In our previous blog we talked about Net Zero 2050 and the sector-by-sector models we have developed to understand through economic first principles how much de-carbonization the world may achieve over the next three decades. Our conclusion was pessimistic with regards to the ability to limit global warming to less than 2° Celsius. Despite all the regulatory efforts seen to date, we still think global emissions will likely be as high as 10 gigatonnes per annum even in 2050.

We think that the current policy pathway may be inconsistent with achieving its self-stated ambitions. The relationship between carbon prices and carbon reduction may prove less linear than presumed. Societal acceptance of the rising cost burden (up to 1/3rd of consumer annual savings) is by no means a given, as per the Gilets Jaunes protests, and we are only in the early and easy stages of the challenge.

To maximise the probability of achieving net zero, policy choices must minimise the debt and savings shock to achieve it. Nature-based sequestration solutions are a viable inexpensive offsetting mechanism for hard to abate sectors that to date have not received appropriate consideration. We believe there is an opportunity to offset some of our emissions through a global effort to plant a large number of trees. We have known for a long time that plants and trees take up CO2 in order to grow. Some Net Zero models do incorporate tree planting, hence on a ‘gross’ basis emissions may still be positive while on a ‘net’ basis we can reach zero emissions and we think this is far more realistic. This would allow the world to continue using fossil fuels in a select number of industries where zero carbon technologies are either unfeasible or very expensive, such as in aviation, buildings heating or heavy duty transport. Planting a tree to take out carbon from the air is notably affordable, with most cost estimates ranging between $5 to $25 per tonne of CO2. Economically it is therefore strongly preferable over high cost solutions that can be found in the $250-1,000 per tonne range, such as renewable jet fuel and green hydrogen.

Yet the debate around tree planting, often referred to as sequestration or nature-based solutions, evokes a sometimes visceral reaction from climate activists. Some of this may be due to established vested interests to promote high cost carbon abatement solutions. Most often we find a combination of the following arguments to argue against the use of tree planting to counter climate change:

• The science of carbon sequestration by trees is too uncertain to rely on
• It is impossible to monitor whether claims of trees planted are real
• A forest can burn down, wash away or be hit by diseases that result in carbon emitted
• Tree planting relies on future generations to maintain the forests and prevent stored carbon from being emitted

We think none of these arguments stand up to closer scrutiny. AI-based satellite monitoring of forests allows us to monitor the growth of trees and therefore how much carbon is captured. We acknowledge the long-dated liability created in the process of planting a tree, but we think this can be managed through implementation of the right set of incentives. The fact that hundreds of millions of hectares will need to be re-forested means that even if some trees succumb to fires or natural disasters, this will not change the picture at an aggregate level.

We have built a model to understand the required financial incentives for farmers or climate entrepreneurs to engage in ‘carbon farming’. At 400 trees per acre and 0.5 tonnes CO2 sequestered per tree over 40 years, we think a $12 per tonne CO2 price is required for a 6% unlevered internal rate of return when planting trees on low-cost land like that in Brazil or the US Mid-West. High quality agricultural land in Poland or the US would need a $22/t CO2 price. Regardless, the analysis confirms that tree planting is a carbon abatement option far cheaper than most solutions that we read about on a daily basis. It is no surprise that many corporates already choose to incorporate tree planting in their portfolio of measures to achieve carbon neutrality.

Short Meat Farming, Long Carbon Farming: Co2 Incentive Price < $20/t
CO2 Price for 6% Unlevered IRR On Carbon Farming At Various Land Prices

The next step is to understand how big the opportunity for tree planting is. Of the 51 billion hectares of land surface on planet Earth, about 7 billion is a theoretical candidate for re-forestation. Nearly 5 billion hectares of that is currently used for agriculture. Circa 80% of agricultural land is used for livestock and its feed, despite only supplying 20% of human calories and 40% of proteins. We think the agricultural industry is entering a period of accelerated transformation with potentially positive wider implications given its inefficiency. Plant-based diets and carbon pricing may negatively impact demand, while cost parity between cell-cultured and traditional animal-reared meat within the next decade may disrupt the supply-side of traditional meat production. While we hope to touch upon potentially profound consequences of this development in another blog, it is likely that carbon farming not cow farming will in future offer far superior economics for large swathes of the land area currently used unproductively in animal protein production.

In addition, there exists a further 900 million hectares of land available for re-forestation located on the outskirts of existing forests or that have become barren. Planting trees in these areas alone could produce absorption amounting to 10 gigatonnes of CO2 per annum or as much as 1/3rd of current total global emissions.

Re-forestation Potential: Nearly 1bn Hectares Currently Available
Billions of hectares

Overall, our updated Net Zero model assumes that 10Gt of carbon can be sequestered annually by 2050 through re-forestation. We also include the greenhouse gas emissions from the agricultural sector and industrial processes, which many other climate models conveniently leave out. With a concerted effort to reforest, we think it is possible to stay within the 2.0° C carbon budget. Without it, it is not.

This speaks to the underlying issue. The regulatory frameworks (e.g. Europe) put in place to target a carbon-free economy by 2050 are structured to achieve this goal through reducing gross emissions not net emissions to zero. In other words, they are far from technology agnostic. The current exclusion of nature-based solutions from compliance markets reflects policy choices that prioritise abatement over sequestration. While from a narrow policy perspective, avoiding emissions altogether may seem the lowest risk option, in practice this may not prove to be the case. The consumer must ultimately pay either via higher prices or taxes or lower living standards for the additional burden created by the subsidisation of expensive abatement technologies. The recent Gilets Jaunes  protests experience suggests ill-structured regulation can ultimately prove self-defeating and we would not be so quick to ostracise nature-based solutions such as trees that have proven their worth for over 400 million years.

Paris Agreement Cumulative Carbon Budget: What is Required
Projected CO2 Emissions (Gt, LHS), Cumulative since 2018 (RHS)

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