The first US auction of nature-based carbon credits is scheduled for early 2025

The American Forest Foundation (AFF) recently announced that the nonprofit will host the first nature-based carbon credit auction in the U.S. early next year.

In February 2025, buyers will be able to bid on premium carbon credits from four projects through the Family Forest Carbon Program, an initiative that connects landowners with technical and financial resources to more sustainably manage private forest lands.

“We are trying to address several vulnerabilities that exist in the current voluntary market for buyers of carbon credits, but also for landowners who want to participate in the market,” Nate Truitt, executive vice president of climate finance at the American Forest Foundation, said Yahoo Finance. “And we’re also trying to close a really significant funding gap for natural climate solutions, a gap that we need to close globally if we want to stay at a 1.5 or even two degree scenario.”

Price volatility, market inefficiency and a crisis of credibility in the voluntary carbon market – along with the AI ​​boom and other factors – have contributed to companies recently backing away from their net-zero pledges. Companies like Shell (SHEL), Microsoft (MSFT) and Crocs (CROX) have missed, delayed or weakened their sustainability goals in recent years.

Truitt expects interest in the auction from companies in sectors such as consumer goods that produce high emissions or are relatively less active in carbon markets but have decarbonization strategies. He also expects some interest from universities.

Among companies buying carbon credits, Microsoft dominates after setting an ambitious goal in 2020 to become carbon negative within a decade. Other Big Tech companies like Amazon (AMZN) and Google (GOOG, GOOGL) are consistent buyers. However, Truitt doesn’t expect Big Tech companies to ultimately participate in this auction because they already employ large procurement teams.

Instead, Truitt sees the auction as attracting “the next wave of carbon credit buyers,” made up of players who currently need to navigate confusing spot markets, sift through individual carbon credit offers or enter into long-term purchase contracts in a largely unregulated market.

“We’re hoping that by reducing those transaction costs and the associated friction … we can get some of those buyers to come to the table,” Truitt said.

AFF auctions carbon credits for two types of projects. The first goal is to improve forest management and carbon sequestration on 90,000 acres of land from Maine to Alabama, owned by 700 family landowners involved in the project. The second and more recent project pays ranchers and range owners in Georgia to plant trees on 1,500 acres of land.

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Another feature of the AFF auction will be a pre-financing mechanism. Companies not only bid on the number and price of carbon credits to be delivered at a later date, but also set a percentage they are willing to pay in return for a discount.

According to reporting platform CDR.fyi, buyers have spent around $3 billion on permanent carbon removal credits since October 2019; However, the market could grow faster with better access to low-cost financing.

Truitt emphasized that many projects are ready to start. However, because these projects involve higher risk – natural disasters and changing rules for offsets increase uncertainty – they often find it difficult to obtain credit.

If successful, the AFF hopes its auction design can be used by other carbon market participants and remove barriers to these transactions.

“We are not solving climate change, but we are trying to develop a tool that allows the voluntary carbon market to grow faster and produce higher quality carbon credits that buyers, investors and the general public can trust,” Truitt said.

Preserving “a messy forest.”

Tim Stout is one of the landowners involved in the project. Stout and his family own a 175-acre former dairy farm in Vermont, passed down from his great-grandfather.

He and his brother have farmed the heavily forested property for 40 years, and after evaluating various carbon projects, their family enrolled in the Family Forest Carbon Program.

The financial benefits are “pretty modest,” Stout said. “I mean, over 20 years, that’s a healthy amount,” he clarified, “but I think for … the program to really be successful, the price of carbon credits needs to go up significantly.”

AFF said it uses Verra’s verified carbon standard and its own internal methodology developed with the Nature Conservancy to verify the quality of the credits.

“A messy forest is better than a clean forest because… all the fallen trees, all the branches, all the leaf litter stores carbon,” Stout explained of how these plans have changed the way he and his family farm their land. “We are moving more and more into a kind of messy forest.”

At the same time, land management costs have “increased significantly,” Stout said.

Extreme weather events caused by climate change have driven up costs. Heavy rains and flooding in Vermont, which experienced a once-in-1,000-year rain event this summer, have eroded the foundation of Stout’s barn and caused great expense, he said. And strong winds toppled 200-year-old maple trees onto roads that had to be removed.

Funds from the auction will be used for expenses related to the management of the forest and the creation of long-term land use plans developed by landowners, state foresters and AFF advisory foresters. These plans and smart forestry techniques help forest owners like Stout increase the amount of carbon their forests can sequester.

Stout, who now sits on the AFF board, said his concerns about climate change motivated him to sign a contract with the Family Forest Carbon Program. He also feels called to preserve the forest for future generations and educate other small landowners about sustainable forestry.

“I would love it if my four-year-old grandson and two-year-old granddaughter could visit [land] when they are my age and have a healthy, robust and resilient forest that still plays a role in mitigating climate change,” he said.

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