Forestry Investment Blog

Ok so this isn’t strictly related to forestry but let’s face it, this is interesting!

The ongoing saga of the new Amazon dam has finally come to an end with President Luiz Lula da Silva signing the contract for the Belo Monte dam with the Norte Energia consortium.

The 11,000 MW dam will become the world’s third largest after the Three Gorges in China and Itaipu, which is jointly run by Brazil and Paraguay. The government gave their approval saying that the dam is crucial for development and will create jobs.

Critics however say that the 6km-long (3.75-mile) long dam will make roughly 50,000 indigenous people homeless and cause irreparable damage to the local ecosystem.

“The government has signed a death warrant for the Xingu river and condemned thousands of residents to expulsion,” local Indian leaders said on Thursday.

In the soap opera that surrounded this project bidding for the project had to be suspended three times until a final court appeal by the Brazilian government awarded the contract to Norte Energia (led by the state owned Companhia Hidro Eletrica do Sao Francisco).

After signing the contract President Lula admitted that he himself had been against the dam before he knew more about it
“You cannot imagine how many times I spoke against Belo Monte without even knowing what it was about and it is precisely during my government that Belo Monte is being unveiled,” he said. “I think this is a victory for Brazil’s energy sector. We will persuade them that we took seriously into account the environmental and social issues,” he added.

The saga that is the building of the Belo Monte dam has been going on for years. The project was initially abandoned in the 1990s amid widespread protests both in Brazil and in the rest of the world. However, officials have dismissed the criticism and as a consolation have promised that Norte Energia will pay $800 million to protect the environment.

Already the dam is expected to cost between $11 billion and $17 billion and is estimated to provide electricity for 23 million homes. In response to this claim critics say that the Belo Monte dam will be hugely inefficient and will generate less than 10% of its capacity during the three to four months of the year when the water levels are low.

Government ministers have hit back at this saying that hydro-electric plants are a vital way to ensure power supplies over the next decade and as the Brazilian economy is continuing to show signs of growth at least 70 dams are said to be planned for the Amazon region.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

I was researching alternative assets classes that not only could perform as well as the stock market but also provide good diversification opportunities as well as passive income possibility. One asset class which seems a little overlooked is timber. According to several sources, investing in timber has beaten the stock market by 4 percentage points from 1973-2003.

There are several advantages of investing in timber:

• Timber is uncorrelated to stocks
• The price of timber has consistently beaten inflation by 3.3% over the past decades
• Unlike other commodities, trees grow every year by 4% – 10% and as they age their wood becomes more valuable
• Even if prices decline, you can decide not to cut your trees in a given period. Your trees would be growing no matter what you decide to do with them.
• You get certain tax breaks – your profit is taxed as a capital gain. On top of that, as timber is cut, another tax break called a depletion allowance kicks in.
• You could invest in timber REIT’s, which are publicly traded on NYSE.
• The Food and Agricultural Organization of the United Nations forecasts that world demand for wood will nearly double by the middle of this century.
• The USDA-Forest Service projects that demand for U.S. forest products will reach 25 billion cubic feet annually by 2050, up from nearly 18 billion in the 1990s.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Timber please click here.

There has been a lot of praise recently for tree planting projects and while that is good news, after all the more trees planted the better, right? Well not quite because how does the uninformed general populace know that these schemes really deliver the level of cuts they are praised for?

The answer (at least in the UK) is a new Woodland Carbon Code, which has been developed this year, following a consultation period with scientists, forestry experts and project developers. According to the Forestry Commission the new Woodland Carbon Code will offer reassurance that tree-planting projects really capture carbon. To prove this the Forestry Commission will be beginning testing a new quality assurance scheme for carbon offsetting projects in the UK. A six month testing programme has just started, using 12 pilot projects that aim to refine the code ahead of its formal launch next year.

The Forestry Commission Director-General, Tim Rollinson, said that the new code would supply greater confidence to businesses buying carbon credits from tree planting projects by assuring them that they are funding quantifiable emission reductions.

“There are now many commercial schemes that encourage individuals and businesses to contribute to tree planting to help compensate for their carbon footprint,” he said. “But before investing in projects people want to know that schemes will actually deliver what they claim. The Woodland Carbon Code will provide that reassurance and will encourage more investment in tree planting in the UK.”

A problem in the past has been that some projects have over stated the level of emission reductions they deliver, a spokesman for the commission has said that this should be addressed through the new code. Projects that qualify for the code will need to comply with a scientific methodology, which measures how much carbon tree planting projects capture. Another requirement they will have to fulfill would be to demonstrate that the project could not have gone ahead without funding from offset credits as well as meeting sustainability requirements, which are designed to ensure that the trees planted remain in place.

This news coincides with new research published in the journal Science, which raised worrying questions about plants ability to continue to soak up carbon dioxide as temperatures rise. The study, conducted by Maosheng Zhao and Steven Running of the University of Montana suggest that the large scale droughts during the past decade have reduced the level of carbon dioxide absorbed and stored by plants.

This is in contrast to the scientist who had estimated that the increase in average global temperature would help to stimulate plant growth.

“Under a changing climate, severe regional droughts have become more frequent, a trend expected to continue for the foreseeable future,” wrote the researchers. “The warming-associated heat and drought not only decrease [net primary production] NPP, but also may trigger many more ecosystem disturbances, releasing carbon to the atmosphere. Reduced NPP potentially threatens global food security and future biofuel production and weakens the terrestrial carbon sink.”

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

If the climate change summit in Copenhagen was characterized by over optimism followed by bitter disappointment the Cancun summit looks set to be characterized by a cart load of over pessimism.  In the face of this apathy you’ve got to admire the attempts by Mexico to ‘rescue’ the climate change negotiations ahead of this year’s summit.

Currently Mexico is jetting their diplomats off around the world in an effort to remind the key players that while an agreement for a binding treaty may not be on the cards, small achievements can still be made.

Small achievements such as the REDD plus forestry agreement scheme, which diplomats have been quietly working on, have high hopes that a workable deal to finance forest protection will be in place by the end of this year.

In addition the fast track climate financing promised at the Copenhagen Summit amounting to $30 billion has not been fully forthcoming. However there are high expectations that more funding will be announced at Cancun. There is also hope that the working group looking at long term financing options will put forward a range of workable if controversial ideas for how the international community could raise $100 billion each year to combat climate change.

Baring all incidents, this approach could actually lead to some progress by focusing on what might be achieved rather than obsessing on the long standing deadlocks, which have derailed the momentum of the negotiations.

However, unless the negotiators deliver a marked improvement in relations between industrialized, emerging and developing countries even this modest outcome could go up in flames. While Mexico’s negotiating team has made good progress on encouraging a deal, when it comes to persuading the loosely structured and mutually suspicious  nations that make up the negotiations to agree… well it is easier said than done.

In conclusion Mexican diplomats are to be commended for promoting the prospects of the Cancun Summit and right to promise that each voice at the table will be heard. Despite this they still face a steep uphill battle if they are to save the talks from collapse.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

Like a lot of my peers I am very eco-minded and conscientious about the environment. Also unlike my peers I know that money can grow on trees if you know where to invest.

At the moment there are several options for ‘green investments’, whose purposes are to make profits from supporting green projects while also supporting the environment, either in a green mutual fund or in a number of green stock market indexes. These green investments may incorporate efforts to reverse the effects of global warming, increase the pace of sustainable development and support reforestation projects.

There are various types of green investments, of those I have listed the most profitable below:

Bonds – a new category in green investing, green bonds actually produce funds for eco-friendly enterprises. An attractive feature to this type of investing is that tax exempt income may be awarded to this fixed income instrument as the money provided for these green projects often come from governments.

Forestry Investments– Investments in forestry have been becoming more popular and it is no wonder why when they have been outperforming stocks and shares and have been steadily rising in value for three hundred years.

A favourite of Jeremy Grantham, according to him forestry is a “brilliant store of value should inflation unexpectedly run away, and a historically excellent defensive investment should the economy unravel.” Popular forestry management specialists include, The Phaunus Timber Fund, Greenwood Management and Cambium.

ETFs and Mutual Funds – Placing money in a pool of securities grant average investors a cost-efficient method to diversify their portfolio in various industries and sectors. The popular green mutual funds are Green Century balanced (GCBLX), Portfolio 21 (PORTX), equity (GCEQX) funds, as well as the Winslow Green Growth Funds (WGGFX).

Before you get too carried away I should caution you to be careful when establishing your green portfolio. Make sure you steer clear of companies overemphasising their green credentials and assess the business’ financial performance. Also look for investments that complement your environmental criteria. It is important to make choices that characterise your values while making your funds grow.

A typical and efficient strategy to weigh up an investment is to match it against a benchmark. These could be the S&P 500 and Dow Jones Industrial Average (DJIA) among others. In particular a new index was launched in 1990 called the Domini 400 Social Index. This index incorporates firms that work with specific standards for environmental and social responsibility. It is used in general to benchmark or evaluate the performance of a green mutual fund.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

In the past this blog has looked at the benefits to forestry investing but has been negligent in talking about the risks associated with forestry. I aim to correct that, but first it is worth noting why forestry investments have become so popular.

In recent years the number of investors acquiring timberland solely for investment purposes has risen significantly. There are three key reasons for this: competitive returns, low risks and it adds diversification from financial assets. Several studies have proven that forestry returns are not correlated or negatively correlated with returns of financial assets such as stocks and bonds. Therefore the inclusion of forestry in a portfolio can reduce the volatility of portfolio returns.

However as with any investment there are risks involved in forestry, not many it is true, in fact I know of only two real risks.

The first is the risk of natural disasters. These could be anything from fire, storm, insects, etc. However, all forestry investment companies should have some sort of insurance to cover their investors should something of this nature happen. Other than that there isn’t a great deal that can be done to mitigate this risk besides making sure that before you commit yourself that the plantation isn’t located in an area that is prone to natural disasters.

The other danger is market risk. There is the risk that the price paid by loggers for the wood on the stump (also known as stumpage prices) could be depressed at the time of harvest or prices could increase at a slower pace than general inflation. Despite this investors need not worry as the great advantage to forestry is that trees, unlike other crops, do not need to be harvested at a particular time. They are able to be left to grow until the markets are more attractive.

So compared to the volatility of stocks and bonds this type of investment may sound like a breath of fresh air.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

Timber is one of the most stable investments in the world. It is a precious commodity and is able to yield high returns, even in a down economy. Timber products are at an advantage, they will always be in demand, from tissue paper to wood chips for fuel, as more and more countries develop their infrastructure.

So if you are considering adding timber to your portfolio then the information below should give an unbiased overview of the pros and cons involved in this type of investment.

As mentioned previously with timber there is nearly always a guarantee that you will get an excellent return on your investment. At the moment you can reasonably expect a return of between 10-14% per year, although that figure is set to rise as the world comes out of the financial crisis. Should the world experience another crisis however there is no panic as value can be stored ‘on the stump’ and the harvest put back until the markets have recovered. This is the great advantage of timber over other crops as once it matures it will keep on growing and adding value.

There are not many risks associated with this type of investment either. The main concern for a lot of investors is the threat of pests and natural disasters, such as forest fires and storms. What should be kept in mind here is that all reputable forestry investment specialists will be insured should such an occurrence happen. Another issue that should be taken into account when researching forestry management specialists is what time frames they estimate for the investment. If for example you invest with a company mainly specialising in eucalyptus such as my sponsor Greenwood Management then they estimate a time frame of six to eight years before harvesting.

Investing in timber is a good choice if you are looking for a stable long term investment. The yield is not affected by the economy and the returns are quite generous.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

Turning income into capital without taxation in this world is like trying to spin straw into gold, impossible unless you know Rumpelstiltskin.

Well as it turns out he and I are on quite friendly terms and it was he who introduced me to forestry investments.

Most governments are eager to support any activities that they regard as beneficial or that allow tax planning to continue if it delivers a public benefit.

So trees, which are beautiful, provide recreational amenities, are environmentally valuable and can be turned into various useful products, fall under both categories. Therefore a lot of countries will offer tax breaks to investors in forestry and/or allow tax efficient forestry investment to continue.

The catch and of course there always is one, is that in order to qualify for the tax benefits the forest must be maintained for several years (in the UK forests must be maintained for a minimum of two years) during this time the costs involved are deductible from taxable income.

The other stumbling block is that there is no income from the forest until it matures and this could take (depending on the tree specie) up to 10 years or more. What makes this only a stumbling block and not a six foot high concrete wall is the lump sum that you receive at the end of the investment. A lump sum that remains yours and not the taxman’s. At the very least the payment of tax will have been shifted to many years in the future and at best tax will be payable at a much lower rate than would have been due on the original income.

According to a study conducted by the Global Institute of Sustainable Forestry at Yale University investment in timber in 1989 came to $1 billion, by 2002 that had increased to $14.4 billion, the most recent year covered by that study. In addition according to the NAREIF Timberland Property Index between 1988 and 2003 annual returns from timberland reached 15%, outperforming both the bond and equity markets.

The forestry sector has continued to improve since then, just two years ago in 2008 investment returns from the forestry industry in the UK outperformed domestic commercial property and equities and produced a positive annual total return of 7%. It should be kept in mind however that this was during the height of the credit crisis and this performance is significantly lower than the record levels of 2006 and 2007.

The fall in timber prices in the last 12 months up to March 2009 marked the biggest price decline in the last decade and was the key driver behind lower returns.

Nonetheless, over a three-year annualized basis to end of 2008, forestry investment outperformed the three main asset classes, returning 19.3% per annum, while mid to long-term performance improved, returning 16.2% per annum in the five years to end of 2008 and 5.2% per annum since the start of the index back in 1992.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

It looks like Brazil will have to tighten monetary policy further if they wish to head off inflation. According to a central bank indicator Brazil’s economy expanded 9.35% in May compared to the previous year. This data comes on the back of tentative signs that the economy is cooling with the Brazilian Economic Activity Index for May relatively steady. There is still growth but the pace has eased since April’s 10.9% year on year growth.

The central bank began its latest round of monetary tightening this month as the rapid growth gave rise to fears of overheating. However these fears have largely been dispelled by the tentative signs of cooling.

Brazil has the largest economy in Latin America and has expanded by 9% year on year in the first quarter; this was among the fastest growing in the world.

Despite this news in a weekly central bank survey analysts said that they expect the monetary policy committee to raise interest rates by a further 175 basis points for this year from the current 10.25%. To date the central bank has already lifted borrowing costs by 150 basis points since April.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

The pulp and paper sector in Brazil is fast becoming the third largest in the world.

In 2009 due to the international financial crisis the Brazilian pulp and paper industry had to postpone its investment programmes. However, thanks to the economy’s positive outlook and the emerging market’s increase in demand, most notably from China, those programmes have resumed.

Over the next seven years an estimated US$20 billion is going to be invested in the nation’s forest base and in the construction of new mills. This investment is both well calculated and ambitious. At the moment pulp production is at 13.4 million annual tonnes, by the end of 2017 this is expected to reach 20 million annual tonnes. In addition, during the same period, planted forest areas are predicted to grow by 25% and paper production will rise from 9.3 million tonnes to 12.5 million tonnes.

This has all come about through the new global scenario in the pulp and paper sector. While the international financial crisis reduced global consumption, prices and raw material demand in traditional markets it also opened up opportunities to expand sales in growing markets, in particular China.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

A steel mill being built by 30,000 people and costing an astounding $8.2 billion is being announced at Brazil’s biggest private sector investment for 15 years. It is expected that this mill alone will boost Brazil’s annual steel exports by over 40%.

This is yet another electoral boost for President Lula, who was at Santa Cruz, which is just outside Rio de Janeiro last month to launch Atlantic Steel Company (CSA), a joint venture by ThyssenKrupp of Germany and Vale, the Brazilian mining giant.

CSA is located next to the port of Itaguaí, which is one of several industrial complexes taking shape along the length of Brazil’s coastline. So far this year they have increased the overall rate of investment in Brazil to 18.5% of GDP. This is up from an average of 16.6% over the previous eight years.

While for most this is cause for celebrating for Brazil this is still not enough. In order to make its current fast paced growth sustainable Brazil must invest between 20 and 25% of its GDP. What makes this a challenge is that this is election year and while President Lula has been giving the go ahead for projects such as CSA, he has also been giving generous pay rises to public sector workers. This has brought further pressure on public investment.

In the end something has got to give, Brazilians can’t have both sides of their bread buttered.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

Brazil’s Labour Ministry said on Monday that Brazil’s economy had added more payroll jobs in May than expected and a record number of payroll jobs were expected to be added in June.

In total the number of payroll jobs added in May come to 298,041, which is the fifth straight month of increases and is a record for May. Also a record for the year is the total net payroll positions added so far this year at 1.26 million. This underscores the strength of the labour market in an economy that many analysts fear is overheating.

The results were also above Carlos Lupi the Labour Minister’s own forecast for the month. According to him Lupi said that approximately 240,000 to 280,000 jobs would be created in May.

The fears that Brazil could be overheating were fuelled by the Brazilian economy growing by 9% year on year in the first quarter of 2010. The fear is that the lack of infrastructure and qualified labour force could be unsustainable and inflationary amidst such rapid growth.

The majority of Brazil’s work force belongs to the huge informal economy, which the government is trying to change. The government of President Luiz Inacio Lula da Silva is looking to increase the number registered with the labour ministry and the number of payroll jobs in the country.

The Forestry Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

Environment ministers of the Brazil, South Africa, India and China (BASIC) bloc met in Cape Town last month to look at how to fast track a deal to curb global warming. This group of developing countries are among the world’s fastest growing carbon emitters and according to them a legally binding global agreement to limit climate change needs to be completed by 2011 at the latest.

“Ministers felt that a legally binding outcome should be concluded at Cancun, Mexico in 2010 or at the latest in South Africa by 2011,” the ministers said in a joint statement, referring to United Nations (UN) climate talks.

Jairam Ramesh, India’s environment and forestry minister, told reporters: “Right now it looks as if we will have to come back to Cape Town in 2011. There is no breakthrough in sight … we have a long way to go.”

The Kyoto Protocol binds together 40 developed countries to cut emissions by 2008-2012. However, the US didn’t ratify it and since then UN climate meetings have failed to reach a legally binding agreement on what will happen post 2012. The closest they have come was last year at Copenhagen when 100 countries backed a non-binding accord to limit global warming to below 2 degrees Celsius above pre-industrialised times, but it did not point out how this would be achieved.

The Copenhagen Accord is supported by the US but the majority of emerging economies do not want it to supplant the 1992 UN Climate Convention, which puts the responsibility on the developed nations to take the lead in cutting emissions and combating climate change. However the developed nations are unwilling to take on new commitments post 2012 unless the main emerging nations such as India, China and Brazil also sign up.

A proposal was put forward by the BASIC ministers to use the US$10 billion to test and demonstrate various ways of adapting to and mitigating climate change. They pointed out that the world could not wait for the US, the world’s second biggest carbon emitter after China, to pass domestic legislation needed to conclude negotiations.

A compromise climate change bill, considered a priority of President Barack Obama was delayed by a bipartisan working group. Other nations have been closely watching the US and this just goes to show that their scepticism of the US commitment to fight global warming is justified.

“Of course there is no way to fight climate change without the United States and we believe that we can be able to build an agreement that (would enable) the United States to come on board,” Izabella Teixeira, Brazil’s environment minister, told journalists.

Her South Africa counterpart, Buyelwa Sonjica, said if the United States did not soon pass necessary domestic climate laws, “that would impact on vulnerable countries, making them remain at risk”.

As the world fell into recession in 2008 emissions from industrial countries fell by 2.2%, which is the sharpest fall since the break up of the Soviet Union. Unfortunately according to experts there is no real basis for believing that the decline was anything to do with a coordinated effort to tackle emissions.

Interested? Then join the growing number of investors investing in Brazil by clicking here

It is widely agreed that the REDD payment mechanisms could halve forest destruction in the Amazon. What is not so well publicised is that the majority of the money set aside to conserve the forests would be going to the region’s wealthiest landholders.

These landholders are responsible for 80% of the deforestation still going on in the Brazilian Amazon and through this scheme they would benefit the most financially from the direct payments used to curb climate emissions from forests.

This data was presented in a new study by researchers for CIFOR (Centre for International Forestry Research) and their partners.

‘When four-fifths of a major environmental problem is caused by large landholders, then any solution will have to provide some compensation to this group for their losses,’ says Sven Wunder, CIFOR scientist and co-author of ‘Direct conservation payments in the Brazilian Amazon: scope and equity implications’. ‘And if that achieves the desired emission reductions, perhaps this is a necessary evil.’

According to the authors of the report if the projected US$6 billion is invested in the REDD scheme then forest loss projections between 2008 and 2019 in the Brazilian Amazon would be halved at current per ton carbon prices. In other words this would conserve an estimated 12.5 million hectares or an area approximately half the size of Ghana.

As mentioned previously a large share of the direct payments to landowners would go to already wealthy owners of large holdings of 100 hectares or larger. However, this hasn’t been confirmed and the funds could be put to other uses such as sorting out ambiguous land tenure and enforcing conservation in protected areas.

In the last 30 years an estimated 40% of rainforests worldwide have been destroyed. The Brazilian Amazon is the world’s largest remaining rainforest and it lies in a country that has the world’s largest forest loss each year. During 2000 and 2005 an estimated 13 million hectares of Brazilian Amazon forest was felled, according to the Brazilian National Institute for Space Research (INPE). This is significant if the fact that one fifth of annual global carbon emissions comes from land use change such as clearing forests for agriculture is taken into account. By reducing the carbon emissions associated with continued deforestation important co-benefits such as conserving biodiversity, regional climate regulation and cultural values may be secured.

In the future the majority of deforestation will take place in areas that are on unclassified public lands or on private land that has no clear boundaries. The study did note however, that a quarter of future deforestation is expected to take place in strictly protected areas, sustainable use areas, land reform settlements and indigenous territories.

“The way the Brazilian government has devised payment schemes for environmental services, payment cannot be used to stop deforestation on illegally appropriated lands, nor on lands where private tenure is disputed,’ says Jan Börner, CIFOR scientist and a co-author of the study. ‘Land-tenure chaos represents the single largest impediment for using on-the-ground payments to implement REDD in Brazil on a large scale.’ He added.

The authors of the report have suggested that despite the seeming logic of ranking payments according to the scale of deforestation related threat the overall insecurity in the tenure system means that funding small holder related schemes are often safer and act as a more realistic short term solution to pilot carbon reduction payment schemes. This is due to the fact that the large holders only have shaky tenure claims to the forestlands they operate on.

“Among many large landholders, tenure rights are poorly defined, which is why it will take a while to include them in large-scale REDD+ payment schemes”, says Wunder. “Many smallholders live in relatively well-established tenure systems, (and so) may be the first-best entry point for pioneering REDD+ schemes, many of which may also be pro-poor.” He concluded.

For more information on forestry investments please click here

A UN top climate official has said that governments must acknowledge that the UN’s Kyoto Protocol for fighting climate change is in danger of falling apart since no agreement has been forthcoming regarding a successor treaty.

After the UN summit in Copenhagen last year fell short of reaching a binding accord it is likely that the climate talks later this year will only lead to laying the groundwork for a new legally binding pact to reduce greenhouse gas effects.

Early last month Yvo de Boer, head of the U.N. Climate Change Secretariat addressed roughly 45 environment ministers at an informal climate talk in Petersberg, Germany. He said that the question of what would happen after the Kyoto Protocol ends in December 2012 was “on everybody’s mind but, unfortunately, on no one’s lips.”

In essence the Kyoto Protocol binds up to 40 industrialised countries to reduce their greenhouse gas emissions by a minimum of 5.2% below 1990 levels by 2008-2012. However the US is not a party to Kyoto and developing nations have no Kyoto targets.

“It is your political responsibility as ministers to take this thorny topic by the horns,” he said, warning ministers that Kyoto backers might become reluctant to set targets beyond 2012 “…and that in turn will mean the end of the Kyoto Protocol.”

According to De Boer it would be next to impossible for Kyoto supporters to agree to new curbs beyond 2012, which are binding in international law if the US only has targets in US domestic laws. Currently the US national legislation for capping emissions until 2020 is stalled in the Senate.

Before they agree to limit the growth of their own emissions, developing nations want industrialised nations to sign up for an extension of the Kyoto Protocol. However, the majority of Kyoto backers want a single new treaty with targets for both rich and poor.

Looking at the general mood surrounding this issue, De Boer said that few fully expect a new treaty to be agreed at the next climate conference in Cancun, Mexico later this year.

“People are not licking their wounds,” he said of the atmosphere after Copenhagen. “There is a shared feeling that we need to put Copenhagen behind us and move forwards. A significant number of countries are saying that perhaps Cancun can do the groundwork — Cancun can adopt a series of decisions that can make climate action operational, but that turning that into treaty text would take more time,” he said.

Decisions could be taken for instance on promoting green technology, unlocking aid to developing nations or launching a new scheme to protect tropical forests. These targets would be easily achievable and unlike the Copenhagen Accord are clearly outlined.

Backed by 120 nations the Copenhagen Accord seeks to limit the rise in average global temperatures to below 2 Celsius above pre-industrial times but it doesn’t say how. $100 billion has been set aside in annual climate aid from 2020 but a document prepared for the Petersberg talks in Germany has said that there is a deadlock over the money. The industrialised countries have told the developing countries that they must act first to prevent climate change before they receive any money, whereas the developing nations have argued that they need the money upfront before they can do that.

“Financing negotiations seem to have been caught by the vicious circle ‘no money, no action – no action, no money’” the report said.

For more information on forestry investments please click here

Given the strong prospects for economic and corporate earnings growth the Latin American equity market continues to offer good investment value even though the region is not longer at bargin basement levels.

According to Dean Newman the head of emerging market equities at Invesco Perpetual, Brazil and Columbia off the most stable economic and political frameworks.

The hugely improved security situation which has taken place during President Uribe’s term of office has been the catalyst of change for Columbia.

“I expect that improved situation to be maintained under his successor. One concrete result is that the oil and gas industry has a safer environment for exploration and production. Oil companies that were reluctant to get involved in Colombia, despite its excellent geology, are now much happier to do so. For us as investors, we see a much more welcoming approach,” added Newman.

Brazil has many strengths, it has a rich and wide variety of natural resources including gold, oil, timber, iron ore, hydro-electric power and nearly every type of agricultural product. In addition Brazil is the most populous country in Latin America, with a population estimated at 197 million in 2010.

‘The key to the realisation of its potential, especially over the last 10 to 15 years, has been a massive improvement in economic and political stability. As recently as the early 1990s, Brazil was in the grip of hyperinflation. That meant consumers and businesses were completely unable to plan ahead, not knowing what the value of the currency would be in a few hours, let alone several years,’ said Newman.

But as inflation has tumbled, so have interest rates. ‘For companies, more stable economic conditions have meant the equity and bond markets have opened up as a source of finance. For households, credit has become cheaper and more easily available. All this has been helped by the fact that Brazil’s banks have been cautious in their lending and are financially sound,’ he added.

Newman believes that while there is a risk of higher inflation, if it can be contained to a range of 4% to 8% with interest rates at &% to 12% then Brazil’s transition to a stable, low interest rate, low inflation economy will be cemented.

In a recent study by Reinhart and Rogoff public sector debt in all the major Latin American economies was shown to be below the 90% ‘tipping point’ at which economic growth prospects are hit.

Chile in particular is cited by Newman as one example of public sector fiscal responsibiliby. ‘Notably, revenues from the high copper price of recent years have been saved and the main copper company is state owned, strengthening the government’s financial position. The government now has little net debt, only 9% of GDP,’ he said.

The outlook is robust. ‘In particular, their success in reducing government debt levels means they are in a much stronger position, in this respect, than many developed economies. After the strength of Latin American equity markets in the last year or so, valuations based on historic, actual earnings are no longer cheap. But, on the basis of expected earnings, valuations are still attractive compared to the developed world,’ said Newman.

‘We believe Latin American markets still offer good value given the prospects for stronger economic and corporate earnings growth than in the developed economies, coupled with an environment of greater economic stability,’ he added.

For more information on investing in Brazil please click here

For some such as Canfor Corp the economic downturn that significantly reduced the US demand for Canadian lumber has had an upside. Instead of wallowing in the doldrums Canfor Corp turned their attention to Asia and during the first quarter discovered ‘exponential growth’.

“There so many opportunities in China, it’s really a stretch of the imagination,” Canfor’s president and chief executive Jim Shepard said Friday.

Canfor Corp is based in Vancouver and shipped approximately 25% of its products offshore during the first quarter. Half of that went to China, a further 20% was used domestically and the rest was sent to the US.

According to Shepard there is a growing Asian appetite for higher grades of lumber. He added that within the next decade China will emerge as a dominant market for lumber as it develops its urban centres.

“We continue to focus on what the most opportunistic ways will be for shipping our product there,” Shepard said. “And while we’re doing that, the net effect is that we’re taking a considerable amount of volume off the North American market and that’s certainly having a positive impact on lumber prices.”

Workers who were laid off during the downturn are beginning to be recalled by Canadian forestry companies as they re-open mills. The closure of the mills along with problems faced by international competitors (the port strike in Finland and the earthquake in Chile) have meant that the supply of wood products are now at an all time low resulting in a global shortage that has driven lumber prices up 30% in the last quarter.

In March lumber prices were so high that export duty rates on shipments from Canada to the US dropped from 15% to 10% in May. This marked the first time that prices reached the threshold since the Softwood Lumber Agreement between the US and Canada came into effect in 2006.

“I’d like to say we are at the beginning of the end, but that remains to be seen. I do, however, genuinely feel that we are past the worst of it and we came through in one piece and in good shape,” Shepard said.

The current spike is driven by temporary supply constraints rather than sustained demand so it is still unclear whether it will remain permanent.

The on going downturn in the US housing market continues to take a toll on Canfor’s financial performance. In the US housing starts remain under 600,000 which is well below a peak of two million in 2005 and the more normalised annual range of 1.2 million to 1.6 million per annum.

“There may be rays of sunlight shining right now, but there are still some clouds in the horizon, particularly in the United States, like the expected continuation of home mortgage foreclosures and the constraining high unemployment numbers,” he said. “For these reasons we continue to be focused on growing our offshore markets”

The company emerged from the downturn with a strong balance sheet that will enable it to take advantage of growth opportunities and mondernise its facilities. In the first quarter the company operated at 60% capacity and said it would bring on new capacity when and if the demand warrants it.

Last week on the the Toronto Stock Exchange shares in Canfor gained 33 cents, trading at $10.43 apiece.

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Over 70 people have been arrested in Brazil in a crackdown on illegal loggers in the Amazon. The arrests followed a two year investigation in six Brazilian states and police estimate that the illegal logging operation had caused damage costing up to $500 million.

Of those arrested several were officials employed to protect the rainforest. These environmental officials in Mato Grosso state are accused of providing false documents, which helped the loggers avoid controls on illegal deforestation from protected areas.

Timber companies in Brazil are required by law to have a certificate to show their logs come from an approved source, this is supposed to protect the rainforest. However, the majority of the timber seized in the raid came from national parks and protected indigenous territories.

In the southern Amazon, Mato Grosso is the one of the regions that is worst affected by forest clearance, largely for expanding soya farms. Landowners, forest managers and loggers were also arrested.

The operation is part of Brazilian president Lula’s pledge that his government is significantly reducing the rate of Amazon deforestation as part of its strategy to combat climate change.

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On Tuesday environment ministers said that the highest octane political gathering on climate change since the Copenhagen summit has helped restore trust but delivered no notable breakthroughs.

“The ice is broken,” Germany’s Norbert Roettgen told journalists as the two-and-a-half day brainstorming session outside Bonn ended. “This meeting was a very important contribution to building trust and confidence.”

By avoiding some of the explosive political land mines that disrupted talks in Copenhagen, negotiators and ministers from over 45 countries focused on what will become the foundations for any future global climate deal. This would include the disbursement of short-term financing to poor countries bracing for the climate change impacts, mechanisms for measuring, reporting and verification of pledges to cut greenhouse gases and figuring out the most effective ways to halt deforestation.

“We have reached consensus on forest protection, and there are good perspectives for consensus on technology transfer — a result is possible, at least in Cancun,” Roettgen said, referring to a UN climate conference late November in the Mexican resort town.

An exchange platform between rich and developing countries for sustainable development initiatives was also unveiled by Roettgen and according to him ten countries, which include among them, the US, Costa Rica, Papua New Guinea and Spain have already embraced the idea.

Since the disappointing conclusion to Copenhagen the ministers and negotiators at these talks trod a delicate line between aiming too high or too low for Cancun, taking place later this year.

“Not probable” was Connie Hedegaard’s, Europe’s Commissioner for Climate Action, reply when asked if a full treaty was possible in Mexico.

“It is extremely important that we have a set of concrete decisions coming out of Cancun. But we need to look at the process realistically,” she told journalists.

A highly polarised debate on what kind of legally binding treaty might emerge from the troubled UN talks has given way instead to the “building blocks” approach.

“Copenhagen was a reality check,” said Jose Romero, Switzerland’s top climate negotiator and a veteran of UN climate talks.

“We are going to focus on substance, we want consensus on the substantive measures before talking about the agreement itself,” he told AFP.

UN climate chief Yvo De Boer said a “good outcome” in Cancun would be “an operational architecture on climate change.”

However the main sticking point in any climate deal will always be the divvying up of the task to cut greenhouse gases and who will pay for it. Positive thinking and incremental progress will only go so far in bridging arguments between nations.

At present voluntary emission pledges registered in the Copenhagen Accord put Earth on track for increases in temperature of 3.5 to 4.0 degree Celsius (6.3 to 7.2 degrees Fahrenheit) which is way above the 2.0° Celsius threshold for dangerous warming.

Martin Kaiser, climate policy director for Greenpeace International said that the Petersberg Climate Dialogue was haunted by stalled legislation in the US.

“The US pledges in the Copenhagen Accord on emissions reductions depend on national legislation, which is stalled,” he said. “So basically that means they have not pledged anything yet — that is the biggest problem we have.”

There is also scepticism and impatience among developing countries on promises for financing. The accord set aside $30 billion in ‘fast track’ money to be distributed by the end of 2012, which would be scaled up to $100 billion per annum by 2020. However delays in releasing the funds and concerns about where the long term funding will come from have cast a shadow over these commitments.

“It is widely recognised that finance is the key to opening the next door,” said Romero.

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The World Bank is so concerned about the lack of forests remaining in the small country of Armenia that they have warned that it could one day become a desert.

The loss of the country’s forests can be traced back to their energy crisis in the early 1990s. Since then the Massachusetts based Armenian Tree Project has been replanting the country’s forests.

Like many similar organisations the group has recently started to consider raising funds by selling carbon credits. However, questions persist regarding whether it is beneficial to apply carbon finance to forestry projects when taking into account the environment and the community where the trees are planted.

“The thing about forestry and carbon, obviously it is very new, and it is complicated,” said Jason Sohigian, deputy director of the Armenian Tree Project.

“The reason why people want to invest in it is they understand trees and carbon have a relationship, so it is easy for the public to make an association between climate change and trees.”

According to the UN deforestation is responsible for an estimated 20% of global greenhouse gas emissions. And yet is has been proven that forests absorb huge amounts of carbon dioxide and this can be quantified and bought as credits by countries and companies to offset their pollution. So it seems slightly bizarre that currently carbon offsets purchased from reforestation projects represent only a fraction of global carbon markets.

A reason for this is that under an arrangement from the Kyoto Protocol, which allows developed countries to buy carbon credits from projects in developing countries called the Clean Development Mechanism, few projects have gained approval.

“The verification process is quite rigorous to go through and satisfy the questions, especially on how you measure emissions,” said Alexander Rau of the Helsinki-based Climate Wedge, a carbon management and investment advisory firm.

There is also a ban in place from the European Union’s Emissions Trading System on buying forestry offsets from developing countries.

Forest offset growth is now hinging somewhat on whether the US passes legislation that prioritises forestry as part of a federal cap and trade market. Also despite the fact that talks in Copenhagen last year didn’t result in a legally binding global agreement to cut greenhouse gases there was enough financial and political support of a UN plan to reduce emissions from deforestation and degradation (REDD).

Unfortunately the cost of even becoming certified on voluntary markets is too expensive for small non-profits like the Armenian Tree Project.

“That is one of the problems with forests,” Sohigian said. “With most systems, you don’t get the money until after you sequester the carbon. So how do you even get off the ground without the money up front?”

Revenue generation can still be difficult even after a project is certified. It is unfair but true that the price of offsets in voluntary markets is considerably lower than those traded in regulated markets. The result being that more trees need to be planted in order to make any money.

Jutta Kill of FERN, a Brussels based environmental group said that “the risk is very big” when projects sell credits in advance based upon the projected amount of carbon the trees will absorb over time.

“You have a lot of obligations for a very uncertain return of revenues,” said Kill. “Some involve signing a very long-term contract, guaranteeing your trees will be standing for the next 100 years.”

There is a small risk that if something happens to the trees, such as a fire, the organisations and communities that have planted them will then be responsible for replanting or buying offset credits from other projects to replace those that were lost.

“Most of the contracts are not public, which puts a lot of the communities at a disadvantage,” Kill told CNN. “They have no way to know whether they are being offered a fair deal. When you have a project that involves local communities, it is interesting to see if it would benefit or if it would suffer from presenting itself as a carbon project,” Kill said.

According to Sohigian in combination with their efforts to replant trees across the country the Armenian Tree Project has made huge inroads to engage the support of the local communities. They have begun poverty alleviation programmes as well as environmental education initiatives.

One disadvantage to their becoming an offset project is that their concentration will need to be focused on measuring the carbon absorbed by the forest, which will take most of their attention from the local people who will be vital in the future to ensuring that the trees are not cut down.

“If you are helping families and reducing poverty, that reduces pressure on forests and increases the likelihood the forests will be able to survive,” Sohigian said.

In early April an article published in ‘Science’ warned that REDD could put governments in charge of forest management, which would reduce the rights of the local communities charged with managing the trees.

The possibility of fraud is also a concern as some critics point out, as voluntary markets are unregulated.

“I call it the Wild West mentality of carbon offsets,” said Scott Jones, executive director of the Forest Landowners Association, a U.S.-based group that lobbies for private landowners rights. “There are no rules right now, so if you can figure out a way to go make money and show social responsibility, then go ahead.” He added.

However, others are more optimistic about the future of forestry and carbon offsetting.

“This is an evolving market and mistakes will be made,” said Jim Lyons, a lecturer at Yale University’s School of Forestry and Environmental Studies and former under secretary for natural resources and the environment in the Clinton administration.

“I feel confident smart people can work out the details, and the market will evolve into a market that will prove much more viable than the existing market for cutting down trees,” Lyons said.

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