For more than 80 years, the American Forest Foundation’s mission has been to deliver meaningful conservation impact through the empowerment of America’s family forest owners. Several years ago, we realized that unmitigated climate change was a threat to that mission, because in a world of runaway climate change family forest owners would be disempowered as their forests were battered by extreme weather events and the spread of forest pests and pathogens. At the same time, climate change represents an opportunity to empower those landowners like never before, by harnessing the power of carbon markets to provide them with the technical and financial assistance they need to manage their forest in a way that both meets their personal objectives and keeps CO2 out of the atmosphere.

Put simply, America’s 290 million acres of family-owned forests are the equivalent of a massive machine which, if run properly, is capable of removing hundreds of millions (if not billions) of tonnes of CO2 out of the atmosphere. 

As we began to work in the carbon market, we encountered many problems with how the market functioned that made it difficult for not only landowners, but also for the buyers of carbon credits, to understand and participate. Since launching the Family Forest Carbon Program in 2018, we, along with our partners at The Nature Conservancy, have been on a quest to reform the carbon markets and innovate in how we implement carbon programs, so that they can fulfill their potential and play a critical role in mitigating global climate change. 

One of the biggest problems the voluntary carbon market faces is a lack of high-quality projects, which use the latest science to deliver robust, high-integrity carbon credits to buyers.  A high-quality project is expensive:  You have to recruit landowners, walk their woods and understand their objectives, deliver incentive payments to help them with the costs of transitioning to longer-term management, and install monitoring systems to ensure the carbon benefits of the project are captured accurately. And, if you’re using a high-quality carbon methodology, it will take years before you produce carbon credits you can sell to recover those funds.   

A normal business would solve this problem by getting a loan. But carbon projects are not normal businesses – at least, not yet. The future prices of credits on the voluntary carbon market are hard to predict, and even the rules which govern these markets are in a state of flux. Furthermore, because we are measuring dynamic changes in nature, it is difficult to predict exactly how many carbon credits our projects will produce. These uncertainties scare lenders and investors, who respond by demanding very high interest rates on loans to carbon credit developers. This leads to the majority of the value of the projects going to the investors, not to the buyers or the landowners for whom the system is intended to work. 

Additionally, buyers experience the several pain points to when buying carbon credits:  

• Long, drawn out discovery and due diligence processes, typically behind closed doors, which has to be repeated over and over again.  

• Lack of price transparency, making it so buyers must “shop around” to several projects to even get a sense of whether what they’re paying is reasonable. 

We believe there is a better way – a way to create contracts which more directly tie buyers and landowners to one another as true partners in a great enterprise. A way which reduces the friction, opacity and transaction costs of the current market.

And today we are excited to announce our latest innovations for the carbon market:   

• a new kind of buyer contract, which balances risk between landowner, developer and buyer through milestone-based prepayments for a portion of the contracted carbon credits 

• A new way of engaging in negotiations and due diligence: the American Forest Foundation Carbon Auction 

A New Kind of Contract

A new form of carbon contract, in which buyers agree to pay a portion of upfront costs as milestones are achieved (at a discount against the future credit price), and the remainder upon credit delivery will deliver more of the technical and financial benefits of the carbon market directly in the hands of rural communities and landowners. This type of contract gives landowners confidence that, if they sign a contract, there will be resources to help them fulfill it. And the developer doesn’t have to go get capital at punishing interest rates, and as a result can create high-quality credits at a lower price to the buyer.   

And what are those milestones? For FFCP, we ask companies to make payments as we complete the enrollment of an annual cohort of landowners. This allows us to ensure we have enrolled sufficient acreage to meet future credit obligations and greatly reduces the risk for companies, as they are only prepaying once landowners have been enrolled and MRV plots installed.   

That explains the contract – but why an auction?   

The American Forest Foundation Carbon Auction 

The American Forest Foundation Carbon Auction offers a new streamlined and transparent way to buy carbon credits. An auction will provide buyers much more transparency and insight into the projects and credits on offer. Every registered auction participant will gain access to a data room several weeks before the auction launches. This room will have all of the documents that they require to do their due diligence. They will have access to FFCP staff to ask follow-up questions or seek clarification. What’s more, they will know with 100% confidence that what they are seeing is the exact same as every other buyer is seeing.   

Part of what they will see is a transparent view of the expenses FFCP incurs to create a high-quality carbon credit. They will be able to see where the money goes. Furthermore, through the auction itself, they will see what others in the marketplace are willing to pay for those credits and adjust their bids accordingly.   

Together with the new contract introduced above, the auction will also reduce in lower prices for buyers, because the cost of capital charged by third-party investors is eliminated by the pre-payment structure – in other words, the buyer decides the cost of capital for the project in the process of making their bid.   

How It Will Work 

Companies should indicate their interest in learning more about the auction by signing up at affauction.org. This will ensure they get the latest news on the auction, and access to webinars and other resources we’ll be releasing through this year. 

In January, we will open the auction’s data room, and all the documents necessary for a buyer to do due diligence will be available for inspection. As buyers review the materials, FFCP staff will be available for calls to answer any questions. 

When the auction takes place on March 12-19, removal and emission reduction credits will be available for auction, with the majority being removal credits. Buyers will bid on four different terms:   

• Volumes desired from the 2032 through 2036 issuance 

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

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

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

Buyers will be able to make multiple bids and see competing anonymous bids. After the auction, the winning bidders will have the opportunity to pursue further due diligence before finalizing their purchase.  

Join Us! 

We are going to learn a LOT in this process, and it’s our goal to share whatever we learn with the broader community. If you want to participate – or even if you just want to learn alongside us – visit affauction.org and register your interest in the auction.