What’s stalling markets designed to encourage carbon credits for reforestation?

It seems simple: plant trees that absorb carbon, then sell credits to companies that need to offset their carbon emissions. So, why aren’t markets designed to do that working more effectively? The answer is a matter of perception, according to a new Stanford University preprint study that reveals persistent disagreement among market participants over what constitutes risk and who isliable for it when forest carbon projects don’t pan out. The researchers discussed their findings and hosted a panel discussion with a range of market participants during a webinar (WATCH HERE). 

"We have buyers willing to pay for quality forest carbon offsets and developers who believe theycan deliver them,” said study lead author Connor Nolan, a staff scientist at the Stanford Woods Institute for the Environment. “What's missing is transparency, standardization, and risk-sharingstructures that would let both sides transact with confidence."

A difference of opinion

The researchers surveyed 100 reforestation project developers and 100 corporate carbon creditbuyers about several categories, such as a project’s failure to deliver credits and the escape ofstored carbon back into the atmosphere years after a purchase. For nearly every category, respondents' views spanned the spectrum from "rarely a problem" to "pervasive" — not just between buyers and sellers, but within each group. The lack of consensus within each group surprised the researchers.

"When no one can agree on which risks are important and who is responsible, you end up with a market where every deal requires reinventing the wheel,” said study senior author Chris Field, the Perry L. McCarty Director of the Stanford Woods Institute for the Environment. “That fragmentation has a real cost."

One clear divide did emerge between the two sides: developers worried most about risks morelikely to affect them, such as funding shortfalls, political instability in project host countries, andthe shifting landscape of the carbon market itself. Corporate buyers fixated on reversal risk, suchas trees burning, dying, or being cleared someday and releasing carbon back into the atmosphere. Perhaps unsurprisingly, buyers held developers far more accountable for managing that risk thandevelopers held themselves. 

A way forward

Despite their differing outlooks, both the developers and buyers surveyed seemed motivated to find solutions. Developers want third parties to absorb some of the burden of delivery risk; buyers want outside actors managing quantification, political risk, and the rules around how credits can be used. New market intermediaries, such as insurers, ratings agencies, and risk managers, could provide a way forward, the researchers suggest.

Despite the market's dysfunction, the study highlights a promising point of agreement: buyers and sellers aren't far apart on price. More than half of corporate buyers said their organizations could pay $60 to $90 per ton of CO₂ for a credit they trusted to be nearly risk-free. Nearly 90 percent of developers said they could produce a credit within that price range.

The study's six recommended priorities include clearer risk allocation frameworks, expanded insurance and risk-transfer products, greater transparency in credit quality, standardized offtake agreements, early-stage grant funding, and more unified guidance from voluntary frameworks. Getting this right matters for reforestation and beyond. The lessons learned here can help scale up other climate solutions that face similar challenges in moving from pilot projects to widespread deployment.

"This research comes at an important time when there is agreement that we need increased cooperation between practitioner and academic communities to unlock the potential for reforestation as a climate solution," said Jeff Brown, a managing director at the Stanford Sustainability Accelerator based in the Stanford Doerr School of Sustainability. Brown helped the team think about how their research could unlock the potential of markets to drive carbon removal at speed and scale. "These insights can help us bring buyers and developers together to agree on risks and identify shared solutions for mitigating them."

Field is also the Melvin and Joan Lane Professor of Interdisciplinary Environmental Studies and a professor of Earth system science in the Stanford Doerr School of Sustainability, professor of biology in the Stanford School of Humanities and Sciences, and a senior fellow at the Precourt Institute for Energy.

The research was supported by a grant from the Stanford Sustainability Accelerator to risk-proof natural climate solutions.

Coauthors of “Risk and risk perception among reforestation project developers and corporate carbon credit buyers” also include, Bodie Cabiyo, a social science research scholar at the Stanford Woods Institute for the Environment, Kyle Hemes, a senior research scientist at Amazon who was a research affiliate at the Stanford Woods Institute for the Environment at thetime of the research; and Cherrie Zheng, a PhD student in the Emmett Interdisciplinary Programin Environment and Resources.