SAO PAULO, Dec 6 (Reuters) - A U.N. deal on forest protection will attract more government funding to help poorer nations, but could fail to prevent a slump in the fledgling market for carbon credits from projects that cut emissions by slowing deforestation.
Almost 200 nations at U.N. talks in Warsaw last month agreed to fund the Reducing Emissions from Deforestation and Forest Degradation (REDD) program and took steps to ensure it will be part of a global pact to tackle climate change after 2020.
REDD proponents hope to halt deforestation responsible for around 15 percent of global greenhouse gas emissions by giving landowners incentives to keep trees, which absorb large amounts of carbon dioxide.
The Warsaw meeting passed a series of resolutions that could pave the way for REDD’s eventual use as a source of offset credits for regulated markets and encourage richer nations to donate cash to kick-start REDD initiatives.
Rules for “results-based” financing included what steps forested nations such as Brazil and Indonesia could take to trigger payments from richer nations.
Countries hoping to access pledged funds would publish a national REDD strategy, create a monitoring system for projects and provide information on how local communities are involved.
“We had a foundation for the house. Now we have the walls, the plumbing, the electricity and the roof for REDD,” said Chris Meyer, of U.S.-based green group the Environmental Defense Fund(EDF).
The EDF estimates that around $700 million from richer nations was channeled through multilateral organizations to prepare countries for REDD, well short of the $20 billion to $30 billion per year that some reports say is needed to completely halt tropical deforestation.
At the Warsaw meeting, Norway, Britain and the United States pledged $280 million of new REDD funding.
With public funds running short, industrial nations want the private sector to help pay to keep forests intact and foster sustainable economic development in heavily forested poorer nations.
One way is to encourage companies to develop projects that avoid forest destruction to generate carbon credits that match the any emission savings.
But the lack of global REDD rules previously made governments wary of allowing companies to use REDD credits in markets such as the EU Emissions Trading Scheme (ETS).
This left REDD developers seeking buyers for their credits in the voluntary market, a smaller pool of companies keen to demonstrate they are taking steps to tackle climate change.
Two developers said the Warsaw talks could indirectly boost demand for voluntary credits by giving companies confidence that nations were working towards a bigger deal that would include REDD.
“The UN has officially recognized REDD as a mechanism to reduce greenhouse gas emissions. That should help make investors more comfortable with the scheme,” said Andrés Huby, an investment officer at Bosques Amazonicos (BAM), who manages forestry projects in the Peruvian Amazon.
Plinio Ribeiro of Biofilica, which has four REDD projects in Brazil, said it could attract companies that had shunned the REDD credits in the past because they were not part of the UN process.
Ribeiro said the added certainty about government donations could encourage demand for voluntary credits from companies in sectors such as shipping and aviation, which are keen to curb their emissions.
But Eric Bettelheim of Floresta Group, a developer with REDD projects in Indonesia and Brazil, said it could take years for demand to rise.
“Some recent reports say we will have an oversupply of forest-based carbon credits in the voluntary markets that looks like it will continue for some time. This is currently the major hurdle,” he said.
In September, environmental group Conservation International (CI) said around 20 million credits could be issued annually from 2014, while there was only demand for around 6.8 million.
The potential oversupply could already be hitting prices.
A November survey by U.S. research group Forest Trends’ Ecosystem Marketplace found the average price per credit, sourced from projects that cut emissions of greenhouse gases either by planting trees or slowing deforestation, dropped to $7.80 a tonne of CO2 equivalent in 2012 from $9.20 a year earlier.
Bettelheim said the main hope before a global deal takes effect in 2020 was if REDD credits were accepted for use by governments in new carbon markets being developed worldwide.
“I think China will need a very significant amount of credits and our hope is that they would include REDD,” he added. (Editing by Ben Garside and Andre Grenon)