June 2007  
Shaun Paul: The Angel Investor
by Cameron Walker

For the last fifteen years, Shaun Paul has been connecting local communities to global sources of technology and funding.

Some kids might grow up behind the scenes at the theater; others, in the locker rooms of a pro sports team. Shaun Paul, the founding executive director of Massachusetts-based EcoLogic Development Fund, was steeped in a family culture of social responsibility. With parents active in causes ranging from peace to gender equity, he says, "I was raised with a conscience to think about the world."

Now Paul has transformed his early experiences into a unique fund that advances projects combining social justice, development and conservation in Latin America. EcoLogic has been highly successful in initiating and targeting innovative work. In 2006, Bosques Pico Bonito SrL (known in English as Pico Bonito Forests), a socially minded forestry business in Honduras, became one of the few projects in the world to win approval under the Kyoto Protocol for its method of generating carbon credits through tree planting. The newly formed company will use sustainable forestry practices to sell timber, carbon credits and agroforestry products, protecting local livelihoods and ecosystems in the process.

As part of the project, 6,200 acres of deforested land on the outskirts of Pico Bonito National Park will be reforested with an estimated 1.2 million trees, generating $400 million in timber and carbon credits in the process.

In this and other projects in Latin America, EcoLogic wants to enable communities to protect the local environment as a long-term asset that helps them achieve higher standards of living. According to Robert Lapides, a private investment manager, Paul's contribution has been essential. "As founder of the EcoLogic Development Fund, he's had a tremendous track record and experience and success doing this," says Lapides, who advised EcoLogic in its development of Pico Bonito Forests' business plans. One of EcoLogic's great strengths, he says, is its ability to partner with local NGOs that have local knowledge and strong community ties but, in most cases, don't have the technical and business expertise or the funding to reach their goals. "That's what Shaun adds to the picture, so that you can really get successful projects off the ground which are sustainable and have a lasting value."

A New Model

Paul's interest in Latin America, in particular, started in elementary school when he participated in an exchange program with a family in Mexico City. Over the years, he continued his travels in the region and studied in Nicaragua, Argentina and Brazil. His experiences in these countries opened his eyes to economic disparities between the U.S. and its neighbors to the south. "It had a big impact on me, to know that there were people in the world with such needs," he says.

To try to address these needs, Paul moved into the policy world, working on Capitol Hill in Washington and at the United Nations in New York. But as time passed, he found policy work to be far removed from the day-to-day realities of the world's poor.

In the early 1990s, people had only just started to look at the connection between poverty and biodiversity. When Paul investigated, he found that the programs that did exist didn't always match their intentions up with what was happening in the field. EcoLogic, which launched out of the 1992 Rio Earth Summit, was his response to the mismatch he saw between global policies and local realities.

"We live in a world of growing inequity. The poor are growing poorer," Paul says. "And, in parallel, we are finding the areas of great natural heritage on the planet are continuing to be eroded. If we're going to protect some of these places important for their natural resources and biodiversity, we need to find solutions that respond to the needs of local people."

The company's first project, starting in 1993, was in Guatemala's Punta Manabique, a wetland- and rainforest-filled area on the country's Caribbean side. A local NGO, the Mario Dary Foundation, had already been working with local communities in an area with no roads, no health care, no functioning schools—and little income to address these issues.

EcoLogic and the Mario Dary Foundation consulted locals and learned that what they most wanted were improvements in health care and schools. The team of organizations helped bring in building materials to construct new schools and worked with village communities to address educational issues; they also initiated a home garden program to improve health and nutrition, launched vaccination campaigns, and trained local people to provide health education. To help with both conservation and poverty, they encouraged sustainable fishing practices and eco-tourism.

EcoLogic has now spent nearly 15 years working with communities throughout Latin America. Providing community support for a range of projects has required the organization to become an expert in raising funds, leveraging assets and providing on-the-ground technical assistance. "No matter how much money you have to do this work, it's never enough," Paul says.

Pico Bonito Forests

Near Honduras' Pico Bonito National Park, EcoLogic has focused this expertise to harness emerging carbon markets. Here, the organization has created a socially minded for-profit company that sells carbon credits, agroforestry products and, ultimately, sustainably harvested timber. The 100,000-acre buffer zone surrounding the national park hosts 216 communities. It's a mountain- and forest-filled area that's also been faced with high poverty levels; cutting trees for income, as well as slash-and-burn farming, has been common.

In 1998, EcoLogic joined forces with local nonprofit Fundación Parque Nacional Pico Bonito to work in a single buffer-zone village. As they worked together, helping communities manage and protect a watershed that originated in the national park, they expanded to four villages, then to 25, then to 100. While these communities had a range of successes—from access to safe drinking water to sustainable agriculture opportunities—new strategies and funding were needed to include all of the buffer zone's communities.

Paul and his colleagues were looking at how they might use climate change issues as an opportunity to expand their support for these communities. They saw the hopes—and false starts—for how carbon trading could help community-based programs like these. "We knew that the solution for this park and its people involved protecting trees and planting trees," he says. "Knowing that, we began to think, well, how do we get enough support?"

They spent six years tossing this idea around, figuring out a business model and trying to gauge how far carbon trading could take a local project. Paul says he realized that, with current carbon prices, carbon credits alone wouldn't address poverty or provide enough income to plant and protect trees. "It became clear that we needed to create a business," he says. EcoLogic and Fundación Parque Nacional Pico Bonito came up with a new vision: a forestry plantation that would plant native tropical hardwoods in degraded areas of the park buffer zone. After an extensive search, Paul and his colleagues found two areas with tree-friendly soil, evidence of deforestation since 1990 (a Kyoto requirement), and, most importantly, with people who wanted to take on this novel venture.

Tapping Carbon Finance

The team's careful planning led to their selection as one of the few forestry-based projects under the Kyoto Protocol's Clean Development Mechanism. Through the CDM, greenhouse gas producers in the developed world can offset their emissions through emissions reductions projects initiated in the developing world.

In Bosque Pico Bonito's case, the World Bank's BioCarbon Fund has already agreed to purchase up to $4 million in carbon credits. This particular project stood out, Paul says, because it "was unusual in that it is dealing with reforestation in a tropical area. And the other unusual feature, compared to our colleagues, is the value we place on people."

One of the important aspects of EcoLogic's work here and elsewhere is the extended time commitment, which Paul says is essential to developing sophisticated solutions to the complex problems of poverty and the environment. "Anybody that's going to go in and think in a year they're going to do anything meaningful is fooling themselves," he says. "Really meaningful change is only going to happen over a period of time."

This long-term investment shows. Now local people recognize economically valuable tree species early on and protect them while they grow, instead of cutting them, says Rafael Sambula, general manager of Pico Bonito Forests in Honduras. On a larger scale, he says, the project lets people who once would have left the area in search of work to stay and provide for their basic needs.

This project benefited from the experiences of the handful of carbon forestry projects that had already received CDM approval, and the many more that had not succeeded. Project developers worked extensively on demonstrating the project's additionality and how it will deal with leakage. "Carbon trading, in this project, makes no sense financially," Paul says, because carbon credits provide such a small percentage of overall projected revenue. The company is relying on $5.5 million in private equity and debt as its primary capital source.

"Ultimately, Kyoto 'II' is going to have to find a way to make the transaction costs of carbon trading much lower, especially for project developers. The barriers to entry are significant," Paul says. He believes the price of carbon credits must rise significantly if carbon trading is to have a meaningful global impact on initiatives such as Pico Bonito Forests.

One significant barrier stopping other projects is monitoring and its associated costs. To get CDM approval, Paul says, the company must know exactly what's happening in its newly planted forests. "If we plant a tree, how do we know it's going to be there for as long as we say it will?" Pico Bonito Forests must also demonstrate how they will address leakage—the possibility that people, displaced by reforestation projects, might move and cut down forests elsewhere to survive.

As a result, the Honduran project will spend five years monitoring 20 percent of those enrolled—about 60 households--to learn about land use. Paul hopes that people will stay in the project, whether working to plant and protect trees or to expand agroforestry. "[I]f we lose track of those people, and they leave, we have to assume the worst. We have to assume that they went into a mature rainforest and cut it all down and put cattle on it."

The Voluntary Market

In the process of getting CDM approval, EcoLogic has innovated in its approaches to clearing these hurdles. "I can't say we're successful yet," Paul says, "but we've really figured out some key issues."
It's unlikely that EcoLogic will initiate another CDM project, he says. "The window to go for new forestry-based CDM projects is rapidly closing." With the uncertainty surrounding Kyoto's after 2012, he's set his sights on other goals—in particular, providing credits for the voluntary carbon market. In developing Pico Bonito Forests, EcoLogic found carbon buyers were also interested in buying avoided deforestation credits, which are not currently recognized under Kyoto. They started working with the World Bank and a Canadian forestry company to develop a credible way to protect existing forests, using Kyoto-type practices while trying to make it simpler for projects around the world to generate credits for avoided deforestation through a transparent, credible system.

Paul is also excited about payments for ecosystem services that strengthen conservation. EcoLogic is looking at projects to sell carbon and water credits into voluntary markets and is talking with US companies interested in engaging in the organization's work. "As the American business community is starting to own their responsibility to act in response to climate change, a small piece of their response--not the primary response, not the focus—but a small piece of their response, I think, needs to include offsets, and part of that offset can include forestry." Paul says. "There is a huge demand to do the right thing."

copyright 2007, Cameron Walker. All rights reserved.