Carbon Innovation for Business Impact

Accelerating climate solutions and private sector finance to make real change possible Contents

Executive summary...... 3

Introduction...... 4

Advancing practical and scalable solutions...... 6

Evaluating carbon finance projects...... 8

Proven methodologies...... 9

Emerging methodologies...... 13

High-potential technologies...... 15

Experimental technologies...... 16

Adding value with values...... 17

Delivering quality carbon credits...... 19

Ensuring credible standards...... 20

Conclusion...... 22

Teak Afforestation, Mexico

Cover Photo: SELCO Solar Energy Access, India

2 Executive summary

Since the Paris Agreement was existing and new methodologies to signed in 2016, the scale of corporate make projects accessible to businesses climate ambition is growing—and at as part of their sustainability strategies. an exponential rate. Businesses are In this paper, we assess a series of seeking innovative solutions to achieve current project types at four different ambitious carbon neutrality and net stages of development for carbon zero goals. markets—proven, emerging, high- We need even greater speed and scale potential, and experimental. For each to meet the Paris Agreement’s target—a of these project types, we address the world in which average temperatures role of carbon innovation to: rise by no more than 2°C and ideally Efficient Cookstoves, Malawi • drive practical and scalable growth no further than 1.5°C. This requires all of climate solutions overall. the tools available today along with cost, availability, credit potential, natural sources of energy, protect new innovations to drive the global • advance new opportunities and co-benefits, time horizon, and biodiversity, reduce emissions, and so transformation of our economy. new methodologies to make more communication of projects. By much more. projects available and accessible. structuring a carbon finance portfolio What were considered ‘innovations’ We outline the carbon credit lifecycle of projects, they can achieve their not so long ago have become integral and the ways to create business value • harness the value of private sector goals while managing their own to climate action. In 2019, solar at each stage. We then describe the finance to create positive outcomes priorities and risk tolerance. installations were almost 15 times for business, the environment, existing methodologies and how they higher than in 2010. For wind power, and society. Any strategy should also consider deliver the highest levels of quality for which started earlier, it was three the broader implications and the role programmes to offset—or compensate to four times.1 Carbon finance was Even the most ambitious businesses of carbon finance to advance the for—carbon emissions. one enabler of this progress, and it seek practical solutions to address Sustainable Development Goals. For more than 20 years, Natural Capital continues to be a highly effective tool. urgent social and environmental Each project and portfolio can Partners has been at the forefront of challenges. We offer an approach address business requirements and Carbon innovation plays a critical the voluntary carbon market. We bring for companies to make smart add value with values: generating role in closing the finance gap. It that experience to light in this paper as business decisions by evaluating additional benefits to conserve accelerates climate action by applying we look ahead to what comes next. key considerations, including nature, improve lives, provide

3 Introduction

Gas Distribution Leak Reduction, Bangladesh

How can we achieve our ambitions for a net • empowering communities to clean energy and more efficient today—and those that show promise zero future? adopt sustainable and climate- household devices, and deploying for the future. We approach these smart practices while finding new new technologies. It has been a topics through the lens of business This critical question is the inspiration economic opportunities. vehicle to reduce and mitigate our decision-makers who are seeking for this white paper on carbon climate impact while enabling the practical and scalable approaches to • protecting and restoring natural innovation. We know what we need communities most vulnerable to deliver on ambitious climate goals. ecosystems as thriving carbon sinks to do—deliver as many reductions in climate change and its effects to adapt and to prevent biodiversity loss. For more than two decades, carbon emissions now as possible and remove and become more resilient. finance has been building up to this the residual to keep temperature rise • equipping companies to drive The challenge turns to financing more moment. The voluntary carbon market below 1.5°C—and many, if not all, finance to carbon removals and solutions and driving impact at scale. has pioneered methodologies and the solutions are available. So what’s avoidance and deliver on their The Taskforce on Scaling Voluntary standards to ensure measurement stopping us? climate goals. Carbon Markets, for example, is calling and credibility and raise funding for As global climate action intensifies, At the project level, carbon finance on the need to grow the voluntary critical projects. It has repeatedly carbon finance has proven to be a builds on the premise that market- carbon market 15-fold by 2030 to demonstrated that it is effective and 3 highly effective tool to deliver action. based incentives are necessary to shift align with a 1.5°C pathway. Now, in adaptable at making funding of new For businesses seeking to align with from carbon-intensive activities toward this decisive decade for action, there and emerging projects more widely the Paris Agreement and pursue low-carbon alternatives. In practice, is an imperative to drive investment available and accessible. carbon neutrality and net zero goals, this premise has strong supporting in all the solutions available—from Carbon finance harnesses the essential offsetting unavoidable emissions evidence. By the end of 2019, the established to experimental—and to elements of nature—renewable solar directs funding to raise finance for market had achieved over 600 million incentise new innovations. and wind energy, clean water, healthy projects where it’s needed most: tonnes of CO e in emission reductions 2 This paper is about the meaningful forests, grasslands, and marine or removals, equivalent to taking 130 • implementing large-scale renewable ways carbon finance is accelerating habitats—to restore and regenerate million cars off the road for a year.2 energy projects to reduce innovation and the ways businesses our world. dependence on fossil fuels. In the process, carbon finance has can apply carbon finance to make If you ask us, it’s only natural. accelerated sustainable development a lasting positive impact. We aim to • enabling social entrepreneurs and globally, advancing natural climate provide an overview and assessment nonprofit enterprises to grow and solutions, improving health and of innovative climate solutions that expand their work. livelihoods through access to are available through climate finance

4 Fortune Global 500 companies that have delivered a significant climate milestone or are publicly % committed to do so by 2030. 30Natural Capital Partners, 2020, Response Required: How the Fortune Global 500 is delivering climate action and the urgent need for more of it

5 Advancing practical and scalable solutions

Improved Water Infrastructure, Sub-Saharan Africa

Defining the role of innovation in Projects at each stage also carry Credit potential—Projects must go are expected to be validated, verified, different risk profiles. In working with through third-party review to become and registered under an approved carbon finance our clients, these are the primary registered under a credible standard. standard later. considerations that shape the While some newer technologies may Communication—It is important to Carbon innovation accelerates climate decision-making process: seem promising, there is no guarantee effectively engage stakeholders— action by applying existing and new that they will meet all the criteria to Cost—The overall cost of a project including customers, employees, methodologies to make the funding generate carbon credits in the near will influence the price per tonne investors, civil society, and supply of projects accessible to businesses as term. Where methodologies do not yet of carbon. Higher costs can be chain partners. As sustainability part of their sustainability strategies. exist, creating a methodology with a determined by the technology, the becomes more central to corporate It is based on the recognition that standards body is a prerequisite and management and maintenance, and strategy, clear and credible emission reductions must have can take time to develop. the location. More experimental communication enables more effective monetary value to drive change. technologies generally have higher Outcomes—Beyond carbon, many implementation of internal reductions By pairing opportunities that deliver startup and maintenance costs, driving projects deliver critical sustainable and carbon offsetting programmes, emissions reductions to credible up the price per tonne significantly, in development impacts, such as both internally and externally. methodologies that verify the integrity some cases. biodiversity conservation or Connecting carbon finance to a and quality of those reductions, carbon support for improved health and company’s mission and purpose is a Availability—The availability of finance allows business to fund critical livelihoods. There are methodologies way to build brand value and improve projects and project types will ideally projects around the world. to measure, report and verify these organisational alignment. grow steadily to accommodate important benefits. Where opportunities and increasing demand and mitigate methodologies converge, they price volatility. Time horizon—Companies can generally become more affordable, take immediate delivery of existing accessible, and scalable. credits or buy forward credits that

6 Structuring a carbon finance portfolio

Businesses can leverage various financing options to create a carbon credit portfolio in line with their requirements and risk tolerance. These three funding structures can be blended based on risk and reward potential and can be implemented alongside a direct reduction strategy.

Spot market Forward purchase Project development

Projects depend on reliable Businesses can provide funding to Up-front capital to finance revenue from carbon credits. emission reduction projects initiatives at an early stage with These projects deliver certified before the validation and the expectation that the project emissions reductions and other verification of carbon credits is will generate credits in the sustainable development assured. The prospect of lower future. The risk associated with benefits while sustaining project costs and more secure access to these projects is highest, but partners and social reductions must be weighed they can be attractive to entrepreneurs. against greater risk, more businesses seeking to break new complex contracting, and likely ground in climate progress. long-term commitment.

Yuanmou Wind Power, China

7 Evaluating carbon finance projects

Carbon finance projects can be organised into four stages of development based on the maturity of the opportunity and the maturity of the methodology that will be used to measure and verify its impact. Our teams regularly scan for projects PROVEN that drive the industry toward the greatest convergence of opportunities Established and credible and methodologies. projects, making an immediate impact EMERGING On the pages that follow, we go into more detail on each category and Clean cooking Methodologies in development or pilot project type. Forest conservation (REDD+) stages HIGH-POTENTIAL Grassland conservation Promising projects for Household solar Mangrove conservation carbon credits and restoration Improved forest EXPERIMENTAL management Regenerative agriculture Biochar Reforestation & Small forest owners Engineered solutions for Construction materials afforestation carbon capture; no clear Refrigeration management Enhanced weathering pathway to carbon

SCALABILITY finance Renewable energy Transportation efficiency

Carbon capture and storage Bioenergy with carbon capture and storage Direct air capture and storage Sustainable aviation fuel

8 Proven methodologies

Projects delivering immediate results

5 Clean cooking—At least four billion The Intergovernmental Panel on CO2e between now and 2050, more people cook over open fires and lack Climate Change (IPCC) reports: than the annual emissions of India.6 access to clean, efficient, and affordable ‘Reducing deforestation and forest Throughout the Great Plains of North cooking energy. These open fires degradation is a major strategy to America—a vast expanse between the contribute to climate change through reduce global greenhouse gas (GHG) Rocky Mountains and the Mississippi the use of fuelwood and can cause emissions. The combination of reduced River—efforts are underway to smoke-related health issues, primarily GHG emissions and biophysical effects restore and manage these prairies, impacting women and children. results in a large climate mitigation working with farmers, conservation effect, with benefits also at local level. organisations, and others. Carbon finance is a key source of Reduced deforestation preserves funding for projects that deliver clean Household solar—Projects to biodiversity and ecosystem services cookstoves. The projects provide generate energy for off-grid more efficiently and at lower costs modern cooking solutions, such households have several positive than afforestation/reforestation.’4 as solar cookstoves and efficient social impacts in addition to carbon cookstoves that burn less wood and REDD+ projects avoid the emissions reductions. These redirect smoke out of homes. deforestation and degradation of projects are critical to ensuring our some of our most valuable carbon transformation to a sustainable low- Forest conservation (REDD+)— stores. In addition, projects work with carbon economy is global. They often Deforestation is recognised as one of local communities to build sustainable benefit communities most impacted by the largest causes of climate change livelihoods which value the standing climate change yet least responsible. and rates of forest loss is increasing. forests and conserve and restore the Scientists are calling for 30% of Improved forest management— rich biodiversity which supports a wide land to be protected to prevent the Improved forest management could be range of ecosystem services. worst effects of climate change and applied to some two billion hectares biodiversity loss. Grassland conservation—Grassland of wood-production forest worldwide, protection has the potential to an area twice the size of the United withhold 3.35–4.25 gigatonnes of States.7 According to the IPCC,

Danjiang River Solar Cookers, China

9 improved forest management is one Refrigeration management—As the of only nine response options based planet warms, the need for on land management with medium to refrigeration of homes, businesses, large benefits to address mitigation, and vehicles will only increase. The adaptation, desertification, land replacement of hydrofluorocarbons, degradation, and food security.8 which are potent greenhouse gases, with natural alternatives,10 including Reforestation & afforestation— carbon dioxide, hydrocarbons, and Planting trees could remove more ammonia, have zero or near-zero than 100 billion tonnes of CO 2 global warming potential. from the atmosphere by 2050.9 Reforestation and afforestation Renewable energy—Renewable projects help protect against energy accounts for roughly a quarter hurricane and flood damage, controls of global electricity generation.11 soil and nutrient run-off, improves As a true success story, the cost of the water quality, and restores vital renewables is approaching cost parity habitat to protect biodiversity. with non-renewable energy sources, Each project considers the need to making the additionality of carbon restore native species, improve land credits for renewable projects in management practices, and create developed economies less critical. This economic opportunities in forestry. illustrates the value of carbon finance to support technologies as they Highlighting the importance of become independently commercially reforestation and afforestation, the viable. Carbon standards are now World Economic Forum launched the only accepting new renewable energy 1t.org initiative to plant one trillion projects from developing countries in trees by 2030. Working with clients recognition of this evolution. and project partners, Natural Capital Partners has joined 1t.org U.S. Chapter with a pledge to plant one million mangroves by 2030.

Community Chlorofluorocarbons Destruction, Ghana

10 Preserving grasslands in the Great Plains

Home to swift foxes, ferruginous hawks, burrowing owls, this project in the U.S. state of Colorado, is a recipient of the USDA’s Natural Resource Conservation Service Innovation Grant. The project’s goal is to create financial incentives for conserving valuable grasslands through payments for belowground soil carbon.

Developed in conjunction with Environmental Defense Fund and registered under the Climate Action Reserve, it is located on two properties in southeast Colorado covering approximately 9,300 hectares (23,000 acres). Southern Plains Land Trust, a nonprofit organisation that works to preserve the shortgrass prairie ecosystems of the Great Plains, uses the carbon finance income to put toward further land preservation.

© Nicole Rosmarino

11 Solar energy and mobile payment in East Africa

Moving away from petroleum-fueled power not only has a climate benefit by reducing our dependence on fossil fuels, it also reduces adverse health risks. Yet rural communities in Kenya, Uganda, and neighbouring countries without access to electricity, often depend on high-cost kerosene as their primary source of power.

As an alternative, a solar energy company based in Nairobi provides innovative LED solar lighting systems to rural households and employs an advanced mobile- based payment technology which is built into the solar lighting systems. The project reports that customers have replaced more than one million poor-form lanterns and generators with clean solar energy, resulting in children doubling study-hours at home and women benefitting the most from solar-powered TVs, fridges, and lights for everyday activities. Importantly, everyone can breathe easier and healthier without toxic fumes in homes.

Natural Capital Partners works with the project, registered under The Gold Standard, to measure and verify the emission reductions from the installations and use carbon finance to enable the project to achieve greater scale. Since launching in 2010, the project has connected over 750,000 homes to affordable solar power with 500 new homes being added every day.

12 Emerging methodologies

Projects advancing early-stage methodologies

Mangrove conservation and Verra’s Agricultural Land Management restoration—Mangroves can store Working Group14 is currently exploring Mississippi Valley Reforestation, USA ©GreenTrees four times more carbon than a opportunities to generate carbon rainforest, but globally more than credits through agricultural mitigation thousand acres to be economically CORE Carbon Programme are two 35% have already been deforested. techniques. So far, two sustainable viable. This has left out small initiatives that are working with Verra A limited number of projects are agricultural land management projects landowners in the United States, which and the American Carbon Registry currently registered under the Verified have been registered, one in India and as a group own more than 60% of to provide small landowners with Carbon Standard REDD+ Methodology one in Kenya. the country’s forestland. The Family access to carbon revenues to pay Framework,12 and Natural Capital Natural Capital Partners is currently Forest Carbon Programme and the for sustainable forest management Partners is working with the Verra piloting a project in India that aims to practices on their lands. Blue Carbon Working Group13 to improve the livelihoods of small and support the development of a new marginalised farmers by restoring blue carbon methodology. The working Applying best practices from carbon markets to the plastic pollution crisis more than 4,400 hectares (10,900 group is exploring coastal wetland More than 380 million tonnes of plastic are generated every year,15 and acres) of degraded agricultural restoration and conservation activities it is estimated that about six per cent of global oil consumption is used to lands—about the size of New York’s and developing recommendations for make plastic.16 While the voluntary carbon market is focused on reducing Central Park and London’s Hyde Park how standards and their supporting carbon emissions, we must also consider the plastic pollution crisis and the combined—using water and soil methodologies and tools could unlock conservation of all our natural resources. A new Plastic Waste Reduction carbon conservation techniques and carbon finance opportunities. Standard developed by Verra,17 the 3R Initiative, and a coalition of industry adopting sustainable agricultural land partners, including Natural Capital Partners, is in the early stages of Through our Million Mangroves management practices. The project accounting for waste recovery and recycling projects. initiative, we are scaling up mangrove is expected to store 6-7 tCO2e per conservation and restoration projects hectare annually and provide multiple Working with Seven Clean Seas, an organisation that has been investing in in Africa, Asia, and Latin America. co-benefits to thousands of rural ocean and river clean-up operations in Indonesia since 2018, Natural Capital farmers, including food and clean water. Partners is piloting the Plastic Waste Reduction Standard to ensure it delivers Regenerative agriculture—More the highest quality approach to measuring the impact of plastic waste sustainable farming practices ensure Small forest owners—Forest carbon collection projects. soil health and store carbon in the soil. projects traditionally require several

13 Conserving Mexico’s Natural Places

As part of our Million Mangroves initiative, we are working in Mexico to protect and restore mangrove trees in Laguna de Terminos, a biodiversity hotspot along the Gulf Coast that is home to more than 1,500 native species of flora and fauna. The lagoon is also an important oasis for migratory birds. However, the mangroves have been depleted due to human activities, such as fishing and development.

Working with a leading mangrove scientist and a local cooperative, we are enabling the conservation and restoration of mangroves in the area. The project is already leading to healthier mangrove forests, improving water quality, restoring fisheries, reducing damage from severe storms, and creating new jobs in conservation.

14 High-potential technologies

Truck Stop Electrification, USA

Promising project types could broaden opportunities for carbon offsetting

Biochar—Biochar is charcoal half of 2021 with a published biochar methods including CO2-enhanced generating emissions removals while generated from the decomposition methodology.19 concrete and timber construction, also improving soil health.21 of biomass. It can be used to enrich could reduce lifecycle emissions from Biochar as a carbon finance solution Transportation efficiency— and store carbon in soil, making homes and buildings by 35-40% among is its infancy, but biochar has the Improvements in freight transport,22 it beneficial for farming and soil G7 countries and by 20-30% in India potential to be a very durable shipping, and other forms of health. Recognising the potential, and China.20 Generating carbon credits solution, able to store carbon for transportation could create a market the American Carbon Registry from such projects could be possible in many centuries. A big challenge to for carbon credits, though these conducted a review to assess a the future. developing a reliable methodology efficiency technologies are not yet possible methodology, concluding ‘the is uncertainty around the impacts Enhanced weathering—In natural under consideration for a standard. methodology should not be accepted associated with different feedstocks systems, over the course of millions of at this time’.18 used to create it. years, the weathering of rocks triggers In late 2020, Verra launched an effort the breakdown of minerals, which in Material efficiency—The production to develop a biochar GHG accounting turn removes CO2 and stores it in the of materials accounts for one quarter method under the VCS Programme. sediment. Enhanced rock weathering of global GHG emissions. Material The results of this effort should be is a method to accelerate this process, efficiency in construction through released in the latter

15 Experimental technologies

Pangalengan Geothermal, Indonesia

Exploring solutions for the future

Much of our ambition today is standards to ensure it meets quality connected to fossil fuel power plants In an open RFP process, Microsoft grounded in the understanding that standards and established criteria, and divert emissions to be stored assessed carbon capture and storage we don’t have all the solutions ‘shovel such as permanence and additionality, underground. As of December 2020, to be tonne-for-tonne 50 times higher ready’. We require innovation in its while also avoiding any unintended the Global CCS Institute identified in cost compared to natural climate broadest sense to meet our climate consequences. Even then, the 26 commercial facilities in operation solutions. At that cost, it will take time goals, protect and restore our planet, circumstances do not always allow for with the capacity to capture about 40 for them to be viable at scale and 23 and increase economic vitality a perfect pairing. million tCO2e annually. before they can be assessed for a and prosperity. credible methodology.25 While carbon finance can be a Bioenergy with carbon capture and Currently, these experimental highly effective way to enable the storage, or BECCS, work in a similar Sustainable aviation fuel—Blending technologies show promise for development and availability of new fashion, except with bioenergy instead biofuels into aviation fuel can drive reducing and removing carbon, project types and innovations, it of fossil fuels. down emissions, but it is a nascent but they are generally not being is not always suited for such early- area that remains extremely expensive Direct air capture and storage, considered under current standards. stage technologies where proof, and is complicated by the potential for or DACS, pumps CO underground capacity, costs, and time frames are 2 double- and triple-counting reductions. While it is important to develop and can be smaller in scale, though still to be defined. Another issue is reconciling between and implement new technologies it is highly energy intensive and still pure greenhouse gas emissions and in the transition to a net zero global Carbon capture and storage (CCS)— very expensive. Still in the prototype the greenhouse gas impact of air economy, not all technologies are, Engineered solutions hold much stage, The International Energy travel, which is currently taken as or will be, compatible with the promise, and the idea of drawing Administration has identified 15 DACS twice the tCO2, and the variances in voluntary carbon market. Before carbon from the atmosphere and plants operating worldwide, able to emissions impact at various altitudes.

a technology can be considered, it storing it needs to be explored and capture more than 9,000 tCO2 must demonstrate proof of concept tested as part of the solution to climate per year.24 and undergo review by credible change. CCS projects are generally

16 Adding value with values

Positive impacts beyond climate

Carbon finance projects not only address climate change, the vast majority contribute to additional UN Sustainable Development Goals (SDGs). Innovative approaches play a critical role in creating shared value by driving benefits for business, people, and nature.

Benefits for business—Climate action is a determining factor in driving competitive advantage, meeting customer expectations, ensuring resilient supply chains, and retaining the best talent. Companies that can effectively communicate their strategy to stakeholders are able to differentiate their brand and compete in the marketplace.

Benefits for people and nature—Carbon finance projects can be measured against the Sustainable Development Goals to determine the co-benefits associated with a particular project. Climate action should not be considered in isolation, but as part of a holistic approach to a planet that thrives and communities that are healthy and prosperous. Projects can provide multiple co-benefits, including safe drinking water, reduced air pollution, biodiversity protection, and clean electricity for The area of each of the 17 SDGs in this graphic is based on an analysis of 75 of our most popular projects. small businesses, with carbon finance enabling the All 75 projects impact SDG 13, Climate Action, and the other SDGs are proportional to that. private sector to drive that global transformation to a low-carbon economy.

17 A Sanctuary in Indonesia for People and Nature

Rimba Raya, a 65,000-hectare peat swamp forest in Central Kalimantan, Indonesia, is home to more than 120 species of mammals, 300 species of birds, and 180 kinds of plants and trees. It is also home to communities living in nine remote villages.

In 2020, it became the first project registered to Verra’s SD VISta while demonstrating that it is advancing all 17 SDGs.26 In addition to forest and habitat conservation, programmes in surrounding villages provide education, employment, and access to healthcare. Beyond carbon finance, support from our corporate clients, has catalysed mangrove restoration, a floating health clinic, and community empowerment.

18 Delivering quality carbon credits

Community Reforestation, East Africa

We are engaged in the carbon finance Carbon credit lifecycle Role of Natural Capital Partners Benefits to our clients lifecycle of projects from beginning to end to deliver high-quality, high-impact We participate in working groups with Our clients have an expert voice advocating standards bodies to represent our clients’ for emission reduction and removal projects results for our clients. Methodology development interests. firmly grounded in science and quality criteria. This diagram illustrates the carbon credit lifecycle and the implications We work closely with project partners who Clients can be confident about the integrity understand the local context and work with of the project and the involvement and for businesses pursuing carbon Project development, validation, registration community groups to develop a project plan agreement of local stakeholders. finance solutions. that is sustainable over the long term.

Working with partners on the ground, we Carbon finance projects are underpinned by a offer projects that are delivered to the highest robust process of MRV to ensure quality. Project implementation and standards with ongoing monitoring, reporting Additional impacts and outcomes can monitoring and verification (MRV) of their impacts. be measured to align with specific client interests.

Annual reviews of projects and partners Client can be assured of ongoing quality and Verification and offset credit to ensure they are delivering prescribed credibility to support their claims and climate issuance outcomes. action.

Ensure that each unique instrument is Clients can be assured that we will manage appropriately retired. transactions through our audited internal Offset credit transfer and systems and independent registries, adhering Annual third-party audits ensure compliance retirement to best practices, and preventing double- with the International Carbon Reduction and counting. Offset Alliance (ICROA) Code of Best Practice.

19 Ensuring credible standards

Credits are assessed and validated based on six criteria: Innovation in standards and methodologies

Additional—An emissions reduction or removal project Carbon credits must be validated, verified, and registered under an approved standard to ensure quality. would not occur without the availability of carbon finance. ICROA manages the Code of Best Practice to ensure the highest levels of quality in carbon offset programmes. The current standards that have been accepted by the ICROA Code because of their robust processes include: Permanent—Carbon credits represent permanent emission reductions and removals.

Independently verified—All emission reductions and removals are verified by an independent and accredited third-party verifier.

Unique—No more than one carbon credit can be associated Verified Carbon Standard Climate Action Reserve American Carbon Registry with a single emission reduction or removal.

Real—Emission reductions and removals are proven to have genuinely taken place.

Measurable—All emission reductions and removals Clean Development Mechanism Gold Standard are quantifiable, using recognised methodologies and measurement tools, including adjustments for uncertainty and leakage.

Emissions Reduction Fund of the UK Woodland Carbon Code Australian Government

20 An innovative approach to growing resilient woodlands in the United Kingdom

The Woodland Carbon Code is the only voluntary standard of its kind, meeting the UK Government’s Forest Standard. UK forest creation projects are co-funded with Forestry Commission grant aid which is insufficient to incentivise landowners to plant—hence the need for additional funding to make the projects happen.

After a project is registered with the Woodland Carbon Code, it undergoes validation by a third party accredited by the UK Accreditation Service.

Pending Issuance Units are created as part of this validation process, based on estimated tree growth and carbon removals. These are automatically converted into Woodland Carbon Units once the trees have grown and delivered the carbon removals.

Pending Issuance Units do not represent guaranteed reductions and cannot be used to report against UK-based emissions until verified and converted to Woodland Carbon Units.

The Forestry Commission guarantees quality in the areas of woodland management and environmental impact assessment, plus an inspection regime after planting and once the forest is five years old, ensuring a legacy of social and biodiversity benefits.

21 Conclusion

In this critical decade and beyond, The white paper provides an overview of a series of existing project types the role of carbon finance should not and how they can be incorporated be underestimated. Carbon finance into a project portfolio, based on their enables business to drive progress and maturity and the corresponding status of applicable methodologies. Though make a positive impact, accelerating the not exhaustive, the projects illustrate transformation to a net zero economy. how carbon finance can be applied to drive further innovation and impact To achieve our collective interest in at scale to achieve business impact. keeping global warming below 1.5°C, Finally, with consideration of broader innovation is key. Investment in new Sustainable Development Goals and and creative carbon finance projects credible methodologies, a business is today will unleash practical and able to incorporate carbon offsetting scalable solutions, and unlock new into an effective climate strategy. opportunities and methodologies to From proven to experimental, carbon avoid, reduce, and remove emissions. finance projects conserve nature, This white paper is designed to offer improve lives, produce reliable clean practical approaches for businesses energy, and protect biodiversity. But to maximise their carbon offsetting carbon finance alone will not solve programme. First, by evaluating key all the challenges we face. It takes all business considerations, a company the solutions available—from those can identify an appropriate profile of available today to those that are yet risk and reward. A business can then to be invented. As these solutions model a blended portfolio around emerge, carbon finance can be a three funding structures as a function catalyst, galvanising climate solutions of their emission reduction strategy. and private sector action.

Darkwoods Forest Conservation, Canada

22 Endnotes

1. The Economist, ‘The bottlenecks which could constrain emission cuts’, 12. Verra, VCS Methodology: VM0007 REDD+ Methodology Framework, 12 June 2021, https://www.economist.com/briefing/2021/06/12/the- v1.6, 8 September 2020, https://verra.org/wp-content/uploads/2020/09/ bottlenecks-which-could-constrain-emission-cuts VM0007-REDDMF_v1.6.pdf

2. Verra, ‘Voluntary Carbon Markets’, https://verra.org/voluntary-carbon- 13. Verra Blue Carbon Working Group, https://verra.org/blue-carbon- markets/ working-group/

3. The Taskforce on Scaling Voluntary Carbon Markets, Final Report, 14. Verra Agricultural Land Management Working Group, https://verra.org/ January 2021, https://www.iif.com/Portals/1/Files/TSVCM_Report.pdf agricultural-land-management-alm-working-group/

4. IPCC, Climate Change and Land: an IPCC special report on climate change, 15. Ritchie, Hannah, ‘FAQs on Plastics’, 2 September 2018, https:// desertification, land degradation, sustainable land management, food ourworldindata.org/faq-on-plastics security, and greenhouse gas fluxes in terrestrial ecosystems [P.R. Shukla, 16. World Economic Forum, The New Plastics Economy: Rethinking the future (eds.)], 2019, https://www.ipcc.ch/site/assets/uploads/2019/11/SRCCL- of plastics, January 2016, http://www3.weforum.org/docs/WEF_The_ Full-Report-Compiled-191128.pdf New_Plastics_Economy.pdf 5. Project Drawdown, ‘Grassland Protection’, https://www.drawdown.org/ 17. Verra, ‘Plastic Waste Reduction Standard’, https://verra.org/project/ solutions/grassland-protection plastic-program/ 6. Union of Concerned Scientists, ‘Each Country’s Share of CO Emissions’, 2 18. American Carbon Registry, ‘Biochar Projects’, https:// https://www.ucsusa.org/resources/each-countrys-share-co2-emissions americancarbonregistry.org/carbon-accounting/standards- 7. Nature4Climate, ‘Natural forest management’, https://nature4climate. methodologies/methodology-for-emissions-reductions-from-biochar- Acre Amazonian Rainforest REDD+ Portfolio, Brazil org/science/n4c-pathways/forests/natural-forest-management/ projects

8. IPCC, Climate Change and Land: an IPCC special report on climate change, 19. Verra, ‘Verra to Undertake Development of a VCS Biochar Methodology desertification, land degradation, sustainable land management, food to Unlock its Potential to Mitigate Climate Change’, 10 December 2020, 23. Global CCS Institute, ‘Carbon Capture and Storage Technology on the security, and greenhouse gas fluxes in terrestrial ecosystems [P.R. Shukla, https://verra.org/request-for-proposals-development-of-a-vcs-biochar- Rise for Third Year in Row, Climate Report Finds’, 1 December 2020, (eds.)], 2019, https://www.ipcc.ch/site/assets/uploads/2019/11/SRCCL- methodology/ https://www.globalccsinstitute.com/news-media/press-room/media- Full-Report-Compiled-191128.pdf releases/carbon-capture-and-storage-technology-on-the-rise-for-third- 20. UN Environment Programme, Resource Efficiency and Climate Change: year-in-row-climate-report-finds/ 9. Busch, Jonah, ‘Reforestation can help reverse climate and extinction Material Efficiency Strategies for a Low-Carbon Future, 18 November crisis. It’s cost-effective too.’ Earth Innovation Institute, May 2019, 2020, https://www.unep.org/resources/report/resource-efficiency-and- 24. Microsoft, Microsoft carbon removal: Lessons from an early corporate https://earthinnovation.org/2019/05/reforestation-can-help-reverse-the- climate-change-material-efficiency-strategies-low-carbon purchase, 2021, https://query.prod.cms.rt.microsoft.com/cms/api/am/ climate-and-extinction-crises/ binary/RE4MDlc 21. Houlton, Benjamin Z., ‘An effective climate change solution may lie 10. For an overview of natural refrigerants, see North American Sustainable in rocks beneath our feet’, The Conversation, 16 July 2020, https:// 25. IEA, Direct Air Capture, Paris, 2020, https://www.iea.org/reports/direct- Refrigeration Council’s article, ‘Why Natural Refrigerants’, https://nasrc. theconversation.com/an-effective-climate-change-solution-may-lie-in- air-capture org/why-natural-refrigerants rocks-beneath-our-feet-142462 26. Verra, Sustainable Development Verified Impact Standard,https://verra. 11. International Energy Agency (IEA), ‘Report extract: Renewables’ In: Global 22. Greene, S., Façanha, C. Carbon offsets for freight transport org/project/sd-vista/ Energy Review 2020, April 2020, https://www.iea.org/reports/global- decarbonization. Nat Sustain 2, 994–996 (2019). https://doi.org/10.1038/ energy-review-2020/renewables s41893-019-0413-0

23 About Natural Capital Partners

With more than 300 clients, including Microsoft, MetLife, Logitech, PwC, Sky, and UPS, Natural Capital Partners is harnessing the power of business to create a more sustainable world. Through a global network of projects in over 30 countries, the company delivers the highest quality solutions which make real change possible: reducing carbon emissions, generating renewable energy, building resilience in supply chains, conserving forests and biodiversity, and improving health and livelihoods.

Natural Capital Partners was founded in 1997 and has offices in North and South America, Asia, and Europe. Since it began, the company has worked with more than 500 projects in 75 countries on behalf of its clients. It has been recognised as Environmental Finance Best Offset Retailer award for the past ten years and Best Advisory Service for the last four.

In May 2021 Natural Capital Partners merged with ClimateCare. The combined group will use its access to capital, global reach and longstanding industry and project development expertise, to drive further innovative solutions and partner with its clients to deliver on their ambitious climate and net zero goals.

Contact us

If you would like to find out more about innovative carbon finance solutions, or to discuss your environmental goals, please contact us: [email protected] naturalcapitalpartners.com

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