Olivia Jacobs | Principal and Founder, Xyla Land and Resource Advisors
The emergence of voluntary carbon markets in recent years has certainly stirred media, investor, and project developer excitement. Yet concerns over these markets abound, ranging from a distrust in the true additionality of these projects to a broader unease for the global macroeconomic environment. Despite the excitement, potential market players are therefore justified in their hesitation to dive right in.
It may feel tempting to characterize the voluntary market as one complete, global entity. Yet to gain a deeper understanding of recent developments, I encourage readers to acknowledge the space as a conglomeration of smaller markets, each with their own characteristics, outlooks, and supply and demand factors.
In this post, I identify major trends within the voluntary U.S. forest carbon market to help organizations understand this sub-market and its outlook. Our latest analysis indicates that the voluntary U.S. forest carbon market demonstrates continued strength and growth over the past few years, and it shows promise to generate both carbon and financial additionality across a range of project types.
Between 2021 and 2022, voluntary U.S. forest carbon credit issuances increased by 45%, and annualized data in 2023 indicates continued strength. Four registries issue voluntary forest carbon credits in the U.S.: the American Carbon Registry (ACR), the Climate Action Reserve (CAR), Gold Standard (GS), and Verra. Credits issued by ACR account for the majority of recent voluntary credit issuances, while CAR, GS, and Verra comprise a small share of recent issuances. The continued growth in credit development and origination in this market points to an enduring demand for U.S. forest-based carbon offsets.
*2023 credits annualized as of 5/31
We can also analyze credit retirements to understand the demand for these offsets. A credit is retired when an emitter claims it to offset an emission, so credit retirements may be a better proxy for realized credit demand. These data also show that the voluntary U.S. forest carbon market is gaining traction.
Credit retirements in this market exceeded 2 million credits in 2022, and 2023 annualized volumes are on track to surpass 3 million credits for the first time in market history. Again, ACR projects drove these trends while CAR and VCS projects comprise about 10% of total retirements over the past five years. Even more than credit issuances, retirements indicate a growing demand for voluntary U.S. forest carbon projects among buyers and emitters.
*2023 credits annualized as of 5/31
Taken together, our analysis of credit issuances and retirements points to a strong outlook for U.S.-based forest carbon credits. Looking ahead, there is tremendous potential to generate high quality credits across a variety of U.S. forests, and landowners will likely find innovative methods to increase carbon storage in their forests and monetize the value of that additionality.
At Xyla, we have a keen interest in helping organizations understand this dynamic environment, and we are looking forward to the future of forest carbon both in the U.S. and abroad!
Sources: Data include all non-ARB eligible, U.S. forest carbon credits in the American Carbon Registry, Climate Action Reserve, Gold Standard, and Verra registries as of 5/31/2023.
© Xyla Land & Resource Advisors, LLC
Comments