FINANCIERS’ CHALLENGE: FORESTRY-BASED CARBON MARKETS

FINANCIERS’ CHALLENGE: FORESTRY-BASED CARBON MARKETS

Erle Frayne D. Argonza

Where has the world gone to after the concurrence of the Kyoto Protocol? We can still recall how, after all the wrangling and quizzing for a ‘final solution’ to the global warming problem, when the USA as the expected leading nation to support the protocol behaved instead on the contrary!

The Northern powers who did so much of the backdoor squeeze to bamboozle developing countries into supporting the protocol, ended up being cold to their respective countries’ commitment to the Protocol’s jack-rabbit start. Look at all the stubborn resort to fossil fuel including nukes that have demonstrated their destructive powers when unleashed upon nature without control.

As of this writing, financial institutions across the globe have expressed grave concern over the post-Kyoto wrangling and lackadaisical commitments of the North to the full protocol execution. So much of forest reserves were already destroyed across the globe by the greed of market players, so the big challenged posed unto the market stakeholders and states is the stronger implementation of forestry-based carbon markets. Will the challenge ‘bite the dust’?

Below is a report from the UNDP about the latest developments on the subject.

[Philippines, 27 September 2011]

Source: http://www.beta.undp.org/undp/en/home/presscenter/pressreleases/2011/09/13/financiers-call-for-forestry-based-carbon-markets-warn-of-huge-cost-of-failure.html

Financiers call for forestry-based carbon markets & warn of huge cost of failure

13 September 2011

Geneva - A coalition of the world's foremost financial institutions brought together by the United Nations warns in a report released Tuesday against the huge financial and environmental losses that could stem from a post-Kyoto climate change deal that fails to spur private sector investment into deforestation and forest degradation reduction efforts.

With the new report, REDDy-Set-Grow Part II: Recommendations for international climate change negotiators, over 200 leading actors of the financial sector united under a partnership with the United Nations Environment Programme Finance Initiative (UNEP FI) call on country negotiators at the United Nations Framework Convention on Climate Change (UNFCCC) to follow through with their previous commitment, incorporated into the 2010 Cancun Agreements, to an international policy architecture for deforestation and forest degradation reduction in developing countries (a scheme known as REDD+).

The new study asserts that any post-Kyoto climate convention negotiated in Durban and beyond must include text that clarifies the fundamental role of private engagement and investment in funding REDD+, as well as effective measures to tackle the fundamental drivers of deforestation by shifting behavior in the private sector towards sustainable land-use. A positive outcome in Durban would also send an encouraging signal to Rio+20 in June next year with one of its two key themes being the Green Economy in the context of sustainable development and poverty eradication.

The report highlights the huge costs for the world economy and the global environment of policy-makers coming short of fulfilling these criteria.

An ineffective climate change regime on forests would entail losses in the global economy of $1 trillion per year by 2100, and affect a good portion of the estimated 1 billion people who rely on forests for their livelihood, according to previous research (Eliasch Review, 2008).

In contrast, a healthy forestry-based carbon market could achieve to mobilise investment for the protection and rehabilitation of natural forests in the order of $10+ billion by 2020 (The Economics of Ecosystem and Biodiversity - TEEB, 2010).

"The fundamental reason for current levels of deforestation worldwide is that cleared forests translate into economic opportunity for farmers, local communities and governments while standing forests do not. There is a price for soybeans, palm oil, beef and other products grown on deforested lands, but not for the many critically important services provided by healthy forests, including the sequestration and storing of carbon," said BNP Paribas' Director - Environmental Markets & Forestry, Christian del Valle.

"With the possibility of a global funding mechanism for REDD+ we now have, at the global level, the unprecedented opportunity to address this imbalance. I hope we do not miss it so that natural forests are given the value they deserve," he added.

Sufficient funding of REDD+ mechanisms, if achieved, could be a key boost to efforts to hold the global temperature rise below 2 Degrees Celsius - a target previously agreed by governments - by scaling up current efforts to protect carbon-absorbing forests.

The price tag associated with halving global deforestation and forest degradation at the required scale and speed to meet internationally agreed targets is steep, however, having previously been estimated to amount to a mammoth $17-$40 billion per year (Eliasch Review, 2008; UNEP Green Economy Report, 2010).

With total government pledges for REDD+ adding up to $7 billion, REDDy-Set-Grow Part II stresses that plugging this gaping funding hole will require the close involvement of private finance, which has so far been on the margins of the funding debate.

"The banks, insurers and investors that are members of the UNEP Finance Initiative are optimistic that governments, when meeting in Durban this December, will realise the importance of mobilising private capital to help reduce deforestation and forest degradation," said Abyd Karmali, Managing Director and Global Head of Carbon Markets at Bank of America Merrill Lynch, a member institution of UNEP FI.

"Without the systematic involvement of the private sector, ranging from institutional investors to local forest cooperatives, the REDD+ mechanism agreed to in Cancun risks being rendered ineffectual."

REDDy-Set-Grow Part II further articulates the features which the private financial sector would like policy-makers to include in a new climate change treaty to summon sufficient funds.

Recommendations

Among the specific policy recommendations formulated in the report are the details of a policy scenario, coined as the "nested approach," deemed most likely to close the REDD+ investment gap.

Under a nested approach, a future REDD+ funding mechanism would be:

• Inclusive: Private entities (such as forest concessionaries or forest cooperatives) as well as governments (at both the national and sub-national level; such as central governments or municipalities) would be eligible to develop and implement forest conservation, rehabilitation or reforestation activities and to receive payments based on performance for these initiatives, with the desired effects of both spurring the multiplication of REDD+ projects and reducing possible red tape and risks commonly associated with weak governments.
• Decentralised and reliable: Payments for REDD+ projects would come from the generation of REDD+ carbon credits and their trade on international carbon markets rather than from currently cash-strapped donor country budgets. In other words: the burden of reducing, halting and ultimately reversing deforestation would not be borne by tax payers in developed countries, but by carbon polluters (or emitters). In addition to increasing the reliability and potential volumes of performance-based payments, such a market-based system would provide a strong real-price signal.
• Leakage-proof: Risks that successful deforestation reduction efforts in a given region be used to justify increased deforestation in another one - a phenomenon commonly known as "leakage" - will be mitigated by the enforcement of a national baseline. The baseline will aggregate project-level performance indicators into a country-wide performance indicator.

The report also calls for reforms to forest-based projects under the Kyoto Protocol's Clean Development Mechanism (CDM), which the financial sector would like to see improved - namely with the creation of permanent carbon credits - in a post-Kyoto regulatory environment.

"Our position is simple: our involvement is direly needed, and we wish to get involved. But we cannot do so unless it makes basic commercial sense to us," said Armin Sandhövel, CEO of Allianz Climate Solutions, another member institution of UNEP FI.

"With this report, we wish to state with one voice, as an industry, that policy-makers must urgently put in place viable avenues and formats for upscaled private sector investment and involvement in REDD+ by, firstly, redoubling efforts to agree on a climate change deal that will replace the Kyoto Protocol, and secondly, making policy decisions that will make investments in the protection, rehabilitation and creation of natural forests more competitive against conventional, unsustainable options. This report says how that can be done," he added.

Part I of REDDy-Set-Grow, released earlier this year, cast a spotlight on the abundance of untapped opportunities in current and emerging forest-carbon markets.
Further Quotes

Paul Clements-Hunt, head of UNEP Finance Initiative: "The climate-change mitigation debate has not kept apace with the finance community's rapidly growing understanding of its critical role in enabling and driving the shift to the green and low-carbon economy, with the result that the views of one of the world's most economically influential sectors are currently largely unaccounted for in international climate change negotiations."

"Private banks and investment funds can contribute to the global struggle to mitigate climate change. Our detailed recommendations on financing forest-based mitigation hopefully bode the beginning of a new dialogue between the finance community and governments," he said.

Contact Information

UNEP:
Nick Nuttall
Acting Director Division of Communications and Public Information/UNEP Spokesperson
+254 733 632755
nick.nuttall@unep.org

Sebastien Malo
UNEP FI Communications
+41 22 917 8465 / Mobile: +41 78 686 7022
sebastien.malo@unep.org

UNDP:
Stanislav Saling
Communications Specialist
+ 1 212 906 5296
stanislav.saling@undp.org

Related Links

• UNEP
• UN - REDD Programme
• UNEP FI

UNDP Environment and Energy

Related News

• 14 Sep: New guide to help developing countries speed up access to climate finance
• 13 Sep: Financiers call for forestry-based carbon markets & warn of huge cost of failure
• 22 Aug: Equator Prize opens call for sustainable development award nominations

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PEACE BONDS: CROCODILES & NOYNOY BONDING

Erle Frayne D. Argonza

Good evening Fellows! I’m gladdened by the petering in of thunderstorm rains in mega-Manila. The coming end to the hot dry spell spawned by El Niño is in sight, bringing with it a celebratory mood of sorts. Let me cap today’s mood with the peace bonds story.

The ‘peace bonds’ in the Philippines have got nothing to do with peace initiatives to end the decades-old insurgencies. They are financial instruments initiated by a coterie of NGO racketeering ‘intellectual prostitutes’ in the mid-90s, during the term of Fidel Ramos as president (‘92-‘98). The top honcho of those racketeers is former social welfare secretary Dinky Soliman, now among Noynoy Aquino’s avid supporters.

That decade began with fragmentations of civil society’s major political blocs, from the center Right/Center Left social democrats to the far Left Marxist groups. The insurgent groups weren’t spared of the fragmentations themselves, from north to south of the archipelago we experienced political quakes that tore solid movements asunder.

Being among the far Left groups then, though a moderate among hardliners, I recall well that our coalitions were in the process of brainstorming creative approaches to financing our NGOs’ operations. Europe’s donor streams were drying up as the traditional sources re-channeled a humungous lot of their grant funds to Eastern European countries (for recovery after the collapse of Stalinist states).

The fragmentations caught some of us quite off-guard. Those finance-savvy colleagues of mine joined splinter groups in the progressive forces, with moderate Marxist groups going to the extent of coalitioning with moderate anti-Marxist social democrats or ‘socdems’.

Among those finance-savvy groups were development workers represented by the likes of Dinky Soliman, then among the leading cadres in the ‘socdem’ blocs. News reached my ears that the NGO financier racketeers hatched new instruments such as debt swaps and alternative bonds to finance their groups’ operations.

The peace bonds were hatched from the side of the bloc/coalition represented by Soliman then. Luck of all luck, her brother Isidro Camacho, a financial wiz kid from the banking sector, was appointed as Secretary of Finance by the incumbent chief exec Fidel Ramos.

Around the years 96-98, series of experimentations on the use of debt swaps began to take off. The peace bonds came at the tail end of the Ramos regime and overflowed through Pres. Erap Estrada’s era. To recall, there was the coalition gravitating around the A.R.E. (as the achronym went) mandated to handle the peace bonds.

The scheme called for government to consider funneling funds to civil society groups whose programs would parallel state efforts at economic reforms. The agrarian/food production sector was eyed as the entry point for peace bonds operations, with the funds guaranteed by government itself.

Peace bonds were supposedly initiated to benefit the broadest of marginal sectors and diverse groups that represented them. But as we know it in practice, it was largesse meant only for a certain coalition of political blocs and NGO cronies. It was as huge as a couple of billions at its inception, with nary a public monitoring of where it went thereafter.

Groups representing competing political blocs were a no! no! among the beneficiaries (read: no matter how sincere is your group, you’re disqualified). Experts (professionals, consultants) who were outside the ambit of the controlling group (Soliman & coy) were blocked from participating in the projects (read: no matter how good is the curriculum vitae you submitted, which they will accept, you’re an outsider).

The likes of Dinky Soliman not only benefited from the huge financial largesse, they also landed in the Gloria Arroyo government as top officials. Soliman herself got the plum post of social welfare secretary, an exposure that will endear her to more funding agencies including sources of Official Development Funds or ODA.

Soliman & coy were among the ‘cry wolf’ termites inside the Arroyo government. Dark opportunists all, they bolted the Arroyo government, joined the likes of Drilon & Purissima in drumbeating their ‘cry wolf’ moralizing pretensions. They bolted for no other reason than that, should Arroyo be overthrown, they can regain their former posts in the new administration. (They formed a curiously named Black & White Movement.)

The same financial racketeers were among those who drafted the ‘social reform’ aspect of the agenda of governance of the Liberal Party (the same being mouthed by the mediocre Noynoy Aquino). Needless to say, the same opportunists have released salvos of anti-corruption campaign mottos and calls on Noynoy Aquino’s opponents.

For people who knew where the likes of Soliman are coming from, they’re surely puking at hearing financial mercenaries and crocodiles bandying ‘anti-corruption’ or ‘good governance’ mottos. The mottos are mere clichés, and don’t speak of the true inner states of the crocodiles flaunting them.

Well, the least we can say is that “birds of a feather come together.” Crocodiles bond with fellow crocodiles, and they’ve flocked en masse inside the Noynoy Aquino & Liberal Party camp.

[Philippines, 03 May 2010.]
[See: IKONOKLAST: http://erleargonza.blogspot.com,
UNLADTAU: http://unladtau.wordpress.com,
COSMICBUHAY: http://cosmicbuhay.blogspot.com,
BRIGHTWORLD: http://erlefraynebrightworld.wordpress.com, ARTBLOG: http://erleargonza.wordpress.com,
ARGONZAPOEM: http://argonzapoem.blogspot.com]

AID FUNDS FOR AFRICA, ANYONE?

Bro. Erle Frayne Argonza

Magandang araw! Good day!

Aid commitments to the south by the more developed economies of the North have been among the news trends recently. There is, for instance, the commitment of $25 Billion per year for the whole African continent, a commitment that hopefully won’t fly in the air as mere political promise.

A relevant news concerns IMF-World Bank actions about the matter.

[30 July 2008, Quezon City, MetroManila. Thanks to DevEx database news.

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IMF, World Bank & IFI Round-UpLeaders of the Group of Eight rich nations are set to backtrack on their landmark pledge at the Gleneagles summit in 2005 to increase development aid to Africa to USD 25 billion a year. A draft communiqué obtained by the Financial Times, due to be issued at the group's July summit in Hokkaido, Japan, shows leaders will commit to fulfilling "our commitments on [development aid] made at Gleneagles" - but fails to cite the target of USD 25 billion annually by 2010. This goal - which was repeated at last year's G8 summit in Germany - was seen as an important boost for Africa. The ambitious plan was a cornerstone of former UK prime minister Tony Blair's G8 presidency and championed by his successor, Gordon Brown. Warning that rising food and oil prices pose a crisis for the world's poor, Robert B. Zoellick, the President of the World Bank, is calling on President Bush and other leaders convening in Japan next week for the G8 summit meeting to make new aid commitments to avert starvation and instability in dozens of countries. Zoellick's letter, obtained by NYT, came with a lengthy study of the impact of rising prices for food, fuel and commodities on the world's poor. Zoellick said in his letter that the World Bank, the International Monetary Fund (IMF) and the World Food Program (WPF) had short-term needs of USD 10 billion. Zoellick's letter calculates that, for the world's 41 poorest countries, the combined impact of high food, fuel and other commodities is a ‘negative shock' to their economies, reducing GDP by between 3 and 10 percent, causing ‘broken lives and stunted potential' for millions. The World Bank gave the go-ahead at a board meeting July 1 for the creation of a pair of global investment funds to back developing nations' efforts to curb greenhouse gas emissions and adapt to the effects of climate change. The Climate Investment Funds, led by Japan, Britain and the US and to be administered by the World Bank, are expected to start with total initial funds of USD 5 billion and become operational by the end of the year, it said. The approval of the Clean Technology Fund and Strategic Climate Fund comes days before a summit of G8 in Hokkaido, Japan, on July 8 where climate change issues are on the agenda. ‘The G8 is likely to broadly support the establishment of the climate investment funds,' Warren Evans, Director of the World Bank's environment department, told reporters. A new IMF study, looking at the impact of soaring oil and food costs, said many poor and developing countries will likely have to change their economic policies in response to soaring commodity prices, AFP reported. The IMF Food and Fuel Prices--Recent Developments, Macroeconomic Impact, and Policy Response report found that poor households are most affected by food price inflation and "warned that the share of undernourished (people) in developing countries could rise rapidly above the current 40 percent of total population." Energy and food values are still rising and the IMF said its research suggests the "problem is worsening." The World Bank's private sector arm has launched a new fund it hopes will unlock as much as USD 5 billion in infrastructure investment for the world's poorest countries. As part of its drive to reach deeper into some of the most forbidding markets, the International Finance Corporation (IFC) will use a pot of USD 100 million to cover the initial costs of power, logistics, and transport, ports and communications projects. Once a project is shown to be viable, it will be tendered to other investors, the Financial Times (UK) reported. Working with an initial partner, the IFC fund - known as InfraVentures - will cover start-up costs such as feasibility studies and legal fees. Half of its resources will be devoted to sub-Saharan Africa, with the remainder spread across Latin America and Asia.