Q212 What is a forestry carbon sink and what are the financing models for forestry carbon sink?
1. Definition of carbon sink
Carbon sinks generally refer to the processes, activities, and mechanisms by which carbon dioxide is removed from the air. It mainly refers to the amount of carbon dioxide absorbed and stored by the forest, or the ability of the forest to absorb and store carbon dioxide.
Second, the type of carbon sink
As long as the substances in nature have the effect of absorbing and fixing carbon dioxide, such as oceans, forests, soils, rocks, organisms, etc., these can produce carbon sinks, so there are concepts such as forestry carbon sinks, grassland carbon sinks, cultivated land carbon sinks, soil carbon sinks, and marine carbon sinks.
Grassland carbon sequestration: grassland ecosystems have a strong carbon storage capacity, mainly fixing the absorbed carbon dioxide in the underground soil, the proportion of carbon sequestration of plants is small, only about 10%, and the carbon sequestration capacity of perennial herbaceous plants is stronger, with the implementation of the project of returning farmland to forest and grassland in the mainland, especially the carbon sequestration increment of degraded grassland is more obvious, so it can give full play to the carbon sequestration role of grassland. These potential carbon sinks will play an important role in the global carbon cycle. However, some scholars believe that the carbon sequestration of grassland is non-persistent and easy to leak, so the estimation results are uncertain.
Cultivated land carbon sequestration: Cultivated land carbon sequestration only involves the return of crop straw to the field for carbon sequestration, because the food produced by cultivated land is consumed every year, and its fixed carbon dioxide is emitted into the atmosphere, and part of the straw may be directly burned. Only the part that is used as an organic fertilizer for agriculture sequesters carbon dioxide into the soil of the cultivated land.
Soil carbon sinks: According to the "enzyme lock theory", soil microorganisms can act as carbon "traps" to reduce greenhouse gases in the atmosphere. However, in July 2021, the results of experiments published in Nature Communications showed that soil microorganisms can decompose polyphenols under anaerobic conditions and may release carbon dioxide, which is contrary to the "enzyme lock theory".
Ocean carbon sink: It is the process and mechanism by which the ocean acts as a specific carrier to absorb carbon dioxide from the atmosphere and solidify it. More than half of the planet's biocarbon and green carbon is captured by marine organisms (plankton, bacteria, seagrasses, salt marsh plants, and mangroves), and the amount of biocarbon sequestered per unit of ocean is 10 times greater than that of forests and 290 times that of grasslands.
Although there is more than one type of carbon sink, but can be developed and play the main role of "carbon sink", but only forestry carbon sink for the time being, the rest of the carbon sink related methodologies are being researched and developed, in comparison, forestry carbon sink has a relatively perfect policy and a wide range of cases worthy of study, therefore, this paper mainly takes forestry carbon sink as the carrier to carry out research.
Note: The enzyme lock theory suggests that in wetlands, peatlands, etc., soil microorganisms do not metabolize polyphenols when oxygen is not freely available. If polyphenols do not decompose in oxygen-free soil, it means that filling the soil with these compounds could become a carbon sink.
3. Definition of forestry carbon sink
At present, climate change has become one of the most serious challenges facing global sustainable development, and in this context, nature-based solutions have received extensive attention and development. In 2021, the State Council issued the Action Plan for Carbon Peaking Before 2030, which clearly put forward the major task of continuously consolidating and improving carbon sink capacity, and deployed actions to consolidate and improve carbon sink capacity.
As the main body of terrestrial ecosystems, the carbon sequestration capacity of forests will play a pivotal role in the response to climate change. With the proposal of the mainland's "dual carbon" goal, strengthening the carbon sink capacity of forestry is one of the key tasks of the mainland to ensure the smooth realization of the carbon peak and carbon neutrality goals.
Definition: Forestry carbon sink refers to the use of the carbon storage function of the forest, through afforestation, forest management and other activities, to absorb and fix carbon dioxide in the atmosphere, and in accordance with the relevant rules, the carbon sequestration amount of the project is traded for carbon sink trading, so as to achieve the purpose of reducing carbon dioxide emissions.
Importance: Forests are the largest carbon reservoir in terrestrial ecosystems, and play a very important and unique role in reducing greenhouse gas concentrations in the atmosphere and slowing down global warming. Expanding forest cover is an important and economically viable and low-cost mitigation measure for the next 30-50 years. Many countries and international organizations are actively using forestry carbon sinks to combat climate change.
4. Policy background of forestry carbon sequestration
The development of forestry carbon sequestration has long been the main content of the mainland's carbon sequestration policy, and it has been given more urgent requirements in the new era.
Forestry carbon sequestration is currently the most economical means of "carbon absorption" in the world. The Chinese government has always attached great importance to forestry, and since the late 80s of the last century, the mainland has vigorously carried out afforestation actions. To date, the area of forests on the mainland has nearly doubled. Over the past 40 years, the carbon sink contribution of the new forest area added by afforestation on the mainland has accounted for about 40%-50% of China's forest carbon aggregate, and about one-quarter of the world's new green area comes from China. In the past ten years, the mainland has completed a total of 1.68 billion mu of land greening, with a forest coverage rate of more than 24%, making the mainland the fastest growing country in the world.
China has pledged to the international community to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. A unified carbon emission trading market will be established across the country, and forestry carbon sequestration projects will be used as an important offset mechanism project in the national carbon market, which will not only help emission control enterprises achieve low-cost compliance, but also obtain additional financing channels for forestry and help promote the sustainable development of forestry.
5. Financing models for forestry carbon sequestration projects
In order to solve the specific financial dilemma of long development and maintenance cycle of forestry carbon sequestration projects, more capital needs and fewer actual financing channels, the mechanism and business innovation of financial support for forestry carbon sequestration continue to develop, exchanges, commercial banks, insurance companies and other institutions have made a lot of efforts and explorations in the financial application of forestry carbon sequestration, and have launched forestry carbon sequestration bonds, forestry carbon sequestration pledge loans, forestry carbon sequestration insurance, forestry carbon sequestration funds, forestry carbon sequestration forward trading, Forestry carbon sink repurchase and other financial instruments to support means, in order to promote the development of forestry carbon sink, to help the national "double carbon" strategic goal to achieve the specific content of the five financing models as shown in the figure below:
Forestry carbon sequestration bonds. The Catalogue of Green Bond-Backed Projects (2021 Edition) issued in 2021 clarifies that carbon sequestration forests can apply for green bonds. There are two main types of forestry carbon sequestration bonds: (1) carbon sequestration bonds issued by financial institutions, and (2) carbon sequestration bonds issued by enterprises. For the latter, the forestry carbon sequestration supply enterprise directly issues bonds to the public for financing, and after the forestry carbon sequestration generates carbon sinks and trades, the enterprise repays the loan and interest to the bondholder.
Forestry carbon sequestration pledge loans. Forestry carbon sequestration pledge loan is the most widely used forestry carbon sequestration financing method at this stage, and there are five main financing models: "carbon sequestration" pledge, "carbon sequestration + industrial income (such as agriculture, forestry, etc.)" pledge, "carbon sequestration expected income right" pledge, "carbon sequestration expected income right + industrial expected income right" pledge and "forestry carbon ticket" pledge. Among them, the pledge of "carbon sink + industrial income" and the pledge of "expected income right of carbon sink" are the two most important carbon sink financing models, and the financing scale accounts for the highest proportion.
Forestry carbon sequestration insurance. At present, there are three main types of business in the field of forestry carbon sequestration insurance: (1) forestry carbon sequestration insurance with future carbon sequestration as the insurance object, (2) forestry carbon sequestration insurance with the insurance goal of ensuring carbon sequestration income, and (3) forestry carbon sequestration index insurance, which is the carbon sequestration function brought by forests. The purpose of forestry carbon sequestration insurance is to protect the surplus value, ecological and environmental protection value, loss during carbon sink restoration, carbon sequestration capacity restoration cost, and carbon emission trading value.
Forestry Carbon Sequestration Fund. Depending on the purpose for which they were established, funds can be divided into two categories: those created by voluntary donor organizations and those that are for-profit funds. The sources of funds of the fund include: the government bears all the contributions, the government and enterprises jointly contribute in proportion, the government contributes funds through taxation, and the enterprises raise their own funds. Among them, the proportional co-financing method by the government and enterprises is more common, which is more flexible, and the financing speed is fast and the amount is large.
Forestry carbon tickets. Sanming City, Fujian Province, Chuzhou City, Anhui Province, Bijie City, Guizhou Province and other places have successively introduced local forestry carbon ticket management methods and forestry carbon emission reduction measurement methods to innovate the channels for realizing the value of forestry carbon sinks. As a certificate of the right to benefit from forest carbon emission reductions, forestry carbon tickets are endowed with functional values such as trading, pledge, cashing, and offsetting.
6. Analysis of forestry carbon sequestration pledge financing model
The above introduces five more common forestry carbon sequestration financing models, among which, forestry carbon sequestration pledge loan is the most widely used forestry carbon sequestration financing method with the most information disclosure at this stage, and in the subdivision of forestry carbon sequestration pledge loan, "carbon sequestration + industrial income" financing and "carbon sequestration expected income right" financing scale account for the highest proportion, and the details of the two financing modes are shown in the following figure:
Comparing the two financing models, it can be seen that the "carbon sink + industrial income" financing and lending bank is a policy bank, with a longer approval cycle, a larger loan scale, a longer repayment cycle, more diversified repayment methods, and a relatively higher annual interest rate of the loan;
7. Summary
The development of forestry carbon sequestration can make forests have a stronger carbon sequestration function and promote biodiversity conservation. Forestry carbon sequestration also plays an important role in promoting soil and water conservation and water conservation. In addition, forestry carbon sinks can regulate the climate, reduce the concentration of greenhouse gases in the atmosphere, and slow climate warming. Through the implementation of forestry carbon sequestration projects, we can not only promote the economic development of mainland forest areas and accelerate the ecological process of mainland forestry, but also help rural revitalization, promote the construction of ecological civilization, enhance the production capacity of ecological products, and build a beautiful China.
Therefore, firmly and deeply practice the concept that lucid waters and lush mountains are invaluable assets, adhere to the coordinated promotion of carbon reduction, pollution reduction, green expansion and growth, and accelerate the layout of the new track of "double carbon" development, all provinces and cities are still exploring new models of forestry carbon sink financing, such as "carbon sink + ecological justice", "forestry carbon sink pledge loan + forward agreed repurchase", "forestry carbon sink future income right + insurance policy", "single carbon sink targeted poverty alleviation loan", "personal carbon sink loan", "one yuan carbon sink model", etc. In the future, it is possible to further explore carbon funds, carbon bonds, carbon trusts, etc., innovate carbon financial products, promote the development of green finance, and help transform ecological value.