1. Catalysing REDD+ Finance
The importance o public-private sector coope at o a d
e po ta ce of pub c p ate secto cooperation and
partnerships
Presentation to the REDD Partnership Financing Workshop
Cologne, Germany, 18 June 2011
Presented by:
Christian del Valle, Director- Environmental Markets & Forestry

2. 100906584
1. Private sector perspective on REDD+
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3. 100906584
Barriers and motivation for the Private sector (1/2)
 Difficult line of sight to return on investment
 With limited signs of a near term international market mechanism or alternative cap
and trade in US/Aus etc, there are significant challenges in finding sufficient risk
capital of other forms of early stage investment necessary to cover high up-front
costs (eg need ‘Patient Capital’ in a high risk space)
 What are the perceived investment level challenges?
 Potentially long development phase for robust methodologies
 Up-front costs associated with stakeholder consultations, project design, data
gathering, implementation and payments prior to income from credits
 (Seemingly) complex projects when compared to other forms of abatement (ie
outside the skillset of the business community (Wind turbine vs understanding drivers of
illegal logging in faraway country)
 Tension between local expectation and reality of slow project
development/monetisation
 Reputation i
R i issues
 Patient commitment necessary to work with local authorities and other less-than-
familiar groups (eg. Communities, NGOs)
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4. Barriers and motivation for the Private sector (2/2)
 Aside from typical project and country risks, Regulatory uncertainty is considered high for the
private sector:
i t t
 What form they will take?
 When are they to be implemented?
 To what degree will they enable private sector participation?
 Will REDD be considered for compliance?
 However, the private sector needs to be proactive
 To participate to the design of systems (international and national level)
 To build knowledge and share expertise (local and national level)
 To test business models
 To build today assets for tomorrow (strong inertia)
 Public-Private Partnerships are needed to deploy capital today
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Private sector POV: Cash flow model of a typical REDD investment
 Upfront capex and running costs requirement are site-specific; inter alia depends upon:
-local population density
-resource utilisation patterns and land-use pressures
-national development
-national and local regulation
-international commodity prices
-…
 Can be met through a combination of equity and carbon finance
 Initial cash flows linked to VERs, but significant uncertainties due to market depth
 Market risk is directly linked to regulatory risk
Cash in
Carbon
h
finance
Compliance demand??
Gov’t demand?
Equity Income- Voluntary Income- REDD ?
PES
Cash out
Development Operating costs
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& implementation
time
ti
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Private sector has long supported strong safeguards for REDD+
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7. BNP Paribas seeks to make available up to €250m for REDD+
 A pilot initiative to:
 Link local sustainability initiatives with global CO2 reduction objective
 Test implementation and business models
 Raise awareness and provide a price signal
 A partnership of co-investors
 Public and private
 Financial and non financial
 Some key features
 Efficient deployment of capital (target 3 years)
 Global focus (40% Africa, 40% Latin America, 20% Asia); 10-12 key host countries
 Strong emphasis on ES safeguards…local stakeholder engagement, FPIC, biodiversity
 An proportionate return transparently aligned with the risks taken
 Support and engagement with host countries and on-the-ground implementation p
pp g g g p partners
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8. Reducing Deforestation and Forest Degradation in Kenya
Project sponsor Carbon Benefits Rigorous MRV
Wildlife Works Carbon LLC is a BNP Paribas financing solution and
specialist in the development and WWC s on-the-ground
WWC’s on the ground efforts work
implementation of African with communities to prevent The objective of the project is to
conservation management and deforestation in the Kasigau Corridor, protect in perpetuity those dryland
land-based emissions reduction situated between Tsavo East and Acacia-Commiphora forests that
project activities with a 14-year track Tsavo West National Parks. The form a wildlife dispersal and
record in ecosystem conservation and Project avoids emissions of almost migration corridor between Tsavo
restoration. 48,000,000 tonnes of CO2e over the East and Tsavo West National
30 year project life. Project activities
They were the first proponent to Parks, to conserve the important
include organic clothing manufacture,
achieve project validation under the community-led sustainable charcoal biodiversity found in those forests,
Climate, Community and Biodiversity harvesting, reforestation and rotational to provide alternative sustainable
Standards for their Kasigau Phase I grazing models to reduce impacts on development opportunities for
project located on group ranches in SE ecosystems thelocal communities that live
Kenya.
y adjacent to the forests and to
The project is the Phase II of 225k prevent the Emissions that would
hectares of sustainably-managed otherwise occur. The project has
habitat, and has achieved validation meets all of the criteria of the
and verification under VCS and CCB Climate, Community and
Biodiversity (CCB) Standard for
Biodiversity and Social Co-benefits GOLD Level approval as well as
being the world’s first REDD Mega
The project region represents important
Kasigau Corridor project (>1m tonnes per year)
habitat for threatened wildlife and Avoided Deforestation successfully Validated and Verified
helps to secure important migration & Sustainable Land Use under the Verified Carbon
corridors for keystone species such Standard’s (VCS) REDD Avoided
as elephant cheetah and lion.
elephant, lion Kenya Unplanned Mosaic Deforestation
Revenue streams from the project
and Degradation (AUMDD)
allow WWC to benefit local
communities enhance employment,
Standard. It is the first REDD
develop sustainable farming schemes project to attain CCB verification
and launch education and awareness and alongside the VCS audit.
programmes..
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9. 100906584
2. Potential for PPP via Advance Market Commitments
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10. Barriers and motivation for the Private sector
In financing, efficiency is increased when a given component of risk
is addressed by the party best positioned to effectively manage it…
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11. Building efficiency in REDD+ Finance
ERUM (Emissions Reductions Underwriting Mechanisms) or AMC (Advance Market Commitments) are temporary
“demand pull” mechanisms that allow private capital to be deployed when demand is uncertain.
 Concept is already broadly used: Energy (feed-in tariffs), Pharmaceutical (price guarantee for vaccines), etc.
 Part of solutions proposed by the High-level Advisory Group on Climate Change Financing (AGF) in November 2010
 Application to REDD activities well-explained in UK Funding for Forests report (PWC et al, 2011)
Applied to REDD+ finance, ERUM/AMC provide key advantages for governments:
 It pays only for performance: If there is no project performance, no price guarantee is needed…(in a grant/subsidy scheme,
the donor has no control over the implementation/performance of the project.)
 It delays cash outflows, as these are only paid on delivery and over time… (in a grant/subsidy scheme, payment is generally
upfront)
 In case the guarantee is triggered, the g
g gg , government can receive the ER ( (i.e. an asset on its balance sheet) which has tangible
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value and or could in future be used for compliance (eg burden sharing)
 AMC is a public policy tool which allows to target support to specific region or type of projects (eg Africa, rural poverty
alleviation, High Conservation Value Forests, etc.)
Several structures are contemplated
 Price guarantee (option) in the form of a floor price or floor
 Price guarantee (option) in form of floor and ceiling (thereby avoiding inflated profits and also allowing donor to participate
 First loss guarantee (eg Export Credit Agency like)
 Feed in tariff
 Could take form of bilateral partnerships or a dedicated multi-lateral facility
ERUM/AMC are to be temporary measures (limited in time and scope) to allow private sector to deploy capital where the
public sector wants it to be deployed.
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