Oct 21, 2009

Forest Fund for Carbon Offsets

SINGAPORE (Reuters) - South Africa's Standard Bank is close to launching a A$250 million ($230 million) forestry fund in Australia, aimed at selling carbon offsets to companies, in what is believed to be the largest fund of its kind so far.

It will focus on companies that will need to meet emissions reduction targets under carbon trading laws awaiting approval by the Australian Senate, said Singapore-based William Pazos, global head of origination and finance at Standard Bank.

"The fund is targeted at compliance buyers that don't want to get involved in management of forests but are really interested in the underlying credits that are going to be generated by the forests," Pazos told Reuters.

The fund is still in the planning stages but is expected to be formally launched in the next few weeks, he added.

The fund is believed to be the largest and most ambitious to be launched so far covering the fledgling carbon forestry sector in Australia, said Sean Lucy, head of environmental finance solutions at National Australia Bank.

The fund will cover the planting and management of 50,000 ha (125,000 acres). Perth-based agribusiness investment firm Rewards Group Ltd would plant and manage the forests, Pazos said.

Forests soak up planet-warming carbon dioxide produced by burning fossil fuels. Managed forests that meet government or U.N. guidelines can yield saleable offsets, with one offset representing a ton of CO2 locked away by trees as they grow.

Companies can buy offsets to meet greenhouse emissions reduction targets set by governments.

Australia's planned carbon-trading scheme, if passed, would oblige about 1,000 of the nation's most polluting firms to meet increasingly tougher emissions targets.


The emissions from those firms, called compliance buyers, covers about 75 percent of Australia's greenhouse gas emissions.

The government will re-introduce the emissions bills in the lower house of parliament later this week and expects a final vote in the Senate, which rejected the laws earlier this year, in the last week of November.

If the legislation is passed, forestry would be the first sector to operate under the scheme from July 2010, followed by a fixed A$10 per ton carbon price for a year from July 2011 for other sectors except agriculture.

While the fund was ambitious, investors needed to ask if the timing was right and whether there would be sufficient appetite for offsets, given the legislative uncertainty, Lucy said.

Another issue was price.

"It is all going to come down to price as these things are going to have to compete with CERs and the like," said Gary Cox, vice president, commodities, energy, Newedge Australia.

He was referring to U.N.-backed carbon offsets called certified emissions reductions, which Australian firms will also be able to buy to meet their emissions targets.

In July, Origin Energy, Australia's second-largest power retailer, signed a deal to fund a mass planting of trees as a hedge for its own carbon-emission liabilities.

If the deal was fully implemented, contingent on the national scheme being enacted, the carbon forest-sink development program could be worth up to A$169 million over 15 years, Origin said.

($1=92.7 Australian cents)

Reuters 10/20/09
By David Fogarty, Climate Change Correspondent, Asia

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