Maximizing Value
Stacking Water and Carbon Data
Fall 2024
By John Casey
As forest landowners seek ways to increase the value of their land, an emerging strategy presents a possible solution: stacking resource incentives focused on co-benefits like water quality and carbon credits. This approach not only creates additional revenue streams but also promotes sustainable land management practices that help address critical environmental challenges.
Leaders in both the public and private sectors are driving projects that highlight the potential for landowners to capitalize on these opportunities. By managing forests for multiple ecosystem services, landowners can tap into emerging markets, securing financial returns while enhancing environmental health.
Leaders in both the public and private sectors are driving projects that highlight the potential for landowners to capitalize on these opportunities. By managing forests for multiple ecosystem services, landowners can tap into emerging markets, securing financial returns while enhancing environmental health.
Carbon Markets: A Key Revenue Stream for Forest Landowners
Carbon credits are quickly becoming a valuable tool for forest landowners, allowing them to monetize the carbon sequestering capabilities of their forests.
In Michigan, Mike Smalligan, forest stewardship coordinator for the Michigan Department of Natural Resources, has observed a major development of carbon markets compared to other types of environmental services markets, particularly water-related incentives. “In Michigan, it’s 100 to zero,” said Smalligan. “We have a lot of carbon projects, but we have zero water funds or investments in payments for ecosystem services related to water quality.”
Carbon markets have seen significant growth as more companies and governments seek ways to offset their carbon emissions through investments in forest management. But while carbon payments are becoming a well-trodden path for landowners, there remains a substantial untapped potential in combining these carbon-focused projects with other benefits, such as water quality.
Carbon markets allow landowners to receive payments based on the amount of carbon their forests sequester, but according to Smalligan, these payments are often lower than desired.
“The price of carbon is so low that it doesn’t really incentivize changing behavior in forest ownership, management or protection,” said Smalligan. “People are interested in stacking benefits and trying to get higher prices by quantifying co-benefits like water quality.”
The challenge lies in demonstrating the value of these co-benefits in a way that attracts additional investors. As Smalligan and other stakeholders explore the potential for new water-related payments in Michigan, their aim is to develop ways to “ride the coattails” of the carbon market by stacking water quality improvements on top of existing carbon projects.
Carbon credits are quickly becoming a valuable tool for forest landowners, allowing them to monetize the carbon sequestering capabilities of their forests.
In Michigan, Mike Smalligan, forest stewardship coordinator for the Michigan Department of Natural Resources, has observed a major development of carbon markets compared to other types of environmental services markets, particularly water-related incentives. “In Michigan, it’s 100 to zero,” said Smalligan. “We have a lot of carbon projects, but we have zero water funds or investments in payments for ecosystem services related to water quality.”
Carbon markets have seen significant growth as more companies and governments seek ways to offset their carbon emissions through investments in forest management. But while carbon payments are becoming a well-trodden path for landowners, there remains a substantial untapped potential in combining these carbon-focused projects with other benefits, such as water quality.
Carbon markets allow landowners to receive payments based on the amount of carbon their forests sequester, but according to Smalligan, these payments are often lower than desired.
“The price of carbon is so low that it doesn’t really incentivize changing behavior in forest ownership, management or protection,” said Smalligan. “People are interested in stacking benefits and trying to get higher prices by quantifying co-benefits like water quality.”
The challenge lies in demonstrating the value of these co-benefits in a way that attracts additional investors. As Smalligan and other stakeholders explore the potential for new water-related payments in Michigan, their aim is to develop ways to “ride the coattails” of the carbon market by stacking water quality improvements on top of existing carbon projects.
“It’s really about an educational campaign, trying to get people in Michigan to think about and acknowledge the connections between forests and drinking water."
— Mike Smalligan, Forest Stewardship Coordinator, Michigan Department of Natural Resources
The Untapped Potential of Water Markets While carbon markets have grown significantly, water markets remain underdeveloped, despite the clear connection between healthy forests and clean water. In fact, managing forests for water quality is one of the most effective ways to protect vital water sources, especially as water utilities and regulators face increased challenges from contaminants like PFAS (per- and polyfluoroalkyl substances, also often referred to as “forever chemicals”).
In his work, Smalligan is focused on fostering connections between forests and water quality through projects like “Forest to Mi Faucet,” an awareness campaign that encourages forestry and conservation organizations to engage with municipal water utilities.
“It’s really about an educational campaign, trying to get people in Michigan to think about and acknowledge the connections between forests and drinking water,” said Smalligan.
By making these connections clear, he hopes to build a foundation for future water markets that can provide payments to landowners for forest management practices that improve water quality .
Similarly, Brian Thomas, partner at Texas-based Carbon Rho, is focused on stacking carbon credits with water quality benefits in his work along the Red River corridor spanning through Oklahoma, Texas, Arkansas and Louisiana.
“The additional benefits, like water quality or habitat improvement, can attract corporate investment, especially when paired with carbon sequestration efforts,” said Thomas.
The Red River Pilot Project illustrates how improving water quality through forest management not only supports healthier ecosystems but also creates new revenue streams for landowners.
In his work, Smalligan is focused on fostering connections between forests and water quality through projects like “Forest to Mi Faucet,” an awareness campaign that encourages forestry and conservation organizations to engage with municipal water utilities.
“It’s really about an educational campaign, trying to get people in Michigan to think about and acknowledge the connections between forests and drinking water,” said Smalligan.
By making these connections clear, he hopes to build a foundation for future water markets that can provide payments to landowners for forest management practices that improve water quality .
Similarly, Brian Thomas, partner at Texas-based Carbon Rho, is focused on stacking carbon credits with water quality benefits in his work along the Red River corridor spanning through Oklahoma, Texas, Arkansas and Louisiana.
“The additional benefits, like water quality or habitat improvement, can attract corporate investment, especially when paired with carbon sequestration efforts,” said Thomas.
The Red River Pilot Project illustrates how improving water quality through forest management not only supports healthier ecosystems but also creates new revenue streams for landowners.
GFC foresters conduct aerial surveys to locate SPB spots, then notify landowners of
infestation size and mitigation options.
Navigating Challenges in Carbon and Water Markets
Despite the opportunities in stacking resource incentives, both Smalligan and Thomas are quick to point out the challenges. Carbon markets, while growing, are still relatively new and can be difficult for landowners to navigate. Many landowners are unaware of how to maximize the value of their forests by entering into carbon credit agreements.
Thomas’s experience working with landowners on carbon credit projects highlights this gap.
“The first time I sat down with 10 owners of 2,200 acres that were generating credits, they had no concept for this money,” he said. “They had an attorney sign them up for a carbon program years ago, but they didn’t understand the value of what they could do to improve the property or increase carbon density.”
For Thomas, this lack of understanding among landowners underscores the need for greater education and outreach to help them tap into the full potential of carbon markets.
As for water markets, one of the biggest hurdles is simply the lack of investment and infrastructure. Water utilities, which are essential players in the development of these markets, have faced financial strains, particularly in the wake of the COVID-19 pandemic. Many utilities are hesitant to invest in water-quality improvement projects while they struggle with immediate financial pressures. However, Smalligan sees this as a long-term opportunity.
“Water is the hundred-year play, and carbon is the darling of the ball right now,” said Smalligan.
Both Smalligan and Thomas are working to address these challenges by developing new frameworks that make it easier for landowners to participate in both carbon and water markets. Smalligan’s proposed Michigan Carbon and Water Fund, for example, seeks to pair federal investments in carbon sequestration with strategic activities that have water quality benefits. By focusing on key watersheds and working with partners like land trusts, the fund aims to create a sustainable framework for ongoing investments after federal funding runs out.
Despite the opportunities in stacking resource incentives, both Smalligan and Thomas are quick to point out the challenges. Carbon markets, while growing, are still relatively new and can be difficult for landowners to navigate. Many landowners are unaware of how to maximize the value of their forests by entering into carbon credit agreements.
Thomas’s experience working with landowners on carbon credit projects highlights this gap.
“The first time I sat down with 10 owners of 2,200 acres that were generating credits, they had no concept for this money,” he said. “They had an attorney sign them up for a carbon program years ago, but they didn’t understand the value of what they could do to improve the property or increase carbon density.”
For Thomas, this lack of understanding among landowners underscores the need for greater education and outreach to help them tap into the full potential of carbon markets.
As for water markets, one of the biggest hurdles is simply the lack of investment and infrastructure. Water utilities, which are essential players in the development of these markets, have faced financial strains, particularly in the wake of the COVID-19 pandemic. Many utilities are hesitant to invest in water-quality improvement projects while they struggle with immediate financial pressures. However, Smalligan sees this as a long-term opportunity.
“Water is the hundred-year play, and carbon is the darling of the ball right now,” said Smalligan.
Both Smalligan and Thomas are working to address these challenges by developing new frameworks that make it easier for landowners to participate in both carbon and water markets. Smalligan’s proposed Michigan Carbon and Water Fund, for example, seeks to pair federal investments in carbon sequestration with strategic activities that have water quality benefits. By focusing on key watersheds and working with partners like land trusts, the fund aims to create a sustainable framework for ongoing investments after federal funding runs out.
"Water is the hundred-year play, and carbon is the darling of the ball right now."
— Mike Smalligan, Forest Stewardship Coordinator, Michigan Department of Natural Resources
The Importance of Flexibility for Landowners
One key to success in both carbon and water markets is flexibility. For many landowners, long-term contracts can be a barrier to participation, especially when there is uncertainty about future land use opportunities. Thomas has addressed this challenge in his Red River corridor project by offering shorter-term, more flexible contracts that allow landowners to participate in carbon markets without committing to decades-long agreements. “We quickly realized that we couldn’t achieve the scale we wanted with restrictive contract terms,” said Thomas. Instead, his project offers five-year rolling contracts that continually renew, allowing landowners to remain in control of their land while generating revenue through carbon credits. This flexibility has made the project more appealing to landowners, many of whom were initially hesitant to participate due to concerns about long-term commitments.
One key to success in both carbon and water markets is flexibility. For many landowners, long-term contracts can be a barrier to participation, especially when there is uncertainty about future land use opportunities. Thomas has addressed this challenge in his Red River corridor project by offering shorter-term, more flexible contracts that allow landowners to participate in carbon markets without committing to decades-long agreements. “We quickly realized that we couldn’t achieve the scale we wanted with restrictive contract terms,” said Thomas. Instead, his project offers five-year rolling contracts that continually renew, allowing landowners to remain in control of their land while generating revenue through carbon credits. This flexibility has made the project more appealing to landowners, many of whom were initially hesitant to participate due to concerns about long-term commitments.
Stacking Co-Benefits: The Future of Forest Incentives
Both Smalligan and Thomas believe that the future of forest land management lies in stacking co-benefits. By managing forests for multiple ecosystem services — such as carbon sequestration, water quality improvement and habitat restoration — landowners can unlock new sources of revenue while contributing to broader environmental goals. As Smalligan pointed out, the current price of carbon alone may not be enough to incentivize widespread changes in forest management. “By quantifying co-benefits like water quality, landowners may be able to command higher prices for their carbon credits,” said Smalligan. This approach not only benefits landowners but also attracts investment from corporations and other entities looking to improve their environmental footprint. Thomas echoes this sentiment, emphasizing the importance of aligning corporate investment with regional conservation goals. “There’s a huge opportunity here,” said Thomas. “By stacking benefits like carbon credits and water quality improvements, we can attract corporate partners who are willing to invest in conservation at a local level.”
Both Smalligan and Thomas believe that the future of forest land management lies in stacking co-benefits. By managing forests for multiple ecosystem services — such as carbon sequestration, water quality improvement and habitat restoration — landowners can unlock new sources of revenue while contributing to broader environmental goals. As Smalligan pointed out, the current price of carbon alone may not be enough to incentivize widespread changes in forest management. “By quantifying co-benefits like water quality, landowners may be able to command higher prices for their carbon credits,” said Smalligan. This approach not only benefits landowners but also attracts investment from corporations and other entities looking to improve their environmental footprint. Thomas echoes this sentiment, emphasizing the importance of aligning corporate investment with regional conservation goals. “There’s a huge opportunity here,” said Thomas. “By stacking benefits like carbon credits and water quality improvements, we can attract corporate partners who are willing to invest in conservation at a local level.”
A Path Forward for Landowners
For forest landowners looking to maximize the value of their land, stacking resource incentives is an evolving and promising strategy. By participating in both carbon and water markets, landowners can generate multiple revenue streams while contributing to important environmental outcomes such as cleaner air, healthier watersheds and more resilient ecosystems. The projects spearheaded by Smalligan and Thomas are leading the way, providing valuable insights into how landowners can navigate these emerging markets. As the demand for ecosystem services continues to grow, landowners who embrace the potential of co-benefits will be well-positioned to capitalize on these opportunities while making a lasting impact on the environment. ■
For forest landowners looking to maximize the value of their land, stacking resource incentives is an evolving and promising strategy. By participating in both carbon and water markets, landowners can generate multiple revenue streams while contributing to important environmental outcomes such as cleaner air, healthier watersheds and more resilient ecosystems. The projects spearheaded by Smalligan and Thomas are leading the way, providing valuable insights into how landowners can navigate these emerging markets. As the demand for ecosystem services continues to grow, landowners who embrace the potential of co-benefits will be well-positioned to capitalize on these opportunities while making a lasting impact on the environment. ■
"There’s a huge opportunity here. By stacking benefits like carbon credits and water quality improvements, we can attract corporate partners who are willing to invest in conservation at a local level.” — Brian Thomas, Partner, Carbon Rho
John Casey is a strategic communications professional who supports clients through the art of storytelling. In his downtime, John can be found hunting and fishing on his family’s centennial farm in Northwest Georgia.
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Georgia Forestry Magazine is published by HL Strategy, an integrated marketing and communications firm focused on our nation's biggest challenges and opportunities. Learn more at hlstrategy.com
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