We’re not paying countries enough to save trees from deforestation. Here’s the price that would actually make a dent in climate change.
Read: Historic compensation fund approved at U.N. climate talks
Smaller economies are often the source of the fossil fuels, forests, minerals PICK, -1.95% and other raw materials behind the developed world’s modern conveniences and technological advancements, including many practices responsible for Earth-warming emissions. And yet the developing world shoulders the worst of the droughts, deadly heat, ruined crops and eroding coastlines that take lives and eat into economic growth.
Earth-warming greenhouse-gas emissions, such as CO2, are created when fossil fuels CL00, +0.66% are burned. But in addition to lowering the burning of coal, oil and gas NG00, +0.51%, a multipronged approach to slowing global warming also calls for finding ways to suck CO2 directly from the atmosphere, as well as capturing CO2 at the point of energy combustion.
This can be accomplished, in part, by using nature to its fullest, such as keeping carbon-absorbing oceans healthy and leaving major forests intact. Manmade technology, such as one potentially industry-changing machine from Climeworks built to pull CO2 from the open air and store it underground, is also trying to solve for this issue.
Commitments lagging
As for the forest approach, some of the expense for the incentive program comes with treating this market like a mature operation. Complying with state-of-the-art accounting and crediting standards required to achieve high-integrity benefits will also have significant cost implications, the report says.
“Despite recent articles that criticize forest carbon, or REDD+, this report shows the need for this crucial funding stream for deforestation. High-quality and high-integrity emissions reductions from REDD+ are cost effective, but they are not cheap,” Labbate and team say in the report.
The latest report follows a release last year by UN-REDD, the U.N. Environment Program World Conservation Monitoring Center (UNEP-WCMC) and the Green Gigaton Challenge (GGC). The older report found that for 2030 goals of halving industrial-world emissions to remain within reach, a one-gigaton milestone of emissions reductions from forests must be achieved no later than 2025, and yearly after that. Measured against this milestone, current public and private commitments are only at 24%.
The group also says that a bump in payment will not only make the system more durable in the long run, it will make it fairer to the groups most often faced with the choice to preserve or develop the land. For example, the U.N. team says its program can help ensure equitable participation for Indigenous people, local communities and women.
Read: Energy group blasts Big Oil for not giving just 3% of record profits to methane-emission cuts
Is this the only type of carbon-credit market?
Carbon-credit markets can work in a couple of ways. One approach is by incentivizing humans to help Mother Nature do her job, such as through the forest-credit program outlined in this report. Earth’s trees and plants pull vast amounts of carbon dioxide out of the atmosphere during photosynthesis, incorporating some of that carbon into structures like wood. Areas that absorb more carbon than they emit are called carbon sinks.
True enough, it remains an evolving area of study. Plants can also emit the greenhouse gas during processes like respiration, when dead plants decay, or during combustion in the case of fires. Researchers are particularly interested in whether — and how — plants at the scale of an ecosystem like a forest act as sources or sinks in an increasingly warming world, NASA says in a 2021 report.
Read: President Carter was the first to put solar panels on the White House — Reagan removed them 7 years later
Another carbon-credit approach involves swapping allowances on a market so that higher-polluting companies might purchase credits from lower-polluting companies, all determined by government-set caps on how much pollution is allowed. Carbon-credit markets, which have existed in some form for years, are seen as a step short of outright bans on emissions.
In theory, prices for carbon permits would rise over the long term as governments gradually tighten the caps. The goal is to motivate polluting companies to switch to fuels with lower emissions, or to invest in low-carbon technologies, versus constantly having to pay on the market for extra allowances.
This week, the European Union marked a milestone for one of the key tools the bloc is using to meet its climate targets: A carbon credit hit a record-high €100 per metric ton.
As Barron’s notes, investors can profit from the carbon-trading market through some exchange-traded funds, but caution is warranted. Although prices should rise over time, and have taken off this year, they can be highly volatile.
Published: Feb. 22, 2023
By Rachel Koning Beals
A U.N. policy arm wants to raise the pricing floor intended to avoid deforestation. And the group believes it has just the price target to make that happen, it exclusively tells MarketWatch.
Men are seen on a burnt area of the Amazon rainforest in Apui, Brazil, last fall. According to one measure, hotspots in the Amazon region saw a record increase last year. Lost swaths of the Amazon are one target of carbon-credit programs, such as that pushed by the U.N.’s REDD policy arm.
The current price applied to a forest’s carbon-absorbing benefits is set far too low to convince those cutting down trees to stop — and, accordingly, to meet global goals to slow costly climate change, a policy arm of the United Nations says.
Essentially, governments and private industry can be compensated for leaving trees in the ground, especially in mammoth tropical forest expanses such as South America’s Amazon or the trees around Africa’s Congo River. But the incentive to do so must be competitive with the perceived benefits of deforestation, which might take place to sell lumber, raise crops or graze cattle on cleared land.
U.N. officials tell MarketWatch exclusively, in conjunction with the release of a new report, that they have a price floor in mind meant to sway more stakeholders from clearing forests — and it lies well above the current incentive.
“A high-integrity forest carbon market that is expected to deliver emissions reductions at a scale and speed commensurate with the climate crisis requires a higher price to account for the cost of forest protection,” Gabriel Labbate, head of the climate-change mitigation unit with the U.N.’s Environmental Program (UNEP), tells MarketWatch.
Research indicates that price, in U.S. dollars, starts between $30 and $50 per ton of carbon dioxide (CO2), he says.
By comparison, the average price of such credits on voluntary carbon markets has increased from $3.90 per ton of CO2 in 2019 to $4.70 per ton of CO2 in 2021, figures far too low to expect the program to make a dent in slowing atmospheric warming to no more than 1.5 degrees C, as laid out in 2015’s Paris climate accord.
‘A high-integrity forest carbon market that is expected to deliver emissions reductions at a scale and speed commensurate with the climate crisis requires a higher price to account for the cost of forest protection.’— Gabriel Labbate, UNEP’s head of the climate-change mitigation unit
The United Nations Program on Reducing Emissions from Deforestation and Forest Degradation, or UN-REDD, is the advisory arm of UNEP. UN-REDD’s aim is to work with countries and the private sector to reduce forest emissions and enhance forest carbon stocks. It gives technical advice and funding already to some 65 partner countries.
What’s more, sufficient volume of payments is necessary to unlock supply and leverage demand, essentially to make this forest-carbon program perform as a healthy market that invites more participation, the officials say.
Creating robust carbon-credit markets will require greater buy-in to U.N. programs from the world’s wealthier industrial nations.
A similar theme dominated the most recent major U.N. climate conference, known as COP27 and held late last year. For the first time ever, rich nations — including a top-polluting U.S. — will pay for the climate-change damage inflicted upon poorer nations. The deal, called “loss and damage” in summit shorthand, was struck as the U.N.’s Conference of Parties, or COP27, gaveled to a close.
By Rachel Koning Beals
A U.N. policy arm wants to raise the pricing floor intended to avoid deforestation. And the group believes it has just the price target to make that happen, it exclusively tells MarketWatch.
Men are seen on a burnt area of the Amazon rainforest in Apui, Brazil, last fall. According to one measure, hotspots in the Amazon region saw a record increase last year. Lost swaths of the Amazon are one target of carbon-credit programs, such as that pushed by the U.N.’s REDD policy arm.
The current price applied to a forest’s carbon-absorbing benefits is set far too low to convince those cutting down trees to stop — and, accordingly, to meet global goals to slow costly climate change, a policy arm of the United Nations says.
Essentially, governments and private industry can be compensated for leaving trees in the ground, especially in mammoth tropical forest expanses such as South America’s Amazon or the trees around Africa’s Congo River. But the incentive to do so must be competitive with the perceived benefits of deforestation, which might take place to sell lumber, raise crops or graze cattle on cleared land.
U.N. officials tell MarketWatch exclusively, in conjunction with the release of a new report, that they have a price floor in mind meant to sway more stakeholders from clearing forests — and it lies well above the current incentive.
“A high-integrity forest carbon market that is expected to deliver emissions reductions at a scale and speed commensurate with the climate crisis requires a higher price to account for the cost of forest protection,” Gabriel Labbate, head of the climate-change mitigation unit with the U.N.’s Environmental Program (UNEP), tells MarketWatch.
Research indicates that price, in U.S. dollars, starts between $30 and $50 per ton of carbon dioxide (CO2), he says.
By comparison, the average price of such credits on voluntary carbon markets has increased from $3.90 per ton of CO2 in 2019 to $4.70 per ton of CO2 in 2021, figures far too low to expect the program to make a dent in slowing atmospheric warming to no more than 1.5 degrees C, as laid out in 2015’s Paris climate accord.
‘A high-integrity forest carbon market that is expected to deliver emissions reductions at a scale and speed commensurate with the climate crisis requires a higher price to account for the cost of forest protection.’— Gabriel Labbate, UNEP’s head of the climate-change mitigation unit
The United Nations Program on Reducing Emissions from Deforestation and Forest Degradation, or UN-REDD, is the advisory arm of UNEP. UN-REDD’s aim is to work with countries and the private sector to reduce forest emissions and enhance forest carbon stocks. It gives technical advice and funding already to some 65 partner countries.
What’s more, sufficient volume of payments is necessary to unlock supply and leverage demand, essentially to make this forest-carbon program perform as a healthy market that invites more participation, the officials say.
Creating robust carbon-credit markets will require greater buy-in to U.N. programs from the world’s wealthier industrial nations.
A similar theme dominated the most recent major U.N. climate conference, known as COP27 and held late last year. For the first time ever, rich nations — including a top-polluting U.S. — will pay for the climate-change damage inflicted upon poorer nations. The deal, called “loss and damage” in summit shorthand, was struck as the U.N.’s Conference of Parties, or COP27, gaveled to a close.
Read: Historic compensation fund approved at U.N. climate talks
Smaller economies are often the source of the fossil fuels, forests, minerals PICK, -1.95% and other raw materials behind the developed world’s modern conveniences and technological advancements, including many practices responsible for Earth-warming emissions. And yet the developing world shoulders the worst of the droughts, deadly heat, ruined crops and eroding coastlines that take lives and eat into economic growth.
Earth-warming greenhouse-gas emissions, such as CO2, are created when fossil fuels CL00, +0.66% are burned. But in addition to lowering the burning of coal, oil and gas NG00, +0.51%, a multipronged approach to slowing global warming also calls for finding ways to suck CO2 directly from the atmosphere, as well as capturing CO2 at the point of energy combustion.
This can be accomplished, in part, by using nature to its fullest, such as keeping carbon-absorbing oceans healthy and leaving major forests intact. Manmade technology, such as one potentially industry-changing machine from Climeworks built to pull CO2 from the open air and store it underground, is also trying to solve for this issue.
Commitments lagging
As for the forest approach, some of the expense for the incentive program comes with treating this market like a mature operation. Complying with state-of-the-art accounting and crediting standards required to achieve high-integrity benefits will also have significant cost implications, the report says.
“Despite recent articles that criticize forest carbon, or REDD+, this report shows the need for this crucial funding stream for deforestation. High-quality and high-integrity emissions reductions from REDD+ are cost effective, but they are not cheap,” Labbate and team say in the report.
The latest report follows a release last year by UN-REDD, the U.N. Environment Program World Conservation Monitoring Center (UNEP-WCMC) and the Green Gigaton Challenge (GGC). The older report found that for 2030 goals of halving industrial-world emissions to remain within reach, a one-gigaton milestone of emissions reductions from forests must be achieved no later than 2025, and yearly after that. Measured against this milestone, current public and private commitments are only at 24%.
The group also says that a bump in payment will not only make the system more durable in the long run, it will make it fairer to the groups most often faced with the choice to preserve or develop the land. For example, the U.N. team says its program can help ensure equitable participation for Indigenous people, local communities and women.
Read: Energy group blasts Big Oil for not giving just 3% of record profits to methane-emission cuts
Is this the only type of carbon-credit market?
Carbon-credit markets can work in a couple of ways. One approach is by incentivizing humans to help Mother Nature do her job, such as through the forest-credit program outlined in this report. Earth’s trees and plants pull vast amounts of carbon dioxide out of the atmosphere during photosynthesis, incorporating some of that carbon into structures like wood. Areas that absorb more carbon than they emit are called carbon sinks.
True enough, it remains an evolving area of study. Plants can also emit the greenhouse gas during processes like respiration, when dead plants decay, or during combustion in the case of fires. Researchers are particularly interested in whether — and how — plants at the scale of an ecosystem like a forest act as sources or sinks in an increasingly warming world, NASA says in a 2021 report.
Read: President Carter was the first to put solar panels on the White House — Reagan removed them 7 years later
Another carbon-credit approach involves swapping allowances on a market so that higher-polluting companies might purchase credits from lower-polluting companies, all determined by government-set caps on how much pollution is allowed. Carbon-credit markets, which have existed in some form for years, are seen as a step short of outright bans on emissions.
In theory, prices for carbon permits would rise over the long term as governments gradually tighten the caps. The goal is to motivate polluting companies to switch to fuels with lower emissions, or to invest in low-carbon technologies, versus constantly having to pay on the market for extra allowances.
This week, the European Union marked a milestone for one of the key tools the bloc is using to meet its climate targets: A carbon credit hit a record-high €100 per metric ton.
As Barron’s notes, investors can profit from the carbon-trading market through some exchange-traded funds, but caution is warranted. Although prices should rise over time, and have taken off this year, they can be highly volatile.
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