Greater Certainty, Less Risk on the Horizon for Investors and Developers in Conservation Projects

Image credit: Flickr/Tommy Clark

The USDA Natural Resources Conservation Service (NRCS) has awarded a Conservation Innovation Grant (CIG) in the amount of $900,000 to The Climate Trust to launch the Environmental Price Assurance Facility (EPAF). The EPAF will help spur development of agriculture and forestry conservation projects by reducing the risks associated with the future value of environmental credits.

Many conservation projects have the opportunity to generate environmental credits to recognize their environmental benefits. Carbon credits, for example, are awarded as a result of a specific project or action implemented to avoid, sequester or displace greenhouse gas emissions.

The uncertain value of future environmental credits diminishes the ability of markets to mobilize much-needed capital to build conservation projects so they can generate verified benefits. Investors and lenders have been known to discount the future value of environmental credits based on perceived risk that credit value could fall to zero. Given this perceived risk, insufficient capital is being invested into sectors that have the opportunity to generate environmental credits and provide verifiable conservation benefits.

To overcome this uncertainty and make environmental markets financeable, The Climate Trust will launch the Environmental Price Assurance Facility. The EPAF brings the World Bank’s successful Pilot Auction Facility model for international offsets to benefit conservation in the U.S. The EPAF will auction put option contracts to U.S. projects that generate environmental credits. These contracts guarantee a minimum value for future credits—assuring projects, investors, and lenders that environmental markets have real value. By providing a…

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