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America's First Nature-Based Carbon Credit Auction: A Game-Changer for 2025

Oct 18, 2024

The American Forest Foundation (AFF) is poised to revolutionize the voluntary carbon market (VCM) with its upcoming carbon auction in February 2025. This groundbreaking initiative, centered around the Family Forest Carbon Program (FFCP), aims to offer companies a streamlined process to purchase high-quality nature-based carbon credits while supporting rural communities and family forest owners.

Bridging the Funding Gap for Nature-Based Solutions

Nature-based solutions, such as forest conservation and restoration, are essential for achieving global climate goals. According to the International Union for Conservation of Nature and Natural Resources, nature-based solutions could contribute 30% of the global mitigation by 2030 to achieve the critical temperature rise goal of the Paris Agreement. They also have the potential to achieve emission reductions and removals of at least 5 GtCO2e per year by 2030, out of a maximum estimated potential of 11.7 GtCO2e per year.

The AFF Carbon Auction addresses a critical challenge in the VCM: the underfunding of nature-based carbon projects. These projects, which leverage natural ecosystems like forests to sequester carbon, are essential for achieving global climate goals but have been hampered by a lack of upfront financing. By offering companies the opportunity to purchase carbon credits directly from project developers, the auction aims to stimulate investment in these vital initiatives.

How the Auction Works

The auction process is designed to be transparent and efficient. All necessary due diligence resources will be available in a centralized location, allowing companies to review detailed information about the carbon credits on offer before placing bids. The auction itself will be a competitive process, ensuring fair pricing and efficient allocation of credits.

Innovative Financing for Nature-Based Solutions

The AFF Carbon Auction introduces a novel approach to financing nature-based carbon projects: hybrid commercial terms. Traditional carbon credit purchases often involve payment upon delivery, which can delay project initiation.

However, the auction will offer partial upfront payments, the auction allows buyers to secure credits at a discount while providing developers with the capital they need to get started. This innovative model aligns corporate investments with tangible climate impacts and ensures that projects deliver measurable environmental and community benefits.

Benefits for Buyers

  • Secure high-quality carbon credits at competitive prices

  • Support nature-based solutions that deliver measurable environmental and community benefits

  • Protect themselves from potential future price increases

  • Contribute to long-term decarbonization goals

When the AFF auction begins in February, both removal and emission reduction credits will be up for bidding, with removal credits making up the majority. Buyers will have the opportunity to place bids on four different terms:

  • Volumes desired from the 2032 through 2036 insurance

  • The price they are willing to for credits in each issuance year

  • The percent of credits for which they are interested in offering milestones-based prepayments

  • The discount they expect for those prepayments against the eventual credit price.

Reshaping the Voluntary Carbon Market

The AFF’s upcoming auction has the potential to reshape the VCM in the United States. By addressing barriers to investment in nature-based solutions and offering a transparent and efficient pathway for companies to purchase carbon credits, the auction could significantly boost the growth of this market.

As the AFF Carbon Auction approaches, the VCM is poised for a transformative shift. By providing a platform for companies to invest in high-quality nature-based carbon projects, the auction could play a crucial role in addressing climate change and supporting rural communities.

Source: carboncredits

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