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
Page 2C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Page 3C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Page 4C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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)
Page 5C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
Introduction to the guidebook
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
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)
Supported by a survey of 434 forestry projects and 5 case studies
Page 6C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Page 7C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
CDM pipeline (in validation) : 2839
1725469
505
68
39 924
Industrial gas
Renewables
Methane (coal mine, waste, etc.) & cement
Energy effi ciency
Fuel switch
Afforestation & reforestation
Others
A slow takeoff under the CDM
Limited to AR projects 0,4 % of registered projects
Source : UNEP CDM pipeline, October 2009
1,4 % of projects in the pipeline No credits (tCER / lCER) issued till now
Page 8C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
Reasons for exclusion from regulated markets Limited demand for credits (EU-ETS exclusion) Delays in definition of modalities and procedures but …
… fast evolution since methodologies are available 13,4 MtCO2e in the pipeline before 2012
Source : ONFI / UNEP
2001 2002 2003 2004 2005 2006 2007 2008 2009 Decisions on modalities and procedures
Other sectors X AFOLU X
Approved methodologies - cumulative - Other sectors 10 32 61 83 104 115 132
AFOLU 1 5 13 15 16
Registered projects (projects in validation for AR projects) - cumulative - Other sectors 2 143 586 1146 1723 1834
AFOLU 1
(4) 1
(13) 1
(36) 8
(52)
Page 9C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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)
Page 10C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
0
10
20
30
40
50
60
CDM & JI CCB
CCX CCAR
CarfonF
ix
Greenh
ouse Fri
endly
NSW GGAS
Oregon
VCS
Plan Vivo
VER+
FSI -
NZ
In validation
Registered
434 projects inventoried in 2009
61
75
298
Projects registered with atleast one standard
Projects in the process ofregistration
Projects without standard
15 projects aimed double or triple registration
Standards considered : CDM, J I, CCBs, CCX, CCAR, Carbonfix, Greenhouse Friendly, Oregon Standard, VCS, Plan Vivo, VER +, GGAS, FSI
Source : ONFI
Page 11C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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 …Régulés
Volontaires
-
1,0
2,0
3,0
4,0
5,0
6,0
pre-2002
2 002 2 003 2 004 2 005 2 006 2 007 2 008 Jan-Juin2009
Kyoto (UA)
NZ ETS
MDP
GGAS
CCX
OTC
Page 12C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Page 13C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Page 14C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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 hotel’s 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
Page 15C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
Three major types of financing Voluntary offsetting and companie’s 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
Page 16C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Page 17C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Intermediate€ 1.2 – 2.25 billionPhases
2007 2020
Preparation€ 200-250 million
Payments for results, Emission reductions* that
are measured against a baseline scenario with a
transparent system of MRV
Information, consultationInventory, Policy definition
Framework implementationImplementation tools for
measurement, reporting & validation (MRV)
Institutional reform, Pilot programs, Progressive improvements of MRV, Defining the baseline
scenario
Objectives of financing
Sources of financing
Ongoing support for REDD: FCPF, UN-REDD, bi-lateral initiatives ;Development assistance ;International taxes on fossil fuels and raw materialsRevenues from auctioned allowances of greenhouse gas emissions in developing countries, and taxes on CDMVoluntary markets and philanthropy
Same as intermediate phase and/or using regulated markets: Kyoto, EU, U.S., Japan, New Zealand, and Australia ETS
* And carbon sequestration if the scope of REDD includes forest regeneration and/or AR
Norway’s International Climate and Forest Initiative
Australia’s International Forest Carbon Initiative
Congo Basin Forest Fund
FCPF – Readiness Fund FCPF – Carbon FundFIP
UN-REDD
Voluntary Market Projects
Existing initiatives
Final€ 17 – 33 billion/year
Page 18C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Page 19C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
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
Page 21C. ChenostJune, 2010Bringing Forest Carbon Projects to the Market
Additional information
Guidebook available in three languages (English, French, Spanish): www.unep.fr/energy/activities/forest_carbon
Contact ONF International
Clément Chenost : [email protected] www.onfinternational.org