Deforestation Credits Achieving Premium Prices, CF Partners Says

Carbon credits from projects to halt deforestation can achieve “premium prices” compared with other types of voluntary offsets as demand is set to quadruple in the next three years, according to CF Partners.

Credits are being generated from forestry projects such as Wildlife Works Carbon LLC’s Kasigau Corridor in Kenya and Infinite Earth’s Rimba Raya project in Indonesia. Both are registered under a program known as Reducing Emissions from Deforestation and Forest Degradation, or REDD. The credits can be used by companies wishing to offset emissions voluntarily.

“For specific buyers, REDD is at the top of the list, viewed as potentially the most sustainable voluntary credit out there,” John Davis, a specialist in originating and selling credits at London-based CF Partners, said in a telephone interview. These factors are “driving premium pricing relative to similar credits,” he added.

Tropical forests about the size of Greece are disappearing each year, according to the United Nations. That’s equivalent to releasing 6 billion metric tons of carbon dioxide. Saving forests cuts greenhouse-gas emissions and can generate voluntary credits that companies buy to help improve their reputation for environmental responsibility.

PPR SA, a Paris-based luxury goods-company whose brands include Puma and British label Alexander McQueen, said it had bought REDD credits.

Transactions Rose

Demand for offsets may soar to 1,200 million metric tons by 2020, eight times that of last year, according to an annual report published June 2 by Ecosystems Marketplace and Bloomberg New Energy Finance.

Voluntary-credit transactions totaled 131.2 million tons in 2010, a rise of 34 percent from the previous year, according to the report. The market may grow to 400 million tons by 2012 and 800 million by 2015, the report said.

CF Partners, a carbon investment and advisory firm, is working with forestry specialists in South America and Africa to attract investors for REDD projects, Davis said. There is a “convergence of views” among project developers and offset buyers “toward strong forward prices,” he said.

Current prices for REDD credits are $6 to $8 a ton for parcels of more than 100,000 tons, and above $10 a ton for volumes of 10,000 tons or less, he said. The average price for REDD credits in 2010 was $5 a ton, according to Ecosystems Marketplace and Bloomberg New Energy Finance data.

Robust Demand

“There is robust underlying demand for REDD credits as a high-quality offset,” Davis said. REDD credits often appeal to consumer businesses such as supermarkets and sporting goods brands, he said.

Forestry credits were excluded from the 1997 Kyoto Protocol, and a UN meeting in Durban, South Africa, in December will consider ways of using forests as part of a new climate treaty.

REDD accounted for 29 percent of all credits sold in the voluntary market in 2010, according to the annual report. The trade for REDD credits has grown even though they are not yet accepted in the EU or any mandatory-compliance system.

Investors are “taking faith in the fact that forests are so important that any compliance schemes that exist ultimately would take these credits,” Zubair Zakir, head of carbon sourcing for The CarbonNeutral Co., said in the report. “And if not a compliance scheme, there will be other investments available.”

California has said its carbon cap-and-trade program likely will accept such credits from Mexico and Brazil.

To contact the reporter on this story: Catherine Airlie in London at cairlie@bloomberg.net