Carbon Market? Build It And They Will Invest - CNBC

The index tracks the two largest carbon emissions markets: the European Union Emissions Trading Scheme, EU ETS, and the UN’s Kyoto-agreement-based Clean Development Mechanism, CDM. As of June 2009, the index had a market cap of about $4 million—a drop in the global $8-billion ETN bucket.

Richard Couzens, who heads product origination in Barclays' investor solutions group, admits the ETN is small but “with moderate trading volumes it's certainly attracted quite a bit of interest, especially since it represents an alternative, uncorrelated investment solution and references a sector that that we believe will continue to grow.”

Carbon Trading May Dwarf Crude Oil - CNBC

Fingers crossed. BP’s oil leak has apparently stopped shy of 200 million gallons spewed into the Gulf of Mexico and a few million more burned off into plumes of toxic smoke. Many have dubbed it the worst environmental disaster in American history. In my view, it’s not even close, but shares a great deal in common with those that are on the “top ten worst” list—and offers lessons we can profit from.

Warren Buffett and Bill Gates will reportedly travel to China later this month to "learn how to do philanthropy" in that nation.

China's Economic Observer newspaper says Gates and Buffett have invited a "select group" of 50 to 60 members of the nation's "business elite" to a "private party" in Beijing.

Some of those invited, however, have declined to attend, apparently over concerns they'd be asked, or even pressured, to make a donation pledge at the event

Warren Buffett & Bill Gates Seek to Soothe Suspicions Over China Philanthropy Visit - CNBC

Making Sense And Money Out Of Carbon - CNBC

The potential economic impact of a carbon market seems to divide American industry as much as talk about healthcare reform may divide a family at Sunday dinner.

Will it be a boon that brings new technologies, allowing more efficient use of energy and keeping the U.S. on the cutting edge, or will it be an onerous tax that will weigh down industry just as it climbs off the mat of a deep recession, jacking up costs for everyone and hurting job creation?

Tamminen: 10 Environmental Disasters Worse Than BP Oil Spill - CNBC

BP’s oil leak has apparently stopped shy of 200 million gallons spewed into the Gulf of Mexico and a few million more burned off into plumes of toxic smoke. Many have dubbed it the worst environmental disaster in American history. In my view, it’s not even close, but shares a great deal in common with those that are on the “top ten worst” list—and offers lessons we can profit from.

Trade Carbon Credits: 


The Worlds Largest Commodity Market


Buffet invests $44 billion in Carbon Credits
Unless you’ve had your head buried in the financial sand over last few months you could not have failed to miss the implementation by Barack Obama of ‘Cap and Trade’ on emissions in the US which is set to be the biggest growth market the financial world has ever seen.

Wall Street: Trading in Carbon Credits of Carbon Dioxide, along with other Greenhouse gases such as chlorofluorocarbons (CFCs) is indeed becoming the Worlds Biggest Commodity Market worth trillions of dollars.

Carbon Credits have been trading in Europe for the last 2 years under the Emissions Trading Scheme and prices have risen from $4 to $15 in that time. This is not bad going considering that critics have stated the emissions limits were set too high. In addition we have had the global crisis to contend with. The reason this market is going to be an investor’s paradise is simple - The market has been created to artificially push the prices of carbon offsets up every year in order reduce emissions.

"Carbon will be the world's biggest commodity market, and it could become the world's biggest market over all."... "Barclays Capital" (New York Times)

Put simply, governments are telling all companies to lower their emissions. Companies can use the government imposed limits every year. If they exceed these limits they have to purchase Carbon Offsets or pay a huge fine. Prices will increase annually because once a company buys a Carbon Offset Certificate (equal to1 metric tonne of CO2) that amount of carbon is retired and can never be traded again, taking it out of circulation. It’s not ‘if companies want to’ purchase carbon offsets it’s ‘when’ and ‘at what price’?

In the US Carbon Offsets are available at the current European rate of $15. The US is looking to implement ‘Cap and Trade’ in 2012. According Reuters and Barclays Capital, credits will trade at $30 plus as anything less will not be enough to force companies to go green. The European Union and the US have both agreed to reduce the annual limits for carbon emissions up to 2050.

There is no FSA regulation of Carbon Credits because the European market is closed to investors. In the US the exchange is fully regulated by FINRA, who also regulate the NASDAQ.

Investors can purchase Carbon Offsets through a registered US liquidity provider such as Coolpass. You will be issued a Carbon Offset Certificate which you can trade through the Chicago Climate Exchange - The world’s first environmental derivatives exchange and owned by the London-based Climate Exchange PLC which also owns the European Climate Exchange, however 10% is currently owned by Goldman Sachs.

So here we have a market that is set to go only one way – which is up. It’s regulated by FINRA and is being lead by the Barack Obama Administration who put the wheels in motion in May 2010.

With industrial global emissions accounting for about 33 gigatonnes, a $30-per-tonne carbon price would pay the whole bill. (Source - BBC News)

Buffet invests $44 billion in Carbon Credits (Source -Telegraph UK)

President Barack Obama has said he wants the country to cut emissions of greenhouse gases to 17 percent below 2005 levels by 2020. (Source – Reuters)

“I believe the best way to control greenhouse gasses is through legislation that places a market-based cap on emissions. By setting a market-based cap you create a commodity which places a value on a limited resource”. (Source – Barack Obama)

“Over time, as the cap on greenhouse gasses gets lowered and the commodity becomes scarcer the price goes up – The price of the status quo will become more expensive” (Source - Barack Obama)

One need only revert to the simple law of supply and demand to see that this industry is going to be huge. If increased demand dictates an increase in price, getting in now could be one of the wisest investment moves you make in the first half of this century.

Reuters) - Australia has recorded its largest transaction in carbon emissions, with 20,000 tonnes of carbon sold forward at A$21.50 ($19.51) a tonne, a carbon broker said on Friday, as the nation prepares to curb greenhouse gases.

Australia, the rich world's largest per-capita emitter of greenhouse gases, plans to cap emissions from 2010 and introduce a carbon-trading system where businesses that pollute less can sell emission credits to those firms that pollute more.

"I believe it to be the biggest deal that's been done," said Gary Cox, head of environmental derivatives for Newedge Group in Australia. He declined to give details on the buyer or seller.

An over-the-counter market in carbon emissions has emerged this year as businesses such as coal-fired power generators look to hedge uncertainty surrounding the eventual price of carbon when Australia's proposed cap-and-trade system kicks off.

Speculators are also looking to make money by providing badly needed liquidity to the emerging market in carbon dioxide.

The latest deal is for delivery in February 2012 and was finalized last week, Cox said.

Though it was the largest deal to date, he added, at 20,000 tonnes it was still tiny compared with the few millions of tonnes of carbon emitted each week by Australia's power industry alone.

"It's a drop in the ocean," Cox said, adding that buyers and sellers were still feeling their way, starting with small deals and gradually expanding them as confidence and liquidity grew.

Carbon is trading in Australia at around half the level of prices in the more mature markets of Europe where carbon credits -- permits to pollute -- for December 2008 delivery have been trading at around 26 euros ($39.83) a tonne.

Australia's Westpac bank and utility AGL Energy are credited with Australia's first carbon deal in May this year.
($1=.6528 euro)
($1=A$1.102)

NEXT; Green Business

It is a must-read book for: Business: 

because your understanding of emissions trading could make or break your career and company. 

Investors: because there is money to be made from clever investments in renewable technologies. 

Carbon trading will never be as sexy as chocolate or caviar. 

However, it will dominate headlines as the effects of climate change and global warming continue to impact on the planet.

So how does carbon trading fit into this picture? What is emissions trading in Australia all about? And what action do we need to take?

Carbon crunch answers these questions ... and many more.

It is a must-read book for: Business: 

because your understanding of emissions trading could make or break your career and company. 

Investors: because there is money to be made from clever investments in renewable technologies. 

Environmentalists: because the green movement needs an intimate knowledge of carbon trading as it responds to actions of big business. 

You: because you must be capable of identifying the issues around carbon trading to empower your decision-making process.

http://switzermedia.com.au/bookstore/carbon_crunch.html

Renewable energy

• Investing in renewable energy technologies - carbon offsets commonly involve investing in wind power, solar power, hydroelectric power and biofuel.
• Renewable energy credits (REC) - In comparison to a carbon offset which represents a reduction in greenhouse gas emissions, a REC represents a quantity of energy produced from renewable sources. RECs can be seen as offsets in that they represent carbon reductions by assuming that the clean energy is displacing an equivalent amount of conventionally provided electricity.

Methane abatement

Some offset projects involve the combustion or containment of methane generated by:

• Livestock -Certain types of animals release methane, either directly through gaseous exchange or from manure. A new form of offset product has arisen where these emissions can be reduced or collected, particularly where manure is stored in lagoons for future use as fertilizer. These products are not widely available in the Australian market at this time.
• Landfill - Decomposting matter emits a range of greenhouse gases including methane. Methane emitted from landfills can be captured and then flared into the atmosphere, or burnt to generate energy. These offset products are often cheap and the technology is well-developed, however there are questions about whether they are 'additional' to business as usual, and as such considered true carbon offsets.
• Coal - Methane emitted from coal mines can also be captured and then flared into the atmosphere, or burnt to generate energy.

Energy efficiency

Energy conservation projects seek to reduce the overall demand for energy. Carbon offsets in this category fund projects such as:

• Cogeneration - A system in place which captures and utilises the heat which is emitted from generating energy.
• Fuel efficiency projects - involve replacing a combustion device with one which uses less fuel per unit of energy provided. Assuming energy demand does not change, this reduces the amount of carbon dioxide emitted.
• Energy-efficient buildings - reduce the amount of energy wasted in buildings through efficient cooling, heating or lighting systems. New buildings can also be constructed using less carbon-intensive input materials.

Land use, land-use change and forestry

Land use, land-use change and forestry projects focus on natural carbon sinks such as forests and soil. Projects include:

• Afforestation - is the process of creating new forests on land that was previously un-forested, typically for longer than a generation.
• Reforestation - is the process of restoring forests on land that was once forested.
• Avoided deforestation - is the protection of existing forests.
• Soil management projects - aim to preserve or increase the amount of carbon sequestered in soil e.g. chemical versus mechanical tillage.

Destruction of industrial pollutants

Offset products may target greenhouse gases other than carbon dioxide, which are associated with industrial processes, such as Hydroflurocarbons (HFCs) and Nitrous oxide (N2O). Because these pollutants are easily captured and destroyed at their source, they present a large and low-cost source of carbon offsets.

Purchase of carbon allowances from emissions trading schemes

Purchasers can offset their carbon emissions by purchasing carbon allowances from legally mandated cap-and-trade programs such as the Regional Greenhouse Gas Initiative or the European Emissions Trading Scheme.

Carbon capture and storage (CCS)

CCS refers to projects that capture CO2 emissions from emissions sources and store them by injecting them into an underground geologic formation such as active and abandoned oil and gas reservoirs, saline aquifers, or unminable coal seams. Although CCS is not currently commercially viable, it is likely to become an important medium-term option for climate mitigation.

Mixed

Some offset products represent a mixture of offset credits from various projects. These are often cheaper than other offset products, however it is often difficult to ascertain where and what kinds of offsets are being purchased.

Designing, implementing and operating a carbon offset project requires the involvement of a large number of parties, stakeholders and authorities. Although the parties involved differ from project to project, some general categories and types of market players can 

be defined:

• Project Owner - The operator and owner of the physical project installation where the emission reduction project takes place. This can be any private person, company or other organization.
• Project Developer - A person or organization with the intention to develop an emission reduction project. This could be the project owner, a consultant or specialized services provider.
• Project Funders - Banks, private equity firms, private investors, non-profit organizations and other organizations may lend or invest equity to fund a project. Some of the standards have rules as to what kind of funding, aside from offset revenue, is acceptable for an offset project.
• Stakeholders - Individuals and organizations that are directly or indirectly affected by the emission reduction project. Stakeholders include the parties interested in developing a specific project (e.g. owner, developer, funder), parties affected by the project (e.g. local population, host community, environmental and human rights advocates) and national and international authorities.
• Third Party Auditors Validators and Verifiers - The CDM and many of the voluntary offset standards require a third-party auditor to validate and verify a project's baseline and its projected and achieved emission reductions. Under CDM, the auditors are called Designated Operational Entities (DOEs). To minimize conflicts of interest, the CDM does not allow the validating DOE to also conduct project verification.
• Standards Organization - In the absence of national and international legislation, standard organizations define a set of rules and criteria for voluntary emission reduction credits.
• Brokers and Exchanges - In the wholesale market, emission offset buyers and sellers can have transactions facilitated by brokers or exchanges. Exchanges are usually preferred for frequent trades or large volumes of products with standardized contracts or products, while brokers typically arrange transactions for non-standardized products, occasional trades, and often small volumes.
• Trader - Professional emission reduction traders purchase and sell emission reductions by taking advantage of market price distortions and arbitrage possibilities.
• Offset Providers - Offset providers act as aggregators and retailers between project developers and buyers. They provide a convenient way for consumers and businesses to access a portfolio of project offsets.
• Final buyers - Individuals and organizations purchase carbon offsets to counterbalance GHG emissions. Therefore, the final buyer has no interest in reselling the offset but will prompt the retirement of the carbon offset.

Ecosystem Marketplace - VCS Unveils its First Methodology for Generating Carbon Credits by Saving Trees

Man Bites Dog

Common occurrences — like dogs biting men — rarely make the news. But throw a little twist in there — some urgency, some natural violence, some death — and these kinds of stories become an editor's dream. By extension, this type of reporting makes statistically uncommon events seem to occur with great frequency.

There are plenty of examples of this: shark attacks, plane crashes, homicide... the list goes on. We wouldn't think these incidents were as common as we do if the headlines pointed out to us every day that passed without one of them occurring. 

So if you didn't know any better — based on the headlines this summer — you'd think China was going the way of Venice.

That's a good way to miss out...

Just as allowing 'man bites dog' stories to keep you out of the water or off a plane can mean missing out on great experiences; falling victim to the Chinese flooding fallacy can mean missing out on a great investment.

Because the everyday story in China isn't flooding...

It's drought.

At the very same moment the media is caught up with the attention-grabbing story of raging rivers and washed-out villages, China began its biggest relocation program since the construction of the Three Gorges Dam.

Almost half a million Chinese will be forced to relocate to make way for the South-North Water Diversion Project, an endeavor aimed at diverting the Yangtze River to the Yellow and Hai Rivers to quench the almost waterless North, which includes Beijing.

Why?

Maybe because China has 20% of the world's population but only 7% of the world's water resources...

Maybe it's because half of China's largest 660 cities constantly face water shortages...

Maybe it's because 90% of Chinese cities' groundwater and 75% of its rivers and lakes are polluted, leaving 700 million people* to drink contaminated water every day.

(*If you're keeping track, that's twice the population of the United States.)

And it's definitely because areas south of the Yangtze have 80% of the water and 36% of the land, while the North has only 20% of the water and 64% of the land.

I guess Beijing is China's Las Vegas — only capable of being built through immense water infrastructure projects.

This isn't going away

In an effort to deal at least partly with this problem, China is willing to relocate an entire river and part of its population.

But the efforts won't stop there.

Just as China is going to great lengths to secure energy resources for its booming population (if you haven't seen Christian DeHaemer's video on how to profit from that angle, you should watch it immediately), it is going to similar lengths to secure water resources...

Not just moving rivers; but initiating a sustained effort to bring its water treatment infrastructure into the 21^st century.

Two companies fundamental to that progress will be Tri-tech Holding (NASDAQ: TRIT) and Duoyuan Global Water (NYSE: DGW).

And wouldn't you know it...

According to a press release, Tri-Tech “received a $6 million contract for the upgrade and expansion of a wastewater treatment plant in Kuitun City of Xinjiang Uygur Autonomous Region” just last week.

And Duoyuan recently beat earnings estimates, thanks to a surge in water equipment sales.

According to Reuters: “Revenue from water reuse equipment jumped 45 percent on continued demand for the company's circulating central water processors, fully automatic filters and electronic water conditioners. Water purification equipment revenue increased by 36 percent.”

This is a long-term investment that goes well beyond the market's recent tribulations.

I'd buy them, hold them, and love them.

And keep in mind that the sensational headlines you hear and see in the media rarely tell the whole story.

Call it like you see it,

Warmest year-to-date global temperature on record

(Reuters) - A U.N. carbon credit scheme's rejection of a huge Indian coal power plant deprives the project of revenue running into hundreds of millions of euros and rings alarm bells for investors developing similar plants.

The incident spotlights a controversial U.N. process that allows valuable carbon offsets to be given to highly efficient coal power stations, a step green groups say erodes the spirit of trying to wean developing nations off polluting fossil fuels.

In India's western state of Gujarat, Tata Power has completed more than half of its $4.2-billion 4,000-MW plant that will use more efficient supercritical boiler technology to cut carbon emissions and reduce coal consumption.

With its project backed by nearly $1 billion in debt financing by the World Bank's IFC finance arm and the Asian Development Bank, Tata had been hoping to earn carbon credits under a U.N. scheme that rewards investments in cleaner energy.

But late in July, the panel for the U.N.'s Clean Development Mechanism rejected Tata's application, saying it had not shown CDM revenues were critical to the project's return on equity.

The CDM lets investors in clean-energy projects in developing countries earn offsets called certified emissions reductions (CERs), currently priced at about 12 euros each, that they can sell for profit.

BLOW FOR DEVELOPERS

The step could be a blow for other developers looking to capitalize on India's massive infrastructure gap, such as Reliance, CLP Power India, Indiabulls Power and GMR Energy.

Data from Thomson Reuters' Point Carbon shows these companies' investments are among the more than 20 supercritical coal-fired projects formally applying for CDM carbon revenues, mostly in India and China. These plants are 10 percent more costly than more polluting sub-critical types.

"Developers planning power projects are not comfortable with supercritical technology," said Ashutosh Pandey, chief executive of the carbon advisory business for carbon project developer and advisory firm Emergent Ventures India.

"CDM revenue plays a very important role in making these projects viable," he added, saying CDM revenue offset deterrents such as high capital costs, long lead times and erratic fuel supply.

Design documents show Tata's project is expected to emit 215 million tonnes of CO2-equivalent between 2011 and 2020, or about a sixth of Japan's total annual greenhouse gas emissions.

It is one of nine planned investments in supercritical coal-fired plants supported by the Indian government under its Ultra Mega Power Plant (UMPP) scheme to help firms secure land and environmental clearances.

Each plant is expected to generate about 4,000 MW, and cost about $4 billion, with the aim of meeting India's fast-growing appetite for electricity.

The country expects to add 61,000 MW of power generation capacity, mostly from coal-fired plants, in the five years to March 2012, or a fifth short of an earlier target of 78,000 MW.

"SIGNIFICANT SETBACK"

"We view the (CDM Executive Board's) decision as a significant setback for the project and in fact for the overall UMPP program in India," said Takeo Koike, senior investment specialist for the Asian Development Bank.

"ADB did consider the CDM revenues as one of the project's important revenue streams, which is expected to improve the project's overall cash flow," he said, adding the bank would still support Tata's project.

Tata did not reply to detailed questions from Reuters, but said it was disappointed by the verdict. "We are studying the rationale for the decision and are in consultations to decide a further course of action," it said in a statement.

Equity analysts told Reuters the loss of carbon revenues, while material for the plant's earnings, would not have a significant impact on the company.

Project design documents submitted to the U.N. show Tata hoped to receive 26.5 million CERs by 2020, valued at 318 million euros ($419 million) according to today's prices.

"The carbon crediting probably was not factored in at the time of the bid," said one analyst, adding that estimates would not have considered such credits ahead of U.N. project approval.

Although such revenue could be material to investment returns, another analyst said, his model did not take any into consideration. "We've always seen that as quite blue sky."

Underscoring green groups' concerns over the need for carbon funding, a third analyst said, "These projects have to go ahead anyway -- whether the carbon revenues are there or not."

The analysts asked not to be identified as their employers bar them from discussing individual projects.

Ernst & Young, in a March report for Thomson Reuters' unit Project Finance International, pointed to the importance of carbon revenue to Indian supercritical plants.

"If registered as CDM projects, at current pricing, the carbon revenue could go up to 0.15 rupees per unit (kWh) of electricity generation, which obviously is encouraging to project developers," the firm said.

TWIST IN THE TATA TALE

Underscoring this, Reliance Power, which is developing three 4,000 MW supercritical coal-fired plants under India's UMPP scheme, has sought CDM approval with an emission-cutting method using efficient power generation.

Taken together, its three plants would generate more power than all of Singapore. One of Reliance's plants hopes to earn more than 37 million CERs by 2020, U.N. data show.

In an ironic twist for Tata, rival Adani Power is building an even larger 4,620 MW plant right next door, part of which won CDM approval in December as the world's first supercritical coal-fired plant, set to get more than 18 million CERs by 2021.

Some analysts say the Tata rejection could end CDM approval for supercritical coal plants, but the U.N. disagreed.

"Project activities that fail the additionality criterion are not registered by the Board," a U.N. spokeswoman said, referring to the need to link project viability to CER sales.

"However, it is important to underline that projects are considered on a case-by-case basis."

Ivory Coast (Reuters) - They inhabit a polluted part of Ivory Coast's main city with few jobs and a swelling population, but residents of Abidjan's slums have a rare respite: a stretch of pristine rainforest.

From their wooden shacks and unpainted concrete houses by motorways on the edge of Banco National Park, the millions who live in north Abidjan need no lesson on its worth.

"This forest is a great thing," said textile worker Sebastien Coulibaly, 35, in front of the sky-scraping green mass of vines and broccoli-shaped trees.

"It helps us to breathe better -- we live at ease because of it. Sometimes we walk our children there. We must protect it, because our planet will be nothing without forests."

Logging, farming and armed conflict still threaten Africa's jungles, which include the Congo Basin, the world's second largest after the Amazon, but analysts are hopeful.

A new global study on illegal logging by London's Chatham House think-tank Wednesday found that it had halved in Cameroon, once one of the worst sources of illicit timber, since 2002, a decline of twice the global average.

Earlier this year the European Union signed deals with Ghana, Cameroon and Congo Republic to tighten restrictions on logging, ahead of an EU ban on illegally harvested timber that was passed this month and takes effect in 2012.

"We've dared to sanction firms, from withdrawing permits to big fines," said Cameroon Forest Minister Elvis Ngolle.

Logging bans don't directly address forest loss from other threats such as agriculture, but officials are hoping that a potential money spinner -- carbon offsets -- will.

"EXPECTATIONS HIGH"

A U.N. scheme to reduce emissions from deforestation or degradation (REDD) has enabled Indonesia, which houses the world's third biggest forest but is being deforested by palm oil and timber firms, to get $1 billion (649 million pounds) from Norway in May to revoke those firms' forestry licenses.

Deforestation makes up a fifth of world CO2 emissions and the REDD fund is worth a total of $4 billion so far.

Unlike Asia, African states have been slow to capitalise on climate aid -- they account for 2 percent of developing nation carbon projects. But many hope to change that.

An African Development Bank fund was established in 2008 for the Congo basin, a forest of half a billion acres (200 million hectares) spanning nine countries and storing, the bank says, 25-30 billion tonnes of carbon, which currently trades at 14 euros per tonne in Europe.

The fund aims to harmonise forest tax, share ecological data, cooperate on policing and sponsor community projects that encourage forest protection, like honey-making.

"Expectations are extremely high that this will allow us to preserve the forest, restore what's been degraded and pay these countries for their ecological services," Patrice Wadja, the fund's operations officer, told Reuters.

Gabon's President Ali Bongo seeks to be first in line. He has banned raw wood exports and in May set up a climate council that must come up with a REDD plan for the 80 percent of its original forest that remains before December's climate talks in Cancun.

FOREST TO FARMS

Despite the challenges, experts think Africa's forests have at least as good a chance as Brazil or Indonesia.

The rate of forest destruction is generally slower: 0.16 percent a year in the Congo Basin, compared with 11 percent in Indonesia, Wadja said, because Central Africa has been largely spared large-scale clearing for agriculture.

West Africa's deforestation is much higher, driven by logging and clearing to plant cash crops, especially cocoa, a topic so sensitive that Reuters could not get permission to visit some forests in top grower Ivory Coast.

"At independence, we had 16 million hectares of forest. We today have 6 million -- the lost area is now all farms," said Ivorian forest and water technician Yamani Soro.

Improving yields with fertilizer and pesticides is key, although reforms have been blocked by Ivory Coast's post-civil war political crisis.

Drier nations in the semi-desert Sahel belt with scant forest are meanwhile planning to plant trees. Presidents from Senegal to Djibouti agreed in Chad last month to build a "green wall" thousands of miles long with IMF funds.

But even as Africa curbs illicit logging and plants trees, another threat looms: Asian palm oil companies are eying Africa's forests to feed their growing populations. Liberia has signed deals with two and China Thursday proposed a vast project in Democratic Republic of Congo.

"The big unknown are the Chinese," said conservationist Terese Hart who has worked in DRC for decades. "They are looking at the interior for exploitation, including palm."

(Reuters) - Uncertainty over what will happen to the carbon market after the current round of the Kyoto Protocol ends in 2012 may lead some financiers to hold off on green projects in Southeast Asia, investors said on Wednesday.

Such investment is needed to shore up supply of carbon offsets for emissions trading schemes in Europe and other countries which have agreed carbon caps meant to slow climate change.

Singapore's third largest lender United Overseas Bank is adopting a wait-and-see attitude before investing in projects that aim to earn carbon credits under the UN-backed clean development mechanism (CDM), its executive director said at a green investment conference in Jakarta.

"We are keeping our options open. We don't need to rush in," said Mark Yeo Wee Tiong, adding that UOB had not yet backed any CDM projects.

Carbon offsets are meant to ease the cost of meeting such caps, by supplementing domestic carbon cuts with reductions paid for overseas.

But while Europe's trading scheme will continue beyond 2020, the international agreement that sets the framework for the world's carbon credit market, the Kyoto Protocol, runs out in 2012. Global climate talks in Copenhagen last year failed to produce a new deal.

Frederic Crampe, managing director of ReEx Capital Asia -- which arranges financing for green projects -- told Reuters there was huge potential for CDM projects in Southeast Asia.

"But we are so close to 2012 that we are in a very bad period," he said. "By the time you have built your project and got your approvals, 2012 is already here."

POLICY UNCERTAINTY

China and India have been the biggest source of carbon offsets. Now investors are eyeing projects such as mini-hydro power, waste water and geothermal in Indonesia, but policy uncertainty and a lack of incentives are holding back deals.

However, Moe Moe Oo, managing director for Swedish carbon credit trader Tricorona AB -- which sources financing for greenhouse gas reduction projects and trades the offsets -- said it was business-as-usual for his firm.

"But because there's no post-2012 agreement in place, those investors that might have invested a few years ago are not willing to take the risk," he said, adding the 2012 uncertainty added an extra risk to green investments in countries with unpredictable regulatory regimes, like Indonesia.

Globally, the number of CDM projects entering the pipeline rose by 130 in June, the highest monthly increase since October 2008, according to the United Nations Environment Program.

A recent poll showed that nearly 70 percent of clean energy project developers in India believed there would be a post-2012 successor to the Kyoto protocol and the World Bank has said carbon markets would outlast the Kyoto Protocol.

Rahul Kar, a director at KPMG Singapore, said he thought the carbon credit market was actually quite bullish, adding that some market players may be "spreading rumors to drive down the prices."

"But there is a strong signal of continuation in the market. The world doesn't stop at 2012."

* Malaysia CO2 project aims to preserve 100,000 ha of forest

* Deal with tribes aims to boost livelihoods, incomes

* But threat remains from illegal loggers

By David Fogarty, Climate Change Correspondent, Asia

SINGAPORE, Aug 6 (Reuters) - An Australian carbon services company has signed a deal with nine Malaysian tribal leaders to certify carbon offsets from a project aimed at preserving more than 100,000 hectares of tropical forest.

The deal allows the tribes in Sarawak state on the island of Borneo to earn a share of the proceeds from the sale of carbon offsets to help them manage and protect the forest over a period of 20 years, payments potentially worth millions of dollars.

Forests soak up large amounts of carbon dioxide, the main greenhouse gas blamed for global warming, and preserving the remaining tropical forests in developing countries is seen as a key part of the fight against climate change.

The project aims to improve the livelihoods of at least 10,000 people in 24 villages and is part of a U.N.-backed scheme called reduced emissions from deforestation and degradation.

The United Nations hopes REDD will lead to a multi-billion dollar trade in forest carbon credits and the Malaysian project is one of several pioneering investments aimed at building up the REDD sector.

REDD seeks to reward developing nations and indigenous forest owners with carbon credit payments to save their forests. There are about a dozen REDD projects in neighbouring Indonesia. The firm, Shift2Neutral, said it will work with the tribes and a local NGO to help manage the forest, survey the area and access the carbon stored in the trees and soil. The project would be certified under an enhanced form of REDD that also aims to reward any enhancement to a forest's carbon stock.

A long-term management plan would also be created and a committee of comprising tribal leaders, investors and local and company officials would guide how the money is spent with the aim of improving livelihoods and curbing incentives for logging.

"It's a 50-50 deal. We ensure they get their funding and they use that funding as per an economic development committee that is established," said Brett Goldsworthy, chairman of Shift2Neutral, adding the aim was to make sure the money wasn't squandered.

The tribes are the customary owners of the land and the legal owners of the carbon but many still have subsistence livelihoods.

"You've got tribal people who have barely got any money and they are desperate for money for things like medical aid," Goldsworthy said on Friday.

"What we will do with our funding is to start instigating other programmes along the lines of medical, food aid, schooling, clothing to make sure there is a sustainable future," he said.

PROTECTION

Besides boosting incomes, better monitoring of the forest was also crucial.

"The main threat they face is illegal loggers," he said.

"It is key to get more forestry people involved for the protection of the forest and having checks and measures on their boundary borders to ensure that people aren't getting through."

Goldsworthy said he hoped the carbon survey and management plan for the area would be finished by next year, followed by the issuance of the first batch of carbon offsets called VERs, or voluntary emissions reductions, to be sold to investors.

It was too early to provide an accurate estimate of the number of VERs per hectare from the Sarawak site, he said.

"As the land is first-growth vegetation one could expect 50 per hectare but again we have not provided anything at this point."

Avoided deforestation VERs fetch anything from $10 to $30 each depending on the project, country and risk.

He said the company is developing similar projects in the Philippines, Indonesia and South Africa with VER buyers being governments, large corporates and wealthy individuals.