May 28, 2014 / 7:44 PM / 5 years ago

U.S. eases risks for $134 mln forest protection fund

* U.S. Secretary of State John Kerry announces loan guarantee

* Underpins loans to poor forested communities

* Businesses can earn carbon credits for protecting forests

By Ben Garside

COLOGNE, Germany, May 28 (Reuters) - The United States government has agreed to cover half of any future losses from a forest protection fund in a landmark deal it says will benefit poor communities.

The U.S. Agency for International Development (USAID) is giving a risk-sharing loan guarantee to Althelia Carbon Fund, which aims to lend up to $134 million to sustainable forest-based businesses in developing countries in Latin America, Africa and Asia.

The scheme will remove the same amount of carbon dioxide as would taking almost 19 million cars off the road for a year.

“This will not only create profits for Althelia’s investors, it will help protect 20 rainforests and prevent 100 million tonnes of carbon dioxide from entering the atmosphere,” said U.S Secretary of State John Kerry.

Kerry made the remarks in a video message played to the Carbon Expo conference in Cologne, Germany on Wednesday.

The move would be substantial in a forest carbon market that was valued at around $215 million in 2012. It is designed to underpin private sector investment in avoiding deforestation that could pave the way for far greater efforts under the U.N.’s Reducing Emissions from Deforestation and forest Degradation (REDD) mechanism.

REDD is seen as a key part of global efforts to tackle climate change as deforestation accounts for almost a fifth of the world’s greenhouse gas emissions.

Industrialised nations are expected to help kickstart the mechanism as part of a wider commitment to raise at least $100 billion a year by 2020 to help developing nations cope with the effects of climate change and curb emissions.

But developers have struggled to raise funds for REDD as projects are often located in countries with poor governance records. Compliance markets to allow companies and governments to meet emission targets with REDD carbon credits are also likely to be years away.

“Cutting down too many trees in the Amazon rainforest indirectly fuels rising seas in South East Asia, drives violent weather in the Gulf of Mexico and deepens famine and drought in the Horn of Africa,” said Kerry.

USAID aims to make its funding go further by leveraging private sector cash, with its support for Althelia drawing just $5.7 million from its budget.

The agency has previously given direct payments and run education programmes to encourage tropical forest communities to protect their forests. It has suggested they could earn a living by starting businesses such as exporting cocoa or developing tourism instead of clearing rainforest for logging or farming.

The loans from Althelia can be repaid by income from their operations and will also be able to earn carbon credits for emission reductions verified by environmental groups such as The Gold Standard or VCS. Credits backed by these standards can be sold to businesses keen to demonstrate their environmental credentials.

USAID said Luxembourg-based Althelia was the first private sector fund dedicated to forest conservation at this scale.

Althelia was set up last June with backing from a number of funding agencies, including the European Investment Bank, Dutch development bank FMO and development finance company Finnfund. (Editing by Keiron Henderson)

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