costs and extended timeframe. (It can take 7-10+ years to store meaningful amounts of carbon in the trees, depending on the species planted.) Most carbon buyers need delivery of credits faster than a 7-10-year timeframe, so expensive tree plantings often need supplemental or different sources of funding altogether. The new Climate Forward program under CAR allows ex-ante (forecasted, rather than actual) crediting of these projects. It is unclear whether corporates will use the Forward Mitigation Units (not offsets) produced by the project since they could not claim an immediate offsetting of existing emissions but instead would purchase FMUs to cover future, anticipated emissions.

Afforestation and reforestation projects produce “removals credits” that correspond to the amount of carbon taken out of the atmosphere by the growth of the trees. Despite their benefits, it should be noted that afforestation and reforestation projects can lead to the development of a monoculture if only one species of tree is planted. Additionally, preference for only removals while shunning credits from projects that protect the standing carbon in forests neglects protection of the valuable biodiversity, habitat protection, soil protection, watershed protection, and nutrient cycling functions of standing forests.

To meet the ambitious climate change mitigation target of a 1.5°C warming scenario outlined in the 2018 Intergovernmental Panel on Climate Change report, the world needs to have net zero emissions by 2050. This week, the World Meteorological Organization released a statement that there is “at least a one in five chance of [global temperatures] temporarily exceeding 1.5°C by 2024.” The truth is that, to meet this net zero target by 2050, we will need all nature-based solutions: grasslands, wetlands and mangroves, soil sequestration, all types of forestry and new, yet-to-be-developed solutions.