While demand is high for credits of certain types of afforestation, reforestation and revegetation (ARR) projects, issuances have declined steadily since 2021 across the major registries and could take years to rebound.

ARR credit issuances across Verra, ACR and Gold Standard hit a peak of 37.9 million credits in 2021, according to registry data. That figure dropped to 9.2 million in 2022 and 7.8 million in 2023. Volumes could fall even further in 2024 as issuances through the first three quarters of the year reached 6.1 million. In Q3 2024, just 770,111 credits were issued.

Meanwhile, ARR credits have seen a bifurcation in price points based on project type. Initiatives that replant a variety of native species can trade as high as $60/metric ton, sources have told OPIS, but these credits are virtually non-existent in the spot market as most volumes tend to be locked away in forward deals.

Credits from projects that replant monocultures or non-native species are more abundant but can command prices below $5/mt. Vintage 2015 credits from a Latin American project that replants eucalyptus trees, which are native to Australia, were offered this week at $3.95/mt.

Among projects listed with Verra that contain some component of nature-based carbon removal, 149 projects with combined estimated annual emissions removal capacity of 38.5 million mt were listed as of October 2024.

However, 287 projects, with combined estimated annual emissions removals of 78.3 million mt, were somewhere in the registration pipeline. This figure did not show projects that are in development but have yet to be listed on the registry.

“Looking at investable pipelines, projects that are in development and getting financed now, forward demand started around 2021 or 2022,” Catona Climate Chief Carbon Officer Robert Lee told OPIS this month. Catona is financing and developing an ARR project in Malawi and an agroforestry project in Kenya.

Projects that regrow trees take roughly five to seven years before they start issuing any credits, and those initial volumes tend to be small, Lee said.

“I think around 2027 you’re going to start seeing a lot more issuances coming into the market and a lot more spot supply available,” Lee said. “I expect most of the highest quality projects will already be forward contracted for most of their volume in 2027. So, there might be a thin spot supply that’s transacting then. And then it’s just going to ramp up to 2030 when I think the projects will start issuing at scale and have more volume that’s not already forward sold.”

From Degraded Field to Forest

Nature-based carbon removal projects involve replanting degraded or cleared ecosystems. The trees and vegetation they grow actively remove carbon from the atmosphere.

By comparison, reduction projects reverse deforestation, install carbon-free power generation or replace cookstoves with more efficient devices that emit less greenhouse gases, among other activities.

Many ARR developers highlighted how difficult it can be to grow a forest on cleared land.

U.S.-based developer GreenTrees partners with landholders in the Mississippi Alluvial Valley to convert their properties into ARR projects. In most cases, owners previously used their land to farm crops like soybeans and corn.

According to GreenTrees Co-Founder and Managing Partner Chandler Van Voorhis, who spoke to OPIS earlier this year, that land-use transition can be a tough sell.

“With [Reducing Emissions from Deforestation and Forest Degradation] and [Improved Forest Management] projects, you’re changing the way you manage an existing asset,” Van Voorhis said. “With ARR, you’re making big capital investments. You have different yield curves. You’re going from a known cash position to uncertainty. That is a different kettle of fish.”

Van Voorhis described carbon removal and resulting profits from an ARR project as an S curve. It can take several years before a new project begins to generate credits and, in those early years, issuances are typically meager.

Landowners should look at afforestation not as they would a crop, but as a generational change in how they use their land, Van Voorhis said.

Some trees, including eucalyptus, can grow faster than other native species in certain climates, and that can mean projects that plant them issue credits faster, Lee said.

“There are obvious ecological impacts to that,” Lee said. “Eucalyptus is a water hog, and [if you plant it], you’re going to be draining that watershed of its water supply. So if you’re going to do that, there better be a good reason and not just because eucalyptus has a nice carbon curve.”

Carbon projects need to balance their carbon reduction and removal with impacts on the local environments and communities, according to Lee.

“If you only focus on carbon, then you’re going to ignore what the project is doing to the ecosystem,” Lee said. “You’re going to ignore what the project is doing to the communities. Carbon is obviously the vehicle of finance. It’s the unit that’s being transacted, but if these projects aren’t also designed to positively impact the local ecosystems and local communities, it’s just short-sighted. I don’t think that there’s going to be a whole lot of demand for that. You might get your carbon credits faster, but you might not be able to sell them. We can’t be trading one crisis for another.”

Keeping Growth Slow to Maintain Quality

U.S.-based Chestnut Carbon launched in 2022 and started to regrow land it owns and manages. The company announced its first contract with Microsoft in December 2023 for the forward delivery of 362,000 ARR credits. But the first credits won’t be delivered until 2027.

The deal comprised roughly 70% of the credits the company expects to issue from their first project, Chief Commercial Officer Shannon Smith told OPIS earlier this year. “Part of that is just giving us a delivery cushion to make sure that, if there’s any shortfall in credits the trees actually deliver, we won’t have any trouble meeting our obligations,” Smith said. “But we’re also leaving some credits to sell on the spot market because we’re expecting the credit prices to be higher five years from now.”

According to Chestnut Carbon Chief Financial Officer Greg Adams, it would theoretically be possible to plant forests that grow faster and issue credits sooner. But that could sacrifice the project’s quality.

“We do not want to overpromise and under deliver,” Adams said. “We want to make sure we do it right. Given the criticism that has been leveled against this space, it’s really important to us that our growth does not come at the expense of compromising the integrity of our product. Full stop.”

The Outlook for Removal Credit Supply

Maintaining the pace of issuances has become a challenge for some developers. Van Voorhis of GreenTrees said his aggregated project ideally issues every year to both satisfy forward sales agreements and return revenue to participating landowners on a regular basis.

But the monitoring, reporting and verification process has slowed, in part, due to difficulties related to getting GreenTrees’ project verified by certified third parties.

“First, you need to get on a verifier’s schedule,” Van Voorhis said. “Then you can start verification, which can take nine months. It’s an intensive audit. If you start in January, and you’re lucky, you get credits by September. That’s in an ideal world. The reality is there are so many projects and only so many verifiers. We can’t even get an initial meeting with verifiers until later this year. Sometimes the issuance schedule has nothing to do with us.”

On top of that, methodologies and quality standards have continued to evolve.

“The other piece is there are changes in the standards and methodologies that are coming down the pike, including a lot of attention on what the big buyers in the market are looking for,” Lee said.

Verra published a new ARR methodology, VM0047, in September 2023 that replaced two ARR methodologies developed under the Clean Development Mechanism. Projects using the old methodologies were required to transition to VM0047.

Verra also published its ABACUS Label for ARR projects in July, which establishes a higher-quality benchmark than its new methodology. The Integrity Council for the Voluntary Carbon Market was also expected to determine whether select ARR methodologies meet its Core Carbon Principles quality benchmark by the end of the year, as OPIS previously reported.

“I’m seeing the demand for stuff under some old CDM methodologies kind of falling off a cliff,” Lee said. “And I think the focus is going to be on the newer ARR methodologies and newer approaches, so I think the supply is going to follow that.”