Carbon finance for ag/forestry projects with help from USDA

Kasey Krifka, The Climate Trust
Live on P.R. Web; Covered by Sustainable Business Oregon and Carbon Pulse – September 22, 2015

On September 15^th, The Climate Trust received a $1 million Conservation Innovation Grant from the United States Department of Agriculture (USDA) to launch an investment fund to finance biogas, forestry and grassland conservation projects. To leverage this support, The Climate Trust is now raising private capital and preparing a pipeline of projects for investment.

Conservation-based agriculture and forestry projects offer tremendous opportunity to cost-effectively mitigate and sequester carbon emissions. Carbon markets provide a unique opportunity for producers to be paid for effecting these emission reductions, but these projects face significant capital costs. Upfront financing is vital to build infrastructure, acquire property, compensate landowners for easements and encumbrances—and to then develop the carbon offset project through listing, monitoring, verification, registration, issuance, and credit sales. Traditional investors and lenders are reluctant to provide this upfront financing because it depends upon the sale of credits from the nascent carbon market. In practice, this means lenders do not value potential revenues from carbon markets and require projects to be profitable in their absence.

Enter The Climate Trust. Thanks to the USDA grant, The Climate Trust will be launching its inaugural climate investment fund to change this paradigm; actively raising at least $4 million in private capital to invest in projects based on the anticipated value of the carbon credits they will generate. As a result, a new source of patient capital will be available to farmers, ranchers, and forest owners to adopt innovative conservation practices. A successful climate investment fund will demonstrate to private capital markets that emerging environmental markets can be relied upon to finance projects.

“This significant award from the USDA is a key ingredient in our plans to leverage our existing programs to attract private capital and amplify our impact,” said Peter Weisberg, program director for The Climate Trust. “The vital projects we’re looking to fund depend upon revenues from carbon markets to come to fruition. Collectively, these projects could make a big climate impact.”

Here’s what this project will entail:

Project Methods
The climate investment fund will invest $4 million in agricultural and forestry projects that mitigate and sequester carbon emissions through proven conservation practices. In addition to making investments to overcome the financial barriers these projects face, the fund will help projects generate and sell carbon offsets in voluntary and compliance carbon markets. The proceeds from the sale of these credits will be used to repay investors in the climate investment fund. Remaining margins will be shared with producers and revolved into future conservation investments.

Risk
Investors perceive carbon markets to be very risky and therefore heavily discount the potential value they add to projects.  The Trust is in a unique position to manage delivery and market risks associated with carbon markets on behalf of projects and project developers:

1. Delivery Risk Mitigation: The Trust has worked in carbon markets for 18 years managing $43 million. Through this significant track record, The Trust understands the technical aspects of project development, carbon market protocols, and processes needed to ensure projects bring credits to market.
2. Market Risk Mitigation: The Trust currently has $22 million under management that must be spent to purchase and retire carbon credits to satisfy the Oregon Carbon Dioxide Standard and other programs. These funds can therefore be used as a hedge against carbon price risks, allowing The Trust to guarantee project developers and investors a minimum value for the offsets generated.

Environmental Outcomes
Investments from the climate fund in conservation projects will result in the reduction of 800,000 metric tons of carbon dioxide equivalent emissions (mtCO₂e) over ten years. From a conservation perspective, this will ensure more sustainable management on more than 20,000 acres of land, and greatly improve water and air quality. Based upon its success, The Trust plans to scale the climate investment fund to become a $200 million fund with the potential to reduce 40 million mtCO₂e over ten years.

Next Steps
The Trust will develop the financial methodology and investment structure for the fund to receive investments from private capital markets. This will link patient, low-cost impact investor capital to environmental markets and enable the fund to invest $4 million into four to twelve agricultural and forestry conservation projects.

Ready to submit your carbon reduction project for conservation finance? Apply Today and become a partner in this important work.

Related Links:
Climate Finance: Just Do It!
Mobilizing Conservation Finance
Incentivizing Investment in Climate Change Infrastructure