Giving trees a value is one solution for halting deforestation, but deciding how much a forest is worth is proving challenging. Reducing emissions from deforestation and forest degradation, otherwise known as REDD, offers vast potential for companies, developing nations and native forests. But its viability is threatened by the absence of a liquid market and a clear signal by policymakers on how REDD would be funded.
For now, REDD credits are not included on Europe’s emissions trading scheme, the world’s largest carbon-trading system. And while several REDD projects are getting closer to selling their credits on the voluntary market, those hoping to benefit from the scheme say most investors are not willing to bear the risks just yet.
“We’ve found some buyers that have been willing to pre-pay for credits,” said Todd Lemons, the CEO and chairman of for-profit conservation company Infinite Earth. But despite interest from investment funds that he says have earmarked “billions” specifically for REDD, none have invested in the company’s Indonesia project. Hong Kong-based Infinite Earth is part of the EnVision group, which develops natural resource projects for profit. The company was created in 2008 to develop the Rimba Raya Reserve, a 90,000-hectare peat swamp forest in Central Kalimantan.
Lemons said the reserve will serve as a buffer against palm oil plantations encroaching on the neighboring national forest, home to rare flora and fauna, such as Bornean orangutans. An Indonesian company is listed as the project owner.
Since its start, Infinite Earth has pooled more than $3.5 million from international private investors, such as Shell Canada and the Clinton Foundation, to fund the project’s development. They received the first signal that their investment was making headway in August, when Infinite Earth’s method for calculating carbon credits from forestry projects was approved under the Voluntary Carbon Standard.
Few methodologies have lined up to undergo VCS’s approval process, which requires double validation from two separate auditors.
Infinite Earth’s was the first international REDD methodology the VCS fully approved, and on September 22 a reforestation project in Tanzania became the first forestry investment to earn carbon offsets after credits were issued and placed in the VCS registry.
The news is drawing attention from investors reluctant to make the foray into forest-carbon trading. Forestry projects have already been operating on other registries, such as California’s Climate Action Registry, but project experts say VCS is the most credible standard. Once a forestry project begins trading there, it could open the door for REDD to be included in the UN-based compliance market.
If that happens, it could unleash billions of dollars toward climate change mitigation efforts.
The Rimba Raya project alone could create around 75 million credits, or offsets, by avoiding the release of carbon that results when peat swamp forests are converted for agriculture (this is based on the idea that one metric tonne of CO2 equals one credit). Given today’s average UN-certified carbon price at between 10 to 15 Euros per credit, those credits could add up 1.1 billion Euros million in potential revenues.
For now, however, Infinite Earth has pre-sold only 10 percent of its credits, and at a price well below the US$10 a tonne needed to guarantee returns to investors.
And while Infinite Earth has bid its time through the verification process, unclear regulations and the months or even years companies must wait before they can issue offsets have dampened enthusiasm.
Most prefer to wait until the market gains some certainty. Without a formal exchange to publish information about buying and selling, few buyers can determine the true value of an offset, and there is no way to ensure credits are not being sold more than once.