Insights
U.S. Rejoins Paris Climate Agreement

Bettina von Hagen,  CEO & Managing Director

January 27th, 2021

U.S. Rejoins Paris Climate Agreement: What Does it Mean for Forests and for You as an Investor in Climate-Smart Forestry?

In one of his very first acts after taking the presidential oath, President Biden signed an executive order for the U.S. to rejoin the Paris Climate Agreement, following Trump’s announced withdrawal in 2017.  This landmark international accord has been adopted by almost every nation (with the sole exception of war-torn Syria) and it aims to substantially reduce greenhouse emissions to limit global temperature increase to 2 degrees centigrade.  Despite limited participation by the federal government as a result of the U.S. withdrawal, U.S. cities, states, and the private sector have participated extensively, leading to significant local and regional efforts and corporate pledges.  In addition, existing regional initiatives, such as the California Climate and the Regional Greenhouse Gas Initiatives, have continued to expand their activities over the last four years.  Nevertheless, the U.S.’s planned withdrawal resulted in some countries failing to act on their climate commitments, citing the futility of making sacrifices to reduce global emissions while the world’s second largest polluter (after China) was not doing its part.

Forests play a very important role in the Paris Agreement.  Article five of the Agreement references the need to “implement and support…policy approaches and positive incentives to reducing emissions from deforestation and forest degradation, and the role of conservation and sustainable management of forests…” and includes mechanisms for payments from one country to another based on proven sequestration of additional carbon beyond that country’s commitments.  The emphasis on forests in the Accord is underpinned by substantial research indicating that over one third of cost-effective strategies to reduce emissions in the next ten years can be found in the conservation and improved management of forests.

Under the Paris Agreement the U.S. has committed to reduce its emissions by 26-28% by 2025 and 80% by 2050 relative to emissions in 2005.  To meet those long-term targets, the U.S. will need to invest in forests and other natural climate solutions, and President Biden’s Plan for Climate Change and Environmental Justice has set a goal of leveraging natural climate solutions by conserving 30% of America’s lands and waters by 2030 as well as devoting significant resources to reducing the incidence and severity of forest fires.

How do these goals translate into specific incentives and mechanisms for climate-smart forestry?  The Biden Plan does not have details yet.  However, we can be confident that there will be a large investment in enhancing climate data and applied science, leading to efficiencies in estimating and monitoring forest carbon.  This will expand participation by landowners currently shut out of private carbon market by high entry costs and will help value the important role of public forests as carbon sinks.  There may be tax incentives and policies to encourage reforestation, and there will certainly be funding to reduce forest fires, including activities such as thinning, fire breaks, and controlled burns, and conservation easement funding to limit housing development in intact forests.  Funding is likely to expand for the acquisition of forests by public entities, including the U.S. Forest Service, community forests, water districts and other owners engaged in carbon-enhancing forest management, as well as payments to private landowners for improving carbon stocks.

At EFM we have implemented a carbon-forward style of forest management since inception, including longer rotations, forest reserves and retention during harvests. We have already captured some of this increased carbon value through sales of carbon credits to General Motors and Nike and through conservation easements which protect forest carbon stores over the long term.  Whether federal participation in the Paris Accord comes through enhanced cap and trade markets, direct incentives, or other mechanisms, we believe investors in EFM forest funds stand to benefit, as do forested landscapes, rural communities, and the climate.