REDD+ collapses, but ARR surprisingly strong - VCM Report 2023

The carbon market is starting to recognize and pay more for quality tree-planting projects, even while the broader (and much larger) market for avoided-deforestation credits collapses.

That’s the hidden message in the latest “State of the Voluntary Carbon Market” report.

2023 was seen as the year that support for tree-planting initiatives collapsed. Scandals at South Pole, the biggest seller of nature-based credits, showed that many of their credits were based on thin science, resulting in a broad pullback on funding tree-based climate projects.

But the market was able to tell the difference! The prevailing form of credits (REDD+, or "don't cut down trees") was found to be faulty, but even while they melted down, ARR credits ("actually plant new trees") actually went up in price!

From 2022 to 2023, ARR credits (“plant new forests”) rose in price by over 30%, while prices for unreliable REDD+ credits (“don’t cut down trees”) dropped by nearly 23%.

Companies reported that last year’s negative press about REDD+ had a powerful effect on their decisions. They weren’t alone—the standard-setting ICVCM and VCMI responded by releasing new frameworks that “contributed to buyer confidence in market quality and integrity.”

That’s huge—because the market has been undermined for years by lower-quality projects, driven partly by uneven standards and buyers’ resistance to paying for higher quality. That was the situation for far too long, and it’s finally changing.

Using lessons learned from decades of prior projects, carbon credits linked to next-generation forest restoration projects combine scientific rigor, community co-authorship, and rigorous accounting - this is the new face of ARR.

Even while broad-based sentiment dropped, the market was able to distinguish between nuances and methods: highlighting the quiet but growing signal pointing the way to what is to come: high-quality projects with clear additionality.

Of course, the carbon market only matters if these projects actually have an impact on climate change. Otherwise, you’d just be buying your way out of polluting, which is bad for literally everyone.

But there’s data on that, and the report highlights it!

In reducing gross emissions, companies that buy credits through the voluntary carbon market outperform those that don’t—59% vs. 33%, YoY.

When you’re dedicated to reducing your carbon footprint, you use all the tools in your toolbox. Offsets are an important one.

The high-quality forest restoration (ARR) projects that produce these credits, and skilled forestry teams with the skills, tools, and funding access to create these investable projects at scale, are what Terraformation offers.?

ARR projects create new forests (and other ecosystems), so they deliver actual carbon removal, not just avoidance. The report shows buyers are gravitating to these higher-quality projects with stronger additionality (the carbon reductions wouldn’t have happened w/o the project).

But while the report shows “robust” demand for these projects, the price is still far below where it needs to incentivize reforestation and deliver the quality buyers are asking for.

Co-benefits—local jobs, food security, biodiversity, or clean water—improve community buy-in, which improves forest success rates and quality of life.

Real improvements to global health and welfare cost more than just $1/tree (or $10/tonne)

Credits from nature-based solutions (NBS) already command up to a 91% premium over engineered carbon types. Even with this higher cost, projects with co-benefits (which are usually NBS) are up 6% in volume—28% of all transactions.

Forestry teams need money to start new projects, so buying credits from a forest that has already grown doesn’t help plant new forests. Scaling up forest planting is what we need for our climate.

Building capacity will make it possible for buyers to get the high-quality credits they want—and more importantly, it will help us get the planet we want, i.e., one that is still habitable in 50 years.

At Terraformation, we aim to “future-proof” projects, meaning “they’ll exceed the standards at any point in their lifecycle.”?

If you're looking for quality projects with strong co-benefits, ask our team about the latest Accelerator cohorts with forward carbon sales coming up soon. Reach out to learn more.