Market Overview

 

Carbon commodity prices are very sensitive to decisive compliance policy developments. This same correlation is emerging around REDD+ credits as regulatory clarity is attained.

The key markets are moving to finalize REDD+ offset protocols, the adoption of which could create large-scale demand for compliance-grade REDD+ credits. Currently, REDD+ credits are an undervalued commodity, and prices will rise dramatically in response to decisive compliance policy. Acceptance on compliance markets can shift prices of carbon credits from around $4 to around $15. Early markets are expected to include California and aviation.

 
 
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Theory of Change

The RAF’s theory of change is to mobilize public and private capital to purchase jurisdictional REDD+ credits, moving the market from donor financed to a compliance asset class. 

Core to the RAF impact strategy is to prime the pump for demand by pioneering commercial transactions and providing an intermediary market-making function between REDD+ jurisdictions and private sector pre-compliance buyers. The RAF will utilize a blended finance approach to distribute risk, enabling the entrance private investment. By demonstrating private sector demand, the RAF will provide a ‘pull’ signal to the market that will help accelerate high-quality supply. 

For demand and supply to meet, appropriate market infrastructure (e.g. registries, exchanges, methodologies) must be in place. The RAF is participating in a parallel process called the Architecture for REDD+ Transactions (ART), financed by the Rockefeller Foundation, to build this market infrastructure.

 
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Right time for Impact

Mobilizing both public and private capital will be essential to match the global challenge of financing sustainable food production, tropical forest conservation, and other outcomes needed for REDD+. Private capital, currently sitting on the sidelines, can help unlock emissions reductions that can both provide supply to compliance carbon markets and help countries achieve their performance goals (e.g. Nationally Determined Contributions). 

The RAF presents a unique opportunity meet this challenge by bridging the policy uncertainty surrounding global compliance markets through

a)       Significantly reducing the risk of investing in REDD+;

b)      Supporting jurisdictional REDD+ programs;

c)       Bolstering confidence in REDD+ among regulators and regulated entities; and

d)      Supporting the broader market infrastructure for private REDD+ transactions.

The RAF is the only known finance vehicle under development to target private capital for jurisdictional REDD+, while also building the conditions necessary for long-term, scalable, and durable private demand for jurisdictional REDD+ credits from compliance carbon markets. The RAF is intended to move the jurisdictional REDD+ market in the right direction – and in the process, catalyze a new phase of global carbon market development, potentially unlocking billions of dollars of private capital flows for forest protection and restoration.

The RAF is designed for precisely this moment.

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