In the latest twist in traders' growing interest in taking positions in Mother Nature—such as weather derivatives and catastrophe bonds—a forest management consulting firm in Ketchum, Idaho, is planning to launch a fund that would buy easements on forests, with a view to trading CO2 credits generated by the assets. Forest Securities is looking to raise some USD20 million from institutions and high-net-worth individuals in the next six months, and is already in negotiations to acquire easements on assets, Cody Walden, president and ceo, told DW. The fund could grow to USD200 million within the next several years, he estimated. It would look to trade over-the-counter CO2 emissions credits, and set up a trading exchange to help unlock value from the forests. "By acting early, you can get the...highest performing projects for the best pr
Trading CO2 credits is possible under the Kyoto Protocol on Climate Change, a treaty signed by industrialized countries in 1997. The protocol requires sharp cuts in emissions from industrialized nations beginning in 2008. A credit is the entitlement to emit a specified amount of CO2.
Parties likely will be entitled under the Kyoto protocol to generate credits from assets absorbing CO2, such as forests, said Martin Whittaker, managing director at Innovest Strategic Value Advisors, in Richmond Hill, Ontario, a research provider on environmental investment issues.
Walden noted that credits have value outside of the Kyoto framework, as individual jurisdictions adopt similar measures to reduce greenhouse gasses. New Jersey is in the process of doing so.
The value of credits should surge as countries rush to comply with the treaty. Innovest's Whittaker noted that the right to emit a metric ton of carbon trades for USD1-3 now. Forecasts for the value of that credit in five years range from USD15-150. The fund would expect to buy and sell credits as the market becomes sufficiently liquid, but is initially only selling credit on deposit in the fund.
