Investors wary of 'green' forestry

EurActiv via Reuters: The value of forests is growing as a result of climate policies, but the complexity of carbon markets coupled with the effects of the financial crisis are deterring investment, investors and analysts said in London on Thursday.

UN-led climate negotiations are currently trying to agree on a successor to the Kyoto Protocol, which expires in 2012. Addressing deforestation is central to the talks, as it accounts for a fifth of global CO2 emissions, according to the UN. Deforestation will be addressed by separate rules for land use, land-use change and forestry (LULUCF) in developed countries and a funding mechanism called REDD (Reducing Emissions from Deforestation and Degradation) in developing countries. The REDD debate foresees the inclusion of forest credits in carbon markets.

Last year, a Greenpeace report warned that if forest protection credits were to be included in international emissions trading, carbon prices would crash by up to 75% by 2020 (EurActiv 31/03/09). In plantation forests, new demand for wood to generate low-carbon renewable power generation to replace fossil fuels is adding to traditional pulp and paper demand, potentially fuelling values.

For managers of natural and virgin forests, new carbon markets to reduce emissions from deforestation and degradation (REDD) are emerging to pay owners not to chop down trees. But investors said they were deterred by the complexity of those new markets, and were wary of making investments in plantation forests for bio-energy.

"We see potential in the REDD process, but from an investor perspective it's difficult to make a convincing case right now," said Marko Katila, a partner at Finland-based timber fund Dasos Capital, which raises money from institutional investors. "Our fund right now is not looking seriously at these types of investments," he added, referring to payments for not chopping down natural forests, speaking on the sidelines of an Environmental Finance forestry conference in London….

A 1947 shot of what is now Indonesia, from the Troppenmuseum collection at Wikimedia Commons