TotalEnergies of France makes what is likely the largest-ever purchase of carbon offsets from U.S. timberlands
A forester measures trees in a West Virginia forest owned by Aurora Sustainable Lands. The forest is part of a carbon-offset project that will generate emissions credits for oil company TotalEnergies.
A French oil giant is paying $100 million to keep American trees standing.
TotalEnergies is purchasing carbon credits that cover timberland in 10 states ranging from the Louisiana lowlands to the Lake States, the Adirondack Mountains in New York and the Appalachian Mountains in West Virginia and Kentucky. The outlay is likely the largest ever in the opaque market designed to forestall tree harvesting in the U.S.
The idea behind the offsets is that rather than cut down trees for wood, leave them standing and absorbing carbon dioxide from the atmosphere as they grow.
Companies often voluntarily purchase offsets to satisfy their own emissions targets rather than to meet regulatory mandates. Those sold by major U.S. timberland owners have been a fairly resilient pocket in a carbon-credit market otherwise plagued by allegations of fraud and overstated environmental benefits.
TotalEnergies said it is amassing offsets to make up for greenhouse-gas emissions that it cannot eliminate by 2030. Before this year, it had committed $725 million to offsets generated by preserving or restoring natural carbon sinks around the world, including wetlands and forests.
The seller in its latest purchase is Aurora Sustainable Lands, which was created two years ago to carry out Wall Street’s biggest wager yet on forest offsets. Investors led by T. Rowe Price Group subsidiary Oak Hill Advisors—best known as a corporate-debt investor—paid about $1.8 billion for nearly 1.7 million acres of hardwood forests spread over 17 Eastern states. The latest sale will involve about 740,000 acres.
Aurora has since reduced harvest volumes by more than 50% on the properties, said Aurora Chief Executive Jamie Houston.
“Historically, harvests were based on creating the highest timber revenue,” Houston said. “Now harvests are based on creating a multidecade carbon sink on all of these properties.”
In some cases, that means cutting down trees, such as planted pine, and letting the plots reseed naturally from nearby hardwoods. In others it means leaving alone trees that live long and grow large, such as the cypress in Aurora’s Louisiana woodlands, Houston said.
Aurora has initiated carbon projects—which involve a lot of tree measuring—and is generating offsets on all of its properties, he said.
Aurora sold more than $100 million of offsets to various buyers last year. It sold another bunch to Microsoft this year in a deal arranged, like the one with TotalEnergies, by its partner, Anew Climate.
Anew determined how much carbon is on the properties, registered the offsets with accrediting groups and found the buyer, said Josh Strauss, Anew’s president of environmental products. It also manages verification, he added.
“They use the highest available voluntary-market standards,” he said.
TotalEnergies declined to say how many offsets the $100 million will buy and the exact time frame for the deal. Each offset represents 1 metric.
Prices for most voluntary forest offsets are negotiated privately and not widely known. Weyerhaeuser, the largest U.S. private landowner, late last year sold voluntary offsets associated with reduced logging in its North Maine Woods timberlands for $29 apiece.
That is much higher than in the broader global market for various emissions offsets, which has been beset by allegations of fraud and greenwashing. Studies and news articles have shown some projects had vastly overstated their impact on emissions.
A glut of voluntary emissions offsets and concerns about quality have depressed prices for many types of carbon credits around the world. Offset futures prices have plunged from about $12 in November 2021 to less than $1 recently, according to Bank of America analysts.
The Commodity Futures Trading Commission, which oversees U.S. derivatives markets, said last year that it would make policing carbon offsets a priority. The Biden administration in May issued guidelines aimed at bolstering trust in voluntary carbon markets.
TotalEnergies said it would use credits to offset Scope 1 emissions, which come directly from its operations, and Scope 2 emissions from its energy purchases. Those are the types of emissions that the Securities and Exchange Commission said it will require companies to disclose starting in fiscal year 2026.
Many of the carbon offsets that TotalEnergies is buying are associated with forests in West Virginia.
Adrien Henry, vice president for nature-based solutions at TotalEnergies Exploration & Production, said that although the company is buying offsets at a clip of about $100 million a year, it is giving priority to reducing emissions over the remainder of this decade.
“We will start offsetting some of our residual emissions in 2030 and ramp up so that in 2050 TotalEnergies is net zero,” he said. “The rest of the journey is avoiding and reducing emissions by a lot of other actions.”
Write to Ryan Dezember at ryan.dezember@wsj.com
Source: WSJ