Demand for forest carbon offsets could exceed supply 400% by 2050

Looming shortages of forest carbon offsets in the voluntary market will present a challenge to companies aiming to use offsets to handle their unavoidable carbon emissions. As a result, other carbon removal strategies will have to come into play within more diversified carbon removal portfolios. Nature-based carbon offsets are already priced at a premium compared to the average across all offset categories, at around $14.40/ton and $2.50/ton respectively. This shortage is expected to escalate in the coming decades; Trove Research’s newly published report projects that demand for forest offsets will exceed supply by 400% by 2050, and Bloomberg NEF estimates that total supply will meet just 90% of the entire offset market demand by then. Even Gabon’s recent announcement of 187 million forest offsets through one of the world’s largest offset projects to date won’t be enough to allay these long-term shortfalls.

 

In purchasing a forest offset, buyers are paying for the forest area needed to sequester one ton of carbon emissions. Payment then incentivizes landowners to change their behavior and protect or generate forest that wouldn’t otherwise exist to capture carbon. Forest carbon offsets are an excellent climate tool beyond their carbon-sequestering power: they’re immediately actionable in a way many technologies aren’t yet, they provide ancillary benefits to biodiversity and the economies of heavily forested nations, and quickly maturing verification and monitoring frameworks— Pachama and the TVCM, for example— are helping to ensure they store carbon as advertised. From a business perspective, forest offsets are easy for both customers and employees to understand, and more simply, protecting natural resources carries warm, fuzzy connotations that sucking carbon out of the air through a tube can’t replicate.

 

Because reaching true carbon neutrality without some form of carbon removal is nearly impossible, companies may expect to cover the last 5-10% of their emissions— those deemed “unavoidable” under the Science Based Targets Initiative net-zero guidelines— by purchasing forest-based carbon offsets. A Bloomberg analysis of four potential price scenarios predicted offset prices across all categories are expected to reach somewhere between $47 and $215/ton in 2030 before settling in the range of $48 to $120/ton by 2050. These wide price ranges reflect the possibility that certain credits—including deforestation avoidance credits— could be excluded from markets as quality controls tighten, squeezing supply even further. Given the scarcity of forest offsets, it’s likely that they’ll continue to command higher prices than these market averages regardless of which scenario takes shape. For many, the price of offsetting even a small portion of emissions through forest offsets could become untenable relatively soon.

 

Why the shortage? Beyond surging demand, our supply of forest land is limited even today, and many industries are failing to meet their deforestation reduction goals (pushing even more carbon into the atmosphere and increasing the need for reforestation and other types of carbon offsets). Forest offsets will not be on the table for everyone who wants them.

 

Even as rising prices entice new offset projects onto the market, supply of forest offsets is influenced by factors beyond corporate control such as public policy and ecosystem shifts, so businesses should already be thinking about additional ways to address the last portion of their emissions. Beyond getting increasingly creative with operations to shrink those unavoidable emissions as much as possible, that could mean investing in scaling technology solutions like direct air capture or looking beyond forests to other nature-based offsets like marshlands, to name a few possibilities. Forest-based offsets must be accompanied by a diverse range of carbon removal solutions if global scale decarbonization is to succeed.

 

Stay tuned in the coming weeks as The Climate Board develops a full report on the role of carbon offsets in corporate decarbonization strategies. Be sure to contact us and find out how total access to our research helps member companies make their climate goals a reality.

3% predicted decline in global GDP by 2100 without climate mitigation

The relationship between climate action and economic health is complicated. Periods of decline often resultin short-term emissions reductions while simultaneously hindering long-term systematic change and the development of technological solutions. On the other hand, climate change itself may fuel economic decline; a report published in Science in 2017 predicted that if carbon emissions continue on the current trajectory, we’ll see an irreversible 3% drop in the world’s GDP by the end of the century. In 2008, when the economy took the deepest plunge since the Great Depression, the downturn pulled climate and sustainability concerns with it as both businesses and consumers shifted their attention to making ends meet and pushed longer-term problems to the back burner. Policy momentum suffered as well; COP15 in Copenhagen generated small, unenforceable carbon reduction commitments instead of the anticipated binding limits on emissions. Now fears of another recession are growing, and rising inflation has proven unresponsive to the Fed’s efforts to gently cool the economy. This begs the question: will the next recession present another huge setback in the race to drive down carbon emissions and mitigate economic consequences in the decades to come? Despite many uncertainties, we’re optimistic that 2022 will be nothing like 2008, either for the planet or the economy. For one, some experts predict that if a recession develops, it will be far less significant than the crisis of 2008. Moreover, the corporate climate and ESG landscape has grown at a remarkable pace since then, and though a downturn may not result in a transformative green recovery— as many had hoped in the early days of the COVID pandemic— there are guardrails in place to ensure sustainability remains among the majority of business leaders’ key priorities:

  • Urgency. The effects of climate change are taking shape with more force and speed than expected even a few years ago, contributing directly to our inflation and supply chain woes. Costs to human life and global development are already piling up, and executives face escalating pressure from grassroots activists, consumers, investors and supply network partners to take appropriately swift action to decarbonize their value chains.
  • Accessibility. Technological climate solutions, from cleaner energy to carbon capture and storage, have forged ahead on the path to widespread use. The costs of renewable energy generation, for example, are reaching parity with more carbon-intensive mainstay technologies, a vast improvement from 2008, and electric vehicles can compete with conventional vehicles in much of the U.S.
  • Collaboration. Global coalitions and information-sharing networks dedicated to climate and sustainability have sprouted, from the U.N’s Race to Zero to the We Mean Business Coalition, making it easier than ever for business leaders to learn from and build on the progress of their peers.
  • Planning. The business infrastructure tailored to decarbonization is more comprehensive than ever before. SBTi wasn’t founded until 2015, and countless companies are just beginning to deploy capital and talent to facilitate decarbonization, from empowering internal Chief Sustainability Officers to engaging organizations like The Climate Board and external consulting firms that offer climate expertise and business guidance.
  • Transparency and Accountability. Promising net-zero is crucial but no longer enough. A tide of climate journalism, watchdog NGOs, and higher expectations from stakeholders mean that companies’ climate promises face greater scrutiny than ever before. Relatively new norms of ESG reporting and disclosure through platforms like CDP and TPI are pushing companies to uphold their commitments to reduce emissions or face real-world losses.

Investing in science-aligned decarbonization strategies may seem easier in periods of economic growth, when the specter of climate change-fueled decline looms larger. In reality, businesses will inevitably be faced with cyclical pressure to shed lower-priority spending, which historically included environmental sustainability investments. We suspect this ecosystem of climate actors and motivators is strong enough to withstand this round of economic challenges.

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