In 2021, Weyerhaeuser, the largest timberland manager in the United States, set a goal of achieving US$100 million of EBITDA from its Natural Climate Solutions business by 2025. This trajectory, seen as aggressive at the time, has since proved to be a key growth driver as Weyerhaeuser tracks to achieving this target.
Weyerhaeuser is perhaps the most prominent in a wave of US timberlands managers seeking to optimize financial performance from landholdings by complementing traditional forestry operations with forest carbon projects, conservation, renewable energy development, and subsurface leasing for carbon capture and storage (CCS) initiatives.
Over the last five years the forest carbon market in North America has experienced a period of rapid expansion, with a surge in dealmaking and heightened interest from institutional investors. In recent months, major corporations have signed high-profile offtake agreements for forest carbon credits, with the latest focus being on high quality-sequestration projects. At the same time, the uptake of Improved Forest Management (IFM) projects has grown, with over 1 million acres of IFM projects added in 2023 and 2024, reflecting the growing recognition of sustainable forestry as a viable tool for emissions removal and reduction.
The rise in corporate demand for nature-based solutions, coupled with compliance frameworks including California’s cap-and-trade and emerging cap-and-invest systems, are reshaping the market landscape. Investors, timberland managers, and carbon project developers are competing in an increasingly competitive and innovative space.
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Understanding historical growth and value drivers
The United States holds the fourth largest area of forest cover globally and is a leading producer of forest products. Over the past two decades, the forest sector has undergone significant structural changes, particularly within the pulp and paper industry. While the US remains the world’s top producer of wood pulp, annual output has declined sharply – falling by 38% from a peak of nearly 60 million tonnes in 2000 to 37 million tonnes by 2024. This decline was driven by a combination of factors, including reduced demand from the graphic paper sector, aging and undercapitalized pulp mill infrastructure, and sluggish growth in markets such as containerboard and fluff pulp.
The steep decline in demand for pulpwood has forced timberland managers to look for additional sources of value to fill the gap left as their revenue streams shift, including the monetization of forest carbon. Forest carbon projects began to scale rapidly in the 2010s with increasing interest boosted by the development of the Californian cap-and-trade system, spurring the demand for carbon credits derived from the conservation and reestablishment of forests nationwide. By the end of 2024, cumulative forest carbon projects had grown to cover over 9.3 million acres across timberland areas in the United States.
Core to the growth of US forest carbon markets has been the expansion of Improved Forest Management (IFM) methodologies, which incentivize landowners to enhance carbon sequestration through sustainable forest management practices. By optimizing tree growth cycles, reducing harvest intensity, and extending rotation ages, IFM projects allow forests to store more carbon in comparison to conventional timber operations. This approach has been particularly attractive to managers who seek to diversify their revenue streams while keeping productive forests sourcing the traditional forest products markets.
Currently, IFM methodologies account for 86% of all the non-compliance forest-based credits issued in the country and are the primary source of credits tied to compliance systems. The remainder of that amount relates to credits issued under Afforestation, Reforestation and Revegetation (ARR) protocols.
The regional distribution of forest-based carbon projects across the United States varies widely, with Alaska and the West Coast historically accounting for most of the acreage enrolled in carbon initiatives. In recent years, however, the US South has emerged as a major growth region. Although this area holds the largest share of forest cover in the country, only about 0.7% of its forests are currently enrolled in carbon projects. Despite that small penetration, the South was responsible for 63% of all forest-based carbon credit issuances nationwide in 2024. This shift is particularly significant given that the region has been among the hardest hit by the decline in the pulp and paper industry. As a result, timberland managers in the South are increasingly turning to forest carbon as a value-added opportunity to diversify revenue streams and stabilize long-term returns.
Interacting compliance and voluntary carbon markets
The US forest carbon market consists of both compliance-driven and voluntary segments. Compliance markets impose stringent eligibility criteria, limiting participation to certain projects or project types. Meanwhile, voluntary markets offer a wider set of opportunities, attracting a diverse base of landowners, from private timberland managers to conservation-focused organizations.
Many firms are using carbon credits as part of their strategy to meet net-zero commitments. All carbon credits represent 1 tonne of carbon dioxide reduced or removed from the atmosphere; however companies are increasingly differentiating between credits based on indicators of quality. This includes differences in environmental performance of credits around additionality (ensuring that carbon sequestration wouldn’t have occurred without the carbon market) and permanence (the risk of carbon release due to wildfires or land use changes). As a result, demand is shifting toward credits utilizing methodologies with robust baselines and strict provisions for ensuring long-term carbon impacts.
From a supply perspective, annual issuances of forest-based carbon credits fluctuated between 6 and 46 million credits over the last decade, largely influenced by market trends, shifts in federal regulations, and oscillating demand for traditional wood products. The early growth in issuance was concentrated in the US West Coast reflecting growth in demand for regional cap-and-trade systems. In recent years, growth in the US South has sought to meet growing voluntary demand as forest managers look to generate additional revenues from existing forest assets and mitigate volatility in prices for pulp.
Contrasting business models for forest carbon activities
Two primary business models dominate the forest carbon space: timberland operators and pure-play carbon project developers. These approaches differ significantly in their economics, risk exposure, and long-term sustainability strategies.
Timberland managers, including Real Estate Investment Trusts (REITs) like Weyerhaeuser and Rayonier, and Timber Investment Management Organizations (TIMOs) like Campbell Global (owned by JP Morgan), are increasingly integrating carbon projects into their asset portfolios. For these firms, carbon credit sales serve as a potential source of upside value to their investments, rather than as a primary financial driver. That is, while IFM and ARR projects can improve long-term forest asset values, timber sales remain the dominant source of revenue.
This also affects the approach to managing financial risk of carbon initiatives. As carbon revenues typically account for a small percentage of total earnings, timberland operators are less exposed to fluctuations in carbon credit prices. Most of the traditional timberland investment strategies target long-term returns, allowing them to commit to long project timelines without the same concerns about volatility risks faced by pure-play developers. Further, as such investors are often backed by established institutional investors, they are generally able to raise finance at a lower cost of capital than pure-play developers, that are more intensely affected by the volatility of carbon credit prices.
Pure-play carbon project managers–such as Finite Carbon and Anew–tend to work closely with landowners to develop projects that meet compliance or voluntary market standards. Since their revenue is primarily derived from carbon credit issuance and transactions, these companies are more sensitive to fluctuations in demand, policy shifts, and evolving corporate sustainability trends. While this model can be highly profitable in strong carbon markets, such managers face substantial downside risks during market downturns.
As firms seek to navigate volatility, they have increasingly relied on long-term offtake agreements to manage price risk. In February, Microsoft agreed a long-term offtake with Chestnut Carbon in which it committed to purchase more than 7 million tons of carbon credits over 25 years. The agreement is estimated to restore roughly 60,000 acres of land by planting over 35 million native, biodiverse hardwood and softwood trees in the Southern United States. These structured agreements provide revenue certainty and reinforce the trend toward high-integrity carbon credits as this niche of the market can capture higher prices and more attractive deal structures.
There are some uncommon overlapping examples: Manulife recently announced the successful fundraising of USD 480 million for their Forest Climate Fund, aimed at delivering value through the development of credits from forest-based carbon projects. The fund has already acquired 157,000 acres across 6 different states in the US and will further deploy capital through the acquisition of additional timberlands, to be managed with carbon assets as the central pillar of its business strategy instead of timber production. At least 60% of that amount under management will be invested in the US. The company, currently the third largest timberland manager in the US, expects to sequester over 6 million tons of CO2 throughout its 12-year investment lifetime.
Ultimately, both models are expected to contribute to the forest carbon market’s growth, but their economic dynamics differ markedly. Timberland operators leverage carbon as an asset-enhancing mechanism, whereas project developers operate within a high-risk, high-reward framework dependent on credit price stability.
Forest carbon markets are positioned for growth
The forest carbon market is poised for continued expansion, driven by strong institutional investment and regulatory shifts. Investors recognize the long-term value of forest assets beyond timber, creating a dual-income strategy that combines sustainable harvests with carbon sequestration revenue.
Despite recent movements to cut sustainability and climate-related programs at a federal level, there remains several drivers of increased forest carbon activities in the United States. Some examples include the emergence of new state-based compliance mechanisms that could provide further momentum and increase the domestic demand for forest-based carbon offsets, with states introducing their own carbon markets, such as Washington and Oregon.
Meanwhile, corporate demand for high-integrity forest carbon credits is driving new project standards, with a shift towards high-quality, durable carbon sequestration projects, with technology firms and institutional investors on the forefront for setting stricter standards for credit quality. Forest carbon initiatives will need to emphasize rigorous monitoring, reporting, and verification (MRV) to ensure credibility and adherence to these increasingly stringent market requirements.
The continued restructuring of the US forest product industries may further shift incentives toward carbon markets. With declining demand for pulpwood and regulatory uncertainty surrounding timber harvests on federal lands, many landowners are looking to diversify their revenue streams. This creates a landscape where carbon finance is increasingly seen as a core economic driver rather than a supplementary income source.
As these forces align, forest carbon markets are expected to become more sophisticated, with greater price differentiation between standard and premium credits. Investors and timberland managers who adapt to these market shifts–by prioritizing long-term carbon forestry strategies and aligning their initiatives with high-quality crediting frameworks–will be well-positioned to capitalize on the growing demand for forest-based carbon credits.
Voluntary Carbon Markets are at the forefront of climate innovation, bridging the gap between corporate sustainability goals and global climate targets. Whether through biochar, ARR credits, or durable carbon removals, VCM developments are setting a precedent for high-quality, impactful climate finance. To stay ahead in this dynamic landscape, subscribe to the Fastmarkets Carbon Newsletter.
