From Rainforests to Revenue: Lessons from Gabon

Thank you all for joining us again on the Transformers podcast and today we are looking

for the second episode of the six part series that we are doing on Liberia's new currency,

the power of climate finance and carbon trading. And once again we are very grateful

to have the Honourable Janine Cooper who is the special envoy, the climate action and the

CEO of the carbon market authority. We also have a special guest today and that is Christian

who is the senior advisor for investment financing and development to the president at the

issue state in the Republic of Liberia as well. So welcome to you both. Thank you for having me.

Thank you. Thank you Arjun. Happy to be here. Thank you. So I think last time we spoke we kind

of touched upon what carbon credits were, the carbon market and what that meant for Liberian

terms of explaining that and I think to do a quick recap for listeners that carbon market,

I mean there was quite an interesting analogy or carbon credit I should say was it's like

if there's an atmosphere it's like the bank is a bank account and that's like for carbon

polluters. So every time a factory burns fuel or plain flies it adds carbon to that account,

right? But I'm a forest and the greenery in the planet actually do the opposite. So they

withdraw that carbon from the atmosphere and they store it in trees and soil. The country that

protects a large forest is effectively cleaning up the pollution of created elsewhere

and carbon credits is a way to measure that sense and one carbon credit equals a one

ton of carbon dioxide. So it's so cool. So we look at how it's actually as a product and how the

the packaging of it it works and we kind of want to sort of in this episode look to how that's

actually been deployed in Africa already and countries such as Gabon will be the sort of like

the case study and also how Liberia can learn from that and actually monetize in this sort of early

development phase of of the carbon market. Guys we just say I captured that relatively

accurately. It was a bit of a hard-podged explanation but I tried to give it as simple as possible.

Right. Okay. It's not made it's right. All right. Okay. So I didn't make anything up. That's good.

Right. So if we were to talk about one of the countries that has sort of looked at the carbon

market and don't quite a good job with monetizing that is Gabon. So Gabon is based in Central

Africa and it serves as a prime example of how forest protection can actually generate economic

value. So Gabon is actually covered in almost 90% of rainforests and Gabon's forests not only

beautiful stunning ecosystems but their substantial carbon storage systems and they absorb

millions of tons of carbon dioxide annually and decades Gabon prioritized forest protection

over agriculture and rapid development and you know several presidents actually established a

national framework of protected areas including 13 national parks and this is in the early 2000s.

So that unique position of Gabon in global climate negotiations gained attention

as the world sort of tried to find different ways to reduce our carbon emissions. The forest

absorbs the carbon making the protection absolutely crucial for mitigating climate change

and that sort of global framework is the idea for the REDD plus or rate plus you know

standards. So through this standard countries that provided deforestation and maintained

healthy forests can actually receive payments of the carbon emissions that they avoid.

And in 2019 Gabon signed in the landmark deal with the Central African Forest Initiative

which was supported by doorway and this agreement committed up to 150 million

in payments over 10 years and that was contingent on Gabon continually to and the genuine

emissions reductions from deforestation. Okay so that is a performance-based climate finance

and there's several different technologies that we use including satellite monitoring to have

this internet and an international verification system. Gabon was able to demonstrate significant

reductions in emissions compared to historic deforestation levels. In 2021 they received their first

payment of almost $20 million, $17 million to become in the first African country to be paid

for the verified carbon reductions on a national scale. So this success demonstrates that a

developing country in its sort of in its underdeveloped state in some cases can actually

earn revenue if it treats its trees as a legitimate finance source. So a country like Liberia which

has significant forests. Gabon now can basically be a blueprints for how we develop

the country and how we can actually utilize our natural resources and the natural sort of state

of Liberia to actually become an economic pillar alongside mining and agriculture and energy

within Liberia. So that's sort of a bit of a background. I kind of want to sort of kick the

sink off with a question to Honorable Cooper. How do you see sort of what Gabon did in converting

the forest conservation into economic sort of opportunity? Thank you, Archie. I love the comparison

that you're making with Gabon and Liberia because we do have many, many things, many, many similarities

in our topography, our natural resource endowment. There are 88% covered in forests. We're about

73% covered in forests, small population, relatively speaking. Yeah. Where?

Yeah, maybe I could point it this out before. The Gabon model was model of the Liberian model

because in 2014, Liberia signed with Norway, a red plus project, the first red plus project.

And the history of that project, when when I became a minister of agriculture in 2020,

that project was coming to its natural end. They were negotiating an extension, a no-cost

extension, same $150 million, same model of conserving the forest and ending logging.

It was a landmark deal and it was supposed to help Liberia to transition to a green economy and

large scale commercial logging by 2020. So in 2020, two things, pressing COVID hit and we started to

take stock of where we were with this project. The 150 million was split two ways. 70 million was

going for institutional support for the government agencies, capacity building the systems,

declaring protected areas. I think we have five or seven of them, even first monitoring what

our forest cover was. And then the 80 million balance 80 million was to be in results based payments

such as the 17 million that you mentioned that Gabon managed to hit in 2019. Was it 2019 that they got

it or 2022? Yes, so there were significant similarities. The two programs started

and from the perspective of a Liberian. And this was something that I defended

specifically when I was minister of agriculture. From our perspective, the red plus did not have

the desired impact. It had a negative economic impact on the country. At the end of the red plus

project, we had Liberia had received less than 40 million, probably around $37, 38 million in

payments towards institutional support and readiness. We were plagued by any number of problems,

everything from suffering from high staff turnover, the lack of technical expertise to set up

the high tech remote sensing. And what I said in Glasgow at the COP was that the goal post kept

shifting and we kept getting more and more stringent requirements to meet that we were not able to

meet with the technical capacities that we had. So it was almost designed to what we did do

was, almost was decimate our logging industry. And what we did do, which was a positive, was to come

up with the first national forest inventory, which then clocked that we had 6.6 million hectares

of forests out of our 9.6 million hectares since then. What the forest inventory did not

say was that we had a net reforestation rate. And so the inventory, strangely enough, was only

measuring deforestation, wasn't measuring reforestation, wasn't yes. So the red plus didn't work very

well for us. But a lot of the technical glitches that we had that now we faced and the problems that

we faced were redesigned with Gabon to enable success. So we were more of a guinea pig than they

were the same players and Norway, World Bank and so forth. But we have to, one of the things that

we've learned the lessons that we've learned as a nation is we need to shift the focus away from

Liberia as a conservation site to Liberia as a sovereign carbon provider. All of the work that we

did with the red plus program provided some baselines, provided did a lot of good policy work,

good capacity building, good awareness creation led to the Land Rights Act that we have that

was also a landmark complicates things, but it's a landmark. But it's shift our thinking

because being a conservation site when we're not meeting our sustainable development goals.

It's, yeah, it's like

that shouldn't be our priority, but if we look at what we do have and how we can package it to

them self-finance our sustainable development, that is a better model for us. The red wasn't designed

that way and it wasn't, it's not that it was malicious, it was a learning process for us.

And that's, I guess, that's one of the, that's actually quite leaves us nicely into the next question,

and this is for Argo Dumbar about the financing of this stuff. One of the things that was very

interesting that you mentioned was that it always measured one direction, the deforestation rig,

it didn't measure it back the other direction. And so I guess in terms of then creating these

new types of financial instruments and different markets for, for, I appreciate more of the things

I wanted to sort of ask for you from your perspective in government and helping develop our economic

policy and advising, you know, the ministry estate on that is from an investment perspective,

I would do some of these different carbon revenues and how does this market become part

of a national, you know, economic planning, because if we think of a country like, like,

Bureau, where we make a lot of our, the majority of our money comes from mining and let's say

an agriculture, how do we change the focus of then, you know, creating this as a legitimate,

you know, economic arm pillar for the country?

Thank you, RG, for the question and thank you for having me and it's always a pleasure to be

with the minister on a on a podcast. I mean, I think my background is traditionally finance

and I think the challenge in the industry has always been, how do you bring the climate

conversation into the finance conversation in a seamless way, in a traditional way?

And I think what has happened and what you've seen particularly so much of climate now has

centered around resiliency and is moving towards sort of an infrastructure necessary

to withstand some of this change that we've seen in climate. And so I think that's where the

carbon market authority is really positioned in itself to be first and foremost a financial entity

that can leverage this carbon wealth and leverage to carbon revenue into transitional finance

mechanisms to make it more palatable for the finance industry to understand it and some of the

the mechanisms and how they work. And so the entity as a whole, we're designing it, you know,

with the minister to be a sub sovereign credit rated entity as we work on a country having a

sovereign credit rating and that will help us securitize the revenue that we're seeing from the

carbon space into a trusted entity that investors can co-invest with, can collaborate with,

and really take off from a finance perspective, you know, whether it's green bonds, whether it's

leveraging carbon revenue in traditional finance ways. I think one of the things that will be

really important in this conversation, particularly when it comes to carbon credits in our

forest or trees, is combining carbon credits with commodities. We are a tree crop rich nation.

So take a crop like rubber or cocoa. Being able to leverage the carbon credits on a front end

because what's been so difficult in our marketplace just as a country is how do we find the financing

we have very shallow capital markets. We have not historically added a tremendous of value to

agricultural stock in our commodities. And so how do we now leverage carbon credits,

particularly in the early stages and with tree crops it takes five, seven, you know,

years for them to start producing revenue. How do we leverage the carbon in the early state

of that? And I think it does really two important things, not just in a carbon space but in the

agriculture space as well. First and foremost in a carbon space, I think it supports the valuation

for our carbon credits. And then also on a back end, particularly if you have a structure in the SPV,

it is backstopped by a commodity. And particularly if you think of a cocoa or rub,

these are commodities that we know and we are used to. So now we'll be capturing carbon

capturing carbon from the atmosphere. But now after seven years we have this rubber commodity

that now supports not just our local farmers, not just our economy, but also gives our carbon

investors a backstop to really be able to trust not just the carbon credits. And even if we see

fluctuation in the market for carbon credits, now you also have this backstop of a commodity.

So I think it's really critically important, this conversation about what is next in terms of our

carbon wealth and combining it with our commodities that we've known for a number of years,

but it's struggles to add value to. So I think that's what we'll see from the carbon market

of 30. And then when we really create this revenue fund or specialized fund, those revenues then

generally speaking could be collateralized to do again green bonds, you know, a sustainability linked

financing and working with some of our partners to add a guarantee on it. Now we can really put

high quality paper into the marketplace, not just locally but globally as well. So I think that's

what's really exciting about what is happening with the carbon market authority. And I think with

the next coming months we'll start to see these unique and interesting traditional financing

mechanisms, but in the in a carbon and climate space. No, thank you. That was

I think I want to bump in here. I want to bump in here and say that, you know,

we're sort of pioneering a new direction for climate finance. And that direction is coming from

a heavily endowed country with natural capital that's not a polluter, but actually storing

billions of tons of carbon and removing millions of tons, hundreds of millions of tons of carbon

every year because of our forests. So leveraging our natural capital and our tree crops, etc.

This is this is almost like at the frontier of modern climate finance and taking new looks at

things like I mentioned earlier going from just simple conservation. Oh, you saved the tree

and it will capture carbon and we will pay you to looking at the full spectrum of natural capital

that we have. How can we stack? How can we stack one aspect of financing on top of another? How can

we encourage and we like to plant trees? Like Christian said, we know how to plant trees,

we know how to add to tree stock. That's that's that's in our national DNA. How can we leverage that

and and and and that's some of what we're trying to unlock here. Yeah, there's actually two quite

interesting things that you know that picked up on that you said. One of them was, you know, like

again, from what you're describing, we're getting not just that we have the frontier, but these are

quite unsophisticated instruments that we're looking now to start packaging, whereas like to say

back in the day when these things started like a you know, a decade ago or how the different

sort of mechanisms were originally started. It was just conserve this tree and you know,

there's a bit of some guinea pigs happening in terms of how these countries were let's just say

compensated for their carbon stock. Christian, your background is actually like say in traditional

finance. So I kind of want to ask you from let's say development bank perspective, what roles do you

think the DFI's can play in the how much you know, the value of say these these credits and then

scaling that, you know, like you know, creating new different types of products, you know, instruments

and financial products for these countries. To then we'll sort of pivot is a second part of that

question, which I'd like honorable cupid's answer is then how do we protect that within sort of

our actual and to develop the countries in a way that is sustainable as well, because it's all

well and good having this money coming in. But then if we're using that to industrialize and create

stuff, like how do we sort of balance that that out? I mean, I think you hit the nail on ahead

is sustainability, right? But sustainability squared, let's call right sustainability, not just

in the preservation of climate, but sustainability in terms of from a pure finance perspective that

we're going to see this type of financing mechanisms last in perpetuity in a lot of ways.

And I think, you know, when we talk about the value of carbon credits, I think the role the DFI's

can place really in guarantees on some of these instruments, right? So as we think about

issuing carbon climate and we know price is going to be driven by investor and demand what's

happening in the marketplace and the trust with your carbon. And so these guarantees will help

improve credit quality, right? For the entities that issue in them, but then on top of that,

because it's backed by these commodities, I think we're likely seeing strong investor demand and

investor demand is what really drives outside of credit quality, strong investor demand is what

really drives up the price for countries like Liberia. So I think that's what we're going to start

to see. Again, and this is just traditional finance, right? So in traditional investment banking,

your bond prices yes, start with your credit quality, but then it really driven by demand. And so

we see this historically, one of the negatives that we see in a marketplace with sometimes critical

of the of the rating agencies, right? And there's some level of criticism that they should take,

but they take more criticism than they should, because when you control for credit quality,

we're still in Africa paying a higher cost for our bonds, but that's not the rating agencies,

right? If they're saying this rated transactions the same as one in Europe or Latin America,

well, then it's the investors that are viewing those other

issuances better and the demand is higher. So now we get in, you know, they get in better cost

or better price in Europe. So this is the same model we need to think about here in Africa.

How do we then drive investor demand, right? So it does, you know, it is hinged on the type of

entity we structure with a credit rating to the extent that we can get a guarantee, but guarantees

when you get a guarantee whether it's double layer or any type of guarantee, depending on what is

rated, that comes with a certain level of transparency. That's really what those guarantees

are about outside of the quantitative numbers in terms of return on investment. But

so I think that's where we will see the DFI's hopefully play an important role. It's really just

stepping in and expanding guarantee capacity, because now that allows us to go out to the market.

And that gives us a much larger envelope of money to attract into a country like

like area than sort of traditional DFI's bringing finance and because DFI's are limited,

but guarantees that's not cost them, you know, a capital. We use that guarantee,

an investment, and then we go on to the marketplace. And hopefully DFI's played that role

and increasing our role. I think then we see a much, much larger envelope for countries like ours.

Because again, when I talk about sustainability squared, you're talking about saving a planet

or environmental sustainability a mix with particularly developing countries or frontier markets

like ours. How do we ensure that the average living room is going to benefit from this,

whether it's from building resilient infrastructure to not only withstand the cost of climate,

but now adding value within a space, thinking about when we think about a port, how do we build a

green port? When you think about how we build our roles, when we think of serve, you know, our wetlands

and all these negative cost drivers that affect our population, how do we then turn those around

into positives that also helps grow our economy, you know, from a developing nation and moving us

closer to a middle income and higher countries. So I'm hopeful that's where the DFI's player

and role for us. I think to add to what Christian said, we don't want to approach them asking

them for a loan. What we're trying to do with the credit grant guarantee is saying,

stand behind us, help us to put this system in place so that the rest of the world feels safe

lending to us. Help us to use the measurement tools and this goes to your question that you

ask Archie, which is a decade ago, we were counting trees individually, human means going out

counting counting. We have technology now that you can sit behind your desk and deploy that

technology and it will come up with a much more accurate, much more verifiable all over the world,

instantly, you know, a verifiable system that can give the comfort that this green collateral

that we say we have is actually there. And let that be the basis of that, let that be the credit

guarantee, the basis for a credit guarantee. Because we're keeping this is similar to the death

when they just swap with a little bit different. We're keeping this, you can see it, you can track

that your monthly is not being misspent. And it's actually opening us up to green ports. There's

green everything. The green, you know, industrial corridors that we're dreaming of, green railways

where there's even a company that I spoke to recently that is recycling plastics and making

composites railroads. So many ways you can employ the circular economy 10 years ago, that wasn't

always possible. And that's why what makes the CMA's time now, we've learned our lessons

from the Red Plus. We've learned our lessons from the ways that climate finance has evolved

around the world. We've seen the greenwashing and all of the other things that have, you know,

harmed the market. And we can put something in place that is robust, that is verifiable,

that is transparent, and that can drive our own development financing. But, yeah, so

you know, that actually comes back to us. Yeah, sorry, yeah. Yeah, if I can add to that. And so what

the minister's talking about and particularly when we talk about infrastructure, yes, some of these

will be labeled green, but it really is just infrastructure at the end of the day. And so now you're

start to see, you know, non-specialized or restricted financing coming into the space where now you

just have a simple infrastructure manager or infrastructure fund that's looking to acquire this

because now it works. Yes, it has a green component and it's environmentally sound, but now you have

traditional capital coming into the space to support some of these things. And I think that's

really the goal and that's what the carbon market authority is looking to really do not just

be restricted and specialized financing, but also traditional financing coming to the space.

And while we're developing as a frontier market, we are, you know, we're protecting our climate

and using traditional finance mechanisms to help us do that. Yeah, and I think that's a great

narrative from shifting the narrative from asking for help or asking, please give us a

loan to showing ourselves as an investment opportunity. Yeah. Revenue financing versus raising your

debt to GDP, you know, and leveraging your country's balance sheet. Now we leverage in revenues

specifically, and that's much more sustainable type of debt and financing, you know,

than just simply raising your debt to GDP. I think, and then for both of you, I think we've

kind of come full circle so that initial analogy that I made is that if we're thinking about it like

a bank, like we've got actually real, you know, measurable stock and we should almost think about

it like money. Okay, you want to come and get somebody? Okay, we're going to sell you this

and in the normal finance sort of way of looking at it. I'm going to pause for a second.

There's more questions I would like to ask you. So we're going to hear something from our sponsors

and then we'll come back. They'll give us, give us a few, we'll be back in a few minutes.

Maybe I'll ask you the same question, just where we're at right now and what we can kind of expect

to see over the remaining months of the year and into next year as well. Yeah. Okay, so

Christian was just saying that we're still in the design and development phase of

of setting up the registry, setting up the the MRG system. We're looking at a number of different

models and technologies that are available and you know what, I can't stress this enough.

Five years ago when when I first started working and thinking things through about

how Liberia could enter the climate finance space, most of the technologies available today

were not even, well, maybe they were being dreamed of somewhere but we weren't even exposed to them.

There's so much that we can do today that we couldn't do back then and so the possibilities

are there. Structuring this entity because there's not very many carbon market authorities

structured as as as a special purpose vehicles for example for a country. There are not many in

Africa, there are similar ones and carbon market authority may be a little bit of a misnomer.

We could call it something else but for now that's what it is. So we're still designing

um first first thing we need is to measure the asset that is to do the actual

mapping of all the resources for share technologies that are available today that were there

weren't before drone technology satellite technology internet of things artificial intelligence

putting it all together so that we have something that is solid. That's the first step the

second step is designing and really it has to be designed because different when it has to be

bespoke there there are generic quite products on the market. UNDP has one world bank has one

different private entities have these ones but we have to make it bespoke. We have to design

something that will fit our peculiar intelligence. Yeah the unique the soft light area in some

stuff. Yeah what it has. Right right and and and and where we want it to go so because we want to use

it to to bag us a sovereign wealth fund because we want to use it to back green bonds because we

want to use it to fund to finance infrastructure and other sustainable development.

Yeah go see yeah work. We have to make sure that it's measuring the right things at the

right time and showcasing the right things to be able to do all of those things so it's not

just the matter of measuring the trees saying it's this much carbon we want to sell it.

We're also trying to do and we have a very short timeline partly because of our own hunger

to enter this market but but also because we we want to put this thing in place as quickly as

possible and let's start to see the benefits we've waited long enough. We want to set up the first

national environmental market exchange in West Africa. Yeah and yeah there's there's a sub-national

one. Lagos has the Lagos state has just set one up in Nigeria. We want to set one up for the

ECOA's region or even for the well for the Bano River Union for ECOA's region to be the first one

so they can also trade their their their common endowment through our market exchange. So we have

big dreams. That is incredible. I love that. What what what what what we have that's that's not always

there. We have the president's backing and he really he also has this hunger to to think

Liberia love Liberia and build Liberia so that that's what that's what we're aiming for. Yeah

it's exciting times. I remember like say when we first started this I mean

and I can even say excuse my ignorance in some ways that I think historically we just saw it

from one perspective as okay these are polluters just kind of trying to greenwash stuff but now we're

actually learning that this thing is a true product and it we're treating it as such we're packaging

it out. I mean this has gone into so much more detail than I think the previous one in terms of

like some of the different tools and instruments that we have to use but also the the thinking the

long term thinking behind this the fact that the CMA and and and the president especially in terms

of his support for this has really are really trying to take this thing forward in terms of as

as a as a legitimate source and as a pillar of our national economy in Liberia in the same way

that the Ministry of Mines and you know mining has that and the Ministry of Agriculture

are actually looking at this as a legitimate because essentially what you said you you can

you can roam more trees you can essentially increase your stock of of carbon. Yeah that's right

think about it in that in that same way as essentially a way printing capital in due to the

uniqueness of the country there is one I think last bit before we sort of call it a night

is what would you say to the international community in markets about who are looking at Liberia

who want to come in partner with that because I mean we're seeing so many different innovative

things that you're coming up with so what would you say to them about this the state of Liberia's

in a climate fine and say in carbon market. Well I would say that because we're unique and then

many people may say that but in Liberia we are truly unique by packaging our our our forest

endowment our new economy our biodiversity stock by packaging in the right way we want to move

Liberia from being a conservation site a less developed country to being a sovereign provider

not only of carbon at carbon credits but an investment in nature that can then help

the world while it's helping us and we can develop from there we can do this right

we can build the infrastructure green today and it's not just finance infrastructure

you build it green and it's giving back on the carbon side so it we can create the kind of

circularity that you see a project here and there but we can do this at national level we can do

this to scale and we can be a model a replicable model for the rest of of of of of Africa and the

rest of the world actually yeah absolutely and in terms of if we one of the big things that we

often see in the maps is like you know the deserts creeping down it and actually starting to

erode in parts of you know Africa's greenery and everything else so actually designing

sort of sections of our economy in our communities the way we're building if we're starting from

a green perspective and a sustainable perspective it means then that we don't have to rip up

you know old you know your your traditional you know carbon-intensive frameworks and infrastructure

to to basically make it green afterwards afterwards after the effects so like we were actually

holds quite unique advantage in that sense don't they yeah yeah absolutely so when the sustainable

development goals were designed based off of the millennium development goals we often talked

about building back better particularly for country like Liberia that was emerging from conflict

and civil unrest and and and and and really had a shot economy that was now trying to regrow

so we we kept on saying build back better but with this now we have the opportunity to build

better from scratch yeah so you know we we want to industrialize we want to add value to our

commodities we want to to to to to to to sustainably develop and and and we have the opportunity to

build in all of the frameworks and guardrails that we need for a real green or blue economy that is

if we're going to do a transition we can do this transition in impeccable way yeah yeah

so innovators some people who want to see a greener better and more sustainable world

Liberia is open for business come and work with us as you've heard from the Honourable Cooper

there is a very unique set of circumstances that we're facing right now within within Liberia

where they are taking the development of the carbon market and you know the monetization that's

just saying about carbon stock very very seriously in a way that hasn't really been seen before

at the scale that we're looking at as well so we do invite the the investors and the the

international community across infrastructure across energy until Liberia meet with our leaders

because they're definitely open to doing some really innovative things and projects

but I think we'll call it there but for now it's a it's a it's a very it's exciting time but

also very considerate you know very aware that it's your it's your Friday night so thank you again

Honourable Chenine we really appreciate you taking the time out for us and I look forward to

the next installment of this thank you Archie this is this is this is fun stuff this is really

really exciting thank you so much for having me taking for this series I look forward to the next

thank you all right take care

you