KEY POINTS:
A fund backed by one of the world's largest banks is looking for New Zealand landowners who want to get into the carbon farming business.
The fund, linking Credit Suisse and London-based ethical investor Sustainable Forestry Management (SFM), has US$200 million ($275 million) to invest in establishing permanent forests, not for harvest but to generate income from the carbon they remove from the atmosphere.
SFM is already involved with Ngati Porou in a venture to take advantage of the Government's Permanent Forest Sinks Initiative, launched last year.
Under that scheme the Government will pay internationally tradeable carbon credits to landowners who establish permanent forests on marginal, erosion-prone land. As well as combating global warming it has local benefits: less silt in waterways, less risk of flooding downstream and more places for birds to live.
New Zealand has a lot of such land and a Government keen to foster its reforestation. What has been missing is the risk capital required. That is where a fund like Sustainable Carbon Finance, the vehicle set up by SFM and Credit Suisse, comes in.
"We have the equity capital lined up," said SFM chief executive Alan Bernstein. "We are looking for landowners, of all descriptions. Our long-term target for New Zealand is 100,000ha. I wouldn't want to be prescriptive about minimum scale. We can manage quite small parcels."
Establishing new forests to derive income from carbon credits is a long-term investment. However, the Kyoto Protocol, which allows credits for forests established since 1990, runs only until the end of 2012. No one knows what the rules will be after that.
SFM is convinced markets for forestry-based carbon credits will develop and expand. That conviction is based on the fact that deforestation accounts for about a fifth of the world's carbon emissions and planting forests will have to form a large part of the global response to climate change.
New Zealand's PFSI is seen as a small early step in that direction.
But at the moment most liquid carbon markets offer little outlet for owners of forest credits.
The European Emissions Trading Scheme debars them. And the executive board overseeing the Clean Development Mechanism, set up under Kyoto to foster climate-friendly projects in developing countries, has so far approved only one forestry-based project, in China.
That leaves Kyoto governments and the fast-growing but still small voluntary markets as potential buyers.
The European Commission and some environmental nongovernmental organisations are wary of forestry-based credits, fearing they will swamp immature carbon markets with cheap credits of dubious environmental value. "There has been resistance from some of the NGOs. We regard much of their concern as spurious," said Bernstein.
The Government's PFSI is not just for regenerating native bush. If commercial species are planted its rules allow some selective logging. That might make such projects more attractive for landowners, but for SFM and Credit Suisse the interest is in the carbon credits, Bernstein said.
The fund has also been looking at properties around Taupo.
Carbon Cash
* An international carbon fund is looking to partner landowners wanting to establish permanent forest sinks.
* In climate-change jargon, sinks are the opposite of sources - they remove carbon dioxide from the atmosphere.
* A Government programme pays tradeable carbon credits for such projects, provided certain conditions are met.
