Tuesday, July 26, 2011

A Slow Start for the for Carbon Credit Market

As U.N. talks keep failing to agree how to raise money to protect forests, private investors are testing a trade in credits to slow the deforestation that emits as much carbon as all the world’s cars, ships, trucks and planes.

BNP Paribas is one of a handful of financial institutions and investment funds entering the risky but potentially lucrative market for “credits” in the Reducing Emissions from Deforestation and Forest Degradation program, or REDD. A credit represents one ton of carbon dioxide not emitted because a forest was left standing.

Last September, BNP’s commodities derivatives arm provided $50 million to Wildlife Works, a conservation project developer designing a portfolio of ventures to reduce deforestation and degradation in Africa.  BNP also acquired the rights to buy as many as 1.25 million carbon credits over the next five years from Wildlife Works’ flagship project in the Kasigau corridor in Kenya. The program aims to protect more than 202,000 hectares, or 500,000 acres, of forest, secure a wildlife migration corridor between two national parks and bring sustainable benefits to local communities through education, jobs for rangers and an “ecofactory” producing organic cotton clothing.

But such carbon credits have found demand only in a small, thinly traded voluntary carbon market, as countries struggle to agree on new, binding emissions cuts under U.N. climate talks.

“There is growing impatience with the multilateral process, not only from practitioners such as myself, but more importantly, from many forest countries,” said Christian del Valle, environmental markets and forestry director at BNP Paribas in London.“Thus far the multilateral process has not delivered meaningful on-the-ground results, and forests continue to be lost because the only accessible price signal today indicates they are worth more cut down than standing,” he said.

A full U.N. climate deal could create a market through which rich, polluting countries could buy carbon credits, paying for forest protection in the process, just as they pay for clean energy projects now under the Kyoto Protocol’s existing carbon offset market, the Clean Development Mechanism.

So far, the only demand for forest carbon credits has been in the voluntary carbon market, worth $424 million last year, which lacks the binding rules of the Clean Development Mechanism.

Governments like those of Norway, Germany, Britain and the United States have pledged $6.5 billion to help poorer countries develop systems to reduce emissions from deforestation, but that is seen as only a halfway measure. Private-sector involvement will be essential.

Recent studies suggest that between $17 billion and $33 billion per year is needed to achieve a U.N. Environment Program recommendation to halve global emissions from deforestation by 2030.  “We are not going to get the scale of what we need without participation by the private sector,” said Donna Lee, who was the lead U.N. negotiator on REDD for the United States and is now a consultant for the advisory group Climate Focus. 
by Valerie Volcovici, Reuters correspondent.
The New York Times www.NYTimes.com
July 24, 2011

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