Investors Gamble Forest Preservation Will Pay Off in Carbon Markets

Some private investment companies are looking to profit from preserving forests in developing countries, betting that the emissions reductions can be sold in future carbon markets.

London-based Permian Global said on the sidelines of U.N. climate talks in Peru this week that it will invest $100 million in projects to avoid deforestation in Latin American countries.

Permian and other investment companies, such as Hong Kong-based InfiniteEARTH and Brazil's Biofilica, are hoping that a new U.N. climate change deal, due to be agreed in a year's time, will let forest-based offsets be used in compliance markets and traded internationally.

That means emissions reductions from a project that prevents deforestation in Indonesia, for example, could be sold in Europe or in the United States.

It is a risky bet, but one that could guarantee good returns if it is successful. Generating carbon credits from forest programs is cheaper than reducing industrial emissions, for example, because they are large-scale projects.

Investors are pressing countries to accept the model. But some countries, including Brazil, home to the world's largest rainforest, are against it.

"Whoever is betting on future markets for forest-based offsets is going to lose," said a member of the Brazilian delegation to the climate talks, who asked not to be named.

He said it would make no sense in efforts to stop global warming, because countries would just use the forest-based offsets to maintain their levels of emissions.

Investors disagree. They say paying landowners to keep trees standing would avoid millions of tonnes of carbon dioxide emissions. It would be fair to offset emissions elsewhere with credits from the preserved forests, they say.

"Philanthropy will not be enough to preserve forests," said Stephen Rumsey, chairman of Permian Global and a former executive for Barclays (BCS) and Merrill Lynch in London.

"We created a private-sector solution, so we have a window of opportunity now to include forest-based credits on compliance carbon markets," he added.

Countries are negotiating this week, and talks will continue next year in Paris, on details of a new global treaty to reduce carbon emissions. If agreed, it would take effect from 2020. (Reporting by Marcelo Teixeira; Editing by Larry King)