(Bloomberg) -- As a graduate student at Columbia University, Kevin Conrad came up with a radical plan to reduce global carbon emissions: Pay poor nations to preserve their forests as part of the global fight against climate change.
For two decades, though, he watched as that blueprint morphed into a bunch of loosely policed voluntary exchanges in which polluting companies paid to offset their emissions. Many of those are tantamount to “climate fraud,” Conrad said.
Now, the South American nation of Suriname will test whether Conrad’s original idea can succeed where so many previous iterations failed. The government is readying the sale of the first ever United Nations-verified sovereign carbon credits. If all goes well, it will raise $45 million with the first batch of credits, cashing in on the jungle that covers 90% of its territory.
“The voluntary experiment has failed,” said Conrad, now the executive director of the Coalition for Rainforest Nations, which has been working with the country. “What Suriname is trying to say is just pay us for our ecosystem service.”
Bankers for the deal are trying to set the price at as much as $30 per ton of carbon dioxide. That would be a sizable premium to voluntary carbon credits, most of which trade at less than $20 a ton, according to BancTrust & Co., the placement and settlement agent for the Suriname issuance.
Getting the UN on board is a big step. UN Secretary-General Antonio Guterres warned countries just four months ago to “steer clear of the dubious carbon offsets that erode public trust while doing little or nothing to help the climate.”
$50 Billion Market
Ian Robinson, chief executive officer of ITMO Capital, forecasts the market for UN-backed carbon credits will reach $50 billion within five years.
Under the system, companies will pay nations, like Suriname, for the carbon their forests absorb — providing an incentive for those governments to keep natural resources intact. The credits are formally known as Internationally Transferred Mitigation Outcomes, or ITMOs.
But critics of the approach question how that helps the world get any closer to targets set under the 2015 Paris Agreement on climate change.
“If Suriname’s forests are sequestering carbon, then does that mean that US doesn’t need to reduce their emissions at all?” said Barbara Haya, director of the Berkeley Carbon Trading Project. “We could get to a place where everyone can meet the Paris Agreement targets and no one reduces emissions.”
There is an added irony to Suriname selling carbon credits. The nation has discovered vast oil reserves off its coast and will become indirectly responsible for releasing millions of tons of carbon dioxide into the atmosphere. To compensate, it will demand companies buy carbon credits to offset their emissions when they start to pump oil.
“Suriname will net out all the emissions coming from the production of oil against removals from our forests, which will create a net carbon balance,” said Marciano Dasai, minister of environment and spatial planning.
Potential Buyers
Those reservations are unlikely to derail the sale. There are already dozens of potential buyers for the first batch of credits, said Dean Tyler, chief business officer & head of global markets at BancTrust.
He envisions the eventual development of a liquid secondary market where the offsets can be freely traded among countries and companies. The credits could be bundled in funds with securities from polluting companies, giving investors carbon neutral portfolios, Tyler said.
“Not only does it reward these countries for protecting and enhancing the quality of the forest and biodiversity,” Tyler said, “it also should drive a financial incentive to improve and reduce our own emissions as well.”
Conrad said other emerging markets are already lining up to make similar deals, including Honduras, Belize and Papua New Guinea. They’re likely to issue the credits early next year, he said.
“Most countries that are sincere about this are trying to distance themselves from voluntary markets and do it right,” Conrad said.
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