UN-REDD, World Bank Respond to REDD+ Partnership Proposal

Climate-L.org - IISDRS | 19 May 2010, 10:35 am

12 May 2010: The UN-REDD Programme and the World Bank’sForest Carbon Partnership Facility (FCPF) and Forest Investment Program (FIP) have released a joint statement in response to a draft document released by the organizers of the meeting on the interim REDD+ (reducing emission from deforestation andforest degradation in developing countries, conservation, sustainable forest management and enhancement of forest carbon stocks) partnership, to be held in Oslo, Norway, on 27 May 2010.

The draft document describes the intent of partner governments to provide a voluntary, non-legally binding framework for the interim REDD+ partnership, whose purpose is to serve as an interim platform for partner governments to take immediate action to scale up REDD+ actions and finance, while a future mechanism under the UNFCCC is negotiated and implemented. The document lists the principles of the partnership, which include: focusing on support for developing countries’ REDD+ efforts; being inclusive; providing transparency around financing, actions and results; promoting safeguards provided by the draft decision being negotiated under UNFCCC; and coordinating delivery of scaled up REDD+ financing.

In terms of organization, the document states that the partnership will meet regularly and will draw on the knowledge of the Facility Management Team of the FCPF and the UN-REDD Programme Technical Secretariat for the partnership’s secretariat services, including organizing meetings, designing and maintaining the REDD+ coordination database, and providing logistical support and analyses, reports and papers. A representative group of stakeholders will participate as observers to the partnership.

The document then lists a series of operational measures, including establishing a voluntary REDD+ database, determining the modalities for stakeholder participation, sharing lessons and best practices, identifying and addressing gaps and overlaps in financing, and facilitating discussion on the effectiveness of relevant initiatives.

In the UN-REDD, FCPF and FIP response to the draft document, the organizations highlight their actions towards enhancing cooperation and coordination, including efforts towards developing a joint delivery platform for REDD+ readiness. They express their support for the objectives of the proposed partnership, and state their readiness to provide the secretariat services envisaged in the draft document. [UN-REDD, FCPF and FIP Joint Response Statement] [Draft Document on Interim REDD+ Partnership]

Carbon to Average $26/t in Early Years of US Emissions Trading System

Point Carbon Analyzes Senator Kerry's and Senator Lieberman's "American Power Act"

WASHINGTON, DC--(Marketwire - May 19, 2010) - Point Carbon Research projects that the price for each metric ton of carbon dioxide equivalent (CO2e) would average $26 over the period 2013-2020 under a federal cap-and-trade system as outlined in the American Power Act (APA). The price projection comes after Point Carbon's preliminary analysis of the APA discussion draft made public on May 12, 2010. Point Carbon is the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

The APA would create a hybrid system to curtail greenhouse gases in the United States with the electric power, industrial and commercial sectors participating in a cap-and-trade program while the transportation sector, chiefly the petroleum industry, would pay a quarterly fee pegged to market prices for allowances.

In a US Emissions Trading System (US ETS) as outlined by the APA, the volume of allowances capped would be 2.5 billion tons of CO2e in 2013 when only the power sector is covered, increasing to approximately 4 billion tons in 2016. According to Point Carbon's allowance price projections, the market would be worth $350 billion in 2020. The APA incorporates a "price collar," which would rein in prices. Point Carbon finds allowances would cost considerably more if the price was determined purely by supply and demand, particularly after the industrial sector enters the system in 2016.

"The new cost containment provisions in the bill succeed in constraining prices within the $12 to $25 price range. This price collar increases over time, but it still brings our price forecast down $5 a ton compared to our last estimates, which did not include this new feature," said Emilie Mazzacurati, Head of Point Carbon Research's North American division. "This large allowance reserve could be tapped on as early as 2018 if emitters choose to rely on the federal government to keep prices in check rather than bank themselves," she added, "it would really change market dynamics and risk hedging behaviour."

To address emissions from the transportation sector, petroleum refineries are responsible for passing on the cost of allowances on to consumers, the "real" emitters, at the gas pump. This would result in an average increase of less than a quarter per gallon of gasoline based on Point Carbon's price forecast.

Like previous climate and energy proposals, the Kerry-Lieberman draft includes several provisions to reduce the impact of energy price fluctuations on the American consumer. Two-thirds of the proceeds from the sale of emission allowances go directly to consumers and manufacturers, according to Point Carbon's estimates. This increased emphasis on consumers comes at a cost, however, with reduced subsidies for clean energy, energy efficiency and Reduced Emissions from Deforestation and forest Degradation (REDD).

NZ 1.6 billion in forest carbon credits.

ACT's contradictory position on carbon credits for forestry undermines the credibility of its policy on the emissions trading scheme, Minister for Climate Change Issues Nick Smith says.

"In 2007 ACT leader Rodney Hide called post-1990 forest owners' carbon credits a 'property right' and stated these must not be 'confiscated' by the Government. He further described National's policy to devolve carbon credits to forest owners as a 'smart green policy' and said ACT would back it. Yet only last week its Climate Change spokesman John Boscawen called these same carbon credits 'subsidies' and that it would be 'criminal' to provide 'windfall profits to foresters'," Dr Smith said.

"This issue of $1.6 billion of forest carbon credits goes to the core of the New Zealand ETS as the revenue from consumers and businesses essentially goes to foresters. This is fair noting that New Zealand's emissions are up 25% on 1990 levels and that without these trees New Zealand would have a huge Kyoto liability.

"ACT needs to think again about playing fast and loose with New Zealand's third largest export industry. ACT more than anyone should understand the risks for business of uncertainty, contradictory policy and removing property rights from landowners.

"The Government's ETS policy is helping restore confidence to the forest sector and reverse the deforestation between 2004 and 2008. John Boscawen should honour the commitments his leader made to the forest industry pre-election."

Norway Pledges $1 Billion for Indonesia Climate, Council Says

May 17, 2010, 7:57 AM EDT

May 17 (Bloomberg) -- Norway plans to grant Indonesia $1 billion to help reduce forest degradation in the Southeast Asian country, Agus Purnomo, head of the secretariat of Indonesia’s National Climate Change Council, said today.By Achmad Sukarsono

“We have a deal which will be signed on May 27,” Purnomo said in a telephone interview. “The money has been allocated, the draft has been approved.” Details of the agreement will be announced at a May 27 signing, he said without elaborating.

President Susilo Bambang Yudhoyono said last year the government was targeting to cut greenhouse gas emissions by 26 percent by 2020 from “business as usual” levels, and as much as 41 percent with international support. Indonesia Jan. 31 filed a pledge to the United Nations to support the Copenhagen climate change agreement, including a plan to reduce the rate of deforestation, the country’s Foreign Ministry said.

Trees absorb carbon dioxide, a major greenhouse gas. Forest destruction accounts for more greenhouse emissions than all the world’s passenger cars, trucks and buses, according to the United Nations.

Indonesia trails China and the U.S. as the biggest carbon dioxide emitting nations, when greenhouse gases from deforestation and land-use changes are included, according to the World Wildlife Fund. Deforestation and forest degradation account for more than 83 percent of Indonesia’s carbon emissions, according to WWF.

--Editors: Greg Ahlstrand, Todd White

To contact the reporters on this story: Achmad Sukarsono in Jakarta at asukarsono@bloomberg.net

Investors wary of "green" forestry

Thu May 13, 2010 11:49am EDT

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* Forest investments are illiquid

GLOBAL MARKETS

* Forestry carbon markets are novel, complex

By Gerard Wynn

LONDON, May 13 (Reuters) - Forests have a growing value as a result of climate policies, but the complexity of carbon markets coupled with the effects of the financial crisis are deterring investment, investors and analysts said in London on Thursday.

In plantation forests, new demand for wood to generate low-carbon renewable power generation to replace fossil fuels is adding to traditional pulp and paper demand, potentially fuelling values.

For managers of natural and virgin forests, new carbon markets to reduce emissions from deforestation and degradation (REDD) are emerging to pay owners not to chop down trees.

But investors said they were deterred by the complexity of those new markets, and were wary of making investments in plantation forests for bio-energy.

"We see potential in the REDD process, but from an investor perspective it's difficult to make a convincing case right now," said Marko Katila, a partner at Finland-based timber fund Dasos Capital, which raises money from institutional investors.

"Our fund right now is not looking seriously at these types of investments," he added, referring to payments for not chopping natural forests, speaking on the sidelines of an Environmental Finance forestry conference in London.

COMPLICATED

Discussions on REDD are part of stalled U.N. climate talks, and are complicated by issues of how to measure carbon savings from reduced deforestation.

"Frankly the discussions are not progressing at all," said Pedro Costa, co-founder and former president at carbon offset company EcoSecurities, and now at Oxford-based E2 Advisors.

"I find it extremely unlikely that REDD will favour any individual investment at least in the short-term, if ever. It's hellishly complicated."

Costa was focused on projects in the Brazilian Amazon, where he said philanthropic capital may be drawn by returns to investments in sustainable forestry, including a combination of selective logging and conservation.

A draft U.S. climate bill unveiled on Wednesday may boost forest carbon markets, however, proposing to allow foresters and farmers to earn tradable carbon offsets from emissions cuts they make in the United States. [ID:nLDE64C19A]

The American Power Act also recognised payments for avoided deforestation, or REDD, in developing countries, but experts said the draft bill had little chance of passing Congress this year. [ID:nN12199780]

Low-carbon energy targets in the Europe Union are fuelling demand for wood chips from plantation forests, or careful, selective thinning of natural forests.

Britain's Helius Energy, for example, recently won planning consent for a power plant which it said, if built, would consume the equivalent of 8 percent of Britain's total annual tree cut.

"It looks like there'll be a massive demand for biomass products," said Helius feedstock director Daniel Davidson.

Investors were still wary of funding new plantation forests, said Dasos Capital's Marko Katila.

That reluctance reflected the long cycle of forest investments, which were largely up-front, making these rather illiquid and more difficult to justify against a backdrop of financial uncertainty.

"Since the financial crisis it has been difficult to sell something very illiquid," Katila said. (Editing by James Jukwey)

Forest Carbon is in the Climate Bill, but How do we Insure it? With Trees!

Forest carbon credits are real, measurable, verifiable, and additional yet are they secured, insured and preferred?

Author: Gus Kent and Gabriel Thoumi

The American Power Act of 2010 is out of the shadows, and some provisions make it possible to earn carbon credits for reducing greenhouse gasses by capturing carbon in trees. But that often involves paying for something today that won’t be delivered for decades. How can the insurance industry engage the forest carbon offset asset market so as to deliver an offset asset that is real, measurable and verifiable as well as secured, insured and preferred?



14 May 2010 | No participants in the forest carbon offset asset market are insured, as of today. Yet better management of forest carbon offset assets requires market participants to be properly insured, as they would be in any other renewable energy project finance deal or other project finance deal, with both property and liability insurance.

The US Forest Service defines real, measurable, verifiable, and additional, as terms commonly used to confirm the validity and legitimacy of forest-based carbon dioxide offsets.

• Real indicates that a reduction in GHG emission has taken place.
• Measurable indicates that a GHG emission offset can be quantified repeatedly using the same methodology.
• Verifiable indicates that the GHG emission offset can be registered and tracked.
• Additional indicates that GHG emission offset represents a scenario or action that is above and beyond what would have typically happened in a business as usual scenario.

Adding the words insured, secured and preferred designates the means to which the forest carbon credit project developer has taken to ensure meeting corporate due diligence expectations. Corporate due diligence methods expect market participants to be properly insured. Many participants in the industrial gas carbon markets are insured, while no participants in the forest carbon offset asset market are insured. This may disclose partly why in 2009, market transactions in the global industrial gas carbon market were US$ 136 billion in 2009, compared to transactions in the forest carbon offset asset market which were roughly US$30 million. By engaging in the insurance market, the forest carbon market can move towards financial risk management best practices.

• Insured indicates adequate commercial insurance policies such as errors and omissions, directors and officers, environmental impairment, general liability, property/forest and non-delivery of carbon credits or equivalent risk transfer methods have been instituted to warranty permanence of issued forest carbon credit.
• Secured indicates all reasonable methods used in proactively protecting the integrity of the certified forest carbon credit. Methods to include definitive actions required to alleviate potential frivolous or legitimate legal exposures throughout the project design, registry listing, verification, certification and potential reversal stages.
• Preferred indicates that all steps have been implemented to meet the “real, measurable, verifiable, additional, insurable and secured standards as defined above. The basis of preferred is design and implement standards that would be recognized and accepted as meeting specific financial guidelines designated by an internationally recognized rating bureau such as Standard & Poor’s and others.

The forest carbon offset standards in the voluntary carbon markets, as they exist today, will require necessary safeguards currently used in traditional business methods. The safeguards include the engagement of proper due diligence including contract reviews, risk management, insurance, and forensic accounting, such as those used in renewable energy project financing. The adoption of a structure integrating stringent policies and procedures will drastically reduce the exposure to potential errors or omissions.

For example, an error or omission, which is a mistake in either the financing, the calculation of the carbon credits, or the integration of the co-benefits of maintaining or enhancing biodiversity and providing sustainable economic opportunities for local communities, which causes financial harm to another individual or organization, can occur on almost any public sector or private sector transaction in the forest carbon offset asset market. Therefore, errors and omissions insurance helps to protect a professional, an individual or a company, from bearing the full cost of defense for lawsuits relating to an error or omission in providing covered professional services while providing opportunities to remedy the impact of these risks within the local communities. This is a separate coverage from a standard general liability or property insurance policy. This structure will need to address issues related to insured, secured, and preferred.

The emergence of the forest carbon offset market, which derives carbon credits from forest related activities, has been touted as a major component in global warming mitigation. Yet, market participants in the forest carbon offset asset market do not engage in financial risk management. It is like giving the keys to your car to your 16 year-old son, while not requiring him to be insured. Is this wise? Some might suggest not.

For example, some of the questions you need to ask yourselves, when purchasing forest carbon offsets are:

• How secure is the viability of the credits purchased?
• Is there a lien on the title of the land that secures the permanence of the forest carbon offset asset in the case of property transfer?
• How can insurance premiums be expensed?
• Has there been extensive due-diligence performed, prior to selection, of these forest carbon offsets?
• Would these steps taken to ensure credible offsets meet the fiduciary responsibility of your shareholders, customers, community, public sector, civil society, or vendor partnerships and relationships?
• There are solutions to the above concerns, which would provide the financial and structural integrity of the forest generated carbon credit. The use of specifically designed insurance techniques and products offer the ability to withstand legal and financial scrutiny.

Potential Exposures and Recommended solutions

While the forest carbon market has gone through a number of metamorphoses throughout its growth, it is important to analyze the fundamental structuring of the registries and buffer pool solutions. The analysis must recognize and label all areas where systems need to be put in place to eliminate any potential areas, which could be construed as misinterpretation or misrepresentation in a U.S. Court of Law.

The carbon registries are dependent upon web-based programs to facilitate the mechanics of the registry administration. Because these registries are typically non-profit organizations, they do not reserve a specific fund for unforeseen expenses including, but not limited to, project dispute issues, frivolous lawsuit defense costs, and/or potential bad faith issues pertaining to administration of self insured carbon credit program (buffer pool).

In order to eliminate potential exposures, the registry should require proof of errors and omissions insurance from all participating contractors and service providers. The inclusion of this requirement will allow any project issues pertaining to an error or omission be directed to the responsible parties, thus minimizing the registries involvement.

Non-profit directors and officers liability insurance protects the board and its members against lawsuits. The board has a fiduciary responsibility to their funding, grant providers, and non-profit mission. By procuring this type of insurance, the board is protecting the organization against potential lawsuits and defense costs, which would otherwise erode their operating funds.

The inclusion of a buffer pool into the internal structure of the registry will require professionals proficient in administering all reversal (claims) processing. .Currently, the registries are relying on verifiers to provide any loss adjusting duties. The fact that registries are acting as insurance faciliator for their designated buffer pools, opens them up to exposures typically experienced by insurance companies. In order to properly protect themselves, the registries will need to procure specific insurance coverages designed for program facilitators. They will need their own errors and omissions policy, directors and officers’ liability, and some form of buffer pool reinsurance.

It is strongly recommended that the registries transfer the administration of the buffer pool to a third party financially solvent in perpetuity. This would remove potential liability issues pertaining to the duties of determining cause of loss, claim settlement, claim disputes, recourse pertaining to intentional reversals, and other related liabilities.

The buffer pool is an area where insurance plays an instrumental role in valuing the forest generated carbon credit. The initial buffer pool structures were designed to provide a mechanism to replace forest carbon credits if there was a reduction in the certified metric cubic tons caused by an unintentional act. The models are based on a shared risk approach, where all participating forest projects are required to contribute a designated percentage of certified credits at time of issuance. At the time of these designs, there were no insurance programs available that would entertain insuring the forest for the time frame required by the registries. Now, insurance mechanisms are available that allow project owners to be rewarded for their management expertise regarding their project’s risk and return profiles.

Projects currently are not required to undergo an appropriate financial audit industry on a periodic basis. Therefore, it is challenging to understand whether projects which are forward looking have the capacity to meet their forward financial cash flows.

Concerns Pertaining to Registry Administered Buffer Pools

Carbon credit project rating structure of contributions is not based on specific actuarial and historical risk data. Each specific geographic area is subject to different natural exposures. The credit rating make up of each project has a variety of complexities, which need to analyze on a location-by-location basis.

Social and environmental issues would be protected by use of specific legal documents, which would not affect the rate of contribution.

The structured policy wording of the registries leaves tremendous room for interpretation. They would not stand up in a U.S. court as a legal and binding contract. Furthermore, given that many projects engage funding and transfer of carbon tons across sovereigns, interpretation of structured policy wording across these barriers would also be challenged.

In each buffer design, the wording leaves room for moral hazards which are the ability for intentional acts to be performed for the projects owner’s personal gain without reasonable recourse.

The integrity of the carbon measurement is diminished by the registries own power of determining the project owner’s reasonable expectations in case of a reversal.

The registry administered buffer pools need to be audited by an appropriate financial audit industry representative on a periodic basis.

There are strategies which combine traditional insurance with self-insured structures to meet the required sequestration time frames. The design and implementation is based on combining insurance knowledge and experience with analysis of the current registries looking at U.S. forest projects.

How Would a Revised Permanence Strategy Differ from Current Buffer Pool Designs?

The basis of these new insurance programs could use A.M. Best Financial Strength Ratings which allows for insurance companies to be rated so as to enhance stakeholders confidence in the stability of the insurer. These programs would allow alternatives to the current buffer pool design to be integrated into the registries and standards methodologies and data systems, providing the ability for full transparency for all stakeholders.

The current web based submission and listing process could be refined to take full advantage of data supplied by each listing project. For example, mechanically, all required information will be entered into definitive fields. This data will allow the registry the ability to run various reports such as concentration of demographics, physical data per region, historical loss history and allometric measurements. Initial risk rating capabilities would be integrated in process to “pre-underwrite” each project. This structured process leaves less room for misinterpretation and misrepresentation and confusion.

This required information would require legal attestation and signature by all project owners and by all project managers. This would add in important issues such as representation, legal dispute resolutions. All information collated would provide a foundation for a historical database to be used by and for the benefit of registries, insurance facilitators, project owners, investors, civil society, and impacted communities and other stakeholders.

To move forward, risks would need to be rated, as they are in a project finance scenario. In this case, the process for determining premium or credit contribution is based on a number of factors, including but not limited to:

• Geographic location;
• Species – types, ages, diameter-at-breast-height (DBH), basal area, stumpage values, thousand board feet (MBF), mean annual increment, or biomass;
• Natural hazard exposures such as ice, wind, fire exposure, disease, or infestation;
• Human potential hazards such as community risk, arson, debris collection, debris burning, and trespass;
• Previous losses due to hazards listed;
• FSC / PEFC / or other certification – if warranted; and
• Protective measures such as fire district information, county preventive standards, project’s land management and fire management procedures, steps to minimize human caused exposures, conservation easements, and other measures.

Separate Administration Structures

The importance of separating the administration of a permanence solution from the certifying registry is essential to providing a truly viable process. This alleviates the registry from potential conflict of interest issues. It meets Board of Director’s fiduciary responsibility regarding safeguarding integrity of registry by removing all potential liabilities connected with the administration of an insurance type structure. This includes claims handling, disputes resolution and policing project owners and managers. Finally, it provides increased confidence to both project owners and carbon credit purchasers because administration would be required to provide proof of errors and omissions coverage, for example.

Respecting particular insurance designs strategies, some of the benefits are that by providing a secure program, registries’ exposure to facilitating an insurance type program is eliminated. Furthermore, it structures the entire process of the forest carbon offset registry to minimize any potential gains for omissions or errors. Transparency in design contributes to a registry’s methodology and potential revisions. Because now there would exist a historical database, this would provide accuracy for forest carbon offset asset buyers’ and stakeholders’ due diligence requirements. A financially backed insurance program would increase investor confidence in credits decrease business risk of the registry. By providing a professional claims handling program, reversal processing and conflict resolution would be available for all stakeholders.

Finally, the focus provided by a structured forest carbon offset asset insurance program enables compliance and regulatory adoption while meeting corporate and SEC standards for governance, allowing for financially secured credits to receive financial rating by Standards and Poor’s, Moody’s, Fitch and others, resulting in increased institutional investment due to minimal risk and increased timberlands, community forests, and forest smallholder participation.

In conclusion, the forest carbon credit process has made tremendous advances in the last two years. In order to protect the integrity of the programs, there needs to be an infusion of business and insurance principles in how one conducts the business process of developing a forest carbon offset asset business, marketing program, standard setting, registry, and sales. We have identified the potential exposures and design solutions to eliminate those issues. The implementation of a proactive structure will attract the larger investment community.

Last year the global credit market was US$ 83 trillion while the global forest carbon market was roughly US$ 30 million. The global credit market engages various insurance mechanisms while the global forest carbon market, as of today, does not.

U.K. Proposes Floor for Carbon, Fewer Free Permits (Update1)

May 13, 2010, 5:37 AM EDT

MORE FROM BUSINESSWEEK

• U.K. Power Plants May Face Early Closure on EU Rules (Update1)
• U.K. Set to Tax Electricity to Fund Carbon Capture and Storage
• EU Carbon Price Jumps From Lowest in a Week on Europe Debt Plan
• E.ON, Scottish Power Win U.K. Funding for Carbon Capture Plant
• U.K. Guidance on Carbon-Cutting Program Is Inadequate, RWE Says

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(Adds carbon floor specifics from second paragraph.)

By Mathew Carr and Catherine Airlie

May 12 (Bloomberg) -- The U.K. coalition government led by David Cameron proposed a floor price for carbon and fewer giveaways of European Union emissions permits, according to an agreement between the Conservatives and Liberal Democrats.

The Conservatives’ initial plan would set a “carbon floor” by changing the climate-change levy, which now taxes all forms of power generation. The coalition would refocus the tax on sources that generate the most carbon and use the proceeds to help finance nuclear and wind-power development.

The new U.K. government followed U.S. lawmakers today in proposing a floor to keep carbon prices from falling to levels that provide no incentive to phase out fossil fuels. The plans by U.S. senators John Kerry and Joseph Lieberman would set the minimum at $12 a ton.

“The case for a carbon-price floor is compelling,” said Dieter Helm, professor of energy policy at Oxford University.

EU permits for December delivery rose 0.25 percent to 15.73 euros a metric ton as of 5:15 p.m. on London’s European Climate Exchange. The contract has risen 25 percent so far this year as the economy improved and utilities hedged future power sales.

Green Exchange International LLC, a unit of CME Group Inc’s New York Mercantile Exchange, said it sees “significant flaws” in the U.S. plan. Carbon floors may hamper trading profits and curb market participation, Chief Executive Officer Tom Lewis said today in an interview in London.

While traders resist market interference, Oxford’s Helm said Europe’s cap-and-trade program is too volatile to provide long-term guidance for investors and is vulnerable to industry lobbying, he said. While the coalition proposal is a step in the right direction, “it may not be ambitious enough,” said Helm, who advocates a carbon tax on consumers rather than producers.

Nuclear Incentives

The U.K’s committee on climate change said earlier this year that a fee of 50 euros per metric ton of CO2 is needed to spur low-carbon investment. The U.K. is the only county to set a legally binding target to cut CO2 emissions to 80 percent below 1990 levels by 2050.

Centrica Plc and Electricite de France SA, partners on four new reactors in the U.K., voiced support for the carbon floor. It would have to be “much higher” than the current EU permit price to be effective, Andrew Turpin, Centrica spokesman, said by e-mail.

‘Polluter Pays’

Centrica, the U.K.’s biggest energy supplier, praised the new government for “proposing a mechanism to underpin nuclear development through a higher carbon price that ensures the polluter pays and tilts investment away from fossil fuel generation,” Nick Luff, Centrica’s finance director said.

The U.K.’s carbon floor would effectively tax all forms of generation and be refunded should the EU’s emissions trading system price rise above the floor, said Andris Bankovskis, a London-based associate director at consultant SQW.

“Below the floor price, the refund would decrease in proportion to carbon emissions,” he said. “The guiding principal should be that the floor price is capable of incentivizing investment in U.K. nuclear power and other forms of low-carbon generation.”

U.K. power stations and factories have had limits on CO2 emissions since 2005 under the EU’s emissions trading system. They got most of their CO2 permits for free and can buy or sell excess permits into the market. They will get fewer permits for free in the eight-year phase from 2013 to 2020. The new government will push the EU to further curb the number of permits handed out for free, it said.

Westpac in New Zealand

Westpac has begun buying carbon offsets from New Zealand forest owners with the aim of selling them to big polluting firms as part of New Zealand's emissions trading scheme, the bank says.

Westpac has approached about 600 foresters to pool carbon offsets issued to them to sell in large lots to firms such as refiners and cement makers that will have to meet carbon costs under the scheme.

New Zealand's emissions trading scheme (ETS), only the second national scheme outside Europe, ramps up from July 1 with the entry of power generators, transport and steel and cement makers, which emit about half of the nation's greenhouse gas pollution.

"We've done some deals," said Lloyd Cartwright, head of New Zealand financial markets for Westpac Institutional Bank, declining to give specific details.

"You can see the deals in the market and nothing is going through near $25," Mr Cartwright said by telephone in an interview, referring to the scheme's initial capped price.

He pointed to the price and regulatory risks of entering the fledging ETS, particularly since it faces a mandatory government review in 2011.

Neighbouring Australia last week further delayed its ETS and a climate bill in the United States does not yet have enough backing to pass the Senate. Some New Zealand firms have called for the government to further water down or delay the scheme, something the government has refused to do.

The ETS centres on trading New Zealand Units (NZUs), which represent a tonne of carbon dioxide equivalent.

Polluting firms will have to surrender these to the government annually, while foresters can receive them for free as reward for growing trees, which soak up planet-warming carbon dioxide as they grow.

The catch for foresters is the liability they face when they harvest trees or if their plantations are wiped out by fire.

Mr Cartwright said foresters needed to understand the risks of cashing up all their credits now and not banking any for possible future liabilities to the government.

Under the scheme, between July 1, 2010 and January 1, 2013, emitters have the option of paying a fixed price of $25 per tonne of carbon, or going to market and sourcing cheaper NZUs from foresters. Polluters also will only have to surrender one unit for every two units of emissions.

Critics have said the ETS is too weak and will only result in muted trade in the initial years because of a large amount of free NZUs that will be allocated to energy-intensive firms that export their goods. This will cut demand for NZUs.

Some deals have gone through covering the conversion of NZUs into sovereign Assigned Amount Units, or AAUs, under the Kyoto Protocol with buyers in Japan and Europe in the range of 6 to 10 euros ($NZ10.80 to $18) a tonne.Brokers and other market players have reported only a small number of deals to date and don't expect the market to take off in a major way, at least in the first year.

Mr Cartwright said the bank was initially focused on catering to New Zealand polluters but was also looking at the AAU trade.

"Possibly yes, we've done some work on that," he said.

He said the bank was trying to distinguish itself from brokers by taking on price risk.

He said he believed firms that were already aggregating or pooling forestry credits weren't taking principal risk.

"They are not prepared to put any balance sheet at risk whereas we are prepared to put balance sheet at risk."

"We are prepared to sponsor both sides of the market to try to facilitate a marketplace," he said, adding: "There isn't a market yet. There's an element of broking deals but I wouldn't call that a market just yet."

TimberWest Forest Corp. Announces 2010 First Quarter Results

Summary Comments on the First Quarter Results

VANCOUVER, May 5 /PRNewswire-FirstCall/ - TimberWest's first quarter results for 2010 show improvement in distributable cash over the same quarter last year and the fourth quarter of 2009. With log prices in all Asian markets improving through the quarter, the Company was able to ship higher volumes into those markets. Q1, 2010 log sales revenue was $49.4 million, up from $29.3 million in the same quarter last year, and showing steady improvement over the fourth quarter of 2009 when log sales revenue was $40.1 million. As indicated at the end of the fourth quarter, TimberWest anticipated real estate sales to be weak for Q1 and in fact only generated revenue of $1.0 million. However, subsequent to quarter end the Company generated an additional $6.8 million of real estate sales at approximately $3,000/acre.

EBITDA for the quarter was positive at $3.4 million, compared to an EBITDA loss for the first quarter of 2009 of $2.4 million. The Company generated negative distributable cash of $2.9 million in Q1, 2010 compared to negative $15.3 million, or negative$6.4 million after adjusting for the financing costs in the first quarter of 2009. Excluding $3.5 million of interest on the convertible debentures that the Company paid in kind for the first quarter, distributable cash was positive $0.6 million. In spite of the fact that TimberWest is paying the interest on the convertible debentures in kind, the Company has decided to maintain consistency with its definition of distributable cash and continue to deduct all of its interest obligations from the distributable cash calculation. EBITDA and distributable cash improved due to higher log sales volumes and improvements in production costs, which declined $6/m(3) due to higher volumes logged at competitive contract rates.

Equity Offering

On April 27, 2010 the Company announced its intention to raise additional equity through a stapled unit bought deal offering. The public offering is 12,000,000 Stapled Units at a price of $5.00 per Stapled Unit for gross proceeds of $60 million plus a 15% over allotment option. The offering is scheduled to close on May 18, 2010.

In conjunction with this offering, the Company has amended its credit agreement to allow for the payment of interest on the convertible debentures to be made in cash and it is the Company's intention to begin paying in cash on July 15, 2010. The new equity will enable TimberWest to reduce its revolving credit facility, giving the Company an estimated $110 million of liquidity upon closing, and enable it to pay the convertible debenture interest in cash, instead of continuing the current level of dilution by paying these in kind.

The lack of visibility on a recovery in US housing, the uncertain timing of non-core land sales and the resulting uncertainty in the Company's near term earnings prospects continue to cause the Company concern. "Therefore we believe taking this opportunity to bolster our liquidity is a prudent course of action. Continuing to pay the convertible debenture interest in kind resulted in considerable dilution with the conversion price of the debentures at $3.50 per Stapled Unit," said Paul McElligott, President and Chief Executive Officer, TimberWest Forest Corp.

TimberWest had a BC Forest Safety Council SAFE Re-Certification audit during the first quarter and achieved an overall score of 96%. This achievement is a strong reflection of the safety culture at TimberWest. The successful completion of this audit has renewed the Company's SAFE certification status for another three year period. TimberWest's 2010 score of 96% compares favourably to its 2007 score of 94%.

During the quarter there were three reportable incidents, generating a Medical Incident Rate (MIR) of 0.51 for production contractors. This compares to two reportable incidents and an MIR of 0.64 for the first quarter of 2009.

Timberlands

Over the past few years, the Company has been indicating that there would be opportunities created in Asian log markets as a result of declining export volumes from Russia due, in part, to escalating Russian log export taxes. The 2010 first quarter results confirm the optimism that the Company had for these markets. Due to reduced supply from Russia, volumes and prices in US dollars increased significantly.

Log sales revenue of $49.4 million in Q1, 2010 was dominated by Asia where the Company generated $31.7 million. Strong markets in Japan, China and Korea all contributed to TimberWest's sales success this quarter. Sales into the US continue to be weak and only totaled $0.6 million for the quarter. Total sales volumes for the quarter totaled 683,600 m(3), with 370,700 m(3) shipped to Asia. This more than doubles the Company's Asian sales volumes over Q1 2009. Sales to Korea and China were at a record pace with both of those economies showing considerable growth in the quarter. Sales to Korea were 76,400 m(3) and sales to China were 69,600 m(3). For all of 2009, TimberWest sold 103,600 m(3) to Korea and 106,400 m(3) to China. The Company is anticipating selling record volumes to both of those markets this year and finding alternative markets to the US is a priority for TimberWest at this time. Wood based housing in Japan has begun to recover slowly and is anticipated to be up about 7.5% by the end of this year.

While volumes were higher, sales realizations were down compared to the first quarter of 2009, primarily as a result of currency and a significant change in species mix compared to the same quarter in 2009. This quarter TimberWest focused more on hemlock markets in Korea and China and in spite of a 17% increase in the value of the Canadian dollar against the US dollar, the Company achieved an average sales realization of $86 per m(3) for its sales to Asia. Average sales realizations for the quarter for all markets were $72 per m(3) with production costs of $62 per m(3) compared to sales realizations of $77 per m(3) and production costs of $68 per m(3) for the same period last year. As a result timberland margins improved from 3% in Q1 2009 to 11% in Q1 2010, an 8% improvement in costs over the same quarter in 2009. Lower costs are a result of higher volume over fixed costs, lower road construction spending as well as competitive contract rates on the Company's public and private land operations, resulting in higher margins compared to the first quarter of 2009. The savings from the sub-division of the Company's harvesting and road building contracts are more apparent at these volume levels.

ISO 14001 and SFI environmental certifications require TimberWest to undertake an annual internal audit. This year's audit was completed during the first quarter. Due to the high number of contractors new to TimberWest's public and private land operations, this internal audit was the most complete undertaken in the Company's history. The Timberlands portion included auditor visits to 18 contractors, 33 audit points and interviews with 82 crew members. The Audit findings identified a total of nine minor non conformances, all easily remedied.

Couverdon

As indicated last quarter, TimberWest did not anticipate sales activity picking up until the second quarter, and so far in Q2 the Company has closed $6.8 million in sales. The Company also has work underway on a number of other conditional offers at this time. While the real estate market has picked up on Vancouver Island, the large acreage lot market, which is what all of TimberWest's product at the moment represents, is a relatively small market. As a result, sales in this market are challenging to predict.

TimberWest continues to work on planning and rezoning at many locations across the Company's portfolio and are pleased with the progress the Company is making. The more significant work on the core development land will take a number of years to successfully complete. In the meantime TimberWest will continue to deliver large acreage lots and non-core land sales to the market.

Carbon Sequestration Proposal to Pacific Carbon Trust and Other Initiatives

TimberWest engaged Carbon Credit Corp. to develop a carbon credit proposal which was submitted to the Pacific Carbon Trust (PCT) at the end of the first quarter. PCT is a provincial Crown corporation established in 2008 to deliver BC-based greenhouse gas offsets to help clients meet their carbon reduction goals and to support the growth of BC's low-carbon economy. TimberWest's project is specific to the conservation of old growth timber on the Company's private timberlands.

Due to the rapidly evolving nature of carbon offset protocol development in BC, BC currently does not have an approved forest conservation protocol and consequently the project will be developed with the intent of being compliant with two separate protocols. The first, the Voluntary Carbon Standard (VCS) is an existing protocol which allows projects to be sold on the voluntary market. The second, Climate Action Reserve (CAR) is a protocol developed for California which PCT is considering for adaptation for use in BC. PCT has indicated it will accept projects developed under protocols from other jurisdictions as long as they can be adapted to comply with BC regulatory requirements. TimberWest anticipates being able to share the results of this with the public later in the year.