Company tries to weather carbon market downturn | Global Ideas | DW | 24.06.2014
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Global Ideas

Company tries to weather carbon market downturn

Some years ago, social entrepreneurs used a forest protection scheme to create a conservation corridor in Colombia in exchange for carbon credits. What sounds like a good business idea is, however, hugely challenging.

In 2007, the international community announced a bold new plan to preserve tropical forests with the creation of a mechanism that enabled people living on the land to earn a living from the land.

Called Reducing Emissions from Deforestation and Forest Degradation (REDD+) the idea was to encourage developing countries to protect natural resources from resource exploitation in addition to promoting biodiversity and conservation by creating a market for carbon offset credits. At the time, REDD+ was hailed as a breakthrough for subsistence communities being thrust headlong into the 21st century.

Doing well by doing good

Receiving money for not chopping down trees - that was the deal - and the independent Afro-Columbian community of the Choco-Darien region in Colombia took it.

Photo: river landscape (Photo: ANTHROTECT/Brodie Ferguson)

The Choco-Darien's dense rainforest canopy has warded off intruders and protected people

They were helped by Anthrotect, a California company, co-founded by social entrepreneurs Brodie Ferguson and Emily Roynestad living in Colombia and California respectively. The 13,465-hectare REDD+ project called the COCOMASUR Conservation Corridor launched in 2010 was among the first of its kind to permit the sale of carbon credits from a community-owned forest.

According to Ferguson, REDD+ is one way to address the inequities of passing the true costs of the carbon economy onto others. “One way or another, the world has to move in the direction where the prices that we pay reflect the costs the planet and workers are incurring,” he says in a telephone interview. The purpose of the project is two fold; to curb deforestation and to provide better livelihoods for the people of the Choco. REDD+ enables Anthrotect to sell credits to buyers on the voluntary carbon market.

Photo: People sitting together for a discussion (Photo: ANTHROTECT/Brodie Ferguson)

The COCOMASUR were awarded community land title in 2005. That means consensus is required to manage forest resources

Originally an academic anthropologist working in the Choco, Ferguson became an advocate for the region. He has worked on behalf of the COCOMASUR, an association of Afro-Columbian families, who received land title to the area, from the Colombian government in 2005. Their homeland in the northwest corner of Colombia is located near the Darien Gap in Panama, an untamed wilderness deemed of high conservation value to naturalists.

Civil war kept nature intact

For the most part, the residents are subsistence farmers eking out a living in the tropical lowlands. The goal was to limit the threat of rampant resource extraction in the vicinity. Activities, such as ranching and logging had ground to a halt due to the violence roiling much of Colombia’s countryside as government forces, paramilitary groups and the FARC battled for control of the country. For decades, the leftist guerilla army has occupied swaths of Colombia’s territory, displacing millions of people in the process.

The Choco district’s natural resources remained intact, in part, due to the fact that sensible people feared to tread in a rainforest controlled by armed gunmen.

Photo: People riding horses along a beach (Photo: ANTHROTECT/Brodie Ferguson)

Horses are one of the few means of transport in Colombia's Choco-Darien district

But with the FARC tamed in recent years and relative calm restored, the concern has been that valuable tracts of lowland forest would be encroached upon by ranchers and outsiders, often through the threat of violence, bent on clearing the forest for pasture and illegal logging operations. These are often actors who historically have expressed little interest in the health of the rainforest, or regard for the rights of the Afro-Colombian community at-large.

Difficult business

But like many entrepreneurs launching a new business, the founders of the conservation project did not anticipate the full range of challenges that lay ahead of them, especially in selling voluntary carbon credits. "We thought we’d be able to call a broker and sell seven tons for seven dollars [per metric ton]," Ferguson says.

In 2009, based on signals sent from Copenhagen during the COP 15 climate summit, the infrastructure for global voluntary carbon markets seemed imminent. Pledges were made by Norway and the United States to fund REDD+ projects, out of which the scaffolding for the voluntary carbon market, it was assumed, would soon emerge.

But Ferguson says progress has been frustratingly slow. Selling voluntary carbon credits has been anything but seamless. Instead of just placing a call, he has had to engage in painstaking negotiations with individual buyers, with each deal taking three to six months to complete.

“The carbon credits people buy in this market are often very much linked to where the company works, to the type of products they produce, and that is not really sustainable in the long run,” he says.

Success comes slowly

Photo: A small green bird, sitting on a hand (Photo: ANTHROTECT/Brodie Ferguson)

Colombia's rainforests are home to an array of wildlife, including bird species not found elsewhere in the world

Since January 2013, Anthrotect has sold 80,000 metric tons of carbon credits to a Colombian bank, NGOs and businesses based in the United States and Europe. Their project has so far saved 215,000 trees from destruction, and perhaps more importantly, created jobs for members of the COCOMASUR community as forest stewards.

Over its 30-year lifetime, the scheme is expected to prevent 2.8 million tons of carbon dioxide from being released

Valued at $8 to $9 per metric ton, the credits are sold on the voluntary carbon market, at slightly higher rates than those to be found on the EU’s struggling compliance market.

No takers for REDD+ credits

The two markets are inextricably linked, since both schemes are attempts to reduce carbon emissions on a global scale. The first through slowing deforestation in the tropics and the second through a cap -and- trade system under the Kyoto Protocols. The voluntary carbon market connects individual entities - projects selling credits and companies or organizations buying them.

The EU's compliance market, in contrast, deals in credits that ultimately count towards the emissions limits of states signed up to the Kyoto protocol But when the compliance market collapsed during the the Great Recession of 2008, it dragged down REDD+ carbon offset projects with it.

The short term financial prospects look grim for REDD+ projects. According to the Forest Trends State of the Voluntary Markets 2014 report, the global average offset price dropped to $5 down $1 from a year ago, while the market value declined by 28 percent down from $530 million in 2012 to $379 million.

And, prices continue to fall for most carbon offset projects. REDD projects, although plentiful, are not being taken seriously by potential buyers. "Unless the market begins to respond to REDD projects in a meaningful way (I.e. significant tonns begin to move), then the future of those projects becomes increasingly uncertain,” Christopher Hakes, a spokesperson for Offsetters, a carbon management group based in British Colombia, wrote in an e-mail.

Unexpected allies

Despite the downturn, REDD+ projects do have some unexpected allies. Corporations and public agencies are seeking ways to mitigate climate change (and look good at the same time). They are funding REDD+ projects at the regional and sub-national level, among them, an agreement between the German development Bank KfW and Brazil’s state of Acre. In exchange for up to $25 million dollars, the state has agreed to meet targeted REDD+ goals designed to prevent deforestation while reducing poverty.

Still, these projects do not seem to be able to reverse the general trend. Anthrotect, like many REDD+ projects in the pipeline, has an excess inventory of credits that they need to unload in a weak carbon market; where the supply of credits exceeds the demand.

"I'm confident sales will continue to come in and improve. I’m also confident things can’t get much worse," Ferguson says.

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