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OPIC Signs First Insurance Contract for REDD Carbon Reduction Project

November 9, 2011

WASHINGTON, D.C. – The Overseas Private Investment Corporation (OPIC) has executed the first political risk insurance contract for a Reduced Emissions from Deforestation and Degradation (REDD) project that will protect 64,318 hectares of forest in Cambodia and sequester approximately 8.7 million metric tons of CO2e.

OPIC is providing $900,000 in political risk insurance to Terra Global Capital, a U.S-based leading land-use carbon development and investment company that has invested in the project.  The Royal Government of Cambodia will work with implementing partners and local communities to prevent deforestation and degradation in Cambodia’s Oddar Meanchey province, and will validate the project according to the Verified Carbon Standard and Climate Community and Biodiversity Alliance Standards. The carbon credits will then be sold by Terra Global Capital in international carbon markets.

Revenues from the sale of the carbon credits will be used to fund activities that reduce deforestation, including  community forestry patrols and fire control, community-based water resource development projects, strengthening and clarifying land-tenure, sustainable farming systems, agricultural intensification and fuel efficient stoves. 

As a result, rural communities in Cambodia will gain legal tenure over local forests and generate a 30-year income stream that will significantly enhance household livelihoods and natural resource management capacity. The project will also preserve and increase carbon stocks in the area, enhance hydrology in the upland watersheds of the Tonle Sap Basin, as well as conserve endangered biodiversity.

“This project represents a milestone in the development of the forest carbon sector,” said OPIC President and CEO Elizabeth Littlefield. “Tens of thousands of hectares of forest will be preserved while creating new opportunities – such as training in forest management, the establishment of microfinance organizations, as well as the creation of 355 new jobs – that will support both local communities and the environment at the same time.”

Leslie Durschinger, Founder and Managing Director of Terra Global Capital, said, “Given the long-term nature of our investment, we believe it is prudent to reduce our exposure to future changes in national and local governments and laws by executing this insurance policy.” Durschinger also stated that the value of having political risk insurance as a mechanism to reduce investors’ risk cannot be overstated in this emerging sector,  as the political risk insurance will help to improve the investment profile for private capital investments in REDD projects.

The project is also supported by the Danish International Development Agency, the Clinton Climate Initiative through a grant from the Rockefeller Foundation, and the John D. and Catherine T. MacArthur FoundationPact, a Washington, DC-based nonprofit corporation and an implementing partner in the project, has supported the project since December 2008.

Oddar Meanchey is one of Cambodia’s least-developed provinces, and has experienced steady deforestation since the fall of the Khmer Rouge-controlled central government in 1979 due to a failed industrial logging concession system, demand for timber and agricultural land, and human settlement. Forest cover in the province is being lost at an average annual rate of 2.1 percent, the highest in the country.