New Sustainable Forestry Model – Basis of a Profitable Business Segment

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Precious Woods, a pioneer in sustainable forestry, announced its entrance in the European Emissions Trading Scheme with two agreements to sell 770,000 tons of Certified Emission Rights from their bio-energy project in Brazil.  By leveraging its timber activities with biomass powered electricity generation and the sale of carbon emission reductions to Kyoto compliant countries, the Precious Woods Group is expecting to generate an additional highly profitable turnover of $2-3 million per year on an ongoing basis.

The “multiple asset approach” to forestry was developed by Forest Trends’ Business Development Facility, an international non-profit organization that works to expand the value of forest to society, and was funded by the International Finance Corporation.  The Business Development Facility helps forest operators move from a ‘single-asset approach’ where cut timber is seen as the only real value of forests, to a ‘multiple-asset approach’ that diversifies revenue streams by capitalizing on non-timber products and services that generate higher real returns on the forest asset.  This diversified approach also results in additional benefits such as: biodiversity preservation, benefits for and improved relations with local community and other stakeholders, land appreciation, asset protection, risk reduction and positive public relations.  This approach will assist in setting and promoting new standards for sustainable forest management, particularly in developing economies.

“Focusing on the use of ecosystem services, non-timber forest products and other revenue streams has proven tremendously effective,” said Andres Gut, Chairman of the Precious Woods Group.

Precious Woods Amazon now supplies waste woods from its forest operations to a local renewable energy biomass plant, of which it acquired an 80% stake in June 2005. The plant’s switch from diesel to biomass resulted in carbon emission reductions and therefore qualifies for carbon credits under the Kyoto Protocol’s Clean Development Mechanism.  Additional emissions reductions are also achieved from avoiding the methane which was previously released by stockpiled waste wood and from avoiding transportation of diesel into the Amazon. The project will offset more than 1.4m tons of CO2 over a 10 year period. Precious Woods received approval from the CDM Executive Board in May and 512,385 credits were issued on September 15th, 2006 by the CDM Executive Board. Precious Woods has signed ERPA’s (Emission Reduction Purchase Agreements) for approx. 50% of the total credits expected from the project.

“This tremendous growth shows that there are alternative revenue streams that can be created from our forest ecosystems that benefit the local community and the environment while simultaneously making a positive contribution to the environment on a global scale,” said Michael Jenkins, President of Forest Trends.

Energy sales from the renewable energy plant as well as sales of carbon credits are providing Precious Woods with additional revenue of over $10 million in 2006 including carbon revenue in the region of $1 million realized from operations in Nicaragua and Costa Rica. On their carbon and energy business, Precious Woods expects to generate net profits of over $5 million in 2006.

The energy plant also secures a reliable source of electricity to the grid serving remote users in the Amazon. It currently supplies electricity for a town of 70,000 inhabitants.

“We are keen to help develop and support successful profitable business models for sustainable forestry,” said Rachel Kyte, Director of IFC’s Environmental and Social Development Department. “We need more creative financial products that value forests for their multiple purposes and will provide streams of revenue for sustainable forest management. Our work with Precious Woods and Forest Trends has produced one solution. We hope this model and many others can be produced and replicated around the world. IFC is keen to work with companies and communities that wish to commit to legal and sustainable forest management.”

Via:(Precious Woods)

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