LONDON, May 6, 2011 (Xinhua News Agency) -- Better regulation on forest-carbon market out of climate change negotiations could provide a win-win business for the finance sector and governments, according to a report that has a UN background and was released in London on Friday.
The report "REDDy-Set-Grow: Opportunities and roles of financial institutions in forest-carbon markets" was released by the United Nations Environment Program Finance Initiative (UNEP FI) , with banking, insurance and investment representatives expressing welcome at the event.
REDD is a term used in climate change talks for Reducing Emissions from Deforestation and Degradation, and there might be a new mechanism called REDD+ as a result of the UN climate change conference to be held in Durban, South Africa in December.
"Addressing deforestation and catalyzing sustainable forestry has been pinpointed by UNEP's Green Economy Initiative as a key sector for catalyzing a transition to a low carbon, resource efficient global economy," said Achim Steiner, United Nations under-secretary-general and UNEP executive director, in a press release accompanying the report.
The report outlined opportunities for investors in forest- carbon markets, emphasizing that forestry projects are underrepresented in the current carbon trading system.
It is estimated that the forestry-based carbon market's value holds the potential to grow to more than 10 billion U.S. dollars by 2020, while that of total forest ecosystem goods and services is estimated at 5 trillion dollars.
But correspondingly a big amount of investment is required. Private investors are keen to complement public funding in this market and are calling for better regulations.
"The market for forestry carbon has significant potential but will require concerted efforts in the design phase by policy makers to ensure that it attracts flows of private capital," said Abyd Karmali, managing director and global head of carbon markets at the Bank of America (NYSE:BAC) Merrill Lynch, who represented financial institutions at the event.
The investors, as well as the UNEP FI report, referred the main risk in the market as the uncertainty about the form of a future REDD regime, which will depend on an international agreement to be reached in Durban.
"My sense is that the Durban meeting in December will result in an agreement ... that will give a good green light for more private capital to flow," Karmali told Xinhua.
He believes it could be a win-win scenario because for governments it's a way to reduce the burden on public funding, and for private sector it's an important business opportunity.
As the first term of Kyoto Protocol will expire in 2012, it is hoped the climate change conference held by the United Nations Framework Convention on Climate Change (UNFCCC) in December could seize the last chance to reach an agreement.