Forests have always played an important role in the global fight against climate change, and the demand for forest carbon offsets is increasing, as are prices. That said, creating and using forest carbon offsets has always been a challenging topic within global carbon markets and they have not been widely used in compliance carbon markets – those established and regulated by governments. For instance, they are not eligible in the EU Emissions Trading Scheme, one of the largest and most consistent compliance markets globally.

However, as more companies are making net-zero commitments, the appetite for forest carbon credits is growing in the voluntary (non-regulatory) carbon market. The Taskforce for Scaling Voluntary Carbon Markets anticipates credits from forestry to contribute between 65-85% of carbon credit supply to the voluntary markets between now and 2030.

Forestry carbon offsets are the subject of both positive attention and support, and of a high degree of scrutiny and frustration.

How can we ensure forest carbon offsets play an optimal role within global decarbonisation efforts?

What are forest carbon offset programs?

Carbon offsets (or carbon credits) are derived from activities that avoid, reduce or remove emissions that would otherwise end up in the atmosphere. These offsets, once verified, can be purchased by governments, companies or consumers, thereby connecting the dots between the financing of emission-reducing activities and the rights to claim such emission reductions against one’s carbon footprint. Financing carbon offsets is one amongst a number of important tools used to achieve decarbonisation, and more broadly, sustainability goals.

Within the sphere of “nature-based” carbon activities, there are a wide range of land use, land-use change and forestry practices that potentially result in measurable and verifiable (i.e. real) carbon offsets.

Amongst the approaches to offset carbon using forests, we have avoided deforestation – the practice of conserving existing forests that would likely have been degraded or destroyed, afforestation – the process of growing forests on land which has not been forested in recent history, and finally reforestation – replanting forest biomass in areas where forests have been previously harvested.

A few challenges that forest carbon credits are facing

Throughout the history of carbon markets, forest carbon offsets have always faced challenges relating to:

  • the permanence of carbon offsets
  • the monitoring, verification and issuance of offsets
  • ensuring the offsets are properly accounted for and only claimed once.

These challenges are not unique to forestry carbon offsets, but can, in some cases, be more difficult and costly to address.

1. Permanence of forestry carbon offsets

Once released into the atmosphere, carbon dioxide molecules immediately contribute to the growing pool of global warming gases in our atmosphere. So in order for a carbon offset to have a lasting positive effect, the emission reduction claimed needs to be kept out of the atmosphere.

But the destiny of forest carbon is somewhat unpredictable. Trees can be lost due to forest fires, disease, illicit land use or even government intervention. If a forest is degraded in terms of the amount of carbon retained in its biomass, any offsets previously used in compliance or voluntary markets will essentially become negated. What happens to those carbon offset claims then becomes subject to government or market adjustment, in the case of compliance and voluntary markets respectively.

Permanence risk is real and not immaterial for both buyers and sellers of forest carbon credits.

2. Monitoring, verifying and issuing forest carbon offsets

Purchasing carbon offsets to reach corporate sustainability goals are only meaningful if they are measurable and verifiable. But given the technology available at the time, data collection and analysis for forestry projects has historically been a complex, slow and manual process.

For newly developed and invested forest carbon projects, it can take years before the first carbon credit is issued – allowing for a period where new projects reach a level of stability, and all the while requiring asset management and monitoring. Once the costly process for verification and issuance of carbon credits begins, it can take many months and with some unpredictability in terms of how many final credits will be issued.

Given the vast and potentially heterogeneous land involved, together with the acute cycles of concentrated demand for carbon offsets seen across the market (carbon markets can be highly “seasonal”), there have often been severe bottlenecks in terms of qualified experts available to start and complete the process to create measurable and verifiable carbon offsets.

Apart from verifying that emission reductions have occurred within a particular project boundary, it is also essential to verify that “leakage” has not occurred, i.e. a circumstance where the carbon sequestered by the project is replaced by an increase in carbon emissions elsewhere. It is easy to envision how the activity for reducing carbon across a particular area of land (reducing illegal logging, for example) could inadvertently incentivise the use of other neighboring areas of land in less carbon-friendly ways. Trying to track leakage outside the project boundary expands the scale and type of monitoring and verification that must occur – a daunting prospect if significantly manual.

Forestry carbon offset projects can be rewarding investments when managed well. But inefficiencies and bottlenecks such as those above can result in carbon projects that are struggling financially. Given the competing uses for land areas, the sooner we remove these bottlenecks, the sooner the financial incentives for carbon-friendly forestry projects improve.

3. Tracking and accounting for carbon offsets that eventuate

It will not surprise anyone who has been through an audit of any kind that accounting errors (or in some cases, willful misrepresentations) of carbon offsets do occasionally occur. Unless each carbon offset is properly accounted for in terms of which government, corporate or individual has a right to claim it, forest carbon offsets – just like any other carbon offset – runs the risk of being counted more than once.

Given the the need for coordinated carbon-reducing efforts at the global, regional and local level, and the need for carbon emissions and reductions to be reported as accurately as possible – under legal obligation by all signatory governments of Paris Agreements – it’s absolutely vital that the data that underpins each emission reduction is detailed, accurate and accessible.


How technology can help forest carbon credits

Technology cannot solve all of the challenges faced by forest-based carbon projects overnight. However, given the absolutely critical role forests play in global carbon cycles, we must find and quickly but carefully adopt solutions that bring about meaningful improvement to both forest carbon projects and the markets.

Here are a few tech-based improvements that are available now and are being deployed in some places.

Remote sensors, satellite observation and artificial intelligence

One avenue being explored and deployed for certain forest management applications is the use of remote sensing – both through satellite observation and through robots (ground mounted and flying). Such remote sensing, together with specialised analytics, has long brought vast improvement to the agricultural sector, and has been particularly powerful in bringing improvement to the protection of vast protected forests, plantations and evening to industrial and construction sites.

In the case of forests, such tools have dealt with everything from detecting the risky build-up of “forest fuel”, to the early detection of fires, disease and illegal land use, to aiding in the responses to these same risks. It can even help detect the occurrence of “leakage” mentioned earlier.

Not only can such technologies help reduce cost and risk for land areas managed for agriculture or recreation or biodiversity, but satellite and robot-obtained tree canopy data, together with soil sensor data, can be (and is being) used to measure and monitor carbon stored above and below ground in forests.

From an environmental financial product perspective (i.e. the business of financing through environmental offsets), the same improved predictability and reduced operating, financing and insurance costs that has been realised in the agriculture space is starting to be realised in the carbon offset space.

Blockchain technology

Historically, it’s been difficult to easily and permanently link the data from a carbon offset to the data from verification at a specific location from a specific time, potentially limiting and even hurting the credibility of environmental claims made using such offset. The need to efficiently and digitally link data to carbon offsets is becoming more acute as carbon accounting (for corporates) and carbon reporting (to country registries, meta registries and to the governing bodies of the Paris Agreements) goes digital.

A solution that is starting to be leveraged is the use of blockchain technology to record carbon-related data. That is, data collected directly from the kinds of devices and sensors described above, is permanently and verifiably linked to carbon offsets that have been achieved.

Having data packaged in this way not only creates carbon offsets that carry a digital signature all the way from creation, to transfer, to retirement, but it also allows offsetting activities to fit neatly into the digital carbon accounting and reporting mentioned above, and into a growing list of digitised professional services, e.g. tracking the performance of climate-related financing (green bonds), reporting between general partners and limited partners, data for green ratings, and simply for group-wide tracking of decarbonisation goals.

Putting carbon-related data on “digital rails” is a way of future-proofing a party’s decarbonisation activities. In the near-term, it allows for quicker, cheaper production of carbon offsets and for better structured financing, insurance and professional services – all absolutely critical to strive for given the urgency with which we must combat climate change.

Combining technology with human verification

In an ideal scenario, the integration of appropriate technology with manual input from experts in the right place at the right time can create higher quality and more versatile products, while reducing or avoiding critical bottlenecks.

One approach being contemplated is the creation of a high quality, digital tranche of carbon offsets through a combination of remote sensing, analytics and blockchain-based data collection – the process and costs being materially streamlined. A majority of a project’s offsets could be issued using this highly effective approach – carrying all the merits of a digital instrument discussed above – with a manual audit or verification taking place less frequently to issue a tranche of offsets that have been adjusted, should any market standard require it.

Forest carbon credits are instrumental in our fight against climate change

Not only can forests be an effective means for sequestering carbon, but they play a uniquely important role in relation to biodiversity, improving lives and livelihood, aesthetics, and even as a source of life-saving biochemical compounds used in medicine. Sadly, however, carbon emissions sequestered through forestry have decreased significantly in the past 20 years due to deforestation from logging, plantations, agriculture, and construction, as well as an increasing number and scale of fires due to global warming. Time is of the essence in developing better solutions.

Coming back to our initial premise: can we optimise forestry carbon offsets through the use of available and emerging technology? Yes, we can. There is room for improvement when it comes to current methods used in the voluntary market, but at the end of the day, forest carbon credits are an absolutely essential tool in our fight against climate change.

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