1 

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:

IMPAC T HABITAT AND

CARBON WATER FOREST LOSS
DESIRED BIODIVERSIT Y

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, • M
 onoculture systems,
hunting and fishing
generation Carbon offset credits conservation easements, such as pine or
licenses, biodiversity
options public water funding eucalyptus
credits
• M
 ixed 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
• Inflation hedge
some estimates that up to 93% of climate mitigation potential for the tropics, especially
• 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
• Costs of labor
IPCC. For example, a forestry project with timber harvesting could support carbon
• 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

400 $70.00 IF
70.00 IFM
A
AF
C
Carbon Price
Normalized Cash Flow from Carbon Credits 300 $52.50
52.50

35.00 200 $35.00

7.50 100 $17.50

0 0 $0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34

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

EX AMPLES

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
TR ADING 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
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DISCLAIMER
The information provided in this document is for informational purposes only and does not constitute a
solicitation, offer or sale of securities. Neither the investment examples cited, nor the CREO Syndicate’s
mention of examples, constitutes investment advice or a recommendation to purchase or sell any
securities. CREO Syndicate is not, and does not provide services as, an investment advisor, investment
analyst, broker, dealer, market-maker, investment banker or underwriter. CREO Syndicate do not receive
any compensation or fee for citing investment examples in this document or any consideration as a result
of any discussion or transaction with respect to any such investments.

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

FOR MORE INFORMATION

Please contact Maki Tazawa at [email protected] with any comments or questions about this
document. To view this and other CREO primers, please visit creosyndicate.org.