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Navigating Risks: Carbon Markets from a Landowner Perspective

Published: April 25, 2024 by

Risk in the Voluntary Carbon Market (VCM) is often discussed from the credit purchaser’s perspective, with increased attention and even carbon insurance mechanisms developing as the VCM continues to grow. Yet less focus has been paid to the commitments and risks born by project proponents in the marketplace, whose risk may be disproportionately large compared to the corporations purchasing these offsets.

Project proponents are the entity that maintains primary control and accountability for a carbon project, typically the landowner.  Under most protocols, proponents commit to project terms of at least 40-150 years to ensure permanence. Entering a carbon program means adhering to rigorous monitoring, reporting and verification schedule for the duration of this term, regardless of carbon market trends, updates to quantification methodologies, and the regulatory landscape decades after the project start date. As a hypothetical example, a forest owner in Oregon who signed on to an ACR Improved Forest Management project in January 2020 would have committed to maintain or increase their carbon stocking through a historic wildfire year in 2020, a hot and volatile timber market, and major updates to the Oregon Forest Practices Act rolled out in the past year which introduced new harvest restrictions to be accounted for in project baselines. On the carbon side, market instability may dis-incentivize project proponents from adopting additional climate-smart practices due to the risk of the market failing to reward or even reimburse them for their efforts.

Navigating these challenges with the encumbrance and responsibility of a carbon project requires substantial resources and expertise. Carbon offset buyers can help scale and mitigate landowner risk by understanding the complexities of nature-based offset projects and structuring purchase agreement to address these complexities. The Climate Trust believes in the power of the carbon market to value and support landowner commitments over the project term as an incentive to current and future project proponents.