World Bank proposes forestry credits

New scheme aims to employ trading scheme to incentivise developing countries to protect their forests

The World Bank has outlined plans to include deforestation in the world's $30bn carbon trading market, potentially creating a multibillion-dollar industry for investors.

The Bank's Forest Carbon Partnership Facility, which has been endorsed by 30 of the world's developing nations, aims to make conserving forests more lucrative than chopping them down.

Nine industrialised nations, including the UK, Germany, Australia and Japan, have already pledged $155m over 10 years to kick-start the initiative – the first financial mechanism for saving tropical forests.

Speaking at the UN's climate change conference in Bali, Indonesia, World Bank President Robert B. Zoellick said the facility "signals that the world cares about the global value of forests and is ready to pay for it".

Should the plan come to fruition, companies that exceed an agreed level of deforestation could be forced to buy and trade credits with those that have not.

The scheme could also provide another form of carbon credit for companies tied into carbon cap-and-trade schemes, such as the European Emissions Trading Scheme (ETS).

It is estimated that companies in Indonesia, for example, could earn $400m to $2bn a year in forest carbon credits, according to the Bank.

The FCPF will be made up of a $100m Readiness Fund, which would provide financial assistance to help countries kick-start the new plan. It would also allow some countries to sell the emission reductions they achieve through forest conservation to a $200m Carbon Fund.

Benoit Bosquet, a World Bank senior natural resources management specialist who has spearheaded the facility's development, said it was hoped the successor to the Kyoto Protocol would include provisions for the FCPF.

"Considering the world currently loses some 13 million hectares of forest a year – the area of Nicaragua or Greece – the potential for compensated conservation based on forest carbon is huge," he said.

However, he cautioned that the specifics of the facility were still to be worked out, including its structuring of incentive payments.

Meanwhile, Friends of the Earth warned allowing tropical forests to be included in carbon offsetting schemes could allow companies to simply buy their way out of their deforestation responsibilities.