Untapped Forest Potential Could Significantly Expand Forest-Based Carbon Credit Supply

The global carbon credit market recognizes forests as an instrument to mitigate industrial carbon emissions. During recent times, the market for forest-based carbon credits has been around €300 million per annum, equaling a CO₂ sequestration of about 40 million tonnes CO₂ through the biological growth of forests.

However, the average forest-based carbon credit price has been some €8 to €10 per tonne of CO₂. The price has been very low compared to, e.g. CO₂ price of €75 to €85 per tonne realized recently in the European Emission Trading System (ETS). In general, the price for forest-based carbon is expected to evolve with the increasing demand for carbon credits.

As derived by Indufor, the supply of forest-based carbon is rather elastic with respect to the price of CO₂ credits. In other words, relatively limited increases in carbon price would result in remarkably expanded carbon supply. Increasing the price for forest-based carbon, say, to €20 per tonne of CO₂ (i.e. to a level of about 25% of the current price of CO₂ within ETS) could encourage forest owners to expand the supply of carbon credits by a multiple, potentially from 40 to 800 million tonnes of CO₂ per annum, i.e. twenty times larger.

To be effective, carbon farming should be applied while constraining the impact on wood harvesting. If wood prices were to increase due to reduced harvesting levels, the resulting foregone revenue by forest owners tends to increase the effective cost (opportunity cost) of carbon, further reducing the supply of forest-based credits. For example, a 20% increase in wood prices would reduce the annual supply by 50 million CO₂ tonnes at the level of €20 per tonne of CO₂. As a solution, it might be optimal to consider expanding carbon farming on, e.g. 10% of forest land-specific designated areas, i.e. within a similar scale to the set-aside requirements of conventional forest certification schemes. Such scale would be sufficient to achieve major expansion in the forest-based carbon market.

Indufor’s research data covers 159 countries globally, comprising forest resources including biological growth, forest area, wood prices and carbon sequestration by country. The data by country has been derived based on Indufor proprietary databases, the Food and Agriculture Organization of the United Nations (FAO) and national sources. To calculate the annual CO₂ sequestration, only the above-ground biomass was considered together with the conversion factors from 2006 IPCC Guidelines for National Greenhouse Gas Inventories and the 2019 Refinement.

Founded in 1980, Indufor Oy (www.induforgroup.com) is a globally renowned expert in forest and natural resource issues with operations on five continents. The company has served more than one thousand clients and has field experience in more than a hundred countries. The company's headquarters are in Helsinki, Finland, and the company employs more than 60 people.

For further information, please contact:

Diego Rivera, Indufor Data & Technology, +358 41 325 6695, diego.rivera@induforgroup.com

Topi Pohjankoski, Indufor Data & Technology, +358 45 267 0894, topi.pohjankoski@induforgroup.com

Elias Pekari, Indufor Data & Technology, +358 40 091 2591, elias.pekari@induforgroup.com