UW-Led Team: Carbon Markets Could Do More to Protect People, Nature

Carbon markets are helping finance nature-based climate solutions around the world, but a new article published in the journal Nature Climate Change argues that those markets often fail to reward some of the most important benefits those projects can provide, including coastal protection, biodiversity and improved well-being for vulnerable communities.

The article, "Co-Benefit Premiums Can Enhance Nature-Based Climate Solutions," is led by University of Wyoming researcher Jacob Hochard, the Knobloch Associate Professor of Conservation Economics in UW's Haub School of Environment and Natural Resources. Hochard and his co-authors propose a new financing mechanism they call a "co-benefit premium": an additional payment, stacked on top of the carbon price, for verified benefits beyond carbon storage.

"Carbon markets have become an important tool for financing nature-based climate solutions, but they are still largely built around one outcome: carbon," Hochard says. "Many of these projects also can protect communities, support biodiversity and strengthen livelihoods. A co-benefit premium would make those additional benefits explicit, measurable and valuable."

Nature-based solutions include efforts such as restoring forests, wetlands, grasslands and mangroves to store carbon while also providing other ecological and social benefits. The article notes that these approaches are increasingly included in national climate commitments under the Paris Agreement and are drawing growing interest from private-sector investors.

But the authors argue that current market incentives can steer projects toward places that maximize durable carbon storage while overlooking locations where the same ecosystems could provide greater adaptation benefits for people.

Mangrove restoration provides a clear example. Mangroves store carbon in their biomass and sediments, but they also can reduce wave energy, buffer coastlines and help protect communities from tropical storms. However, restoration projects optimized primarily for carbon finance may avoid storm-prone coastlines because those sites carry greater risk of damage to restored ecosystems and, therefore, to long-term carbon storage.

The result, the authors write, is a potential mismatch: Projects may emphasize storm protection in their public narratives while being in areas where historical storm exposure is relatively limited. Meanwhile, more exposed coastlines, where storm protection could be highly valuable to nearby communities, may be less attractive under carbon-only market incentives.

"A carbon project that is safer from storms may be a better carbon investment but not necessarily the best climate resilience investment," Hochard says. "The premium is a way to close that gap. It would allow buyers who care about adaptation, biodiversity or community benefits to pay for those outcomes directly, rather than treating them as incidental."

The authors illustrate this issue by examining public data on mangrove loss, restoration potential, historical tropical storm tracks and coastal population exposure. Their analysis is presented as an illustrative spatial synthesis, not a causal study, but it shows that areas with mangrove restoration potential and areas with high tropical storm exposure do not always overlap with current restoration investment.

The article proposes that verified co-benefit premiums could help redirect investment toward projects that deliver stronger combined returns for climate mitigation, adaptation, biodiversity and local communities. Such premiums could be tied to standards and third-party verification systems that quantify non-carbon outcomes, such as reduced flood risk.

One emerging example discussed in the article is Verra's Sustainable Development Verified Impact Standard, or SD VISta, which can certify certain non-carbon benefits. Under a coastal resilience methodology developed for tidal wetlands, project developers can quantify reduced flood risk from restoring or protecting mangroves and marshes and potentially generate tradeable "coastal resilience assets" that can be stacked with carbon credits.

The article points to work in the Indian Sundarbans, where a mangrove restoration project generating carbon credits also was assessed for coastal resilience benefits. According to the manuscript, a subset of restored mangroves was found to provide more than $15 million in annual avoided property damage and reduce flood risk for more than 37,000 people.

Hochard says the goal is not to replace carbon markets, but to improve them.

"Carbon finance is already mobilizing capital at a scale that conservation and adaptation finance have struggled to reach," he says. "The question is whether those dollars can be structured to deliver more than carbon. Co-benefit premiums are one way to use markets to better align climate finance with the needs of communities and ecosystems."

The authors note that storm protection is only one example of a potential co-benefit. Other nature-based climate projects may provide benefits related to biodiversity, water quality, food security, local livelihoods or poverty reduction. Scaling co-benefit premiums, they write, will require rigorous research, credible measurement and clear standards to ensure that claimed benefits are real and context-specific.

The article's co-authors include James Erbaugh, of The Nature Conservancy and Dartmouth College; Teevrat Garg, of the University of California-San Diego; Nino Abashidze and Samuel Nonemaker, of UW's College of Business; Stefanie Simpson and Lindsey Smart, of The Nature Conservancy; Wai Yan Siu, of Old Dominion University; Stuart Hamilton, of East Carolina University; and Yuta Masuda, of Allen Family Philanthropies.