Bringing forest carbon projects to the market

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Bringing forest carbon projects to the market

• What is the place of forestry in the carbon
  markets ?
• What are the trends to anticipate ?
  
• How can forest carbon projects be financed and
  credits sold ?

Clément CHENOST Lead author, ONF
International June, 2010. Washington
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Brief presentation of ONFI

• ONF International is a subsidiary of the French
  Forestry Commission (ONF)
• 12,5 millions ha of forests (mostly owned)
• 15 million m3 of wood sold per year
• 11000 people
• ONFI consists of around 50 collaborators
  specialized in various sectors forestry,
  climate change, bionenergies, etc.
• International negociations, REDD strategies and
  capacity building
• CCNUCC Kyoto Protocol negocations
• National REDD Strategies of 5-10 countries
• MRV

• Development of forest carbon projects
• 2 validated CDM methodologies
• Technical assistance to more than 30 forestry
  projects (PDD, VCS, CDM, CCBs, etc.)
• Financial assistance carbon credits sale, funds
  raising

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Table of contents

• Introduction to the guidebook
• The place of forestry in the carbon markets
• How can forest carbon projects be financed and
  credits sold ?
• Post-2012 signals
• Conclusion

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Introduction to the guidebook

• Context
• Weak development of forestry projects in the
  carbon market despite a tremendous potential to
  mitigate climate change
• Technical and methodological barriers are falling
  down
• Financial barriers remains very important for
  project developers and investors
• Objective instruct project developers and
  financial investors on how to develop and bring
  profitable forest carbon projects to the market
  (AR, REDD, IFM)

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Introduction to the guidebook

• Part 3 How can forest carbon projects be
  financed and credits sold ?
• Project cycle overview
• Economy and risks associated
• Project financing
• Standards choice
• Definition of credit property
• Contracting (ERPA)

• Part 1 The place of forestry in carbon markets
• Types of forestry projects
• The place of forestry in regulated and voluntary
  markets
• Global overview of 434 forestry carbon projects

• Part 2 What will the post-2012 forestry carbon
  market look like?
• UNFCCC negotiations for REDD
• EU-ETS and USA-ETS
• Other markets
• Impacts for market actors

• Supported by a survey of 434 forestry projects
  and 5 case studies

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Table of contents

• Introduction to the guidebook
• The place of forestry in the carbon markets
• How can forest carbon projects be financed and
  credits sold ?
• Post-2012 signals
• Conclusion

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A slow takeoff under the CDM
Source UNEP CDM pipeline, October 2009

• 1,4 of projects in the pipeline
• No credits (tCER / lCER) issued till now

• Limited to AR projects
• 0,4 of registered projects

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Reasons for exclusion from regulated markets

• Limited demand for credits (EU-ETS exclusion)
• Delays in definition of modalities and procedures
  but

Source ONFI / UNEP

• fast evolution since methodologies are
  available
• 13,4 MtCO2e in the pipeline before 2012

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Maturation in the Voluntary Markets

• In 2008, forestry represented 7 of credits
  exchanged in VCM 5 MtCO2e (36,8 MUS)
• Various reasons, especially environmental
  community benefits
• 140 between 2007 and 2008 (essentially due to
  CCX) but
• OTC market share in sharp decline 30
  (2006), 8 (2007), 7 (2008)

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Maturation in the Voluntary Markets

• Criticisms towards the integrity of voluntary
  projects
• Higher demand for high quality offset and
  emergence of standards
• Diversification of portfolio with non forestry
  projects
• but strong movement towards standardisation of
  forestry projects

Source ONFI
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Maturation in the Voluntary Markets

• This could reinforce the place of forestry
  projects in the VCM
• Strong demand for forestry credits regulated by a
  demand for high quality offset
• Markets flooding is not observed, even in a
   small  voluntary market

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Table of contents

• Introduction to the guidebook
• The place of forestry in the carbon markets
• How can forest carbon projects be financed and
  credits sold ?
• Post-2012 signals
• Conclusion

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Financing forest carbon projects

• Carbon credits remunerate environmental services
  provided by forests
• Source of revenues (among others assets wood
  products, etc.), not a source of funding
• Barriers to investment are particulary important
  
• large up-front investment,
• returns on investment after deferred lengths of
  time,
• high risks (technical and political, lack of
  market visibility, etc.)
• Environmental and social benefits reinforce the
  viability of projects

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5 successful case studies

• Juma frontier REDD project (590 000 ha) is
  situated in state of Amazonas in Brazil. It is
  financed by by the environmental support of
  Marriott International and pre-paid credits to
  the hotels clients
• Ibi Batéké is an afforestation project covering
  4,000 ha on the Batéké plateau (DRC). Supported
  by a private company, Ibi Batéké is principally
  financed by borrowing and equity
• The Magdalena Bajo Commercial reforestation
  project reforests 4,000 ha of land in Colombia.
  The project is financed by a consortium of
  Colombian public bank actors and private forestry
  enterprises
• The restoration project of the Ankeniheny-Zahamena
  -Mantadia Corridor is a reforestation project
  that covers 975 hectares. The project is mainly
  financed by the World Bank which buys a portion
  of the credits via the BioCarbon Fund. The
  project also has REDD conservation component,
  protecting 376,000 ha of native forests. The
  project is principally supported by Conservation
  International

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Three major types of financing

• Voluntary offsetting and companies environmental
  support programs
• donations,
• payments in advance of carbon credits (debt),
• loans at preferential rates, etc.
• Direct or indirect (through offsetters, NGOs,
  etc.)
• Public funding
• subventions,
• payments in advance of carbon credits,
• loans at preferential rates,
• guarantee funds to reduce risks, etc.
• Limited access to the  usual  finance but very
  fast growing interest of investors due to
  positive market signals

• These different types of financing can be
  combined

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Table of contents

• Introduction to the guidebook
• The place of forestry in the carbon markets
• How can forest carbon projects be financed and
  credits sold ?
• Post-2012 signals
• Conclusion

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Post-2012 market signals

• A re-integration into the post-Kyoto framework ?
  Under what modalities ?
• Regional markets
• NZ-ETS
• US-ETS ?
• EU-ETS ?
• AUS-ETS ?
• JAP-ETS ?
• These evolutions could greatly impact forest
  carbon finance

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Table of contents

• Introduction to the guidebook
• The place of forestry in the carbon markets
• How can forest carbon projects be financed and
  credits sold ?
• Post-2012 signals
• Conclusion

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Conclusion

• While forestry projects have long been on the
  back-burner of climate change mitigation
  strategies, they can now take advantage of new
  opportunities
• After a slow start in the CDM market by forestry
  projects, there is now a groundswell of movement
  in AR
• Although financial obstacles remain, the
  voluntary markets enables the development of
  innovative forestry projects especially those
  that are exemplary in terms of environmental and
  social development co-benefits. Moreover, the
  quality of voluntary emission reductions can now
  be readily guaranteed by numerous accepted
  standards

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Conclusion

• Some of them propose effective alternatives in
  difficult institutional contexts and may serve as
  role models for the rest of the market
• More global projects (such as REDD) are already
  supported by "pilot" mechanisms such as BioCarbon
  Fund, CBFF, the CASCADe program (UNEP, FFEM) or
  UN-REDD
• A possible opening of the carbon market to
  post-Kyoto credits enabling REDD and other
  forestry sectors not currently supported would
  drastically change the carbon forest market
  landscape, stimulating investment and induce
  maturation in this still nascent market

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Additional information

• Guidebook available in three languages (English,
  French, Spanish)
• www.unep.fr/energy/activities/forest_carbon
• Contact ONF International
• Clément Chenost clement.chenost_at_onf.fr
• www.onfinternational.org