Nature-based carbon credit prices need to rise

High commodity prices increase the incentive to clear forests and plant crops

Nature-based carbon credit projects will increasingly have to compete with other demands on the land. Nowhere is the issue more stark than in South East Asia where high agricultural commodity prices means land owners have little incentive to move away from growing palm oil.

Almost all oil palm is grown on lands that were once tropical forests. Clearing the land to make way for planting inevitably results in biodiversity loss, but it’s the impact on what lies beneath the surface that is particularly damaging. Tropical forests stand above a rich bed of peat, a dense, soil-like material made up of partially decomposed organic matter.

Peat lying beneath the tropical forest stays moist, preventing the carbon from drying out and being released into the atmosphere. The problem is that oil palm prefers dry land. As tropical forests made way for plantations, canals were built to drain the land. This results in the peat drying out, leading them to rapidly degrade and release their carbon into the atmosphere.

But that’s only the start. The problem becomes even more acute should the remains of the forest catch fire.

In late summer 2015 a number of huge forest fires erupted across Indonesia, the biggest global producer accounting for more than half of the global supply of palm oil. More than 2.6 million hectares (10,000 square miles) had burned by the time the fires subsided a month later. The inferno meant Indonesia was the fourth largest greenhouse emitter in 2015, after China, the US and India despite it only being the 16th largest economy.

Forests don’t always catch fire by accident of course. In the race to capture already scarce land to expand plantations, fire is deliberately used to clear forest, known as slash and burn. According to Greenpeace 4.4 million hectares of land was burnt between 2015 and 2019, with 1.3 million hectares of that lying in concession areas, marked for the cultivation of palm oil and pulp.

What’s the opportunity cost of a cleared forest?

The price of a nature-based carbon credit should reflect the opportunity cost for each tonne of carbon emission averted. The directly observable costs involved with assessing a forest preservation project include the timber and non-timber forest products and the revenue that could be generated by planting crops.