Leveraging private sector finance for REDD+ implementationTime Expert Cluster Agenda

10:15 Welcome

10:20 – 10: 40 Presentations by: • Victor Galarretta, President of Advisory Board MDA and Programa

Nacional de Conservación de Bosques y Cambio Climático• Satya Tripathi, Director of the United Nations Office for REDD+

Coordination in Indonesia (UNORCID)

10:40 – 11:00 Presentation: Overview of REDD+ financing mechanismsRuben Lubowski, Chief Natural Resource Economist – EDFJacinto Coello, Program Officer – UNEP FI

11:00 – 11:20 Break-out sessions:1. Price guarantees – EDF and Permian Global2. Risk mitigation instruments- UNEP and GCP

11:20 – 11:30 Feedback from respective break-out sessions

11:30 – 12:00 Stuart Clenaghan, Founder - Green Gold ForestryDiscussion: Practical applications in the context of Peru Building an implementation roadmap towards COP Paris

12:00 – 12:15 Expert cluster conclusions

Current Profile of REDD+ Finance

93.6%, Public sector

0.1%, Private sector

0.1%, Other

0.4%, Public-private sectorPrivate Foundations, 5.8%

Source: Forest Trends 2014, REDDX, based on data from 7 countries; Voluntary REDD+ Partnership Database.

Public pledges to 2020:Bilateral: $4.9 billionMultilateral: $3.1 billion

Context

Transformational change impossible without transforming the private sector

Needed: redirection of private capital at grand, unprecedented scale

Discussion is not about prioritizing private over public finance

Discussion is about the smartest use of public, philanthropic and other sources of finance to achieve transformation

Overview• Challenge is redirecting capital for agriculture and rural

development

• Need production and protection—underpinned by carbon accounting

• Lower average risk-adjusted cost of capital for more sustainable investments – Providing more certain revenue for carbon/environmental services– Attract lower cost, lower risk capital from:

• institutional investors, government, philanthropy, mission-oriented investors, consumer goods and agribusiness companies, carbon markets, etc.

• Mechanisms needed at international, national, local levels

Finance mechanisms

A “Bridging” Proposal: Minimum price guarantees

• Public/philanthropic donors guarantee minimum price that at least covers costs during transition to future carbon markets (10-15 years)

– Example: Pilot Auction Facility (PAF) for Methane & Climate Change Mitigation developed by the World Bank

– “Put” options as a guarantee that carbon credits can be sold at a minimum price confidence to invest in “clean” projects.

• Reduces risks for suppliers/investors while keeping upside.

Proposal for Private Investment in Pipeline of Carbon Credits • “Rental with option to buy”

– Example: Buyer would pay $1-3 for right but not the obligation to buy credit at discount to market price in 2020-2025 (“call option”).

• Less risky than buying credits outright for buyer.• Additional upside for seller. • Appreciation / risk-mitigation if carbon prices rise.• Could help monetize carbon revenue stream.

How might PAF minimum price guarantee model be applied to REDD+?

http://www.pilotauctionfacility.org/content/videos

• Would it work to auction off put options for REDD+? Are there other criteria to prioritize “bids”?

• What would be the criteria for eligible reductions?

• Should options these be tradable and, if so, who would be eligible to exercise?

• Who could bid?

• Who could finance?

Source: ODI/UNEP FI

What are the activities that are to financed?

A framework for understanding private land use finance

For what?Where?

HIGH RISKLARGE SCALE

HIGH RISKSMALL SCALE

LOW RISKLARGE SCALE

LOW RISKSMALL SCALE

What?

Project finance Project bond

Private equityListed equity

Corporate loans

Mortgages

Barriers? Tech, market risks Political, country risks

Lack of readiness

How?

Risk guarantees Risk insurance

Etc.Institutional readinessIncentives (FITs)

Carbon pricing though Advanced Market Ms

Bundling Junior co-financing Market readiness

Etc.

Source: UNEP FI

Thank You!