BP Boosts Its Bet on Trees

BP PLC


BP 2.72%

has bought a controlling stake in the largest U.S. producer of carbon offsets, doubling down on a bet that preserving forests will be key to companies meeting their carbon-reduction goals.

The oil giant in late 2019 made a $5 million venture investment in Pennsylvania’s Finite Carbon, which helps landowners sell their forests as carbon sinks. With majority ownership of Finite, BP plans to take global the business of paying landowners not to cut down trees.

BP and Finite didn’t disclose financial terms of the latest deal but said that the forestry firm was now part of the energy company’s Launchpad. The unit functions similarly to a private-equity firm by taking big economic stakes in businesses with an eye toward steering them through expansion.

“Finite Carbon has the potential to build a global platform for managing and financing natural climate solutions,” said

David Eyton,

BP’s executive vice president of innovation and engineering.

BP itself has been one of the world’s biggest buyers of forest carbon-offset credits, a type of climate-change currency. The company has spent hundreds of millions of dollars on offsets to comply with California regulators. They operate a so-called cap-and-trade system that aims to reduce greenhouse gasses by making it more expensive over time for companies operating in the state to pollute.

In California’s system, preserving forests with centurylong conservation pacts is rewarded with credits, each representing a metric ton of carbon sequestered in trees that landowners have been paid not to cut.

BP is wagering that cap-and-trade will spread. Meanwhile, there is a growing, speculative market for what are known as voluntary offset credits. Such credits are created under guidelines similar to California’s strict rules but not used for regulatory compliance—at least not yet.

For now, voluntary offsets are mainly used by companies wanting to cancel out emissions on their own carbon ledgers. The billions of dollars piling up in ESG funds, which promise to invest with ecological and social responsibility in mind, has sent companies racing to reduce their emissions and make up for those they cannot avoid. Companies including

Amazon.com Inc.,

Apple Inc.

and

Royal Dutch Shell

PLC. have promised carbon neutrality in the coming decades.

BP, targeting carbon neutrality by 2050, says it is annually responsible for 415 million metric tons of carbon emissions, between its operations and the burning of its oil-and-gas output by drivers and power plants. Beyond ensuring ample supply of offsets, energy firms like BP are equipped with trading desks that can capitalize on broader demand for carbon credits.

Energy firms and others are working to develop carbon-capture technology that sucks carbon dioxide from the atmosphere and stashes it underground. Doing so is thus far uneconomical and untested at scale, though. When it comes to carbon sequestration, trees are nature’s known quantity.

The height of trees is measured inside a Tennessee forest used for carbon-offset credit.



Photo:

Brett Carlsen for The Wall Street Journal

Like other forestry consultants, Finite sizes up trees on behalf of landowners. But instead of estimating what sawmills will pay for the timber, Finite’s foresters measure trees to estimate biomass and thus how much carbon is being stored on properties.

Finite has created and sold offset credits on behalf of landowners. They include a railroad, Maine’s Passamaquoddy tribe, Appalachian coal concerns, land trusts and timberland management organizations, which pool investors’ cash to buy forests.

Finite says its clients have been paid more than $500 million not to cut down trees, mostly by buyers using the offsets to operate in California. Finite has been responsible for more than 45% of all forest offsets issued by the state since cap-and-trade started in 2013, according to California Air Resources Board data.

The firm used BP’s earlier investment to hire foresters and build an online platform that helps smaller landowners sell voluntary credits by eliminating much of the legwork and expense of enrolling large tracts in the California program.

Carbon-conscious companies’ demand for voluntary credits has lately swamped the 20-person firm, said

Sean Carney,

who founded Finite with financial backers in 2009 and will remain chief executive. BP’s bigger investment will enable Finite to continue adding foresters and expand into forests around the world.

“They’re doubling down, and we’re staffing up,” Mr. Carney said. “BP has operations in 70 countries; we’re not planning to be in all countries over night, but that’s a start.”

Investors propelled ESG funds to new heights in 2020, and federal agencies are watching. WSJ explains why regulators have ethical and sustainable investment funds under review. Photo Illustration: Alex Kuzoian

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Write to Ryan Dezember at [email protected]

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