New Evidence on Leakage Could Reprice Forest Carbon – If the Market Chooses to Use It
One of the core reasons institutional investors hesitate on forest carbon is leakage. The standard story is simple: protect one forest, and logging or land-use change just shifts somewhere else. On that basis, many standards and ratings agencies apply heavy, generic leakage discounts to forest credits – especially improved forest management (IFM) and “climate-smart forestry” projects.
A new modelling study backed by the Bezos Earth Fund and US public agencies cuts straight into that assumption. Its central message: leakage is highly variable, often much lower than current rules assume, and in some cases climate-smart forestry can create net positive system-wide impacts. In other words, the market may be undervaluing some forest carbon projects because it’s using crude shortcuts instead of evidence.
For investors and developers, the question is not whether the paper is perfect; it’s whether the market will adjust to what it shows.
What the Bezos-Backed Study Actually Looked At
The study – published in Environmental Research Letters by a team including researchers from The Nature Conservancy and several universities – uses a global timber and land-use model to examine how “climate-smart forestry” interventions affect overall carbon, not just conditions inside a project boundary.
It focuses on two main intervention types:
Extended rotations – harvesting forests later than usual to increase on-site carbon stocks.
Set-asides – taking designated forest areas out of harvest altogether.
Using a global economic and biophysical model, the authors simulate how these interventions change:
Harvest levels in and outside project areas
Timber prices and trade flows between regions
Forest growth and carbon accumulation over time
They then estimate carbon leakage – the net change in carbon outside the project area attributable to the intervention – over 20-year and 80-year horizons.
Core Finding: Leakage Is Not One Number
The study does not say “leakage doesn’t exist.” It says that:
Leakage varies widely by region, forest type, intervention and adoption level.
The common practice of applying a single, high leakage factor (for example 20–40% across the board) is not supported by the model.
In many scenarios, especially for set-asides and moderate adoption rates, carbon leakage is low – and in some cases negative (meaning the intervention leads to more carbon stored outside the project than lost).
A key nuance: the model distinguishes between harvest leakage (how much timber production shifts elsewhere) and carbon leakage (the net carbon effect). Harvest displacement is almost always positive – logging often does move – but that does not necessarily translate into equally large carbon losses. Regrowth, substitution effects and broader conservation responses matter.
The implication: using timber shifts as a simple proxy for carbon leakage tends to over-penalise projects.
Why This Challenges Current Discounting Rules
Most offset methodologies and rating frameworks today assume that leakage is significant and, crucially, hard to measure accurately. As a result, they default to conservative, generic discounts applied to credited volumes.
For IFM and climate-smart forestry, those discounts can be steep. The result is:
Lower credited volumes for projects, even where design and context may minimise leakage risk.
Lower effective prices and ratings for forest credits relative to other project types.
A narrative that forest carbon is inherently less reliable.
The new study undermines the idea that one high leakage factor fits all. It suggests that:
Well-designed climate-smart forestry projects, especially set-asides, may have much lower leakage than assumed.
In some systems, these projects can create positive spillovers – for example, by dampening long-term timber demand or triggering policy shifts – which current accounting ignores.
Regulators and standards have room to move from blunt heuristics to differentiated, carbon-specific leakage estimates.
This does not mean leakage can be ignored. It does mean the market has probably been over-discounting some forest interventions.
Important Caveats – This Is Not a Free Pass for Forest Offsets
If you’re serious about risk, the caveats matter:
This is global modelling, not project-by-project forensics. It offers ranges and patterns, not a verdict on any given project.
Negative leakage is more common at modest adoption levels. If climate-smart forestry covers very large areas, leakage can increase.
Governance realities – illegal logging, weak enforcement, opportunistic land grabs – can create leakage pathways that models struggle to capture.
The study focuses on timber markets and forest dynamics, not broader land-use shifts into agriculture or mining.
So no, this does not “prove” that all IFM or REDD+ projects are fine and leakage is solved. It does show that the current habit of assuming high, fixed leakage penalties across the board is not evidence-based.
What This Means for Developers
For project developers in forestry and NBS, the study provides both ammunition and responsibility.
On the opportunity side:
It supports arguments against blanket, high leakage discounts that don’t reflect project design or context.
It strengthens the case for climate-smart forestry – structured, active management – rather than simplistic “no-touch” narratives.
It provides a basis for engaging standards and rating agencies to differentiate leakage treatment.
On the responsibility side:
Developers will need to demonstrate why their context maps to lower-leakage scenarios: landscape configuration, market exposure, adoption rates, policy environment.
Projects will need stronger MRV, documentation and modelling to justify deviations from generic discount factors.
Claims of “minimal” or “negative” leakage must be grounded in defensible analysis, not marketing.
The study opens the door. It does not write the methodology for you.
What This Means for Institutional Investors and Buyers
For institutional capital, the main relevance is strategic, not tactical.
This study:
Weakens the blanket argument that “forest credits are all compromised by leakage and should be avoided or deeply discounted.”
Supports portfolio differentiation: some forest project types and geographies are more robust than their current pricing suggests.
Suggests that, over time, regulatory and standard-setting bodies may soften the most extreme leakage discounts for qualifying project classes.
Investors can use it in three ways:
Challenge simplistic risk screens that treat all forest credits as equally exposed to leakage.
Engage with managers and rating agencies on how they are updating leakage assumptions in light of new evidence.
Selectively back climate-smart forestry strategies where leakage is likely low and governance relatively strong, instead of writing off the entire category.
The key is not to flip from “forest bad” to “forest solved.” It is to use the nuance to re-open parts of the forest space that have been over-penalised.
Implications for Standards and Policymakers
For standards, registries and regulators, the paper is essentially an invitation to do better:
Replace static, one-size leakage factors with context-sensitive, carbon-specific values.
Distinguish more clearly between harvest displacement and net carbon leakage.
Consider how to treat positive spillovers – even if conservatively – instead of assuming they do not exist.
Align leakage treatment more closely with emerging science, while maintaining a conservative bias where uncertainty is high.
If adopted, these changes would alter the economics of forest projects, the ratings of some IFM and REDD+ credits, and likely the relative attractiveness of NBS compared to engineered solutions.
The Role of Intermediaries
As leakage treatment evolves, the complexity at the interface of science, policy and finance will increase. Intermediaries will be needed to:
Interpret modelling results for specific projects and portfolios.
Design project documentation and MRV frameworks that speak to updated leakage expectations.
Support investors in due diligence on leakage claims, rather than relying on simplistic ratings.
Engage with standards and regulators in technical discussions on methodology updates.
The market’s ability to incorporate this new evidence will depend heavily on actors who can bridge disciplines, not just trade credits.
Where Masdar Arche Fits
For investors and developers operating in or alongside forest and wider NBS markets, the question is no longer whether leakage exists – it’s whether the way it is priced and discounted reflects the best available evidence.
Masdar Arche works in that gap:
With developers, to design and document climate-smart forestry and NBS projects in ways that minimise leakage risk and align with evolving scientific and methodological expectations.
With institutional investors, to evaluate leakage assumptions in project pipelines, credit ratings and offtake structures, and to identify where conservatism is justified and where it is simply leaving value on the table.
With standards and policy processes, to translate modelling insights into pragmatic, investable rules.
The Bezos-backed study does not solve the leakage debate. It shifts it. The opportunity now lies with those willing to move past blunt heuristics and engage with the nuance — and to build portfolios and project structures that reflect that shift.
