How to Finance a Forest

February 19, 2021By: Hannah Clemenson
PEC Blog

Hannah Clemenson, Program Coordinator

You may remember learning in our video, How to Regrow a Forest, how PEC restores native forests on formerly mined lands by implementing the Forest Reclamation Approach with partners in the Appalachian Regional Reforestation Initiative (ARRI). You may also remember from this video that there are close to a million acres of these legacy mine lands in need of reforestation across Appalachia.

When PEC began this work in 2016, we started by reforesting 4 acres in Weiser State Forest. Every year, the work has grown and, in 2021, we hope to reforest over 400 acres across the Commonwealth with our partners. While we’re proud of the work and its impact, we’d be working for over two millennia before we reached our goals at this rate. So, we asked ourselves, “How can we regrow more forest?”

One of the largest barriers to this work is funding. Since 2016, PEC has relied on private philanthropy to fund our ARRI commitments to reforest State Forests and State Game Lands. But most of the legacy mine lands are privately owned and require a different pot funding source. Even with the many state and federal programs that exist to help landowners restore their forests, many of these projects are still cost prohibitive. So, we asked ourselves another question: “How can we finance more forest?”

Enter outcomes-based financing.

Outcomes-based financing finds a way to monetize ecological benefits and capture the value of the forest.

Everybody knows that trees are good. Forests create wildlife habitat and recreation opportunities, sequester carbon, improve air and water quality, and supply timber, to name a few benefits. Outcomes-based financing finds a way to monetize these benefits and capture the value of the forest, generating new streams of revenue that can be used for more reforestation work.

In collaboration with Quantified VenturesRichard King Mellon FoundationUS Endowment for Forestry and Communities, and existing ARRI partners, PEC is looking to engage impact-oriented capital to drastically scale our reforestation efforts.

Our partner in this work, Quantified Ventures (QV), is an outcomes-based capital firm that specializes in meeting the capital needs of high-impact environmental and social projects that may struggle to access financing through other means. By focusing on outcomes, QV can monetize a multitude of environmental and social benefits while dividing project risk across stakeholders.

Learn more about PEC’s reforestation work here.

In the context of reforestation, no one organization can support the expensive ripping and site preparation costs that are essential to legacy mine land reforestation. The outcomes-based financing approach used by Quantified Ventures will unlock private capital– a funding source not currently in use for reforestation– to bring in larger amounts of funding up front. No one outcome of this project is valuable enough to repay the upfront costs to reforest, but we know there are many environmental, social, and health benefits to replanting the forests. Therefore, we will use quantified outcomes to engage payors who may be interested in paying for a specific outcome—such as carbon sequestration, or water quality improvements. By stacking multiple payments from these different actors for one project, we can achieve sufficient revenues to repay the private capital portion of the funding stack.

Quantified Ventures has had success with these types of funding approaches. For example, the Soil and Water Outcomes Fund in Iowa provides financial incentives directly to farmers who implement best management practices on their farms that yield positive environmental outcomes, such as carbon sequestration and water quality improvements. In turn, the fund is repaid by water municipalities, who see a decrease in their water treatment costs, and by major agricultural companies such as Cargill, who seek the carbon sequestration benefits to meet their scope 3 emissions goals. Private financing enables this fund to scale impactful on-farm practices that benefit many stakeholders, and is allowing us to scale our approach to more communities.

 

By leveraging outcomes-based capital, PEC hopes to plant over 500 acres using these methods in the spring of 2022 (in addition to the other planned ARRI projects), more than doubling our annual conservation footprint. Moving forward, we expect to reforest thousands of acres each year.

Reforesting a million acres is a big job and won’t be completed overnight, even with all the partners and dollars in the world. But, by bringing in new partners from the private finance sector, PEC is expanding how we achieve conservation through collaboration, and hoping to reforest Appalachia well before 4021.

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