Carbon Investment Fund Launches

By Hamza Ali
As published by Environmental Finance – January 20, 2016

A carbon investment fund has been launched to provide early-stage funding for US offset projects.

NGO The Climate Trust said the pilot fund will provide between $5 million and $15 million of upfront capital to projects in return for partial ownership of the carbon offsets they produce.

Through the $5.5 million first phase of pilot investment, the trust hopes it can catalyse the development of four anaerobic digesters, three forestry projects and one grassland conservation programme, that it hopes will offset 978,157 CO2e over the 10 year lifespan of the projects.

Grant funding has been provided by the United States Department of Agriculture and the Lucille Packard Foundation. The Climate Trust is in talks with other investors to secure further funding.

It is hoped that after the pilot proves successful, the Portland, Oregon-based trust will scale the fund to between $100 million and $250 million to attract institutional and impact investors.

Projects will receive an upfront investment — equal to one half the current market carbon price, multiplied by the project’s projected credit volume over 10 years — that can be used for costs such as development or land acquisition.

The Trust will manage the sale of carbon offsets generated from the projects to California compliance and voluntary carbon markets. Once it has recouped its initial investment. The Trust will split all excess revenue from sale of the offsets between itself and the project owner.

The Oregon-based Trust is also currently structuring its existing $22 million of programme funds to act as a “buyer of last resort” to assure project developers and investors a minimum value for future carbon credits.

However, it anticipates that the sale of carbon will be enough to generate “a market-based internal rate of return to the pilot fund”.

The Trust is aiming to take advantage of the fact that lenders “heavily or completely” discount future revenues projects can generate from carbon offsets.

The Trust will open a request for proposals (RFP) process on 25 January.

The Trust believes it is in a unique position to administrate such a scheme, having almost two decades of experience in US carbon markets.

In 1997, Oregon issued the first piece of legislation in the US to place a cap on carbon emissions. Since then, The Climate Trust has been helping the state’s utilities to offset their emissions through investing in carbon projects.

The Trust also manages multiple special purpose programmes in Oregon, Washington, Colorado, Montana, California, and Massachusetts.

The Trust is currently looking to deploy $5.5 million to projects, through the purchase of carbon offsets in 2016, and an additional $10 million over 2017 and 2018.