As the UN biodiversity summit COP16 enters its second and final week in Cali, Colombia, a new report by MSCI Carbon Markets draws a link between the carbon credit market and addressing the biodiversity funding challenge.
At the last biodiversity summit in December 2022, countries signed the landmark Global Biodiversity Framework (GBF), which included the headline goal to protect and conserve 30% of the world’s land and marine environments by 2030, also known as the “30x30” pledge.
In addition, one of the GBF’s “four overarching global goals” is to “progressively” close a US$700 billion-per-year biodiversity finance gap.
The voluntary carbon market (VCM) has become an important source of finance for investments in nature-based solutions. According to MSCI Carbon Markets research analysts Laura Coomber and Theresa Bodner, their analysis suggests that two-thirds of 670 afforestation and reforestation projects in the VCM could “materially” improve biodiversity, and 10% have “high potential”.
Compared to reforestation, which works to restore deforested areas, afforestation involves introducing trees and tree seedlings to an area that has previously not been forested.
The analysts add that by 2050, the global carbon credit market could provide up to US$100 billion ($132 billion) per year of finance for nature-based solutions, “potentially at relatively moderate costs”.
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Private finance for nature has increased more than tenfold in the last four years, totalling just over US$100 billion as of June, according to research from the United Nations Environment Programme Finance Initiative.
Sources of private capital include equity, debt, green bonds and philanthropy. The VCM is a growing source of private capital, with nature-based projects making up 80% of the US$18 billion raised between 2021 and mid-2023.
In these projects, nature is central to the reduction or removal of CO2 emissions. For instance, reforestation removes CO2 from the atmosphere, while protecting tropical forests reduces CO2 emissions by preventing deforestation.
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Major deals in the VCM include advanced market commitments from companies like Meta and Microsoft. Both have signed long-term offtake agreements for afforestation and reforestation (ARR) credits, with Meta committing to 1.3 million credits and Microsoft securing 8 million credits.
Nature-based assets create a potential “win-win-win solution” to climate change, say Coomber and Bodner. These assets capture carbon from the atmosphere, provide significant biodiversity benefits and require “relatively modest cost”. According to Coomber and Bodner, some 66% of 670 ARR projects globally have potential for biodiversity uplift, with 10% having high potential.
That said, Coomber and Bodner note that the quality of nature-based carbon projects and ecosystem benefits beyond reducing carbon emissions can vary significantly. Nature-based projects do, however, make up more than half of VCM projects achieving an MSCI Carbon Markets quality rating of AA or higher.
The global carbon credit market could be the answer to the ongoing challenge of funding this approach, say the analysts. The market could be worth US$5 billion to US$24 billion in 2030, US$20 billion to US$70 billion by 2040 and US$30 billion to US$200 billion by 2050, according to projections by MSCI Carbon Markets.
“We also estimate that nearly half of this demand could be for nature-based solutions, creating a potential source of capital for these projects of up to US$12 billion in 2030 and US$100 billion by 2050,” they add. “Much of the potential for nature-based projects could be delivered at under US$75 per tonne of CO2 equivalent.”
This year’s COP16 will run till Nov 1.
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Infographic: MSCI
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