In September 2015, a curator from Yale’s Beinecke Rare Book and Manuscript Library traveled to Amsterdam to collect the previous 12 years’ worth of interest on a bond issued on May 15, 1648. At the bond’s issuance, the borrower, an autonomous Dutch water authority, had promised to pay the holder interest in perpetuity. Cash from sale of the bond had been used to pay for an infrastructure project that protected against rising sea levels.
A Game Plan for Funding Carbon Offsets
How perpetual bonds can make nature-based offsets a realistic strategy for dealing with climate change.
June 13, 2023
Illustration: Edmon de Haro; Baloncici/Getty Images (chimney); Vitalina/Getty Images (butterflies)
Summary.
The most common types of carbon offsets are nature-based offsets such as forests. Unfortunately, while emissions remain in the atmosphere around 1,000 years, possibly longer, a tree can only remove carbon for its lifespan of 10o or so years, which means a forest planted as a carbon offset must be maintained with trees replanted at least ten times to match the emission it is offsetting. Most businesses will be reluctant to tie up capital in this way, but such projects can be (and have been) financed by perpetual bonds, which represent attractive investments for investors such as university endowments that have very long liability streams extending far into the future. The use of financial instruments such as perpetual bonds can make considerable quantities of capital available to offset producers, spurring the production and the creation of spot markets in offsets that can definitively and reliably be offset against emissions.