Challenges and Opportunities in the Forest Carbon Market: A Conversation with Julius Pasay from the Climate Trust
CFN’s Mary Powers and Saskia Braden recently sat down with Julius Pasay, Executive Director of The Climate Trust, for a conversation on the challenges and opportunities shaping today’s forest carbon market. Their discussion explored key market trends, hurdles facing landowners and project developers, and innovative approaches to making carbon finance more accessible and effective for conservation efforts, highlighting a $2 million grassland deal in Montana.
This conversation has been edited for length and clarity.
Can you describe your organization’s role in the forest carbon market?
Founded in 1997, the Climate Trust is the oldest continuously operating carbon market entity in the US. As a nonprofit, we focus on nature-based solutions and innovative carbon finance models to scale impactful projects.
We are really trying to push the envelope of the markets by funding restoration projects, covering upfront costs, and using carbon credit sales to prove these investments can generate returns. We also provide early funding to land trusts and ranchers for no-till conservation easements on grasslands, helping bridge financing gaps.
So you help to develop carbon projects but also fund them? Explain.
For landowners, a barrier to doing carbon projects is often the lag between when, for example, they undertake restoration and when they receive carbon revenues. Or for the land trust, if they’re buying an easement, the gap between when they must pay a landowner and when they might actually secure the funding.
Since launching in 2016 our Climate Trust Capital, a private equity fund, we have invested $2.2 million in the Nature Conservancy’s Saint John Forest in Maine and half a million dollars in Great Mountain Forest in Massachusetts. Right now, we are developing a project with North Coast Land Conservancy on the coast of Oregon. That land trust moved the property out of the typical commercial or industrial ownership rotation and will be managing it for wildlife habitat, particularly old-growth habitat.
What makes forest carbon markets effective?
Traditional funding is limited, with organizations competing for the same donors and grants, but Carbon markets are
finally starting to value the services that both conserved ecosystems and working lands provide. Putting a price on carbon in the nature-based space also means putting a price—even if it's not as precisely calculated and valued—on other values like wildlife and water quality. Of course, it’s not perfect. But it's a huge step forward in making markets more effective at valuing things that have historically been ignored or externalized.
Who typically purchases forest carbon credits, and what motivates their participation?
In the voluntary market, major purchasers include energy companies, utilities and Fortune 500 companies. It really runs the gamut. Buyers are often interested in nature-based projects for their co-benefits, e.g., water benefit because that’s related to their industry. Location also matters as some companies prefer credits generated from a project near their headquarters.
What about the criticisms that carbon credits just cause companies not to reduce emissions?
Some question whether companies buy offsets instead of cutting emissions, but studies have shown the opposite. Companies purchasing offsets are more likely to actually study their carbon impact, set internal targets, and take action. Companies who aren’t buying offsets typically do little to reduce emissions.
What is enabled by the Climate Trust’s engagement that wouldn’t be possible otherwise? How can the financing be leveraged for conservation?
As a mission-aligned partner, we pilot new strategies, handling both the development and financing in-house. This gives us unique insight into project drivers and returns. Others may not be willing to spend the extra time to hold hands with the land trust for a significant time and reevaluate as things change.
Financing reforestation is challenging. Trees grow very slowly and investors are looking to make quick returns. As a nonprofit, we're able to spend time and resources in these projects. This also lets us support smaller projects that other developers overlook, because they don’t generate high returns. Our mission isn’t just about addressing climate goals but also about demonstrating and piloting new solutions—like working with smaller landowners.
What challenges do small landowners face, and how does the Climate Trust lower those barriers?
The main barrier is the fixed costs. Every forest carbon project requires a standardized inventory and third-party verification, expenses that don’t scale down for smaller projects, making them financially infeasible for some landowners.
As a nonprofit, our goal is to cover operational costs, not maximize returns, allowing us to work on smaller projects that for-profit investors or developers might pass over. We address these barriers by aggregating projects into cooperatives to share costs, like planting over 1,200 acres of forestland in the Florida Panhandle with three landowners. By combining their efforts into one project, we reduced some of the transactional costs. While aggregation does present challenges—landowners take on significant risks with joint commitments—our mission to expand these markets allows us to examine these complications and find workable solutions.
A 10-acre forest project isn’t feasible due to high costs. Carbon credit buyers demand a high level of certainty, and at some point, the accounting demands become too high to support a lot of smaller projects. It's always been a tension. I think there are a lot of folks trying to work on ways to lower those barriers, including the registries and other nonprofit groups, but it's a big challenge.
Could you talk us through a specific deal the Climate Trust has facilitated? What did that process look like?
We just closed a $2 million investment on a 38,000-acre, multi-generational ranch in Montana. This is a stellar example of how carbon finance can support both conservation and rural communities.
Recording a perpetual conservation easement can take a long time. We first looked at the project many years ago, had a good relationship with the landowner and updated our credit forecasts. We also sought out a co-investor to increase the funding and reduce the risk. We did a lot of due diligence based on our extensive experience with nature-based projects and came up with the investment amount based on our forecast of credit generation and prices. We’ll now be working for over a decade on this project to ensure that it's monitored, reported to the registry, and verified so that we can issue and sell credits.
[For more information on this project, please see TCT’s announcement here.]
Do you seek out and measure co-benefits from a project like this?
We're excited about the benefits these projects are generating, but I don't think anyone actually measures co-benefits in the way we measure carbon. What we do know is that grasslands are one of the least protected ecosystems in the US, and many of the endangered and rare threatened bird species in the US are prairie species.
These projects help landowners with their succession planning and ability to keep the ranch in their family. The carbon financing provides a new revenue stream, diversifying the ranchers’ income and supporting conservation easements. It also helps build their resiliency to climate change. We've found that carbon revenues on grassland projects are inversely correlated to climate risk and drought and we can often generate more credits in periods of drought when herd sizes are lower. Many grasslands are predicted to have longer periods of drought, so we might be able to provide some resilience.
We’ve read so much about the challenges in the carbon market, .e.g., about questionable integrity, low volume, falling prices. What challenges are these markets facing right now, and do you anticipate them continuing?
We've definitely had some challenges this past year. There was a series of articles in 2022 and 2023 criticizing a lot of carbon projects, but the response has been really robust. The registries themselves have taken on those critiques and tightened up their standards. For example, the American Carbon Registry’s recent methodology version 2.1 has a dynamic baseline and is conservative in crediting. The Integrity Council for the Voluntary Carbon Markets, has also been doing a lot of work on core carbon principles for credits. In my view, we’re seeing big improvements in credit integrity and conservativeness in crediting so that buyers will feel really good about the credits they're buying.
It's been hard to keep track of some of the change. It's also caused buyers to increase their due diligence requirements, so we spend a lot more time working with buyers to sell credits than we used to have to do. Our transactional costs have increased on the project development and evaluation side, as well as the buyer side. But I think this work really sets us up for 2025 and beyond. I hope to see a lot more activity and think those hurdles will dissipate significantly (for more detail on trends in 2025, see here).
What steps can be taken to build confidence in the market and ensure credibility? How do you think about permanence and additionality in your projects?
It comes down to the standards. The registries establish the guidelines for how projects are developed, and these guidelines, as well as the accounting, need to be conservative enough to maintain integrity. Additionality can be ensured by tightening the business-as-usual baseline scenarios to create more conservative crediting. This narrower approach improves market integrity by ensuring credits reflect real, additional reductions. Ultimately, a credit generated from one methodology should be the same as a credit generated from the same methodology elsewhere. That consistency is essential for creating a liquid and fungible market, and recent improvements have come a long way toward doing that.
For grassland projects, permanence is achieved through a perpetual no-till easement—a legal encumbrance on the property that protects soil carbon forever. Additionality means determining whether land could be converted to cropland by assessing factors like soil type and financial pressures. Using data from the National Agricultural Statistics Survey, we compare lease premiums for cropland versus ranchland to evaluate the likelihood of conversion.
We evaluate similar criteria for forestry projects, as well as considering landowner type and their financial incentives. To develop a baseline scenario, we look at historic harvests and the capacity of the local forest market. This involves conducting timber mill surveys to determine what the infrastructure can support and whether it aligns with the baseline needed to generate credits. We also perform thorough comparable property assessments, analyzing harvest rates from similar properties owned by similar landowner types in the same region to help constrain the baseline and ensure credibility. Baselines are continuously updated as contexts and methodologies change. These updates are crucial for maintaining credibility and market confidence.
What excited you about the future, and what opportunities does the Climate Trust see moving forward?
I’m not too concerned that there will be drastic changes to the voluntary market with the change in administrations. These companies understand that climate change is real. They understand that there's risk to their business, there's risk to the global economy, and there's risk associated with not recognizing a problem and taking action on it. They’ve been purchasing credits through the last two administrations. It’s a voluntary market. These companies are voluntarily buying credits, and so we fully expect them to continue to do that.
I’m looking forward to the rules being worked out so that we can reduce transaction costs and make things easier. There’s still work to be done on the demand side. But there’s a lot of positive market developments happening that will continue this year.
Julius Pasay is the Executive Director of the Climate Trust, a non-profit that works to elevate nature-based solutions and finance conservation by connecting landowners with carbon markets. For more information, please visit www.climatetrust.org.