Environmental Markets

The global economy is transitioning towards renewable energy, sustainable development and ‘putting a price’ on pollution from the realisation that the ‘services’ provided by the environment are crucial to our way of life and that natural resources are finite. Furthermore, the overwhelming consensus amongst world leaders and the global scientific community is that the rate of climate change is accelerating as a direct result of increased greenhouse gases in the atmosphere.  This realisation is creating new environmental, carbon and renewable energy markets where Citola operates.

Timber Market

Timber is a renewable resource and the third largest commodity traded in the world. The global demand for timber products is growing due to the increasing population which the United Nations estimates will increase by 1.4 billion people by 2030. In addition, the rising Gross Domestic Product (GDP) per capita is driving timber consumption (construction activity, timber goods, firewood) and demand.

Timberland Asset Class

The timberland asset class offers a unique combination of attributes for investors including strong positive returns, positive correlation with inflation, low correlation with other asset classes and low volatility. Timber assets have valuable embedded optionality with harvest year flexibility (mitigating against price volatility) and multiple revenue streams (e.g. carbon, biomass, ecosystem, agriculture, recreational and development opportunities).

Renewable Energy Market

Renewable energy initiatives are poised for significant growth fuelled by the increasing energy consumption from a growing population and the decreasing supply from finite natural resources (i.e. fossil fuels). The sector has seen tremendous private and public investment over the last ten years with favourable policy incentives from government to drive adoption. The renewable and alternative energy market has seen growth from £21 billion in 2004 to £96 billion in 2007 and is forecasted to grow to £290 billion by 2012 and £390 billion by 2020. Biomass and timber residues from processing and forestry (thinning, pruning, harvesting) operations have become well recognised in many countries as a renewable resource that can produce energy and heat.

Carbon Market

The global carbon market comprises the voluntary market (voluntary action) and the regulated compliance market (cap and trade). It provides the mechanism for regulating the emission of greenhouse gases into the atmosphere and incentivising sustainable development by establishing a ‘carbon price’ and an effective ‘cost of pollution’.

The compliance market has been created under the Kyoto Protocol whereby governments undertake legally binding obligations to place regulatory caps on the total amount of greenhouse gases they can emit as a country. In 2009, the carbon market was valued at £85 billion and the trading volume increased by 68 per cent from 2008 to 8.2 billion tCO₂ and is expected to grow at over 80 per cent per annum to be valued at £246 billion by 2014.

Carbon Forestry Market

The recognition and requirement that forestry and avoiding deforestation play an important and crucial role in global climate policy is now clear. The generation of carbon offsets through forestry is significantly less capital intensive then technology-based projects (renewable energy) and more scalable.

Forestry carbon offsets from new plantings have additional environmental benefits by creating additional CO₂ reductions whereas renewable energy initiatives only create carbon offsets on the basis that they are preventing CO₂ from being emitted (rather than an actual reduction in CO₂).

Biodiversity Market

The global market for biodiversity is US $1.8 - $2.9 billion annually and likely much greater as 80% of current programs are not transparent with over 86,000 hectares of land protected per year. The biodiversity market is currently fragmented, however, predicted to grow rapidly (39 existing markets with 25 in development) in the emerging ‘green’ global economy.