Wall Street Firm Makes Wager on Carbon-Offset Forests

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Oak Hill Advisors teaming up with Bluesource to buy $500 million worth of woodland to generate carbon offsets

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Microsoft Corp. large companies including.

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and BP plc are struggling to offset, which are tradable assets that represent one metric ton of carbon that has been sequestered in standing trees. Companies that buy offsets use them to negate emissions on the internal carbon ledger they hold to show investors their progress toward climate goals.

Researchers count more than 1,000 companies that have set emissions reduction goals. Many companies have promised to go even further and offset emissions that they cannot cut by removing carbon from the atmosphere.

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There are industrial processes capable of removing carbon from the atmosphere and injecting it deep underground, where most of the excess in the atmosphere is generated as fossil fuels. But it is much cheaper to pay timberland owners not to log and take credit for the carbon that growing trees absorb.

Until recently, the one-carbon business was mostly the domain of upstart companies and specialist timber investors. Several offsets have been used to comply with air-quality regulators in California and Quebec, which operate a cap-and-trade system that makes it more expensive to pollute over time. Increasingly, however, offsets are sold in unregulated markets in privately negotiated deals to companies that are voluntarily buying to meet their own climate goals. The booming voluntary markets have attracted big firms on energy and Wall Street who are increasing stakes.

BP bought a controlling stake in bluesource rival Finite Carbon late last year, and in June JPMorgan Asset Management bought a Timberland investment firm with a view to becoming a significant competitor in the OneCarbon markets. Wearhouser Company.

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“We see this as an incredibly big opportunity,” said Adam Kertzner, a senior partner and portfolio manager at Oak Hill. “This transition is happening in real time and forestry assets are a measurable way to remove carbon from the atmosphere. We are excited about the potential to invest in attractive properties while providing significant environmental benefits.”

Critics of the offset argue that although forests can be managed to remove more carbon, companies should not be able to use them to avoid reducing emissions. Offset projects face the sharpest criticism when landowners are paid to preserve trees because they grow in prohibited areas, far from mills or are already subject to conservation agreements.

Oak Hill and Bluesource said their venture will be looking for larger properties, measured in hundreds of thousands of acres, where they can implement substantial changes in management from previous owners, such as eliminating clear-cuts.

“The properties we’re looking for are properties that will not be permanently managed, that are not going to be forfeited without a sale,” said Kevin Townsend, BlueSource’s chief commercial officer.

Write Ryan Dezember at [email protected]

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