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130527 PES Complimentary Policy Approaches.pptx

130527 PES Complimentary Policy Approaches.pptx

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MORE FORESTS. MORE VALUE.

Complimentary Policy Approaches

to support PES Schemes

– A Private Sector View –

BRASILIA/MAY 2013

© FOREST CARBON GROUP AG


1.–- Calculating

the existing

Global Funding

Gap for PES

Policy Goal

Annual Costs for reaching selected

Global Environmental Policy Goals

Low Estimate

(USD bn.)

High Estimate

(USD bn.)

Halving Deforestation (1) 17.0 33.0

Reducing Desertification (2) 10.0 22.0

Improving Biodiversity Protection

(3) 20.0 50.0

Sums 47.0 105.0

Available ODA-Funding (4) 32.0 32.0

Funding Gap 15.0 73.0

Sources for Cost Estimates: (1) Eliasch Review “Climate Change, Financing Global Forests”, 2008; (2) UNEP; (3) Convention on Biological Diversity, Review of Implementation of Articles 20 and 21, June

2007; (4) Own calculations based on OECD data & analysis of Official Development Assistance (ODA); 25% of 130 bn. ODA in 2010

© FOREST CARBON GROUP AG BRASILIA/MAY 2013 2


2.–- Putting the

Global Funding Gap

for PES in the

Context of Markets

© FOREST CARBON GROUP AG

› 10 bn.: Annual Litigation Cost for US Tobacco Industry

› 14 bn.: US-Market for Vet Care 2012 (Pet Industry Submarket)

› 15 bn.: Lower Estimate of the Global PES Funding Gap

› 21 bn.: US-Market for Pet Food 2012 (Pet Industry Submarket)

› 44 bn.: Sum of taxes avoided by Apple according to US Senate

› 73 bn.: Higher Estimate of the Global PES Funding Gap

› 100 bn.: Size of the Global Pet Industry Market 2010

› 120 bn.: Annual Investment via the CDM (2009)

› 130 bn.: Annual available Official Development Aid (ODA)

› 260 bn.: New net investment in Clean Energy in 2011

› 1,400 bn.: Indirect Fossile Fuel Subsidies (IMF)

BRASILIA/MAY 2013

All numbers in USD

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3. -- High Complexity

of the Asset leads to

challenges in the

valuation of the Asset

and the corresponding

Policies

The result: High

degree of uncertainty

which leads to lack of

investment

© FOREST CARBON GROUP AG

BRASILIA/MAY 2013 4


4 –- Purely

Voluntary Action by

Private Sector (and

Consumers) has

narrow limits

© FOREST CARBON GROUP AG

BRASILIA/MAY 2013

› Given the choice between a “grey product” or strategy (unknown

consequences for the environment) and a slightly more

expensive “green product” or strategy, conversion rates (i.e.

voluntary action) are normally well below 1% for the greener

product/strategy – among corporates as well as among their

customers.

5


5. -- Long term

Consequences of

Ecosystem

undervaluation

have an

unacceptable

Economic & Social

Price

› (Part of) Our economic growth is based on the externalization of

environmental and social costs and the privatization of profits and

socialization of losses. To take the actual financial crisis as a

benchmark:

› Socialization of Losses: The total cost of the current financial crisis

is estimated to be 11,900 bn. USD (IMF), enough to hand out more

than USD 2,000 to every human being on the planet, or USD 14,000

to every human living in LDCs.

› Privatization of Profits: US Financial Sector Pre-Tax Profits in the 7

years before the financial crisis (‘00-’06): USD 2,340 bn. (US DOC),

bonus payments for bankers in the City of London. Bonus Payments

in UK Financial sector (‘00-’06): USD 94.5 bn. (UK NOS).

› What is worse: Mispricing of ecosystem risk also lead to capital

allocation that runs directly against Global Environmental Goals.

© FOREST CARBON GROUP AG BRASILIA/MAY 2013

6


6. --

Complementary

Policy Approaches

Step 1:

Get the Accounting

right

› We can only manage what we measure. So we need “accounting for

nature” taking into account non-timber values of forest

ecosystems.

› Green carbon is a start as carbon stock normally a higher in intact

ecosystems than in degraded ecosystems. Molecular markers might

follow to determine the biodiversity – and water also offers

potential.

› This approach needs to be and can be reflected by a push towards

full-cost accounting (i.e. an accounting that that quantifies

environmental and social impact) on company level; PUMA has

shown that it woks.

Policy makers and managers need quantified data on the ecosystem

impacts of their policies or business decisions.

© FOREST CARBON GROUP AG BRASILIA/MAY 2013

7


7. --

Complementary

Policy Approaches

Step 2:

Transparency &

Reporting of

Environmental

Impacts

› Number of initiatives already in place: Global Reporting Initiative

(GRI), ESG-Reporting-Guidelines by European Asset Managers,

Carbon Disclosure Project (CDP).

› 80% of Global top 250 companies already report according to one

of this initiatives/guidelines on a voluntary basis. Unlike

Accounting for Nature Sustainability Reporting is less of a

conceptual challenge and more of an implementation issue.

› At the far end it is conceivable that companies in the context of

their financial reporting not only report their EBIT (Earnings Before

Interest Payments and Taxes) but also their EAEC (Earnings After

Externalized Environmental Cost) – which would basically be a risk

parameter for investors.

› You don’t even need a law for that, a reporting guideline by your

securities market supervision should be enough.

© FOREST CARBON GROUP AG BRASILIA/MAY 2013

8


8. --

Complementary

Policy Approaches

Step 3:

Fine-tune

complementary

legal instruments

› Strengthen fiduciary duties of asset managers to take into account

Environmental Impact of their Investments.

› Use Public Procurement Policies to set standards and build market

for sustainable certified products (e.g. FSC)

› Fine tune Competition Law: In the status quo the company that

most successfully externalizes environmental and social cost can

offer the best price/highest return and, thus, enjoys an unfair

competition advantage over a competitor that acts in an

environmentally responsible way.

› The combination of these instruments would lead to a significant

strengthening of “voluntary action” by the private sector and its

support of PES schemes – even in absence of strong policy impulses

from UNFCCC and CBD.

© FOREST CARBON GROUP AG BRASILIA/MAY 2013

9


Thank you for your attention!

Contact

Georg Schattney, COO/CFO

Forest Carbon Group AG

g.schattney@forestcarbongroup.de

T.: +49-(0)69-677 3448-11

M.: +49-(0)170-637 72 31

www.forestcarbongroup.de

© FOREST CARBON GROUP AG

BRASILIA/MAY 2013

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