A social media post this past weekend that London-headquartered EM-focused investment bank BancTrust has been mandated as the investment banking partner for Suriname’s sale of Paris agreement-compliant sovereign carbon credits signalled that the deal is well and truly in play.
The sale of so-called Internationally Transferred Mitigation Outcomes (ITMOs) by the South American nation is said to be a world first under the much-discussed carbon credit trading scheme that came out of Article 6 of the Paris agreement. The sale has been in gestation for years but was formally announced by Marciano Dasai, Suriname’s minister of spatial planning and environment, via pre-recorded video link to the Climate Investment Summit in London in late June.
Dasai confirmed that Suriname has fulfilled all necessary requirements under Articles 5.2, 6.2 and 13 of the Paris accord and said the government will have over 10 million net carbon removal ITMOs to sell each year. The inaugural sale to the international carbon market will consist of a little over 4.8 million 2021 ITMOs (2021 because the basis of the Article 6 credit trading scheme was only agreed at COP26 in Glasgow in that year).
No formal price target appears to have emerged but there has been a lot of chatter around the US$30 level (one ITMO equates to one tonne of carbon), inferring sales proceeds of roughly US$145 million if all the credits are sold. The revenue generated by the sale will be split equally between Savings and Stabilization Fund Suriname (the country’s sovereign wealth fund), the general budget (with a focus on health and education), paying down debt, and building sustainable livelihoods for the country’s forest-dependent communities.
Dasai stressed that Suriname, the world’s most forested country with 93% forest cover, is a net carbon absorber. It emits 4 million tonnes of its own carbon annually but it absorbs – for free – 20 million tonnes of other countries’ carbon each per year. Hence the country’s national carbon balance is heavily sub-zero.
The sovereign carbon credits are verified, validated and registered in the REDD+ database. REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) is a voluntary framework established under the Paris agreement and is administered by the United Nations Framework Convention on Climate Change (UNFCCC). The “+” refers to additional forest-related activities that protect the climate, including sustainable forest management, and the conservation and/or enhancement of forest stocks.
In preparation for the transaction, BancTrust signed a distribution and settlement partnership in December 2023 with ITMO Ltd, an affiliate of the Coalition for Rainforest Nations (CfRN), an agency set up to source and sell Paris-compliant sovereign carbon credits. CfRN, a non-profit with a mission to help developing countries save rainforests and reduce carbon emissions under the Paris accord, also built REDD.plus, a platform enabling countries to sell their so-called REDD+ Results Units (RRUs), each of which represents a tonne of CO2 equivalent or greenhouse gas emissions reductions.
Climate-neutral oil production
The timing is particularly interesting because Suriname is seeking to develop its oil industry. Referencing the raging North-South debate about internal sources of development financing, Dasai forcefully stressed that Suriname has contributed next to nothing to climate degradation and has an absolute right to produce and sell oil to generate revenue for economic development, even in the midst of climate change and the eventual phasing out of fossil fuels.
But at the same time, the government is conscious of its responsibilities so is striving to become a carbon-neutral oil and gas exporter. Under the Paris agreement, each tonne of new emissions from energy must be included in countries’ national carbon budgets so each tonne of emissions will by definition cancel one tonne of Suriname’s net removal ITMOs. In order to keep Suriname’s Nationally Determined Contributions under the Paris Agreement in balance, the government will require energy producers to buy its ITMOs to retire all Scope 1 and Scope 2 emissions emanating from the extraction and processing of oil.
The impact of oil exports on the country’s economy will be significant. According to a preliminary hypothetical International Monetary Fund (IMF) scenario, if a final investment decision for oil extraction is made by end-2024, oil production is assumed to begin by end-2028, peaking at 79 million barrels in 2030 and 2031 before declining gradually. With the total project investment of US$9 billion and pre-investment flows starting at end-2024, growth would begin to pick up as early as 2025, the IMF says, reaching a peak of about 22.4% in 2028 and stabilizing at 5% over the long term.
“The scenario presents a major upside risk to government fiscal and external position, assuming continued fiscal prudency by the government,” the IMF report notes, adding that the value of oil exports will peak in 2029 with an increase of about 28% of GDP relative to the baseline. Oil revenue is expected to rise to a high of about 25% of GDP in 2029. Gross international reserves, including inflows into the sovereign wealth fund, are expected to increase to 148% of GDP by 2035 while public debt – 91.8% of GDP at end-2023 – would decline rapidly to 21% of GDP by 2030.
The Paris-aligned sovereign carbon credit trading market is expected to flourish following Suriname’s transaction. Other countries – Belize, Honduras and Papua New Guinea have been mentioned in dispatches – are expected to follow.
