Manulife Investment Management, the world’s largest manager of natural capital, overseeing almost $15 billion in assets involving timberland and agriculture, has revealed the initial close of its Forest Climate Fund or FCF. 

Manulife’s FCF, launched last year, is a strategy that involves producing carbon credits through natural carbon sequestration. It is a closed-end fund intended to provide U.S. investors and select institutional investors an opportunity to champion climate change mitigation through the stewardship of sustainably managed forests.

Around 70% of the fund will be invested in carbon projects.

The goal is to prioritize carbon sequestration over timber harvesting. Alongside its affiliated offshore entities, the fund has garnered commitments amounting to around $224.5 million. The fund aims to reach its targeted offering of $500 million. 

Generating High-Quality Carbon Credits

The strategy’s investment goal centers on enabling investors to engage in timberlands managed to produce high-quality carbon credits through enhanced sustainable forest management practices.

By increasing the amount of carbon stored in forests, the projects not only generate credits but also mitigate global warming. The strategy also includes establishment of new forests through afforestation or reforestation, generating high-quality credits while securing sustainable timber value. 

By leveraging carbon credits, conservation easements, and limited timber harvests, the fund aims to capture potential climate benefits while ensuring competitive financial returns for investors. 

The financial success of carbon projects like these hinges on future predictions of carbon prices. And estimations often show an optimistic outlook in this regard. 

Historically, forest carbon credits have faced notable pricing fluctuations, particularly within voluntary carbon markets, often characterized by relatively low prices. However, the scenario has been shifting due to the surge in net zero commitments made by both companies and investors. 

Forestry projects accounted for 30% of the total carbon offset credits issued by voluntary registries in 2022. These projects come in various types including improved forest management (IFM) and afforestation/reforestation.

According to an analysis by Haya et al. (2023), IFM projects have produced 193 million carbon offset credits since 2008. That amount accounts for 28% of the total credits from forest projects and 11% of all credits generated in voluntary markets.

Moreover, there’s also a growing perception of natural climate solutions as having high value. These factors contribute positively to the upward momentum in carbon pricing. 

RELATED: Carbon Pricing: Understanding The Economics and Trends of Fighting Climate Change

FCF and the Voluntary Carbon Market

Despite a number of investigations revealing the weakness of forest carbon sequestration, investors are still interested in natural climate solutions. In fact, projections show that carbon reductions initiatives involving forests and other natural environments will continue to expand. 

Highlighting their expertise and experience in sustainable forest management, Eric Cooperstrom noted that: 

“The Manulife Forest Climate Fund expands on our decades of sustainable timberland management experience and is one of the natural climate solutions we have developed to sequester carbon more intensively and drive broader impact.” 

Manulife plans to allocate the carbon credits to investors via direct in-kind transfers. This will allow them to use the credits to fulfill their individual climate objectives or potentially monetize them in voluntary carbon markets through offset sales to attain financial value.

Carbon offsets are sold through various exchanges, online marketplaces, and directly via carbon projects that reduce or remove emissions. 

Manulife’s current portfolio of sustainably managed forestry assets cover the U.S., Canada, Australia, New Zealand, and South America. Overall, it oversees around 5.5 million acres of timberland, with majority in the U.S., representing over 95% of improved forest management carbon credits issued and retired. 

Forestlands are one of the most valuable nature-based solutions to fight climate change. Climate investors find that protecting forests (REDD+) is important to win the fight against the climate crisis. 

Manulife’s Forest Climate Fund is a carbon-focused impact investment strategy. It’s the company’s first natural capital fund recognized under Article 9 of the European Commission’s Sustainable Finance Disclosure Regulation (SFDR). 

Natural capital strategies that produce carbon credits have expanded recently. But the way they distribute the credits differ. 

Stafford Capital Partners also launched its own forest carbon credit fund early this year, the Carbon Offset Opportunity Fund. The fund raised $242 million in investor commitments from three UK local government pensions schemes.

READ MORE: Stafford Capital’s Forest Carbon Credit Fund Secures $242M

By prioritizing carbon sequestration over timber harvesting, Manulife IM’s Forest Climate Fund exemplifies a commitment to carbon reduction and sustainable forest stewardship. Manulife’s innovative approach aims to generate high-quality carbon credits while ensuring both environmental impact and financial returns for investors, bolstering the fight against climate change.

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Canada’s NDP Leader Jagmeet Singh advanced a motion in the House of Commons, keeping the carbon pricing debate alive by urging Prime Minister Justin Trudeau to permanently remove the GST (Federal Goods and Services Tax) from all forms of home heating. 

Meanwhile, concerns were also raised about missing Canada’s emission reductions target as revealed by a recent audit. The debate between the two parties on carving-out the carbon tax seems to impact the nation in reaching its climate goals.

A ‘Flip-Flop’ Stance

NDP’s move, focused on affordability, aligns with the New Democrats’ ongoing advocacy but has gained renewed attention. That is due to the recent controversies surrounding the Liberals’ exemptions for home heating oil and rural rebate enhancements. 

Singh’s proposal is non-binding, meaning it won’t compel the government to act even if it passes. It aims to achieve three major objectives:

Remove the GST from all home heating forms,
Ensure easy access to eco-energy retrofits and heat pumps for low-income and middle-class Canadians 
Fund these initiatives through a tax on the excess profits of major oil and gas corporations.

The motion was debated with the vote expected later in the week. 

Despite the NDP’s support for the Conservative carbon tax motion, there’s uncertainty about the reciprocity of support from the Conservative caucus for the NDP’s current motion.

During the House debate, Conservative Leader Pierre Poilievre criticized the NDP for “yet another flip-flop” in their stance on the tax issue. 

Singh responded by challenging the corporate-controlled Conservatives to support the motion. He further highlighted their priorities in protecting big oil and gas profits over helping Canadians lower their costs and combat the climate crisis.

The Liberals have consistently advocated for carbon pricing based on its universal application. The purpose of the tax is to discourage planet-warming emissions by making them more costly to bear. This policy would allow Canadians only to pay based on how much carbon they’re releasing into the air.

RELATED: Canada Launches Carbon Pricing Initiative at COP27

The current administration, for example, charges $65/tonne of CO2. That translates to 14 cents for each liter of gasoline, 10 cents for propane, and $145/tonne of high-grade coal. 

‘Ax The Tax’

The tax exemption, a.k.a. ‘carve-out’, further complicated the Liberals’ established stance that any inequalities resulting from the tax could be corrected with targeted rebates. 

The concept means that all Canadians would face the same fuel prices. However, those with lower incomes or residing in rural areas without public transportation would receive a proportionately larger portion of the refund.

With the exemption, the Liberals provided a pardon for an exceptionally polluting fossil fuel that could predominantly benefit the wealthy. That’s according to the findings of an economist, noting that it would favour “households with large houses MORE than low-income households living in higher density homes”.

As for the Conservatives, abolishing the tax is one of their major lobbies. The party has mentioned the never-heard-of phrase in over 150 years in the House of Commons’ transcripts – ‘ax the tax’ – more than 100 times. 

Meanwhile, the Senate also advanced Bill C-234, suggesting further exemptions in the carbon price for specific fuels used in farming. The bill, if passed, would create exemptions for natural gas and propane as qualifying farming fuels from the carbon tax. 

RELATED: Canada Reveals $2.6B Carbon Capture Tax Credit

Sen. Pat Duncan particularly noted by asking that: 

“Will allowing this rebate and passing Bill C-234 make a tremendous difference to Canada reaching the climate change goals?”

That question points to another significant result of the federal environment commissioner’s recent audit. That is Canada’s plan to achieve its 2030 greenhouse gas emissions targets falls short of the mark.

Missing The Target

Canada’s emission reductions plan, published last year, is a requirement under the federal net zero accountability law passed in 2021. The following chart shows Canada’s 2030 Emissions Reduction Plan per sector.

According to the audit, while the plan represents an improvement over previous versions, it still lacks in critical areas. Key policies have experienced delays, the functionality of established measures remains unclear, and the country is several million tonnes away from its emissions goal.

The auditor, Jerry DeMarco, emphasized the urgency of reversing Canada’s GHG emission trajectory, stressing that the issue demands immediate attention. 

The nation aims to reduce emissions by 40% – 45% from 2005 levels by 2030. That calls for a ⅓ reduction in Canada’s current emissions by the same period.  

However, the measures outlined in the plan are projected to achieve just a quarter of the reduction by decade’s end. That happens due to relying on government modelling which DeMarco referred to as “overly optimistic assumptions”.

Though the plan identifies more than 80 policies and programs, less than 50% have set timelines for implementation. In fact, only 4 of them have specific targets for emissions reduction. 

In comparison with other G7 nations, Canada’s emissions have only decreased by around 8% compared to 2005 levels. As such, the country is the least successful in cutting emissions within the group. 

In response to the findings, Environment Minister Steven Guilbeault acknowledged the existing gap between the target and necessary policy actions. He pledged the government’s commitment to accelerating efforts and improving transparency in its modelling to show how it intends to achieve the 2030 target. 

Guilbeault also hinted at positive developments in the upcoming progress report due before the year’s end.

The NDP’s motion to scrape the tax from home heating intensifies the debate on carbon pricing and emission reductions in Canada, underscoring the challenges faced in meeting the nation’s climate goals.

READ MORE: Carbon Pricing – The Economics and Trends of Fighting Climate Change

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The calculation of emissions, particularly in the realm of energy consumption, is a complex process that requires careful consideration of various factors. Two primary methods, location-based and market-based emissions reporting, play a critical role in understanding your company’s carbon footprint. 

This article delves into the intricacies of both methodologies, offering insights into their distinct calculations and implications for businesses.

Both location and market based emissions reporting applies to two emission categories: scope 2 or purchased electricity and scope 3 or fuel and energy related emissions. Let’s break down each method starting with location-based emissions. 

Understanding Location-Based Emissions 

Location-based emissions refers to what you physically consume at your operations site or business facility. It’s calculated using solely the average emission intensity of the local grid where you source power. 

That means a location-based method doesn’t factor in any green measures you’re adopting such as renewable energy credits (RECs). So, location-based emissions would be the same regardless if you use RECs but would be different vs. your market-based emissions. 

RELATED: What are Renewable Energy Credits vs. Carbon Credits

For a clearer understanding in determining your location-based emissions, let’s use an example of a business in L.A., California. You can find the actual emission factors for your local power grid from the International Energy Agency (IEA) database.

Now, let’s calculate. First step is to get the emissions factor for the average CO2 or GHG intensity of the LA power grid, expressed in kg of CO2e per kWh. Then let’s multiply that emissions factor by the building’s electricity consumption to get Scope 2 emissions. 

Here’s the formula to keep in mind: kWh of electricity used  x  local grid emissions factor = Location-based Scope 2 Carbon or GHG Emissions

To get location-based emissions for your Scope 3, simply do the same with the upstream emission factor.

The idea behind calculating and reporting Scope 2 location-based emissions is that everyone in the same power grid is equal. Nobody gets exception and everybody shares the same emissions of the grid based on the amount of electricity they consume. 

Given the formula above, one option to reduce your location-based emissions is to just decrease overall energy use. Or you can increase on-site renewable energy generation used directly by your office building or production facility. 

Understanding Market-Based Emissions 

Unlike location-based methods, the calculation for market-based emissions focuses on the individual company and its contract agreements in the market. Market-based emissions are associated with energy a company purchases, which is different from the power the local grid generates. 

There are various instruments or contracts involved in getting market-based emissions. These include these common ones:

Renewable Energy Contracts (RECs)
Direct contracts 
Supplier-specific emission rates 
The residual mix  

Calculating for these energy contracts or instruments should adhere to the GHG protocol Scope 2 emissions quality criteria. If they don’t, the company may still opt to report them separately for transparency. But they can’t be included in calculating market-based Scope 2 emissions.

So how does getting market-based vs. location-based Scope 2 emissions differ? 

As mentioned, market-based emissions take into account energy purchase agreements. So, taking the example provided above for location-based emissions, the California company is taking its electricity from the local grid. But they want to buy RECs from a renewable energy developer. 

RELATED: Amazon’s Carbon Emissions Take a Green Turn with Renewables

While that company still connects with and consumes power from the grid, the market-based method requires them to factor in emissions of the RECs. By doing that, the company can claim the emission reductions from the renewable energy supply instead of applying the emissions factor of the grid as the case with the location-based method.

Here are the steps to calculate market-based emissions using this formula: 

kWh consumed  x  Contract source emissions factor (EF) = Market-based Scope 2 CO2e GHG Emissions

Get the emissions factors for energy sources specified in the contracts (refer to GHG protocol quality criteria)
Multiple the power bought from a source by its specific emission factor. Do the same for all the sources in energy contracts and sum them all up. 
For electricity use emissions that’s included in your contracts, use the residual mix emission factor. 

Residual mix refers to the emission factor for the grid that excludes electricity generation claimed by your electricity contracts.

A quick tip: choose higher precision EF wherever applicable when calculating market-based emissions as the GHG Protocols Hierarchy suggests.

This approach of measuring emissions is attributed to the same energy consumed used in calculating location-based emissions. When you determine Scope 2 emissions using both methods, you don’t sum them up, but disclose them separately. 

The goal is to report these two emissions side-by-side to show different stories about the same activity data. 

Comparing Location-Based and Market-Based Emissions 

With the differences in calculating Scope 2 emissions, which method should you use?  

Given the more detailed and accurate market-based emissions, you might opt for this calculation method. After all, carbon accounting must prioritize accuracy and market-based emissions are more specific to your business operations. 

However, calculating market-based is a bit trickier. You need to have a clear understanding of your contract emission factor or know if it’s 100% renewable. It matters a lot as shown in the formula, but it doesn’t fully capture the actual emissions of your energy use. 

On the contrary, the location-based method does show it. 

According to the World Resources Institute, “the location-based method reveals what the company is physically putting into the air, and the market-based method shows emissions the company is responsible for through its purchasing decisions”. 

In other words, both methods tell different sides of the story that’s essential in showing your company’s CO2 footprint. From there, you can decide the corresponding carbon reduction strategies to adopt. 

The GHG Protocol provides a comprehensive comparison between the two carbon accounting methods, including their applicability, most useful scenario, and what they miss out. 

Market-Based Vs. Location-Based Emissions Method

Borrowed from GHG Protocol

Policy Implications and Carbon Offsetting

Electricity sourced from a grid lacks differentiation and cannot be distinguished based on its origin. Even if your company buys renewable energy credits (RECs) or similar instruments, they don’t significantly alter or lower your emissions. They also don’t enable a complete disconnection from the grid, unless you establish your own self-sufficient power generation. 

You can account for RECs and other carbon credits in your company’s carbon offset inventory. However, they should be accounted for separately as a unique inventory line item and not included in calculating emissions from purchased power. 

In contemporary electricity grids worldwide, such as those in the U.S, Canada, and Germany, integrating renewable energy does not result in disconnection from the local electricity grid. Rather, electricity generated by your renewable energy system is often sold back into the grid, with net metering commonly employed. 

Consequently, you continue to use grid electricity, with any surplus clean energy benefit shared by all grid users. This integration leads to a reduction in the grid’s overall carbon intensity, a factor that’s useful in accounting for location-based Scope 2 emissions.

Location-Based vs Market-Based Emissions: Closing Thoughts 

As new guidance and regulations on carbon accounting and reporting corporate emissions are strengthening, companies should know the basics, at the very least, of factoring in their harmful emissions. Knowing the different methods for accounting emissions, be it location-based or market-based, and their nuances is crucial. 

READ MORE: Climate Disclosure – New Corporate Standards for Net Zero

While market-based emissions provide a more granular and specific picture of a company’s carbon footprint, the location-based approach offers transparency about the physical emissions generated at a site. 

Recognizing the distinct stories presented by each method allows you to develop effective carbon reduction strategies in line with your company’s or organization’s operational needs and environmental commitments. 

The post Market-Based Vs Location-Based Emissions: What’s The Difference? appeared first on Carbon Credits.

The U.S. Environmental Protection Agency (EPA) is urging states to establish their own regulatory frameworks for carbon sequestration. This ensued when lawmakers intensely questioned the agency’s limited permit issuances. 

In a congressional hearing, an EPA official expressed strong support for state efforts to acquire primary regulatory authority for Class VI wells used for underground carbon injection. 

What Are Class VI Wells and Their Role in Carbon Capture and Sequestration?

Class VI wells are used to inject carbon dioxide (CO2) into deep rock formations as illustrated below. This long-term underground carbon storage is called geologic sequestration (GS). 

GS is a type of carbon capture and storage (CCS), a technology used to reduce carbon dioxide emissions to address climate change.

Common sources of CO2 for geologic sequestration include carbon captured from point sources like from steel and cement production facilities. It can also be from energy production such as power plants or directly from the atmosphere. 

The potential for these wells to manage and safely sequester captured carbon is immense. For instance, the Colorado Geological Survey estimated 720 billion tons of CO2 could be safely stored in the state’s deep underground formations.

However, widespread development of CCS projects at scale has been slow, partly because of Class VI well permitting challenges. 

Despite reviewing over 150 permit applications from over 50 carbon sequestration projects, the EPA has only granted approval for 2 wells in Illinois thus far. A third project in Indiana is pending approval, which would mark the first permit issued under the current administration.

Recent legislation, including the bipartisan infrastructure law of 2021 and the Inflation Reduction Act of 2022, has allocated substantial funds for carbon capture and direct air capture (DAC) initiatives. 

RELATED: US to Invest $1.2B in DAC Projects Led by Climeworks and Oxy

2021 Infrastructure Investment and Jobs Act:

Allocated $5 million/year through 2026 to EPA to permit Class VI wells and another $50 million for the agency to distribute to states with their own Class VI permitting.
Allocated $2.25 billion investment for commercial large-scale carbon sequestration projects (storing 50 million metric tons of CO2) and associated pipeline infrastructure.

2022 Inflation Reduction Act (Changes to the Section 45Q tax credit scheme):

Amended the baseline credit to $17/ton of CO2 captured and stored, with the potential to increase to $85/ton.
Introduced a new 45Q credit for DAC and carbon sequestration – $36/ton and up to $180/ton.

Moreover, under the Clean Air Act, the EPA may mandate power plants to incorporate carbon capture technology to ensure compliance.

READ MORE: EPA to Regulate Gas-Fired Power Plants with Carbon Capture

Bruno Pigott, principal deputy assistant administrator at the EPA’s Office of Water, emphasized the role of the Class VI well application process in the success of these projects during the hearing. 

The EPA also initiated the application process for $48 million in grants funded by the bipartisan infrastructure law. The funding aims to expedite the deployment of technologies reliant on Class VI wells.

Amid discussions, an executive director of Carbon180, expressed optimism about the potential to reduce the costs associated with DAC. However, Burns underscored concerns regarding the need for a robust and efficient infrastructure, stating that:

“We’re going to need to store billions of tons of CO2, and we need a robust and well-functioning Class VI permitting process.”

Fixing Delays to Fast-Track Carbon Capture Efforts

The EPA has already given Class VI well primacy upon North Dakota and Wyoming, with Louisiana’s final approval still pending. Meanwhile, West Virginia, Arizona, and Texas have applications currently under consideration.

However, lawmakers have expressed frustration with the EPA’s protracted review period for states’ primacy applications, citing Wyoming’s nearly 3-year-long process. 

During the hearing, Pigott was questioned on the substantial delays of the permitting process, highlighting Louisiana’s role as a model for various elements of the application. The state received conditional approval in May this year after submitting an application in 2019. 

Over half the carbon sequestration projects awaiting permits for Class VI wells are in the Gulf Coast region. This includes Chevron’s carbon capture project Bayou Bend, covering 40,000-acre expanse on the region.

READ MORE: Chevron Takes Part in First-Ever Carbon Capture Project Offshore

The EPA acknowledged the concern and said that the agency is currently sifting through tens of thousands of comments on the proposal to grant primacy to Louisiana.

The federal agency noted that states must meet the agency’s minimum standards and establish necessary administrative and enforcement programs to qualify for Class VI well primacy.

The EPA’s encouragement for states to establish their own regulatory frameworks for carbon sequestration reflects a concerted effort to fast-track the deployment of Class VI wells. While recent legislation has allocated significant funds for carbon capture initiatives, challenges in the permit issuance process underscore the need for a streamlined approach to bolster carbon sequestration projects nationwide.

The post Why US States Must Take Charge of Their Own Carbon Sequestration Regulation appeared first on Carbon Credits.