$1.8 Billion Bet on the Carbon Markets

A consortium led by Oak Hill Advisors bought 1.7 million acres of hardwood timberland for $1.8 billion to reduce logging and boost forest carbon deals.

Oak Hill Advisors, made one of the largest timberland purchases in the U.S. Oak Hill is a subsidiary of T. Rowe Price Group Inc. They can tap into the $57 billion of assets under management to get the $1.8 billion for 1.7 million acres of forest it bought from The Forestland Group (TFG).

Oak Hill Acquiring TFG for Forest Carbon

The Forestland Group manages natural forests to deliver financial returns, climate mitigation, and ecological impact. It’s a liquidating investment firm that raised funds from endowments, rich individuals, and other investors.

TFG bought the timberland from families and small mills, reaching 2.3 million acres of forestland. Out of that, 1.7 million acres now go to Oak Hill.

The group’s strategy in managing forests differs from its rival investors. Instead of focusing on monoculture timber or crop plantations, TFG opted to focus on regenerating forests naturally.

Their 56 properties are mainly hardwood forests. They range from Michigan’s Upper Peninsula down to Louisiana’s Atchafalaya Basin, over to the Apalachicola River in Florida, and up to New York’s Adirondack Mountains.

Those properties span 17 states in the eastern region, which will be under the management of Anew Climate LLC’s subsidiary Bluesource Sustainable Forests.

Oak Hill partnered with Anew to learn how much carbon the trees can store. That’s in preparation for the firm’s acquisition of TFG and takeover of its timberland management.

The acquired forestland from TFG and previous purchase of 100,000 acres more made the investment firm one of the ten largest timberland owners in the U.S. And among them, Oak Hill Advisors is the only one focusing on forest carbon markets. The rest are busy supplying the timber and pulp mills.

Managing Oak Hills’ forest carbon deals rests on Anew which seeks to reduce logging. In fact, Anew aims to earn only 10% – 20% from wood harvests. Whereas 80% – 90% has been the previous owner’s (TFG) targets.

According to the Anew unit head, Jamie Houston:

“We’re really going to be focused on forest health. We’re thinking about this in decades, not years.”

Trailing the Carbon Offset Market Growth

While timber firms are busy cutting down trees, other businesses are also looking for ways to cut down their carbon emissions. This led to the forest carbon credit market boon.

Forest carbon credits or offsets are meant to incentivize timberland owners to log less for trees to continue storing carbon. Entities can then buy and use those credits to offset their emissions under regulation.

But apart from regulated emissions under the so-called cap-and-trade system, forest carbon credits are also popular in the voluntary carbon market (VCM).

In the VCM, companies can voluntarily use the offsets in their carbon accounting. Prices for carbon offsets vary, depending on types and terms.

As per the Bank of Montreal (BMO) estimates, the VCM has the potential to grow 6.5x by 2030 ($50 billion). By 2050, its growth would be 17.4x relative to 2020 volume. This growth will be likely driven by companies in need of offsets as part of their climate goals.

Forestland owners have a big role to play in creating carbon credits, which are priced higher in the market than other offsets.

While some timberland owners are eager to produce forest carbon credits, Oak Hill and Anew say they’re not in a hurry. They prefer to let more carbon sinks into the trees as the market matures.

Anew’s Plan For Forest Management

Anew is one of the top providers of offset credits from improved forest management, carbon capture, and other projects.

In the coming winter season, Anew plans to dispatch foresters to get baseline volumes of biomass carbon storage. It will be the basis of measuring carbon captured by the trees.

For instance, one forester has been using a laser hypsometer to measure trees in woodlands.

Anew will allow the forest understory – the layer of shrubs, small trees, and vines between forest floor and canopy – to grow.

One reason for this strategy, according to the former TFG president who now joined Oak Hill, is that:

“…there was less competition to buy slow-growing deciduous forests that supply wood for furniture, flooring and cabinetry than for the stands of softwood, such as pine, that are harvested to make lumber and mashed into pulp for delivery boxes and coffee cups…”

Anew is reducing wood harvests and seeks to promote the growth of all the trees, not only those that mills value. In a sense, what would be wasted in a typical harvest has value in forest carbon credit markets. And that includes holly bushes, a towering beech, and a black cherry bent.

Oak Hill initially aimed to buy $500 million of timberland. But it was able to convince more investors to buy all of TFG’s holdings. And so, there are over 150 foresters dispatched to size up each property.

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