Nature-based climate credits a path forward for cap-and-trade

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OPINION – Almost 25 years ago, I helped write the pioneering legislation that first allowed California landowners to earn money for protecting their carbon-absorbing forests, a key foundation for what would become the state’s groundbreaking cap-and-trade program. The goal was to use the enormous power of forests to help solve the climate crisis while also providing a tool to manage the overall costs of reducing carbon pollution, as forest projects are the most cost-effective method to do that. California has proven that market-based climate policy using cap and trade works. Now, the stakes are particularly high, as lawmakers must reauthorize the cap-and-trade program before it expires in 2030.

One thing is clear from the current reauthorization debate — cap-and-trade faces a crisis. Federal uncertainty and threats to state climate programs have caused allowance prices to plummet from $42 to $26 per metric ton, costing California up to $3 billion in potential revenue this past year. This revenue crisis comes at the worst possible time, as climate impacts intensify, affordability concerns mount, and the need for cost-containment becomes urgent.

Our current cost-containment model relies solely on carbon offsets as the “alternative mechanism” to reduce carbon pollution. Nearly 50% of offset projects occur out-of-state with no direct benefit to Californians. While allowance auction revenues fund climate projects through the Greenhouse Gas Reduction Fund, this indirect approach is inefficient, both in time and money.

California needs to augment its current cost containment options while ensuring more adaptation benefits for residents. Fortunately, there’s an innovative solution that should be on the mind of every lawmaker as they consider what’s next for cap-and-trade: Nature-Based Climate Credits.

Unlike current offsets, these credits would come from a carefully selected portfolio of California conservation projects. NBCCs would direct conservation and restoration investments in California’s forest, agricultural, and other natural and working landscapes. Sales of the credits would provide hundreds of millions in annual funding for the state for strategic climate investments and support a revolving fund for additional investments in conservation and climate resilience. It would create a diversified pool of credits, a lower-risk approach than from any single project alone, and expand the market mechanisms to direct funding towards California’s comprehensive and extremely urgent climate needs.

Here’s how this would work in practice: A California forest landowner wants to protect their forest and all the benefits it provides, and is willing to manage it to increase the older, more carbon and habitat-rich, fire-resilient forests we need. The state would fund the purchase of a Working Forest Conservation Easement on that forest, which would permanently protect it, underpin its climate-resilient ecological management, and yield sustained timber production. This single investment would lock in increased carbon storage, reduce wildfire risk, protect the watershed, preserve wildlife habitats, and maintain forest-related jobs in rural communities. Companies get reliable carbon reductions, landowners maintain economic returns, and California gets lasting water security, improved fire and climate resilience, as well as ongoing revenue to invest in more climate action.

This approach aligns perfectly with California’s broader climate strategy. The state’s targets for nature-based climate actions announced in April 2024 show these landscapes have the potential to achieve at least 400 million tons of carbon emissions reduction in the very near term (5-10 years), both faster and more affordably than other sectors like energy or transportation.

Just as California has long led the nation in climate innovation, from vehicle emissions standards to renewable energy requirements, NBCCs would be a model for the rest of the nation on how to work with land for climate benefits.

The California Air Resources Board has the authority to create alternative ways for complying with our climate policy. The legislature needs only to establish the broader framework and goals. Our natural and working lands offer an unprecedented opportunity to achieve both climate mitigation and adaptation, all while lowering the costs of overall program implementation. Fundamentally reimagining our market mechanisms can better align with both public and private interests.

Having spent more than two decades working to harness California’s forests and other lands in the fight against climate change, I’ve seen both the power and the limitations of our current approach. Relying solely on traditional offsets will not get us where we need to be.

Nature-Based Climate Credits offer a path to affordably and rapidly reduce emissions, while increasing adaptation and advancing the state’s larger water, biodiversity, and conservation goals.

Laurie Wayburn is the cofounder and president of Pacific Forest Trust.