Guest Post by James Lester, Managing Consultant with Cleantech Finance
When investors, policy makers, and the media discuss the best ways of reducing greenhouse gas (GHG) emissions that cause climate change, most attention is paid to increasing renewable energy and reducing the usage of fossil fuels. A key driver of climate change that is often overlooked is tropical deforestation, which accounts for nearly 20 percent of global GHG emissions. These native forests act as global carbon sinks (they absorb carbon emitted by energy production), but rapid deforestation in tropical regions due to unsustainable timber harvesting, farming and livestock practices in developing countries have devastated natural forests, reducing the ability of the planet to absorb emitted GHGs.
CO? Forestry Corp, a Colorado-based developer of sustainable forestry and carbon offset projects, is addressing this critical area, a relatively low-cost target sector for emissions reduction. CO? Forestry is deploying investment capital to design, plant, and manage Brazilian eucalyptus timber assets, and develop marketable and verifiable carbon offsets for sale to strategic partners. Its founder, Reed Pritchard, has over 25 years of experience in commercial real estate and renewable energy project development. The company has purchased high quality, Verified Carbon Standard (VCS) carbon credits developed in the Peruvian Amazon and recently announced a partnership with Ride the Rockies, a hugely popular annual bike tour through the Colorado mountains. Ride the Rockies will use the carbon credits from CO? Forestry to offset its carbon footprint and highlight the tour’s sustainability efforts.
CO? Forestry is currently engaged in efforts to develop its own sustainable forestry projects that take advantage of the dramatic transformation occurring in the charcoal supply market. Approximately 55% of charcoal production in Brazil comes from logging native forests for the Brazilian steel industry with a value of over $500 million annually. Charcoal is one of the main sources of energy used in the production of pig iron for steel in Brazil. The vast majority of the current charcoal production is from unsustainable and often illegal harvest of native forests, leading to severe environmental degradation and deforestation. While there have been efforts to reduce unsustainable practices, institutional barriers have prevented wide adoption of sustainable forest plantations for charcoal. CO? Forestry’s business plan is poised to overcome these barriers.
CO? Forestry’s projects will help to replace native forest destruction with a renewable, more environmental friendly source of charcoal for iron ore reduction. In the Brazilian charcoal market, eucalyptus hardwood timber receives premium pricing and produces a better, faster, more consistent charcoal product than native forest timber and is less expensive than the alternative, imported coking coal. The company sees the additional income provided by the new area of carbon credits and carbon finance as having a significant impact on the barriers to sustainable development. CO? Forestry describes its sustainable forestry project in greater detail on its website.
CO? Forestry is proposing the development of a three-phase 24,000 acres plantation project with total development costs of approximately $45 million and 14 year project life. The company is currently seeking around $800,000 from investors to cover the upfront development costs and operating losses of the initial pilot project over the next 36 months. The income produced from the sale of both timber and carbon credits developed by CO? Forestry will create a long term, lower risk, stable investment return for CO? Forestry’s strategic partners, as well as other investors such as pension funds, college endowments and private individuals. According to Pritchard, an investment in CO? Forestry should appeal to the longer term investor looking for solid, stable, lower risk returns in the area of 20% IRR’s (unleveraged).
Brazil is one of the fastest growing markets worldwide with a rapidly expanding middle class demanding the building blocks (lumber and steel) of a developing economy. A sustainable, local, and reliable, supply of carbon neutral charcoal provides a competitive cost advantage and hedge for the Brazilian steel industry. The resulting CO? Forestry carbon credits will be sold into the $576 million (2011) global voluntary carbon market. It should be noted that the potential growth of the market for carbon credits may soon expand as international bodies along with the U.S. are currently discussing various policies to reduce carbon emissions from deforestation and forest degradation (also known as REDD).
Pritchard began the company because he sees a tremendous opportunity for himself and potential investors to realize significant investment returns as well as create a profitable, positive and significant change to the current trajectory of the planet’s carbon balance. If you are interested in learning more about the potential opportunity that sustainable forestry and carbon credits can provide, please contact Pritchard at email@example.com.
James Lester is a Managing Consultant at Cleantech Finance, which is an analytics group that reports on the intersection of finance, cleantech, and policy. James is an experienced author and has contributed to industry journals such as the Pew Center on Global Climate Change which is now called the Center for Climate and Energy Solutions.