Sliced: Finance for Healthy Forests

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Healthy forests are currently, and will hopefully continue to be, one of our planet’s greatest assets.

In the climate finance and carbon market realms, we often discuss forests regarding their carbon storage and sequestration abilities. They are all-stars in that role, but they also provide a variety of other ecosystem services such as conserving biodiversity, offering recreation opportunities, protecting water resources, and supporting local communities and landowners.

It goes without saying that our planet benefits more from forests that are thriving and strong. Unfortunately, for some American forest owners, maintaining a healthy forest is easier said than done.

The good news, however, is that economic aid is on the way. Last month, the United States Department of Agriculture’s (USDA) Forest Service announced plans to invest nearly $145 million to support landowners in engaging with private-sector markets. The goal is to provide economic incentives for landowners to maintain productive forests via reforestation, improved forest management, and other sustainable methods. The money is coming from President Joe Biden’s historic 2022 Inflation Reduction Act.

This is a welcome update for smallholder landowners who make up a solid share of forest owners across the country. In the United States, private ownership by families and individuals accounts for 39% of the forested land. This equates to around 290 million acres, which is roughly equivalent to the size of Texas and California combined. The forested land is distributed across various small parcels ranging in size from 10 to 2,000 acres.

Part of the $145 million investment is to help small-acreage forest owners engage in carbon markets, which they often struggle to do compared to larger forest holders. That is due mainly to the significant costs associated with the data collection and reporting demands set by carbon registries.

One way in which forest owners can get involved in carbon markets is via Improved Forest Management, or IFM. IFM is a forestry practice aimed at enhancing and maintaining the carbon stocks of forests. This approach involves various strategies such as extending harvest rotation periods, reducing deforestation, and increasing the density of trees, all of which can lead to an increase in the amount of carbon stored in the forest ecosystem over time.

A carbon credit project that implements IFM would typically involve the careful management of a forest area to increase its carbon storage or avoid emissions, compared to a baseline scenario. The carbon credits generated through this process can then be sold, providing a financial incentive for sustainable forest management practices.

For American forest owners looking to engage in an IFM carbon project, there are a handful of methodologies across the major standards including ACR, Climate Action Reserve, Gold Standard, Plan Vivo, and Verra.

Last month, Verra revised one of its IFM methodologies – VM0045 Methodology for Improved Forest Management Using Dynamic Matched Baselines from National Forest Inventories. VM0045 covers a broad spectrum of IFM practices and employs a dynamic benchmark based on national forest inventories for additionality and crediting baselines. VM0045 also requires projects to adopt specific IFM practices focused on accurate greenhouse gas (GHG) emissions or carbon stock changes. Notably, VM0045 now allows projects to produce credits classified as either emissions reductions or carbon dioxide removals (CDRs).

There are also active programs to help forest owners. The Family Forest Carbon Program (FFCP) from the American Forest Foundation (AFF) and The Nature Conservancy (TNC) opens the door for private forest owners to tap into the voluntary carbon market. This initiative offers landowners a source of revenue that can be applied towards the expenses of forest management or assist in covering property taxes. By participating in the FFCP, landowners receive financial and technical support to enhance the resilience and economic value of their forests, contribute to the strength of rural economies, and implement forest management practices that increase carbon sequestration, improve forest health, and provide additional ecosystem benefits.

FFCP recently expanded its reach across the US and now includes Alabama, Kentucky, and Tennessee and potentially adds another 10 million acres of land to its program. This expansion is significant because family-owned forests constitute the majority of woodland in these states.

Despite the recent ups and downs of carbon credit prices across carbon markets, IFM credits have managed to stay relatively strong. Recent trades have seen IFM credits fetch between $18 and $25 a pop, which is promising for IFM carbon projects.

However, it is not all peachy for IFM projects and credits. A recent integrity scoring assessment from the Carbon Credit Quality Initiative (CCQI) highlighted concerns over inflated baselines and overlooked leakage that could result in overstated emission reductions or removals across all the methodologies that they evaluated. CCQI’s findings state that the probability of genuine additionality varies greatly with the specific forest management practices employed. At the same time, the sustainable development advantages are generally more constrained than those seen in other project categories. CCQI believes much more work is still required to ensure that IFM projects deliver real results and co-benefits.

Last week, ACR, Climate Action Reserve (CAR), and Gold Standard were approved as CCP-Eligible programs by the Integrity Council for the Voluntary Carbon Market (ICVCM). Currently, six IFM methodologies, some of which are part of ACR and CAR, are under category-level assessment. The results of the assessment could impact carbon prices associated with the corresponding IFM methodologies.  

Robust IFM projects have the possibility to play a fundamental role in preserving the health of our forests. For these projects to fully realize their environmental potential and provide authentic benefits, it’s essential to tackle the current obstacles they face. Encouragingly, there is a rising flow of financial support and resources aimed at overcoming these challenges.

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