Investors ready for forest carbon market if Copenhagen and countries supply certainty



Posted on 28 September 2009  | 
Bangkok, Thailand: A survey of investors with approximately US$7 trillion of assets under management has shown significant support for an expanded carbon market mechanism which would address the estimated 20 percent of global carbon emissions due to deforestation and forest degradation.

But the 2009 Forest Carbon Investor Survey, conducted by the Brunswick Group on behalf of the WWF Forest Carbon Initiative, found investors looking for initial public financing viable policy frameworks, and more certainty from both international agreements and national legislation, before private funds can be mobilized.

The investment community is looking to December’s UN Climate Conference in Copenhagen to add substance to REDD (Reduced Emissions from Deforestation and Degradation) as the over-arching policy framework for combating forest related emissions.

“Any global deal on climate change must take into account the significant role forests play in combating global warming,” said James Leape, Director General, WWF International. “If strong policies are put in place to ensure real reductions in emissions and real benefits to forest communities, investors can play a key role in supporting REDD.

“Agreement in Copenhagen – coupled with progress on national initiatives – will be a signal to investors that REDD can and will succeed, and will ensure forests are more valuable standing than cut down.”

The key findings from in depth interviews with 25 senior institutional money managers, sell-side analysts and specialist sustainability investors in Europe, the U.S. and Asia-Pacific are:

  • There is significant potential for a multi-billon dollar expanded carbon market, however substantial preconditions still need to be met for REDD to succeed
  • Agreement at Copenhagen and legislation in key countries including the U.S. are crucial pre-requisites
  • Public sector funding will be vital before a market-based approach can take effect
  • Problems of verification and monitoring can be addressed if there is a strong political framework in place
  • National governments must put in place robust and durable legal frameworks to create certainty for investors
The survey found investors have a high degree of knowledge about REDD and see strong potential in a future carbon market. However, they are also unlikely to invest in the market without clear political commitment, funding and on-the-ground implementation by key developed and developing countries.

The investors also believed that a compliance market in forest carbon would provide powerful incentives to reverse deforestation in forest countries

More than one-third expect a forest carbon market will evolve from a voluntary to a compliance market over the next five to fifteen years if certain conditions for a market-based approach can be met. This will require action from governments, including public sector funding, to lay the foundation for the market and support efforts by forest nations to build legal and technical capacity for REDD.

Key milestones sought by investors are agreement at the Copenhagen climate talks with support from major economies such as China and India, as well as the passage of U.S. climate change legislation. A strong legislative framework in forest countries is seen as core to addressing problems of verification and monitoring that have hampered agreement on REDD in the past.

Investors have a favorable view of proposals on REDD, supported by WWF, which recognize the value of a phased approach including pilot projects.

"REDD is critical to a climate solution, and finance is critical to making REDD work,” said Donald Kanak, Chairman of WWF’s Forest Carbon Initiative. “In the long term, private capital could play a major role, if certain conditions are satisfied. We need governments to step up to create sufficient financing in the near term to support forest countries’ efforts to become REDD-ready."

Kanak presented the survey results (summary attached) as negotiators met in Bangkok in a lead up session to the Copenhagen climate change talks convened by the United Nations Framework Convention on Climate Change (UNFCCC). The survey presentation was followed by an expert panel discussion which included: Prof. Dr. Singgih Riphat of the Ministry of Finance, Republic of Indonesia, and Mr. David McCauley of the Asian Development Bank.
Deforested outskirts of the town of Thika, Kenya. Wangari Maathai has been continuously fighting deforestation in Kenya.
© WWF-Canon / Mauri RAUTKARI Enlarge

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