Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A push by Guyana to sell millions of carbon credits linked to forest conservation is set to test investor confidence that the South American nation can withstand Venezuela’s threats to annex more than half of its territory.
The sale will also highlight the challenges faced by a largely unregulated global market for carbon credits, which relies on investors trusting governments to keep carbon dioxide out of the atmosphere for decades or centuries by enabling trees to stay standing.
Guyana’s government estimates that credits linked to a portion of the 19.5 gigatonnes of carbon dioxide and other greenhouse gases stored in its forests, which cover 85 per cent of the country, could generate more than $3bn in revenue by the end of the decade.
Speaking at the University of Guyana last year, former UK prime minister Sir Tony Blair said pivoting towards a conservation-based economy could be “a huge economic asset to the country, billions and billions of dollars’ worth, and of course protect the environment at the same time”.
But most of Guyana’s forest cover is in the mineral-rich region of Essequibo, a tract of Amazon jungle that would be a prime target for Venezuelan loggers and miners in the event of a takeover.
A long-running crisis over the region escalated last month when Venezuela held a referendum in which Caracas said most voters opted to declare the state part of their country.
Tensions later eased when Venezuelan President Nicolás Maduro and Guyana’s President Irfaan Ali agreed to use dialogue to settle the dispute — but Maduro told lawmakers on Monday that he had a “tangible” plan to bring the region under Venezuelan control, without giving further details.
At a time when Venezuela has sought to claim sovereignty over Guyana’s forests, the government is searching for buyers for at least 25mn credits.
These include most of the 7mn credits that it expects to be approved for sale by Art, a tropical forest crediting programme, in the coming weeks. They will be issued to represent some of the carbon dioxide absorbed by its trees in 2021.
The government’s projected total income from credits relies on an optimistic assumption that it will sell credits at prices of up to $50 a tonne in 2030. BloombergNEF, a research provider, estimated last year that prices per tonne across the market could fall as low as $13 by 2030, in a pessimistic scenario in which credits were oversupplied.
Alongside a handful of other rainforest nations that also boast low rates of deforestation, such as Gabon and Suriname, Guyana has argued for years that its efforts to conserve its carbon sinks should be rewarded with cash.
The country’s low-carbon economic development strategy relies on building investor confidence in the counter-intuitive idea of a tradable instrument based on the CO2 absorbed by trees that would probably remain standing anyway.
Ali “wants us to give hope to the carbon markets piece of the [global forest protection] puzzle,” said a person familiar with Guyana’s sale.
But the only taker for Guyana’s credits so far has been US oil and gas producer Hess Corporation, which owns 30 per cent of the Stabroek oil block off Guyana’s coast, and was bought by Chevron last year. The block is operated by Exxon, which owns 45 per cent, and made the discovery.
The oil industry has helped drive the country’s rapid economic growth in recent years.
Hess has committed to spending at least $750mn on the country’s forest conservation carbon credits over the next decade, to help offset emissions from its fossil fuel production.
Eron Bloomgarden, head of the Leaf buyer coalition for forest protection credits, said none of its participants — which include the UK and Norwegian governments as well as companies such as Burberry and Airbnb — were prepared to pay the price Guyana wanted for credits.
“We don’t look at that as a true reflection of the market price,” he said of the Hess deal. Leaf last year signed agreements with other countries including Ghana and Costa Rica, but not Guyana, for forest protection credits that priced each tonne of carbon emissions avoided at about $10.
The price of carbon credits linked to nature protection plummeted globally last year. Governments including Kenya and Zimbabwe moved to control and tax the production of carbon credits, and scientists questioned the baseline data used to compare historic, actual and projected future rates of deforestation which underpin the credits.
Schemes have put in place some measures to reassure investors. Up to a quarter of credits issued by Guyana are held by Art in a buffer pool; these cannot be sold, and would be cancelled if less forest cover than expected was protected, whether because of manmade deforestation or natural disasters.
Carbon credit insurance is another option. But policies typically focus on the risk that a country’s own government could scupper the transaction, for example by banning the export of carbon credits to use these for its own climate goals.
Natalia Dorfman, chief executive of carbon market insurer Kita, said: “The key risk that investors and developers or anyone who has a financial interest in a carbon project is looking at is the risk of expropriation: the host country deciding it will keep the carbon.”
Its own cover does not include the risk of a foreign government taking over the carbon in times of war, she said.
Investors need not take the risk of war too seriously, said Ashni Singh, Guyana’s finance minister. “Any serious, credible investor looking around the world would inevitably arrive at the conclusion that this really is a spurious and baseless claim being made by Venezuela,” he said.
Since Caracas held its referendum, Guyana has hosted trade missions from the UK, the EU and Canada, Singh added. “We’re not under a pressing urgency to do another [carbon market] transaction today or tomorrow.”
