IFF private sector workshop summary 4
May 2014
Creating appropriate incentives to
scale up private sector investment in
REDD+ from 2015–2020
Workshop summary
Acknowledgements
Creating appropriate incentives to scale up private sector investment in REDD+ from 2015–
2020 was convened by the Global Canopy Programme (GCP) and UNEP Finance Initiative
(UNEP FI) in collaboration with the International Emissions Trading Association (IETA), the
Climate Markets and Investment Association (CMIA), the London School of Economics
(LSE), Fauna and Flora International (FFI), the Amazon Environmental Research Institute
(IPAM) the Environmental Defense Fund (EDF), and kindly hosted PricewaterhouseCoopers
(PwC).
About the Interim Forest Finance project (IFF)
The Interim Forest Finance (IFF) project is a collaborative initiative of the Global Canopy
Programme (GCP), the Amazon Environmental Research Institute (IPAM), Fauna & Flora
International (FFI), the UNEP Finance Initiative (UNEP FI), and the United Nations Office for
REDD+ Coordination in Indonesia (UNORCID).
The IFF project advocates a strategic intervention by donor country and tropical forest
country governments, and financial institutions, to scale up public and private sector demand
for REDD+ emission reductions, in the interim period between 2015 and 2020.
The Interim Forest Finance Project is funded by the Norwegian Agency for Development
Cooperation (NORAD).
Contact
To contact the IFF management team, please write to Nick Oakes and Anna Halton at:
iffmanagement@globalcanopy.org.
Disclaimer
This report documents the discussions that took place during the workshop and does not
necessarily represent the views of the workshop convenors or financial partners. It reflects
the diversity of presentations, experience and opinions put forward by workshop participants.
Summary
On 15 May, 2014, GCP and partners convened approximately 20 private sector
representatives for an interactive workshop, to examine the key issues which urgently need to
be addressed in order to facilitate an increase in the flow of finance into REDD+ activities.
The participants included representatives from different elements of the REDD+ sector:
project developers, financial and legal intermediaries, voluntary and pre-compliance buyers,
as well as relevant industry associations.
In order to limit global warming to 2 degrees Celsius, the latest IPCC report shows that it is
imperative that the international community takes immediate action in achieving deep and
fast greenhouse gas emission cuts. In at least in the short to medium term, these cuts will
need to include REDD+ and landscape level activities if they are to be cost effective or have
a realistic probability of success. Time is of the essence in terms of scaling up investment in
REDD+ activities, and public sector investment cannot bridge the gap on its own. Donor
countries need to develop clear incentives to help leverage additional private sector
investment if catastrophic climate change is to be avoided.
Currently however, the private sector is unable to invest in REDD+ activities at scale as there
is a significant lack of demand for the resulting carbon emission reductions, the sale of which
constitutes the return on their investment. Without robust demand for fully fungible REDD+
emission reductions or a clear belief that this will emerge, REDD+ activities as they currently
stand remain a very uncertain and largely un-investable opportunity from the perspective of
the private sector.
Such is the importance of addressing the issue in terms of interim finance for REDD+ in the
period of 2015 – 2020 that the IFF project is advocating for a strategic intervention to scale up
demand for REDD+ emission reductions. To achieve this, the project is working to raise
awareness of the problem, build a mandate on how the problem could be addressed, and
facilitate agreement on priority solutions which could be deployed at the national or subnational level in forest countries.
The event provided the opportunity to discuss the diverse views which currently exist across
the private sector with regards to what would be needed in order to scale up investment in
REDD+ activities. During the event, private sector (only) attendees were requested to take
part in a short survey looking at how to scale up private sector investment in REDD+
activities. The results from the survey have been aggregated for analysis and publication and
are presented below.
Summary findings
Participants indicated that they need a clear price signal and a clear regulatory
environment to be able to increase their investment in REDD+ activities. At present,
the lack of regulatory certainty over the short, medium or long-term makes it very
difficult to understand or manage the risks and potential returns on investments.
An intervention in the REDD+ sector is necessary in order to (re-)build confidence in
REDD+ as an investment proposition. This could be achieved by stimulating demand
for REDD+ emission reductions, whilst also ensuring that REDD+ plays a pivotal role
in helping to incentivise the transition to more sustainable use of natural resources
(e.g.linking REDD+ to activities that lessen the impact of the drivers of deforestation).
The workshop provided a valuable opportunity to exchange views and consider ideas
for how demand, and therefore investment, could effectively be scaled up.
Next steps
Workshop participants agreed that it would be valuable to develop a joint statement or
Declaration, to highlight the threat posed by lack of demand for REDD+ emissions
reductions to a wider audience, and propose what could be done to increase private
sector investment in REDD+
Further outreach would be valuable to explore the options available in more detail,
and how these could be developed into proposals for bilateral and multilateral
financing institutions to help scale up demand. This work will be carried forward by the
IFF project.
Key points
1. 93% of participants said that addressing the lack of demand for REDD+ emission
reductions was a high priority, and identified it as the greatest barrier to scaling up
investment in REDD+.
2. Participants said that a significant increase in demand, preferably through compliance
market regulation, would be the factor that would generate the greatest increase in
private sector investment between 2015 and 2020. Participants agreed that the most
important outcome of an intervention by governments to scale up investment in
REDD+ activities would be a clear price signal for REDD+ emission reductions over
the medium to long term.
3. An increase in political will also ranked highly as a key factor in stimulating private
sector investment, with the second biggest barrier to investment (after the lack of
demand) being the uncertainty around a global climate agreement, and the third being
uncertainty around national policy and regulation in relation to REDD+.
4. It was far more important to participants that the financial signals and incentives were
in place than that there was greater public funding for REDD+ activities at the national
or sub-national level. Addressing the lack of demand and having a clear price signal
were considered more important than an increase in funding for national or subnational REDD+ activities, and more important than an increase in performancebased payments between national or sub-national governments.
5. Technical issues relating to how REDD+ is implemented on the ground, such as land
rights, development costs, MRV systems and safeguards, as well as other kinds of
risk, such as reputational and delivery risk, were ranked far lower than demand,
regulatory clarity and political will, in terms of what the private sector needs in order to
invest.
6. The private sector places great importance on the predictability of returns, rather than
expectation of fast returns. The majority (60%) said that a price floor for a lower
carbon price with a longer time horizon would be better than a price floor for a shorter
time with a higher carbon price.
7. 80% of participants indicated that, provided that the public sector helped establish the
right suite of incentives, the private sector could scale up investible funds for REDD+
by more than four times between 2015 and 2020.
8. 63% of participants believed that, without a significant commitment of public finance or
access to emissions markets for REDD+ credits, the number of companies active in
the REDD+ sector would decrease between 2015 and 2020.
Survey results
Q.1. Is there a lack of demand for REDD+ emission reductions?
Percentage %
100
Yes
0
0
No
I don't know
Q.2. Is the lack of demand a low/medium/high priority?
Percentage %
93
7
0
Low
Medium
High
Q.3. Which of these issues are the most problematic? Score has been weighted based on a
ranking of the top 3.
Lack of demand
International uncertainty around a global climate agreement
National policy/regulatory uncertainty surrounding REDD+
Land rights and ownership
MRV systems
Community Safeguarding
Cost of developing
Reputational risk
Delivery Risk
45
33
28
Score
a.
b.
c.
d.
e.
f.
g.
h.
i.
8
a
b
c
d
1
0
e
f
5
4
2
g
h
i
Q.4. Which of these issues are the least problematic? Score has been weighted based on a
ranking of the top 3.
a.
b.
c.
d.
e.
f.
g.
h.
i.
Lack of demand
International uncertainty around a global climate agreement
National policy/regulatory uncertainty surrounding REDD+
Land rights and ownership
MRV systems
Community Safeguarding
Cost of developing
Reputational risk
Delivery Risk
39
Score
30
21
16
0
0
1
1
a
b
c
d
4
e
f
g
h
i
Q.5. Which of the general interventions below would provide the largest increase in private
sector investment in REDD+ between 2015 and 2020? Score has been weighted to rank
preferences in descending order.
a. A significant increase in demand for REDD+ emission reductions.
b. A significant increase in funding for REDD+ readiness activities at the national and subnational level in forest countries
c. A significant increase in ‘performance-based payments’ exchanged between national or
sub-national governments
d. A significant ramping-up in political will at the international level
86
Score
66
45
18
a
b
c
d
Q.6. Which of the more specific interventions below would provide the largest increase in
private sector investment in REDD+ between 2015 and 2020? Score has been weighted to
rank preferences in descending order.
a. Demand side incentives/price management tools (e.g. futures and options contracts, price
floor).
b. Provision of finance (e.g. cheap loan)
c. Risk management tools (e.g. political risk insurance)
d. Regulation (international or national; could include creation of a compliance market)
e. None of the above
Score
127
68
50
37
10
a
b
c
d
e
Q7. If the public sector provided a price floor, is there a preference for it to be:
1. Short and fat (e.g. $10/tCO2 for five years)?
2. Long and thin (e.g. 5$/tCO2 for ten years)?
3. Neither of the above
Percentage %
60
33
7
1
2
3
Q.8. This intervention is focused on the period between 2015 and 2020, but over what
timeframe is ”soft” financing required for REDD+ activities (e.g. cheap/flexible credit)?
1.
2.
3.
4.
2015-2020
2015-2025
2015-2030
It won’t be needed at all
50
Percentage %
43
7
0
1
2
3
4
Q.9. Which risk-management tool is the most important?
Political risk insurance
Commercial risk insurance
Credit guarantees
A different tool
Don’t know
38
38
Percentage %
1.
2.
3.
4.
5.
12
1
2
6
6
3
4
5
Q.10. With your ideal suite of interventions (e.g. a price floor, post-2020 regulatory certainty)
provided by the public sector from 2016 onwards, and an assumed large-scale source of
demand in place from 2020 onwards, investable funds in REDD+ activities between 2015 and
2020 could be scaled up by:
1.
2.
3.
4.
Zero times
2x
4x
More than 4 x
Percentage %
79
14
7
0
1
2
3
4
Q.11. In the absence of a significant commitment of public finance or access to emissions
markets for REDD+ credits, do you anticipate the number of companies in the space to
decrease or increase between 2015 and 2020?
Increase
Decrease
Stay the same
Don't know
63
Percentage %
1.
2.
3.
4.
25
13
0
1
2
3
4
Q.12.What are the top three positive outcomes of the intervention that are needed to scale up
investment in REDD+ activities (these are not mutually exclusive)? Score has been weighted
to reflect ranking of options in descending order.
a. A clear price signal for REDD+ credits
b. An increase in buyers of REDD+ credits
c. An increase in designated national focal points/entities/departments for REDD+ in forest
countries
d. An benchmarked minimum acceptable standard for pre-compliance methodologies
e. An increase in the public funding for REDD+ readiness activities.
f. A clear political understanding of the implementation of REDD+ within a climate
agreement before or after 2020.
g. Reduced riskiness of REDD+ projects as perceived by providers of capital.
43
Score
26
21
16
4
1
a
b
c
1
d
e
f
g
Creating appropriate incentives to
scale up private sector investment in
REDD+ from 2015–2020
Workshop summary
Acknowledgements
Creating appropriate incentives to scale up private sector investment in REDD+ from 2015–
2020 was convened by the Global Canopy Programme (GCP) and UNEP Finance Initiative
(UNEP FI) in collaboration with the International Emissions Trading Association (IETA), the
Climate Markets and Investment Association (CMIA), the London School of Economics
(LSE), Fauna and Flora International (FFI), the Amazon Environmental Research Institute
(IPAM) the Environmental Defense Fund (EDF), and kindly hosted PricewaterhouseCoopers
(PwC).
About the Interim Forest Finance project (IFF)
The Interim Forest Finance (IFF) project is a collaborative initiative of the Global Canopy
Programme (GCP), the Amazon Environmental Research Institute (IPAM), Fauna & Flora
International (FFI), the UNEP Finance Initiative (UNEP FI), and the United Nations Office for
REDD+ Coordination in Indonesia (UNORCID).
The IFF project advocates a strategic intervention by donor country and tropical forest
country governments, and financial institutions, to scale up public and private sector demand
for REDD+ emission reductions, in the interim period between 2015 and 2020.
The Interim Forest Finance Project is funded by the Norwegian Agency for Development
Cooperation (NORAD).
Contact
To contact the IFF management team, please write to Nick Oakes and Anna Halton at:
iffmanagement@globalcanopy.org.
Disclaimer
This report documents the discussions that took place during the workshop and does not
necessarily represent the views of the workshop convenors or financial partners. It reflects
the diversity of presentations, experience and opinions put forward by workshop participants.
Summary
On 15 May, 2014, GCP and partners convened approximately 20 private sector
representatives for an interactive workshop, to examine the key issues which urgently need to
be addressed in order to facilitate an increase in the flow of finance into REDD+ activities.
The participants included representatives from different elements of the REDD+ sector:
project developers, financial and legal intermediaries, voluntary and pre-compliance buyers,
as well as relevant industry associations.
In order to limit global warming to 2 degrees Celsius, the latest IPCC report shows that it is
imperative that the international community takes immediate action in achieving deep and
fast greenhouse gas emission cuts. In at least in the short to medium term, these cuts will
need to include REDD+ and landscape level activities if they are to be cost effective or have
a realistic probability of success. Time is of the essence in terms of scaling up investment in
REDD+ activities, and public sector investment cannot bridge the gap on its own. Donor
countries need to develop clear incentives to help leverage additional private sector
investment if catastrophic climate change is to be avoided.
Currently however, the private sector is unable to invest in REDD+ activities at scale as there
is a significant lack of demand for the resulting carbon emission reductions, the sale of which
constitutes the return on their investment. Without robust demand for fully fungible REDD+
emission reductions or a clear belief that this will emerge, REDD+ activities as they currently
stand remain a very uncertain and largely un-investable opportunity from the perspective of
the private sector.
Such is the importance of addressing the issue in terms of interim finance for REDD+ in the
period of 2015 – 2020 that the IFF project is advocating for a strategic intervention to scale up
demand for REDD+ emission reductions. To achieve this, the project is working to raise
awareness of the problem, build a mandate on how the problem could be addressed, and
facilitate agreement on priority solutions which could be deployed at the national or subnational level in forest countries.
The event provided the opportunity to discuss the diverse views which currently exist across
the private sector with regards to what would be needed in order to scale up investment in
REDD+ activities. During the event, private sector (only) attendees were requested to take
part in a short survey looking at how to scale up private sector investment in REDD+
activities. The results from the survey have been aggregated for analysis and publication and
are presented below.
Summary findings
Participants indicated that they need a clear price signal and a clear regulatory
environment to be able to increase their investment in REDD+ activities. At present,
the lack of regulatory certainty over the short, medium or long-term makes it very
difficult to understand or manage the risks and potential returns on investments.
An intervention in the REDD+ sector is necessary in order to (re-)build confidence in
REDD+ as an investment proposition. This could be achieved by stimulating demand
for REDD+ emission reductions, whilst also ensuring that REDD+ plays a pivotal role
in helping to incentivise the transition to more sustainable use of natural resources
(e.g.linking REDD+ to activities that lessen the impact of the drivers of deforestation).
The workshop provided a valuable opportunity to exchange views and consider ideas
for how demand, and therefore investment, could effectively be scaled up.
Next steps
Workshop participants agreed that it would be valuable to develop a joint statement or
Declaration, to highlight the threat posed by lack of demand for REDD+ emissions
reductions to a wider audience, and propose what could be done to increase private
sector investment in REDD+
Further outreach would be valuable to explore the options available in more detail,
and how these could be developed into proposals for bilateral and multilateral
financing institutions to help scale up demand. This work will be carried forward by the
IFF project.
Key points
1. 93% of participants said that addressing the lack of demand for REDD+ emission
reductions was a high priority, and identified it as the greatest barrier to scaling up
investment in REDD+.
2. Participants said that a significant increase in demand, preferably through compliance
market regulation, would be the factor that would generate the greatest increase in
private sector investment between 2015 and 2020. Participants agreed that the most
important outcome of an intervention by governments to scale up investment in
REDD+ activities would be a clear price signal for REDD+ emission reductions over
the medium to long term.
3. An increase in political will also ranked highly as a key factor in stimulating private
sector investment, with the second biggest barrier to investment (after the lack of
demand) being the uncertainty around a global climate agreement, and the third being
uncertainty around national policy and regulation in relation to REDD+.
4. It was far more important to participants that the financial signals and incentives were
in place than that there was greater public funding for REDD+ activities at the national
or sub-national level. Addressing the lack of demand and having a clear price signal
were considered more important than an increase in funding for national or subnational REDD+ activities, and more important than an increase in performancebased payments between national or sub-national governments.
5. Technical issues relating to how REDD+ is implemented on the ground, such as land
rights, development costs, MRV systems and safeguards, as well as other kinds of
risk, such as reputational and delivery risk, were ranked far lower than demand,
regulatory clarity and political will, in terms of what the private sector needs in order to
invest.
6. The private sector places great importance on the predictability of returns, rather than
expectation of fast returns. The majority (60%) said that a price floor for a lower
carbon price with a longer time horizon would be better than a price floor for a shorter
time with a higher carbon price.
7. 80% of participants indicated that, provided that the public sector helped establish the
right suite of incentives, the private sector could scale up investible funds for REDD+
by more than four times between 2015 and 2020.
8. 63% of participants believed that, without a significant commitment of public finance or
access to emissions markets for REDD+ credits, the number of companies active in
the REDD+ sector would decrease between 2015 and 2020.
Survey results
Q.1. Is there a lack of demand for REDD+ emission reductions?
Percentage %
100
Yes
0
0
No
I don't know
Q.2. Is the lack of demand a low/medium/high priority?
Percentage %
93
7
0
Low
Medium
High
Q.3. Which of these issues are the most problematic? Score has been weighted based on a
ranking of the top 3.
Lack of demand
International uncertainty around a global climate agreement
National policy/regulatory uncertainty surrounding REDD+
Land rights and ownership
MRV systems
Community Safeguarding
Cost of developing
Reputational risk
Delivery Risk
45
33
28
Score
a.
b.
c.
d.
e.
f.
g.
h.
i.
8
a
b
c
d
1
0
e
f
5
4
2
g
h
i
Q.4. Which of these issues are the least problematic? Score has been weighted based on a
ranking of the top 3.
a.
b.
c.
d.
e.
f.
g.
h.
i.
Lack of demand
International uncertainty around a global climate agreement
National policy/regulatory uncertainty surrounding REDD+
Land rights and ownership
MRV systems
Community Safeguarding
Cost of developing
Reputational risk
Delivery Risk
39
Score
30
21
16
0
0
1
1
a
b
c
d
4
e
f
g
h
i
Q.5. Which of the general interventions below would provide the largest increase in private
sector investment in REDD+ between 2015 and 2020? Score has been weighted to rank
preferences in descending order.
a. A significant increase in demand for REDD+ emission reductions.
b. A significant increase in funding for REDD+ readiness activities at the national and subnational level in forest countries
c. A significant increase in ‘performance-based payments’ exchanged between national or
sub-national governments
d. A significant ramping-up in political will at the international level
86
Score
66
45
18
a
b
c
d
Q.6. Which of the more specific interventions below would provide the largest increase in
private sector investment in REDD+ between 2015 and 2020? Score has been weighted to
rank preferences in descending order.
a. Demand side incentives/price management tools (e.g. futures and options contracts, price
floor).
b. Provision of finance (e.g. cheap loan)
c. Risk management tools (e.g. political risk insurance)
d. Regulation (international or national; could include creation of a compliance market)
e. None of the above
Score
127
68
50
37
10
a
b
c
d
e
Q7. If the public sector provided a price floor, is there a preference for it to be:
1. Short and fat (e.g. $10/tCO2 for five years)?
2. Long and thin (e.g. 5$/tCO2 for ten years)?
3. Neither of the above
Percentage %
60
33
7
1
2
3
Q.8. This intervention is focused on the period between 2015 and 2020, but over what
timeframe is ”soft” financing required for REDD+ activities (e.g. cheap/flexible credit)?
1.
2.
3.
4.
2015-2020
2015-2025
2015-2030
It won’t be needed at all
50
Percentage %
43
7
0
1
2
3
4
Q.9. Which risk-management tool is the most important?
Political risk insurance
Commercial risk insurance
Credit guarantees
A different tool
Don’t know
38
38
Percentage %
1.
2.
3.
4.
5.
12
1
2
6
6
3
4
5
Q.10. With your ideal suite of interventions (e.g. a price floor, post-2020 regulatory certainty)
provided by the public sector from 2016 onwards, and an assumed large-scale source of
demand in place from 2020 onwards, investable funds in REDD+ activities between 2015 and
2020 could be scaled up by:
1.
2.
3.
4.
Zero times
2x
4x
More than 4 x
Percentage %
79
14
7
0
1
2
3
4
Q.11. In the absence of a significant commitment of public finance or access to emissions
markets for REDD+ credits, do you anticipate the number of companies in the space to
decrease or increase between 2015 and 2020?
Increase
Decrease
Stay the same
Don't know
63
Percentage %
1.
2.
3.
4.
25
13
0
1
2
3
4
Q.12.What are the top three positive outcomes of the intervention that are needed to scale up
investment in REDD+ activities (these are not mutually exclusive)? Score has been weighted
to reflect ranking of options in descending order.
a. A clear price signal for REDD+ credits
b. An increase in buyers of REDD+ credits
c. An increase in designated national focal points/entities/departments for REDD+ in forest
countries
d. An benchmarked minimum acceptable standard for pre-compliance methodologies
e. An increase in the public funding for REDD+ readiness activities.
f. A clear political understanding of the implementation of REDD+ within a climate
agreement before or after 2020.
g. Reduced riskiness of REDD+ projects as perceived by providers of capital.
43
Score
26
21
16
4
1
a
b
c
1
d
e
f
g