Tulip Digest 02 April 2025 : Nature-Based Solutions lead the Carbon Economy

Carbon markets are a key instrument to allow carbon positive industries to offset their emissions by purchasing credits generated from activities that reduce or remove greenhouse gases, and agriculture is increasingly becoming a significant part of that carbon economy.

Carbon markets play a role in incentivizing the agricultural sector to adopt practices that mitigate climate change by reducing emissions and sequestering carbon in soils and biomass. Between 2013 and 2023, an estimated USD 42 billion was invested in the development of 11,752 projects. This momentum accelerated significantly, with nearly half of this total USD 22 billion occurring just between 2021 and 2023.

The global landscape of carbon pricing and carbon credits is demonstrating significant momentum, channeling substantial investment into climate solutions and fostering international cooperation.

Asia

As the leading continent for carbon project investment with USD 20.2 billion between 2013-2023, Asia showcases a dynamic blend of large-scale national programs and targeted international cooperation. While countries like China and India whose investments soared to USD 1.1 billion in 2023 alone drive much of the activity, the focus often includes vital nature-based solutions with projects enhancing agricultural land management and forest restoration, tackling emissions while boosting local ecosystems- Furthermore, nations like Singapore are actively forging partnerships with other Asian countries.

Europe

Europe is characterized by mature, high-value compliance markets like the EU ETS (USD 42.8 billion revenue in 2022) and the UK ETS (USD 8.1 billion revenue in 2022), alongside some of the world's highest carbon taxes, such as in Switzerland USD 132.12 per ton of CO2e.

European nations are pivotal in driving global carbon markets through policy leadership and international cooperation. Switzerland is a pioneer in utilizing Article 6.2 of the Paris Agreement, establishing bilateral agreements to purchase Mitigation Outcomes from projects worldwide, demonstrating a commitment to international carbon trading. Other European nations like Sweden are also actively engaging in bilateral cooperation, channeling finance towards mitigation activities globally, often focusing on renewable energy or nature-based solutions in partner countries.

North America

North America demonstrates a powerful, multi-faceted approach to carbon markets, blending robust government-led pricing with significant private sector investment in climate solutions. The United States showcases leadership through pioneering sub-national cap-and-trade systems, notably in California generating USD 4.0 billion revenue in 2022 driving emissions reductions across major economic sectors. Complementing this, the US has seen USD 1.9 billion invested into voluntary carbon projects between 2013 and 2023, often targeting tangible improvements in forest management practices and innovative agricultural techniques to sequester carbon on working lands.

Meanwhile, Canada implements a comprehensive strategy combining a federal carbon price with distinct provincial programs like Quebec's cap-and-trade system. Mexico contributes with a national carbon tax and encouraging climate action through emerging state-level initiatives, rounding out a continent actively leveraging diverse market mechanisms for decarbonization.

South America

South America is rapidly emerging as a global leader in leveraging its vast natural capital for climate mitigation through carbon finance, attracting substantial investment into nature-based projects. Brazil is at the forefront, channeling a massive USD 3.6 billion into carbon projects since 2013, with investment dramatically accelerating with USD 2.4 billion between 2021-2023 alone. This funding primarily supports critical efforts to conserve invaluable ecosystems through Reducing Emissions from Deforestation and Forest Degradation initiatives and promotes large-scale Nature Restoration activities such as reforestation.

Colombia is another key player, investing USD 3.0 billion in similar nature-focused projects aimed at protecting its biodiversity and forests, while also developing plans for its own national Emissions Trading System...

Africa

Sub-Saharan Africa is the fastest-emerging hub for carbon project investment totalling USD 5.9 billion between 2013-2023 with significant growth, recording a 128% increase in annual spending between 2021 and 2022. Investment is increasingly diverse, but Kenya leads with USD 1 billion in total. While not strictly agriculture, significant investment in Energy Efficiency, often through clean cooking projects prominent in the region, helps reduce pressure on forests by decreasing reliance on traditional wood fuel. This surge in activity highlights Africa's growing role in generating high-impact carbon credits, particularly benefiting local communities and ecosystems.

Oceania

This region combines domestic carbon pricing with increasing participation in international carbon markets. New Zealand operates its national Emission Trading Scheme, USD 1.4 billion revenue in 2022, while Australia in 2023 also has its own market and also engages internationally via its Indo-Pacific Carbon Offsets Scheme encompassing the region's significant forest resources and potential for nature-based climate solutions.

The data paints a clear picture of dynamic and rapidly expanding carbon markets. The strong pipeline of committed capital, particularly for nature-based solutions, signals sustained growth while international cooperation through frameworks is accelerating. These markets are not only driving direct climate mitigation but are also delivering crucial co-benefits for nature and communities worldwide, paving the way for a more sustainable and climate-resilient future