Landbank enters carbon credit market

The Land Bank of the Philippines (LBP) has entered into an agreement with Marcela Farms Inc. for the purchase and selling of emission reduction from piggery waste to energy project.

A first for the LBP, the project represents one of the first steps by a Philippine development financing institution to steer the country towards participation in the global initiative to reduce climate-changing carbon emissions through the use of financial and market-based instruments that support environment-friendly business establishments.

Marcela Farms, established in April 1996, is the pork production operations of the Alturas group of companies headquartered in Tagbilaran, Bohol.

The group owns several supermarkets in Bohol as well as in Cebu City.

It is also into prawn and fish farming for export, layer operations, feed milling and post harvest facilities for grain handling and is into wholesale and retail trading.

Marcela Farms, which has 31,000 pigs in its pens, will be able to capture and convert methane, a greenhouse gas (GHG) emitted by hog waste, into energy for farm use. From this conversion, it is estimated that Marcela Farms will be able to generate certified emission reduction (CERs) equivalent to 14,025 TCO2 annually. The CERs represent “carbon credits” that under the agreement, LBP will purchase and sell on the carbon markets to realize additional financial returns for Marcela Farms.

The LBP-Marcela Farms deal qualifies as carbon finance, a general term applied to investments in GHG emission reduction projects and the creation (origination) of financial instruments that can be traded on the carbon markets.

LBP is a member of the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP), a United Nations-accredited international organization of development banks. It is at the frontline of implementing ADFIAP’s advocacy to institutionalize “green banking” practices in the country. The Development Bank of the Philippines is also an ADFIAP member.

As part of this commitment, LBP established a carbon finance support facility (CFSF) for the purpose of providing financial assistance to CDM (clean development mechanism)-eligible projects and assisting clients in every step of the CDM project cycle, e.g., project design document preparation, DENR-designated National Authority Approval, validation/verification, monitoring, etc.). 

Priority projects under the CFSF include animal waste-methane recovery to energy, co-generation, renewable energy technologies, and energy efficiency, according to LBP president and chief executive officer Gilda Pico.

Credit facilities available to support CDM projects, include the:

• CBRED project preparation fund (PPF) program, a loan financing mechanism intended to assist renewable energy (RE) project developers in paying for the high cost of project preparation activities such as feasibility study, engineering design, securing permits and licenses;

• Renewable energy for wiser and accelerated resources development (REWARD), a program designed to provide support to the government’s call to promote the development of alternative fuel/energy sources of renewable energy and financial assistance to entities that will engaged in RE projects. 

• Support for strategic local development and investment project (S2LDIP), a $100-million fund available for local government units (LGUs) and public utilities and private operators providing local infrastructure services.  The program’s main objective is to improve the living conditions, public health standards and urban environment through the provision of upgraded and improved infrastructure and services. 

Under the agreement, Marcela Farms will be getting CFSF funding and CDM support services for its piggery waste to energy project. The LBP also drafted a CDM project design document for Marcela Farms.

“The document will be used for similar type of project, thereby reducing the CDM transaction costs for all upcoming piggery projects that will enlist under the program,” Pico added.

The LBP, a government financial institution, has also entered into environmental partnerships and agreements as part of its efforts to institutionalize green banking in its operations. These partnerships and agreements are with the following:

• World Bank, through its Carbon Finance Assist Program;

• Japan Bank for International Cooperation/Japan Carbon Fund, on the scoping of potential CDM projects for financing and capacity building assistance;

• Asian Development Bank, to discuss potential emission reduction projects, technologies and other associated initiatives which has the objective of generating carbon emission reductions; and

• B2BPricenow.com, Inc., on the implementation of projects with reduction of GHGs for selling to the voluntary market.

Asked what drives LBP’s participation in the carbon financing initiative, Pico said that it is part of the bank’s commitment, as stated in its Corporate Environmental Policy of January 2003, to support environmental protection and sustainable development and ensure effective environmental management practices in its banking operations, services and decisions.

“As a government financial institution, we support the government’s contribution to the international effort to combat global warming since the Philippines signed and ratified to the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC),” Pico said. “We also want to assist our clients in keeping abreast with the fast emerging market for carbon credits whether in the compliance or voluntary markets.”

Pico said the LBP also practices environmental due diligence in its banking and financial operations.

It is the first financial institution to establish its own Environmental Unit (EU).

This, she pointed out, started as an evaluating body for environmental performance and compliance of countryside loan fund (CLF) projects, which are funded by World Bank.

Part of the funding requirements of the World Bank is to ensure that projects eligible for financing are environmentally compliant. Hence, the environmental unit was directed to carry out such function and to handle the implementation of the Montreal Protocol-Ozone Depleting Substances Phase-Out project.

The unit has since been upgraded into the Environmental Program and Management Department (EPMD), which oversees LBP’s Environmental Due Diligence (EDD) system covering the assessment of projects that have significant impacts on the environment.

According to EPMD manager Prudencio Callado, project assessment under the EDD system follows the project categorization spelled out in the procedural manual of the Department of Environment and Natural Resources (DENR) for the Philippine Environmental Impact Statement (EIS) system.

Environmentally Critical Projects (ECPs) and projects located in Environmentally Critical Area (ECA) are required to undergo environmental assessment of EPMD, Callado said.

Initially, a loan proponent is required to furnish the LBP with a copy of its Environmental Compliance Certificate (ECC). This is mandatory prior to the release of loan. Likewise, environmental permits are required although the timeframe of submission could be stretched until after the release of loan.

“The clients generally cooperate and comply. Over time, they have begun to appreciate the benefits of balancing business operations and eco-efficiency with environmental protection, and of complying with environmental laws,” Callado said.

To further encourage clients to comply with its environmental requirements, the Government financial institution incorporated environmental aspects in its various awards like Gawad PITAK, Gawad SME, and CLF Awarding. Currently, the CLF Awards recognizes sub-projects with commendable environmental performance by giving a special citation on good environment practices.

By 2009, a special award will also be given to SMEs and cooperatives that will demonstrate exemplary performance in protecting the environment through in-house initiatives and impact-mitigating measures.     – Ed Santoalla