Carbon Market Update

Amrita Vatsal,  Managing Director, Business Development

August 21st, 2020

EFM addresses climate change by both increasing the amount of carbon sequestered by our forests through climate-smart forest management practices and by reducing emissions as compared to conventional harvesting methods. We monetize these actions by developing carbon projects on forestland assets owned by our funds.

2018 and 2019 represented two of the best years in the last decade for carbon markets. The increase in demand for natural climate solutions (NCS), particularly forest-based, was the main driver as volumes of this offset type grew 72% while volume in all other offset types grew just 21% (Source: Forest Trends, 2019).  Contributing to this increased demand is a 2018 Intergovernmental Panel on Climate Change Lands Report that identified carbon sinks from NCS as critical to meeting the Paris Agreement’s 2°Celsius goal and widely cited research published by the National Academy of Sciences from 2017 showing that the climate mitigation potential of NCS had been vastly underestimated. EFM’s funds have been part of this growth with our latest offset purchase agreement signed with a large U.S. corporation in 2019.

This momentum, however, drastically slowed in 2020, with the COVID pandemic slowing down corporate activity and disrupting global supply chains, which will dampen the demand for offsetting emissions in the short term.  Discretionary spending is down amongst airline, retail, luxury brands and the oil and gas industries, which are the biggest purchasers of offsets.  However, longer-term trends remain hopeful, with countries and corporations continuing to show commitment to meeting Paris Agreement goals. We remain optimistic that offset prices in both compliance and voluntary markets will rebound once demand and economic activity slowly return in a post-COVID recovery. We also continue to see increased interest in voluntary forest-based carbon projects as part of the increase in U.S. corporations’ commitment to decreasing their carbon footprint across industries.  Recent examples include Microsoft’s pledge to be carbon negative by 2030 and Amazon’s $100 million commitment to restore and protect forests, wetlands, and peatlands around the world.

EFM remains dedicated to increasing forest carbon storage as one of many natural climate solutions we are developing in order to combat climate change, support increased ecosystem health, and support the vitality of rural communities.