The Israelis saving the rainforests

Carbon Essence is getting in on the ground (forest?) floor of carbon rights trading in Africa.

A company owned by Israeli entrepreneurs will manage preservation of tropical rainforests of the Central African Republic. The contract between that country and Carbon Essence is for 25 years, during which the country will receive generous monetary incentives for preserving the rainforests, and will introduce measures to halt deforestation.

Carbon Essence, founded in 2009 and registered in London, is owned by Brigadier General (Res.) Yitzhak Tidhar, formerly head of the IDF's prisoners and missing soldiers department, and Terry Julius, and deals in financing of environmental projects. The company will run projects for the government of the Central African Republic that will eventually bring it €35-80 million a year.

On the basis of strict protection of its forests by the Central African Republic, industrial concerns that cause pollution will buy rights from it to emit carbon dioxide into the atmosphere. Under international treaties aimed at cutting emissions through tough regulation, a company that causes emissions will have to pay a levy for every tonne of carbon dioxide. These emission are meant to offset the expenditure of protecting the rainforests, with the entity that protects the disappearing natural resource being paid by the polluter. Carbon Essence says that the large amounts of money that will flow to the country will serve it to improve the quality of life of its population, through construction of hospitals, development of education and welfare services, infrastructure, modern agriculture, and so forth.

A market in its infancy

According to the vision developed by the international community for reducing emissions of carbon dioxide, a gas considered a main factor in global warming, into the atmosphere, an ambitious plan has been formulated for saving the rainforests, which are exposed to ever increasing deforestation. The scope of the phenomenon is more worrying in African countries, where it is easier for companies to obtain logging rights.

Leading banks and investment houses, which spotted the financial potential that lies in the environmental arrangements, opened departments to manage them, and estimate the emerging market to be worth huge sums. "The market is still dormant and in its infancy," Carbon Essence chairman Ravi Shapira, formerly a partner at the Deloitte & Touche Brightman Almagor accounting firm and manager of its consulting arm,, who led the deal in Africa alongside the owners, Julius and Tidhar. "This was the right timing for us to get onto this playing field, because in a year or two all the giants in the world will be playing on it, and small companies like ours would not stand a chance of becoming established and operating."

Under the agreement, Carbon Essence will manage the concession to manage 10-24 million dunam (2.25-6 million acres) of rainforest in the Central African Republic. Shapira believes that over the next year the company will mediate a deal between the country's leadership and a bank, investment house, or industrial concern for the sale of the carbon rights. The entire territory of the rainforest will be priced in accordance with price levels set on special exchanges already active in Sao Paulo and London, and the polluting entity will transfer the money to the country in exchange for continuing emissions in it production process. Carbob Essence will receive a percentage of the money that flows to the state, on which it declines to provide details.

Scorched areas in the heart of rainforests demonstrate the urgent need for an arrangement that will protect this diminishing natural resource. 0.5% of the world's rainforests disappears every year, according to Prof. Dan Rabinowitz, and expert on global warming at Tel Aviv University.

New arrangements that are starting to gather momentum indicate a change in the trend. At the end of the process, there will be a clear economic interest in preserving the rainforests. Entire ecological systems that are in danger of extinction will be saved, while polluting will become more of an economic burden to the polluter.

Governments that protect the rainforests by selling carbon rights will between $10 and $20 per tonne of CO2 emissions, according to the prices on the special exchanges. Experts estimate that as environmental regulation develops and controls on emissions grow stronger, the polluter will have to pay, and pay heavily. The price per tonne of emissions will soar, and turn this industry into a giants' playground.

"Experts estimate that the price of a single tonne of emissions will reach $60-70," says Prof Rabinowitz. "It's no coincidence that the world's big banks and well-known investment houses are coming into the picture and establishing themselves in this area. Besides the annual payment for every area of forest that isn’t cleared, the polluting company will also pay the country royalties on its profits."

According to Prof. Rabinowitz, the banks and investment houses are already buying carbon rights from these countries, and holding them just as they hold securities. There is more than one reason to believe that, within a short time, the price of these rights will shoot up, and then they will be sold as "credits" to companies with polluting activity.

"There are those who fear that, meanwhile, it's just a bubble, from which only the Wall Street investment houses will gain. There is still no regulation to make it possible to exploit the situation fully, and there clearly is not enough determination about the matter, perhaps because the countries themselves are polluters," says Prof. Rabinowitz. "However, it would be enough if there were an agreement by the president of the US with China on cutting emissions for the price of carbon rights to soar. In the end, every polluting company will have to join such an agreement, and reduce its emissions, just as companies pay fees and levies for burying waste at authorized sites. The banks and investment houses are aiming at exactly this situation."

Shapira and his colleagues at Carbon Essence report that negotiations are taking place with other countries in Africa.

"In the West, there is a tendency to adopt an arrogant attitude towards the Africans, but they completely understand the value of their resources there, and so you have to play fair with them," says Shapira. "You can certainly see economic-environmental arrangements of this kind as a way of helping backward countries to bring about change in the direction of growth, but still, it would be pretentious to believe that this is the only exit ticket these companies hold from poverty and backwardness."

Published by Globes [online], Israel business news - www.globes-online.com - on June 6, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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