Ecosystem Marketplace’s State of the Forest Carbon Markets 2013 report tracked a miniscule number of forestry offsets transacted under the UK’s Woodland Carbon Code (WCC) program in 2012. That could change now that the WCC has started listing future offsets available for sale on the Markit Registry.
For the first time, potential buyers of carbon offsets generated by forestry projects under the UK’s Woodland Carbon Code (WCC) program can see future offsets available for sale, allowing them to make long-term offsetting plans.
In July 2013, the WCC Registry went live on the Markit Registry, but only listed offsets that were already sold. Starting this week, companies can now buy Pending Issuance Units (PIUs) that represent promises to deliver Woodland Carbon Units (WCUs) in the future once the trees have grown and the carbon sequestration has been verified, which allows the PIUs to be converted into WCUs.
"PIUs represent units of woodland carbon to be sequestered in the future, and can only be used to report against emissions after they have been verified,” said Vicky West, climate analyst with the UK Forestry Commission. "However, buying them now allows companies to plan their compensation for future emissions while helping to tackle climate change and contributing a wide range of other environmental and social benefits."
The UK Forestry Commission launched the WCC in 2011 as a domestic voluntary carbon offset program to incentivize local action on forestry. The WCC is the standard for woodland creation projects in the UK that generate verifiable WCUs – measurable amounts of carbon dioxide (CO2) removed from the atmosphere by the growing trees. Under the program, companies can establish woodlands on their own land or buy the rights to the carbon sequestered in woodlands established by others.
Since April 2013, UK companies have been required to report their gross CO2 emissions. However, the UK Department for Environment, Food and Rural Affairs allows UK companies to claim any support for WCC projects against their annual emissions reporting – one of only two cases of a national government allowing voluntary offsetting claims against mandatory emissions reporting (the other being Japan).
Ecosystem Marketplace’s State of the Forest Carbon Markets 2013 report tracked 0.1 million tonnes of WCC offsets transacted in 2012, with 19 projects validated, all under the afforestation/reforestation project type. The WCC had a 2% market share by domestic standards, according to the report (see Figure 45).
Back to the Future
The first verified WCUs will be available in 2016, according to the commission. The average global price of woodland carbon in January 2014 was £6/tCO2, although there was wide variation around this figure, depending on the nature of the project, the commission noted.
A total of 63 woodland projects have been validated under the WCC, covering 2,500 hectares and projected to sequester nearly 1.2 MtCO2. Nearly 130 additional projects have been registered but not yet validated, with expectations that they will sequester more than 4.4 Mt CO2 over their lifetime. Details of all WCC projects are held on the Markit Registry, enabling changes of ownership of each tonne to be tracked, with the registry recording when credits are listed and retired.
One example of a project that has already been validated under the WCC is the Moorside Woods project. The land was previously heavily grazed pastureland, but new woodlands have been created on inorganic soils in undulating farmland close to the Lake District National Park in Cumbria, located in North West England. The project is estimated to sequester 18,891 tonnes CO2e over 100 years.
Durham, England-based consultancy Forest Carbon brokered the carbon finance supporting the project with The Green Insurance Company, which got involved as part of a commitment to offset the annual emissions of the vehicles insured by the company. The landowner received a grant from the commission, but the insurer provided about 35% of the project costs to allow the new woodlands to be planted.
About 13% of the UK’s land area is covered by woodland, more than double the woodland cover of 100 years ago, according to the commission.
The Althelia Climate Fund made its first direct investment last month, pledging $10 million toward the Taita Hills project in Kenya. Mike Korchinsky, CEO and founder of project developer Wildlife Works, tells Gloria Gonzalez how the deal came together, and why the Taita Hills project is a new frontier for carbon-conscious land management.
Mike Korchinsky goes way back with Christian del Valle and Sylvain Goupille, now the heads of the Althelia Climate Fund. During del Valle and Goupille’sdays on the carbon desk at BNP Paribas, Wildlife Works, a developer of reduced emissions from deforestation and degradation (REDD) projects, had an agreement with the French bank to provide development services for up to $50 million worth of projects.
When the two left BNP Paribas and launched the Althelia Climate Fund in 2011, Korchinsky continued to engage with del Valle and Goupille in hopes of becoming the first developer to receive financing for a sustainable land use and conservation project from the new fund. Those conversations culminated in last month’s announcement that Althelia will make a $10 million investment over eight years in the Taita Hills project, which is located in the same region as Wildlife Work’s Kasigua Corridor REDD+ projects. The project area includes most of the remaining wilderness outside of Tsavo National Park, one of the largest national parks in the world, and home to elephants, rhinos, lions, leopards, and hippos. While the Kasigua projects focus on forest conservation, Taita Hills will also account for avoided conversion of grasslands—a major milestone for carbon developers and local grasslands owners.
Gloria Gonzalez: How is the project similar to or different from your previous projects in Kenya?
Mike Korchinsky: The program will generate REDD+ carbon offsets from protection of the forest and savannah. The one difference between this project and our current Kasigua project is that Wildlife Works has developed an avoided conversion of grasslands system methodology in the last year, and that allows us to look at a landscape in its entirety, not just at forests.
The other focus for Althelia is to really magnify the influence of alternative revenue streams in the development of the conservation program. They’re interested in more aggressively pursuing commercialization of agricultural intensification programs or sustainable charcoal programs in the area so that the program can benefit from parallel revenue streams to the carbon revenue stream. That’s always been part of Wildlife Works’ approach, but Althelia is interested in accelerating those activities with specific investments.
GG: How does it work in terms of starting these activities that can bring in additional revenue streams aside from the carbon?
MK: It will be just like any business startup. There will be a business plan written for each opportunity and there will be local shareholders or local involvement, depending on what the nature of the activity is. If it’s a nursery and there’s a local person who wants to own and operate the nursery, then Wildlife Works will act as an intermediary to provide technical skills and finance and management expertise.
The other avenue will be potentially Wildlife Works forming companies with local participation in the event that there isn’t a local champion of a particular business concept that we think is important for the project, such as the sustainable charcoal for example. We would invest in building a local company to operate that business opportunity. Each of these little opportunities would have a separate business plan and would be invested in separately by the Althelia Climate Fund.
GG: What does Althelia bring to the table that is helpful from your perspective?
MK: The main thing is their willingness and interest in taking a long-term view of these projects. They are putting money upfront, but the main involvement is in these off-take agreements, these guarantees to provide funding to the project over a number of years to ensure that the projects are sustainable—at least for the first five or so years of operation.
GG: This project is being developed under the Verified Carbon Standard’s revised Methodology for Avoided Deforestation (VM0009). In addition to avoiding deforestation, the revision allows the methodology to be used by projects that seek to avoid conversion of grasslands and shrublands into common anthropogenic land uses, right?
MK: We’ve revised that methodology to allow for accounting areas that don’t meet the forest definition. The methodology always allowed for multiple accounting areas within a project so you could have different kinds of accounting for [different] project types. But they all had to be forests. So we’ve added new accounting types for grassland so you can quantify grassland carbon and create separate models for emissions in the business-as-usual case for conversion of grasslands to farming and other development activities.
One of the reasons why there are some land units in the area that were not part of the REDD project was because they did not meet the forest definition. Those community landowners that see their neighbors benefiting from carbon finance because their neighbors’ land happens to have forests are wondering why they can’t benefit from conserving their savannah ecosystems. This new methodology allows us to capture the value of protecting savannah ecosystems.
GG: What specific on-the-ground activities will be conducted for the project under this revised methodology that weren’t conducted for the previous projects?
MK: In the literature, it’s often hypothesized that grassland ecosystems store more carbon than forest ecosystems in the soil. In order to test that, we’re going to have to do a lot more sampling of soil. I think we’re going to have to go to a new level for these soil ecosystems just to ensure that we’re getting accurate soil carbon measurements inside the conservation areas and then outside in converted lands so we can identify the loss of carbon over time when these grassland ecosystems are converted.
GG: Could this type of project and financing arrangement work with other partners or in other countries?
MK: The Althelia model, the broad financing for landscape-level projects that have a forest component but could also have grassland components, is certainly applicable to other projects. We’re in discussions with Althelia on a number of other programs in other countries. We hope that there will be others. We certainly won’t be the only player that receives funding from Althelia.
GG: Given that you have this structure in place and you have local relationships in Kenya, how quickly do you think this new project could scale up and address the alternate programs that the fund is really targeting?
MK: I think pretty quickly. We know for sure that some landowners or landowner groups within the community feel that they missed out on the REDD project previously, either because they weren’t ready to jump in or they didn’t have enough forests. Some of those groups have been on our doorstep for a year asking to be part of the program. It certainly simplifies FPIC (Free, Prior and Informed Consent) to be doing this in an environment where everyone knows the REDD project already and everyone has seen money flowing from the REDD project into the community.
GG: Any other thoughts about the Althelia investment?
MK: It’s a milestone. Althelia is really the first fund of its kind that is dedicated to conservation land use or to reducing emissions from agriculture, forest and other land uses, or ‘AFOLU’ as we like to say in the acronym-laden world that we live in. To get up and running at scale and now to see them actually deploying their capital is very exciting. I think this is the first of many announcements you’ll see over the next 12 months from Althelia [as they put] a substantial amount of money to work in projects like this around the world. I think it’s quite an exciting development for the marketplace as a whole.
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As an antidote to less-than-ideal demand for carbon offsets from forestry projects, the Indonesian government may take a step that is unusual for a developing country: buying carbon offsets itself to support domestic forest conservation activities.
26 February 2014 | JAKARTA | Building on a proposal to develop a REDD+ funding mechanism for Indonesia’s ground-breaking REDD+ Agency, the government may actually enter the voluntary carbon market to purchase REDD offsets, a top official said in an interview with Ecosystem Marketplace.
Agus Sari, chair of the Working Group on Funding Instruments for the Presidential Task Force on REDD+, proposed in 2013 the creation of an interim financing mechanism called Financing REDD+ in Indonesia, also known as FREDDI, that would act as a “fund of funds” administered under the REDD+ Agency to support forest conservation.
Sari says the REDD Agency can act as an intermediary between domestic and international carbon markets.
“Here in Indonesia, we want to reduce our domestic emissions by 41% [below a business-as-usual scenario] by 2020, and in REDD terms that could mean about 1 billion tons of emission-reductions by 2020,” he says.
“We intend to fulfill part of our domestic targets through purchasing of emission-reduction performances from projects, because that not only helps us achieve our goals, but catalyzes the domestic market.”
The former head of Southeast Asia for EcoSecurities, Sari said the agency can also securitize domestic carbon offsets and package them for international sale.
“We would not only buy and sell like traditional dealers, but we could package them so that we buy insecure credits and we sell secure credits, and that increases the value quite considerably,” he says.
Indonesia was the first country to create a high-level REDD+ Agency, and it is seen as template model for other governments looking to implement similar REDD strategies, meaning Sari’s proposal could have global ramifications.
Stepping into the Void
The Indonesian government is considering direct purchasing of forest carbon offsets due to the insufficient market demand that has created financial obstacles to additional project development.
Carbon finance is supporting the management of forests spanning 26.5 million hectares worldwide after businesses in 2012 injected $216 million into projects that plant trees, avoid deforestation, improve forest management, and support low-carbon agriculture, according to Ecosystem Marketplace’s State of the Forest Carbon Markets 2013 report. Although the volume of forest carbon transactions rose 9% in 2012, however, the report found that the overall value declined 8% as some projects struggled to find buyers amid the UN’s failure to date to secure binding emissions reduction targets.
Sari argues that the Indonesian government could offer offset buyers a degree of certainty that they may not currently enjoy when purchasing offsets directly from private projects. “If I buy from multiple projects in such a way that if one dies I have 200 others that survive, then any buyer will look at us as a secure intermediary.
“Because of that,” Sari continues, “buyers will be willing to pay the higher price from us, which means we can buy at a higher price, and because we can buy at a higher price, we can enlarge our portfolio. Because we enlarge our portfolio, we are even more secure, and that means the buyer will be even more willing to buy at a higher price. That’s the virtuous cycle that we’re looking for.”
Sari can’t say when that cycle will begin, but he says the feedback on his proposal has been promising.
“Everyone I’ve presented this to likes it,” he says. “I’m optimistic.”
The government’s intervention may be critical. Southeast Asia has more than 27 million hectares of forested peatland, and peat releases devastating amounts of methane and carbon when drained or burned. Approximately 80% of the world’s peat land is in Indonesia, and much of it is slated to be converted to palm oil plantations, thanks to land-use concessions granted well before the decidedly green President Susilo Bambang Yudhoyono took office a decade ago.
The Indonesian government is implementing a detailed strategy to harness finance from the carbon markets that will enable it to shift such concessions from forested areas to degraded lands. The country is also seeing a proliferation of smaller, private conservation efforts such as the Rimba Raya “REDD” Project, which has rescued 47,000 hectares of forested peatland from imminent demise.
Heru Prasetyo heads Indonesia’s REDD+ Agency that is charged with implementing the country’s National REDD+ Strategy, which would complete re-engineer the country’s massive agricultural economy over the next five years.
Some of the Agency’s programs aim to leverage country-to-country REDD finance facilitated under the United Nations Framework Convention on Climate Change to persuade palm oil companies with rights to forested land to instead shift their activities to degraded land.
It’s a massive “land swap” that requires first sorting out hundreds of competing claims on various parcels of land, and then reorganizing Indonesia’s agricultural economy – from multinational agroforestry companies down to small-scale farmers – around more forest-friendly land-use plans.
The strategy lays out a detailed sequence of activities to “ready” its economy for such a transition – beginning with institutional efforts including necessary changes to laws and statutes, and the “One Map” initiative that is slated to wrap up this year that consolidates scores of conflicting land-use and tenure maps from various agencies and districts in one consolidated, consistent database.
The strategy is built on five pillars, with the private conservation financing initiative – including the proposed purchasing of forest carbon offsets – falling under the strategic programs pillar.