Carbon Markets: Forestry as a Carbon Sink

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“Defoes takes UN‑REDD and IPCC land‑sector numbers at face value and then asks the harder question: if forests can deliver around 4 gigatonnes a year of mitigation but current finance only covers a fraction of that, what happens to portfolios once the world finally prices forest sinks as the strategic carbon asset they already are?”

Carbon markets are meant to turn climate action into a tradable, investable unit of account. They only work if one tonne on Forests are the original carbon‑removal technology — and, in most net‑zero pathways, the only one already operating at gigatonne scale. UNEP‑WCMC and UN‑REDD estimate that forest‑based solutions offer a mitigation potential of around 4 gigatonnes of CO₂‑equivalent per year by 2030, roughly a quarter of what is needed globally to stay within a 2°C‑compatible pathway. That potential comes with a double benefit: avoided emissions from stopping deforestation and degradation, and increased sequestration from restoring and better managing forests. Defoes’ stance is that treating forestry purely as a cheap offset has been a mistake; treated as a strategic carbon sink, it is one of the few scalable, investable bridges between near‑term climate goals and long‑term net‑zero.

Forests in net‑zero pathways: system‑critical, not optional

The IPCC’s Sixth Assessment Report on mitigation makes this explicit: almost all modelled pathways that limit warming to 1.5°C or 2°C rely on expanding land‑based carbon sinks, including forests, alongside deep fossil‑fuel cuts. These pathways assume both reduced deforestation and enhanced sequestration through restoration and improved forest management, contributing several gigatonnes of net removals by mid‑century. UN‑REDD’s “Making good on the Glasgow Climate Pact” work translates this into nearer‑term milestones: to keep a credible 1.5°C pathway alive, the world should reach at least one gigatonne of annual emissions reductions from forests by 2025 and maintain that level or higher each year thereafter.

The reality is that we are not yet on that path. UN‑REDD and UNEP‑WCMC’s joint assessment finds that current public and private commitments to pay for emission reductions from forests cover only about 24% of that one‑gigatonne milestone — and, critically, that none of the committed funding had been fully disbursed at the time of the report. Finance for forests is still “nowhere near what is needed” to achieve Paris‑aligned forest and climate goals, especially in high‑forest, low‑deforestation countries. From a Defoes perspective, that shortfall is not a reason to discount forestry; it is evidence of a latent carbon‑sink asset class that capital and policy have yet to price correctly.

Forest carbon sinks under pressure — and what that implies

If forests are such powerful sinks, why is there a problem? UNESCO and ICOS research on “forest carbon sinks under pressure” shows that, between 2001 and 2020, ten World Heritage forests were net carbon sources rather than sinks, due to a combination of deforestation, degradation, wildfires and climate‑change impacts. ICOS notes that EU climate‑neutrality plans assume an increase in European land sinks of around 42 million tonnes of CO₂‑equivalent by 2030 — a target now seen as challenging as climate stress, pests and management choices weaken forest uptake. This underscores a key point for investors: forest sinks are not static; their performance depends on policy, management and the very climate risks they are supposed to mitigate.

UN‑REDD and IISD’s analysis of the “Green Gigaton Challenge” emphasises that stronger forest carbon prices, high integrity and upfront finance are needed to convert theoretical sink potential into realised, durable mitigation. They call for scaled‑up investment in REDD+ readiness and implementation, with robust measurement, reporting and verification systems, safeguards, and equitable benefit‑sharing so forest‑country governments and communities have a stable reason to maintain and enhance their forests. In practical terms, that means the role of forestry as a carbon sink is inseparable from the quality of forest‑carbon finance: weak, low‑price signals encourage short‑term land‑use change; strong, predictable signals can make long‑term conservation and restoration financially rational.

Carbon markets as a channel for sink value

This is where carbon markets matter. Forest‑based credits under REDD+ and other mechanisms are one of the main ways to monetise forest sinks by paying for verified emission reductions or removals relative to a baseline. UN‑REDD’s forest‑carbon pricing work argues that properly structured results‑based payments — whether via jurisdictional programmes, compliance markets or high‑integrity voluntary markets — can make it attractive for forest‑rich countries to maintain and expand their sinks rather than convert them. But they stress that this requires a “strong forest carbon price signal” and reasonable certainty of future payments; otherwise, upfront investment in REDD+ and restoration is hard to mobilise at the scale required.

At the same time, analysts caution against over‑reliance on land sinks in net‑zero accounting. Zero Carbon Analytics and others highlight that inconsistencies in land‑carbon accounting can overstate net‑zero progress if reductions in fossil emissions are not clearly distinguished from removals in forests and other ecosystems. The IPCC, too, frames forest sinks as complementary to, not a substitute for, rapid fossil‑fuel phase‑down. For Defoes’ readers, the message is that forest‑sink credits can be valuable transition instruments when high‑integrity and properly accounted for, but they do not change the need for hard decarbonisation of energy, industry and transport.

A Defoes stance: forestry as a strategic carbon‑sink asset

Defoes takes a bullish but realistic view of forestry as a carbon sink. On the one hand, UN‑REDD and UNEP‑WCMC’s numbers show that forest‑based solutions offer gigatonne‑scale mitigation potential at relatively low cost, and that current funding levels are far below what is needed — a classic set‑up for future re‑pricing as policy and markets catch up. On the other hand, UNESCO and ICOS remind us that forest sinks are under pressure from the very climate risks investors seek to hedge, making the quality and durability of sink‑based credits as important as their headline volumes.

For investors and policymakers operating with Defoes’ lens, forests should be treated neither as a cheap, infinite offset supply nor as a fragile, uninvestable risk. They are a strategic carbon‑sink asset whose value depends on governance: clear national strategies, robust REDD+ frameworks, credible monitoring, and high‑integrity carbon‑market standards. The practical work now is to identify where forest‑sink value is most likely to be realised — in which jurisdictions, under which programmes, and with what safeguards — and to recognise that the repricing of nature in carbon markets will be one of the defining features of the net‑zero transition.