Small landowners have been shut out of markets for ecosystem services
Aggregation projects can enable these property owners to participate in and benefit from these markets.
A new report analyzes the keys to launching successful aggregation schemes.
While carbon markets offer a large and growing source of funding for conservation and stewardship of forests, farms, and wetlands, small landowners have largely been unable to participate.
Despite rapid growth in these markets - voluntary carbon markets increased in value by 60 percent over the previous year in the first eight months of 2021 according to Ecosystem Marketplace - the high cost of verification and validation make it so that landowners with fewer than 5,000 forested acres usually cannot make money, or even recoup their expenses. The majority of that cost comes down to rigorous measuring of site characteristics required to confirm an increase in carbon, which is usually done by trained technicians visiting the enrolled property. While costly, this requirement ensures that the credits deliver the additional carbon storage they promise, and monitoring is done in accordance with scientifically-backed protocols set by registries. However, it means that a key source of capital is closed to landowners who may be facing conversion or development pressure or who want to better steward their lands in increasingly fragmented landscapes across the country.
One avenue to open these growing markets to a larger pool of sellers involves aggregating a group of smaller landowners together to achieve economies of scale. Organizations across the country, and across land types, are working to implement aggregation projects to help family forest owners, small farmers, and all those who own smaller parcels of land. These projects face unique challenges because they involve large groups of different landowners, who may have different priorities both from each other and from commercial operations.
Landowners have complex and deep relationships to their properties, and decisions about how to manage and use the land are also affected by age, income, and family dynamics. While many landowners are excited about the idea of gaining income from ecosystem service credits, the risks and liabilities can be intimidating and make them hesitant to enter the market. What happens if the carbon stocks don’t match the forecasted models? Will they have to return money to the credit buyers? Individual landowners may seek greater assurances and tolerate less risk than businesses.
Practitioners who work with these landowners report one other major concern - the length of most carbon credit terms. In voluntary markets, credit sellers are often required to ensure the storage of carbon for 40-100 years. That can work well for businesses, but individuals may need more flexibility in their land management decisions. In areas where the landowner base is older, many plan on passing ownership to their kids or other heirs over the next decade. They feel obligated to not restrict the use of their land before ownership changes. Despite these challenges, over 20 aggregation projects have found ways to make markets accessible to small landowners.
A recent report for the Chesapeake Conservation Partnership from Lyme Timber’s Advisory Services division analyzes these projects and draws out lessons learned for organizations considering launching projects of their own. While the dominant focus is on aggregation that enables small landowners to benefit from the growing market for carbon offsets and ecosystem services, it covers a range of different projects -- from informal aggregations, like programs that target a critical mass of small landowners to help them implement best management practices (BMPs) on their properties, to structured aggregations using legal arrangements to bind multiple landowners together to sell carbon credits. Informal projects can often pave the way to allow for structured ones by building relationships and trust with landowners.
The report outlines seven factors common across successful aggregation projects: pre-identified buyers, catalytic funding, sufficient incentives, active landowner outreach, trusted conveners, aggregation structure, and equity. Conservation finance due diligence often dictates the need for pre-identified buyers and requires catalytic funding across project types, but the other principles show the unique considerations at play for aggregation schemes.
One area of active innovation involves layering of multiple payments to raise the financial incentives for landowners. Selling carbon credits alone often does not generate enough income to implement the carbon-storing practices on small acreages. The report points to prices as low as $3/acre for soil projects and $20/acre for forestry projects. To combat this, many aggregation programs combine payments from multiple sources for each landowner. Well-established public programs or public-private partnerships can provide the match. Alternatively, a coalition called Ecosystem Services Market Consortium (ESMC) is running several pilot projects specifically designed to allow landowners to access RCPP funding and carbon offset funding at the same time on midwestern farmland. (This satisfies many registry protocols, with some restrictions to lower the risk of double-counting credits.)
Other programs have found new ways to increase payments by tapping multiple markets. The report points to one such example in the Soil and Water Outcomes Fund (SWOF). SWOF is a joint partnership between ReHarvest, a subsidiary of Qualified Ventures, and AgOutcomes, a subsidiary of the Iowa Soybean Association, that helps farmers access revenue from both soil carbon and water quality markets. SWOF models for farmers the expected reductions in pounds of nitrogen and phosphorus and the increased carbon sequestration from implementing BMPs, like cover-cropping and no-till, on their lands. Farmers receive half of their expected payment upfront, to help with costs, and, after the results are measured at the end of the contract, receive payment-for-outcome for both the water quality and carbon improvements.
The carbon buyers are often corporations, particularly those reliant on farmers in their supply chain. Water quality buyers are usually governments with a need to reduce pollution in their waterways. By selling the outcome itself into two different ecosystem services markets and prohibiting recipients to receive NRCS funding for the covered practices, SWOF avoids additionality concerns.
Projects that intend to either passively allow or actively support landowners enrolling in multiple programs to access more funding may spark increased concerns about the additionality of each credit. The report emphasizes the importance of proactive communication to both the public and purchasers about the roles each participant will play in encouraging carbon storage.
SWOF and NRCS-matched projects reveal two different structures for aggregation. SWOF pays for outcomes, whereas the other pays for practices. The former ensures that the carbon storage targets are actually hit by the landowner, removing some risk for the lead organization. In this model, landowners aren’t paid until the practices are completed, meaning they must front the money to implement them. The latter model, also selected by The Nature Conservancy and American Forest Foundation’s Family Forest Carbon Program (FFCP), can be more attractive to landowners by ensuring they get consistent and clear upfront payments. In addition to this distinction, there are two main considerations in legal structure:
Who sells the credit? Who carries the risk?
Some aggregation programs guide landowners into a direct contract to sell the offset while others have the aggregator selling the credit and disbursing payment to landowners. The second option can minimize risk to landowners, but also usually reduces the payments landowners receive as most organizations keep a percentage of the offset sales in order to cover their risk and administration costs. Knowing if a given set of landowners focuses more on maximizing returns or minimizing risk can help determine which model to pursue.
Determining just how much funding is needed to attract landowners, and just how much risk they’ll tolerate, can be delicate. The report endorses targeting focused groups aligned in motivation, land type, or geography, or connected through existing landowner networks. Because negotiations can be long, it also helps to have people these groups’ members trust convening discussions and leading the process.
Cold Hollow to Canada, one of the report’s case studies, leveraged both of these factors to aggregate ten landowners for improved carbon sequestration on 8,600 forested acres in northern Vermont. Vermont Land Trust, the lead organization, chose Cold Hollow because forests in the region have strong sequestration potential and landowners tend to already prioritize ecological forestry. The region is also home to the Cold Hollow to Canada Regional Conservation Partnership (RCP), an existing network of conservation organizations, which had strong relationships with forest owners and had helped some of them implement better practices.
Through their involvement with the RCP, the landowners already knew each other and had experience working with conservation organizations. This proved key for the project success. As the structure and pricing of the project evolved, the landowners set up independent meetings by themselves to talk through their questions and hesitations and ensure their interests were advocated for. VLT was consistent in their communication with landowners, sending out weekly email updates to keep them in the loop and aware of progress.
...landowners set up independent meetings by themselves to talk through their questions and hesitations and ensure their interests were advocated for. VLT was consistent in their communication with landowners, sending out weekly email updates to keep them in the loop and aware of progress.
Charlie Hancock and Nancy Patch, founders of the RCP, proved essential to the ultimate success of the project because of their relationships to both the landowners and VLT. Hancock, a local consulting forester, and Patch, the county forester working for the state Department of Forests, Parks, and Recreation, worked in the region for years and were trusted deeply by landowners. This became especially important as the project underwent many changes over the course of its development. They acted as a trusted go-between that helped maintain trust and morale among landowners when things were changing rapidly.
Aggregation is not the only method of diversifying access to carbon markets. Evolving GIS and remote sensing technologies can lower the cost of monitoring enrolled acres. NCX, highlighted in one of the report’s case studies, uses high-quality proprietary base maps as a key data source in measuring carbon baseline and stocks to minimize verification expenses.
Unlike a rigidly structured aggregation program, NCX issues individual contracts to single landowners. Also unique is the term of the contract. Unlike many other carbon programs, in which 40 years often stand as the minimum contract length, landowners agree to merely defer harvesting their forest for one year, according to a protocol approved by Verra’s registry. This shorter term is attractive to landowners, many of whom are older and reluctant to pass on land to their children subject to rigid contracts governing its use.
Beyond their general work to pry open carbon markets, aggregation projects can proactively target communities who have been shut out of historical wealth creation to directly channel funding to their lands. Much like The Center for Heirs’ Property Preservation helps prevent Black land loss in the US South by promoting active, sustainable, income-generating forest management, aggregating organizations could enroll landowners in offset programs with a similar goal.
While there are few current examples of aggregation undertaken with a specific goal of supporting communities historically marginalized communities, one project is doing just that. The Swinomish Forest Bank, led by Ecotrust, is facilitating access to markets for members of the Swinomish Nation in Washington, where parcelization has increased through generations. It expects to combine both traditional timber income with carbon credits to support the Tribe’s conservation and economic development goals. While in its early stages, this project could serve as a model for future aggregation schemes through its focus on justice. As conservation organizations continue to innovate new ways to fund their work and new methods of engaging equitably with all communities, aggregation projects represent a promising frontier.