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Owning Land

Expanding Carbon Sequestration: Integrating Credits into Capital Offset Markets

September 8, 2023

Carbon sequestration, a process that aids in mitigating carbon emissions, has gained significant attention in recent years as the planet copes with climate and environmental changes. As the demand for carbon sequestration grows, so too does the need to explore new avenues that could expand the scope of these programs. 

One promising approach to increasing carbon sequestration in the United States involves integrating carbon credits into regulated water and endangered species protection programs under the Clean Water Act and the Endangered Species Act.

Understanding Carbon Sequestration in the U.S.

Currently, carbon sequestration in the United States is divided into voluntary and regulated markets. The regulated market holds high standards for measuring carbon sequestration. Conversely, the voluntary market offers more flexibility for landowners, contributing to its growing popularity in recent years. While inadequate voluntary carbon projects have created a lot of press, there are good projects and much progress is being made by improving the underlying data science. 

One of the key concepts in carbon sequestration is “additionality.” Landowners can earn carbon credits by altering land management practices on their property to increase the amount of carbon sequestered there. The additional carbon sequestered as a result of intentional land management is then counted as credits. 

To qualify as additional, the change in carbon sequestration must be verifiable compared to a baseline scenario and come as a direct result of land management. Various methods such as adjusting farming practices, planting more trees, and delaying harvest can enhance the potential for carbon sequestration.

Expanding Carbon Sequestration Opportunities

A recent study from McKinsey and Company suggests that finding enough projects to supply credits to meet demand for climate mitigation is likely to be a major challenge moving forward. To address this impending shortfall, many experts have begun to explore ways to broaden existing carbon sequestration programs and natural capital offset markets. Expanding these programs would allow more landowners to generate passive income and benefit from implementing eco-friendly management practices on their land, while also sequestering more carbon to offset emissions.

One such way to find more potentially viable land for sequestering carbon in the United States would be to extend eligibility to landowners with smaller acreages. Historically, carbon credits are only really viable for landowners with vast land holdings. By expanding the scope of these programs to include landowners with properties as small as 30 acres, a significant amount of land could be repurposed for carbon sequestration.

Ohio & North Carolina Land Broker and Executive Director of the Nectar Exchange Dr. Doug Bruggeman highlighted that “expanding these programs to landowners with 30 to 40 acres means we could improve environment quality over a much larger area. It’s easier to find landowners with smaller tracts willing to partake in these conservation programs than it is a single landowner with a thousand-acre property. Expanding these programs could allow more landowners to benefit as well as identify additional land for carbon sequestration.”

Rescuing Stranded Assets

Regulated offsets under the Clean Water Act and the Endangered Species Act represent roughly 1 million acres of land across the United States. However, not all of the land protected under these programs is eligible for water or species credits.

This is because many properties will contain areas valuable for wetlands, streams, or species along with additional areas that would not qualify for wetland, stream, or species credits, such as upland forests or farmland. Therefore, there’s an opportunity to separate land dedicated to wetland, stream, or species mitigation from areas that don’t qualify for these mitigation credits and could be used in traditional real estate transactions or for additional carbon sequestration.

Jim Bergan from Delta Land Services refers to these areas as “stranded assets,” since not all land acquired for wetland mitigation will meet standards set by offset and mitigation banking programs. Speaking to the logic behind including these stranded assets in capital offset programs, Bruggeman stated, “These areas aren’t typically wetlands, but they’re areas that are associated with the wetland that don’t impart credits. Many properties with wetlands also include upland forest areas, grassland, or farmland that aren’t considered wetlands under the Clean Water Act. These are properties that we’re already managing for some kind of environmental quality, so why not allow the landowner to use his additional non-wetland acres to generate a carbon credit?”

By including these assets in carbon offset initiatives, a significant amount of additional land could be repurposed for carbon sequestration in areas where natural resource practitioners are already collecting data.

Interest From Regulators

This undertaking would require the close collaboration of investors, landowners, and regulators from around the country; fortunately, these groups have indicated some interest in expanding these programs, as Bruggeman learned at the 2023 National Mitigation and Environmental Markets Conference. 

At this year’s conference as part of his presentation with the Nectar Exchange, Bruggeman probed investors, regulators, landowners, and environmental consultants on their interest in integrating carbon credits to their natural capital offset programs as well as whether or not they themselves owned any stranded assets that could be used for carbon sequestration. Regarding the results of his survey, Bruggeman asserted, “The majority indicated that they have stranded assets associated with water and species credit projects, but a significant portion was also unsure. This highlights the need for further education and guidance to integrate these markets as well as clear criteria for identifying possible carbon assets that are additional to water and species benefits. It was very encouraging to see that many regulators were overwhelmingly supportive of adding carbon credits to the projects they oversee.”

In order to meet the growing need for additional carbon sequestration, avenues such as these should be adequately examined. By expanding the scope of regulated water and biodiversity credit programs in the United States, we may be able to significantly increase the amount of carbon sequestered here as well as afford landowners more opportunities to profit from their land.

Ultimately, integrating carbon credits into these programs needs to be done with care to ensure that the value of carbon sequestration is additional to the protection of regulated water resources and endangered species.

About the Author
Bryce Berglund is National Land Realty’s Content Marketing Specialist. He is currently residing in Minnesota, where he attended the University of Minnesota Twin Cities. Bryce is an appreciator of all things artistic, and likes to spend time at his cabin with his dog and family.