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Pay-for-success pilot in Latin America makes the business case for forest conservation

ImpactAlpha, October 3 – Conservation International and The Nature Conservancy have secured $1 million in development finance to introduce a series of pilot programs to improve forest conservation in Latin America.

Forest loss has been decreasing globally, but commercial activities like logging and agriculture still contribute to net losses each year. In Latin America, 67% of carbon emissions stem from land use and deforestation.

Conservation International and The Nature Conservancy are designing a pay-for-success program designed to encourage hydroelectric plant owners to invest in forest conservation.

The idea behind the so-called Cloud Forest Blue Energy Mechanism is to prove to hydro-plant operators that protecting nearby “cloud forests”—high-altitude tropical rainforests that are immersed in low-lying clouds—will improve their business operations by reducing sedimentation in their water sources, increasing water flow, and improving water regulation.

The goal is to see initial investors repaid by these power plant operators, and for operators to invest in conservation in the future.

The $1 million was provided by Dutch development bank FMO, the Nordic Development Fund, the Global Environment Facility, and Conservation International. It will fund a two-year pilot with several hydro-plant owners. (Pilot sites have not yet been determined.)

If successful, it will be scaled to a five-year, $30 million program. In all, it hopes to reforest 60 million hectares of cloud forest in Latin America and sequester 2.4 gigatons of CO2.

While there are dozens of cases of pay-for-success models tackling social issues around the world, few have taken on environmental issues. Quantified Ventures has been working with the cities of Baltimore and Atlanta to develop environmental impact bonds to tackle stormwater management.

What is unique about the Cloud Forest Blue Energy Mechanism is that it aims to prove the commercial opportunity of environmental conservation, rather than making a case that conservation is the responsibility of government or philanthropy.

The idea for the Cloud Forest Blue Energy Mechanism was developed at the Global Innovation Lab for Climate Finance—a sustainable finance incubator backed by Bloomberg Philanthropies, the Packard Foundation, U.S., German and Dutch government agencies, and others.

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