How voluntary carbon markets can support Germany’s LULUCF targets
Germany’s Land Use, Land-Use Change and Forestry Sector (LULUCF) is under pressure: According to the Federal Climate Action Act, it must sequester 40 million tons of CO₂ equivalent (tCO₂e) annually by 2045. However, in 2023 the sector emitted more CO₂ than it absorbed – a total of 68.7 million tCO₂e.
The new study “Negative Emissions in Agriculture and Forestry: A Win-Win-Win for Climate, Nature and Economy”, published by Climate Focus and the German Association for Negative Emissions (DVNE) takes a closer look at this conflict of objectives using Germany as an example. It examines:
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The role voluntary carbon markets could play in the LULUCF-sector
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Why their potential has so far barely been utilised
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What measures are now needed
Current Situation: LULUCF as an Emissions Source
Forests, moors and grasslands are among the most important natural CO₂ sinks. But due to increasing drought, loss of the forest’s ecological buffering capacity and a lack of restoration efforts, Germany’s LULUCF-sector now emits more CO₂ than it stores.
The interim target to sequester 25 million tCO₂e annually by 2030 is hardly achievable without significantly more ambitious action.
At the same time, it’s about more than CO₂: Intact ecosystems support biodiversity, improve water management and strengthen climate resilience. Investing in their protection and restoration delivers multiple societal benefits: ecological, climatic and economic.
Funding Gap: Needs Far Exceed State Funding
Current public funding, amounting to 3.5 billion euros until 2028, is not enough to achieve the climate targets of the LULUCF-sector. According to the Thünen Institute, the investment required for the conversion of German forests alone is already up to 43 billion euros.
Voluntary carbon markets could play a key role here by mobilising additional private investments.
The Potential: What Voluntary Carbon Markets Could Unlock
The study shows that up to 25 billion euros in private investment could be mobilised by 2050 under suitable conditions. At an assumed price of 150 euros per ton of stored CO₂, nature-based measures such as rewetting of moors, improved forest management, afforestation or avoided deforestation could sequester up to 33 million tCO₂e annually.
This would allow more than half of Germany's LULUCF targets to be covered by the voluntary market by 2040, assuming there is political clarity and investment barriers are removed.
Implementation Status: Potential Still Barely Utilised
Despite existing projects under standards like VCS, ISO 14064-2 or Moorfutures, the German market is currently only utilising about 2.1% of the possible annual climate protection potential through registered projects until 2050.
Project developers, including Tree.ly, are actively working to close this gap. Still, key obstacles remain:
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Low investment certainty
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Lack of political clarity
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Conflicting communication
At the same time, demand from buyers is growing: The climate targets of DAX 40 companies suggest a demand of over 30 million tCO₂e by 2030, potentially rising to 370 million tCO₂e by 2050. However, uncertainties around legal frameworks, double counting and credible climate claims are slowing the progress.
Policy Recommendations: Eight Concrete Steps
Many of these obstacles could be addressed without new laws or additional funding. The study outlines eight specific recommendations to the German government to strengthen voluntary carbon markets:
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1
Clear political commitment to the role of voluntary carbon markets and nature-based solutions
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2
Clarification on double counting: Companies should be allowed to account for voluntary climate actions in their reports. Carbon accounting of companies is independent of carbon accounting of countries and therefore does not lead to double counting.
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3
Clarification on permanence and climate benefits of nature-based solutions: Nature-based solutions are essential to meet climate targets. Permanence risks can be effectively managed through monitoring, permanence strategies and robust project design.
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4
Clarity on credible climate claims: Clear guidelines should ensure companies can communicate their climate contributions transparently and credibly.
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5
Clarification on eligibility of carbon projects: Doubts about the eligibility of nature-based carbon projects must be resolved. Even with public support, additional funding is often needed for projects to be economically viable. As long as the same activity isn’t subsidised twice, additionality can be maintained.
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6
Legal clarification for biochar: Investment barriers in biochar should be removed by recognizing pyrolysis as a negative emissions technology and accelerating approval processes.
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7
Targeted demand incentives: Incentives such as tax benefits, CSR recognition or labels for outstanding commitments can boost corporate demand for carbon credits.
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8
Facilitate project development: The government should promote project development in the carbon market through greater transparency, building market infrastructure and improving access to land.
Conclusion
The study shows through Germany’s example that without nature-based solutions, Germany will not reach its LULUCF climate targets. These solutions are vital for climate protection, biodiversity and sustainable regional development. It is therefore crucial that voluntary carbon markets can fully realise their potential. That requires clear political frameworks now.
Further Information
The full study “Negative Emissions in Agriculture and Forestry: A Win-Win-Win for Climate, Nature and Economy”, including all recommendations and analyses, is available here (in German):