Christian del valle_redd_partnership_18_june_2011


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Christian del valle_redd_partnership_18_june_2011

  1. 1. Catalysing REDD+ FinanceThe importance o public-private sector coope at o a d e po ta ce of pub c p ate secto cooperation andpartnerships Presentation to the REDD Partnership Financing Workshop Cologne, Germany, 18 June 2011 Presented by: Christian del Valle, Director- Environmental Markets & Forestry
  2. 2. 1009065841. Private sector perspective on REDD+ p p 2 2
  3. 3. 100906584Barriers 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) 3 August 2010 3
  4. 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 00/00/0000 4
  5. 5. 100906584Private 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 p g & implementation time ti 5
  6. 6. 100906584Private sector has long supported strong safeguards for REDD+ 6
  7. 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 00/00/0000 7
  8. 8. Reducing Deforestation and Forest Degradation in Kenya Project sponsor Carbon Benefits Rigorous MRVWildlife Works Carbon LLC is a BNP Paribas financing solution andspecialist in the development and WWC s on-the-ground WWC’s on the ground efforts workimplementation of African with communities to prevent The objective of the project is toconservation management and deforestation in the Kasigau Corridor, protect in perpetuity those drylandland-based emissions reduction situated between Tsavo East and Acacia-Commiphora forests thatproject activities with a 14-year track Tsavo West National Parks. The form a wildlife dispersal andrecord in ecosystem conservation and Project avoids emissions of almost migration corridor between Tsavorestoration. 48,000,000 tonnes of CO2e over the East and Tsavo West National 30 year project life. Project activitiesThey 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 sustainableStandards for their Kasigau Phase I grazing models to reduce impacts on development opportunities forproject located on group ranches in SE ecosystems thelocal communities that liveKenya. y adjacent to the forests and toThe project is the Phase II of 225k prevent the Emissions that wouldhectares of sustainably-managed otherwise occur. The project hashabitat, and has achieved validation meets all of the criteria of theand 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 MegaThe project region represents important Kasigau Corridor project (>1m tonnes per year)habitat for threatened wildlife and Avoided Deforestation successfully Validated and Verifiedhelps to secure important migration & Sustainable Land Use under the Verified Carboncorridors for keystone species such Standard’s (VCS) REDD Avoidedas elephant cheetah and lion. elephant, lion Kenya Unplanned Mosaic DeforestationRevenue streams from the project and Degradation (AUMDD)allow WWC to benefit localcommunities enhance employment, Standard. It is the first REDDdevelop sustainable farming schemes project to attain CCB verificationand launch education and awareness and alongside the VCS audit.programmes.. 00/00/0000 8 8
  9. 9. 1009065842. Potential for PPP via Advance Market Commitments 9 9
  10. 10. Barriers and motivation for the Private sectorIn financing, efficiency is increased when a given component of riskis addressed by the party best positioned to effectively manage it… 00/00/0000 10
  11. 11. Building efficiency in REDD+ FinanceERUM (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 ) g 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 facilityERUM/AMC are to be temporary measures (limited in time and scope) to allow private sector to deploy capital where thepublic sector wants it to be deployed. 00/00/0000 11
  12. 12. DisclaimerTHIS INFORMATION IS ONLY INTENDED FOR THE CLIENT AND SHOULD NOT BE PASSED ON TO ANY This document is not intended for Retail Clients as defined in FSA rules and should not be passed on to anyOTHER PERSON. such persons. By accepting this document you agree to be bound by the foregoing limitations.Information and opinions included in this document are confidential and are provided to you for information © BNP Paribas (2010) All rights reserved BNP Paribas London Branch (registered office 10 Harewood (2010). reserved.purposes only. Accordingly, no representation, warranty or undertaking, express or implied, is made and no Avenue, London NW1 6AA; tel: [44 20] 7595 2000; fax: [44 20] 7595 2555) is authorised by CECEI andresponsibility is accepted by any BNP Paribas Group Company as to or in relation to the accuracy or supervised by the Commission Bancaire; it is authorised and subject to limited regulation by the Financialcompleteness or otherwise of the material in this document or as to the reasonableness of any assumption Services Authority. Details of the extent of our authorisation and regulation by the Financial Servicescontained herein or any assumption contained herein or any other information made available (whether in Authority are available from us on request. BNP Paribas London Branch is registered in England and Waleswriting or orally) to any recipient or interested party (or its advisers). The information and opinions included in under no. FC13447. document are subject to change without notice as they are based on BNP Paribas’ understanding as of thedate mentioned or based on BNP Paribas’ own appraisal of the applicable facts, law and regulations in force at pp pp gthe date hereof. This document is not intended to provide the sole basis of any evaluation of the financialinstruments discussed herein or the treatment thereof. Information and opinions contained herein are publishedfor the assistance of recipients, but are not to be relied upon as authoritative or taken in substitution for theexercise of judgement by any recipient. BNP Paribas assumes no responsibility or liability for the Informationcontained herein and is not holding out any Information as a recommendation to take (or refrain from taking)any action in respect of any financial instrument. You must consult your own advisers prior to making anydecision in respect of such Information.BNP Paribas and its affiliates (collectively “BNP Paribas”) may make a market in, or may, as principal or agent,buy or sell financial instruments mentioned in this document or derivatives thereon. This document is not, andshould not be construed as, an offer document or an offer or solicitation to buy or sell any investments. No BNPParibas Group Company accepts any liability whatsoever for any direct or consequential loss arising from anyuse of material contained herein. This document is confidential and is submitted to selected recipients only. Itmay not be reproduced (in whole or in part) to any other person. A BNP Paribas Group Company and/orpersons connected with it may effect or have effected a transaction for their own account in the investmentsreferred to in the material contained in this document or anyrelated investment before the material is published to any BNP Paribas Group Company’s customers. A BNPParibas Group Company, persons connected with it and their respective directors and/or representatives and/oremployees may have a long or short position in any of the investments mentioned herein and may purchaseand/or sell the investments at any time in the open market or otherwise, in each case either as principal or as otherwiseagent. 00/00/0000 12 19 June 2011 12
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