Numerous companies are making net-zero pledges, with over 30% of the world’s largest companies committing to become net-zero in the coming decades. Some commitments are more ambitious than net-zero, such as Microsoft’s pledge to offset all their carbon emissions since its inception. One of the most affordable and easily accessible ways to achieve these promises is through natural climate solutions (NCS). These practices enhance natural carbon sinks, reduce CO2 from the atmosphere, and preserve and enhance natural ecosystems.
What is NCS?
NCS is a term often used interchangeably with nature-based solutions (NBS), but there is a difference. While both rely on the same guiding principles of sustainable environmental practices to manage land and ecosystems to benefit society, NCS primarily focuses on solutions that mitigate CO2 while trying to maximize the co-benefits. Examples of NCS include:
- Reforestation
- Fire management
- Biochar
- Cover crops
- Wetland and seagrass restoration
It is estimated that NCS can provide a third of the CO2 mitigation necessary through 2030 to align emissions with the Paris Agreement. Beyond carbon emission, NCS can also make communities more resilient to the impacts of climate change, can provide economic growth and diversification, and provide other benefits that align with UN Sustainable Development Goals (SDGs).
Demand for NCS
Increasing decarbonization commitments and initiatives are rapidly increasing the demand for carbon offsets, with the market more than quadrupling since 2020. Exhibit 1 shows the voluntary carbon market is projected to be worth more than $1 billion in 2022 with some estimates saying it is already worth more than $2 billion. And while the size of the voluntary carbon market has grown, the proportion of NCS credits has steadily increased (Exhibit 2). In fact, half of the growth of the market in 2021 came from demand for projects on REDD+ (Reducing Emissions from Deforestation and forest Degradation, plus sustainable management of forests, and the conservation and enhancement of forest carbon stocks) and another third came from renewable energy credits. Over the coming years, demand for NCS credits is likely to continue growing rapidly with more companies continuing to make net-zero pledges and new companies expanding and developing a portfolio of NCS.
Exhibit 1: Voluntary carbon market size ($ Millions) with high and low projections for 2022 (Source: Trove Research, ADI Analytics)
Exhibit 2: Voluntary carbon market retirements – Mt CO2 per year (Source: Trove Research, Credit Suisse, ADI Analytics)
Challenges for NCS
The NCS space has faced criticisms over the years regarding permanence, leakage, and additionality (PLA). Examples of these include fires destroying forests used for NCS credits (permanence), developers subsequently moving to an adjacent site, shifting the avoided emissions elsewhere (leakage), and credits claimed for forests that were never in danger of being harvested (additionality). Other challenges facing the NCS space include building public trust in the robustness and accounting of these solutions, scaling the industry to meet demand, enabling international cooperation, and ensuring NCS implantation is effective and does not distract from emissions reduction.
Launching an in-depth multi-client study on NCS
ADI Analytics is launching a new multi-client study on Natural Climate Solutions to be completed in mid-December. Below are the key topics covered in the study:
- Existing and forecasted drivers and trends for the NCS market
- National and international policies and regulations affecting this space (e.g., IETA, UNCCC)
- Analysis of stakeholders involved in the NCS sector from a supply and demand perspective, and what solutions are available
- Challenges facing the industry (e.g., permanence, leakage, additionality) and the technology and commercial innovations addressing these challenges
- Assessment of current industry advancements and what initiatives can promote the NCS implementation
- Strategic implications for key market participants and associated risks and uncertainties
Download the study prospectus here and contact us to join this multi-client study. Subscribers have an opportunity to shape the study’s research agenda along with developing an in-depth view of how NCS can help energy markets.
– Dustin Stolz
