Unlocking the financing potential of forest-based carbon assets: a valuation framework for pledge lending under uncertainty in China

Forest-based carbon assets are increasingly proposed as collateral for green credit, yet a central problem remains unresolved: a higher collateral valuation does not necessarily translate into greater lendable value. Here we develop a contract-consistent framework for pricing forest-based carbon collateral under uncertainty and apply it to the Ning'er afforestation case in Yunnan, China, covering 51,365 mu and 719,680 t [Formula: see text] e of expected carbon assets. The framework combines weekly carbon-price forecasting from thin and irregular China Certified Emission Reduction (CCER) trading data with threshold-based option valuation and a lender-oriented pledge-rate equation anchored to the observed three-year loan structure. Using weekly pre-loan transactions from 31 August 2018 to 30 September 2022, we show that incorporating uncertainty and timing flexibility raises the option-adjusted collateral value to CNY 71.87 million. However, once effective deliverability, downside protection and prudential threshold calibration are imposed, the model-implied lower-bound pledgeable amount is only CNY 5.92 million, below the realised loan of CNY 12 million. Sensitivity analysis further shows that financing capacity is jointly shaped by carbon price, effective deliverability, volatility identification and threshold calibration. Our results show that valuing forest-based carbon assets for lending is not a single-stage asset-pricing problem, but a constrained translation problem between economic collateral value and lender-recognised lendable value.