By turning old cattle pastures into forests, a pioneering World Bank project in Nicaragua is not only removing tons of carbon from the atmosphere to mitigate global warming, but is growing a sustainable natural resource for this impoverished Central American country while helping to save its endangered native tree species and existing forests. The Nicaragua Prescious Woods Project, which began in August, 2006, plans to turn 600 hectares of privately-owned former cattle ranches in southern Nicaragua into new-growth teak forests.  The project intends to absorb nearly 300,000 tons of CO2 emissions by the year 2017 and generate carbon credits for sale on international markets while conserving approximately 350 hectares of secondary forest and mature trees.When the new teak trees mature a generation from now, they will create a sustainable and commercially viable source of wood for sale in domestic and international markets, reducing logging in natural forests. This project will therefore increase carbon sequestration while providing a sustainable source of income for a vulnerable community.  Other ancillary environmental benefits from reforestation include the prevention of erosion, groundwater protection, soil regeneration, and improving the microclimate and water balance..

"'This project is helping to make communities the beneficiaries of the carbon finance market," said Armando E. Guzman, a World Bank environmental specialist supervising the project.  "It is an important pilot program for the Bank, for Nicaragua and for the region to see if bio carbon financing can work" he added. The project is located on two former cattle ranches, known as fincas, near the village of Sapoa in southwestern Nicaragua between Lake Nicaragua and the Pacific Ocean.  One of the fincas, La Pimienta is directly on the Costa Rican border while the other, Javalina, is approximately 3 km to the north.  The project may be expanded over the next decade to reforest up to 4,000 hectares if the initial rollout proves profitable.  The project is being facilitated by the World Bank's Carbon Fund, with the US$8.37 million cost provided by corporate and government investors from outside the Bank.  The project could ultimately become self-sustaining.  Felled trees will be immediately replanted, continuing the project's environmental benefits for a long time.

The project is being implemented by Precious Woods, a forestry company launched in 1990 to provide sustainable forestry throughout Latin America and reduce deforestation.  In 1997 it became the first company to receive Forest Stewardship Council certification for environmentally friendly and socially responsible forest management.  It has significant experience with the Clean Development Mechanism and carbon trading, operating a 9 megawatt biomass power plant in Brazil soon to receive official CDM registration.  The World purchased verified emissions reductions through Precious Woods? Costa Rica operation to achieve 'carbon neutral' status for its Washington operations in 2006.  Across Latin America the company manages more than 400,000 hectares of tropical rainforest, more than 1,000 hectares of native tree species and 4,000 hectares of teak.

Teak, though not indigenous to the region, is perfectly adapted to Nicaragua's harsh environment, alternately plagued by hurricanes, floods, drought and forest fire.  Teak is highly resistant to fire-- after two to three years saplings can not be damaged by fire, and while the dry season in Nicaragua disrupts growth for other tree species, teak flourishes in tropical regions with much longer dry spells.  Further, teak is not susceptible to any devastating pests either in Central America or its native south and southeast Asia. Nicaragua is the region's second-poorest country after Haiti, and is the largest and least-populated country in Central America.  Gross National Income was estimated at $980 per capita in 2006, compared to $4,767 for the LAC region and $2,037 for lower middle-income countries, and the country has suffered from decades of civil war, social strife and authoritarian government.  Rural extreme poverty rates are high, with one in three rural residents classified as ?extremely poor,? or living on less than $1 per day.  However, rural extreme poverty recently has been decreasing faster than urban poverty largely due to strong growth in the agriculture sector.

Agriculture is key to the Nicaraguan economy, comprising 20 percent of GDP and 40 percent of total employment, and has relied on exporting cash crops such as bananas, coffee, tobacco, beef and rum.  As a result, Nicaragua has been extremely vulnerable to natural disasters, and the volcanic eruptions, earthquakes, tsunami and draughts of the past decade combined with poor natural resource management, population pressures and trade shocks has made economic growth and stability difficult to maintain. The precious woods program could be a significant departure for the country.  Nicaragua ratified the Kyoto Protocol in 1999 and established a Clean Development National Office under the Environment and Natural Resources Ministry, allowing the development of greenhouse gas emission reduction projects, which can receive Certified Emission Reductions that can be traded in the international market.  Nicaragua considers sustainable forestry as a priority for economic development but has little experience with tropical wood forestry or the CDM. 

The Precious Woods Project will provide Nicaragua with the necessary knowledge and technical capacity in this area and will be one of the first CO2 emission reduction projects in the Land Use, Land Use Change and Forestry sector of the Clean Development Mechanism.  The World Bank's Carbon Fund has agreed to 'buy' 297,045 tons of CO2 equivalent emission reductions, or 26 percent of the total, by 2017 at $4 per ton.