DURBAN, South Africa (6 December, 2011)__ The private sector is seeing “pockets of optimism” that may catalyse them to invest in REDD+ pilot projects after Australia and California passed legislation that could see a monetary value put on carbon, said an investment banker.
These policy signals are important in the absence of one from UNFCCC that forest carbon will be recognised in the compliance framework, Associate Director at Macquarie Global Investments Brer Adams, told participants at Forest Day 5 held recently along the UN climate summit in Durban. “Everybody is waiting for those policy signals to emerge.”
Lack of recognition from the UNFCCC prevents REDD+ developers from benefiting from selling carbon credits in the European Union’s emission trading scheme (ETS), which accounts for 97 percent of the worldwide market, estimated at US$142 billion last year. Engagement of the private sector in REDD+ is currently limited to selling forest carbon in the voluntary markets and contributing funds to forest conservation or tree planting as part of corporate social responsibility programs.
Macquarie has partnered with the International Finance Corporation, the World Bank’s financial arm, and the Global Forest Partners to raise US$25 million to invest in REDD+ projects. The fund, managed by Macquarie’s subsidiary BioCarbon, is focused on projects in Southeast Asia, particularly in Indonesia.
Macquarie decided not to raise any more funds because of the complexities of REDD, a scheme that is still evolving, said Adams. Another reason is that there aren’t many demonstration activities that are suitable for private investment, which requires that they meet rigorous standards as demanded by the voluntary carbon markets to sell the credits, he said. “Until we start seeing that track record of success where the private sector can invest in demonstration projects, then it is hard to imagine a very fast scale up.”
The Ecosystem Marketplace reported that 30.1 million metric tonnes of carbon dioxide equivalent from forests was contracted across the carbon markets last year with a total estimated value of $178 million. Average prices in primary forest carbon markets rose by 22 percent to an average of $5.5/ton in 2010 from $4.5/ton the previous year, it said. These figures include carbon from projects to reduce emissions from deforestation and forest degradation, as well as from afforestation and improved forest managements. BNP Paribas and Gazprom Marketing & Trading are among investors that are trying to monetise forest carbon, the report said.
California recently approved North America’s first mandatory cap-and-trade emissions scheme, which will come into effect in 2013 and has indicated that it may allow companies to buy carbon credits from outside the US starting in 2015. According to media reports, the EU’s ETS and four Canadian provinces are considering a link to California’s carbon market.
Last month, Australia passed legislation that will levy a tax on coal-fired power plants and other major polluters from mid-next year. New Zealand also introduced its ETS last year, which will be expanded to all sectors by 2015.
REDD+ projects must provide the private sector with “very professional, very result-oriented opportunities” to be able to attract investments, said Virgilio Viana, CEO of Amazonas Sustainable Foundation (FAS). About 93 percent of funds invested by the Brazilian conservation organisation came from private companies, which in return get a better corporate image for meeting their corporate social responsibility, he said.
For other reports from the event, visit the blogs of these organizations:
– The Center for People and Forests (RECOFTC)
Virgilio Viana, CEO of Amazonas Sustainable Foundation (FAS), speaking to CIFOR about engaging the private sector in REDD+ at Forest Day 5. More videos from Forest Day 5