Mitigating Carbon Loss Risks through Natural Climate Solutions Portfolios

Natural climate solutions (NCS) hold the potential to realize a significant portion of emission reductions. However, uncertainties surrounding their efficacy impede their full utilization. In this study, we leverage Modern Portfolio Theory to construct NCS portfolios (NCSPs) that encompass diverse pathways outlined in Griscom et al. Within a 'carbon mitigation market,' these pathways are regarded as risky assets, with their returns and risks determined by global estimates of mitigation potential.Our objective is to optimize carbon sequestration while minimizing the risk of carbon loss, effectively navigating the 'efficient frontier' where the optimal trade-off between maximum carbon sequestration and risk is achieved. Diversification of pathways results in reduced risk and increased resilience, especially when the risks of carbon loss from environmental stressors are spatially or temporally uncorrelated.The optimal NCSPs offer valuable insights into allocating investments and land across pathway categories (forests, agriculture, and wetlands), intervention types (e.g., manage, protect, restore), cost-effectiveness, and geographical contexts. We trust that these findings will assist policymakers in mitigating risk while pursuing ambitious carbon mitigation targets.