Business Case For Natural Climate Solutions - Insights and Opportunities For SEA

THE BUSINESS
CASE FOR NATURAL

CLIMATE SOLUTIONS
INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA
© JOEL VODELL
i CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

TABLE OF CONTENTS
01 I. Executive Summary
03 II. Nature’s Role in Climate Action
04 III. Why Businesses Should Care About Natural Climate Solutions

A. Achieving Net-Zero Emissions by 2050 is Needed to Avoid Catastrophic Climate Change
B. NCS has important properties as an investment option for climate change mitigation
C. Financial Costs, Benefits and Returns of Illustrative NCS Project s
D. Businesses can adopt strategies to address NCS project efficiency and reduce risk
29 IV. Carbon Market and Policy Outlook for NCS

A. Key international policies have significant implications for NCS
B. Sectoral initiatives, in particular within aviation, are breaking ground for NCS
C. Climate finance, while growing, has significant potential – and need – for evolution
D. NCS investment options exist beyond carbon finance
E. Coalitions of public and private actors can help reduce NCS investment risks
44 V. How Businesses Can Engage in Financing NCS

A. Businesses can invest in NCS to achieve voluntary emissions reduction targets
B. Businesses can develop NCS product lines and expand into new markets
C. Businesses can “inset” NCS projects to improve supply chain resilience
D. Businesses can purchase or support NCS carbon credits for pre-compliance
E. Businesses may support NCS projects while achieving regulatory compliance
49 VI. Insights and Opportunities for NCS in Southeast Asia

A. Regional NCS opportunities and constraints exist in both terrestrial forests and blue carbon
B. Regional developments on climate policy give businesses opportunities for NCS advocacy
C. Country-specific opportunities for NCS are emerging in NDCs
65 VII. Conclusion and Call-to-Action on NCS Initiatives in Southeast Asia
67 VIII. Glossary
72 IX. Annex
A. NCS’ Carbon Potential
B. Supplemental Notes to Model NCS Cases
C. Blue carbon data
D. Methodology of Carbon Prospecting Potential
THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA ii
FOREWORD
TEMASEK
Sustainability is at the core of everything we do at Temasek. As a generational investor, we must do our part to
transition toward a low carbon economy for humanity.
In 2019, Temasek set ambitious targets on climate action. We committed to and accomplished carbon neutrality
at the firm level in 2020. We further committed to halving net emissions at the portfolio level by 2030, using 2010
emission levels as a baseline. In addition, we aspire to deliver a net zero emissions portfolio by 2050.
Carbon neutrality cannot be achieved with carbon capture, storage or even renewable energy alone. Forests
sequester carbon by capturing CO2 from the atmosphere and transforming it into biomass though photosynthesis.
Here in Southeast Asia, the native habitat for mangrove swamps and sea grass meadows boast the world’s largest
blue carbon stock. Restoration and conservation of our natural carbon sinks through nature based solutions is thus a
critical tributary in the decarbonisation pathway.
To implement nature-based solutions at scale, we need public-private sector partnerships such as research
institutions to build our base of scientific knowledge, capital owners to develop promising projects, NGOs to bring
different interest groups together, businesses to co-finance projects and undertake carbon credits, and governments
to provide an enabling regulatory environment.
This joint white paper is timely and brings together perspectives from multi-sectorial players with an aligned vision.
I congratulate The National University of Singapore, Temasek, Conservation International, and DBS for undertaking
this important project. I hope that this paper serves as a primer to inquisitive minds seeking to define the investment
case for nature-based climate solutions in Southeast Asia.
Enjoy your sustainability journey!
Robin Hu
Head, Sustainability & Stewardship Group, Temasek
iii CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

CONSERVATION INTERNATIONAL
Millions of people are already suffering the impacts of climate change and the world is on course for a 3.7-4.8°C
temperature increase by 2100, which would cause catastrophic and irreparable damage to our planet. Climate
catastrophe looms due to the destruction and degradation of many of the world’s carbon-rich natural ecosystems.
To combat the crisis, Conservation International is working to realise a fundamental shift in how nature is leveraged
as a solution. When ecosystems are destroyed, immense amounts of carbon are released into the atmosphere that
remain irrecoverable in our lifetime. Yet financial incentives to protect these places are surprisingly limited. Currently,
only 2% of global climate investment goes to natural climate solutions, despite being 37% of the potential solution
to avoid the worst effects of climate change.
How can nature-based solutions be leveraged to achieve their full potential? What is the role of the private sector?
What are the strategies, methodologies and interventions? This report, a research partnership between Temasek,
DBS, National University of Singapore and Conservation International, is intended to synthesise the state of
knowledge surrounding the wide-range of activities and instruments currently available to the private sector to invest
in nature-based solutions all around the world.
Nature provides vital, unmatched and ongoing returns to all of humanity, and the growing relevance and value
of natural carbon markets are clear. An investment in our planet is an investment in our future but we cannot
protect our lands, waters and other natural resources without developing new partnerships and long-term financial
commitments that incentivise protection and restoration. Conservation International is excited to be a part of this
collaboration as we work together to find innovative, successful and lasting ways to fund conservation, and partner
with governments, academia and corporates to develop solutions that are good for business, good for nature and
good for people.
Dr. Richard Jeo

Senior Vice President, Conservation International Asia Pacific Field Division
THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA iv
DBS BANK
Natural Climate Solutions address two of the most monumental challenges facing us today – climate change and
biodiversity loss. The challenges are strongly interlinked.
Singapore is surrounded by some of the most precious, diverse and productive natural systems in the world.
From rainforest to wetlands, these places provide immeasurable wealth to the world. As an affluent country and
an emerging world-leading green financial hub, Singapore is uniquely positioned to contribute to the preservation
and expansion of nature. Through science, technology and finance, as well as spending patterns, we can make a
difference collectively and individually.
This report not only offers a contribution in highlighting the impact NCS can have on resolving the challenges we are
facing, but also suggests the commercial viability of NCS.
DBS wishes to continue to play its part in preserving our natural treasures. Through our responsible lending
practices we ensure due consideration is given to preservation of critical natural ecosystems. We also encourage
the transition to a low-carbon economy through our lending and other actions. We aim to lead the agenda as
members of Task Force on Climate-related Financial Disclosures (TCFD) and Task Force for Nature-related Financial
Disclosures (TNFD).
It is my own hope that this report sparks much-needed conversations that are solutions-focused, and that it
encourages you as the reader to consider your own ways in helping to make a positive contribution.
Mikkel Larsen, Chief Sustainability Officer, DBS Bank
v CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

NATIONAL UNIVERSITY OF SINGAPORE
We live in an unprecedented time with immense global challenges, with climate change presenting one of the
most profound risks to both natural and human systems. In an effort to combat climate change and reduce global
greenhouse gases (GHGs), 195 states have committed to the Paris Climate Agreement to limit global warming
to below 2°C. One country commanding the lead is the small-island state of Singapore, with its government
subsidiaries, as well as academic institutions.
Current commitment to mitigate and adapt to climate change in Singapore amounts to SGD$100 billion over the next
50-100 years, with Temasek Holdings leading the way. Temasek Holdings has pledged to halve their net portfolio
carbon emissions by 2030. Likewise, Singapore is actively investing in the future through science-based ventures.
In particular, the Singapore National Research Foundation has recognised the vital importance to science-based
initiatives to solve global grand challenges. Amongst one of the first initiatives, is the investment in the new Centre
for Nature-based Climate Solutions at the National University of Singapore (NUS-CNCS).
The NUS-CNCS is uniquely positioned to research on and confront the issue of climate change by committing to
work in collaboration with the Singapore government to play an active role in mitigating and adapting to global
climate change at the regional scale through science and research collaborations. Collectively, humanity needs
to drawdown 53.5GtCO2 in order to limit the temperature rise to 2°C per the Paris Climate Agreement. One highly
underutilised avenue of reducing GHG emissions is to invest in natural climate solutions through private, corporate
investments, particularly in Southeast Asia. Leveraging on the expertise of the CNCS, recent work points to natural
climate solutions having the potential to close these emission gaps, sustain biodiversity and local livelihoods, whilst
still providing a high return-on-investment through carbon financing.
Together, these efforts represent a concerted and holistic approach to address climate change in both a scientific
and financially viable manner. I am privileged to be able to support the Government of Singapore and subsequently,
Temasek Holdings, with nature-based scientific methodologies to take a global leadership approach to drawing
down carbon for our collective future.
Professor Lian Pin Koh

Director, National University of Singapore, Centre for Nature-based Climate Solutions
THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA vi
ACRONYMS
ACR – American Carbon Registry GHG – Greenhouse Gas
ART TREES – Architecture for REDD+ Transaction GtC – Gigatons of Carbon

(ART) The REDD+ Environmental Excellency Standard
(TREES) ICAO – International Civil Aviation Organization
ASEAN – Association of Southeast Asian Nations ICT – Information and Communication Technology
BAU – Business-as-Usual IFC – International Finance Corporation
C - Carbon IMO – International Maritime Organization
CAGR – Compound Annual Growth Rate IRR – Internal Rate of Return
CAR – Climate Action Reserve ITMO - Internationally Transferred Mitigation Outcomes
CCS – Carbon Capture and Storage IUCN – International Union for Conservation of Nature
CDM – Clean Development Mechanism JNR – Jurisdictional and Nested REDD+ (of Verified
Carbon Standards)
CI – Conservation International
KTON – Kiloton
CO2 – Carbon Dioxide
MbMs – Market-based Measures
COP XX – Conference of the Parties
MEPC – Marine Environment Protection Committee
CORSIA – Carbon Offsetting and Reduction Scheme
for International Aviation MgtC – Megatons of Carbon
CSR – Corporate Social Responsibility NbS – Nature-based Solutions
DFI – Development Financial Institutions NCS – Natural Climate Solutions
EEXI – Energy Efficiency Existing Ship Index NDC – Nationally Determined Contributions
ETS – Emissions Trading System NUS – National University of Singapore
EV – Electric Vehicles NUS-CNCS – National University of Singapore Centre

for Nature-based Climate Solutions
F4F – Finance for Forest Initiative
PPP – Public Private Partnerships
FCPF – Forest Carbon Partnership Facility
RBCF – Results-Based Climate Finance
GCF – Green Climate Fund
vii CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

RDC – Regionally Determined Contribution
REDD+ – Reducing Emissions from Deforestation and

Forest Degradation
RIL-C – Reduced-Impact Logging for Climate Change
RoI – Return on Investment
SBTi – Science Based Targets initiative
SDGs – Sustainability Development Goals
SMEs – Small and Medium Sized Enterprises
SOS – Safe Operating Space
TgC – Teragrams of Carbon
UN – United Nations
UNFCCC – United Nations Framework Convention on

Climate Change
VCUs – Verified Carbon Units
VERPA – Voluntary Emission Reduction Purchase

Agreement
WBCSD – World Business Council for Sustainable

Development
WEF – World Economic Forum
THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA viii
AUTHORS AND
CONTRIBUTORS
CONSERVATION INTERNATIONAL AUTHORS/CONTRIBUTORS:
Shyla Raghav, Aarin Gross, Andrew Wu, Maggie Comstock, Jan Yoshioka, Murali Kanakasabai, Jennifer Howard,
Anand Roopsind, Kellee Koenig, Adam Schoenberg, Karyn Tabor, Bronson Griscom, Robert Baigrie, Will Turner,
Agustin Silvani, Aya Uraguchi, Bara Kalla, Srabani Roy, Anurag Ramachandra
NATIONAL UNIVERSITY OF SINGAPORE, CENTRE FOR NATURE-BASED CLIMATE SOLUTIONS:
Kelly Siman, Yiwen Zeng, Zhang Jie, Lavanya Prakash, Tasya Vadya Sarira, L. Roman Carrasco Torrecilla, Daniel A.
Friess, Lian Pin Koh
SUGGESTED CITATION:
Raghav, S., Siman, K., Gross, A., Wu, A., Zeng, Y., Comstock, M., Zhang, J., Yoshioka, J.-R., Kanakasabai, M., Prakash,
L., Howard, J., Roopsind, A., Sarira, T. V., Carrasco, L. R., Koenig, K., Schoenberg, A., Tabor, K., Griscom, B., Aya
Uraguchi, R., … Koh, L. P. (2020). The Business Case for Natural Climate Solutions: Insights and Opportunities
for Southeast Asia (p. 109). Temasek.
ix CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

© BIHAIBO
THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA x
© HOANG GIANG HAI
I
EXECUTIVE SUMMARY
In the face of the accelerating impacts of climate Despite their vast potential, NCS solutions have
change, natural climate solutions (NCS) provide an been undervalued as a credible mitigation solution,
immediately and widely available option for companies attracting only a minor share of global climate finance
seeking to make sound investments in climate flows. Reasons likely include lack of methodologies
mitigation. Given the pressing need to decarbonise to quantify and verify mitigation outcomes addressing
and the ambitious carbon targets set by companies land use, land use change, and forestry, and lack of
and countries alike, it seems clear that NCS solutions institutional maturity or readiness. However, many of
must form part of the portfolio of options to achieve the barriers to investment have viable solutions and
carbon neutrality. research suggests a potentially high opportunity and
low operational cost to sequester carbon at scale.
Companies can make a difference. NCS might not
fit every single use case or organisation. However, In fact, NCS projects are competitive with other
greater awareness of NCS, and how to operationalise mitigation options on cost and return on investment
such solutions, will lead to more informed options for but stand out as particularly favourable when non-
companies and countries. NCS represent a significant carbon benefits are considered, including coastal
opportunity for businesses and investors that either resilience, biodiversity conservation, and flood
have exposures and material risks within their supply prevention. While there are limited options for price
chain linked to deforestation and land-use change premiums associated with the co-benefits of NCS,
or are seeking cost-effective investment options advancements in measuring, reporting, and product
to meet their climate commitments and targets, as innovation could assist companies in directing
part of a broader portfolio of climate investments investments to activities and regions where non-
inclusive of decarbonisation. carbon returns and Sustainable Development Goals
(SDGs) outcomes can be maximized.
1 CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

© ROBIN MOORE/ILCP
Efficiencies and levers for value creation can be NCS, even as demand for carbon credits is poised to
realised through designing and implementing NCS increase, supply development is a key opportunity and
projects in a manner that reduces cost and time need. This will require further development of and
needed to generate returns through engaging in investment in innovative financial instruments that
policy advocacy, technology deployment, inclusion of support project start-up and design costs to ensure
cost buffers, and upfront community engagement. high quality outcomes, for new projects in particular.
To date, most entities investing in NCS projects via Recent developments have also allowed better
the purchase of carbon credits are doing so through quantification of the impact of blue carbon solutions,
the voluntary carbon market. Whether motivated thereby improving the financial conditions for coastal
by corporate social responsibility (CSR), climate carbon investment and bringing this carbon science
commitments, market opportunities, pre-compliance, closer to parity with terrestrial forest ecosystems.
or compliance needs, there are numerous business The private sector has the opportunity to drive
models that companies may utilise to invest in NCS. technological and financial innovation to streamline
For voluntary carbon offsets, these models include carbon investments and accelerate pipeline
voluntary purchase agreements, offtake agreements, development for underutilised but high-potential
and upfront investment in project development in return solutions like blue carbon (targeting coastal and
for preferential access to future credits generated. marine ecosystems) and reduced impact logging for
climate (RIL-C).
Trends suggest that demand for NCS activities
and their associated carbon returns will increase For NCS to reach scale, the private and finance sector
rapidly in the coming decade. Voluntary carbon is encouraged to support the enabling conditions for
offset issuances nearly doubled between 2018 policies and compliance regimes for climate action.
and 2019. We are possibly already at an inflection The development of mature carbon markets will
point. Many countries in Southeast Asia and the further enable and facilitate the expansion of demand,
Pacific have favourable conditions for NCS investment higher prices, and matching of demand and supply. It
and implementation, including high potential for is recommended that companies investing in NCS
investable carbon. Southeast Asia holds the highest also support policy development at the regional
density of carbon prospecting for NCS investments, and national level to ensure long-term sustainability
which includes both terrestrial and blue carbon. and scaling opportunities, as well as consistent
Similarly, based on preliminary spatial analyses, pricing signals to sustain the development and
there is a high density of co-benefits that would be implementation of NCS outcomes.
captured through NCS investment. However, to scale
THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA 2
© KLJ PHOTOGRAPHIC LTD
II
NATURE’S ROLE IN
CLIMATE ACTION
Natural Climate Solutions, or NCS, refer to climate plants, and soil, while another quarter is absorbed
mitigation technologies that harness natural into marine systems (NOAA, 2017). Yet, if protected,
processes to reduce or remove greenhouse gas, or sustainably managed, and restored, nature has the
GHG emissions. More precisely, NCS are defined as power to do even more. Studies have shown how
“actions to protect, sustainably manage, and restore NCS can provide over a third of cost-effective
natural or modified ecosystems that address societal climate mitigation needed worldwide to achieve
challenges effectively and adaptively, simultaneously net-zero emissions by 2050 and keep global
providing human well-being and biodiversity benefits” warming below 2°C (Griscom et al., 2017). Realising
(IUCN, 2016). this opportunity, however, requires support from the
private sector which plays a critical role in scaling NCS
NCS can contribute to efforts in three primary ways: implementation. Businesses can catalyse significant
reductions of GHG emissions through investments
• Reducing GHG emissions, especially
in NCS – not only to address their own company’s
in the land use sector;
footprint, but also to drive transitional change for
• Providing a proven method of carbon entire sectors. Conversely, NCS presents a wealth
capture and storage; and of opportunities to businesses – with a range of
motivations – in achieving their internal corporate
• Increasing ecosystem resilience and goals, while also supporting the advancement of
providing other socioecological co- national climate targets within their countries of
benefits of mitigation efforts. operation. This report highlights opportunities for
businesses to invest in NCS, particularly those in
Nature already mitigates a significant portion of
Southeast Asia to stimulate the implementation of
anthropogenic GHG emissions. Approximately a
NCS at scale.
quarter of these emissions are absorbed by trees,

III
© EAKKALUK
WHY BUSINESSES SHOULD

CARE ABOUT NATURAL
CLIMATE SOLUTIONS
Achieving Net-Zero Emissions THE PRIVATE SECTOR IS UNIQUELY
POSITIONED TO SUPPORT CLIMATE ACTION
by 2050 is Needed to Avoid DUE TO THE SPEED AND SCALE AT WHICH IT
CAN DEPLOY CAPITAL
Catastrophic Climate Change
The private sector has key, distinct advantages as an
Global experts agree on the imperative to act on investor in NCS. Not only are pools of philanthropic
climate change across sectors, rapidly, and at scale. and government capital typically more modest than
According to the Intergovernmental Panel on Climate private funds, but government fiscal assets are
Change (IPCC), human activities are estimated to have also more susceptible to political risk. Corporate
caused approximately 1.0°C of global warming since commitments and efforts can help bridge the gap
pre-industrial times (1850-1900) and are projected between current climate targets set by governments
to reach 1.5°C of warming between 2030 and 2052 and the level of ambition that is needed to reach
based on current trends (IPCC, 2018). Global warming net-zero emissions by 2050 (World Economic Forum,
has already negatively impacted natural and human 2018). The private sector can often make decisions and
systems, including sea level rise, increased extreme deploy investment more rapidly than the public sector.
and deadly weather events, and threats to health, food Coupled with the pressure to compete in markets and
security, and economic growth. The IPCC projects achieve positive returns for investors, private sector
that continued warming of 1.5°C and higher will further players are skilled at developing cost-effective models
increase the severity of these impacts. (IPCC, 2018). that are financially self-sustaining. Furthermore, as
governments often seek private investment within
The time to act is now. Due to the mounting climate their jurisdictions as a means of job creation and
shocks associated with warming beyond 1.5°C, the next economic growth, establishing corporate partnerships
ten years will shape the outlook for climate risk for the and investments in climate mitigation projects can be a
rest of the century (World Economic Forum, 2018). strong incentive for corresponding public action.
From a global economic perspective, the Leveraging private investments with risk-reducing
climate risks and corresponding economic risks public and philanthropic capital, through an
threaten a systemic collapse, unless net human- arrangement called public-private partnerships (PPPs),
caused carbon dioxide (CO₂) emissions fall by has emerged as a notable model for amplifying climate
50% by 2030 relative to 2010 and to net zero by finance (The Palladium Group, 2019). By strategically
2050 (Rogelj et al., 2015). aligning business capital with countries’ climate
opportunities and priorities, collaborations between TRACKING CORPORATE EMISSIONS IS THE
the public and private sector can accelerate transitions FIRST ESSENTIAL STEP TO DETERMINE
towards a green economy (Ansah & Sorooshian, HOW COMPANIES SHOULD APPROACH ITS
CLIMATE MITIGATION STRATEGY
2019). These collaborations to scale financing may
be a matter of necessity, particularly for developing To help transition to a low-carbon economy and
countries, where large amounts of capital are needed support net-zero emissions targets, businesses first
to finance the transition to a green economy. Estimates need to identify the sources of emissions that they
suggest that, by 2030, US $500 billion will be have control and influence over. The Greenhouse Gas
needed annually to sufficiently limit GHG emissions in Protocol has developed a Corporate Accounting and
developing countries (World Resources Institute, 2013). Reporting Standard, providing guidance for companies
and organizations in preparing a corporate-level GHG
The World Economic Forum (WEF) has identified key emissions inventory.i (Bhatia et al., 2013)
areas where the private sector can lead to hasten
the transformation towards a low-carbon economy. A GHG emissions inventory that includes all three
In addition to financing climate action, these areas scopes can help companies identify where the
include: reinventing businesses, bridging sectors (to largest emissions reduction opportunities exist across
jointly develop low-carbon products, processes and their business. From there, businesses can develop
technologies), creating sustainable value chains, and targeted mitigation strategies through a variety of
harnessing data and connectivity (World Economic reporting, implementation, and trading programs,
Forum, 2018). promoting company transparency while mitigating
reputational risk (Bhatia et al., 2013).
Box 1: Classification of GHG Scopes
Corporate emissions can come from a variety of sources, which are grouped into three “scopes” for
greenhouse gas accounting and reporting purposes (WRI & WBCSD, 2013).
SCOPE 1
Direct Emissions – emissions from activities directly under

the ownership or control of the company. Company Vehicle Chemical
Furnaces Fleets Production
SCOPE 2
Indirect Emissions – emissions from indirect sources

under the ownership or control of the company. Purchased Heating/Cooling Purchased
Electricity Steam
SCOPE 3
All Other Indirect Emissions – typically the largest source

of company emissions. These come from sources related
to the company’s activities, but not directly owned or Material Transportation Business
Extraction/ of Purchased Travel
under the control of the company. Production Materials

Carbon emissions reductions pose particular Carbon accounting can be an onerous and intensive
challenges for small or medium sized enterprises task and is typically “over-engineered” for SMEs
(SMEs). Since SMEs typically have smaller overall (Hendrichs and Busch (2012). However, SMEs should
emissions, these enterprises do not normally partake work to implement a proactive carbon management
in emissions trading schemes. However, SMEs do hold strategy that is in line with their capabilities and
key advantages over large enterprises when looking resources. A seven-step framework was developed
to reduce their overall — and specifically Scope 3 (Figure 1) to help guide and reduce the burden of
— emissions. SME companies are characteristically carbon accounting for SMEs. The framework is
much more flexible with a flatter hierarchy, resulting intended to identify and trigger carbon mitigation
in shorter and more immediate decision processes levers in addition to discovering other areas of cost-
(Hendrichs & Busch, 2012). savings and efficiencies.
Figure 1. Seven-step framework for small and medium sized enterprises to manage carbon emissions (Hendrichs and Busch (2012)
1. Project Framing
2. Status Quo
Analysis
7. Reporting &
Communication
3. Scenario
Outlook
6. Implementation
4. Identification
of Reduction
Measures
5. Target
Setting
BUSINESSES NEED TO SET SCIENCE- with best-available, objective, scientific guidance on

BASED CLIMATE TARGETS AND DEVELOP relevant global and sectoral carbon budgets in order to
STRATEGIES TO MEET THEM, INCLUDING keep global warming below 1.5°C.
INVESTING IN NCS OR PURCHASING OFFSETS
TO COMPLEMENT DECARBONIZATION
Through the Business Ambition for 1.5°C campaign,
Once businesses have quantified their GHG emissions, a global coalition of United Nations agencies and
they can set targets to reduce their emissions in business and industry leaders has issued a call to
their operations and supply chains. Companies may action for companies to commit to ambitious emissions
develop GHG emissions reduction targets as part reduction targets through the Science Based Targets
of broader sustainability frameworks or corporate initiative (SBTi) (Science Based Targets, 2020a). SBTi
disclosures. To be meaningful, however, the ambitions defines and promotes best practices in science-based
and timelines of these targets need to be aligned target setting for companies, and highlights the
increased innovation, reduced regulatory uncertainty, (Science Based Targets, 2020b). Pathways are
strengthened investor confidence, and improved currently under development for the following
profitability and competitiveness generated by science- sectors: apparel, chemicals and petrochemicals,
based target setting (Science Based Targets, 2020a). financial institutions, oil and gas, transport, power
sector, forest, land and agriculture, and information
While the guidance for the SBTi evolves and is and communication technology (ICT) (Science Based
frequently updated, one of the methodologies Targets, 2020b). Examples of sectoral guidance,
available for corporate science-based target setting and companies’ corresponding commitments, are
allocates carbon budgets to specific sectors and elaborated in the call-out boxes below.
creates sector-specific decarbonisation pathways
Box 2: Oil & Gas Industry and SBTi
SBTi is developing methodologies for oil & gas companies to set science-based climate targets for their
upstream, midstream, and downstream business segments. European oil supermajors – including BP,
Royal Dutch Shell, and Total – are in a SBTi working group to support this initiative. To date, all three
companies have already made net-zero pledges for their Scope 1 emissions by 2050, along with significant
contributions in other emission sources. These targets are expected to be informed and reviewed upon
completion of the SBTi methodology. Notably, their American supermajor counterparts, such as ExxonMobil
and Chevron, are currently not involved in the working group, have much less ambitious targets, and do not
have comprehensive targeted emissions reduction plans. Highlights from these companies’ climate pledges
are provided below:
BP SHELL TOTAL
By 2050, BP pledges to: By 2050, Shell pledges to: By 2050, Total pledges to:
• Be net-zero on all • Be net-zero on all • Be net-zero on all
direct emissions direct emissions direct emissions
• Cut the carbon intensity of all • Cut the carbon intensity • Cut the carbon intensity of all
company products by 50% of all company products company products by 60%,
by 65%, with an interim with interim targets of 15%
target of 30% by 2035 by 2030 and 35% by 2040
EXXONMOBIL CHEVRON
By 2020, ExxonMobil pledges to: By 2023, Chevron pledges to:

• Cut methane emissions by 15% • Cut the carbon intensity of direct
emissions of oil production by 5-10%

Box 3: Financial Sector Science Based Targets (Draft Guidance Version 1.0) (Science Based Targets, 2020b)1
In October 2020, SBTi released a pilot version of target guidance for the financial sector – including banks,
asset managers and owners, insurance companies, and real estate investment trusts. The framework is also
relevant for other financial institutions that have holdings in the following asset classes: real estate, mortgages,
electricity generation project finance, and corporate debt and equity (Science Based Targets, 2020).
Amongst other recommendations, primary opportunities to reduce emissions highlighted by the SBTi include:
• High-level commitments to act through an international initiative;
• Measuring emissions intensity in portfolios;
• Distinguishing green versus brown investment; and
• Divesting from fossil fuels
To date, more than 50 financial institutions have publicly committed to set emissions reduction targets
through the Science Based Targets initiative. In addition, 80 institutions in the financial sector reported to
CDP in 2019 that they intend to set a science-based target within the next two years.
SBTi’s tools and methodologies can be used synergistically with existing coalitions and campaigns aimed
at catalyzing climate action in the finance sector. Companies involved in the following example initiatives
should actively explore opportunities for collaboration:
• Business Ambition for 1.5°C • The Investor Agenda
• We Mean Business campaign • Commitment to TCFD reporting
• UN-convened Net-Zero Asset Owners Alliance • Partnership for Carbon Accounting Financials
• Principles for Responsible Banking
As part of this broader sectoral approach, The World Business Council for Sustainable
natural climate solutions provide pathways Development (WBCSD)’s Safe Operating Space (SOS)
for corporations to reduce their overall GHG 1.5 project provides a science-based action framework
emissions and accomplish their corporate for businesses to reach net-zero emissions and
carbon reduction goals — whether as a supply help keep global warming to under 1.5°C (WBCSD,
chain emissions reduction measure, or through 2020). The roadmap includes recommendations for
investment in offsets to neutralize part of their all companies regardless of where they are on the
corporate footprintii. decarbonisation pathway (WBCSD, 2020).
Setting science-based targets to reduce emissions

enables companies to set their ambition. Deliberate
strategies for reaching net-zero are needed to match
that ambition with actions.
Figure 2: A company’s stages of decarbonisation: Starting the Journey, Advanced and Leading
STARTED THE JOURNEY ADVANCED LEADING

Start the decarbonization journey Deliver significant individual impact Reshape industry towards net-zero
• Raising awareness • Setting science-based targets • Redefining industry
on climate crisis business models
• Reducing direct & indirect footprint
• Taking first commitments with • Leading value chain
• Providing transparency
limited scope and ambition decarbonization
on action plan
(World Business Council for Sustainable Development (WBCSD), 2020)
According to the WBCSD, there are six There are two main approaches to reduce Scope 3
main levers companies can use to reduce emissions: Reducing the activity level (e.g. the amount
Scope 1 and Scope 2 emissions: of kilometres driven by the company fleet), and
reducing the GHG intensity of the activities (e.g. the
1. Enhancing efficiency (reducing sector- amount of emissions emitted per kilometre) (Farsan
specific energy consumption); et al., 2018). Any actionable measure taken to reduce
GHGs in the activities and/or intensity are called
2. Substituting fuel (replacing carbon intensive
‘reduction levers’.
primary energy sources with green alternatives,
such as biomass or green hydrogen);
Table 1 illustrates the categories of reduction levers
3. Changing agriculture and waste management; available, and corresponding examples both in terms
of activity level and GHG intensity.
4. Decarbonising electricity (replacing
carbon intensive sources, such as coal, WBCSD’s guidance details actions that companies
with lower-carbon alternatives); can take in support of decarbonisation and provides a
way for companies to collaborate with their peers and
5. Reducing direct emissions from process
their value chains on the decarbonisation process.
industries (such as cement or glass); and
Still, it acknowledges that companies will not be able
6. Using synthetic fuels and carbon to reduce their emissions to zero across all three
capture and storage (CCS) as last-mile scopes in the near term and that credible carbon
abatement levers (WBCSD, 2020). offsets and CCS will be needed to achieve net-zero
(WBCSD, 2020).
However, since scope 3 emissions are often the main
source of most corporate emissions, this is an area that
holds significant opportunities for emission reductions.
The Greenhouse Gas Protocol provides a separate
standard specifically to help companies understand
their Scope 3 emissions.

Table 1: Reduction Levers and Examples for Scope 3 Emissions
Category Reduction Levers Activity Level GHG Intensity
Business Model Innovation Shifting from car sales to Increasing product lifespan
car-sharing models
Supplier Engagement Creating incentives for suppliers Rewarding suppliers for switching to
to reduce fuel consumption climate-smart agricultural practices
Procurement Policy & Choices Substituting carbon-intensive Including suppliers’ carbon

materials with low-carbon alternatives footprint in procurement policies
Product & Service Design Designing products with Incorporating carbon intensity
lower maintenance needs in product design
Customer Engagement Supporting educational Certifying products with

campaigns on the value of rainforest-friendly labels
rainforest-friendly certification
Operational Policies Optimizing operations Partnering with municipal

to reduce waste waste utilities to reduce
emissions from landfills
Investment Strategy Divesting from fossil fuel companies Investing in projects with
positive ESG ratings
INCREASING PRESSURE FROM INVESTORS These reports set out expectations and guiding
TOWARDS CLIMATE ACTION questions for investors to raise in their discussions with
the board and management of investee companies
Corporate emissions occur “within a broader economic
(Global Investor Coalition on Climate Change, 2017).
and regulatory system that creates a complex web of
More specifically, the reports highlight how investors
incentives and disincentives for economic actors to
can seek commitments from corporate boards and
reduce emissions” (Science Based Targets, 2020b).
senior management to:
Investors have a pivotal role to play in that broader
system by financing, facilitating, and catalysing the • Implement a strong governance framework that
adoption of ambitious corporate climate strategies. clearly articulates the board’s accountability and
Several options are detailed below: oversight of climate change risks and opportunities;
Investors can stimulate corporate initiatives through • Initiate corporate sustainability voting actions;
direct engagement with businesses. The Global
• Call for transparency and disclosure of companies’
Investor Coalition on Climate Change (GIC) has
carbon-related risks and science-based
produced a series of Investor Expectation on Climate
approaches to curbing emissions, enabling
Change Sector reports, which are used to support
investors to assess their business models’ climate
productive engagement with investee companies. The
resilience; and
series has covered a range of sectors, including: real
estate companies, the construction materials sector, • Take action to reduce GHG emissions across the
steel companies, oil and gas, automotive companies, value chain, consistent with limiting global average
electric utilities, and mining companies. temperature increase to well below 2°C above pre-
industrial levels.
© TOSHIHIRO GAMO/FLICKR CREATIVE COMMONS
The G20-initiated TCFD is emerging as the de-facto assists investors in setting targets is the United Nations
standard framework for climate-related disclosure, (UN)-convened Net-Zero Asset Owner Alliance. This
requiring disclosure of four key dimensions: international group of 28 institutional investors is
governance, strategy, risk management, and metrics committed to transitioning their investment portfolios
& targets (UNEP Finance Initiative, 2020). According to net-zero GHG emissions by 2050, creating
to WEF, by 2020, “more than 870 organizations intermediate targets every five years to establish
– including companies with a combined market climate action in phases. These 28 investors represent
capitalisation of more than $9.2 trillion and financial nearly US $5 trillion in assets under management
institutions responsible for assets of nearly $118 (UNEP Finance Initiative, 2020).
trillion – had signed up to support the TCFD’s
recommendations” (World Economic Forum, 2020a). Finally, investors have developed and supported
Enhanced disclosure on climate mitigation-related innovative finance products aimed at supporting
land use targets can aid investors in prioritizing decarbonisation and mitigating climate change.
opportunities for NCS strategies in select corporate There has been considerable growth in the appetite for
value chains. green finance products, sending a powerful signal of
support for decarbonisation initiatives (World Economic
Investors may also work together to take strategic Forum, 2020b). For example, green bond issuance
collective actions to encourage commitments from has maintained a decadal trend of exponential growth,
portfolio companies. Climate Action 100+ is an example from the first bond sold in 2007 totalling EUR 0.6 billion
of an investor initiative, involving more than 450 (or $0.822 billion) to a record-setting $257.7 billion in
investors with over $40 trillion in collective assets 2019 – a 12-yr compound annual growth rate (CAGR)
under management, that has catalysed corporate of roughly 65% (UniCredit Research, 2017). While
action on climate change through collective investor the growth of the asset class is very encouraging, it
actions (Climate Action 100+, 2019). still represents a small portion of assets. However,
the large financing gap for NCS suggests significant
Investors have set net-zero emissions targets for opportunity for further expansion.
their own portfolios, building in a phased approach
where appropriate. An example of a platform that
11 CONSERVATION INTERNATIONAL
© CHAR
Box 4: Case study - Finance for Forests Initiative (F4F)
F4F is a joint initiative between BHP, Conservation International, and

Pollination, serving as a hub of learning to encourage investment and
exploration of innovative private finance tools for forest conservation
and REDD+ advancement. Focusing on engagement with oil and
gas, mining, aviation, and technology sectors as well as institutional
investors, F4F seeks to increase private sector understanding
of forest conservation through REDD+, share lessons learned
on REDD+ and forest finance, develop new, innovative finance
tools, and extend them beyond forests to other ecosystems.
F4F leverages the experiences gained through BHP’s investment in

REDD+ projects and its support of the Forests Bond to help companies
develop actionable plans based on proven models. The Forests
Bond was issued by the International Finance Corporation (IFC) in
October 2016 and was the first bond to support a REDD+ project.
NCS has important properties as sequestration properties of forests and other
ecosystems, driven by photosynthesis, are already
an investment option for climate proven to be effective. The scale of NCS potential is
change mitigation relevant globally. With a mitigation potential of 10-12
GtCO2 per year, NCS can provide over one-third of
NCS’ MITIGATION POTENTIAL the affordable climate mitigation solutions needed by
IS GLOBALLY SIGNIFICANT 2050 to stabilize global warming to 2°C and below
(Griscom et al., 2017). Given that land use change -
There is a wealth of mitigation technologies available
such as agriculture and forestry – accounted for over
for companies to reduce their Scope 1, Scope 2, and
23% of net global GHG emissions during 2007-2016
Scope 3 emissions. Some are built technologies,
(equating to 12.0 ± 3.0 Gt CO2e /yr), and deforestation
such as renewable energy projects (i.e. solar, wind,
was overwhelmingly the largest driver of these net
and geothermal), changes in chemical, industrial
emissions, the land use sector represents significant,
manufacturing, or waste disposal processes.
immediate climate risk and opportunities (IPCC, 2019).
In contrast, NCS utilises natural processes for
carbon sequestration and storage through forestry,
Figure 3 from Griscom et al. (2019) provides a broad
agricultural, and other land use practices, including
overview of the carbon potential from NCS, divided
marine ecosystems.
amongst the broad categories of “Protecting” nature,
“Managing” nature, and “Restoring” nature. In order
Far from being a niche, transient phenomenon, NCS
for the potential of these pathways to be fully realised,
is a critical tool to combat climate change. Whereas
substantial investment and action need to occur to
emerging approaches like CCS and synthetic fuels
align incentives and balance the opportunity cost of
face significant technological and environmental
land use.
risks (Climate Bonds Initiative, 2020b), the carbon-
Figure 3: Three NCS pathways

AN ENERG
LE Y
C
N AT U R E
11
gigatons
3.9 5.1 2.0

gigatons gigatons gigatons
PROTECT MANAGE RESTORE

intact lands working lands native cover
Manage Manage Manage

Protect Protect Protect Restore Restore
Timberlands Croplands Grazing
Forests Wetlands Grassland Forests Wetlands
Better Better Lands Better
(Griscom et al., 2019 and Griscom, et al., 2020. Graphics from the Nature Conservancy Magazine.)

NCS HAS LARGE POTENTIAL the interdependencies between components within a
TO GENERATE CO-BENEFITS system can promote project sustainability and success
(Raymond et al., 2017). While systems thinking may prove
Arguably, the greatest distinction between NCS and
complex and unfamiliar to companies, NCS represents
built mitigation technologies is the plethora of co-
a promising investment opportunity that can catalyse a
benefits provided by NCS. When implemented with the
broader shift in corporate strategy and mindset.
appropriate safeguards, NCS projects have positive
impacts far beyond carbon sequestration, such as
The analysis and quantification of NCS co-benefits is an
improving air and water quality, enhancing biodiversity,
emerging field of study, with few established frameworks
mitigating disaster risk, and promoting environmental
available to precisely measure and analyse the co-
social justice and equity.
benefit potential of various project pathways, or how this
potential can be translated into management strategies
Proper project design, such as the incorporation of
and governance (Kabisch et al., 2016; Seddon et al.,
native species, empowerment of local communities, and
2020). Table 2 shows the many indicators that can be
respect for indigenous cultures, is essential to realising
used to track the co-benefits of NCS projects. However,
these co-benefits. Conversely, failing to take social,
the use of these indicators must be intentionally built into
governance, and biodiversity dimensions into account
project design, as comprehensive financing instruments
could undermine the ultimate outcomes or sustainability
to value and capture NCS projects’ full range of co-
of a project. For example, if a large tract of barren land
benefits have yet to exist. In an effort to address this gap,
was to be reforested with a monoculture plantation,
the International Union for the Conservation of Nature
carbon would be sequestered, but there would be a
(IUCN) launched a Global Standard for Nature-based
loss of biodiversity, as well as ecosystem services to
Solutions (NbS) (IUCN, 2020).
support human settlements downstream. Furthermore,
the lack of community consultation and consensus
NCS project developers are recommended to define
around project goals would create operational and
the range of outcomes sought from a project upfront
reputational risks for the project funder, jeopardizing the
in order to ensure that co-benefits can be documented
project. As such, NCS projects have rigorous guidelines
and accounted for accurately, utilising standards such
on safeguards and requirements for benefit sharing
as the IUCN Global Standard for NbS. Ultimately, clearer
arrangements with key stakeholders.
reporting of co-benefits may support price discovery as
carbon and natural capital markets evolve.
Successful implementation of NCS projects requires
a systems approach. Analysing and planning around
Box 5: What is a high-quality carbon credit and why is it important?
High value credits, generating high-quality outcomes, are credits generated by REDD+ projects that meet
high environmental integrity requirements (such as additionality, addressing permanence and leakage
risks, transparency, conservativeness, and double counting avoidance), contribute to biodiversity/wildlife
protection, support the achievement of co-benefits focused on the social and economic development of
indigenous peoples and local communities, and have been third-party verified and accounted for through a
robust system nested within national and/or jurisdictional accounting where appropriate.
High-quality credits generate significant non-carbon benefits, are validated using robust, science-based
methodologies, and allow the offset purchaser to grow their impact beyond carbon outcomes. Investments
in high-quality credits help maintain the integrity of carbon markets and channel investment to communities
and places where it can have a significant impact.
Table 2: Indicators that can be used to track the co-benefits of NCS projects
Challenge Example of Type of Unit of

Area Indicators Indicator Measurement
Carbon Net carbon sequestration Environmental (chemical) t C per ha/year
Sequestration by urban forests (including
GHG emissions from
maintenance activities)
Stormwater Economic benefit of reduction Economic (monetary) Cost of sewerage treatment

Management of stormwater to be treated by volume (€/m2)
in public sewerage system
Erosion Area remaining for Environmental (physical) km2 or m2

erosion protection
Biodiversity Species richness of Environmental (physical) A count, magnitude or

indigenous vegetation intensity score of indigenous
species per unit area
Air Quality Annual amount of pollutants Environmental (chemical) t pollutant per ha/year
captured by vegetation
Connectivity Index of ecological connectivity Environmental (physical) Probability that two dispersers
integral index of connectitivy randomly located in a landscape
can reach each other
Government Quality of the participatory Social (process) Perceived level of trust,

Transparency or governance processes legitimacy, transparency and
accountability of process
Accessibility Accessibility to public Social (justice) % of people living withing a

green space given distance from accessible,
public green space
Recreational Level of involvement in Social (physiological) Number and % of people

Space being physically active (min.
frequent physical activity
in urban green spaces 30 min 3 times per week)
in urban green spaces
Job Creation Net additional jobs in the Economic (productivity) New jobs/specific green sector/year
green sector enabled
by NBS projects
(Raymond et al., 2017)

Table 3: Comparison of cost and total abatement potential between NCS Pathways and Engineered Technology Pathways
Natural Climate Engineered Technology Pathways

Solutions Pathways
Protect Manage Restore Carbon Capture Utilisation

and Storage
Cost / tCO2e
$2 - 38 $14 - 21 $17 $18 - 83 $(-14) - 27
(2009 dollars)
Total
abatement
4,800 2,600 1,300 3,300-4,100 970
potential
(MtCO2e/yr)
Table approximations based on (McKinsey & Company, 2009).
COMPARING MITIGATION ALTERNATIVES: 2. Manage: Interventions focused on emissions

NCS AND ENGINEERED SOLUTIONS reductions from improved forest management
and trees in agricultural lands (agroforestry);
Among the suite of available emissions abatement
alternatives, nature-based and engineered solutions 3. Restore: Interventions focused on
represent two broad categories of potential emissions reductions and removals from
mitigation investments. Natural climate solutions afforestation and reforestation (A/R) and
encompass a diverse range of agriculture, forestry, rehabilitation of degraded forests.
wetlands, and other land use sector interventions.
Engineered solutions comprise an equally diverse Engineered Technology Pathways
range of built technologies related to clean and 1. Carbon Capture and Storage: Interventions
renewable energy generation and fuels, and carbon related to emissions removals from
capture and storage infrastructure. carbon capture and storage in the energy,
resources and industrial sectors;
Within and across these categories, specific projects
can exhibit considerable variation with respect to 2. Utilisation: Interventions related to emissions
mitigation potentials and the marginal cost of emissions reductions from development and use of
abatement. These values are typically calculated renewable fuels as a substitute for fossil fuels.
relative to a baseline or business-as-usual (BAU)
While specific emissions abatement costs,
emissions scenario over a specified time horizon.
opportunities and constraints associated with these
To illustrate the relative magnitude of marginal mitigation pathways are likely to vary between regions
emissions abatement and marginal costs, we present and countries, global data provides a helpful starting
global data on a select range of nature-based and point for comparing and evaluating opportunities at a
engineered mitigation solutions including: more granular regional or national level.
NCS Pathways
1. Protect: Interventions focused on
emissions reductions from deforestation
(avoided deforestation);
© CONSERVATION INTERNATIONAL/PHOTO BY AULIA ERLANGGA
NCS COSTS, BENEFITS AND OTHER within submerged soilsiii (Chmura et al., 2003; Rogers
INVESTMENT CONSIDERATIONS et al., 2019), the sequestration potential of terrestrial
forests and soils has a biological upper limit or carbon
Emissions Abatement Potential
saturation level beyond which these systems no longer
As noted in the preceding section, the specific absorb carbon.
emissions abatement potential of NCS can vary widely
within and across pathways and project typologies. Opportunity Costs
Quantifying project-level expected emissions reduction
In each case, NCS contemplates changes in land use
or removal potential requires reliable data on business-
on whether such changes have already occurred
as-usual or baseline emissions as well as the expected
or are reasonably likely to occur in the future. As
emissions and emissions abatement of the selected
such, any evaluation of potential NCS investments
nature-based intervention.
must consider the opportunity costs associated
with alternative land use scenarios. In the case of
In the case of NCS, these values are highly dependent
degraded or marginal lands with limited economic
on a range of land use, land cover, and other
use, the opportunity costs associated with proposed
biophysical factors including soil type, structure
afforestation or reforestation may be quite low.
and condition. Project-level emissions values are
In contrast, in areas where planned or unplanned
also influenced by the scope and scale of natural or
conversion for high value agricultural or other types
human-caused drivers of land and environmental
of development may be considered, the opportunity
changes and the spatial scale of proposed emissions
costs of NCS interventions may be prohibitive.
abatement interventions.
Timeframe
Evaluation of NCS emissions abatement potential
should also take into account the biological limits of Existing natural carbon-rich systems are already in
natural systems to capture and store carbon over time. place, are successfully sequestering carbon from the
While mangroves, seagrasses, and other "blue carbon" atmosphere and are storing vast amounts of carbon
systems, under the right conditions, have the potential in a stable permanent state. NCS offers an immediate
to continuously sequester and store carbon indefinitely and cost-effective opportunity to finance the protection

of these systems and their long-term benefits at natural capital and ecosystem services means that it
significant scale and without the need for many years has the potential to generate environmental benefits
of technological or engineering advances. Relative to in ways that most built technologies lack. Crucially,
engineered carbon capture and storage technologies, this natural capital, once established, generates
natural systems require a comparatively long-time these benefits in a passive manner. Short of external
horizon to capture and store carbon. While engineered disturbances, the landscape will remain and continue
solutions may have long investment payback periods to provide benefits, including carbon sequestration,
and operational lives limited to 30-40 years, mitigation indefinitely. In contrast, built technologies require
benefits from engineered projects will likely be active management and ongoing capital investment
available as soon as the project is operational and to maintain their carbon sequestration benefits;
evenly distributed throughout the project lifetime. In once a sequestration plant shuts down, the carbon
contrast, NCS projects can span multiple decades with sequestration stops.
mitigation benefits accruing over 30 or more years.
This is reflected in the carbon credit generation cycle Figure 4 illustrates the four main categories of
of NCS projects, where initial credit issuances may ecosystem benefits that are provided by natural
occur several years after the project begins. capital. Depending on the project structure and NCS
type, each project provides varying levels of these
Environmental and Social Co-Benefits benefits. In fact, given the far-reaching impacts of
One of the starkest distinctions between NCS and NCS projects on society and the environment, proper
built methods of climate mitigation are their significant project design and due diligence become all the more
positive impacts beyond carbon. NCS’ emphasis on important, such that these projects do not create
environmental and/or socioeconomic risks instead.
Figure 4: Four main categories of ecosystem benefits provided by natural capital.
• Nutrient Cycling
• Food Production
• Soil Formation
• Water
• Primary Production
• Wood and Fiber
• Habitat Provision
• Fuel
Provisioning Supporting
Services Services
Cultural Regulating
• Spiritual Services Services • Climate Regulation
• Aesthetic • Flood Regulation
• Educational • Water Purification
• Recreational
Source: Millennium Ecosystem Assessment, 2005.
The value of some benefits – such as carbon to mitigate adverse impacts from its development
sequestration – is independent of geography, activity. Additionally, resiliency credits and water
whereas the values of many others are contingent markets are further options to explore. Alternatively,
on the NCS project’s proximity to human populations. given its focus on forest management, RIL-C can
For example, the value of mangroves and forests in tap into timber and non-timber forest products as
providing food, fibre, and fuelwood are contingent revenue sources. On the built technology side, the
on populations being able to access these areas. CO2 captured from direct sequestration can be
Similarly, the economic benefits of mangroves as sold for industrial uses, such as bottling. Similarly,
tsunami protection increase exponentially when using CO2 in renewable fuels has a wide variety of
the mangroves are situated next to large cities, as industrial applications, such as plastics, fuels, and
opposed to uninhabited forests. This creates an building materials. All mitigation projects, if created
interesting dynamic for companies to consider, as in a favourable policy environment, may benefit from
minimizing costs by establishing NCS projects in additional tax credits as well.
low-value lands may not be ideal from a non-carbon
benefit-optimization standpoint. It is important to note that while a comparison of similar
mitigation technologies can be made, comparisons
Potential for Carbon and Alternative Revenue Streams across technology types should be avoided, even
As detailed later in the report, revenues from carbon within the same broader category. Taking a more
credits are an important facet determining NCS comprehensive view of the climate, environmental,
projects’ financial viability. On a per-hectare basis, social and economic objectives of potential mitigation
each NCS model has the potential to produce technology investments, investments in NCS have
varying amounts of credits per hectare each year. the potential to deliver significant value. The value
The results from our modelled case studies for benefits particularly (but not exclusively) businesses
Reducing Emissions from Deforestation and Forest and investors with significant exposure to land use
Degradation (REDD+) and RIL-C produced 23 and activities, and markets or operations in regions that are
39 carbon credits per hectare per year, respectively. particularly vulnerable to climate change impacts.
These credits become available beginning in year four
and three of the project life, respectively. The modelled Financial Costs, Benefits
case study for blue carbon produced far more carbon
credits per hectare, at 433 per year, but these do
and Returns of Illustrative
not become available until year eight. It is important NCS Projects
to understand that the range of carbon values per
hectare vary widely and need to be determined on To provide prospective project developers and
a site-specific basis when evaluating the potential of investors with a general overview of project-level
NCS investments. Generalisations by ecosystem type financial costs, benefits, key value drivers and other
can be very misleading. considerations associated with select NCS pathways,
we present a summary of three theoretical project
Aside from carbon, mitigation pathways each have cases from the broader “protect”, “manage” and
a variety of options to generate revenue. On the “restore” NCS categories.
NCS technology side, both REDD+ and blue carbon
projects can potentially establish conservation The model cases below are theoretical in nature and
easements. Conservation easements are legally are presented for illustrative purposes only. Financial
binding agreements that limit certain land uses for costs, benefits and expected returns are highly variable
conservation in exchange for funds. They can also and are dependent on project-specific risks and risk
tap into mitigation banking, wherein a development exposures, project design elements, and specific
company funds ecosystem restoration or enhancement economic and financial assumptions and estimates.

© TROND LARSEN
1. PROTECT NCS PATHWAY: REDD+, AVOIDED DEFORESTATION
BUSINESS MODEL & KEY REVENUE STREAMS address key deforestation drivers. The project activities
are expected to generate verified carbon credits, the
The model REDD+ case considers a hypothetical
issuance and sale of which are assumed to be the
avoided deforestation project in Cambodia
project’s primary source of revenue.
encompassing 500,000 hectares. Forest protection
and conservation efforts are assumed to already be
EMISSIONS ABATEMENT POTENTIAL
underway in the project area, and carbon project
development and implementation activities are The model REDD+ case is expected to generate an
assumed to be implemented in parallel. It is useful estimated 14.22 million tCO2e in emissions reductions
to note that several REDD+ carbon projects follow a over the project period. In estimating potential verified
similar pathway, though not exclusively. carbon units, annual emissions reductions of between
400,000 and 500,00 tCO2e are adjusted by a rate of
The model case is intended to address key drivers of 15% to account for project non-permanence risks.
deforestation, a primary objective of REDD+ projects.
As such, evaluating historical and future deforestation INVESTMENT CHARACTERISTICS
drivers and developing a comprehensive plan to
manage them is an important initial step in project Income from the sale of verified carbon units are
development. In this case, we assume that forest assumed to be the sole source of project cash inflows.
conversion for the small-scale cultivation of cash crops, Initial project verification and the issuance of initial
and illegal logging driven by a combination of poverty, credits are assumed to occur in Year 3 of the project,
socio-economic need, in-migration, and poorly defined following completion of required project preparation,
property rights are key drivers of deforestation. The establishment and validation activities. Subsequent
estimated deforestation rate resulting from these credit issuance and sales are expected to occur on an
activities is 0.50%. annual basis.
The estimated project financing required is US After adjustments for non-permanence risk (non-
$4.9 million inclusive of the costs of carbon project permanence buffer pool allocations), the estimated
development and implementation of enhanced volume of verified carbon units issued by the project
protection and conservation efforts designed to totals 12.1 million, with an average of 389,900 credits
issued annually.
© TANG LIANG
Initial project preparation, establishment and validation activities (8.0%) comprise the largest proportion
costs are estimated to be US $950,500 allocated over of annual implementation costs. Investments
the first two years of the project time horizon. Beyond in sustainable livelihood development using
the costs of initial feasibility and technical analyses, community conservation agreements, and community
costs associated with stakeholder engagement and engagement in forest protection activities are intended
institutional capacity building comprise the largest to address the key drivers of deforestation identified in
proportion of project establishment costs. Stakeholder the model case.
engagement and capacity development are essential
aspects of REDD+ projects and are often among the Over the 32-year project horizon, the model REDD+
most variable project establishment cost elements. project is expected to generate an internal rate of
return (IRR) of 18.28% and return a multiple of roughly
Project, operating and management costs, inclusive 6.09 times the required cash investment on an
of periodic verification and variable transaction costs undiscounted basis.
associated with the registration, issuance and labelling
of verified carbon units, are estimated to be US $2 A more detailed description of estimated carbon
million annually. In the model REDD+ case, investments revenues and establishment, implementation, carbon
in sustainable livelihood programming (53.1%), project accounting, and other project costs is presented in
management (11.1%) and enhanced forest protection Annex B to this report.

PROJECT RISKS INVESTOR ALIGNMENT
Because the sale of carbon credits is assumed to be When effectively implemented, avoided deforestation
the project’s primary source of cash flows, expected projects under the REDD+ scheme can be expected to
returns are particularly sensitive to carbon price deliver substantial emissions abatement and a range
assumptions. The model REDD+ case assumes a of other important ecological and social benefits.
base case voluntary market price of US $7.50 tCO2e While the financial value of these co-benefits is often
which is consistent with realised carbon prices from difficult to quantify, the broader ecological, economic,
comparable REDD+ projects implemented by CI. community and societal benefits of REDD+ projects
Holding all other assumptions constant, the calculated can be substantial.
break-even carbon price for the model REDD+ case is
US $6.74 tCO2e. Considering the vast range of benefits, REDD+
projects may appeal to a broad range of NCS investors
It is worth noting that these values are above the and offset buyers. The broad appeal of projects
voluntary market prices for REDD+ credits reported implemented under this scheme is reflected in the
by Ecosystem Marketplace in its 2019 voluntary diversity of corporate REDD+ offset purchasers—a
carbon markets publication which range between US diverse, global group spanning the energy, technology,
$2.35 and $4.40 tCO2e over the 2016-2018 reporting automotive, consumer products, and other sectors.
period. These modelled prices reflect historic price In each case, the attractiveness of REDD+ project
premiums received by high-quality projects, based on investments relative to other NCS pathways or non-
actual transactions from CI’s project portfolio. These NCS mitigation alternatives is likely to depend on
prices indicate buyers’ preferences for the package of investor emissions abatement objectives and other
social and environmental benefits, local presence and considerations including CSR commitments and other
relationships, mission focus of project developer etc., firm-specific interests.
all of which reduce project risks and provide “beyond-
carbon” impacts for the buyers.
Box 6: REDD+ Project at a glance
Area of Project: 500k ha Annual Opex: US $1.99M
Ecosystem Type: Tropical Rainforest Estimated Project Emission Abatement:

14.22 MtCO2e
Project Life: 32 yrs
Model Carbon Price: US $7.50 tCO2e-1
Business Model: Generation and sale of carbon
credits through forest protection and conservation Expected Payback Period: 7.3 years
(avoided deforestation)
Project IRR: 18.28%
Required Initial Financing: US $4.9M
Scaling Potential: 1101 MtCO2e/yr*
*Scaling potential was estimated from figures in Griscom et al. 2020, using estimates of mitigation potential
of natural climate solutions pathways at “cost-effective” levels (<100 USD MgCO2e-1).
© BENJAMIN DRUMMOND
2. MANAGE NCS PATHWAY: RIL-C, NATURAL FOREST MANAGEMENT
BUSINESS MODEL & KEY REVENUE STREAMS efficiency are expected to measurably reduce
production costs, enhancing the financial performance
The model case considers a hypothetical project in
of the model RIL-C case.
Southeast Asia that generates emissions abatement
benefits through the transition from conventional to The model RIL-C case encompasses multiple income
RIL-C practices within a 30,000-hectare, productive, streams including cash flows from timber sales and
forest concession. cash from the issuance and sale of verified carbon
units. Forecasted annual cash flows from the issuance
RIL-C focuses on improved natural forest management
and sale of verified carbon units (eligible under the
practices that are designed to reduce emissions from
RIL-C scenario only) and incremental cash flows from
logging activities while maintaining or increasing
timber sales are expected to be roughly equivalent.
long-term timber yields. Specifically, RIL-C focuses
on improved timber felling and skidding (extraction)
EMISSIONS ABATEMENT POTENTIAL
practices and improvements to the design and
management of skid and haul roads and log The model RIL-C case is expected to generate an
landing areas. estimated 1.46 million tCO2e in emissions reductions
over a 30-year project period. Forecasted project
In addition to reducing emissions from logging emissions reductions are based on estimated per
operations, RIL-C is expected to generate improved unit area emissions reductions of 64.90 tCO2e ha-1
near-term timber yields through reductions in logging yr-1 resulting from combined timber felling, skidding,
wastes and increased subsequent harvest cycle yields haul road and log landing improvements (defined
through reduced damage to residual tree stands. Even as “Level 1” RIL-C implementation performance in
in the absence of expected cash flows from the sale of Griscom et al., 2019).
carbon credits, the improvements to logging operation

Implementation of more comprehensive Over the 30-year project horizon, the model RIL-C
improvements (defined by Griscom et al., 2019 as project is expected to generate an IRR of 14.33% and
“Level 2” RIL-C implementation) would result in return a multiple of roughly 6.28 times the implied cash
increased emissions abatement, with estimated investment on an undiscounted basis.
reductions of 88.62 tCO2e ha-1 yr-1 or roughly 1.99
million tCO2e over the project period. A more detailed description of key project assumptions
is presented in Annex B to this report.
INVESTMENT CHARACTERISTICS
PROJECT RISKS
From an analytical perspective, the RIL-C case
is unique among the NCS pathways modelled in Beyond timber market and industry risks to which both
connection with this report. In contrast to the REDD+ conventional and RIL-C operations are exposed, the
and tidal mangrove restoration cases, the model RIL-C most significant barrier to transitioning from conventional
analysis evaluates the expected incremental cash to RIL-C logging practices are the perceived risks of
flows contemplated by a transition from conventional reduced economic performance. Particularly since the
to RIL-C practices—that is, the expected increase (or full benefits of RIL-C may not be realised until the next
decrease) in cash flows relative to the baseline cash cutting cycle—in most cases, decades later—owners and
flows of the conventional logging operation.iv operators may prefer the certainty of maintaining the
status quo over future potential benefits, even where
The implied financing requirement for the model RIL-C these benefits may be significant.
case is US $11.9 million, which represents the (negative)
incremental net cash flows of RIL-C in the first year of INVESTOR ALIGNMENT
the project. The model RIL-C case assumes that initial
Direct investments in RIL-C are most likely to be
pre-harvest planning and training activities associated
made by firms that own or directly manage forestry
with RIL-C occur over a 12-month period at the start of
concessions or are able to establish joint venture
the project period (t0 ) and that field implementation of
or other profit-sharing arrangements with forestry
prescribed RIL-C practices starts one-year later. During
operators. Similarly, financial investors who are
the initial RIL-C project preparation period, no timber
knowledgeable about timber and forest industry
harvests using RIL-C practices are assumed to occur.
dynamics and have long investment horizons may
In subsequent periods, the model RIL-C case is also benefit from investments in RIL-C operations. In
expected to generate net benefits to the logging general, the benefits of RIL-C would be most prominent
operation (positive incremental cash flows) despite in underperforming forest concessions, assuming rapid
higher incremental pre-harvest costs associated with changes in operational practices are also possible.
increased harvest planning and training. In the model
case, reductions in logging wastes associated with
RIL-C are expected to offset the financial impacts
of increased pre-harvest costs. While not quantified
in the financial analysis, we expect that increased
harvest planning and training investments may result
in improved worker safety outcomes and reduced staff
turnover rates which may generate additional cost
savings benefits.
Box 7: RIL-C Project at a glance
Area of Project: 30k ha Estimated Project Emission

Abatement:
Ecosystem Type: Tropical forest 1.46 MtCO2e
Project Life: 30 yrs Model Carbon Price:

US $9.50/tCO2e
Business Model: Increased
value through improved forest Expected Payback Period: 6.9 years
management practices
Project IRR: 14.33%
Required Initial Financing: Initial
investment of US $11.9M Scaling Potential: 527 MtCO2e/yr*
*Scaling potential was estimated from figures in Griscom et al. 2020, using estimates of mitigation potential
of natural climate solutions pathways at “cost-effective” levels (<100 USD MgCO2e-1).

© KYLE OBERMANN
3. RESTORE NCS PATHWAY: BLUE CARBON, MANGROVE RESTORATION
BUSINESS MODEL & KEY REVENUE STREAMS CARBON MITIGATION POTENTIAL
The carbon sequestered, stored, and released The model restoration project is expected to generate
from vegetated coastal ecosystems, specifically an estimated 2.19 MtCO2e in emissions abatement over
mangrove forests, seagrass beds, and salt marshes, the 32-year project term. While the model case focuses
is termed “blue carbon”. This case study considers on blue carbon restoration, projects that contemplate
a hypothetical, 5,000-hectare blue carbon project in avoided conversion of mangrove and other coastal
Southeast Asia, of which 3,500 hectares are planned blue carbon systems are likely to yield measurably
for mangrove revegetation and 1,500 hectares are higher mitigation values.
allocated to a combination of mangrove restoration
and extensive organic, mangrove-integrated prawn INVESTMENT CHARACTERISTICS
(Penaeus monodon) farming.
Total project financing requirements for the model
Combined investments in hydrological restoration, restoration case are US $5.63 million. It is worth
tidal mangrove revegetation, and the development of noting that the model restoration project is based on
organic prawn production operations are expected to an intensive form of restoration which may result in
generate a range of emissions abatement, ecological higher restoration costs when compared with natural
and sustainable livelihood benefits. While mangrove regeneration techniques.
systems support a range of marketable natural
Assuming a voluntary market price of US $11.00
resources including timber and wood for charcoal
tCO2e-1, the project is expected to generate an
production, and wild harvest and forage fisheries,
estimated US $20.5 million in carbon income over the
the model restoration case assumes that cash flows
32-year project lifespan. In addition to income from
from the issuance and sale of verified carbon units
the issuance and sale of carbon credits, the model
and income from organic prawn sales are the primary
restoration case is expected to yield an aggregate
project revenue streams.
5,437.50 metric tonnes of organic prawns, with a Decisions of where and how to restore mangroves
farmgate value of US $60.155 million. The model must also be informed by local social, legal, and
project is expected to generate an IRR of 15.18%. economic influences. Mangrove restoration can be
greatly hampered if local land tenure is not understood
PROJECT RISKS and respected. Community engagement and support
can ensure long-term security for restoration projects.
There are a number of factors that influence the Equitable benefit-sharing can prevent further
restoration and rehabilitation effectiveness and the degradation and provide an example that can leverage
emissions removals, climate adaptation and other further restoration efforts.
ecosystem benefits provided by these blue carbon
systems. Key factors include:
INVESTOR ALIGNMENT
• site selection, and site conditions at the
In recent years, increased awareness of the significant
restoration area including, but not limited to tidal,
carbon capture and storage potential, essential coastal
hydrological and sedimentation regimes;
protection function, and other benefits of mangrove
• species selection, which, in conjunction with other and other blue carbon systems have generated new
environmental factors and replanting methods, and expanded interest in blue carbon investments
affect growth rates and tree density over time; among a broad range of corporates and other offset
purchasers. Among the early investors in blue carbon
• restoration practices, including the number offsets was an European multinational food products
and spacing of seedlings planted, the planting company, Danone S.A. which has since gone on to
effectiveness (influenced by training and launch two carbon funds alongside corporate partners
management of activities), and the projected Schneider Electric, Crédit Agricole S.A., Michelin,
survival rate of seedlings and trees over time; and Hermès, SAP, Groupe Caisse des Dépôts, La Poste,
Firmenich, and Voyageurs du Monde (Livelihoods
• human activity, including the nature, intensity, and
Funds, 2020).
specific practices and impacts associated with
fishing, foraging or other practices that may occur
within restoration areas.
Box 8: Blue Carbon Project at a glance
Area of Project: 5k ha Estimated Project Emission Abatement:

2.19 MtCO2e
Ecosystem Type: Tidal mangrove
Model Carbon Price: US $11 tCO2e-1
Project Life: 32 yrs
Expected Payback Period: 10.6 years
Business Model: Mangrove restoration with
sustainable, organic prawn farming Project IRR: 15.18%
Required Initial Financing: Initial investment of Scaling Potential: 2.1 MtCO2e/yr*

US $5.63M
*Scaling potential was estimated from figures in Griscom et al. 2020, using estimates of mitigation potential of natural climate solutions pathways at “cost-effective” levels (<100 USD MgCO2e-1).

Businesses can adopt strategies to address
NCS project efficiency and reduce risk
Figure 5: NCS project cycle and opportunities for efficiency gains
Annual
Validation and Monitoring &
Project Idea Project Design Implementation
Registration Verification
(every 3 yrs)
1-2 months 6-18 months 6 months Life of project = 6 months

30+ years
Beyond the key value drivers unique to each of the In terms of the social context, NCS projects require
modelled NCS pathway cases (elaborated in Annex B), close attention and understanding of potential social
experience in designing, implementing, and monitoring and human rights issues related to indigenous peoples
project outcomes suggests that project investors and and other local communities, land rights, land tenure
developers can apply a number of strategies throughout and property ownership, and perceptions of “green
the project cycle (the general components of which are gentrification.” These risks can be mitigated by working
illustrated in Figure 5) to reduce the time or cost needed with local communities for land rights, utilising land in
to successfully execute NCS projects, or reduce the a respectful manner, providing benefit sharing for host
risk of project failure. These opportunities to improve communities, ensuring that projects are developed
efficiency or mitigate risk can be found in the applicable in accordance with indigenous cultural practices, and
policy environment, project implementation, social planning projects in consultation with indigenous elders
context, technical expertise, and market dynamics. and other local stakeholders.
In the applicable policy environment, carbon and For technical expertise, NCS projects can encounter
environmental policies are subject to change and can technical challenges related to establishing baselines,
affect investment and exit strategies. These risks can avoiding leakage, and ensuring permanence and
be mitigated by supporting polycentric governance additionality for carbon and other co-benefit valuation.
structures (wherein policies are negotiated and enforced These risks can be mitigated by using conservative
across multiple governing authorities and scales), aligning baselines, incorporating permanence buffers,
with national NCS standards, and assessing in-country and increasing a project’s carbon and co-benefit
political risk and regulatory analyses. accounting area.
For project implementation, projects can encounter Finally, as will be discussed in detail in the next section,
implementation risks during the approval and carbon credits and NCS projects can be impacted by
development phases, be impacted by extreme events, market volatility and lack of market transparency. Most
or encounter problems in executing benefit-sharing carbon credit sales are done over the counter and
agreements with local communities. All of these through purchase agreements. These market risks can
can affect the permanence of the project’s carbon be mitigated by leveraging new technologies that can
and co-benefit values. These risks can be mitigated reduce costs (such as blockchain technology to increase
by including buffers in project cost estimates to accountability and transparency), purchasing credits
account for unexpected costs, reduced revenue, and at higher volumes to reduce the price per credit, and
permanence risks, utilising the right project standards negotiating fixed project deals.
and focusing on co-benefits.
IV
CARBON MARKET AND

POLICY OUTLOOK FOR NCS
As demonstrated in the earlier section, carbon markets carbon markets and exchanges and have varying
are a valuable method of financing the full potential rules for the eligibility of NCS. Careful analysis of the
of NCS. In some business models, they provide a rule sets and evolving guidance can assist the private
supplemental revenue stream, providing diversification sector in designing and planning for NCS investments.
and liquidity benefits despite being too marginal to
support a project on its own. In other models, they By contrast, the voluntary carbon market refers to
are the dominant, if not singular, revenue source, voluntary transactions that are often driven by CSR or
unlocking NCS projects at a scale that would otherwise pre-compliance interests, and are tracked collectively
be financially unsustainable. Understanding the carbon worldwide (Forest Trends et al., 2017). Within voluntary
market space, and the role businesses have in growing markets, NCS currently receive lower investment
it, is critical to generating the enabling environment for compared to renewable energy, energy efficiency, and
NCS investments overall. clean transport, despite the enormous potential of NCS
to play a key role in the decarbonisation strategies for
Carbon markets – both compliance and voluntary – businesses (World Business Council for Sustainable
have steadily evolved since the 1990s. Compliance Development (WBCSD), 2018). In a 2017 report, the
carbon markets are created by government regulation World Resources Institute highlighted structural
to reduce GHG emissions, and allow regulated entities barriers that restoration financing faces – which are
to obtain and surrender emissions allowances or largely applicable to other NCS pathways – including
permits in order to meet predetermined regulatory the presence of perverse incentives that encourage
targets (Forest Trends et al., 2017). Within compliance land degradation, the lack of defined market value
markets, policies at the international, national, and for co-benefits, and the outsized perception of risk
sectoral level define the regulatory frameworks within associated with restoration projects (Ding et al., 2017).
which emissions reductions (ERs) are eligible within

country has put forward their proposals for meeting
these global goals in their nationally determined
contributions (NDCs). Under the agreement, countries
© UN PHOTO/MARK GARTEN/FLICKR CREATIVE COMMONS
also committed to building systems to support the

achievement of national emissions reductions,
including international emissions trading.
The Paris Agreement specifically highlights the

important role of forests and other ecosystems in
addressing climate change and meeting the global
goals through Article 5 that explicitly recognises REDD+
action. Article 6 of the Paris Agreement reaffirms that
countries can cooperate to meet their mitigation goals
as efficiently as possible, including through transferring
emissions reductions between countries (known as
Key international policies have
“internationally transferred mitigation outcomes” or
significant implications for NCS ITMOs). The process for how countries will transfer
emissions reductions under the Paris Agreement and
THE PARIS AGREEMENT AND ARTICLE 6 ARE
the rules for what activities will be eligible are under
CLARIFYING COUNTRY PRIORITIES AND
development in the United Nations Framework
SHAPING CARBON MARKETS
Convention on Climate Change (UNFCCC) climate
The science demonstrates that NCS can provide more negotiations and are expected to be finalized at the
than 30% of all of the mitigation needed if the world is next UN Climate Negotiations, 26th session of the
to deliver on the goals of the Paris Agreement; yet, less Conference of the Parties (COP 26). These rules are
than 3% of global climate finance is going to natural expected to apply to all emissions trading between
climate solutions, signalling a clear mismatch between countries and may also guide some or all transactions
NCS potential and what is invested in that potential. with the private sector. In parallel, regional, national and
Other sectors, such as energy-efficient technologies, subnational carbon pricing systems – elaborated on
have an innate return on investment – a person can later in the report – are developing around the globe.
save money by installing an energy-efficient appliance,
which reduces their energy consumption. On the For businesses interested in NCS, government
other hand, for NCS, the world has to-date put greater engagement and support are often important
value on forested lands converted for agricultural components of project development and critical to
use and timber commodities, for example, than for success. As countries’ NDCs reflect government climate
standing forests that generate global climate benefits. targets and priorities, it can be advantageous to design
To change this equation, the world must give standing NCS projects with these priorities in mind, making
forests value for the climate services that they provide, linkages between NDC targets and project outcomes
and market mechanisms are one essential way to do explicit when conducting government outreach.
this and to incentivise investment. To operationalise
NCS at scale, cross-boundary cooperation and trading Policy Outlook
through global carbon markets are vital. Negotiations on Article 6 will continue at COP 26,
now scheduled for 2021. The current language on
In 2015, countries under the United Nations climate ITMOs under the draft Article 6.2 guidance sets strong
negotiations adopted the Paris Agreement, agreeing parameters for environmental integrity for transfers
to limit global temperature rise to well below 2° Celsius across all sectors, inclusive of NCS. If this text is
and to increase resilience to climate change. Each adopted in its current form (or with minimal changes)
Box 9: Blue Carbon in NDCs
In the five years since the Paris Agreement, an increasing number of countries have recognised the
importance of including blue carbon and oceans in their NDCs. Of the 151 countries that have at least one
blue carbon ecosystem (seagrasses, saltmarshes or mangroves), 28 countries now include these coastal
wetlands in their commitments to climate mitigation, and 59 countries include coastal ecosystems and the
coastal zone into their adaptation strategies.
However, some of these commitments are vague and nonspecific. With additional detail and the inclusion
of blue carbon and oceans in the commitments of more than half of the relevant countries, this can be a
gateway to large-scale, national-level climate action on relevant ocean and coastal ecosystems. There are
a few countries (including U.S., Australia, UAE, and Indonesia) that are working to include blue carbon in
their national greenhouse gas inventories. These countries can be seen as examples of how to eventually
officially account and report on blue-carbon related climate mitigation activities. In the meantime, as some
countries are working to get to this level of accounting, there are actions that can help them get to this
point, which will also support adaptation actions and reporting.
There is a significant opportunity to include and expand blue carbon ecosystems into the mitigation and
adaptation objectives of future, revised NDCs of every coastal country that includes these ecosystems and
the inclusion of these ecosystems in national carbon accounting.
at COP 26, it would send a strong signal for countries framework through which mitigation actions from
and other actors to invest in high-quality emission the forest sector are implemented. This framework
reductions and removals from any sector, including can apply to all types of forests, including mangrove
NCS activities. forests if they are recognised in the national definition
of “forest.”
The issues that remain under debate include
whether to allow for pre-2020 units from the
Clean Development Mechanism (CDM) under the
Kyoto Protocol to be used as ITMOs toward NDC
5 Activities of REDD+
achievement and whether a “share of proceeds” (e.g., As defined by the UFCCC
a levy) should be applied to ITMO transactions with the
revenue to be used toward adaptation efforts.
1. Reduce Emissions from
REDD+’S EVOLUTION AFFECTS Deforestation
NCS PROJECTS’ ELIGIBILITY FOR
CARBON CREDITS 2. Reduce Emissions from
Forest Degradation
REDD+ is a framework developed under the UNFCCC
3. Conserve Forest Carbon Stocks
that creates an incentive for protecting, conserving,
and restoring forest ecosystems in developing 4. Manage Forests Sustainably
countries by valuing their carbon sequestration,
5. Enhance Forest Carbon Stocks
storage, and other social and environmental services.
It is the most widely recognised and globally agreed

To provide an international legal context for REDD+ integrated into the REDD+ national reference level
programs, the UNFCCC’s Warsaw Framework for and that agreements on who owns the resulting
REDD+ was adopted by the Conference of the emissions reductions are in place. There are no
Parties in 2013 and includes four required elements UNFCCC guidelines for how REDD+ site-scale activities
for implementing REDD+. These four elements are should be nested, allowing national governments to
implemented in tandem and must be in place before determine whether and how to nest depending on
national- and subnational-level REDD+ emission their national context. Emissions reductions from stand-
reductions and removals are eligible for results- alone projects that do not meet these criteria will likely
based payments. not be eligible under emerging compliance carbon
markets, as most carbon market systems will follow UN
rules post-2020.
4 Elements of REDD+
To mitigate the risk of credits being ineligible or
As defined by the UNFCCC
double-counted, businesses interested in NCS,
particularly models reliant on carbon credits, should
familiarize themselves with rules and regulations on
1. National Strategy or Action Plan nesting in their relevant jurisdictions and structure their
projects in compliance with government requirements.
2. National Forest Reference Level
or Forest Reference Level.
Policy Outlook
Subnational reference levels may
be used on an interim basis The use of reductions by countries or the private
sector to meet regulatory or voluntary commitments
3. National Forest Monitoring System will need to be carefully evaluated based on emerging
4. Safeguards Information System UNFCCC requirements related to emissions trading,
including Article 6 of the Paris Agreement. While
countries are developing their nesting strategies,
project development for the voluntary market can
go forward as long as all parties understand that, at
Existing initiatives, including stand-alone REDD+ some point in the future, the project will need to be
projects, have played a critical role in testing and recognised under the national REDD+ program and
proving effective approaches for delivering real, accounting. At this point, emission reductions will need
lasting results and mobilizing significant levels of to be re-evaluated based on a national baseline –
private sector investment under the voluntary market rather than a project baseline – which could result in a
(Forest Trends et al., 2017). These stand-alone reduction in credits.
projects have also informed and contributed to the
development of national and subnational programs, Further, before any emissions reductions (from REDD+
allowing implementation efforts to increase in scale or another sector) can be transferred for compliance
and reach. Moving forward, new and existing REDD+ purposes, the host country will need to consider
projects and site-scale activities will need to be whether the emissions reductions proposed for
integrated into national REDD+ programs, a process trading are needed to meet their NDC, or if they have
referred to as “nesting.” achieved (or are projected to achieve) an excess
of emissions reductions and can transfer “extra”
There are various technical and governance reductions. In practice, this will mean that all emission
arrangements required to “nest” a site-scale REDD+ transfers will need to be approved or authorized by
activity under a national program, such as ensuring the host country before they can be transferred to a
that the baseline used for the site-scale activity is government or private sector actor in another country.
The originating country will then need to reflect the UNFCC. Emissions from international aviation are
any emissions reductions that are exported within governed by the United Nations International Civil
an emissions account based on its NDC emissions Aviation Organization (ICAO). Under ICAO, countries
balance to ensure that emissions reductions are not have agreed to cap emissions from global aviation at
claimed by more than one country or actor. Transferred 2020 levels, requiring airlines to use more efficient
emissions reductions across all sectors that are used aircraft, better operational practices, and alternative
for compliance purposes (such as Article 6 or CORSIA) jet fuels. However, even with these improvements, a
will need to be cancelled from the originating country’s large emissions gap will remain before the sector can
emissions account to ensure “no double counting” or reach its goal of delivering “carbon neutral growth
“claiming” of units, an essential step for ensuring the from 2020.”
integrity of the emissions trading system (ETS). These
requirements are not specific to REDD+. To fill the global aviation sector’s emissions gap, ICAO
created a carbon market where airlines can buy carbon
credits from approved “greenhouse gas programs.”
This market is officially known as the Carbon
Offsetting and Reduction Scheme for International
Aviation (CORSIA) (ICAO, 2016).
In March 2020, ICAO approved its first set of GHG

programs that are now deemed eligible for airlines
to purchase in meeting their climate goals, several
of which include nature-based solutions. This means
that the international civil aviation industry has created
the first global market to accept nature-based credits.
When it comes to REDD+ credits specifically, ICAO
© SUHYEON CHOI
also agreed on a pathway for their inclusion in late

2020. While there are a few follow up steps for REDD+
credits to be fully eligible and ready for purchase by
airlines, these developments are nonetheless a boon
for airline companies interested in scaling up their
Sectoral initiatives, in particular NCS investments.
within aviation, are breaking
Policy Outlook
ground for NCS
In establishing this pathway for the inclusion of forest-
based offsets in the international aviation carbon
Aviation
market, ICAO is sending a clear signal to the world
As the world’s population continues to grow and
that nature-based credits are credible and should be
becomes more globalized, so does the scale of
eligible in carbon markets.
international aviation. To keep up with projected
increases in demand for international air travel, an As of 30 June 2020, the ICAO Council decided to
estimated 56,000 new passenger aircraft will have to change the CORSIA baseline to 2019 international
take to the sky over the next 25 years (ICAO, 2013). aviation emissions levels. The true impact of the
As a result, aviation’s carbon emissions are forecast baseline change cannot be known for a few years, as
to skyrocket in the coming years and could triple or it will largely depend on the airline industry's rate of
quadruple by 2040 (ICAO, 2013). However, the sector economic recovery.
is not covered by the global climate agreement under

Box 10: Eligible Greenhouse Gas Programs (as of March 2020)
Starting in January 2021, airlines from countries that signed up for the voluntary phase of CORSIA (2021-
2023) are required to reduce emissions from international flights that exceed their 2019 emission levels
(ICAO, 2020a). With each subsequent three-year phase of CORSIA, additional countries (and their airlines)
will be required to participate as they meet the minimum threshold for international emissions.
Airlines can use credits from one of the six greenhouse gas programs approved as immediately eligible
under CORSIA:
• American Carbon Registry (ACR)
• China GHG Voluntary Emission Reduction Program
• Clean Development Mechanism
• Climate Action Reserve (CAR)
• The Gold Standard
• Verified Carbon Standard Program (ICAO, 2020b)
The World Bank’s Forest Carbon Partnership Facility (FCPF), Verified Carbon Standard’s Jurisdictional
and Nested REDD+ (JNR) methodology, and the Global Carbon Council are not immediately eligible, but
will be approved once they fulfil requirements outlined by ICAO. In June 2020, both programs submitted
material updates that address these conditions, and will likely be re-examined in Fall 2020. No credits from
standalone REDD+ projects will be eligible. All projects must be nested under a national or subnational
(UNFCCC, 2016) REDD+ program and verified against one of the to-be-approved offset standards.
Additionally, ICAO has set limits on the vintage of eligible credits across all offset types. Only projects that
started to issue credits after 2016 will be eligible. Additionally, for the time being, only units generated
between 2016 through 2020 will be accepted. Each greenhouse gas program can “unlock” post-2020
vintages if they demonstrate additional requirements to prevent double counting of emission reductions
with countries’ national commitments under the Paris Agreement.
In June 2020, eight new greenhouse gas programs applied for recognition under ICAO. In November
2020, ICAO approved two of these REDD+ programs—the Verified Carbon Standard’s Jurisdictional
and Nested REDD+ (VCS JNR) methodology and the Architecture for REDD+ Transactions’ The REDD+
Environmental Excellency Standard (ART TREES)—as eligible offset options for airlines to purchase in
meeting their climate goals.
The IMO has set the following targets and timelines
for the adoption and implementation of the IMO Initial
Strategy, using 2008 emissions levels as the baseline
(IMO, 2020):
• 2018: Resolution on the Initial IMO Strategy on the

reduction of GHG emissions from ships.
• 2023: Complete short-term measures and revise

the Initial Strategy.
• 2023-2030: Mid-term measures to reduce carbon

intensity of the fleet by at least 40%.
• 2030-2050: Long-term measures to reduce

carbon intensity of the fleet by at least 70%.
• 2050: At least 50% reduction of total annual

GHG emissions (requires approximately 85% CO2
reduction per ship).
© DAN BARNES
The IMO GHG Strategy provides a wide list of

candidate short-term, mid-term, and long-term
measures, including innovative emission reduction
Shipping mechanisms. To support their implementation, two goal-
At 2.2% of the global anthropogenic total, GHG based approaches are under consideration: a technical
emissions from international shipping are larger than approach, and an operational approach (IMO, 2019).
the emissions of all but six countries (Bodansky, 2010). The next inter-sessional meeting will include the further
Under current policies and trends, this is expected to development of these approaches, detailed below:
increase by anywhere from 50% to 250% by 2050,
representing 6-14% of total global emissions then • Technical approach: Proposals include the Energy
(IMO, 2015). Efficiency Existing Ship Index (EEXI) requiring
ships to meet a set energy efficiency requirements
The International Maritime Organization (IMO) is after the measure taking effect, and/or mandatory
part of the United Nations system, with a mandate power limitation on ships.
to facilitate intergovernmental cooperation in the
• Operational approach: Proposals focus on
regulation of international shipping; issues such as
strengthening the ship energy efficiency
climate change and pollution are addressed within the
management plan, including mandatory carbon
Marine Protection Environment Committee (MEPC), a
intensity reduction targets, measures to optimize
subsidiary of the IMO. In 2018, IMO adopted an initial
speed for the voyage, and limiting ship speed.
strategy for the reduction of GHG emissions from
ships (IMO, 2018). The initial strategy is a framework Of note within the Strategy is a potential mid-term
for its Member States, which sets out the future vision measure of “new/innovative emission reduction
for international shipping, establishes the levels mechanism(s), possibly including Market-based
of ambition to reduce GHG emissions and guiding Measures (MBMs), to incentivise GHG emission
principles, and includes candidate short-, mid- and reduction.” Amongst other measures, this proposal
long-term further measures with possible timelines and will be discussed and considered ahead of the next
their impacts on States. Committee session, MEPC 75 (scheduled for 16-20

November 2020). In addition, the Fourth IMO GHG flows for mitigation and adaptation, including both
Study will be released at MEPC 76, including baseline public and private finance, reaching nearly US $580
carbon intensity estimates for 2008, and scenarios billion per year (2017/2018 two-year average) (Climate
for international shipping emissions from 2018-2050 Policy Initiative, 2019). Based on CPI’s categorization,
– both of which are important in the development of examples of private climate finance include large- and
MBMs. Possible mid-term measures like this one will small-scale renewable energy projects, as well as
be finalised and agreed by the Committee between investments in solar water heating systems (Climate
2023 and 2030, with the dates of entry into force Policy Initiative, 2019). For comparison, public climate
defined for each measure individually. If MBMs are finance includes commitments from development
approved and put into force, the IMO would create a financial institutions (DFIs), as well as bilateral climate-
significant venue for the shipping industry to increase related development finance (Climate Policy Initiative,
investments in NCS and other carbon credit-generating 2019). Roughly two to three percent of these global
projects, similar to what ICAO accomplished for the mitigation and adaptation finance flows go towards
aviation industry. NCS – a ratio that has remained steady over time.
(Climate Policy Initiative, 2019). For the full potential
Policy Outlook of NCS to be unlocked, this ratio as well as absolute
There is significant debate regarding the IMO’s current levels of climate finance needs to increase over time,
level of climate ambition, which some deem to be reflecting increased awareness – and corresponding
too low. As a result, when discussing a future market- investment – of NCS opportunities.
based measure, countries are unlikely to support the
use of offsets from outside the shipping sector to CARBON PRICING INITIATIVES ARE
ensure that the emission reductions expected from PROLIFERATING, BUT PRICES REMAIN LOW
TO DRIVE ACTION AT SCALE
the sector are coming from the sector. The first step to
accelerating the decarbonisation of the international By monetizing carbon emissions, carbon pricing
maritime sector would be to tighten the sectoral initiatives set the stage for private sector action on
emissions cap. Upon the establishment of a more climate change, creating forums that incentivise actors
ambitious climate goal, countries may be open to to invest in necessary climate solutions, including
discuss the use of offsets from other sectors to support NCS. The World Bank defines “carbon pricing” as
the achievement of the climate target. By doing so, the variety of initiatives that put an explicit price on
the IMO may decide to follow the lead of international GHG emissions, expressed in a monetary unit per
aviation by supporting the use of credible offsets, tCO2e (Climate Policy Initiative, 2019). Carbon pricing
including from high-quality NCS activities. Private can include carbon taxes, emissions trading systems
sector support for higher climate ambition under IMO (ETSs), offset mechanisms, and results-based climate
and for the use of credible offsets from NCS would finance (RBCF) (World Bank Group et al., 2019). The
help advance the debate. IPCC has concluded that explicit carbon prices are
a necessary condition of ambitious climate policies;
Climate finance, while growing, furthermore, companion policies that reflect robust
price signals are necessary to achieve cost-effective
has significant potential – and decarbonisation pathways (The World Bank, 2020). As
need – for evolution of August 2020, 61 carbon pricing initiatives worldwide
are active or scheduled to be implemented (The World
Climate finance includes all finance aimed at reducing Bank, 2020). These carbon pricing initiatives cover 12
the drivers of climate change and its associated gigatons (GtC) of carbon dioxide equivalent (GtCO2e),
impact. Globally, climate finance is on the rise (Climate or approximately 22.3% of GHG emissions (The World
Policy Initiative, 2019), with global climate finance Bank, 2020).
Carbon pricing designs have evolved based on DIVERSE CARBON MARKETS
national ambition and need. Rather than a strict carbon ARE BEING DEVELOPED
tax or ETS model, many of these designs have evolved
Carbon pricing initiatives enable the creation of carbon
into hybrid models, incorporating elements of trade
crediting mechanisms and markets. Carbon crediting
and tax that suit a specific country’s needs. Colombia,
mechanisms create credited units of carbon, with each
for example, is primarily a tax but has a linkage to an
unit equivalent to one metric ton of CO2 emissions
offset market. NCS is slowly being integrated into
avoided, reduced, or removed from the atmosphere.
some of these emerging systems, such as in California,
These tradable credits are used by actors to offset
South Africa, New Zealand, Canada, and Colombia.
their GHG emissions, providing a key strategy for
achieving near-term net-zero emissions (The World
Unfortunately, current carbon prices are woefully
Bank, 2014).
insufficient. In 2019, the World Bank’s analysis
concluded that over 95% of carbon pricing initiatives
A number of carbon crediting mechanisms exist,
had carbon prices that were lower than the US $40-
including independent crediting mechanisms,
80/tCO₂e by 2020 needed to cost-effectively deliver
government-created compliance markets, and
on the Paris Agreement (World Bank Group et al.,
international agreements. The carbon credits created
2019). Nonetheless, financial impacts are significant
by these mechanisms can be traded or used for
and growing; governments raised more than US $44
compliance on the voluntary carbon market, in some
billion in carbon pricing revenues in 2018 from carbon
government-created compliance carbon markets,
taxes, auctioned allowances, and direct payments to
and, in some cases, as part of commitments set by
meet compliance obligations, representing an increase
international agreements. Table 4 highlights key
of nearly US $11 billion compared to 2017 (World Bank
standards for carbon verification for jurisdictional and
Group et al., 2019).
national crediting, along with various distinguishing
features of each. Crediting standards for project or
From a business perspective, carbon pricing is
site-scale activities also exist
directly relevant to the company’s triple bottom line
(TBL), which refers to a holistic business accounting
framework that incorporates environmental, social,
and economic returns. Carbon pricing for the
company is often included in a TBL report as part of
a strategic CSR initiative and can serve as a valuable
tool for integrating climate considerations into project
management and investment allocation.

Table 4: Carbon Verification Standards Comparison for Jurisdictional and National Crediting
Forest Carbon Partnership Architecture for REDD California Tropical Forest Verified Carbon Standard
Facility (FCPF) Carbon Transactions (ART)/the Standard (TFS) (VCS) Jurisdictional and
Fund (CF) Methodological REDD+ Environmental Ex- Nested REDD+ (JNR)
Framework (MF) cellency Standard (TREES)
Scale Jurisdiction or landscape National or subnational Subnational jurisdiction or Jurisdiction or nested

jurisdiction to 2030 national project
Scope REDD, Improved REDD only; (removals REDD of native forest REDD, IFM ARR
Forest Management to be included in next
(IFM) Afforestation, revision)
Reforestation and
Revegetation (ARR)
Additionality 10-year historical average 5-year historical average 10-year historical average 8 to 12 years historical
Adjustment allowed up to updated every five years. No adjustment average and historical
0.1%/year of carbon stocks No adjustment. Crediting level starts 10% trend (increasing or
below reference level decreasing) over at least
and linearly declines to a the last 10 years.
jurisdictional 2050 target Adjustments allowed
Permanence 10-40% ERs based on a Maximum 25% ERs in a At least 10% ERs Up to 60% is deposited in
reversal risk assessment in pooled buffer managed (potentially more) are a pooled buffer managed
ER Program-specific buffer, by ART, which can be deposited in a buffer by Verra % determined
managed by ER program a) reduced by 5% for managed by the by JNR Non-Permanence
or by World Bank Forest supporting legislation jurisdiction according Risk Tool
Carbon Partnership b) reduced by 10% if to non-permanence risk
Facility (FCPF) interannual variability of rating
less than 15% in prior 10
years; c) reduced by 5% if
national reversal mitigation
actions, plan or strategy.
Safeguards Requires completion of Requires participants Must demonstrate Programs must provide

a social and environmental to demonstrate they have that forest-dependent information in the
strategic assessment implemented REDD+ communities, including monitoring report
(SESA) environmental actions consistently with indigenous peoples’ with respect to how,
and social management the Cancun Safeguards communities participated during the design and
framework (ESMF) and that the activities do in the design and ongoing implementation of the
and other frameworks no harm. implementation of the program, UNFCCC
(including Indigenous Cancun safeguards as jurisdiction’s sector plan decisions on safeguards
Peoples Planning principles then 14 themes in a manner that adheres and any relevant
Framework, Resettlement or conditions to be met. to the GCF Guiding jurisdictional (national
Policy Framework, Process Information must be Principles. and subnational) REDD+
Framework). provided and verified on Show that sector plan has safeguards requirements
A report of the 3 indicators (structures, safeguards consistent have been met, and how
implementation of processes, and impacts) with UNFCCC Cancun the safeguards have been
the safeguards plans for each theme. safeguards and provide addressed and respected.
is annexed to each annual reports using
monitoring report. principles, criteria, and REDD+ Social &
indicators that conform to Environmental Standards
the REDD+ SES Version 2. (REDD+SES), Climate,
Community & Biodiversity
Standards (CCBS) and
Forest Stewardship
Council (FSC) certification
may be used, where
appropriate, to provide
such information.
Figure 8: Evolution of global compliance carbon markets
CARBON TAX
Norway Slovenia France
Alberta
Sweden British Columbia Iceland Japan Mexico Manitoba
Finland Latvia Liechtenstein Ireland United- Portugal Chile Newfoundland
Poland Denmark Estonia Switzerland Colombia -and- Singapore
Kingdom
South Africa Labrador
China
1990 1991 1992 1995 1996 2000 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2017 2018 2019 2020
EU ETS RGGI, USA South Korea Massachusetts

Alberta Saitama China Mexico
New-Zealand Tokyo California China’s Ontario Nova Scotia
EMISSIONS TRADING SCHEME Washington Kazakhstan
Switzerland Quebec pilots
Source: I4CE - Institute for Climate Economics, September 2017
a) Compliance markets are an opportunity for the grew 264%, more than any other segment in the
inclusion of NCS voluntary market (Forest Trends, 2019b). Forestry
Compliance carbon markets have been a key driver sector credits in particular have made up 42% of all
of private sector financing for climate change. credits issued on the voluntary market in the last five
Compliance carbon markets can be created by carbon years (Forest Trends, 2019b).
pricing initiatives, such as ETSs and carbon taxes.
Pricing for NCS carbon credits varies widely and
Some, but not all, of these compliance markets allow
depends on various attributes, such as the project’s
carbon offsets to play a role in meeting compliance
location (including its regulatory environment, social
obligations. Typically, the use of offsets is limited in
environment, and specific site attributes) and impact
order to incentivise decarbonisation and behavior
(both in terms of climate mitigation and co-benefits).
changes required to reduce emissions.
As a result, no benchmark price currently exists. The
In addition to the 31 ETSs active or scheduled for market for NCS carbon credits is very much driven by
implementation, there are also 9 ETSs currently buyer preference for the package of attributes offered
under development (including China, Germany, by NCS projects.
and Colombia) as of 2020; 15 jurisdictions are
While there is no centralized system for transacting
currently also considering a possible role for ETS
voluntary carbon credits, the Forest Trends’ Ecosystem
in their jurisdictions, including Indonesia, Thailand,
Marketplace, a non-profit organization, has been
and Vietnam (The World Bank, 2020). Government
regularly collecting data from voluntary market
regulations for each country or jurisdiction determine
participants over the last thirteen years (Forest Trends,
the extent to which carbon credits generated by NCS
2019b). Tracked transactions of voluntary carbon offsets
projects can play a role in these ETSs. Engagement
for 2018 represented 98 MtCO2e in emission reductions,
and support for NCS from the private sector as these
with a market value of US $295.7 million (Forest Trends,
regulations develop can help increase the prevalence
2019b). Compared to 2016, this was a 52.6% increase
of NCS within these markets.
in volume and a 48.5% increase in value (Forest Trends,
b) The voluntary market has been driving significant 2019b). However, at a median price of $5.43 in 2018,
investment in NCS the average price in voluntary markets is still well below
most in global compliance markets, and substantially
While many compliance markets include provisions for
lower than the US $40-80/tCO2e by 2020 and US $50-
NCS, a majority of NCS is implemented and financed
100/tCO2e by 2030 threshold for the Paris Agreement
from the voluntary carbon market. Between 2016 and
(Forest Trends, 2019b).
2018, the volume of NCS carbon credits transacted

Figure 9: Issuance of carbon credits by project type and mechanism: 2015-2019
Forestry
Renewable Energy
Waste
Fuel Switch
Industrial Gases
Fugitive Emissions
Energy Efficiency
Agriculture
Other Land Use
Manufacturing
CCS/CCU
Transport
0 50000 100000 150000 200000 250000 300000 350000
kton CO2e
With a higher percentage of end buyers and the usual Nations or World Bank, such as the Forest Carbon
ability to command a higher price, NCS offsets have a Partnership Facility, the Green Climate Fund (GCF),
distinct advantage over their non-NCS counterparts. the BioCarbon Fund, and bilateral funding for REDD+
NCS has a higher percentage of returning buyers (Forest Trends, 2019b). Descriptions of these funds are
(93%), who are primarily motivated by NCS projects’ provided in box 10.
co-benefits. Likely due to these co-benefits, Improved
Forest Management (IFM) projects drew the highest
price of any project type in 2018 at US $8.15/tCO2e
(Forest Trends, 2019b). Offsets that achieved dual
certification of both the VERRA Verified Carbon
Standards (VCS) (which certifies greenhouse-gas
impacts) and the Climate, Community & Biodiversity
(CCB) standards (which certify positive social and
biodiversity impacts) had the biggest jump in volume in
2018 (Forest Trends, 2019b).
c) Multilateral financing drives significant financing

for NCS through non-market approaches
According to Forest Trends’ Ecosystem Marketplace,
nearly US $2 billion is committed to non-market
funds that provide results-based payments (Forest
Trends, 2019b). Funds that provide results-based
payments include funds that operate under the United
Box 11: Examples of Funds using Results-Based Payments
The Forest Carbon Partnership Facility (FCPF) is a global partnership of governments, businesses, civil
society, and indigenous people’s organizations focused on REDD+ activities; the FCPF currently works with
47 developing countries across Africa, Asia, and Latin America and the Caribbean, along with 17 donors that
have made contributions and commitments totalling $1.3 billion (Forest Carbon Partnership Facility, 2018).
The Green Climate Fund (GCF) was set up by the UNFCCC, and is dedicated to helping developing
countries in climate mitigation and adaptation (Green Climate Fund, 2020). GCF uses public investment to
stimulate private investment in low emission, climate-resilient development (Green Climate Fund, 2020).
It pays particular attention to the needs of societies that are highly vulnerable to the effects of climate
change, in particular Least Developed Countries (LDCs), Small Island Developing States (SIDS), and African
states (Green Climate Fund, 2020). As of November 2019, GCF’s total portfolio value was US$5.6 billion,
and twenty-eight countries had pledged US $9.78 billion to fund climate action over the next four years
(Green Climate Fund, 2019). In October 2017, the GCF Board established a new pilot program for REDD+
results-based payments, allocating US $500 million for activities related to NCS. Funding will be available
to countries who meet all requirements under the under the UNFCCC Warsaw Framework for REDD+
(UNFCCC, 2014), and proposals will be accepted on a rolling basis through the last Board Meeting in 2022.
The BioCarbon Fund supports projects that generate multiple revenue streams, combining financial returns
from the sale of carbon credits with increased local incomes and other indirect benefits from sustainable
land management practices (Green Climate Fund, 2020). The BioCarbon Fund has worked extensively
within the UNFCC’s Clean Development Mechanism (CDM) and the voluntary carbon market, such as the
Verified Carbon Standard (BioCarbon Fund, 2017b). The first two tranches of the BioCarbon Fund were
established in 2004 and 2007, with a total commitment of US $90 million (BioCarbon Fund, 2017b). The
BioCarbon Fund purchases carbon credits on behalf of fund participants through emission reductions
purchase agreements (ERPAs) with individual projects (BioCarbon Fund, 2017b).
Results-based payments may come in the form NCS investment options exist
of non-market or non-market-based finance,
meaning that results-based finance may or may beyond carbon finance
not involve an emissions reduction transfer or
NCS projects can benefit from financial channels
trade to the donor.
beyond carbon finance, such as green bonds. Green
Results-based payments from the GCF and the majority bonds are bonds created to fund projects that have
of funding under the FCPF are non-market-based positive environmental benefits, including climate
payments in that they do not involve a transfer to mitigation. (Climate Bonds Initiative, 2020a). In 2019,
the donor; however, these non-market results-based global green bond and green loan issuance reached
payments provide important support for NCS projects, an adjusted US $257 billion, up 51% from 2018
sometimes above-market prices (Forest Trends, 2019a). (Climate Bonds Initiative, 2020a). In the Association of
Results-based payments can also create an impetus Southeast Asian States (ASEAN) region, green bond
for regulating projects or embedding them in a nested and loan issuance in 2019 (US $8.1b) was nearly double
approach (Forest Trends, 2019a). that of 2018 (US $4.1b); Singapore accounted for 55%
of the ASEAN green debt issuance in 2019 (compared

with 29% in 2018), establishing itself as a regional interested in NCS would do well to explore similar
leader. However, land use represented just 3% of total opportunities to support, catalyse, and/or acquire
investments, implying a significant opportunity for these innovative SMEs.
growth (Climate Bonds Initiative, 2020a). Nonetheless,
NCS is set to benefit from the continued rise in green
Coalitions of public and private
bond issuance (Climate Bonds Initiative, 2019).
actors can help reduce NCS
Importantly, NCS is not strictly restricted to
investment risks
environmental finance. As entrepreneurs worldwide
seek to benefit society and the environment in a According to the International Carbon Reduction &
profitable way, innovative NCS models continue to Offset Alliance (ICROA), carbon reduction projects
emerge, with many companies developing revenue financed by the private sector on a voluntary basis
streams compelling enough to attract private finance alone have already reduced over 500 million tons of
from conventional sources, such as bank loans for CO2e globally (International Carbon Reduction & Offset
business investments or venture capital. For example, Alliance, 2020). Considering the increased inclusion of
the World Resources Institute researched over 140 NCS in climate policies, as detailed earlier in the report,
SMEs with a central value proposition around forest interest in NCS is expected to continue growing as it
and landscape restoration, highlighting promising becomes increasingly clear how critical NCS are to a
themes and examples that have successfully raised net-zero emissions future.
private capital (Faruqi et al., 2018). Businesses
New PPPs are being convened to remove barriers and unfamiliar with. As private investors gain experience
increase investment in NCS (examples are covered and familiarity in NCS, they may then develop NCS
in box 11). Importantly for PPPs, the use of public investments on their own. Given synergies between
and/or philanthropic capital as subsidies or first-loss government policy, incentive structures, and private
guarantees has an important role in improving private investment, these PPPs offer a promising venue for
investor confidence in NCS investments, increasing companies – if done equitably and transparently – to
their willingness to invest in models they may be realise synergies and drive necessary systemic change.
Box 12: Examples of Public-Private Partnerships for NCS
The Natural Climate Solutions Alliance is an alliance of public and private stakeholders convened by WEF
and WBCSD. Its focus is scaling up affordable natural climate mitigation solutions and increasing finance
for NCS by identifying the opportunities and barriers for investment in carbon credits (World Economic
Forum, 2020a). According to ICROA, the voluntary carbon market has the potential to grow significantly
in the decade ahead and become an instrument used to accelerate the global transition towards net zero
emissions by helping to close the emissions gap, the finance gap, and the time gap (International Carbon
Reducation & Offset Alliance, 2020).
The International Emissions Trading Association (IETA) is a nonprofit organization created to establish a
functional international framework for trading in greenhouse gas emission reductions (IETA, 2020a). In
December 2019, the IETA launched the Markets for Natural Climate Solutions Initiative, which aims to build
a global market for carbon credits generated from NCS projects, enabling private sector investment at
scale (IETA, 2020b). The initiative will establish an effective policy roadmap and market strategy to address
the barriers to investing in NCS at large scale (IETA, 2020b). In June 2020, the IETA Council released its
Guidance on Net Zero Climate Ambition, which advocates for policies that enable companies and sectors to
cooperate through trading policies, including the use of NCS (IETA, 2020a).

© TORY READ
V
HOW BUSINESSES CAN

ENGAGE IN FINANCING NCS
There are many entry points for businesses and capital setting and upholding voluntary targets for emission
providers to engage NCS within the carbon finance reductions is a strong business strategy. NCS can play
supply chain. Each of the entry points we discuss here an important role in helping companies reduce their
can accelerate the use of NCS in reaching net-zero GHG emissions while offsetting emissions that are
emissions by 2050. harder to abate – such as employee travel or product
transportation. Notable options for companies to meet
their voluntary emissions reduction targets through
Businesses can invest in NCS
NCS investments are described below:
to achieve voluntary emissions
• Voluntary Emission Reduction Purchase
reduction targets
Agreements (VERPA): Through VERPAs, companies
A 2019 report from the WBCSD and Nature4Climate purchase and retire carbon credits from NCS
finds that companies are facing pressure from projects for near-term emissions reductions,
customers, investors, and employees to act on climate contributing to corporate climate strategies with
change using methods that are anchored in science mitigation targets (Forest Trends, 2019a). Call out
and aligned to the Paris Agreement (WBCSD, 2019). box 12 illustrates the different ways of structuring
Even if not mandated by law, companies may find that VERPAs, and the different steps involved.
Box 13: Different Structures of VERPAs
VERPAs can be done in several ways; the following descriptions lay

out the processes involved with each structural option:
Direct Support Financing Early Development Purchase Guarantees
1. Carbon credit buyers 1. Carbon credit buyers approach a 1. Carbon credit buyers
approach owners of a certified, developer interested in creating a approach developers of an
developed NCS project new NCS project (thereby gaining early stage NCS project
greater insight in project dynamics)
2. Buyers and suppliers reach 2. Buyers set up a purchase guarantee
an agreement of sale 2. Buyers agree to finance early for an initial tranche of generated
project design and development credits at a fixed and favourable
3. Carbon credits are transferred
in return for priority access price, de-risking the project by
to the buyer through a carbon
to generated credits assuring consistent revenue flow
credit registry – or are retired,
upon carbon credit materialization
as per the buyer’s intent 3. Once mature, generated
(Baumann et al., 2018)
carbon credits are given right-
of-first-sale to the investor 3. If initial tranche of carbon credits
materialize, carbon credits are
4. If rights-of-first-sale are exercised,
transferred to the buyer through
carbon credits are transferred
a carbon credit registry – or are
to the buyer through a carbon
retired, as per the buyer’s intent
credit registry – or are retired,
as per the buyer’s intent
• Internal carbon taxes: Business can set internal

carbon taxes to represent their climate-related
business risk, and use the proceeds raised to
purchase NCS carbon credits.
• Shadow carbon pricing: Similar to internal carbon

taxes, companies instead set a hypothetical
surcharge on carbon-emitting projects, goods, and
services across their business operations, shifting
resource allocation toward low-carbon options.
• NCS business model development: Companies

support NCS business model development,
providing commercial business loans alongside
technical and promotional support to those
businesses (Baumann et al., 2018).

Box 14: The IFC Forests Bond
In 2016, the IFC-issued a first of its kind $152 million Forests Bond with many innovative features
(Conservation International, 2020; International Finance Corporation, 2016). Investors had the option to
choose either a cash coupon, or REDD+ carbon credits. To reduce market price risk, the instrument included
a price support mechanism provided by BHP Billiton. This assured investors who wanted to take the cash
coupon a minimum price guarantee. Any price support not utilised by investors was used to purchase
additional VCUs from the project, thereby providing even more forest finance to the project.
The IFC Forests Bond supports the Kasigau Corridor REDD Project in East Kenya, covering over 200,000
hectares, that were threatened with deforestation from cattle grazing and clearing for firewood and
farmland. Funds are used for forest protection activities, such as forest and biodiversity monitoring,
funding for community wildlife scouts, forest patrols, social monitoring, and carbon inventory monitoring.
Further investments are made in community development, including the reforestation of Mount Kasigau,
establishment of an eco-charcoal production facility, support for community-based organizations, and
expansion of an organic clothing facility. Upon full establishment, the project is expected to offset 1.4 million
tCO2e each year for 30 years. Figure 10 below illustrates revenue flows created through IFC’s Forests Bond.
Figure 10: Bond Structure

Carbon Credit/
Cash (equivalent
Carbon Credits to bond interest)
Investors
Investment
Cash for Price Principal
Support
Carbon Cash Equivalent Carbon
Credits to bond interest Cash Credits
Carbon
REDD Credit
Project Market
Businesses can develop NCS align with a net-zero emissions action plan. Forest
sector companies are developing business
product lines and expand into opportunities in sustainable forest management
new markets (WBCSD, 2019); technology sector companies are
creating new applications of artificial intelligence to
In the face of significant changes that climate change limit land use impact (World Economic Forum, 2018).
presents for the global economy, businesses are Whatever the sector, there are multiple ways for
increasingly looking to innovate their existing business companies to expand business lines and enter new
models and identify new products that markets, including:
• Carbon products: Companies can develop and Businesses can purchase or
purchase NCS credits for customers.
support NCS carbon credits
• Sustainable forestry and agroforestry products:
Investments in NCS can provide additional product
for pre-compliance
lines of sustainable wood products, agroforestry
Businesses that anticipate the creation of a compliance
products (e.g. cacao), or sustainable non-timber
carbon market may choose to purchase carbon offsets
forest products (e.g. rubber) (Novartis, 2017).
prior to the establishment of the compliance market to
• Technology development: Companies can develop take advantage of favourable prices or other potential
and invest in technologies that reduce NCS benefits of acting early. For instance, companies
implementation, monitoring, and enforcement purchasing pre-compliance carbon credits benefit
costs (e.g. AI and drones), or NCS verification, from the establishment of the capacities, processes,
validation, and accounting costs (e.g. blockchain and systems within their business to be able to
and satellite technology) (Tercek, 2020). prepare for compliance markets. These capacities
may include carbon trading expertise, project design
and development, carbon accounting expertise,
Businesses can “inset”
among others. Pre-compliance purchases of NCS
NCS projects to improve credits can also demonstrate to policymakers that
businesses support the inclusion of NCS in compliance
supply chain resilience
markets, signalling the value of establishing proper
Investments in NCS can increase the resilience of policy frameworks and other enabling conditions for
company operations, assets, and supply chains by NCS investment (WBCSD, 2019). Examples of pre-
enhancing human health and ecosystem functions in compliance actions include:
communities where operations and assets are located.
• NCS voluntary offsets: Companies can purchase
This is also known as ‘insetting,’ wherein a company
NCS carbon offsets to take early action on
invests in an emission reduction project within its
anticipated regulations.
supply chain or operations. NCS projects can support
supply chain operations in a variety of ways, including • Market design: Companies can engage with
enhanced flood defences, or improved soil health policymakers to support the inclusion of NCS in
and productivity (WBCSD, 2019). Examples of insetting anticipated compliance carbon markets.
opportunities include:
• NCS methodology design: Companies can support
• Setting deforestation-free commitments: the development or modification of new NCS
Companies can make formal commitments – methodologies to meet anticipated compliance
and corresponding financial investments – into market eligibility.
“deforestation-free” supply chains, trade chains,
and sourcing landscapes (Baumann et al., 2018).
• Support NCS use in supply chains/carbon

insetting: Companies can invest in NCS projects
within a company’s value chain. This can include
providing premiums for producers in your supply
chain that engage in NCS or supporting producer
access to technical assistance (e.g. project
management, access to technology and capital,
etc.) (Baumann et al., 2018; Tercek, 2020).

Box 15: Innovation with Blue Carbon
Colombia harbors the highest proportions of threatened mangrove species in Latin America, along
both the Pacific and Caribbean coasts. The country has 289,122 ha of mangroves — 73% of them in the
Pacific coast and 27% in the Caribbean. CI and partners (Apple Inc., Invemar Research Institute, local and
national authorities, Omacha Foundation, and local communities) are implementing a blue carbon project
located in the Morisquillo Gulf on Colombia's Caribbean coast. The project will avoid the degradation and
deforestation of 9,600 hectares of natural mangrove forests and restore mangrove forest cover by an
additional 1,800 hectares, which together will generate an estimated 1,434,360 million tCO2e of Verified
Carbon Units (VCUs) over the life of the project (30 years). The project consists of two phases: the initial
phase focuses on carbon project development, leading to VCUs issued for Cispata Bay within the Gulf
region. The second phase will build upon that experience and incorporate the remaining mangrove areas
throughout the entire Gulf (in Caimanera and Guacamayas), that are part of the same ecoregion and face
similar threats. The project was developed and implemented by a team composed mostly of women,
including scientists, local leaders, trainers, and coordinators.
The project will be the first to use the new VCS Wetlands Modules (released Sept. 2020), thus the first
blue carbon project to generate credits for the plant biomass and extensive soil components. In addition,
Colombia instituted a national carbon tax in 2016, where businesses can opt to purchase VCUs in lieu of
paying the carbon tax. This project will be the first blue carbon project eligible to have credits sold through
this process. Not only does this project set a precedent for blue carbon finance at a national scale, but
the carbon tax system in Colombia also provides national scale demand. This national demand affords
assurance that once all of the VCUs that can be sold internationally on the Voluntary Carbon Market, any
remaining credits will be sold nationally.
The carbon value generated will be a crucial component of a long-term financing strategy in the region that
will support enhanced ecosystem conservation and restoration, sustainable ecotourism, and small local
business. In addition to mitigating climate change, this project will generate ecosystem service benefits
important for climate adaptation and human well-being, including coastal protection, food security, water
purification, and biodiversity conservation for endemic and migratory species.
Businesses may support of NCS. Where NCS credits are already eligible,
businesses can purchase NCS credits to meet their
NCS projects while achieving compliance obligations to send a strong signal for
regulatory compliance the increased demand of NCS. Opportunities for
companies to support NCS through compliance include:
Businesses may have compliance obligations to
reduce their carbon emissions, depending on the • NCS offsets: Companies can purchase NCS
sector, industry, or geography of operations. These carbon offsets when eligible for meeting
obligations may or may not currently allow the use of compliance obligations.
NCS credits to achieve compliance. Where businesses
• Policy: Companies can engage in, and financially
have an opportunity to engage with decision-makers
support, initiatives, and coalitions that pursue
and inform the further development of a compliance
enabling regulatory environments for NCS
market, businesses can advocate for the inclusion
success, whether by country, industry, or sector.
© AULIA ERLANGGA
VI
INSIGHTS AND
OPPORTUNITIES FOR NCS
IN SOUTHEAST ASIA
Regional NCS opportunities are under threat of agricultural expansion and will
require higher amount of investment to balance the
and constraints exist in opportunity cost of NCS investment. Other regions
both terrestrial forests may not have the requisite social or governance
enabling conditions in place to absorb investment
and blue carbon and demonstrate validated and verified outcomes.
Therefore, this report distinguishes natural carbon
POTENTIAL AND CONSTRAINTS OF CLIMATE-
stock and sequestration potential from investable
MITIGATION REFORESTATION AND FOREST
PROTECTION IN SOUTHEAST ASIA and financially-viable carbon stock in order to reflect
a more accurate volume of NCS supply across key
Within Southeast Asia, a number of scientific studies pathways. Although some NCS models are considered
have aimed to quantify the potential for the ‘supply’ some of the most cost-effective climate mitigation
of NCS. This potential will need to be tempered by strategies, their implementation necessitates broader
various constraints in order to determine the portion of considerations, including financial and operational
biophysical supply available and economically viable factors that may limit their feasibility and profitability
for investment. For instance, forest frontier regions (WBCSD, 2019).

Forest protection potential is first calculated by potential was then estimated based on development
estimating the total climate mitigation potential of and maintenance costs, average carbon prices, as well
forests within Southeast Asia. Key criteria were then as a 30-year timeframe. By excluding areas that are not
applied to the validation and verification of forest able to break even within this period, climate mitigation
carbon projects, limiting this potential to the forest potential of forests was estimated within areas that are
areas that are investible. However, not all of these financially viable.
areas would be profitable. Return-on-investment
Figure 10 Protect: Southeast Asia forest carbon supply
STANDING
CARBON STOCK 2.98 GtCO2e/yr
STANDING
AND INVESTIBLE 0.60 GtCO2e/yr
CARBON STOCK
STANDING, INVESTIBLE
AND FINANCIALLY VIABLE 0.56 GtCO2e/yr
CARBON STOCK
v
Within the forest protection pathway, although there over a 30-year timeframe, equivalent to roughly 0.56
are 500 million ha of tropical forests in Southeast Gt CO2e in carbon sequestration per year. Still, this
Asiavi, not all of these forests are under threat of represents significant climate mitigation potential.
deforestation, which is a key criterion in the validation For comparison, this rate of sequestration potential
and verification of forest carbon projects. Only 165 is equivalent to 15% of the ASEAN region’s projected
million ha of these forests are available for carbon baseline emissions rate in 2030.viii Furthermore, this
finance (investible carbonvii). Furthermore, only 90 protection could yield a total return-on-investment
million ha of the forests represents viable carbon of US $27.5 billion/yr from carbon finance across
projects that would at least financially break even Southeast Asia. The top five countries in the region
© QUAN LONG
in terms of return-on-investment from nature-based to cover 82 million hectares of forests across Cambodia,
carbon projects are Indonesia ($15.4b/yr), Malaysia Indonesia, Malaysia, Myanmar, Papua New Guinea,
($3.9b/yr), Thailand ($2.7b/y), Cambodia ($2.2b/y) and Philippines, and Thailand (Blaser et al., 2011).ix
Myanmar ($2.1b/y). The protection of these forests
provides significant potential in climate mitigation Similarly, reforestation as a climate solution could
that could yield a total return-on-investment of US provide a significant portionx of climate mitigation
$27.5 billion/yr from carbon finance across Southeast potential across Southeast Asia – if the only
Asia at approximately 0.56 GtCO2e/yr (based on an consideration was biophysical suitability. As soon as
assumed project estimation cost of US $25 ha-1, annual financial constraints are taken into account, both in
maintenance cost of US $10 ha-1 y-1, and the carbon terms of direct and opportunity costs of reforestation
price of US $5.8 t-1 CO2e). projects, their climate mitigation potential drastically
reducesxi. This potential may further diminish to <0.5
Furthermore, the scale of protection opportunity is GtCO2e yr-1 if other practical constraints are also
bolstered when incorporating the potential of RIL-C, considered, such as land-use conflicts, deforestation
which can be applied to native forests, maintaining or risks, and accessibility to labour input.
enhancing timber productivity while maintaining the
ecological integrity of the landscape. This is highly Notwithstanding the constraints of NCS highlighted
relevant in Southeast Asia, given the prevalence of above, their potential climate mitigation and financial
logging as a land use activity in native forests - estimated payoffs are already on-par with engineered mitigation

Figure 11 Restore: Southeast Asia carbon sequestration supply
BIOPHYSICALLY
CONSTRAINED 3.4 GtCO2e/yr
FINANCIALLY
0.6 - 1.9 GtCO2e/yr
CONSTRAINED
LAND USE 0.4 - 0.5 GtCO2e/yr

CONSTRAINED
solutions. If we further consider other co-benefits that reforested lands. As a complement, spatial analyses
NCS provide, such as coastal resilience, biodiversity of key co-benefits, such as biodiversity and impacts
conservation, and flood prevention, they present a far on rural communities, are developed. With these
greater and outsized economic benefit. For example, processes, project sites can be mapped out to show
restoring the ~303,000 ha of mangrove habitats areas with potential optimal economic, social, and
in Southeast Asia can protect more than 4 million environmental returns.
people in the coastal areas and provide significant
enhancement to commercial fisheries (finfish and The results are striking for the ASEAN region.
invertebrates) (The Nature Conservancy, 2020b). Southeast Asia holds the highest density of carbon
prospecting for NCS investments, which includes
While there are few studies that analyse the financial, both terrestrial and blue carbon. Similarly, based on
land-use, and operational constraints on reforestation preliminary spatial analyses, there is a high density
potential, established scientific methodologies are of co-benefits that would be captured through NCS
starting to emerge. Beginning with maps of degraded investment. Investing in deeper, science-based spatial
land that could be reforested, biophysical, economic, analyses to quantify the full scope of both NCS and
and social constraints are then applied (detailed co-benefits captured would ensure a better and more
discussion of these constraints can be found in Annex targeted return on investment.
D). Resulting areas are further refined by operational
risk factors that threaten the long-term viability of
Figure 12: Global Tropics Carbon Prospecting Profitability and Co-benefits (Koh et al., 2020)
Profitability
Profitable:
≥ 200 $/ha Key Biodiversity Areas
0 2,500 5,000 km
Rural communities
Unprofitable:
≤ -200 $/ha
Southeast Asia holds the highest potential for not only natural climate solutions return-on-investment, but also the
added key biodiversity co-benefits particularly in Malaysia, Thailand, and Cambodia.
Figure 13: Southeast Asia Carbon Prospecting Profitability and Co-benefits (Koh et al., 2020)
Profitability
Profitable:
≥ 200 $/ha Key Biodiversity Areas
Rural communities
Unprofitable:
≤ -200 $/ha
0 750 1,500 km

blue carbon ecosystems are degraded or destroyed,
the carbon that took a millennia to accumulate can be
released into the atmosphere in just a few decades –
turning what was once a significant carbon sink into
a carbon source. Globally, blue carbon are some of
the most threatened ecosystems and are being lost
at critical rates (0.1%-6% per year depending on the
ecosystem type) (Hoegh-Guldberg et al., 2019). Loss of
blue carbon ecosystems results in 0.23-2.25 billion Mg
of CO2 emissions per year.
Southeast Asia is geographically and geologically

unique in its high and dense stock of mangroves
and seagrass. The Southeast Asian region boasts a
combined 4.8 billion MgC storage compared to next
highest global region – the Gulf of Mexico – at 0.5
© NANDINI NARAYANAN
billion MgC, putting the overall estimated stock well

above other global blue carbon hotspots. In Southeast
Asia, the countries with the largest blue carbon stocks
(in order of most to least) are Indonesia, Philippines,
Papua New Guinea, Myanmar, Malaysia, Thailand,
POTENTIAL AND LIMITATIONS OF BLUE Tropical China, Vietnam, and Cambodia. Historically,
CARBON FOR CLIMATE MITIGATION IN
these were also the countries with the greatest loss of
SOUTHEAST ASIA
blue carbon ecosystems – largely due to expansion
Blue carbon ecosystems (mangroves, seagrasses, and of aquaculture in the 1980s, logging, and coastal
saltmarshes) hold enormous potential for sequestering development. This is particularly detrimental for some
carbon. Although the global area of these vegetated countries like Indonesia, where emissions related to
coastal habitats is smaller than that of terrestrial mangrove loss account for up to 20% of the national
forests, their contribution per unit area to long-term emissions related to deforestation.
carbon sequestration and storage is much greater
than those of terrestrial ecosystems. This is because Restoring and conserving blue carbon ecosystems
of their efficiency in trapping suspended matter and provide a potentially transformative nature- based
associated organic carbon during tidal inundation, solution to mitigate climate change and increase
as well as its high salinity levels that inhibit organic coastal resiliency. Healthy coastal ecosystems act as
material breakdown. Healthy coastal ecosystems natural infrastructure that provides essential protection
continuously accrete carbon in the soil. They have from rising sea levels, storms, coastal flooding and
the ability to build up the soil beneath them in such erosion. Simultaneously, mangroves have the potential
a way that under the right circumstances they can to reduce poverty and increase economic resilience
keep up with and counter sea level rise. They have a by increasing access to sustainable livelihoods (eg.
potentially limitless capacity to sequester carbon in the healthy coastal fisheries).
soil pool. Global estimates of carbon stocks in these
systems range from 10.4 – 25.1 billion Mega grams of Efforts in developing mangrove restoration and
Carbon (MgC), but this is likely an underestimate as conservation projects at scale, or garnering
most studies only account for the carbon in the top investment in these projects have been low.
meter of soil. However, organic-rich soil profiles may Reasons for this discrepancy between the high
extend over six meters in depth. Conversely, when potential for benefits and low investment in
mangrove restoration and conservation include blue carbon ecosystem cover (mangroves, salt
the assumptions that scientific methods to account marshes, and seagrasses – see for example The
for blue carbon are not well established, and the Nature Conservancy, 2020a), mangrove restoration
misconception that mangrove restoration is prone potential (The Nature Conservancy, 2020a),
to failure. Also, mangroves conservation and estimated ecosystem service values (The Nature
restoration are perceived to be too expensive to be Conservancy, 2020c) and preliminary maps of
profitable. However, in recent years, great strides drivers of mangrove loss (Goldberg et al., 2020).
have been made to overcome these challenges. Databases for blue carbon data have been developed
(Smithsonian Environmental Research Center,
a) Advances in the science of blue carbon 2018). Scientists are building the datasets needed
Global assessments of carbon stocks have been to improve blue carbon mapping and modelling.
done at a high level – producing maps of global
Figure 14: Global map of blue carbon habitats
Blue Carbon Habitats

Mangrove distribution
Seagrass distribution
Salt marsh distribution
(Himes-Cornell et al., 2018)
Figure 15: Potential for climate mitigation of different types of blue carbon.
Region Mangrove Seagrass Salt marsh
Hectares % of total Hectares % of total Hectares % of total
Africa 2,631,069 22.9% 6,247 2.8% 1,565 0.4%
Asia 3,276,758 28.6% 23,690 10.8% 22,008 6.3%
Australia and South Pacific 1,578,385 13.8% 2,622 1.2% 16,644 4.7%
Central and South America 2,991,043 26.1% 10,368 4.7% 5,315 1.5%
Europe 0 0% 23,614 10.7% 162,039 46.2%
Middle East 23,995 0.2% 351 0.2% 174 0.0%
North America 965,678 8.4% 153,266 69.6% 143,239 40.8%
Global Total 11,466,928 220,158 350,984
(Himes-Cornell et al., 2018)

Figure 16: Carbon Stocks of both mangroves and seagrasses in the Southeast Asia region (Zeng 2020 adapted from Thorhaug
et al. 2020).
Country Carbon Stocks
Mangrove Seagrass
Myanmar 87.2 Tg 0.04 Tg
Thailand 34.7 Tg 2.3 Tg
Vietnam 34.4 Tg 2.5 Tg
Cambodia 8.4 Tg 3.1 Tg
Brunei 0.1 Tg 0.03 Tg
Singapore 0.1 Tg 0.03 Tg
Indonesia 2,573 Tg 753 Tg
Malaysia 137.5 Tg 4.1 Tg
Tropical China 33.8 Tg 0.6 Tg
Philippines 47.7 Tg 376.5 Tg
Papua New Guinea 136.5 Tg 233.8 Tg
However, high resolution data at the site level remains This update enables these activities to access
sparse. For example, there is a dearth of blue carbon additional sources of finance through the sale of
data for seagrasses, specifically related to the impact carbon credits in voluntary or compliance markets
of seagrasses loss on the soil carbon stocks. Since and help scale up tidal wetland conservation and
90% of seagrass carbon is found in the soil, this limits restoration anywhere in the world. The methodology
the ability of seagrasses as an investment option specifically addresses the issue of soil carbon, where
(Thorhaug et al., 2020). 40-90% of blue carbon value lies, which previous
methodologies omitted. Thus, activities in coastal blue
While site specific data are being developed, methods
carbon systems are now able to get credit for the full
for determining blue carbon stocks at Tier 1 levels
value of the carbon in the plants and most importantly
already exist (2013 update to the IPCC Wetlands
in the soil. Under the methodology projects must either
Supplement). At the project level, scientifically robust
intend to sequester carbon through conserving or
methods for blue carbon field measurements are
restoring sedimentation and/or vegetation, resulting in
well established (Howard et al., 2014). In addition,
accumulation or maintenance of the carbon stock or
on September 9th, 2020, Verra publicly released
increased salinity to reduce CH4 emissions or restoring
an update to the REDD+ Methodology Framework
the water table to limit N2O emission – CH4 and N2O
(VM0007) to expand its applicability to tidal wetland
related activities still account for any changes in
conservation and restoration activities, including
carbon stocks. For example:
activities on mangroves, seagrasses, and salt marshes.
• Creditable conservation activities include: Other ways that the methodology addresses
uncertainty is that it requires that sea level rise
• protecting at risk wetlands,
be assessed by defining the geographic project
• improving water management boundaries that allow for landward movement related
in drained wetlands, to wetland migration, inundation and erosion. For
projects where site-scale sea-level rise data is not
• maintaining or improving water available, Verra will allow projects to include sea
quality for seagrass meadows, level rise in the Permanence Risk Tool where they
would claim a standardized conservative deduction.
• recharging sediment to avoid
The methodology also allows for any project that
drowning of coastal wetlands,
implements creditable conservation/restoration
• creating accommodation space for activities to be automatically considered additional.
wetlands migrating with sea-level rise. This means that projects will not be required to prove
that the activities are directly related and dependent
• Creditable restoration activities include: on carbon finance – removing one obstacle to project
development. This decision was based on the fact
• creating, restoring, and/or managing
that tidal wetlands and seagrasses conservation and
hydrological conditions,
restoration are not keeping pace with losses to such
• altering sediment supply (e.g. a degree that any conservation or restoration of those
beneficial use of dredge material) systems should be considered additional.
• changing salinity characteristics

(e.g. restoring tidal flow)
• improving water quality
• (re-)introducing native plant communities
• improving management practices
The methodology provides guidance on measuring
© NANDINI NARAYANAN
wetland carbon. It also addresses issues of uncertainty
with seal level rise, emissions from wetland loss and
land-use change (including methods to account for
CH4 and N2O if relevant), and the impact of wetland
degradation (note that as of the date of this report
only degradation related to extraction for fuel is
b) Advances in mangrove restoration
eligible). Currently, baselines are set using an estimate
of historic ecosystem loss, but future iterations of Coastal wetland restoration typically occurs at either
the methods may allow for modelling of loss based the very small site-specific scale or at large national
on novel future threats. This is particularly important scales. Project failure is typically due to weaknesses
to explore as most blue carbon ecosystems can be in project conception and execution – not because
completely lost in a very short time period. Therefore, of an inherent difficulty related to the nature of the
it is vital to protect pristine areas vulnerable to future ecosystems. Many projects are conceived without
threats even if they have not had historical loss. addressing the underlying causes of loss and thus
eventually fail to maintain mangrove coverage gained

© CONSERVATION INTERNATIONAL/ PHOTO BY SARAH HOYT
from restoration. Even more restoration projects fail up after much of the carbon has been lost is much
due to poor techniques - like planting in the wrong slower. However, international groups like the Global
areas or planting the wrong species – which are at Mangrove Alliance, an Alliance of 20+ academic and
odds with the well-established science. NGO groups, has a global goal of increasing mangrove
cover by 20% by 2030 (Mangrove Alliance, 2020).
While effective approaches for mangrove restoration Reaching that goal would require increasing mangrove
have been developed and implemented in isolated cover by 3.4 million ha. Given the support for the
locations, this capacity and knowledge is not broadly Alliance goal and the adoption of that goal by an
available. These issues culminate in restoration failures increasing number of countries, the demand for blue
that lead to reduced confidence in local coastal carbon restoration activities is expected to grow. How
communities and governments, wasted financial that translates to demand for blue carbon credits from
resources and – most importantly –wasted opportunity coastal wetland restoration is unknown. According
to recover lost mangroves and the services they to the Mangrove Restoration Potential Map, at least a
provide. However, coastal wetland restoration best quarter of this area is immediately practical to restore,
practices are now available and groups like the Blue and 37% of what is globally practical for immediate
Carbon Initiative and the Global Mangrove Alliance are restoration is located in Southeast Asia, and thus an
developing guidance on best practices for restoration area ripe for increased efforts.
specifically for carbon benefits as well as restoration
tracker tools to analyse successes and failures, monitor c) Advances in understanding costs
carbon benefits long-term, and monitor and assess Currently, very few blue carbon projects exist and
various co-benefits. the first blue carbon VCS project is still under
development – making general estimates of costs
Investors looking for high carbon returns will receive a
difficult, especially when the market values for blue
greater benefit from blue carbon conservation projects
carbon credits is so nascent. Bayraktarov et al. (2016)
than restoration projects. This is because conservation
undertook a global review of 235 coastal restoration
projects are protecting existing high carbon stocks,
project outcomes with 954 observations of restoration
while the process of building carbon stocks back
costs across a variety of coastal ecosystem types and
country settings. They determined that mangrove Regional developments on
restoration costs were typically lower than other
forms of coastal restoration, such as seagrass, coral climate policy give businesses
reefs, salt-marshes and oyster reefs. Nonetheless, a opportunities for NCS advocacy
wide range of mangrove restoration costs have been
reported. Narayan et al. (2016) reports costs ranging Significant progress has been made to implement and
from US $500 to 54,300 ha-1 depending the degree incentivise NCS in Southeast Asia. Several countries
of site degradation. Spurgeon (1999) also noted a are developing relevant regulations, which present
vast range in cost reflecting differential expenses major opportunities for encouraging the inclusion
of restoration methods as well as socio-economic of NCS — for example, the cap-and-trade bill in the
settings. Lewis (2000) reported costs from US $225 Philippines, draft carbon pricing regulation in Indonesia,
to 216,000 ha-1 with costs from unpublished data as and the REDD+ nesting draft regulations in Cambodia.
high as US $500,000 ha-1 due to the high cost of
permitting, labour, use of heavy machinery and other Successful outcomes for NCS require engagement,
inputs in the United States. Lewis (2016) elaborates resources, time, and advocacy. There is great
on the differential costs of restoration, ranking the opportunity for the private sector to play a critical
following four methods from least to most expensive: role in meeting these requirements and expanding
1) planting alone, 2) hydrologic restoration with or successful NCS outcomes in the region.
without planting, 3) excavation or fill projects with or
without planting, and 4) experimental erosion control ASEAN countries are some of the most vulnerable
projects. In summary, a wide-range of mangrove countries in the world and collectively account for
restoration costs have been reported in the literature, less than 5% of global GHG emissions. Yet, all ASEAN
ranging from US $100 to 1,065,022 ha-1 depending on countries, apart from Singapore, are in the top fifty
socio-economic status of the location and techniques countries at risk for extreme climate change related
applied. Costs reported from Southeast Asia ranged risks. Four countries – Myanmar, Philippines, Vietnam,
from US $100 ha-1 to 1,388 ha-1 (Brown, 2020). Costs and Thailand – are in the global top ten countries
of conservation are less represented in the scientific at risk (Eckstein et al., 2017). At the same time, Asia
literature, but based on unpublished case studies, – including all ASEAN member states – is on pace
conservation efforts may cost closer to US $500 ha-1. to be the largest global consumer of energy, with
However, all estimates are excluding the costs of the majority of emissions coming from fossil fuels
carbon crediting. Implementing lower cost restoration within the next 20 years. Regardless of the current
methods (e.g. natural regeneration vs planting) will trend, all ten ASEAN nations have agreed to reduce
reduce cost estimates. There may be some benefit of GHG emissions within their NDC agreements with
economies of scale. Additionally, as coastal wetland decarbonisation planned through a combination of
conservation and restoration become more common, “cleaner” fossil fuel sources and renewable energy.
costs are expected to go down, although the quantum
of reduction is unclear. As countries include blue Land use changes are one of the main drivers of
carbon ecosystems into their GHG Inventories, and GHG emissions, and therefore present an enormous
mangroves in their national forest reference levels, and opportunity for mitigation action. Seven ASEAN member
as project developers and investors push for more blue states have committed to reforestation and protection
carbon projects, data produced by those efforts will measures as part of their emissions reduction strategies
increase our understanding of blue carbon potential in and plans. Six countriesxii specifically refer to REDD+
the region and costs associated with tracking benefits. and the sustainable management of forests and carbon
stocks in their NDCs.

In order to meet their NDC targets, ASEAN member to measuring, reporting and verifying GHG emissions
states face an emissions gap in both unconditional and as a first step towards further regional collaboration on
conditional pledges. Collectively, ASEAN unconditional carbon market” (ASEAN, 2017). They also decided to
pledges account for around 400 MtCO2e, equating to explore the possibility to develop a carbon cap-and-
the region roughly having to cut emissions by 11% by trade, including a carbon pricing system in the region.
2030. The more ambitious conditional pledges (which A formal process has not started but the creation
are dependent on financial support and technology of the ASEAN Working Group on Climate Change is
transfers) has a collective emissions gap that needs to a first step towards a regional approach to carbon
be reduced by 24% (~900MtCO2e) (Paltsev et al., 2018). pricing mechanisms.
Compounding governance issues (Eckstein et al., Policy Outlook

2017), weak institutional arrangements (Paltsev et al., By engaging in the ASEAN process, companies can
2018), and the lack of financial resources are the main support the development of regional carbon pricing
barriers in most ASEAN countries for investment in instruments that include NCS.
NCS. In general, GHG emissions hotspots would be
potential targets for improved monitoring, reporting,
and implementing quantifiable measures and policies Country-specific opportunities
that can be systematically monitored through an for NCS are emerging in NDCs
adaptive approach.
Policy readiness for NCS investment is dependent
As with all countries, engagement with the private upon a number of conditions within the countries and
sector is also essential in meeting NDC targets. Each institutions. First and foremost, climate solutions must
member state has some mix of public and private be prioritised within the country’s NDCs. This would
partnerships on climate change action. However, include quantified NDC targets for natural climate
this can vary significantly in the capacity and country solutions. Second, clearly articulated support for
readiness for NCS investment. The Philippines and market-based approaches need to be a significant
Indonesia, for example, are supporting their financial component of assessing policy readiness. Placing a
capacity by creating private sector partnerships direct connection within the country’s NDCs to state
specifically to enhance and accelerate natural climate the country’s intentions to utilise markets is a suitable
solution investments. Both are also in the process of step in this direction. For example, the country could
developing carbon pricing regulations to accelerate advance their carbon trading deals (e.g. Article 6
climate actions in support of their NDC goals. pilot projects). Third, technical progress on NCS
Additionally, Thailand has a voluntary emissions trading implementation is also an indicator of policy readiness.
scheme (ETS) already in place. Vietnam, on the other This includes fulfilling the four technical steps of
hand, delves deeper into preparing for private sector REDD+. Finally, there are opportunities or progress
engagement by developing full plans and financial made in developing domestic NCS incentives such as
pathways for investment, conducting in-country legal carbon pricing.
review for corporate climate action and by establishing
a technology-transfer platform. Vietnam is also in the Table 5 on the following page includes an
process of developing a roadmap for the development individual country-level analysis evaluating
of a domestic carbon credit market. the most critical policies for NCS investment,
including opportunities for policy engagement
In 2017, Member States of ASEAN “agreed to explore in each country to facilitate NCS investment.
the possibility of developing a harmonised approach
Table 5: Country-level policy insights and opportunities for scaling NCS
Country National Policy Insights & Opportunities for Scaling NCS
Cambodia NDC: Cambodia’s NDC recognises the critical role of NCS including a conditional goal to increase
forest cover to 60% of national land area by 2030. However, technology and financial resources are
a key constraint to implementation.
Opportunity: Invest in NCS actions to contribute towards achieving NDC targets. Engage with
the government in enhancing NCS ambition in a revised NDC and formulating an actionable
NDC implementation plan that leverages and incentivises private sector action.
REDD+: Cambodia has fulfilled all of its REDD+ readiness requirements under the Warsaw
Framework for REDD+ and made significant progress developing national REDD+ nesting
provisions.
Opportunity: Invest in REDD+ activities. Assist in the finalisation of Cambodia’s REDD+ nesting
approach through technical and/or financial support. Replicate Cambodia’s REDD+ nesting
model (under development) in other countries to facilitate private sector investment in site-scale
implementation with full recognition by the national government.
Carbon pricing: Carbon markets and carbon pricing could be an option for increasing investment in
NCS but political support system will need to be built.
Opportunity: Engage with the government on the potential for carbon pricing mechanisms to
support achieving national climate goals. Provide technical recommendations and support
capacity building efforts.
Indonesia NDC: As evidenced by their NDC and relevant policies, Indonesia views NCS as a clear national
priority for implementation and finance. A revised NDC has been developed and is waiting for
Presidential approval.
Opportunity: Invest in NCS actions to contribute toward achieving NDC targets. Engage with
the government in formulating an actionable NDC implementation plan that leverages and
incentivises private sector action.
REDD+: The update process for the REDD+ Forest Reference Emission Level (FREL) currently
underway presents an opportunity for defining the government’s approach for allocating REDD+
results or payments between the national and subnational government and other actors involved
in delivering the results. It is also an opportunity for the government to define its process for
recognising existing site-scale REDD+ projects under the national REDD+ program (known as
REDD+ nesting).
Opportunity: Invest in REDD+ activities. Assist in the finalisation of Indonesia’s REDD+ nesting
approach through technical and/or financial support.
Carbon pricing: The formulation and finalisation of the Instrument of Carbon Economic Value
regulation is an important opportunity to incorporate and incentivise natural climate solutions within
the carbon pricing scheme.
Opportunity: Engage with the government on the finalisation of national carbon pricing
mechanisms, ensuring strong incentive signals for NCS.

Malaysia NDC: Malaysia’s NDC includes NCS actions and is supported by a comprehensive legal and policy
framework to facilitate its implementation, particularly in the forest sector.
Opportunity: Invest in NCS actions to contribute towards achieving NDC targets. Engage with
the government in enhancing NCS ambition in a revised NDC and formulating an actionable
NDC implementation plan that leverages and incentivises private sector action.
REDD+: The recent update of the REDD+ FREL (2019) can help facilitate implementation of
sustainable forest management and forest/mangroves conservation. Malaysia is well positioned
to access Green Climate Fund Results-based Payments. ICAO and other international market
instruments could play a critical role in supporting REDD+ efforts in Malaysia.
Opportunity: Invest in REDD+ activities. Support the development of REDD+ nesting approaches
through technical and/or financial support.
Carbon pricing: Building on existing energy-related incentives and tax policy, there is an opportunity
to work on comprehensive green fiscal reform and generate additional funding sources for natural
climate solutions.
Opportunity: Engage with the government on the potential for carbon pricing mechanisms
to support achieving national climate goals. Provide technical recommendations and support
Myanmar NDC: Given Myanmar’s financial constraints as described in their NDC, additional resources will
be needed to deliver its forest sector mitigation targets. Public-private partnerships or innovative
finance mechanisms could potentially be explored as part of fulfilling its nature-based targets.
Opportunity: Invest in NCS actions to contribute toward achieving NDC targets; Engage with the
government in enhancing NCS ambition in a revised NDC and formulating an actionable NDC
implementation plan that leverages and incentivises private sector action.
Carbon pricing: No carbon pricing mechanism has been established in Myanmar, although there is
potential to use national climate solutions in the country due to its vast natural forests.
Phillippines REDD+: The Philippines has already started piloting forestry projects with the private sector and
there is potential for private sector investment. Further research would be required to analyse the
future potential for investment in REDD+ or blue carbon activities in the country.
Opportunity: Invest in REDD+ activities; support the development of REDD+ nesting approaches
Carbon pricing: The current formulation of a national cap-and-trade present an opportunity

for incorporating NCS. Depending on the design of the system, one avenue for incentivising
investments in NCS would be to allow covered entities to purchase NCS offsets as a means to
lower the civil penalty should the company be unable to meet its annual target through direct
emission reduction activities. As the Bill is currently under development, now is the opportune time
to engage. Further work would be required to assure the proper inclusion of nature in the specific
regulations to be issued 60 days after the bill is approved.
Opportunity: Engage with the government on the finalisation of national carbon pricing
Singapore Carbon pricing: The upcoming review of Singapore’s carbon tax rate by 2023 may lead to the
expansion of the carbon tax and/or transitioning the tax into an ETS. This review process is an
important opportunity to incorporate nature as part of the national carbon pricing program. For
example, the government could direct carbon tax revenues to defined conservation activities, a
company could be allowed to reduce its tax burden by purchasing nature-based offsets and/or
nature-based offsets could be eligible as part of an ETS. Given the limited potential for domestic
NCS, these offsets may need to come from international sources.
Opportunity: Engage with the government on the revision of the national carbon pricing
NCS Investments: Singapore could also prioritise NCS in its international investments. For example,
Singapore could adopt an ecological redlining policy to ensure that ecosystem health and carbon
potential are considered in its investment decisions.
Opportunity: Establish a carbon services and sustainable financing hub to facilitate carbon
projects and capture green finance flows in the region.

Thailand NDC: The Paris Agreement calls for revised or recommunicated NDCs in 2020, providing an
opportunity for Thailand to demonstrate enhanced ambition by revising its NDC to include the
LULUCF sector and natural climate solutions in their quantitative targets, building on other relevant
national legislation.
Opportunity: Engage with the government in incorporating NCS ambition in a revised NDC and
formulating an actionable NDC implementation plan that leverages and incentivises private
sector action. Invest in NCS actions to contribute toward achieving NDC targets.
Carbon pricing: As evidenced by their NDC and development of the Thailand Voluntary Emission
Trading Scheme, Thailand views market-based instruments as a clear national priority and key to
achieving its NDC.
REDD+: The completion and implementation of Thailand’s REDD+ Strategy is needed to generate
nature-based credits to contribute to the domestic carbon market.
Opportunity: Support the finalisation of Thailand’s national REDD+ program as well as the
development of REDD+ nesting approaches through technical and/or financial support.
Vietnam REDD+: Vietnam has already complied with all the requirements under the Warsaw Framework
to be eligible for results-based payments from REDD+ (e.g. from the Green Climate Fund, bilateral
deals) and has prioritised the forestry sector within its NDC. Therefore, there could be potential
to work on carbon credits from the forestry sector in this country. To be most attractive to private
sector donors and to be eligible under CORSIA, these REDD+ units would need to be third-party
verified by a credible greenhouse gas standard. The methodologies for these standards (e.g., Verra,
Architecture for REDD+ Transactions Environmental Excellence Standard (ART TREES), FCPF) build
on the Warsaw Framework requirements, however, some standards have additional requirements
to what was agreed by countries under the UN (e.g. the third-party standards may have more
prescriptive safeguards, specific approaches for addressing risk of reversals, etc.).
Opportunity: Invest in REDD+ activities. Support the development of REDD+ nesting approaches
Carbon pricing: In Vietnam, there is a proposal to develop a domestic carbon market. Since the draft
Law and Decree still needs to undergo a review and approval process, the Ministry of Environment
could consider NCS when they draft the roadmap mandated under these legal instruments.
Another potential area for inclusion of NCS is the ETS for the energy sector and the carbon market
mechanism for the waste sector. If these pilot projects are still taking place it could be an interesting
opportunity to explore the inclusion of nature as offsets or potential source of credits.
Opportunity: Engage with the government on the development of national carbon pricing
© TORY READ
VII
CONCLUSION AND CALL-TO-

ACTION ON NCS INITIATIVES
IN SOUTHEAST ASIA
There is a strong imperative to scale up NCS, and the • Strategic alignment considerations include how NCS
private sector has a critical role to play. Be it stimulating links to financial performance and integration into
investment, advocating for policy development, corporate emissions reduction strategies.
creating financial partnerships to de-risk NCS
• Return on investment for mitigation technologies
projects, or advancing technologies to support project
have many dimensions, including capital
implementation and monitoring, companies have
expenditures, project establishment costs, time
a myriad of options to support the global transition
horizon, among others. NCS pathways are often
towards a low-carbon economy. A lot is at stake:
unique in their ability to simultaneously provide
figures highlighting NCS’ annual mitigation potential
biodiversity benefits, climate resilience, and climate
of 10-12 GtCO2, as well as the land use sector’s annual
adaptation benefits through a single project.
emissions of 12 Gt CO2e over the last decade, are a
reminder that nature represents a massive immediate • Non-carbon benefits include the social, economic,
climate opportunity – and a dangerous climate risk and environmental outcomes that projects may
if current trends continue (United Nations Global generate – such as income generation for local
Compact, 2020). communities, and other ecosystem services like
flood prevention.
When evaluating opportunities to invest in mitigation
technologies, companies should consider how the • Geographic relevance will be defined by each
options align with their climate action strategies, company’s operations and supply chain locations.
what the total return-on-investment the options offers For the Southeast Asia region, however, there are
(including financial, carbon, and non-carbon benefits), broad trends that will be relevant to most businesses
and the geographic relevance of the investment. To and investors in the region. These include potential
summarise key takeaways: forest risk, company ambition, and existing action.

advancing NCS. In Southeast Asia, the ASEAN member
states need to make significant and swift progress
if their NDC goals are to be met and their NCS
potential fully realised. Currently, the region lacks the
institutional, technological, financial and governance
capacities to achieve their NDCs. Furthermore, the
only ASEAN country currently with an established
compliance carbon pricing system is Singapore. For
© TORY READ
countries that have higher institutional and technical

capacity, ASEAN countries should institute carbon
pricing mechanisms – which presents an opportunity
The relative attractiveness of NCS opportunities will for incorporating NCS – through taxes, or quantity
depend on risk-return expectations, time horizon and controls that have tradeable emissions permits (Paltsev
other investor objectives and attributes. NCS and other et al., 2018). Depending on the type and design of
technologies are not mutually exclusive – both have the carbon pricing instrument, it may be appropriate
important roles in addressing the climate crisis. NCS, to include land as a “covered sector”, allowing for
while currently underrepresented in many companies’ offsets from NCS under an ETS, reducing one’s tax
mitigation portfolios, can often prove more aligned with burden under a carbon tax, and/or use tax revenues
companies’ climate strategy as well as their broader toward conservation efforts. For those countries that
sustainable or responsible business priorities than do not have adequate institutional capacities, they
typically assumed. are recommended to focus initially on technology-
specific policies. Creating a “Regionally Determined
In Southeast Asia, both the widespread existence of Contribution” (RDC) for ASEAN member states could
carbon potential and favourable demand projections encourage additional participation to accelerate the
suggest a strong market opportunity for investing implementation and achievement countries’ NDCs.
in NCS project origination. Whenever NCS aligns Given the impact that government climate policy
with their broader corporate climate strategies, and carbon market structures can have on their NCS
companies are encouraged to take a more active role operations, companies should be mindful of these
in supporting upfront project design and origination recommendations in their engagement with the
costs, in order to capture higher ROI opportunities, government and advocacy for NCS.
take advantage of new technologies to validate
emissions reductions, and support the development The cost of inaction on climate change on future
of a robust carbon pipeline in the region, which generations and economies is far too great to ignore.
will further encourage NCS carbon investments. Businesses have a menu of pathways from which to
Companies should commit to purchasing high-quality design an investment strategy to support a climate-
carbon credits (as defined in Box 5), providing fair, resilient and sustainable economy while using their
equitable prices that cover the costs of generating, unique financial, operational, and social capacities.
monitoring and verifying high value carbon credits Many of these pathways have been pioneered by
through an approach that provides fair incentives communities, governments, and fellow peers in the
and rewards to all rightsholders and stakeholders private sector – and are ready to scale. Now, as the
through an agreed benefit sharing plan developed in a world stands on a precipice, it is up to businesses to
participatory and transparent manner. demonstrate leadership and realise the full potential
of NCS – because the road to sustainability is not just
Yet, companies’ actions do not take place in a vacuum. a moral one, but a profitable one as well. As described
The presence – or absence – of a supportive policy in a popular proverb, “the best time to plant a tree was
environment can make or break companies’ efforts in 20 years ago. The next best time is now.”
VIII. GLOSSARY
Additionality: Additionality is an essential criterion Carbon Credit: One carbon credit is equivalent
for credits in all standards and schemes. A credit is to one tonne of carbon dioxide (or carbon dioxide
considered additional if the emissions reduction that comparable gas).
underpins the credit would not have occurred in the
absence of the activity that generates the credit (the Carbon Market: Carbon markets aim to reduce
business-as-usual scenario) (The World Bank, 2018) GHGs emissions cost-effectively by setting limits
on emissions and enabling the trading of emission
American Carbon Registry (ACR): The American units, which are instruments representing emission
Carbon Registry (ACR) was founded in 1996 as the reductions (UNDP, 2020).
GHG Registry, the first private voluntary GHG registry in
the USA, by the environmental non-profit organization Carbon Offsetting and Reduction Scheme for
Environmental Resources Trust (ERT). In 2007, ERT International Aviation (CORSIA): CORSIA was created
and its registry became part of Winrock International, by the International Civil Aviation Organization (ICAO)
a non-profit based in the USA. The American Carbon and formally adopted in 2016. It is an emissions trading
Registry Standard outlines the eligibility requirements scheme for the global airline industry.
for registration of project-based carbon offsets, and
includes requirements for methodology approval, Carbon Pricing: The World Bank defines “carbon
project validation and verification, and other procedural pricing” as the variety of initiatives that put an explicit
requirements and information on the general use price on GHG emissions expressed in a monetary unit
of the American Carbon Registry (American Carbon per tCO2e (World Bank Group, 2020).
Registry, 2019).
Carbon Prospecting: The activity of discovering the
BioCarbon Fund: The BioCarbon Fund is a public- highest potentiality of carbon-rich areas through
private sector initiative managed by the World Bank science-based methodologies.
and supports projects that generate multiple revenue
streams, combining financial returns from the sale of Clean Development Mechanism (CDM): As defined
emission reductions (i.e., carbon credits) with increased by the Kyoto Protocol (Annex B Party), a Clean
local incomes and other indirect benefits from Development Mechanism “allows a country with an
sustainable land management practices (BioCarbon emission-reduction or emission-limitation commitment
Fund, 2017). to implement an emissions-reduction project in a
developing country” to offset their own emissions
Blue Carbon: Blue carbon refers to the carbon (UNFCCC, 2020c).
captured by the world’s ocean and coastal resources.
This includes, inter alia, mangroves and seagrasses. Climate Action Reserve (CAR): CAR is a North
American offset program and verification standard
Business-as-Usual (BAU) Scenarios: Business-as- that focuses on ensuring transparency and integrity of
usual or BAU scenarios have long been considered GHGs emissions reductions projects, particularly in the
an essential point of reference in policymaking, U.S. carbon market.
planning and investment – a baseline to compare
alternative scenarios, or a starting point for analysis of
a system. (Grantham Institute, 2017)

Co-benefits: Co-benefits are a win-win strategy aimed Energy Efficiency Existing Ship Index (EEXI): EEXI
at capturing both development and climate benefits is a mandatory technical and operational procedure
in a single policy or measure (Miyatsuka & Zusman, protocol created by the International Maritime
2009). With natural climate solutions, examples of co- Organization to improve the overall energy efficiency
benefits would include, inter alia, greater ecosystem of ships to reduce overall GHG emissions in the
resilience, increase in biodiversity, and local and shipping transportation sector. This would require
regional economic opportunities. ships to meet energy efficiency objectives, as well as
mandatory power limitations for ships (IMO, 2019).
Compliance Carbon Markets: Compliance carbon
markets are marketplaces through which regulated Green Climate Fund (GCF): At COP 16 held in
entities obtain and surrender emissions permits Cancun, the Parties agreed to decision 1/CP.16 which
(allowances) or offsets in order to meet predetermined established the GCF. Under Article 11, the GCF was
regulatory targets. In the case of cap-and-trade established the operating financial mechanism of the
programs, participants – often including both emitters Convention. It works under the guidance of the COP to
and financial intermediaries – are allowed to trade assist countries in decarbonisation (UNFCCC, 2020b).
allowances in order to make a profit from unused
allowances or to meet regulatory requirements (Forest Greenhouse Gases (GHG): Greenhouse gas is any gas
Trends, 2020). that has the property of absorbing infrared radiation
(net heat energy) emitted from Earth's surface and
Decarbonisation: Decarbonisation refers reradiating it back to Earth's surface, thus contributing
to reduction of carbon through projects, to the greenhouse effect. Carbon dioxide, methane,
technologies, or mitigation practices. and water vapour are the most important greenhouse
gases (Mann, 2020).
Development Financial Institutions (DFI): DFI are
specialized development banks or subsidiaries set up Insetting (of carbon): Carbon insetting is very similar
to support private sector development in developing to carbon offsetting, except the activities that lead to
countries. They are usually majority-owned by carbon footprint reduction take place within the context
national governments and source their capital from of the value chain. It is about businesses investing in
national or international development funds or benefit the ecosystems their suppliers depend on to increase
from government guarantees. This ensures their their resiliency and provide significant, measurable
creditworthiness, which enables them to raise large benefits to communities surrounding the value chain.
amounts of money on international capital markets (Native Energy, 2018).
and provide financing on very competitive terms
(OECD, 2020a). Internal Carbon Taxes: An internal carbon fee is a
monetary value on each ton of carbon emissions,
Electric Vehicles (EVs): EVs are vehicles that only run which is readily understandable throughout the
on electricity. There are three main types of EVs which organization. The fee creates a dedicated revenue or
are classed by the degree they rely on electricity as investment stream to fund the company’s emissions
their main source. reduction efforts. The observed price range for
companies using an internal carbon fee is from $5-$20
Emissions Abatement: “Abatement” is another term for per metric ton. (C2ES, 2017).
“reduction” (of emissions).
International Maritime Organization (IMO): IMO is the
Emissions Trading Systems (ETS): Also known as United Nations specialised agency with responsibility
“environmental taxation” is one of the most efficient for the safety and security of shipping and the
(i.e. cheapest) and effective ways at reducing GHG prevention of marine pollution by ships (IMO, 2020).
emissions (OECD, 2020b).
Kyoto Protocol: The Kyoto Protocol was adopted on Nationally Determined Contributions (NDCs): NDCs
11 December 1997. The Kyoto Protocol operationalises are at the heart of the Paris Agreement and the
the UNFCCC by committing industrialized countries achievement of these long-term goals. NDCs embody
and economies in transition to limit and reduce GHG efforts by each country to reduce national emissions
emissions in accordance with agreed individual and adapt to the impacts of climate change. The Paris
targets” (UNFCCC, 2020d). Agreement (Article 4, paragraph 2) requires each Party
to prepare, communicate and maintain successive NDC
Leakage: Leakage is the unintended increase in GHG that it intends to achieve. Parties shall pursue domestic
emissions caused by a project”; i.e. the avoidance of mitigation measures, with the aim of achieving the
deforestation in one area leads to deforestation and/or objectives of such contributions (United Nations
degradation in another area (Gillenwater, 2012). Framework Convention on Climate Change, 2020).
Mitigation Pathways: Mitigation is the process of Natural Climate Solutions: Natural Climate Solutions
reducing emissions or enhancing sinks of GHG so as are the conservation, restoration, and/or improved land
to limit future climate change. Both adaptation and management actions that increase carbon storage
mitigation can reduce and manage the risks of climate and/or avoid GHG emissions across global forests,
change impacts (IPCC, 2014). wetlands, grasslands, and agricultural lands (Griscom
et al., 2017).
Mitigation Technologies: Mitigation technologies
are technological adaptations that assist in the Net zero: Net zero emissions are achieved when
decarbonisation within the industry and supply anthropogenic emissions of GHG to the atmosphere
chain setting. are balanced by anthropogenic removals over a
specified period. Where multiple greenhouse gases
Paris Agreement: The Paris Agreement’s central aim are involved, the quantification of net zero emissions
is to strengthen the global response to the threat depends on the climate metric chosen to compare
of climate change by keeping a global temperature emissions of different gases (such as global warming
rise this century well below 2 degrees Celsius above potential, global temperature change potential, and
pre-industrial levels and to pursue efforts to limit the others, as well as the chosen time horizon) (IPCC, 2018).
temperature increase even further to 1.5 degrees
Celsius (UNFCCC, 2020e). Offset Mechanisms: A GHG or carbon offset is a unit
of carbon dioxide-equivalent (CO2e) that is reduced,
• Article 6: Under Article 6 of the Paris Climate
avoided, or sequestered to compensate for emissions
Agreement, countries have agreed to establish
occurring elsewhere. These offset credits, measured
a new global carbon market to assist individual
in tons, are an alternative to direct reductions for
countries in decarbonising their economies.
meeting GHG targets in a cap-and-trade system. In
some systems, regulated facilities can buy offset
Permanence: Permanence is the likelihood of
credits from projects located in sectors or countries not
carbon mitigation projects to permanently “lock-in”
legally required to reduce their emissions. The cost of
the carbon in order to avoid the reversibility of
meeting the GHG reduction targets of a cap-and-trade
emissions reductions.
program can be reduced by buying offsets in cases
Plan Vivo: The Plan Vivo Standard certifies the where reducing GHG emissions at uncapped facilities
implementation of project activities that enhance or sectors is less costly than at capped sources. Many
ecosystem services and allow communities to businesses and organizations currently buy GHG
formally recognise and quantify carbon sequestration, offsets to help meet voluntary commitments to reduce
biodiversity or watershed protection (Plan Vivo, 2020). their GHG emissions (Goodward & Kelly, 2010).

REDD+ (Reducing Emissions from Deforestation of the Paris Agreement – to limit global warming
and Forest Degradation): The aim of REDD+ is to to well-below 2°C above pre-industrial levels and
encourage developing countries to contribute to pursue efforts to limit warming to 1.5°C (Science Based
climate change mitigation efforts by: i) reducing GHG Targets, 2020a).
emissions by slowing, halting and reversing forest loss
and degradation; and ii) increasing removal of GHGs SME: A non-subsidiary, independent company that
from the earth’s atmosphere through the conservation, employs fewer than 500 employees
management and expansion of forests (FAO, 2020).
United Nations Framework Convention on Climate
Reduced-Impact Logging for Climate (RIL-C): RIL-C Change (UNFCCC): The United Nations Framework
is proposed as a way to maintain timber production Convention on Climate Change has near universal
while minimizing forest damage (Ellis et al., 2019). membership (197 Parties) and is the parent treaty
RIL-C techniques include reducing wood waste, more of the 2015 Paris Agreement, as well as the 1997
care in the direction of felling, the building of fewer Kyoto Protocol. The ultimate objective of all three
and narrower access roads, the mapping-out of skid agreements under the UNFCCC is to stabilize
routes, and the use of specialist forestry equipment greenhouse gas concentrations in the atmosphere at
such as winches instead of bulldozers (The Nature a level that will prevent dangerous human interference
Conservancy, 2020). with the climate system, in a time frame which allows
ecosystems to adapt naturally and enables sustainable
Results-Based Climate Finance (RBCF): Results-Based development (UNFCCC, 2020a).
Climate Finance (RBCF) is a financing modality under
which funds are disbursed by an investor or donor to Units of Carbon Measurement:
a recipient upon the achievement of a pre-agreed set
• Carbon (C): An organic chemical element. When
of results, with achievement of these results being
burned, carbon dioxide can be produced.
subject to independent verification. Results-Based
Climate Financing (RBCF) can therefore be understood • Carbon Dioxide (CO2 ): A greenhouse gas
as RBF provided specifically for climate mitigation or produced by burning carbon.
adaptation results (World Bank Group: Frankfurt School
of Finance and Management, 2017). • Metric ton of Carbon: One metric ton is equal to
approximately 2,205 pounds.
Safe Operating Space: 'Planetary boundaries' are
• Teragrams of Carbon (TgC): Equivalent to 1 million
boundaries that define the safe operating space for
metric tons of C.
humanity with respect to the Earth system and are
associated with the planet's biophysical subsystems • Megatons of Carbon (MgtC): Equivalent to
or processes. Identifying and quantifying planetary 1 million tons of C.
boundaries that must not be transgressed could help
prevent human activities from causing unacceptable • Gigatons of Carbon (GtC): Equivalent to 1 billion
environmental change (Rockström et al., 2009). metric tons of C.
Science-Based Targets: Science-based targets VERRA: Verra was a founding member of the Initiative
provide companies with a clearly defined pathway to for Climate Action Transparency (ICAT). Verra’s
future-proof growth by specifying how much and how standards and frameworks vet environmental and
quickly they need to reduce their greenhouse gas sustainable development efforts, build their capacity
emissions. Targets adopted by companies to reduce and drive large-scale investment to them to sustain
greenhouse gas (GHG) emissions are considered and scale up their benefits. Verra now serves as a
“science-based” if they are in line with what the latest secretariat for the various standards they develop and
climate science says is necessary to meet the goals programs they manage (Verra, 2020c).
VERRA Verified Carbon Standards (VCS): The
VERRA Verified Carbon Standards work to ensure
the credibility of emission reduction projects. Once
projects have been certified against the VCS Program’s
rigorous set of rules and requirements, project
developers can be issued tradable GHG credits that
are called Verified Carbon Units (VCUs). Those VCUs
can then be sold on the open market and retired by
individuals and companies as a means to offset their
own emissions (Verra, 2020b).
VERRA Jurisdictional and Nested REDD+ (JNR):

JNR is a global, jurisdiction-level REDD+ framework
rigorous enough to meet the needs of market-based
mechanisms around the world, such as the Carbon
Offsetting and Reduction Scheme for International
Aviation (CORSIA) of the ICAO. JNR was specifically
designed to facilitate private investment in REDD+ at
multiple scales and is therefore well-aligned with the
Paris Agreement’s objectives of engaging the private
sector, while linking to national efforts, as well as
providing emission reductions to emerging compliance
and voluntary markets (Verra, 2020a).
World Bank Forest Carbon Partnership Facility

(FCPF): The Forest Carbon Partnership Facility (FCPF)
is a global partnership of governments, businesses,
civil society, and Indigenous Peoples focused on
reducing emissions from deforestation and forest
degradation, forest carbon stock conservation,
the sustainable management of forests, and the
enhancement of forest carbon stocks in developing
countries, activities commonly referred to as REDD+.
Launched in 2008, the FCPF now works with 47
developing countries across Africa, Asia, and Latin
America and the Caribbean, along with 17 donors that
have made contributions and commitments totalling
$1.3 billion. (Forest Carbon Partnership Facility, 2020).

IX. ANNEX
A. NCS’ Carbon Potential
The figure below displays the range of potential mitigation that can be achieved through various pathways. Technical
potential refers to what is possible with current technologies, economic is what is potential mitigation with economic
constraints, and sustainable potential is either technical or economic potential constrained by sustainability issues.
SUPPLY-SIDE MEASURES (LAND MANAGEMENT)
Land-use and land-cover change 0.55–8.17

(deforestation + wetlands + savannas)
Reduce deforestation 18,19,45,46,54,67–71 0.41–5.80
Reduce forest degradation 68,70,72 1–2.18

18,39,45
Reduce conversion, draining, burning of peatlands 0.45–1.22
Reduce conversion of coastal wetlands 0.11–2.25

(mangroves, seagrass and marshes) 18,40,45,73
Reduce conversion of savannas, 0.03–0.12

and natural grasslands 18
Carbon dioxide removal (CDR) 1.11–22.71

(A/R + coastal wetland + SCS + biochar)
(A/R + coastal wetland + SCS + biochar + BECCS)
1.51–36.52 11.31
Afforestation/reforestation (A/R) 17,18,31,45,46,65,69,74–78 0.50–10.12
Forest management 18,79,80 15.57

0.44–2.10
Agroforestry15,18,45,81 0.11–5.68
18,82
Peatland restoration 0.15–0.81
18
Coastal wetland restoration 0.20–0.84
15,16,18,44,45,62,83–87
Soil carbon sequestration in croplands 0.25–6.78
16,18,43–45,65,83,85,87–90 0.13–2.56
Soil carbon sequestration in grazing lands
Biochar application 15,17,18,43–45,74,75,91–94 0.03–4.91

0.40–11.3
17,35,65,74,75,93,95
BECCS deployment
16.1
Agriculture 0.30–3.38
( + all categories)
Cropland nutrient management N 2O 15,18,44,45,96 0.03–0.71
Reduced N 2O from manure on pasture 97

0.01
Manure management N 2O and CH 415,62 0.01–0.26

Technical potential
Improved rice cultivation CH 415,18,44,45,96,98 0.08–0.87 Economic potential
Sustainable potential
Reduced enteric fermentation CH 415,18,62,99 Land-sector roadmap
0.12–1.18
Median
Improved synthetic fertilizer production15,100 Intermodel range 1.5 °C
0.05–0.36
Intermodel range 2 °C
0 2 4 6 8 10
Mitigation potential (GtCO 2e yr–1 )
(Roe et al., 2019)
B. Supplemental Notes to Model NCS Cases
GENERAL ASSUMPTIONS
Choice of Carbon Crediting Scheme

For all pathways, we assume that representative projects are agriculture, forestry and other land use (AFOLU)
projects pursuing certification under both the VCS and the Climate, Community, and Biodiversity (CCB) Standards
and are thus eligible for issuance of VCUs tagged with a CCB label.
The majority of voluntary carbon market issuances are under VCS certification programs. The CCB label, which certifies
the project possessing biodiversity, community and climate benefits, is a market accepted proxy for high quality credits.
Informed by our experience carbon credits from AFOLU this combination is preferred by the voluntary market.
Carbon Voluntary Market Prices

For all pathways, we use reference voluntary market carbon prices from recent CI projects which are, in most cases,
above the global median prices reported by Ecosystem Marketplace in its most recent voluntary market trends
report (see below).
Ecosystem Marketplace: Selected Voluntary Market Price Trends

(in USD$)
Category Unit 2018 2017 2016 CAGR

Forestry & Land Use (All) USD$ tCO2e $ 3.20 $ 3.40 $ 5.10 -20.79%
REDD+ USD$ tCO2e $ 2.35 $ - $ 4.40 -26.92%
Reforestation (A/R) USD$ tCO2e $ 5.70 $ - $ 8.10 -16.11%
Improved Forest Management (IFM) USD$ tCO2e $ 8.15 $ 9.32 $ - -12.55%
Labeling Scheme
VCS + CCB USD$ tCO2e $ 2.49 $ - $ 3.90 -20.10%
VCS Alone USD$ tCO2e $ 2.70 $ - $ 2.30 8.35%
(Forest Trends, 2019b)
Project Ownership; Land Tenure

For all pathways, we presume project sponsors currently possess or have secured necessary legal authority and
rights to develop, implement and manage underlying land interests prior to the project start date. Due to the
considerable variation in land tenure arrangements, our analysis does not contemplate the costs associated with the
negotiation, purchase, acquisition, or leasing rights to project sites, with the exception of RIL-C in which forest rents
(in the form of royalties, taxes, and fees) are customarily included in financial performance calculations.
Rights to Verified Carbon Units

The VCS process requires that a project proponent be named in the project documentation. The project proponent
needs to have rights to develop and commercialize the tons.
Unit Conversion
In some cases, estimates of greenhouse gas emissions, and emissions reductions and removals were stated in units
that differed across case studies and publications. For purposes of this analysis, estimates presented in tons (tC),
megatons (MgtC), or gigatons of carbon (GtC) were converted to carbon dioxide (CO2 ) using the molecular ratio of
carbon dioxide to carbon (44/12)—i.e. 1tC = 3.67 tCO2. To enable comparison of emissions related data, all emissions

measures (including non-carbon dioxide greenhouse gases) are converted to metric tons of carbon dioxide
equivalent (tCO2e) using standardized Global Warming Potential (GWP) values (Greenhouse Gas Protocol, 2016).
Discounted Cash Flow Model

Estimated returns are calculated using traditional discounted cash flow (DCF) approaches and expressed using
the following DCF return metrics: internal rate of return (IRR), net present value (NPV). In addition, we presented
undiscounted return measures: payback period and multiple of invested capital (MOIC). Computed returns are
presented for the entire project period and for interim 10 and 20-year periods.
For return metrics which require specification of a discount rate, we have computed a model discount rate based
on an assumed project capitalization structure (debt and equity) and expected returns (financing costs) on debt and
equity using data derived from published Singapore prime bank lending rates and the sector-adjusted cost of equity
benchmark rates specified for CDM projects (UNFCCC, 2017).
REDUCED EMISSIONS FROM DEFORESTATION AND DEGRADATION (REDD)
1. Introduction
REDD+ is a United Nations-backed framework that aims to curb climate change by stopping the destruction of
forests. REDD stands for "Reducing Emissions from Deforestation and forest Degradation”; the “+” signifies the role
of conservation, sustainable management of forests and enhancement of forest carbon stocks.
REDD+ helps countries value the carbon and ecosystem services their forests provide, and create financial
incentives to reduce deforestation (when forests are converted to other uses, such as agriculture); reduce
degradation (when forests lose their ability to provide ecosystems services); and promote sustainable management
(ensuring social, ecological and economic benefits for future generations).
Put simply, REDD+ is the framework through which countries, the private sector, multilateral funds and others can pay
countries to not cut down their forests. This can take the form of direct payments or can be in exchange for “carbon
credits,” which represent reductions in greenhouse gas emissions to compensate for emissions made somewhere
else. As countries are trying to meet their Paris Agreement targets, or nationally determined contributions, REDD+ is
an important NCS pathway that can help countries achieve their Paris goals and seek higher ambition in reductions.
2. Baseline Scenario: Unplanned Deforestation

A critical and initial element in designing a REDD+ program is to consider the underlying drivers for deforestation.
The causes for deforestation varies widely by region but broadly can be classified as Planned drivers of
deforestation (e.g. laying of a highway, or other infrastructure development) or unplanned deforestation that is,
projects which occur on currently forested lands where conversion to non-forest land use is not legally authorized—
and where the baseline agents of deforestation include clearing of land for settlements, and non-industrial, small-
scale crop production (agriculturalist) or ranchingxiii. Understanding the underlying driver of deforestation is key to
designing successful countermeasures to avoid deforestation in future. These measures can include inclusion of a
sustainable livelihoods components that disincentivises the communities need to deforest.
While REDD+ may encompass actions responsive to multiple natural climate solution pathways, we have narrowed
the scope of our analysis to focus representative projects that are intended to generate emissions reduction
benefits from the avoidance of unplanned deforestation in a specified project area. This is in line with the nature of
deforestation in Southeast Asia, which is illegal logging, small scale and subsistence agriculture.
3. Verified Carbon Standard Methodology; Project Eligibility
In addition to the foregoing, the following general assumptions concerning the representative project shall apply:
1) the analysis is being conducted at project-scale; and 2) the project is presumed to meet the basic eligibility
requirements specified in the VCS REDD+ Methodology Framework (VM0007), Version 1.5 (Verra, 2015a).
4. Project Spatial Boundaries

The model case assumes a hypothetical project in Cambodia encompassing 500,000 hectares (ha). The
representative project assumes that forest conservation efforts are already underway in the project area, and carbon
project development will be implemented. It is useful to note that several REDD+ carbon projects follow a similar
pathway, though not exclusively.
5. Project Temporal Boundaries

PROJECT START DATE
The project start date is 2020 (model t0 ) and represents the period from which project development and/or
establishment activities commence.
PROJECT DEVELOPMENT PERIOD
During the Project Development and/or establishment period, the project proponent conducts necessary technical
analysis, feasibility studies, and stakeholder engagement and prepares required project documentation to be
registered as an approved project. Depending on the extent of technical analysis and stakeholder consultations
required, the Project Development period can take between 1 to 3 years. For purposes of this analysis, this process
is assumed to take two (2) years.
IMPLEMENTATION PERIOD START
Project implementation is assumed to begin two (2) years from the Project Start Date and coincides with the start
of the project crediting period. Project Implementation is assumed to commence after submission and validation of
initial required project documentation.
PROJECT IMPLEMENTATION PERIOD (DURATION)
The Project Implementation Period duration is defined as the period during which project activities occur and credits
are generated. For purposes of the model case, we assume that the Project Implementation Period is thirty (30)
years from t2.
6. Carbon Crediting Assumptions

PROJECT CREDITING PERIOD
The period of time for which project emissions reductions and removals are eligible for crediting within the VCS
Program. Under the applicable VCS methodology, the project crediting period for REDD+ must be between 20 and
100 years. For the purposes of this analysis, the duration of this project is 30 years beginning in t2, as is common with
many projects of this type.
PERIOD OF FIRST CREDIT ISSUANCE
Registered projects can request for issuance of carbon credits upon submission of a verification report. The
verification involves an accredited third-party verification firm ensuring the project is being implemented as per plan
and approving the issuable carbon credits for the verification period. In some cases, the VCS protocol allows for

granting of retroactive credits when project has been protecting the area through conservation efforts prior
to actual carbon project start date. For purpose of this example, we assume that credits are issued upon
submission and acceptance by the crediting body of the verification report at Year 2 (period t2 ) and no
retroactive credits are considered.
CREDIT ISSUANCE INTERVAL
During the eligible crediting period, project proponents may elect to issue credits as-generated or on some
other issuance interval (but in any case, at least every 5 years). In each case depending on project carbon cash
flow requirements, CI has sometimes elected to issue credits every two years to reduce the frequency of project
verification (and thus verification costs). However, for purposes of this analysis, we assume that credits are issued on
an annual basis as-generated.
NON-PERMANENCE; BUFFER POOL ALLOCATION
Non-permanence risk involves the risk of losing the carbon stocks in the future which would make the already issued
credits without an underlying asset. The VCS protocol provides a non-permanence risk tool which determines the
percentage of issues credits that is required to be set-aside for non-permanence buffer requirement. This ranges
between 10-30% of each issuance. At the end of the crediting period, non-permanence risk is re-evaluated and
portion of the buffer may be released. For purposes of this analysis, we assume a buffer requirement of 15% held
indefinitely for project.
7. Carbon Price Assumptions

Within the voluntary markets, no standard price for carbon offsets exists. Offset prices depend on a host of factors,
including project type, location, project non-carbon attributes, volume transacted etc. For the case study, the project
is assumed to be a registered VCS REDD+ projects alongside CCB label, The CCB label provides quality assurance
that the project has met the Community, Climate and Biodiversity standards. REDD+ projects that qualify for VCS and
CCBA are considered high-quality projects and frequently command price premium and greater market access.
For purposes of this analysis, we identify an expected voluntary market credit price of US $7.50 tCO2e-1, which
pricing is consistent with sales of high-quality REDD+ credits marketed by CI. As noted elsewhere in this report,
nature-based carbon credits currently do not have a standard carbon reference price, although efforts are on to
design such products. Carbon price depends on a host of project specific factors including geography, project type,
co-benefits, vintage, transaction volume to name a few.
8. Carbon Transaction Costs

Transaction costs include VCS published fees and costs associated with VCU registration and issuance and CCB
labelling fees (Verra, 2018). In addition, we include brokerage fee assumptions which may apply for private issuers.
9. Emissions Abatement
In the REDD+ case, the primary drivers of estimated emissions reductions and removals are the project area and
project net deforestation rate. In general, the process of estimating emission reductions involves first estimating the
carbon stocks in the project area. This involves estimating the carbon density of various carbon pools in the forest
that are eligible for crediting. The second step entails a determination of the deforestation rate in the region and
the risk of non-permanence. Once these are factors are determined, the protocol allows for crediting the net carbon
from avoided deforestation, as result of conservation activities, minus the volume of credits set-aside to meet non-
permanence losses (buffer pool), any project emissions, and emission to account for leakage.
The potential for project-scale emissions reductions and removals are dependent on a range of regional, and
site-specific land use, land cover and other ecological factors as well as the specific protection, management, or
restoration practices being undertaken.
BASELINE FORESTED AREA
The Baseline Forested Area is assumed to be the baseline forested area at the start of the Project and is the same
as the Project Area (500,000 hectares).
BASELINE DEFORESTATION RATE
Baseline Deforestation Rates are derived from Global Forest Watch (https://globalforestwatch.org/). As described
earlier, the major cause of deforestation involves small scale clearings for the cultivation of crops, typically cash
crops, and illegal logging that is driven by a combination of poverty, socio-economic need, in-migration, and poorly
defined property rights, compounded to an extent by local population growth. The observed deforestation rate
primarily emanating from these drivers is 0.50%.
PROJECTED DEFORESTATION RATE
Projected deforestation rates for the first five (5) years and subsequent periods are estimated.
PROJECT EFFECTIVENESS
This is a measure of project implementation effectiveness. We factor in an effectiveness rate to the future projected
deforestation rate. This is a conservative way to model. The other approach is to assume 100% effectiveness, and
factor in leakage and project emissions every verification. For purposes of this analysis, we assume an effectiveness
rate of 50%. This suggests that the project interventions would be able to halt deforestation by half the estimated
rates. This is a conservative assumption.
AVERAGE CARBON STOCK
Data on average carbon stocks are derived from the REDD UNFCCC report entitled “Initial Forest Reference Level
for Cambodia under the UNFCCC Framework,” dated July 22, 2016 (UNFCCC, 2016).
10. Project Development; Establishment Costs

Development and/or establishment costs comprise of costs associated with development and approval of the
project as a registered carbon generating project as per the protocol. These costs typically include the following
categories, noting that not all categories will be applicable to all projects.

Table 6. Description of Common Establishment Costs for REDD+ Projects
Stakeholder These include costs associated with engaging and building capacity with stakeholders.
Consultation Process Stakeholder include local communities, indigenous people, private and public sector etc. Stake
holder consultation involves costs associated with detailed mapping of stakeholders and
engagement with them to ensure participation and consensus around project goals.
Under this category, activities such as Developing conservation agreements, obtaining Free
and Prior Informed Consent (FPIC), Community Mapping, Participatory appraisals, Socio
Economic Safeguards, Government Consultation, carbon project education are included.
Feasibility studies & Feasibility Studies: Costs associated with carbon rights, Biodiversity and Environmental
Technical Analysis safeguards assessment, Rapid economic assessment of project Viability.
Technical Analysis: Baseline Determination, GHG/Carbon stocks Assessment and ground

truthing (field measurements), Satellite imagery, Scenario modelling,
Methodology Costs associated with development of new methodology or refinement of existing

Development methodology. These costs are not required when an existing methodology is applicable to the
project.
Project Design Costs associated with PDD drafting. These costs vary subject to the quality of the technical
Document (PDD) analysis and stakeholder engagement work done. PDD’s requires detailed description of
program activities backed by robust data.
Project Validation These costs cover costs of project validation (Validator fee, travel and other related expenses).
The first verification is sometimes clubbed with project validation to reduce costs.
Development of Project monitoring plans including carbon biodiversity and Socio-Economic monitoring
Monitoring Plans
Institutional Capacity These costs include building capacity and knowledge in local institutions include items such as
Building Nesting Process, costs for policy changes, staff training etc.
Communications plan Development of communication material and other knowledge products
Development of Costs associated with developing gender rights strategy, Indigenous rights strategy, and health
Strategic Management and safety strategy.
Plans
Miscellaneous Costs Launch & other Promotional events.
Establishment costs especially those involving stakeholder consultation, institutional capacity building can be more
variable on costs and time required. This is because these involve building consensus and agreement with a diverse
group of stakeholders or involve change in policy and capacity with institutions which takes time.
11. Project Implementation Costs

Implementation costs involve the composite of costs associated with operating the project through its lifetime.
Table 7. Description of Common Implementation Costs for REDD+ Projects
Sustainable Livelihoods Sustainable livelihood costs, and specific component broken down as per individual projects.
This include alternate livelihoods such as bee keeping, agroforestry, Sustainable coffee, etc.
Protection Activities Enforcement & Patrolling, Policy changes, additional staffing,
Infrastructure and Rangers equipment, monitoring systems, associated maintenance costs

Equipment
Community Continuous training and workshops, consensus building

Engagement, activities etc., community life plan workshops
Capacity Building
Implementation of Biodiversity monitoring, social impact monitoring

Monitoring Plans
Management Plans Revision of management plans, costs for Adaptive management plans, community life plans
Restoration Restoration, planting, inputs etc., as per project activity, as defined by project requirements
Implementation
Activities
Communications On-going communications costs
Institutional Local and state government training, policy initiatives

Governance
Research Any research initiatives
For the model project, estimated implementation costs over the life of the project are US $58.425 million or an
average of US $1.885 million per annum. Estimated costs of sustainable livelihood activities comprise the largest
proportion of project implementation costs (53.1%) and reflect the critical need to invest in viable economic
alternatives to unsanctioned clearing of forests for small-scale agriculture and other activities that are identified as
key drivers of deforestation.
12. Project Verification Costs

These refer to the costs incurred with each verification event. The VCS protocols do not require verification every year
and provide the option to the project proponent to verify at least once in five (5) years. If market demand and other
constraints permit, bundling the verification for multiple years helps reduce overall costs associated with verification.
Once project is verified and the volumes of credits approved for the crediting period, the project proponent may
request the carbon standards program to issue the credits in an eligible electronic registry. The point of issuance
triggers an issuance fees for the carbon alongside any additional labelling fees.
Table 8. Description of Verification Costs
Technical costs Technical costs associated with project verification, classification of satellite imaging, mapping,
update of data bases and other technical analysis for Verification readiness
Verification Costs of project verification

13. Model Results & Discussion
PROJECT EMISSIONS ABATEMENT
Estimated project emissions abatement project over a 30-year crediting period are 14.2 million tCO2e (average
458,745 tCO2e yr-1) assuming a deforestation rate of 0.50% per annum and an effectiveness rate of 50% over the
project lifespan.
REQUIRED INVESTMENT & USE OF PROCEEDS
Estimated total financing requirements for the model REDD+ project are US $4.9 million, with a payback period of 7.3
years. Financing is primarily used to cover initial project preparation, validation and start-up costs incurred prior to the
generation and issuance of verified carbon credits.
Compared with the RIL-C and mangrove restoration cases included in this analysis, the REDD+ model case has the
lowest per-hectare financing requirements taking the total project area under consideration (~US $9 ha-1 versus US
$500 and US $1,253, respectively) indicating the relative cost effectiveness of implementing avoided deforestation
strategies, particularly in areas where protected area strategies are already in place.
EXPECTED CASH FLOWS
Income from the sale of verified carbon units are the sole source of project cash inflows considered in the model.
After adjustments for non-permanence risk (non-permanence buffer pool allocations), the estimated volume of
verified carbon units issued by the project totals 12.1 million, with an average of 389,900 credits issued annually.
For the purposes of this analysis, we assume that the first verification and issuance of credits occurs in early 2023,
with the first sale of credits occurring at the start of 2024 and subsequent verification, issuance and sales occurring
on an annual basis.
In practice, the timing and volume of credit issuance by CI varies and is generally based on forecasted next twelve-
month (NTM) cash requirements. Credits in excess of near-term project cash requirements are held in reserve to be
monetised in later years. This approach reduces recurring verification costs associated with credit issuances.
PERIOD CASH FLOW SUMMARY
Period: 0 1-10 11-20 21-32

Income
Carbon Sales - 22,405,350 29,997,314 38,256,779
Other Income - - - -
Total Income - 22,405,350 29,997,314 38,256,779
Carbon Project Development Costs 380,200 570,300 - -
Carbon Project Implementation Costs - 16,962,213 18,846,904 22,616,285
Carbon Project Verifcation Costs - 800,000 1,000,000 1,200,000
Carbon Transaction Costs - 904,316 1,093,760 1,326,104
Capital Expenditures - - - -
Other Costs - - - -
Total Project Costs 380,200 19,236,829 20,940,664 25,142,389
Project Net Cash Flows (380,200) 3,168,520 9,056,650 13,114,391
FORECASTED CASH FLOWS
7,000 30,000
6,000 25,000
5,000
20,000
4,000
15,000
3,000
USD$ (000s)
USD$ (000s)
2,000 10,000
1,000 5,000
-
-
(1,000)
(2,000) (5,000)
(3,000) (10,000)
0 5 10 15 20 25 30
Net Cash Flow Cum. Cash Flow
EXPECTED RETURNS
The model case assumes a base case voluntary market carbon price of US $7.50 which is consistent with voluntary
market REDD+ credit issuances for comparable CI transactions.xiv Based on the stated price and above-referenced
emissions abatement assumptions, the model REDD+ project is expected to generate an IRR of and NPVxv of 18.28%
and US $1.68 million, respectively, over the 30-year crediting period.
Compared with other NCS pathways evaluated as part of this analysis, the model REDD+ project is expected to
generate the greatest emissions abatement benefit per dollar of investment: 2.90 tCO2e US$ required investment -1
compared with .09 tCO2e and 0.41 tCO2e for RIL-C and mangrove restoration, respectively.
PROTECT: REDD+
Unit Model Value
Project Scale: hectares (ha.) 500,000
Carbon Price: USD$ tCO2e $ 7.50
Discount Rate: % 12.69%
INVESTMENT SUMMARY
Unit Model Value
Total Investment: USD$ $ 4,907,186
Total Capital Returned: USD$ $ 29,866,547
Payback Period: years 7.34
NPV Break-Even Price: USD$ tCO2e $ 6.90
SUMMARY RESULTS
10-yrs 20-yrs 32-yrs
Emissions Abatement: tCO2e-1 4,484,814 9,118,230 14,221,089
IRR % 10.24% 17.48% 18.28%
NPV USD$ $ (354,356) $ 1,186,007 $ 1,679,956

SENSITIVITY ANALYSIS
Because the sale of verified carbon credits is assumed to be the sole income source for the model REDD+ project,
expected project-level financial returns are highly sensitive to changes in voluntary market carbon prices.
Holding all other model assumptions constant, the project NPV break-even price is US $6.74 which, while still
significantly higher than values published in the most recent Ecosystem Marketplace voluntary market reports,
remains consistent with prices obtained for recent comparable voluntary market transactions managed by CI.
MANAGE: REDUCED IMPACT LOGGING FOR CLIMATE (RIL-C)
1. Introduction
Reduced-Impact Logging for Climate (RIL-C) refers to a subset of reduced-impact logging (RIL) practices that explicitly
focus on reduced carbon emissions from logging activities while maintaining or increasing long-term timber yields.
RIL-C is a component of ‘natural forest management,’ the second largest ‘manage’ natural climate solutions pathways
(Griscom et al., 2020).
We have selected RIL-C among the broader set of management-focused pathways, due to the comparatively low
costs (Ellis et al., 2019) and potential scale of emissions reduction associated with implementation of this strategy in
tropical regions (Sasaki et al., 2016).
RIL-C strategies may encompass a range of improved logging and harvest planning practices, including, but not
limited to, directional felling, improved log bucking (to permit greater recovery), improved harvest planning via pre-
harvest inventory, skid trail planning and/or monocable winching, and reductions in the width of haul roads and the
size of log landings.
For purposes of this analysis, we focus on the RIL-C practices as described in Griscom et al. (2019) that form the
basis of the applicable VCS methodology and potential emissions reductions (relative to CL) as follows:
FELLING
1. Avoided felling of trees from which no wood is extracted (including both felled tree and collateral damage; and
2. Improved bucking to maximize timber extraction per tree felled, allowing for a reduced total number of trees
harvested to deliver the same roundwood volume;
SKIDDING
Improved skidding practices to reduce mortality of non-commercial trees.
HAULING
Reduced haul road corridor widths and sizes of log landings.

We assume the representative project meets the general project eligibility requirements as described in the Verified
Carbon Standard Methodology for Improved Forest Management through Reduced Impact Logging (Verra, 2016).
3. Baseline Scenario
For RIL-C, the baseline (business-as-usual) scenario is represented by the baseline performance of conventional
logging (CL) operations within the subject project area. For purposes of this analysis, we apply a definition of
‘conventional logging’ as the unplanned and uncontrolled logging of all commercial species. The representative
project assumes a transition from conventional logging (CL) to reduced-impact logging (RIL).

In connection with the representative case, we assume the representative project is situated in Southeast Asia and
occurs within a legally designated production forest area. In defining the project spatial boundaries for assessing
both emissions reduction and economic activities, we distinguish between the total project, harvesting or logging,
and annual operating areas.
TOTAL PROJECT AREA
For purposes of this analysis, we define the Total Project Area as the area within the spatial boundaries specified in
the project owner’s authorized logging concession or permit. In our representative case, we assume that the Total
Project Area comprises 30,000 hectares (ha.).
NET HARVEST AREA
For both the RIL-C and CL scenarios, we assume that a certain proportion of the Total Project Area will remain
unlogged due to terrain or other operating restrictions or, particularly in the RIL-C case, set aside for conservation
purposes. For purposes of our model, we assume that the proportion of the Total Project Area available for logging—that
is, excluding unlogged areas is 75% and 90% for the RIL-C and CL scenarios, respectively (the “Net Harvest Area”).
HARVEST (LOGGING) BLOCKS
The Total Project Area is subdivided into a series of smaller harvest (logging) blocks. For purposes of this analysis,
we assume that for both the RIL-C and CL cases, the gross area of each harvest block is 1,000 hectares (ha.) and that
the Net Harvest Area assumptions described above apply to each block. Further, we assume that for both scenarios,
one (1) block is harvested annually. For the avoidance of doubt, forecasted periodic (annual) emissions reduction
calculations (and calculations of verified carbon unit issuances), timber harvests, and associated annual cash
revenues and costs are evaluated on a per-harvest block basis.

For both the RIL-C and CL scenarios, we have defined a project duration of 30 years which is generally consistent
with the term of production forest permits and/or concessions issued across Southeast Asian countries. For both the
RIL-C and CL scenarios, we assume a project start date at time period 0 (t0 ) and that field-based implementation of
RIL-C activities commence at period t1.

For the RIL-C case, we assume a project crediting period of up to thirty (30) years.
PERIOD OF FIRST ISSUANCE
We assume that the first issuance of credits occurs in period t2 (after completion of project development period).

For purposes of this analysis, we assume that verified credits generated by the model RIL-C project are sold at a
voluntary market price of US $ 9.50 tCO2e which is generally in-line with recent historical pricing for improved forest
management (IFM) credits.
8. Emissions Reduction & Carbon Benefit Assumptions

For purposes of this analysis, we incorporate estimates of potential emissions reductions for “Level 1” RIL-C
implementation as presented in Griscom et al. (2019) in our model. Level 1 emissions reduction estimates are defined
as the “best recorded emissions performance” for RIL-C practices (see below) based on field measurements in nine
logging concessions in dipterocarp forests in East and North Kalimantan, Indonesia. Emissions reductions under the
assumption of Level RIL-C performance are estimated to be 64.90 tCO2e ha-1 yr-1or a total of 1.46 million tCO2e over
the 30-year crediting period.
Implementation of comprehensive logging improvements defined by Griscom et al.(2019) as “Level 2” RIL-C

implementation, would result in increased emissions reductions, with estimated abatement levels of 88.62 tCO2e ha-1
yr-1 or 1.99 million tCO2e over the crediting horizon.
9. Forestry Assumptions: Cutting (Harvest) Cycle

In connection with this analysis, we reviewed information on cutting cycles as prescribed in policies, laws, and
regulations applicable to selective harvest from natural production forests in four (4) Southeast Asian member
countries (Cambodia, Indonesia, Malaysia, and Myanmar) of the International Tropical Timber Organization (ITTO),
an intergovernmental organization focused on promotion of sustainable management and conservation of tropical
forests and the expansion and diversification of international trade in tropical timber from sustainably managed and
legally harvested forests. In the sampled countries, minimum and maximum cutting cycles range from 25 to 35 years,
respectively, depending on forest type. In our model, we assume a cutting cycle of 30-years for both CL RIL-C which
tenor is within the range of prescribed cutting cycles in the region.
10. Forestry Assumptions: Harvest Blocks

The model assumes that a maximum of one (1) 1,000-hectare block is harvested annually under both the CL and
RIL-C scenarios.
11. Forestry Assumptions: Harvest Intensity and Yield

HARVEST INTENSITY
Within the applicable VCS methodology, RIL-C eligibility requirements prohibit intentional reductions in harvest
levels (projects are assumed to have a leakage of zero—i.e. no difference in harvest levels between the baseline and
project scenarios).
For purposes of this analysis, we use selected harvest intensity values (the proportion of harvested tree volume
per unit area) as a proxy for estimated timber extraction on a cubic meter per hectare (m3 ha-1) basis for both CL and
RIL-C. Harvest intensity values are derived from regionally relevant data published in Ellis (2019), and a comparative
cost study published by Medjibe & Putz (2012). In the model, sample median harvest intensity values are used for
both the CL and RIL-C scenarios: 73.75 and 56.50 m3 ha-1, respectively.
MARKETABLE TIMBER YIELD
To derive the estimated marketable timber yield under CL and RIL-C practices, we apply adjustments for logging
waste and damage to residual stands resulting from logging activities.
There a two major sources of timber waste resulting from forest extraction operations that can be eliminated or
reduced through improved logging practices. Losses from marketable logs that are felled but not skidded due to
suboptimal extraction planning and skid trail marking can comprise up to 20% of logging wastes. Incidental log
damage due to poor felling and bucking practices can also reduce marketable yields. Combined, these logging
wastes can result in reductions in marketable yields of between 10% and 53%.
RIL-C practices are designed to improve felling, bucking and skidding practices in a manner that measurably reduces
logging wastes from these activities which promote overall ecological improvements both through more efficient
extraction and reduced damage to residual tree stands. For purposes of this analysis, we assume that logging
wastes are 20% and 50% for RIL-C and CL, respectively.
In addition to accounting for logging wastes, our model assumes that improved logging practices under RIL-C
result in improvements to next-cycle yields as a result of reduced damage to residual tree stands during the first
cutting cycle. For purposes of our model, we apply the residual stand performance estimates under both CL and
RIL practices published in Healey, Price & Tay (2000) to derive estimates of next harvest cycle marketable yields as
follows: 31% increase in next cycle yields under the RIL-C scenario and a 38% decrease in marketable yields for CL
assuming extraction intensity remains consistent with initial cycle assumptions.
12. Timber Prices

TIMBER PRICES
For each of the above-referenced countries, unit exportxvi prices for tropical roundwood (non-coniferous) for the most
recent prior four-year period were derived from the ITTO Biennial Review Trade Statistics database (https://www.
itto.int/biennal_review/). Base case price assumptions are assumed to be consistent for CL and RIL-C and are the
calculated 2019 median price for the sampled countries.
PRICE TRENDS
Based on data derived from the ITTO trade database, we computed summary statistics to observe trends by
respective country and for the sample of countries in aggregate which we use as a proxy for the region (see Table 8.)
In all of the sampled countries, there are currently legal restrictions or moratoria on the export of roundwood (logs),
and in some cases, rough cut products.
Table 8. ITTO Timber Prices
ITTO Price Trends: Tropical Non-Coniferous Roundwood (2016-2019)

(in USD$)
Country Unit 2019 2018 2017 2016 Mean Median CAGR

Cambodia USD$ m3 $ 397.53 $ 409.88 $ 642.16 $ 300.89 $ 437.62 $ 403.71 9.73%
Indonesia USD$ m3 $ 656.82 $ 685.00 $ 694.43 $ 326.00 $ 590.56 $ 670.91 26.30%
Malaysia USD$ m3 $ 141.58 $ 145.23 $ 128.39 $ 136.35 $ 137.89 $ 138.97 1.26%
Myanmar USD$ m3 $ 931.05 $ 842.73 $ 813.93 $ 328.47 $ 729.05 $ 828.33 41.52%
Summary Statistics
Regional Mean $ 531.75 $ 520.71 $ 569.73 $ 272.93 *** *** ***
Regional Median $ 527.18 $ 547.44 $ 668.30 $ 313.45 *** *** ***

In general, all of the countries have reported price increases over the sampled time series, with Myanmar seeing the
greatest overall price appreciation. With the exception of Malaysia, log prices in the region saw a notable increase
over the period 2016 and 2017, with prices more than doubling. While additional investigation into the factors
underpinning the surge in year-on-year trade prices over this period, preliminary background research indicates that
a combination of strong global demand and a ban on log exports instituted in Myanmar (effective as of April 1, 2014)
and resulting supply contraction contributed to rising tropical log prices from the region overall (Kollert & Walotek,
2015; Wong, 2014).
More broadly, there are a range of global, regional macroeconomic and industry factors that influence timber (and
thus secondary product) market value and variability, including global and regional supply and demand dynamics,
category demand (by product format), and both voluntary market and domestic and international trade policies with
respect to sustainability certification.
13. Forestry Cost Assumptions

To model the cost structure for both the CL (business-as-usual) and RIL-C (project) cases, we derived comparative
cost data from Medjibe & Putz (2012) which presented a synthesis of published case studies (n = 10) involving CL and
RIL cost comparisons (Medjibe & Putz, 2012) . The studies reviewed included five regionally-relevant studies drawn
from Malaysia (Sabah and Sarawak) and East Kalimantan, Indonesia.
Cost categories considered as part of this analysis are delineated into the following three primary categories:
PRE-HARVEST COSTS
In contrast to CL, RIL (including RIL-C) includes comparatively larger investments in pre-harvest planning and, in
most cases, worker training. While the specific cost elements included may vary between operations, these cost
elements generally include: the development of detailed harvest plans, worker education, training and supervision,
demarcation of log extraction paths. These costs are typically incurred at or prior to the start of harvest operations.
For purposes of this analysis, we use median pre-harvest costs from a sample of reviewed publications for both CL
and RIL-C: US $12.50 ha-1 and US $46.10 ha-1, respectively (in current US$).
HARVEST OPERATIONS COSTS
Harvest operations costs include the in-field costs of tree felling, skidding, and log landing operations. These costs
are variable and may be considered components of cost of production. Estimated harvest costs for both the CL and
RIL-C scenarios include hauling costs and are derived from published literature (Medjibe & Putz, 2012). In each case,
the median of sample values is used (adjusted to 2020 US$). The differences in harvest costs between the CL and
RIL-C scenarios are less significant than for the pre-harvest category: US $44.09 m3 vs. US $44.49 m3.
INFRASTRUCTURE IMPROVEMENTS
For purposes of this analysis, we assume that no new capital investments are required for a transition to RIL-C
practices. While investments in new equipment to facilitate reduced-impact logging may be required in some cases
(e.g. different cable logging and winching systems to facilitate suspended cable yarding, etc.) we assume that the
model forestry operation uses existing equipment and machinery. Consultation with internal forestry subject-matter
experts, have validated this assumption for Southeast Asian commercial logging operations which, due to terrain
factors and the dominance of selective logging practices are reasonably likely to possess equipment and machinery
necessary to facilitate a change from CL to RIL-C practices.
Based on the foregoing assumption, our model case considers only costs associated with infrastructure
improvement and/or maintenance likely to differ between RIL-C and CL: skid trail layout and permanent road
construction and maintenance costs.
TAXES & ROYALTIES
In all of the Southeast Asian countries evaluated as part of this analysis, production forest lands are part of the
public forest estate (compared with private fee-simple ownership which is the case in much of the U.S.) and harvest
rights are assigned on a time-limited basis through concessions or permits. Forests rents paid to the government in
the form of permit and/or concession fees, and one or more royalties, or other payments. These costs are typically
calculated per cubic meter and, where applicable, are incurred at multiple steps in the timber value chain (e.g.
extraction, log yard, wholesale export, etc.). Required concession fees, taxes and forestry royalties are presented
in the model as a percentage of market value (sales). We assume that representative rates are undifferentiated
between the CL and RIL-C scenarios.
14. Terminal Value Assumptions

As described in above, logging practices under CL and RIL-C are likely to be differentiated with respect to damage
to residual tree stands. The economic impacts of improved logging practices resulting from RIL-C transition are most
likely to materialize in the next harvest cycle.
15. Carbon Project Development Costs

COST ELEMENTS
Costs associated with carbon project development for the RIL-C model case are assumed to be significantly lower
than for the REDD+ case and are limited to feasibility and technical analyses, PDD and monitoring plan development,
and project development costs directly related to carbon project development. Note that only the RIL-C scenario is
eligible for crediting under the VCS methodology. As such, these costs are only allocated under the RIL-C scenario.
COST ALLOCATION
Total carbon project development costs are estimated to be US $276,077 with 50% of the costs occurring at the start
of the project (t0 ) and the remaining 50% of costs occurring in the next period (t1 ).
16. Carbon Project Implementation Costs

Estimated carbon project implementation costs for the RIL-C case are expected to be relatively minimal and include
only costs associated with carbon project management and monitoring plan implementation. Implementation costs
are estimated to be US $87,692 per year.
17. Model Results & Discussion

Based on the assumptions specified above and detailed in the accompanying model, the proposed changes from
conventional (CL) to reduced-impact logging for climate (RIL-C) is expected to generate in excess of 1.46 million
tCO2e in emissions reductions over a 30-year crediting period.
Employing all of the practice improvements defined by Griscom et al. (2019) as “Level 2” RIL-C implementation,
estimated project emissions reductions would increase by ~36% to 1.99 million tCO2e over the forecast period.

Required Investment & Use of Proceeds
Total financing requirements under the RIL-C case are the highest among the NCS cases included in our analysis and
are estimated to be US $11.9 million. This figure represents incremental net cash flows from CL operations during the
initial forecast year and represents the largest proportion of the total opportunity costs of a transition from CL to RIL-C.
Expected Cash Flows

The model case assumes that initial planning and training activities associated with a transition from CL to RIL-C
occurs at the start of the forecast period and that baseline CL operations continue during this period. Field-based
implementation of RIL-C is expected to commence at the start of the next period (t1 ) from which point the project can
begin to generate and issue verified carbon units.
Incremental net cash flows in t0 are expected to be – $11.9 million and reflects the difference in expected RIL-C and
CL cash flows at the start of the forecast period. Beginning in t1 , the project is expected to realise an incremental net
benefit due to reduced logging wastes and lower incremental harvest operations and infrastructure improvement
costs for RIL-C compared with CL.
The incrementally higher marketable yields realised under RIL-C result in higher expected timber revenues. Similarly,
incremental benefits from reduced production costs reflect both comparatively higher yields relative to extracted
volumes and the smaller net harvest area associated with RIL-C. Together, the above factors are expected to result in
incremental net benefits of ~US $1.934 million per annum.
Period: 0 1-10 11-20 21-30

1
Income
Carbon Sales - 3,537,456 3,930,506 4,323,557
Inc. Timber Sales (17,495,620) 3,756,122 3,756,122 3,756,122
Total Incremental Income (17,495,620) 7,293,578 7,686,628 8,079,679
Carbon Project Implementation Cost - 392,308 392,308 392,308
Carbon Project Verification Costs - 675,000 750,000 750,000
Carbon Transaction Costs - 109,847 122,053 134,258
Inc. Forestry Costs (5,724,796) (11,528,008) (11,528,008) (11,528,008)
Total Incremental Project Costs (5,586,758) (10,212,815) (10,263,648) (10,251,443)
Project Incremental Net Cash Flows (11,908,862) 17,506,392 17,950,276 18,331,122
4,000 500,000
2,000
400,000
-
300,000
(2,000)
USD$ (000s)
USD$ (000s)
(4,000) 200,000
(6,000) 100,000
(8,000)
-
(10,000)
(100,000)
(12,000)
(14,000) (200,000)
0 5 10 15 20 25 30
Net Cash Flow Cum. Net Cash Flow
EXPECTED RETURNS
The model RIL-C project is expected to generate an IRR and NPV of 15.36% and US $2.396 million, respectively, over
the initial 30-year harvest cycle.
While the operating improvements associated with RIL-C can be expected to generate near-term benefits in
the form of reduced logging wastes, enhanced operating efficiency, and improved worker safety during logging
operations, a large proportion of the ecological and economic benefits of RIL-C are expected to be realised in the
next harvest cycle.
Reducing or avoiding significant damage to residual timber stands during the initial cutting cycle, are expected to
generate equivalent or greater next-cycle yields while maintaining or reducing the operator’s production footprint.
MANAGE: RIL-C
Unit Model Value
INVESTMENT SUMMARY
Unit Model Value
NPV Break-Even Price: USD$ tCO2e $ -
SUMMARY RESULTS
10-yrs 20-yrs 30-years
Emissions Abatement: tCO2e-1 486,750 973,500 1,460,250
IRR % 7.49% 13.40% 14.33%
NPV USD$ $ (2,445,567) $ 536,753 $ 1,449,553

These benefits are well documented in literature and have the potential to be significant. When comparing CL and
RIL practices, Healey, Price and Tay (2000) suggest that the impact on next-cycle yields may be substantial with yield
differences between CL and RIL of as much as 69%.
To evaluate the effect of improvements to next-cycle harvest value, we discounted next harvest cycle net cash flows
to t30 for both the CL and RIL-C scenarios and evaluated expected project returns including the incremental terminal
value. Including the value of expected incremental next cycle cash flows results in an IRR and NPV of 15.71% and US
$2.975 million, respectively, and increases the expected total (undiscounted) cash returned by the project from US
$57.96 million to US $78.92 million (MOIC of 4.87x versus 6.63x)
Baseline expected returns for the RIL-C model case are highly sensitive to marketable yield assumptions which,
for the initial cutting cycle, are influenced by harvest intensity and logging waste assumptions for the CL and RIL-C
scenarios are 73.75 and 56.5 m3 ha-1, and 20% and 50% respectively.
Holding base case harvest intensity and all other assumptions constant, either a slight increase in the assumed RIL-C
logging waste rate (more than 21.56%) or a slight decrease in the assumed CL logging waste rate (less than 49.12%)
would result in a negative net present valuation (at a 12.69% discount rate). Similarly, a change in the spread between
baseline harvest intensities between CL and RIL-C are expected to have a significant impact on expected returns.
The identification of underperforming selective logging operations where investments in RIL-C strategies can result
in major production efficiency (and thus environmental) gains over a relatively short timeframe are key to this project
investment strategy.
KEY VALUE DRIVERS
In addition to the carbon and potential other environmental benefits generated by a transition from CL to RIL-C
practices, RIL-C is expected increase the economic and financial value of logging operations through reductions
in logging wastes and reduced damage to timber stands as a result of log felling and extraction activities. From
a financial perspective, these costs (and potential benefits) can be significant. For example, whereas logging
wastes for RIL range between 10% and 30% of cut timber, under CL practices these rates can be as high as 50%
(FAO & ASEAN, 2006). Further, damage to standing forests as a result of poor logging practices can result in major
reductions in next cutting cycle timber yields driving increased harvest (extraction) intensity or larger harvest areas
to compensate for reduced yields. Effectively implemented, RIL-C is expected to generate equivalent to superior
marketable yields over a smaller spatial and overall environmental footprint.
Lastly, while not quantified as part of the current analysis, investments in pre-harvest planning and improved
management and oversight of logging activities under RIL-C are expected to reduce worker health risks and safety
risks. Beyond the clear social implications for worker safety, we expect that investments in RIL-C may result in
additional benefits including reduced property and casualty insurance premiums and cost savings from reduced
labour turnover.
RESTORE: MANGROVE RESTORATION
1. Introduction
Tidal mangroves provide a broad range of biodiversity and ecosystem benefits, deliver critical ecosystem services
including coastal storm protection, and the regulation of hydrologic and sediment regimes. These systems
also represent some of the world’s most significant carbon stocks and, through combined long-term protection
and conservation of existing mangrove cover, and restoration and rehabilitation of recently lost and degraded
mangroves, represent significant climate mitigation opportunities.
In a recent report on global mangrove restoration opportunities, nearly 8,120 km2 (812,000 ha.) of coastal area
where mangrove losses have recently occurred are identified as having potential for restoration. Within this area,
6,630 km2 (663,000 ha.) is described as “highly restorable.” Degraded mangrove areas identified as having
significant potential for “full recovery” comprise an additional 1,389 km2 globally (Worthington & Spalding, 2019).
From a regional perspective, Southeast Asia is cited as having the highest total extent of potentially restorable
mangrove area estimated at 3,037.1 km2 (303,700 ha.) or more than 37% of global total, after adjusting for subtidal
losses and mangroves in urban areas (Worthington & Spalding, 2019).
For the ‘restore’ pathway, we describe a representative project that includes activities intended to restore and
maintain the natural systems and functions of coastal (tidal) wetland ecosystems. Within the broader category of
wetland restoration, the representative project focuses on the restoration of mangrove biomass, soil carbon and
associated ecosystem characteristics through revegetation strategies.

For purposes of this analysis, we assume the representative project meets the general project eligibility
requirements as described in the Verified Carbon Standard Methodology for Tidal Wetland and Seagrass
Restoration, version 1.0 (Verra, 2015b).
3. Baseline Scenario
The representative project is assumed to occur within a tidal wetland area in Southeast Asia that has been
previously altered for intensive shrimp farming and that shrimp ponds have since been abandoned. We assume that
the prior alteration has resulted in adverse impacts to previously existing wetland vegetation, soil carbon, or other
ecosystem functions (the “baseline scenario”). Consistent with the applicable VCS methodology, we define “tidal
wetlands” as “a subset of wetlands under the influence of the wetting and drying cycles of the tides.”

TOTAL PROJECT AREA
The project encompasses a total area of 5,000 hectares (ha.). The scale of the model restoration case is consistent
with the scale of a current restoration project located within Indonesia which involves an initial area of 5,000 ha. with
ambitions to restore up to 10,000 ha (CIFOR et al., 2015).
Restoration Area
With the broader Project Area, tidal wetland and mangrove restoration is assumed to occur over 3,500 ha (70.0% of
Project Area).

Mixed Use Area
The remaining 1,500 ha. is assumed to include a combination of restoration and sustainable prawn aqua-
silviculture activities.
Restoration Rate
Site restoration is assumed to occur at a rate of 500 ha. per annum beginning in Year 2 of the forecast horizon (t2 ).

PROJECT DEVELOPMENT
Project preparation and development (establishment) activities are assumed to occur over a two (2) year period
beginning in Year 0 (t0 ) and ending in Year 2 (t2 ) of the forecast horizon.
PROJECT IMPLEMENTATION
Field-based implementation of restoration and other project activities is assumed to occur of a 30-year period
beginning in t2 after completion of project development, validation and initial verification and ending in t32 .

The Project Crediting Period is assumed to begin in t2 and end in t32. Note that while the accrual of credits is
assumed to begin at the commencement of crediting period, credit issuances do not occur for an additional five (5)
years to account for field-based verification of revegetation effectiveness.
FIRST CREDIT ISSUANCE; CREDIT ISSUANCE INTERVAL
The first issuance of credits occurs in t 7xvii. Subsequent credit issuances and sales occur on an annual basis as credits
are generated.
NON-PERMANENCE BUFFER POOL ALLOCATION
To account for project non-permanence risk, we assume a non-permanence risk buffer allocation equal to 15% of
credits generated.

For purposes of this analysis, we have selected a base case carbon price of US $11.00 tCO2e which is consistent with
the range of current prices quoted for voluntary “blue carbon” offset projects (US $10 to $16 tCO2e).xviii
8. Emissions Abatement
In contrast to terrestrial ecosystems where the carbon value lies exclusively in the plant biomass, mangroves
and other coastal wetlands derive most of their carbon value from the soil where organic material breakdown is
extremely slow due to tidal inundation of saltwater. In addition, mangrove soils will continue to accrete, meaning that
if left intact, mangroves can continue to provide carbon capture and storage in their soils in perpetuity. New VCS
methodology modules have been developed (released Sept. 2020) to account for this unique characteristic meaning
that the full soil carbon value can now be assessed and factored into economic analyses.
Model emissions reductions and removals estimates are derived from regionally relevant data on emissions
reductions and removals from tidal mangrove restoration activities as published in Cameron et al. (2019) and McNally
et al. (2011). The sample mean emissions abatement calculated from published data are used in the model (18.20
tCO2e ha-1 yr-1 ).
9. Carbon Project Development Costs

Restoration case project development (establishment) cost elements are similar to that of the REDD+ case. However,
compared with the REDD+ case approach (avoided deforestation), the model restoration case is assumed to involve
higher costs for initial feasibility and technical analyses, monitoring plan development, and project validation as a
proportion of overall project development costs due to the comparatively higher degree of technical complexity
involved in restoration activities and the greater need for in-field sampling and assessments.
For the representative restoration case, total project development costs are estimated at US $518,692. We assume
that 40% of total project development costs are incurred in t0 and the remaining 60% incurred in t1.
10. Carbon Project Implementation Costs

Carbon project implementation costs are estimated to be US $337,058 per annum. As in the project development
phase, we assume comparatively higher monitoring and management plan implementation costs for the model
restoration case relative to the REDD+ case (on a per-unit area basis). Similarly, costs associated with community and
institutional capacity building –in both cases related to the community involvement in protection and management
of newly restored areas—are assumed to be higher on a per-unit area basis relative to the REDD+ case. Note that in
contrast to the presentation of these costs in the REDD+ case, sustainable livelihood costs associated with the model
restoration case are presented as a separate category.
11. Restoration Assumptions

Mangrove restoration costs are highly variable and depend on a range of geographic, site and restoration approach-
specific factors. Restoration costs are reported to range from US $225 ha-1 to as high as US $500,000 ha-1. The wide
distribution of reported restoration costs are reflected in the results of a global synthesis published by Bayraktarov
et al. (2016). Based on review of 109 studies inclusive of both developed and developing country data, median and
mean restoration costs were US $8,961 and US $62,689 ha-1, respectively (in 2010 US$).
Restoration Approach
In the model restoration case baseline scenario, restoration activities involve restoration of former tidal mangrove
areas that have previously been converted for use in intensive shrimp farming and are now abandoned.
Project restoration activities will include: (1) restoration of certain natural hydrological systems through the strategic
breaching of former shrimp pond dike walls to facilitate re-creation of natural tidal channels; (2) filling and regrading of
a ponds and the installation of sedimentation retention systems; and (3) direct out-planting of mangrove propagules.
We assume that restoration activities occur to some extent across the entire 5,000 ha. project area, however, the
specific nature and scope of restoration treatments are differentiated between the area designated as restoration-
only (“Site 1”) and the area designed for mixed-use (“Site 2”) as follows:

Restoration Assumptions
Table 9. Restoration Assumptions
Project Area Assumptions Area (ac.) %Total

Site 1: Restoration Only 3,500.00 70.00%
Site 2: Mixed Use (Restoration + Sustainable Prawn) 1,500.00 30.00%
Total Project Area 5,000.00 100.00%
Site 1 Restoration Treatment Area (ac.) %Site1

Strategic Breaching; Restoration of Tidal Channels 3500 100.00%
Filling, Regrading and Sediment Mitigation 3500 100.00%
Mangrove Outplanting 3500 100.00%
Site 2 Restoration Treatment Area (ac.) %Site2

Strategic Breaching; Restoration of Tidal Channels 450 30.00%
Sediment Mitigation 1500 100.00%
Mangrove Outplanting 450 30.00%
RESTORATION COSTS
Model restoration costs are based on estimates presented in Brown (Brown, 2020) and reflect the most regionally
and project-relevant cost data available at the time of our analysis. A summary of relevant per unit area cost data
reported in Brown (2020) is presented below:
Per Brown (2020), unit cost data for each of the filling and regrading and cut and regrade treatments are based on
direct market prices for dredging, placement and regrade of compacted fill including labour, backhoe and barge rental
as applicable. Sediment retention treatments are based on reported cost data for the procurement and installation of
geo-textile tubing in an Indonesian project led by Wetlands International (Astra, 2017 as cited in Brown, 2020).
Table 10. Restoration Unit Cost Data
Restoration Unit Cost Assumptions USD$ ha-1

Strategic Breaching for Tidal Channel Restoration $ 854
Filling & Regrading $ 857
Sediment Retention $ 401
Direct Planting $ 77
12. Sustainable Livelihoods Cost Assumptions

The majority of mangrove restoration projects—both those described in peer-reviewed studies or other publicly
available reports and those managed by CI—include support for livelihood activities such as aquaculture, fisheries,
selective logging, or other low-ecological impact activities consistent with natural mangrove ecosystems.
SUSTAINABLE LIVELIHOODS ASSUMPTIONS
For the model restoration case, we assume that a proportion of the total project area will be reserved for mixed-use.
This mixed-use area –designated as “Site 2”—is assumed to encompass 1,500 hectares or 30% of the total project
area. As described in Note 34 above, we assume that ~30% of the Site 2 area will be restored and revegetated in a
manner similar to the larger restoration-only area (“Site 1”).
Project activities in the remaining Site 2 area focus on rehabilitation of former shrimp ponds for use in organic
black tiger prawns (Penaeus monodon), a commercially valuable shrimp species native to many Southeast Asian
countries. For the model case, we elected to focus on organic prawn aquaculture due to its regional relevance,
well documented complementarity with mangrove conservation and restoration objectives, and the demonstrated
feasibility of prawn-mangrove aqua-silviculture systems.
While an in-depth discussion of aqua-silviculture methods is beyond the scope of this analysis, we assume that
the production practices employed are generally consistent with current “mangrove friendly” shrimp aquaculture
practices as defined by the Southeast Asian Fisheries Development Center (SEAFDEC) (Yap, 2002) and organic
shrimp certification standards prescribed by the EU and certifying body, Naturland (Naturland, 2020).
PRODUCTION ASSUMPTIONS
For purposes of this analysis, we assume that prawn production is implemented in a manner consistent with EU and
Naturland Organic certification standards which include requirements that farms maintain a minimum mangrove
coverage of 50% of total pond area as well as prohibitions on artificial food, probiotic growth stimulants or water
treatment chemicals.
UNIT PRICE ASSUMPTIONS
Model unit price assumptions are based on the calculated mean of sample data on farmgate prices for both organic
and conventional P. monodon produced in Vietnam (ADB, 2015) and in an industry press release from December 23,
2019 (Pham Thį, 2019), respectively. Reported farm gate prices for conventional prawns were adjusted to account
for a 20% organic certification premium, which is consistent with published organic price premiums received by
Vietnamese organic prawn farmers. Price data expressed in local currency (Vietnamese Dong) were converted using
historical closing prices for VND.US$ using the Wall Street Journal historical price database (WSJ Markets, 2020).
UNIT COST ASSUMPTIONS
Estimated production costs are based on budget figures for low intensity P. monodon culture in Vietnam as
presented in Engle et al. (2017), Table 5. with adjustments for feed and amendments prohibited under the above-
referenced organic aquaculture standards. Rounded upward to two decimal points, we calculate the cost of
production as 36% when expressed as a proportion of unit sales price.
ORGANIC CERTIFICATION COSTS
Model assumptions related to annual per unit area cost of organic certification are derived from Tran (2015) and
include costs of training for farms and traders, inspection and internal control costs, third party inspection and
certification, and export costs (ADB, 2015). Published certification costs were converted from Vietnamese Dong
(VND) ha-1 yr-1 to US$ ha-1 yr-1 using average historical closing prices for VND.US$ over the period January 1, 2015 to
December 31, 2015 using the WSJ historical price database.
13. Model Results and Discussion

Based on the assumptions specified above, the model restoration project is expected to generate in excess of
2.193 million tCO2e in emissions abatement over a 30-year crediting period. Fully implemented, annual emissions
abatement is estimated at 77,350 tCO2e yr-1.
REQUIRED INVESTMENT & USE OF PROCEEDS
The estimated financing required for the model restoration project is US $5.629 million with an expected payback
period of 10.55 years. The majority of financing required is for up-front restoration costs and cash for annual project
implementation until cash flows from the sale of organic prawns and carbon credits are realised.

EXPECTED CASH FLOWS
The model restoration project includes project-level cash flows from the sale of organic prawns as well as the
issuance and sale of carbon credits. On an undiscounted basis, the sale of organic prawns accounts for ~74.6% of
total project cash inflows and roughly 58% of the total cash outlays of the model project.
Annual cash flows from the sale of carbon credits are expected to begin in Year 8 of the forecast period (t8 ) reflecting
the expected restoration time horizon and an assumed delay in credit issuance of five (5) years to account for initial
verification of restoration effectiveness.
At full implementation, net cash from the issuance and sale of carbon credits is expected to be ~US$ 370,783 per
annum. Net cash from the production and sale of organic prawns at full implementation is expected to be ~US $1.251
million annually.
Period: 0 1-10 11-20 21-32

Income
Carbon Sales - 3,148,145 7,232,225 10,125,115
Sustainable Production Income - 14,520,196 20,743,137 24,891,764
Total Income - 17,668,341 27,975,362 35,016,879
Carbon Project Implementation Cost - 2,088,519 2,320,577 2,784,692
Carbon Project Verification Costs - 400,000 1,000,000 1,200,000
Carbon Transaction Costs - 101,870 203,817 272,195
Restoration Costs - 9,303,250 - -
Sustainable Production Costs - 6,144,519 8,238,152 9,885,783
Total Project Costs 207,477 18,349,373 11,762,546 14,142,670
Project Net Cash Flows (207,477) (681,033) 16,212,815 20,874,209

4,000 40,000
35,000
3,000
30,000
2,000 25,000
20,000
USD$ (000s)
1,000
15,000
-
10,000
(1,000) 5,000
-
(2,000)
(5,000)
(3,000) (10,000)
0 5 10 15 20 25 30
Net Cash Flow Cum. Cash Flow
EXPECTED RETURNS
Based on the foregoing assumptions, the model restoration project is expected to yield a project-level IRR and NPV
of 15.18% and US $1.181 million, respectively, over the 32-year forecast horizon.
Note that because the model cash flow forecast is made at the project-level, the distribution of project-level net
cash from organic prawn production and carbon sales between farmers and project owners –and thus returns—
is not contemplated. Additional analysis is needed to determine the profitability of the model restoration scheme
at the project owner (investor) level, taking into account benefit-sharing schemes and shrimp export market and
price (cost) dynamics.
RESTORE: MANGROVES
Unit Model Value
INVESTMENT SUMMARY
Unit Model Value
NPV Break-Even Price: USD$ tCO2e $ -
SUMMARY RESULTS
10-yrs 20-yrs 32-yrs
Emssions Abatment tCO2e-1 491,400 1,264,900 2,193,100
IRR % 0.00% 13.41% 15.18%
NPV USD$ $ (2,433,600) $ 260,052 $ 1,181,096
To determine the financial feasibility of a carbon-only project, we modelled the expected cash flows assuming the
entire 5,000 ha. area is restored as tidal mangrove forest with no other economic activities beyond the issuance
and sale of carbon credits. Excluding organic prawn activities, project financing requirements increase to US $13.127
million with an expected payback period of 27.6 years. The estimated project IRR and NPV for the carbon-only case
are reduced to 2.62% and negative US $5.440 million, respectively, holding all other assumptions constant. The
break-even carbon price under the carbon-only case is US $20.46 which exceeds the range of current voluntary
market prices.

C. Blue carbon data
Mangrove above and below ground carbon sequestration amount, average years and species
(Thorhaug et al., 2020)
Seagrass extent, carbon sequestration, and literature review references for further reading
(Thorhaug et al., 2020)
D. Methodology of Carbon Prospecting Potential

To develop an analysis of carbon prospecting potential, we begin by identifying areas that should be forests but are
currently degraded. Climate mitigation potential was then estimated based on the various forest types within the
reforestable areas and applied various proxies of the constraints. Specifically, financial constraints were considered
based on the direct cost of reforestation (e.g. site selection, planting and maintenance), as well as opportunity
costs from foregone agricultural rent, and excluded areas where reforestation would cost more than US $100
MgtCO2e-1. Potential land-use was also considered by excluding areas where low density communities are engaged
in smallholder and/or subsistence agriculture. Finally, four alternative operational constraints that may affect the long-
term viability of reforested lands, including deforestation risk, forest protection status, site accessibility for monitoring
and management, and proximity to seed sources. These constraints were applied sequentially to determine the
potential diminishing effect of multiple constraints on reforestation potential.
Based on the maps derived from the above analyses, areas were then identified where profitability and the co-
benefits intersect. Specifically, both social and biodiversity co-benefits in areas close to rural communities (within a
~2km radius) were considered where key biodiversity areas intersect respectively. Positive RoI projects are identified
where NCS projects would be able to financially break even and provide co-benefits to either biodiversity or rural
communities.
In addition to primary constraints, few studies exist that quantify NCS or spatially analyse natural climate solutions
and co-benefits. Current preliminary assessments combine these analyses into a preliminary investment decision
making spatial analysis which illustrates the profitability of tropical forests whilst also taking into account two
fundamental co-benefits: key biodiversity areas and rural communities.

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ENDNOTES
i
The standard covers the accounting and reporting of seven greenhouse gases covered by the Kyoto Protocol – carbon dioxide (CO2), methane
(CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PCFs), sulphur hexafluoride (SF6), and nitrogen trifluoride (NF3).
ii
ote that under certain initiatives, such as the SBTi, offsets are not universally qualified as a mitigation strategy, and activities that directly
N
address the company’s carbon footprint are favoured instead.
iii
Contingent on tidal influence being maintained
iv
Incremental cash flow analysis is a common capital budgeting approach used to evaluate whether to accept (reject) a prospective project or
capital investment based on the net cash flow impacts to the firm.
v
tanding Carbon Stock: Completely unconstrained above and below ground biomass carbon (including organic carbon density for 0-30 cm
S
topsoil layer) across tropical Southeast Asian forests and excluding all land cover types that would preclude forests, for example, bare ground,
water, agriculture and urban areas.
Standing and Investible Carbon Stock: Accounts for ‘additionality’ criterion by multiplying standing carbon stock (above) with projected annual
deforestation rate (Hewson et al). Also accounted for decay of belowground carbon stocks over time. Also excluded recently deforested areas
and human settlements. Also accounted for buffer credits as per VCS guidelines (20% discounting).
Standing, investible and financially viable carbon stock: Calculated Net Present Value (NPV) of investible carbon stock based on simplifying
cost and carbon pricing assumptions (crucially, $5.8 t-1 CO2e for first 5 years followed by 5% appreciation over total 30 y timeframe). Then
excluded financially unviable carbon stock, defined as NPV<0 over 30-year analysis timeframe (project never able to break even).
vi
Provides approximately 3 GtCO2e/ yr. of carbon storage potential
vii
This represents approximately 0.60 GtCO2e/yr in climate mitigation potential
viii
approximately 0.56 GtCO2e/yr
ix
iophysically Constrained: Land areas that are biophysically suitable for reforestation, based on aboveground biomass, potential for natural
B
vegetation, and excluding land use/land cover that would preclude reforestation (e.g. industrial agriculture, urban areas, bare limestone)
Financially Constrained: Excluded areas where reforestation would cost more than US$ 100 tCO2e-1. Cost of reforestation estimated based
on three scenarios that variously considered direct costs, opportunity costs weighted by likelihood of agricultural development.
Land-use Constrained: Excluded areas that are potentially occupied by low density communities engaged in smallholder agriculture.
Considered two scenarios of permissiveness for agriculture.
Operationally Constrained: Considered four potential operational constraints including deforestation risk, protection status, accessibility to
labour input, proximity to seed sources.
x
almost 3.5 GtCO2e yr-1
xi
to <2 GtCO2e yr-1O
xii
Cambodia, Indonesia, Lao PDR, Myanmar, Philippines, and Vietnam.

xiii
Pursuant to VM0007, definitions of “large-scale” and/or “small-scale” agriculture to be justified by the project
xiv
REDD+ credits with CCB labelling
xv
For all representative NCS projects included in this analysis, we assume a discount rate of 12.69%
xvi
xport Prices. Given restrictions and moratoria on exports of logs and rough timber in all sampled countries, we assume that “export” prices
E
derived from ITTO database reflect domestic trade prices.
xvii
Assumes a project credit period start date of Year 2 (t2 ) plus an additional five (5) years to evaluate restoration effectiveness.
xviii
ased on current CI projects under implementation with defined corporate off-takers and non-public information provided by partner
B
institutions and project developers.

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What is the role of nature in climate action?

What is the role of nature in climate action?

Why should businesses care about natural climate solutions?

Why should businesses care about natural climate solutions?

THE BUSINESS

CASE FOR NATURAL

i CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

03 II. Nature’s Role in Climate Action

04 III. Why Businesses Should Care About Natural Climate Solutions

29 IV. Carbon Market and Policy Outlook for NCS

44 V. How Businesses Can Engage in Financing NCS

49 VI. Insights and Opportunities for NCS in Southeast Asia

65 VII. Conclusion and Call-to-Action on NCS Initiatives in Southeast Asia

Enjoy your sustainability journey!

iii CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

Dr. Richard Jeo

Mikkel Larsen, Chief Sustainability Officer, DBS Bank

v CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

Professor Lian Pin Koh

ART TREES – Architecture for REDD+ Transaction GtC – Gigatons of Carbon

BAU – Business-as-Usual IFC – International Finance Corporation

C - Carbon IMO – International Maritime Organization

CAGR – Compound Annual Growth Rate IRR – Internal Rate of Return

CAR – Climate Action Reserve ITMO - Internationally Transferred Mitigation Outcomes

CSR – Corporate Social Responsibility NbS – Nature-based Solutions

DFI – Development Financial Institutions NCS – Natural Climate Solutions

ETS – Emissions Trading System NUS – National University of Singapore

EV – Electric Vehicles NUS-CNCS – National University of Singapore Centre

vii CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

REDD+ – Reducing Emissions from Deforestation and

RIL-C – Reduced-Impact Logging for Climate Change

RoI – Return on Investment

SBTi – Science Based Targets initiative

SDGs – Sustainability Development Goals

SMEs – Small and Medium Sized Enterprises

SOS – Safe Operating Space

TgC – Teragrams of Carbon

UNFCCC – United Nations Framework Convention on

VCUs – Verified Carbon Units

VERPA – Voluntary Emission Reduction Purchase

WBCSD – World Business Council for Sustainable

WEF – World Economic Forum

NATIONAL UNIVERSITY OF SINGAPORE, CENTRE FOR NATURE-BASED CLIMATE SOLUTIONS:

ix CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

1 CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

3 CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

WHY BUSINESSES SHOULD

Box 1: Classification of GHG Scopes

Direct Emissions – emissions from activities directly under

Indirect Emissions – emissions from indirect sources

All Other Indirect Emissions – typically the largest source

5 CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

BUSINESSES NEED TO SET SCIENCE- with best-available, objective, scientific guidance on

Box 2: Oil & Gas Industry and SBTi

By 2020, ExxonMobil pledges to: By 2023, Chevron pledges to:

7 CONSERVATION INTERNATIONAL | NATIONAL UNIVERSITY OF SINGAPORE

• High-level commitments to act through an international initiative;

• Measuring emissions intensity in portfolios;

• Distinguishing green versus brown investment; and