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An Investment Primer for Reforestation CARBON REMOVAL, ENVIRONMENTAL AND SOCIAL IMPACTS, AND FINANCIAL POTENTIAL

JANUARY 2020 1 CONTENTS

Contents

About CREO 2

Terms 3

Executive Summary 4

Background Forestry for Climate 6 Reforestation Investment Potential 9 - Investment Avenues 9 - Costs and Returns 10

Carbon Markets Regulatory Compliance 14 Voluntary 15 Corporate Offsetting 15 Summary 16

Timber and Non-Timber Forest Products Timber 18 Agroforestry 19 Summary 20

Restoration and Conservation Initiatives Direct Revenue Creation 22 Blended Finance 23 Catalytic Capital 24 Summary 24

Moving Forward 25

Appendix A: CREO Modelling Assumptions 26

Appendix B: Carbon Markets 27

Citations 28 2 ABOUT CREO

About CREO

The CREO Syndicate (“CREO”) is a 501c3 public charity founded by wealth owners and family offices with a mission to address the most pressing environmental challenges of our time affecting communities across the globe—climate change and resource scarcity. By catalyzing private capital and scaling innovative solutions, CREO is contributing to protecting and preserving the environment and accelerating the transition to a sustainable economy for the benefit of the public.

CREO works closely with a broad set of global stakeholders, including Members (wealth owners, family offices, and family-owned enterprises), Friends (aligned investors such as pension funds), and Partners (government, not-for-profit organizations and academia), who collaboratively develop and invest in solutions across sectors, asset classes and geographies.

CREO’s primary activities include 1) knowledge building; 2) relationship building among like-minded, values-aligned, long-term investors; 3) conducting select research to support the advancement of its mission; and 4) deal origination. 3 TERMS

Terms

Afforestation (AF): Planting and/or deliberate seeding on land not forested over the last 50 years. The terms afforestation and reforestation in modern times are often interchanged. In the context of this primer, afforestation is included within the reforestation discussion, though not specifically called out.

Agroforestry: Intentional integration of trees and shrubs into agriculture and animal farming with a purpose of creating environmental, economic, and social benefits. This term is different from the concept of tree cultivation in monoculture formats as agroforestry integrates trees into another agricultural system with positive impact goals.

Avoided Forest Conversion (AC): Protection of existing forests and grasslands from additional losses, especially from timber harvesting.

Improved Forest Management (IFM): A set of practices that reduce the negative environmental and social effects and net emissions from forestry activities, such as timber harvesting. This concept includes better harvesting practices, the protection of ecologically important areas, and, in some cases, practices that encourage growth or regeneration.

Reforestation (AF): Re-establishment of forest areas through planting or deliberate seeding that have less than 10% canopy after a temporary (less than 10 years) condition due to human-induced or natural disturbances. 4 EXECUTIVE SUMMARY

Executive Summary

Reforestation requires patient capital due to large up-front capital requirements and comparatively long time horizons needed to grow trees. The goal of this primer is to help investors develop a reforestation investment strategy that incorporates carbon mitigation. This is done through comparisons to other types of forestry investment strategies and information about different investment opportunities that incorporate reforestation. Overall, impacts from reforestation on carbon, social, and environmental factors, as well as financial returns, will be regionally and ecologically specific.

This primer is broken up into major revenue sources for an investment in reforestation with examples of projects from investors and companies. The following are discussed in this primer to highlight the current state of individual markets:

• Carbon Markets: This section includes both compliance and voluntary markets. At current scale and demand, carbon markets do not incentivize reforestation in most geographies due to an unstable policy landscape and weak price signals. Some investors are optimistic that carbon prices will be more favorable in the future and there may be an early-mover advantage for beginning projects now. • Timber and Non-Timber Forest Products Markets: Currently, most reforestation projects involve some form of timber or product harvesting. This section also covers non-timber forest products, such as rubber or agroforestry. A reforestation and harvesting strategy with major carbon mitigation potential lies with harvesting timber and other products from reforestation instead of natural forests. • Restoration/Conservation Efforts: This section includes using tools, such as conservation easements that allow for landowners to set aside land for conservation, or blended finance models. The section also includes major regional and global initiatives that are catalyzing efforts for reforestation, such as the African Forest Landscape Restoration Initiative. These efforts highlight a mixed capital stack that is bringing in institutional and public resources to support scaling reforestation projects.

Investors should expect a range of returns depending on the project’s revenue mix of carbon, timber and agriculture, additional sources, as well as forestry project factors, like species mix and growth rates, or varying costs for land and maintenance. Based on CREO’s comparative financial modeling, return expectations for a reforestation project with both timber and carbon revenues consisted of 8.1% unlevered IRR and 8.7% levered IRR over a 35-year project period. Other investors with combined reforestation projects mixed with timber or a portfolio that includes reforestation projects among other types of forestry find returns up to the mid-teens for 10-year to 20-year projects. 5 BACKGROUND

Background

With an increase in the importance of climate mitigation efforts over the past few years, so too came an increase in interest in carbon dioxide removal (CDR) within the CREO community. Intergovernmental Panel on Climate Change (IPCC) primers have pointed to the need for CDR as necessary to limit warming to 1.5°C above pre-industrial levels. In alignment with this growing investor and scientific focus, CREO engaged in research into CDR solutions around technology and natural capital solutions around forests and agricultural soils.

In thinking about reforestation as an alternative forestry strategy, reforestation presents one of the lowest cost solutions to carbon removal at scale, including technological solutions, that is ready for large scale capital deployment (the other is with soil carbon sequestration in agriculture). Since opportunities for investment in improved forest management and avoided forest conversion are already well-known and discussed elsewhere, this primer focuses on the current and potential ways that investors can fund reforestation projects.

Combined forestry and land management is one of the largest sources of greenhouse gas emissions on the planet along with transportation and energy. The IPCC estimates Agriculture, Forestry and Other Land Use (AFOLU) made up a third of emissions from 1750 to 2011 and 12% of emissions from 2000-2009.

The wider carbon and general impact potential around reforestation, especially when compared to improved forest management and avoided forest conversion, must be noted. As with most land use projects, it is important to bear in mind the current state of the land, the potential of the land to support other uses, the impact and financial return priorities of an investor, and any potential climate feedbacks.

A pool of carbon sequestering investment opportunities already exists in the forestry asset class. There are centuries of historical knowledge and improved investment models around this asset class. Ownership of forest lands in the US and Europe is generally an equal split between private and public landowners. Within the past couple of decades, though, high impact models for carbon sequestering forestry have emerged

Many of the existing investments in the carbon sequestering space rely on existing carbon, timber, and conservation markets, which are currently skewed in favor of improved forest management and 6 BACKGROUND

avoided forest conversion. This includes REDD+, a United Nations program to reduce emissions from deforestation and forest degradation, as well as fostering conservation, sustainable management of forests and the enhancement of forest carbon stocks.

Within reforestation, an investor’s intended area of impact drives the type of reforestation project and therefore the ultimate source of revenue. Examples below highlight the different types of reforestation projects associated with the type of impact desired:

IMPACT HABITAT AND CARBON WATER FOREST LOSS DESIRED BIODIVERSITY

Planting focused on Commercial reforestation Restoring a native Reforesting riparian Reforestation biomass accumulation with the goal of timber or ecosystem to its natural areas across an entire project type with fast growing or high non-timber forest product condition watershed carbon storage systems harvesting that replaces the harvesting of natural ecosystems through:

Conservation easements, Revenue Carbon offset credits, • Monoculture systems, hunting and fishing generation Carbon offset credits conservation easements, such as pine or licenses, biodiversity options public water funding eucalyptus credits • Mixed species systems, such as shade-grown coffee or cacao

Timber or non-forest wood products

Forestry for Climate

The climate mitigation potential of natural capital solutions to keep warming below 2°C, (according to the 2017 report on natural climate solutions in the Proceedings of the National Academy of Sciences of the United States of America) is 23.8 billion tons of CO2e. Among these, forest related solutions offer over two- thirds of cost-effective and half of low-cost mitigation opportunities globally that fall below $100.

2/3 are Forest related solutions 7 BACKGROUND

Understandably, there is concern around the prioritization of capital toward different types of forestry projects, especially in discussing the economic efficiency and climate mitigation potential between reforestation, improved forest management, and avoided forest conversion. Many investors ask which forestry practices are most effective for carbon removal, but the answer to this question is dependent on many factors.

Overall, the carbon removal potential of forestry practices is regionally and locally specific. For similar amounts of financing, reforestation may result in greater carbon removal in the medium to long term than other forestry practices in one area while being less effective in others. This variance could come down to growth rates (e.g. growth rates generally being faster in tropical areas), growing season (e.g. growing season generally shorter at higher latitudes), cost of local labor, or financial and land tenure security.

To briefly review the potential of forestry as a climate solution, the following offers some major research findings, in as much as they can be generalized across either the US or globally.

Research suggests that reforestation presents the largest potential natural capital carbon abatement solution. At low and mid-level costs, improved forest management does present almost as much carbon mitigation potential as reforestation. However, the total potential carbon volume for reforestation is higher with high cost opportunities, relative to other natural capital solutions, towards the maximum potential. While it is expensive on a unit basis compared to improved forest management and avoided forest conversion, reforestation has the potential to remove around 300 Tg CO2e per year in the US and up to 10,000 Tg CO2 per year globally.

At higher volumes, reforestation’s maximum potential will ultimately come into conflict with land use needs for agriculture, development, and conservation. In other words, while the potential for carbon removal from reforestation is the highest among forestry practices, reaching this theoretical potential may not be realistic when considering the limited amounts of land available around the world. For example, there are debates in New Zealand around the use of high-quality soils for forestry instead of agriculture when balancing national climate and economic goals. The World Resources Institute has an Atlas of Forest and Landscape Restoration Opportunities to explore maps of potential restoration areas, and the atlas takes some of these land conflict issues into consideration.

REFORESTATION BENEFITS Reforestation provides many additional benefits on top of its carbon removal potential: • Improves air quality, soil health, water quality, and biodiversity • Creates rural jobs and recreational opportunities • Provides food and forest products, such as timber, fiber, and fuel • Combats desertification, erosion, and landslide risks • In urban areas, reforestation also provides shade, betters communities, increases property values, and improves issues around urban heat island effect and stormwater management 8 BACKGROUND

Major factors to keep in mind around carbon mitigation from forestry and reforestation MAJOR RISK AND RETURN include the offsetting temperature effects, the ability for tropical forest recovery, and DRIVERS FOR REFORESTATION INVESTMENTS the idea of rapid sink saturation. The offsetting temperature effect could come from reforestation in northern climates changing landscape level albedo to an extent that could make it less effective for overall temperature changes. For tropical forests, there General is a growing concern that some areas will be degraded to a state where they cannot be • Market opportunities for carbon, timber, agroforestry products or recovered through restoration and reforestation, highlighting the need for improved other revenue streams forest management or avoided forest conversion in those areas. Additionally, there are • Portfolio diversification some estimates that up to 93% of climate mitigation potential for the tropics, especially • Inflation hedge • High upfront costs in South America, comes from avoided deforestation. • Maintenance needs • Low liquidity • Accessibility and proximity to roads Rapid sink saturation refers to the idea that, compared to technological solutions, the maximum amount of carbon that can be sequestered is reached sooner and stored for less time with forestry and soil carbon solutions. It is important to keep in mind that Climate/Environment rapid sink saturation in forestry and soil carbon solutions happens on a scale of decades • Carbon prices to centuries versus millennia for geologic and technical solutions. Considering the self- • High transaction costs for offsets verification replicating nature of forests along with the sequestration that is happening deep in the • Growth rates per species soil, forestry is still useful in sequestering large amounts of carbon over long periods of • Length of growing season time and will certainly have a role in addressing the current climate goals. • Intermixed planting

Looking across impact categories (i.e. other environmental and social impact areas Social outside of carbon removal), the role of positively impactful forestry practices also • Partnership opportunities depends on regional and local dynamics as well as other land use possibilities, • Local community needs highlighted in depth by the 2019 Special Primer on Climate Change and Land from the • Social justice themes IPCC. For example, a forestry project with timber harvesting could support carbon • Costs of labor • Costs of land removal and social labor goals but might be located or set up in a way where it is not • Costs of insurance useful for habitat and biodiversity goals. Forestry strategies balance multiple goals and outcomes. To achieve carbon and climate objectives in any forestry strategy

Political requires optimizing those objectives with social and environmental factors. • National and local environmental/ social goals, e.g. NDCs • Land tenure laws • Political stability 9 BACKGROUND

Reforestation Investment Potential The following covers overall investment avenues and cost variables to keep in mind for reforestation, with the rest of the primer dedicated to possible investment strategies across different revenue sources.

INVESTMENT AVENUES In terms of investment avenues, there are three major types of investments that can be considered around reforestation: real assets, funds, and direct company investments. Additionally, existing owners of large tracts of land could consider the reforestation benefits for those areas as carbon sinks and other environmental impacts, as well as sources of revenue from carbon, tree farming, increasing property values, or conservation easements.

Current real asset examples, whether for a single or multiple site(s), include the ownership of both the land and project development, using a separate project development partner, or partnering with several investors on a holding company with project development capabilities. Development of multiple sites as a single investor or in partnership with others provides the benefit of diversification to a reforestation portfolio. Opportunities and risks are like those of real assets in general, with specific concerns dependent on region. For example, primary concerns, especially in emerging economies, include land tenure and the rights of indigenous people and local communities. Developed countries generally offer lower risks plus a more secure rule of law and proven legal systems that uphold private property rights. Private property rights are important for reforestation projects dependent on carbon revenue, which is often tied to the right to own and transact the carbon on the land. These factors are often considered in balance of the total benefits of an investment, such as net productivity, which is typically higher in the tropics. Within real assets, additional project financing opportunities may exist for infrastructure or manufacturing that support projects with a major reforestation component.

For funds, some experienced forestry investors feel that a fund structure of real assets is most appropriate. Revenue from carbon and product sales from reforestation projects generally take at least four to five years (initial carbon sales), and up to twenty years (timber and long-term carbon streams), to come to fruition. Timeframes of a minimum of 15 years to over 25 years are preferable for funds structured for reforestation. This long timeframe may be a problem for traditional fund structure. Alternatives are for funds to set up for 10 years with the land sold at the end of the period to capture land appreciation values. A challenge with this structure is that the carbon impact is dependent on the next owner taking advantage of the built-up carbon stocks for another 10+ year period instead of putting the carbon stocks and habitat at risk through harvesting or land use change. On the plus side, there are efficiencies gained from bundling the expertise needed and high transaction costs for each piece of land. As with other sectors, the fund structure allows for a dedicated team to manage a bundle of projects and reduce risk through diversification of projects.

Direct, equity ownership opportunities range across companies doing active reforestation projects, companies that buy land for reforestation, technology and project development companies that support reforestation, or non-forestry companies with tree planting programs. What is unique with the direct investment category is that companies can partner and access the roughly half of forestland owned by public entities through investment in companies that partner with public entities. 10 BACKGROUND

Investments in this space could be direct investments in companies carrying out or supporting reforestation in partnership with public and private entities, equity investments in companies that are actively acquiring or co-owning land for reforestation, and technology and project development platforms that support reforestation projects, such as drone planting technologies. Another more indirect segment is around social entrepreneurship companies that support tree planting programs with a third party or a nonprofit in relation to their core business strategy. Examples include clothing companies like tentree that plant 10 trees for every product bought or Amour Vert’s partnership with American Forests, with nearly 300,000 trees planted to date. While financial returns may be easier to estimate with these types of projects, the risk of guaranteeing and verifying carbon and other impacts becomes greater the more indirect the companies are to reforestation efforts.

COSTS AND RETURNS From an investment standpoint, reforestation can have high upfront costs, especially when compared to the upfront costs required by other types of forestry projects. There are high labor costs for planting, input needs from seedlings to weeding, and high transaction costs for different certifications and carbon verification. While labor costs are generally the highest expense category, reforestation projects require seedlings or saplings, fertilizers, weeding, and transportation. As most tree species take two to four years to reach the height where their canopy produces shade, there could also be considerable weeding and maintenance costs in those early years, depending on the regional ecology.

Another major costs factor for reforestation projects is the accessibility of the site. For example, sites in California that are close to established roads and have a flatter topography may see total initial costs for reforestation of $700 per hectare. For remote areas with steeper terrain, the costs could increase to over $4,800 per hectare.

Another major cost factor to consider is insurance costs for a site; it would be prudent for projects to be insured against losses, especially from fire, pests or natural disasters. Since coverage is obtained at the beginning of a reforestation project, insurance is another early cost that may skew returns. Insurance costs and requirements vary by region and country, so cost of coverage and its potential impact on returns must be considered on a site-by-site basis.

Some of the accessibility and labor costs of more expensive to manage sites could be offset by the costs of the land acquisition. In the US, land could cost as little as $500 per acre or as much as $1,800 per acre. In Europe, land values could range from as low as €1,500 per hectare in areas in Lithuania but could be as high as €7,000 per hectare in areas in Sweden. The value of degraded or post-disaster forest land is difficult to estimate, but investors should expect at least a devaluation based on the lost timber value of the land and possibly more. When considering reforestation strategies of land previously used for agriculture or degraded agricultural land in the US, land values of cropland average around $4,100 per acre and pastureland averages around $1,400 per acre. Lower land costs can balance the higher upfront costs of a reforestation project.

There are automation technologies, like drones, in development for use in planting trees, that could supplant labor costs and reduce the cost and importance of accessibility. These technologies may be 11 BACKGROUND

helpful for reducing costs but, at present, are generally not cheaper than existing labor options. Another possible option for the use of current technologies is for better site monitoring for decreased tree mortality, which improves tree product revenues.

Example: The Land Life Company works to restore degraded land globally with reforestation and technology. As there is often little tracking of outcomes (e.g. mortality rates) from reforestation projects and most tracking happens through manual labor, the company uses a technology platform for better monitoring. Using drones and satellite data, the Land Life Company creates site specific maps for the best areas for planting. Robotic technology is then used for optimal planting on the site, and continued monitoring of exact tree locations helps track tree health and mortality. They anticipate reducing costs involved with reforestation plantings by using technology to identify the best sites along with monitoring, scaling hectares that can be planted at once, and paired nursery production. Their current model is to work with governments and nonprofits that can provide the upfront capital for reforestation. They have begun to use carbon markets to further finance their projects as they retain the rights to the credits of projects. They currently have a partnership with Shell for reforestation of 300,000 trees on a 300-hectare project in Spain.

Carbon sequestration by trees starts off slowly, and then ramps up depending on species and region, meaning that higher returns come later in the project. This slow start results in the longer timeframe needed for a reforestation project to produce the same level of financial results that would be found in another forestry strategy, such as IFM.

CREO example: In order to compare returns between an improved forest management and a reforestation project, CREO modeled out what possible projects could look like on a portfolio of two projects totaling 56,000 acres of land in the western US (see Appendix A for assumptions). For a reforestation project of 35 years with both timber and carbon revenues, the model produced return expectations of 8.1% unlevered IRR and 8.7% levered IRR, compared to 12.8% unlevered IRR and 31% levered IRR for an IFM portfolio of 18 years. The model provided three major takeaways: (1) A 35-year reforestation portfolio with both timber and carbon revenues has better returns than a timber-only 18-year IFM project (3.7% unlevered IRR and 3.8% levered IRR); (2) The carbon revenue is more than 10 times greater in a reforestation project ($410MM versus $35MM). That is because an IFM project receives all the carbon revenue earlier on in the investment, improving IRR calculations, while an AF investment receives carbon revenue every four years or so, benefitting from increasing carbon prices in the future (see Figure 1 below, which shows normalized carbon revenue based on the IFM revenue set to 100); and (3) Reforestation would reach similar amounts of carbon sequestration (and timber harvesting values) as a starting IFM project around years 20 and 24. 12 BACKGROUND

A A C C

Normalized Cash Flow from Carbon Credits from Cash Flow Normalized Normalized Cash Flow from Carbon Credits from Cash Flow Normalized

Year Year

Figure 1: Normalized Incremental Returns from Carbon for an IFM and AF Portfolio

Investors may consider the following questions around a forestry and reforestation investment strategy 1. Is carbon abatement the primary strategic goal? If so, investors should understand how carbon accrues on a specific property. In some properties, significant carbon may not accrue until five or more years after the trees are planted. 2. What are the other desired impact goals, e.g. water, economic, social, or biodiversity? 3. Is the goal to find ways to reforest publicly owned land and partner with public entities? 4. What are the desired return rates, market or concessionary? 5. What are the preferred investment avenues? What is the best use of the available capital stack, e.g. used for different parts of a project or a set of complementary projects? 6. What expertise exists within the investment group? Are there any existing or potential partners who could fit into a systems level strategy across forestry projects? 7. How can available capital be used for catalytic impact on high perceived risk geographies and new models that bring in additional capital from institutional actors? 8. What are the preferred geographies? Is reforestation the best fit for the geography, category of impact, and financial goals? 9. What are the potential revenue sources for a project, e.g. carbon or timber? What is the right mix of revenue sources to support desired carbon, other impact and financial returns? 13 CARBON MARKETS

Carbon Markets

Carbon markets provide the most direct method for financially benefiting from carbon removal strategies via reforestation. These methods mostly consist of offsets that can be sold and bought through regulatory compliance markets (emissions trading systems) or voluntary carbon markets. Appendix B lists the major carbon markets, both compliance and voluntary, as well as details around offset generation and reforestation.

Comparatively few reforestation projects have sold carbon within any of these markets due to two major reasons. First, the historical volatility of carbon prices created hesitancy around carbon markets. Many investors in the carbon and timberland space believe that the price on carbon will eventually become both significant and stable, and recent trends are starting to support that belief. For example, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) will be a global marketplace for the aviation industry built in a commitment to cap emissions of international flights at 2020 levels by 2035. As all participating companies will need to meet three-year caps, this market could create significant demand for additional offsets globally. For comparison, the California carbon market in 2017 was estimated at over 400 million metric tons of CO2e, while expectations show CORSIA mitigating as much as 2.5 billion tons of CO2e between 2021 and 2035. Oil companies may begin to offer products for airlines that package fuel alongside carbon offsets from projects they are supporting, including forestry and reforestation projects.

Expectations around CORSIA and other new or growing carbon markets are that cheaper renewables- based credits will sell quickly, increasing the demand for natural capital-based credits. Additionally, some experts believe that nature-based solutions will comprise an increasing portion of public sector climate action plans. The financial community could play a role in developing the business case for an increased number of compliance and voluntary markets to adopt official policies around forestry and reforestation, especially by highlighting the needs for these markets to adopt policies that support comparative returns on projects with long-term storage of carbon. In addition, since reforestation requires a few years for initial carbon credits to be available and even longer for additional carbon credits, there could be a first mover advantage for beginning reforestation projects before the demand from CORSIA and other carbon markets significantly increases and affects surrounding markets, such as the cost of land. 14 CARBON MARKETS

The second reason for the low number of reforestation projects is the different timeline of returns compared to other forestry carbon projects (i.e. improved forest management and avoided forest conversion). Not only is reforestation slow to produce carbon, but this strategy also comes with additional upfront costs in terms of planting, labor, and inputs. As a result, reforestation projects generally do not produce measurable volumes of carbon until approximately year five, which means the IRRs for these projects are significantly lower than the IRRs of improved forest management projects and avoided forest conversion projects for traditional timelines. As a result, the low-hanging forestry projects in carbon markets tend to be in improved forest management or avoided forest conversion.

Regulatory Compliance

There are now 19 state, national and regional emissions trading schemes along with World Bank estimates of 57 carbon pricing initiatives around the world that have been or are scheduled to be implemented. Few of the compliance markets include the forest sector within capped emissions, and forestry has yet to play a significant role in compliance markets other than California and New Zealand. Even where forestry is an active part of the market, most of the projects have not been reforestation projects. For example, despite the dominance of forestry offsets in California, there are few approved reforestation projects. By contrast, the state transacted millions of tons in improved forest management carbon projects.

Example: RenewWest uses compliance carbon markets to support reforestation work. The company focuses on restoring areas of the western US where severe wildfires caused deforestation. The California Climate Investments fund provided a $5 million grant to fund the company’s first project, which is the largest single carbon market reforestation project in the US. The project will reforest over 4,100 hectares of land in California with 2.3 million trees. For this 25-year project, expectations are 7% net IRR for a midline case from selling carbon offsets in the California market, with additional revenue possibilities from selective timber harvesting and conservation easements. Given the loss of forest cover in the western part of the US (4.2%) and an increasing threat from natural disasters, the company developed a land acquisition strategy to buy and reforest land damaged by wildfire or pests. After reforesting the land, the improved timberland and, possibly, increased property values of restored land could drive additional revenues.

Example: New Forests is a real assets fund manager, founded in 2005 to focus on achieving commercial forestry returns with additional social and environmental benefits. After reviewing reforestation opportunities in its core geographies of operation, the firm found that commercial timber-focused reforestation projects can range from 9% to 13% annual IRR. The opportunities have a range of carbon removal outcomes dependent on productivity and growth rates, as well as the carbon crediting approaches of existing carbon markets in each region or country. Within the firms’ existing fund mandates for New Zealand forestry investments, they developed a strategy to plant trees on marginal agricultural land. While timber production is the main use for the new plantations, the land provides a net carbon removal value that can be monetized with a carbon price coming from the New Zealand trading scheme. A typical project of this nature can produce around 30 tCO2e per hectare per year for 14 years. 15 CARBON MARKETS

Voluntary From 2016 to 2018, offsets from forestry and other land use increased 264% to 50.7 MtCO2e according to Forest Trends’ State of Voluntary Carbon Markets 2019. Forestry is a significant part of voluntary carbon markets, and comparative advantages may exist for developing projects in a voluntary market. There are three major voluntary programs, and most of the few reforestation projects are within two of them—the American Carbon Registry and the Verified Carbon Standard.

With a wider range of standards and more diverse sources of demand, voluntary markets may be easier to access for a reforestation project. However, the economics of project development and verification make reforestation projects a challenge in voluntary markets, especially with historically volatile or low prices of carbon in these markets. Additionally, some stakeholders question the legitimacy and stability of many voluntary markets, particularly the issue of double counting with changing national carbon tracking and offsetting programs, which could increase price volatility.

Example: Greentrees is a US-based company with a mission around reforestation with one of the largest reforestation projects in the world. They are reforesting over 410,000 hectares of marginal farmland in the Southeast US in partnership with over 500 private landowners. They sell credits through the American Carbon Registry, as well as supporting selective harvesting practices based on a minimum basal area threshold. They boosted carbon stocks through an inter-planting approach with different understory species that increases the amount of biomass per area.

Corporate Offsetting

There is growing interest from private and public corporations to offset their carbon emissions through natural capital solutions, especially reforestation. Since many companies seek to do this by using natural capital projects within their portfolios, these corporations sometimes refer to projects in this category as insetting projects. As more companies set climate targets for their portfolios, there is increasing demand for long-term supplies of offsets that fit within their work and reforestation expertise. Financing of the space from private companies is beginning to eclipse financing from public entities, and private companies are becoming major actors in driving the space for carbon offsets alongside or in replacement of public engagement. Additionally, the Science-Based Targets Initiative, a program for corporate emissions reductions with 732 companies participating, may recognize carbon removal as part of their target measurements, which could increase demand for voluntary offsets with forestry and reforestation.

Asset managers and fund managers are seeing corporations approach them for projects that offer an opportunity to sell carbon offsets in a similar fashion as voluntary markets. Since many corporations are not interested in owning land assets, the opportunity for investors lies in finding corporate partners that will act as either mass market off-takers for an independent project or will financially back an investor to manage a reforestation project on their behalf. 16 CARBON MARKETS

EXAMPLES

Shell announced in 2019 that they would spend $300 million over a Novartis began their work in carbon-sink forestry in 2007 in Argentina, three-year period to support reforestation efforts in order to offset Mali, China and Colombia. Through reforestation, improved forest greenhouse gas emissions from their products by 2-3%. They are management, and supporting local timber businesses, they estimate that partnering with the Land Life Company, and public forestry departments the projects have resulted in a 780% social return on investment on their in European and SE Asia. way to reducing their 2020 emissions 30% to 2010 levels.

In an effort to be carbon neutral, the luxury fashion group Kering Disney has a Climate Solutions Fund financed through the internal is supporting reforestation projects. Their eyewear lines offset CO2 carbon pricing of their businesses. Since 2009, they have invested emissions through reforestation projects in international urban areas. $48 million in carbon-offset projects. They have invested in 147,000 acres of forested land, as well as donations made to reforestation and conservation efforts internationally.

Summary Currently, carbon offset revenue is rarely significant enough to be the sole source of returns for commercial reforestation projects. Returns will be greatly affected by the cost of carbon, which is expected to increase in all major markets, as well as through additional avenues, such as those created by CORSIA and stricter public sector carbon goals. These changes could make current projects valuable from an early mover standpoint as land is theoretically cheaper in the present and projects will need to wait at least four years to sell offsets, at which point credit demand and carbon prices are projected to be significantly higher and carbon revenues may begin to be further incorporated into land values, increasing the cost of land.

Avenues for Investing: Funds, Real Assets, Direct

Investors may consider the following questions in due diligence • Which project developers understand and can articulate best impact and return values and nuances around carbon removal reforestation projects? • Is it possible to sell into a compliance market? If not, which voluntary market is the most appropriate? • What is the potential for carbon verification of the project within the chosen market, especially in relation to the previous and potential use of the land? Does the land price accurately reflect the potential for carbon verification? • What is the experience and/or benefits for the landowner/s, if partnering? • What will the species mix and site characteristics be, e.g. is there potential for increasing carbon potential through interplanting or other ecological farming practices? • At what point can verification and sales of carbon offsets from the project begin? How often can the carbon offsets be sold and what will be the costs of verification? What is the maximum potential over the life of the project? • What is the experience of the verification body with reforestation carbon offsets? 17 TIMBER AND NON-TIMBER FOREST PRODUCTS

Timber and Non-Timber Forest Products

Alone, timber assets with positive social and environmental goals can be a valuable investment. According to a study from Cambridge Associates and the GIIN, the performance of 17 timber funds classified as impact investing between 1997 and 2014 showed half of the funds returning 5% to 10% net IRR and 22% of the funds delivering a return over 10%, compared to only 16% of non-impact timber funds returning over 5% net IRR during the same period.

As current carbon market pricing is generally not enough to support commercial returns for a reforestation project, many investors combine carbon offset revenues with tree product revenues. These revenues can come from traditional timber sales as well as non-timber forest products from agroforestry and other tree farming practices, such as rubber. Reforestation for timber has major potential in not only planting additional trees but in acting as a substitute for unsustainable harvesting practices of existing natural forests.

There are three major concerns to keep in mind when there is a carbon removal goal with a reforestation project that also makes use of harvesting. First, in order to maximize carbon abatement potential, investors may want to carefully consider whether a more common monoculture timber project serves that goal. From the climate mitigation standpoint, it is important to ensure that timber-based reforestation projects are restoring some sort of degraded land and/or acting as a replacement for less sustainable timber harvesting from existing forests. As a large amount of timber is still forested from natural forests, there is carbon sequestration potential in timber plantations that supplant natural forest and illegal forest cutting.

The second concern is around the cyclical nature of carbon stocks and how to maintain carbon on the land when harvesting trees. This challenge can be mitigated through rotation strategies on how much is cut, when it is cut, and the minimum carbon stock levels left on the land. This needs to be balanced against emissions during harvesting, as well as the levels of long-term carbon storage in wood products. The third concern is from the long-term carbon storage potential of individual timber or farming products. With timber products, a best-case scenario for carbon storage within those products is that 50% of carbon that was held within the living tree will continue to be held by those timber products as harvested wood will slowly release carbon during processing or through decay. This release will depend on how the wood is used, e.g. bioenergy, wood pulp, or cross laminated timber. 18 TIMBER AND NON-TIMBER FOREST PRODUCTS

Timber Timber projects can provide opportunities for reforestation, especially to replace timber harvesting of existing forests. These projects can also support local livelihoods and boost local and regional economies by reducing the need for timber imports. Best practices to keep in mind in order to retain carbon removal and other environmental and social impacts include selective harvesting or minimum harvesting thresholds, restoration of harvested trees, partnerships and labor practices that support local needs, and reforestation and conservation of tracts of land where possible.

A major opportunity for all types of timber projects is around developing manufacturing on site. This serves a dual purpose of ensuring the sustainability of manufacturing processes that traditionally use large amounts of chemicals and produce waste, as well as increasing margins through the production of value-add products. Such value adding processes, ranging from simple veneer mills to more high-value furniture production, provide an opportunity for reforestation investments to support regional economic development objectives. In some cases, this aligns with government regulations that constrain export of raw logs or policies that seek to encourage domestic production of value-added products. For investors, this means an additional avenue of infrastructure and project financing to support higher returns in a reforestation project.

OUTGROWER SCHEMES Some investors are making use of what is called an outgrower scheme. A company can partner with dozens or hundreds of local farmers around project lands in order to increase the available number of trees, timber, and carbon without increasing their land investment. As the investor manages their main property, they are providing technical trainings and seedlings at cost to surrounding farmers. Once trees have reached a harvesting height, then the same company gives the farmers the option to sell back the trees at market price. One single family office investor has been able to plant 40 million trees in Sub-Saharan Africa through this practice. For these projects, it is important to keep in mind the complications of working with dozens or hundreds of smallholder farmers, as well as whether it provides the right set of financial and educational opportunities needed by the local community.

Example: One investor managing a family office in Europe has a project of plantation and saw milling assets in Uganda, Tanzania and Rwanda that produces timber from eucalyptus and pine. To date, the company has planted in excess of 40 million trees. The project consists of multiple plantations and approximately 23,000 hectares of planted land that are managed on long-term leases (49-99 years). A similar amount of land, primarily wetlands and indigenous trees, are protected and all assets are FSC certified. Eucalyptus has an eight to twelve-year rotation cycle, while pine has a longer cycle. The largest revenue stream for the project is in the markets for transmission poles and pallets, as well as other construction materials and biomass to energy products. To date, the project has sequestered 1.6 million tCO2e; however, monetization of these carbon offsets is difficult due to the volatility of carbon markets and the “painful approval process” with associated staffing and costs requirements. Along with other sustainable forestry projects, annual returns across the entire portfolio are expected to be in the low to mid-teens over a 10 to 12-year period. 19 TIMBER AND NON-TIMBER FOREST PRODUCTS

Example: Another major example of reforestation within non-timber forest products is the New Forests sustainable rubber project in Indonesia that grew from about 200 hectares of forested land to 32,000 hectares. This project provides an alternative model for non-timber related forestry products. This is especially impactful as natural rubber, about 75% of which goes to automotive industries, has been a cause of rapid deforestation and predatory land grabs from smallholder farmers in Southeast Asia. Thus, supporting more sustainable natural rubber supplies can be impactful for supplanting deforestation and supporting future rubber demands.

BAMBOO Bamboo, one of the fastest growing plants in the world, makes a wood product useful for timber, textiles, pulp, paper and bioenergy. Since growth is quick and most carbon is sequestered within the first 10 years of planting, bamboo has the potential to address part of the issue around IRR expectations for reforestation projects. Additionally, bamboo projects support local jobs that are year-round, as opposed to the cyclical nature of conventional timber. A benefit of bamboo farming versus other timber practices comes from avoided deforestation of more environmentally valuable forest lands, such as boreal forests. Bamboo takes about five to seven years to grow for harvest, longer in poor soil health areas. Major unintended consequences for any bamboo operations include the potential for bamboo to become invasive and damaging to local ecosystems outside of its native range, bamboo processing byproducts that can cause environmental concerns, and bamboo farming that is not deforestation free (i.e. developers cutting existing forest to plant bamboo).

Example: EcoPlanet Bamboo is a company working on forest protection and restoration with bamboo plantations. They work with degraded land, as bamboo can be productive and restore that land type. Many of their projects aim to have integrated plantation areas with selective harvesting, and 35% of the land set aside as conservation areas. In one project in Nicaragua, the company reforested 1,435 hectares of land verified under VCS. Although there is not a large market for raw bamboo, they are expecting 28% in annual returns. Other projects within West and East Africa are projected to plant a combined 3,300 hectares with over 2 million tCO2e stored over a long-term time period.

Agroforestry

Various funds and companies employ mixed land use agroforestry practices in order to introduce more trees to a landscape. They plant tree-based crops and supporting species, such as trees for shade grown coffee, or reforest on marginal lands around farms to support local conservation. Reforestation models around agroforestry similarly could be applied to silviculture with major carbon sequestration and biodiversity opportunities around reintroducing native tree species into pasturelands. 20 TIMBER AND NON-TIMBER FOREST PRODUCTS

Example: The URAPI Sustainable Land Use fund, managed by Ecotierra, is an example of a fund that employs reforestation with an agroforestry focus. The entire $50 million fund expects to reforest 40,000 hectares through a model that makes loans to cooperative partners, invest in value-chain reinforcement activities and in carbon projects. Returns are expected around 10% net IRR, with revenues within the fund breaking down into 38% from the interest on loans they are making to their cooperative partners, 27% from coffee sales and carbon credits, and 35% from their equity in processing plants. Additionally, the fund uses carbon credits to provide 50% of the guarantees on the loans made to their partners.

Example: Propagate Ventures is a farm as a service company that is focused on providing regenerative agriculture investments and funding specifically focused on agroforestry with fruit, nut, and timber trees. Their platform provides the opportunity for investors to find and engage with agroforestry projects that have planted 30,000 trees as of 2019. In partnership with farmers, they finance the installation and management of adding trees where profits from the crops are shared between Propagate Ventures and the farmers. For investors, the projects are expected to be grouped into funds, diversified by location and crop type.

Summary

Generally, some form of tree product revenue will be needed on a project or in part of a portfolio of reforestation and forestry projects in order to achieve commercial returns. This is most commonly done through timber harvesting of traditionally grown species, such as pine and eucalyptus, but can also be achieved through other types of trees species and products, such as agroforestry. From a carbon removal perspective, it is noteworthy to ensure project developers are considering best practices for long-term carbon storage, such as interplanting or selective harvesting, as well as providing alternatives to current unsustainable tree farming.

Avenues for Investing: Funds, Real Assets, Direct

Investors may consider the following questions in due diligence • What type of species will best support long-term carbon storage with selective harvesting or enough production that balances ecological and financial returns? • Is it possible for a monoculture plantation investment support carbon and ecological goals as well as more integrated systems? • What is the experience of the management team in turning non-productive land into productive forest land? » How degraded can the soil be to come back to a functional level? » Can seedlings be supported long enough to survive? • How will a changing climate affect the performance of a forest? • Is the target market for revenues well established, and/or does the manager have capacity to develop and manage routes to market? • What are the fees for a project manager going to, and are those fees fair? • What is the long-term storage potential of carbon in the forest and soils? What is the long-term storage potential for the end products? 21 TIMBER AND NON-TIMBER FOREST PRODUCTS

• What are the minimum harvesting thresholds set by verification bodies as well as internally for ecological impact goals? • What are the additional carbon stock and insurance needs in case of fire, pests, or other natural disasters? • Are outgrower schemes or other livelihood and employment models locally appropriate? If pursuing an outgrower scheme, is there security that farmers will be able to cover costs in the interim period, as well as having access to technical knowledge and end markets? • For agroforestry, what is the appropriate mix of species and crops for carbon removal, other impact, and financial goals? 22 RESTORATION AND CONSERVATION INITIATIVES

Restoration and Conservation Initiatives

Restoration and conservation initiatives can be broken up into those that directly generate revenue from reforestation projects, blended finance projects, those that are catalytic in some way to existing or new reforestation efforts, and those that can be done with land that is already owned by family offices and other investors.

Direct Revenue Creation

Direct revenue for conservation comes from various conservation finance channels, with conservation easements appearing as the most dominant type of conservation income. Conservation easements require a legal framework that enables the separation of some property rights so that the conservation use of the land can be recognized. This typically involves a partner, such as a government agency, nonprofit organization, or land trust, that acts as the custodian of the easement and ensure conservation objectives are met. Other conservation finance revenue sources include compensatory mitigation programs, grazing, hunting or fishing leases, other public finance programs for land or water conservation, and green bonds.

The benefit of many of these types of programs is that they can provide revenue in the early years of a reforestation project when a project is waiting for revenue from timber or carbon. This could solve some of the IRR and return issues faced by the upfront costs and long time horizon of reforestation projects. In the case of leases from hunting or fishing, there is also the value of consistent, annual income for the project. Conservation easements can vary based on the size of the easement and the partner for the easement. Their utility may be balanced with the forfeited timber or non-timber revenue, or the encumbrance on the value of the land. For grazing, hunting or fishing leases, revenue can vary, as well, and these generally are not expected to make up more than 5% of the revenue from the project.

Few green bonds today involve reforestation. As underwriters issue more green bonds, reforestation could play an increasingly large role in the growing green bond market. As an example of an existing green bond in forestry, the Conservation Fund closed a $150 million 10-year green bond in 2019 that will support working forests in the US. The underwriter of the bond was Goldman Sachs, with the Conservation Fund managing and working with landholder partners that will pay back the debt mainly through timber revenues. Many existing issuers of green bonds partner with public entities as large swaths of land are accessed more easily with government entities as opposed to private landowner 23 RESTORATION AND CONSERVATION INITIATIVES

partners with smaller tracts of land. For a green bond to involve reforestation, it would be beneficial to have an anchor landowner tenant of a significant size as well as leveraging nearby public or private lands. Reforestation green bond projects would also need a strong intermediary between landowners and investors like a nonprofit or an experienced real asset manager.

Blended Finance

Blended capital is an impactful strategy that is used in the space to support reforestation returns. Through the blending of grant, public and private capital, or through the offering of multiple levels of returns, projects can support reforestation alongside the provision of commercial or impact returns for investors.

Example: Through New Forests’ Tropical Asia Forest Fund, New Forests focuses on sustainable timber in Southeast Asia. New Forests completed an Indonesian project as part of the portfolio, which focused on a reforestation investment thesis for sustainable natural rubber and rubberwood production. Across the portfolio, the investments include approximately 150,000 hectares gross area of land, a target of around 32-35,000 hectares of commercial reforestation, and a total of around 65,000 hectares of net planted area for production forests. Conservation management and restoration projects are promoted across more than 47,000 hectares of conservation areas on the three estates. For example, in 2018, 500 hectares of environmental restoration plantings were completed by Tropical Asia Forest Fund investments. The investments also provided more than 3,100 jobs for rural areas in Malaysia, Indonesia, and Laos in 2018.

The second Tropical Asia Forest Fund includes two tranches, offering different return profiles: 14% to 18% gross IRR for Class A (mainstream investors) and 5% to 9% gross IRR for Class B (catalytic investors). This allows the fund to access a pool of capital that can be used on social and environment focused work with lower return profiles, while also providing market level forestry returns for another pool of investors. New Forests estimates that the portfolio could deliver 70,000 hectares of land under sustainable forest management, 5 million metric tons of CO2e sequestered in commercial reforestation areas and 2 million metrics tons of CO2e sequestered in environmental restoration and conservation areas, 25,000 hectares of degraded agricultural land restored through commercial reforestation, 5,000 hectares of forest and land restored, and 85,000 hectares of land under conservation management with the aim to benefit biodiversity.

Example: The International Woodlands Company A/S (IWC) is a global timberland investment manager with sustainable timberland investment opportunities through direct or fund opportunities. IWC is currently raising interest for a blended finance Sub-Saharan Africa climate fund that supports reforestation efforts. The fund will seek to blend in concessional finance to de-risk the proposition in order to attract private capital. Fund will target to afforest or reforest 37,000 hectares of degraded land that will be used for conservation, carbon, and timber. IWC has an existing FSC and Gold Standard (carbon) certified project in Sub-Saharan Africa that has reforested 8,500 hectares of land, which has generated revenue from timber and the voluntary carbon market. 24 RESTORATION AND CONSERVATION INITIATIVES

Catalytic Capital The rise of interest in reforestation has also coincided with a movement toward catalytic capital in philanthropic and impact investing sectors. There are some major initiatives globally catalyzing capital into reforestation. Through the collaboration of multiple types of actors (investors, companies, nonprofits, public, development banks) and blended finance approaches, these projects are creating pathways for additional investment opportunities around reforestation from conventional and institutional investors. They provide examples of partnerships major funders can join or embark on to use their capital in catalytic ways.

Example: In October 2019, the David and Lucile Packard Foundation and the MacArthur Foundation announced a $90 million fund of funds aimed at supporting new fund managers in the tropics and is managed by a separate private equity partner. The new fund has three major targets, including the acceleration of reforestation, conservation, and afforestation in tropical forest regions. This is part of the work of the Catalytic Capital Consortium, a group of philanthropic investing arms and other investors on providing capital to areas traditionally seen as risky in order to get over the initial barriers of new investment models and encourage the investment of additional capital. The Packard Foundation has also announced that it will anchor the catalytic tranche of the New Forests Tropical Asia Forest Fund 2, discussed above.

Example: The African Forest Landscape Restoration Initiative (AFR100) is a goal that was launched in 2015 to bring 100 million hectares of land to Africa into restoration by 2030. The project is working with traditional development bank funding from Germany’s Federal Ministry for Economic Cooperation and Development, the Global Environment Facility, and the World Bank, which has committed to $1 billion in institutional investments by 2030 on Africa’s climate resilience. $481 million of funding was earmarked from private sector partner commitments, including EcoPlanet Bamboo ($175 million by 2030), Moringa Partnership ($56.5 million by 2030), TNC’s NatureVest, Form International ($150 million by 2030), and ACUMEN. The initiative aims to have two main restoration activities: restoration of mosaic landscapes through agroforestry and silvopasture, and reforestation on degraded or deforested land. These private sector funds represent the amount of capital being put to work into restoration projects through the different companies’ avenues.

Summary

While not a major strategy for revenue creation, restoration and conservation initiatives provide high potential opportunities to support conservation and the scaling up of reforestation efforts. By joining existing efforts, anchoring funds and other investment opportunities, or using existing catalytic strategies as replicable models, investors can create opportunities for wide scale adoption of reforestation strategies and investments from conventional and institutional investors. 25 MOVING FORWARD

Moving Forward

Studies have presented results that reforestation is one of the lowest cost carbon removal solutions that can be rapidly deployed at scale. Existing projects demonstrate that there is potential for superior financial returns from reforestation projects, especially those with a mixed-use/revenue model. They also highlight the additional need for more projects and more diverse projects in the space.

For reforestation to reach its potential as a carbon removal solution, more capital needs to be devoted to the space and at scale across major geographies. Moving forward, three major areas of work can be beneficial for scaling reforestation investments and projects.

First, a regionally based assessment of reforestation as a strategy would be helpful for investors to understand the potential and best management practices for reforestation projects in specific geographies. This includes analysis of existing investments and research that compares reforestation projects with other forms of forestry projects for both environmental as well as financial results. This sort of major assessment could be useful in helping investors pick target regions that match the financial results and specific impact goals that they are aiming for between different forestry strategies.

Second, investors with the ability to support projects with long time horizons have a major opportunity to be first movers and encourage institutional capital to invest in reforestation by providing examples of success. First mover advantages come mainly in the theoretically lower cost of land values in the present before stable and increasing carbon pricing of soils and trees begins to be included into land valuations. This means both financing existing reforestation projects and developing additional/innovative reforestation models.

Finally, the investment community can reassess the ways in which financial returns are calculated and prioritized to better fit reforestation and other natural capital projects that work on longer time horizons. This includes alternative return calculations for an investment than IRR, changed fee structures that support yet unrealized gains and long time horizons, and additional blended finance structures that support different pools of returns and impacts.

Moving forward on scaling reforestation and forestry will be an effort that is vital for meeting climate, environmental, and social goals across the globe. There are enough existing examples for investors to be part of this effort and scale the space. 26 APPENDIX A: CREO MODELLING ASSUMPTIONS

Appendix A: CREO Modelling Assumptions Major assumptions for the modeling included land prices of $534 per acre for the IFM projects and $501 per acre for the reforestation projects; a carbon price of $14, with an escalator for carbon pricing in the forestation projects that brings the price to $66.71 by 2052; the use of a project developer that would keep 15% of verified credits; revenue streams from timber, hunting and carbon; holding period for 18 years for IFM and 35 years for reforestation; and it is important to note that a general hardwood species compilation in the Western US was assumed for growth and carbon sequestration rates. For reforestation additional assumptions included a lower land cost reduced by timber value as well as an additional 5%; a reforestation capital expenditure of $700 per acre with no maintenance costs after year 0; no insurance costs; saw log timber extraction starting in year 24; and verification costs of $5,000 every four years. For additional discussion and assumptions, please contact CREO. 27 APPENDIX B: CARBON MARKETS

Appendix B: Carbon Markets

LOCATION ABOUT OFFSETS REFORESTATION DETAILS

REGULATORY California (and • Offsets must be within the US • Forestry projects are required to sequester COMPLIANCE Western Climate • Offsets can be used up to 4% (more if the project absorbed carbon for 100 years post issuance (EMISSIONS Initiative*) is in California) of the emissions of a covered • Projects must allocate a portion of total offsets TRADING entity starting in 2021 and 6% starting in 2026 issued into a forest buffer account, a mutual SYSTEMS) • Half of offsets post-2020 must provide direct insurance product for naturally caused forest losses environmental benefits to California, opening a due to fire, drought or disease. path for additional natural capital related offsets • Forestry offsets are estimated to be about 75-80% • Quebec does not have a forestry protocol with of the total offsets within the market expectations to have one finished in 2020

European • Offsets need to be within the EU and specified by • Forestry has not been added as a sector for credits Union** individual members or for offsets because of a concern of adding more supply that will dilute prices and the issue of carbon permanence within forests

Western Climate • Offsets need to be within the partner regions and • Forest projects have rarely been used because low Initiative** specified by individual partners prices don’t make them worth an investor’s while

Regional • Offsets need to be within the partner states and Greenhouse Gas specified by individual partners Initiative***

New Zealand • Forestry is part of the capped sectors within • Has official forest carbon project guidelines as well as New Zealand covering forestry as a capped sector • Forestry projects need be within New Zealand and sold by a New Zealand entity • Reforestation sometimes at odds with agricultural interests

VOLUNTARY American • Has robust forestry standards • Most US reforestation projects have been Carbon Registry • Serves as a registry for California’s regulated registered through here carbon market

Climate Action • Has robust forestry standards • Few projects have been about reforestation Reserve • Serves as a registry for California’s regulated carbon market

Verified Carbon • Has robust forestry standards • Globally, there are only a few dozen reforestation Standards (VCS) • Serves as a registry for California’s regulated specific projects+ carbon market

*Linked cap-and-trade program between Quebec and California **Includes all EU members as of October 2019 ***US cooperative effort between Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont +As of October 2019 28 CITATIONS

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ACKNOWLEDGMENTS Lead Author: Maki Tazawa Editors: Dan Matross, Megan Scott, Ricardo Bayon

EXPERTS CONSULTED MaryKate Bullen, New Forests Ruben Lubowski, Environment Defense Fund Rebekah Braswell, Land Life Company James Magowan, Arboreal Nina Cejnar, GoldenDeer Bernard Mercer, IntAct John Cleland, RenewWest Anders Pagh, The International Woodlands Alain-Olivier Desbois, ECOTIERRA Company A/S Étienne Desmarais, ECOTIERRA and URAPI Jason Scott, CREO John Earhart, Global Environment Fund Paul Simon Julie Engelhorn, POLLEX GmbH Scott Settelmyer, TerraCarbon LLC Todd Gartner, World Resources Institute Mike Smith, RenewWest Eric Hallstein, The Nature Conservancy Ethan Steinberg, Propagate Ventures Robert Keith, Beartooth Group Camille Rebelo, EcoPlanet Bamboo Radha Kuppalli, New Forests Chandler Van Voorhis Thomas Launer Catherine Leining

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