Investment in project preventing deforestation of the Brazilian Amazonas

Abstract: The aim of this thesis is to create an understanding of the incentives for forest companies to invest in reducing carbon dioxide emissions from deforestation and forest degradation, which is termed REDD. The Brazilian Amazonas was chosen as the base for the investment case. Brazil has the largest area of rainforest in the world, and also the biggest problem with deforestation. The Amazon region of Brazil comprises rainforest which is largely intact and unexploited. Accordingly, there is significant potential scope for prospective investments in a REDD-project, and so have a noteworthy impact in preventing deforestation. The research approach used the United Nation’s Clean Development Mechanism concept was used as a framework for ascertaining the investment costs in potential REDD-projects. Multiple methods were used to collect data. In particular, information about the transaction costs involved with Clean Development Mechanism-projects was used as input to an investment decision model that estimated net present value outcomes. Other bases for the investment decision model were the results from a political, economical, social and technological (PEST) analysis of Brazilian Amazonas; and, interviews with experts from five of the world’s largest international forest companies about their assessment of the risks and benefits as well as perceptions of the corporate social responsibility aspects of REDD-projects. The PEST analysis showed that Brazilian Amazonas is a suitable investment case and could be a good place for this type of investments in the future - provided regulations were significantly simplified. The outcome on the investment model clearly showed that a company investing in a REDD-project with main purpose of preventing deforestation can expect a positive net present value. However, risks are high due to uncertainties about the value of carbon credits and uncertainties about the continued existence of carbon market.