Floresta Project Shows Private-Sector Investment can Provide a Healthy Return at a Local Level

A private company is working with governments in Brazil and Indonesia to establish timber plantations on degraded land in an effort to supply biomass for producing electricity. Two Floresta projects in Acre, Brazil, and Aceh, Indonesia, intend to reduce logging of virgin forest while providing a renewable, local source of power. It is hoped that the timber plantations will provide jobs and combat poverty. Floresta seeks to demonstrate that private-sector investment can improve local livelihoods, conserve the environment, and provide a healthy return, all at the same time.

Fast facts:

220,000 hectares of timber plantations planned
290 megawatts of electricity to be generated
50,000 green jobs expected to be created

The problem

Economic activity has long revolved around logging in Acre of the Amazon region in Brazil’s far northeast, and in Aceh on the northern end of the island of Sumatra in Indonesia. But in both regions, there’s a growing need for sustainable timber – in Aceh after a ban on logging since 2005, and in Acre as wood consumers are increasingly demanding sustainable products. Additionally, both regions lack a reliable and affordable energy source, while local governments are encouraging a transition away from fossil fuels.

The solution

Floresta is relying on long-term concessions and harvest-sharing agreements to establish its tree plantations in Acre and Aceh. As it develops its commercial timber and biomass plantations, Floresta is also negotiating with major energy producers in Brazil and Indonesia to supply stocks of biomass for the generation of electricity.

Although it’s received some funding from development banks, Floresta is mostly privately financed. It’s expecting to be able to turn a profit, from management fees and advance carbon sales, as early as two years after starting. Investors can hope for returns in the mid-to-high teens.

Helping the planet

Floresta’s subnational-scale forest carbon projects are intended to reduce deforestation of primary and secondary forest – 5.5 million hectares in Acre and 2.2 million hectares in Aceh. Forces in Acre have been working on building a green economy since Chico Mendes and his rubber-tapping union in the 1980s. The forests of Aceh are home to among the last breeding populations of a number of iconic species, including the Sumatran tiger, rhinoceros, and elephant.

Floresta’s tree plantations, planned for already degraded land, will reduce logging of virgin forest and help conserve the regions’ ecology and biodiversity. The biomass plants amount to a carbon-neutral energy source that provide a renewable, local alternative to fossil fuels. Floresta also intends to participate in forest restoration.

Helping people

Floresta’s activities represent a labor-intensive branch of green industry, and are expected to create 50,000 jobs over time. These jobs created are suitable for the most vulnerable segments of society: women, poor rural communities, landless laborers, and ex-combatants (particularly in Aceh, which has a history of conflict).

Low-income households will be trained in sustainable farming, while collectively owned plantations and regularization of land tenure for small farmers within forest concessions will also help build financial security for local communities.

Spillover effect

Since Floresta’s model relies not on land acquisition but rather leasing, it’s relatively light on capital, and thus more easily replicable. This also makes it scalable. Floresta is already in discussions with commercial partners to extend its business model to other areas. Floresta’s business model, which seeks to resolve conflicts between economic development and conservation, is based on real-world economics, which could increase its broader appeal to the private sector.