Holding the rise of global temperatures to 1.5 degrees Celsius above preindustrial averages, an ambition specified in the Paris Agreement, will require cutting net emissions of greenhouse gases roughly in half by 2030 and to zero by 2050. This environmental priority is converging with another one: the protection of nature, which sustains over half of the global economy. Both priorities, while formidable, can nevertheless be met with various solutions. Of these, one group has noteworthy promise: natural climate solutions (NCS), which consist of conservation, restoration, and land-management actions that either prevent emissions or remove carbon dioxide from the atmosphere.
Analysis by the World Economic Forum and McKinsey suggests that NCS could provide up to one-third of the emissions reduction needed to achieve a 1.5-degree pathway—at a lower cost than other methods of emissions abatement—while also stemming the loss of nature. Based on a recent report from the Forum and McKinsey, here is a look at why NCS offer so much potential, and how companies, governments, and other stakeholders can bring NCS to scale.
Demand for NCS is climbing, and their potential is significant
In 2020, the carbon credits from NCS that were purchased on voluntary markets accounted for the abatement of about 32 MtCO2 of emissions. That amount represents about 40 percent of all the voluntary carbon credits that were retired—considerably more than the 5 percent of carbon credits, equivalent to 0.35 MtCO2, that NCS yielded in 2010.
The increase in demand for NCS credits could continue. Net-zero commitments by companies have more than doubled in the past year, and the scale of NCS and offset pledges is rising accordingly. Based on net-zero pledges from more than 700 large companies, there are already commitments to buy about 0.2 GtCO2 of carbon credits by 2030.
Companies such as Unilever and PepsiCo have committed specifically to using NCS to satisfy demand for carbon credits. Some are also investing directly in nature. For example, Amazon is investing $10 million to restore 1.6 million hectares of forest in the United States, and Nestlé is investing in ending deforestation and forest restoration in Ghana and Côte d’lvoire.
While exact estimates vary, to reach a 1.5- or 2-degree warming pathway by 2030 would require a roughly 50 percent reduction of net emissions—about 23 Gt CO2—by that year from 2019 levels. NCS could deliver up to one-third of this net emission reduction, from eight high-potential solutions.
Investments in nature can be economical and broadly beneficial
Abating emissions with NCS typically costs less than technological solutions such as carbon capture, utilization, and storage. What’s more, many forms of NCS are available to be deployed immediately, without technological breakthroughs. In most cases, NCS cost between $10 and $40 per ton of CO2, with variations between geographies and project types. Avoided deforestation has the greatest abatement potential overall, but also some of the highest costs (for example, approximately $30 per ton of CO2 in Brazil and Indonesia).
Another reason why NCS deserve attention is that investments in nature can, if made well, produce an array of co-benefits in addition to emissions abatement. Analysis carried out by the Woodwell Climate Research Center shows that the three largest NCS, by emissions-abatement potential, also have environmental co-benefits for biodiversity, soil health, and water quality.
Scaling up natural climate solutions can therefore help close the biodiversity–finance gap, which was recently estimated at between $722 billion and $967 billion per year over the next 10 years. At 7 GtCO2 in annual potential by 2030, at an illustrative price per ton of $20, capital flows toward NCS could exceed $100 billion.
Opportunities to deploy these funds exist across the world, especially in the Global South. Rural communities, in particular, can benefit from the climate resilience that NCS can create. Restored coastal wetlands, for example, can absorb incoming wave energy, reduce flood damage, and provide protection from storms; healthier soil increases the resilience of cropland; and fire management can mitigate the risk of catastrophic wildfires.
Unlocking the potential of natural climate solutions
While NCS have ample potential to help address climate change and nature loss, some technical and conceptual hurdles, as well as institutional failures and poor experiences of past schemes, have undermined stakeholders’ confidence that NCS can be effective. Six actions can help overcome these challenges and create certainty for buyers, suppliers, and regulators.
- Define net-zero and corporate claims—There is an urgent need to clarify the role of NCS in sector-specific net-zero strategies. One possible approach involves a company using carbon credits to compensate for its entire footprint today, as an interim measure while on a transition pathway towards net zero. Truly unavoidable emissions after full decarbonization could be offset only with removal credits, and companies taking this path could claim net zero.
- Highlight good practice for supply—In recent years, concerns about the validity of NCS credits have been raised repeatedly. Most notably, there are questions about the additionality of NCS projects (meaning whether the emission reduction would have occurred without a carbon-crediting program). To expand quality supply, participants in these ecosystems will need to highlight good practices for mitigating environmental and social risks so that others can follow the same course.
- Send a demand signal—Carbon markets in general and NCS markets in particular have experienced years of oversupply and low prices. A demand signal would unlock the supplies needed to meet net-zero announcements. It would require high emitters coming together to prioritize NCS credits with high co-benefits over other types of credits. In practical terms, this means a willingness to pay a premium.
- Improve market architecture—Several interventions identified by the Taskforce on Scaling Voluntary Carbon Markets would help create an appropriate infrastructure for NCS markets. One is creating reference contracts that define the additional attributes of a carbon credit (such as source, region, and co-benefits) so these can be priced along with avoided emissions. Others call for creating registries to aggregate market data, developing high-volume trading infrastructure, improving liquidity and financing, and supporting intermediaries that can aggregate supplies of credits for buyers.
- Create regulatory clarity—While many barriers to scaling up NCS are technical, others are political. Overcoming these requires stakeholder collaboration, international consensus-building, and coherent policy frameworks in line with international climate goals. Countries can help build domestic markets for NCS; implementation and accounting methods for projects need to be clarified; voluntary and compliance markets for carbon credits need to be connected; and international markets could facilitate cross-border transfers and capital flows.
- Build trust—While there is disagreement about some conceptual approaches to using NCS, there is general agreement on the need for NCS as part of a net-zero strategy as well as the urgency to provide new sources of finance for forests. A coalition of high-level champions could amplify best practices, highlight advances in measurement and verification to increase credibility, and endorse scientific advances towards net-zero certification.
NCS can help address the converging crises of climate change and nature loss, while delivering sustainable development in line with the United Nations Sustainable Development Goals (SDGs). If businesses, governments, and civil-society organizations combine their efforts, they can create the mechanisms, guidelines, and confidence that are needed to unlock markets for high-quality NCS and accelerate their growth.