The Intergovernmental Panel on Climate Change (IPCC) tells us that we must end deforestation if we’re to achieve the goals of the Paris Climate Agreement and avoid catastrophic climate change, but it’s getting worse. From 2014 to 2017, average annual emissions from gross tree cover loss increased in more than 70 tropical countries compared with a 2001-13 baseline. In June of this year, deforestation rates in the Brazilian Amazon increased by 88 percent compared to the same month in 2018.
To end deforestation, we must address its root causes: direct drivers such as agriculture, urbanization, mining and infrastructure development; and indirect drivers such as weak or absent law enforcement, countervailing subsidies, confusing or non-existent land titles, poverty, and disregard for the rights of indigenous peoples.
To do this, we need a massive financial and technological effort that builds capacity at a grand scale: a “Marshall Plan” for forests comprised of national budget allocations, development support, climate finance, private investment, and public-private finance.
In this blog series, “Shades of REDD+”, we’re exploring the history and future of developing-country efforts to “Reduce Emissions from Deforestation and Forest Degradation in developing countries, plus conservation, sustainable management of forests, and enhancement of forest carbon stocks,” as well as how partner countries and private corporations can support these efforts.
What does REDD+ cost?
Deforestation is complex, and reducing it is neither cheap nor easy. A survey of existing research estimated the costs of achieving REDD+ and transforming agriculture and land use by 2030 at about $163 billion.
These costs can be roughly divided into two categories: First, investments needed to allow for sustainable rural development, agriculture, infrastructure and mining. Second, investments needed to help governments create and enforce new policies, including the creation of a strong judiciary, land titling and land maps.
The costs will differ in each country, as will the burden on governments and the private sector. The stronger a government is, the easier it is to enforce zoning regulations and adopt environmental safeguards. In these cases, private investors and land owners will shoulder a good deal of the costs in the form of forgone opportunities, with governments sometimes compensating for a portion of that loss or steering investments into other areas. Governments will also be called on to support vulnerable groups that often deforest because of a lack of economic alternatives.
Unfortunately, however, most of the countries in which deforestation is taking place are poor, and their governments are weak and have limited control over forest areas. In these countries, significant investments in the government itself and its ability to operate will be a condition for halting deforestation. These investments while essential will not produce little returns in the short-term and require patient and committed partners.
Shifting mainstream funds is essential
Between 2010 and 2017, close to $2.7 billion of capital was committed to deforestation-free commodity production in Latin America, Asia, and Africa. While not a small amount, this is nothing compared to the $1 trillion production value of beef, soy, palm oil, and wood and paper products over the same time in these regions. These four commodities are responsible for more than half of the world’s deforestation and they’re often backed by production-, export- and food-system subsidies that come without measures in place to avoid deforestation and harm to ecosystems.
To achieve REDD+, it is essential to raise new funds, but these numbers leave no doubt that it is even more important to ensure that existing funds become respectful of forests. A real transition towards sustainability requires a shift to deforestation-free and climate-smart land investments. New finance can help to catalyze this shift and ensure that it is sustained over long time.
And who finances REDD+?
In the end, forest protection will have to be secured through land-use planning, with pressures being removed through alternative rural income opportunities and improved agriculture. Safeguards that ensure forest protection must also be incorporated into finance and policies around trade.
Achieving REDD+ is all about financing the transition towards stable, productive, and sustainable rural landscapes. Financing the transition is what REDD+ is all about, and it generally breaks into four components:
- Finance from governments in tropical countries – coming from national budgets raised via taxes or concessions
- Support from wealthier governments in the spirit of a partnership to save forests – coming from national budgets raised via taxes or climate-specific mechanisms (e.g. the proceeds from auctioning of emission rights)
- Private investments into sustainable practices – mostly a diversion of finance from investments that are careless about forests to investments that are careful about forests
- Private investments driven by the incentive to generate ‘emission reductions’ that can be sold to meet voluntary or mandatory climate targets (e.g. company pledges or offsets under emission trading systems)
All four components have to contribute their share to stopping deforestation; and the different sources of finance have to be used in a complementary and synergistic manner to ensure efficiency in capital deployment and leverage of private investments.
Paying for results
Wealthier nations can contribute their part to REDD+ through finance and technical assistance. In 2015, Germany, Norway and the United Kingdom took a first step and committed $5 billion by 2020 to combat tropical deforestation. Financial support can take the form of loans, grants, or equity investments. While these traditional forms of finance are essential, REDD+ is mostly associated with a novel form of support: “payment-for-results”, with results coming in the form of verified greenhouse gas emission reductions.
The World Bank is piloting results-based payments through its Forest Carbon Partnership Facility, and the governments of Norway and Germany are doing something similar with various partner countries. However, so far results-based REDD+ programs have been slow. There is also often a mismatch between donor requirements and recipient needs, and a multitude of institutional, legal, political and economic barriers that slow the disbursement of REDD+ funds. Another problem is that tropical forest countries often lack the up-front funding to invest in programs that would achieve emission reductions – which would later qualify for results-based payment. After all, results-based payments require the ability to not only account for emission reductions but to achieve them before money can flow. Until now, very few countries qualify for results-based payments and most countries need investments before they can show measurable results.
What could the Marshall Plan for forests look like?
Today’s forest finance landscape consists of a fragmented set of financing mechanism and initiatives that are implemented in siloes and largely without coordination. On one end, governments are engaging in REDD+ programs, but at the other end they’re taking out development loans to increase agricultural productivity with very little forest safeguards.
Similarly, while an increasing number of corporations are trying to clean up their supply chains, their efforts aren’t reaching producers at scale, while mainstream finance still dwarfs green finance. Private efforts also remain disconnected from public programs that, for example, seek to sort out messy land titles common in developing countries. Program confusion is matched by agency confusion: in tropical forest countries as well as in donor countries, ministries aren’t coordinating or consolidating their goals and programs.
REDD+ requires the creation of a true partnership between public and private sectors, as well as between tropical forest and donor countries, where all partners take risks and benefit from the achievements.
The Role of the Private Sector
Private companies have to be serious about transitioning to deforestation-free commodity production and climate-smart mining. They must invest in procurement standards, traceability and smallholder support. Close coordination with governments, for example in jurisdictional programs, would strengthen these efforts. Similarly, the financial sector has to de-risk investment portfolios.
Fortunately, efforts are underway to promote this. The ‘Soft Commodities’ Compact’, for example, is a company-led initiative designed to steer banks away from investments that drive deforestation, and private companies also drive the voluntary carbon market. Companies can also support results-based REDD+ activities, i.e. to pay for emission reductions. Corporations tend to prefer to invest at the project level into activities can could help governments to achieve REDD+ and climate goals. Just this month, the oil giants Shell and Total announced they would invest in ‘natural climate solutions’ to reduce their carbon footprints. Furthermore, airlines may soon be looking for forest carbon credits when they are start to be regulated under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) of the UN International Civil Aviation Organization (ICAO) in 2021.
In the end, REDD+ needs all sources of finance and all actors need to be mobilized to support the gargantuan effort to change a business model based on destruction to one that recognizes the need for conservation. An effective implementation of REDD+ depends on coordination among government agencies, different donors and donor programs, and investment into a clear understanding of the actions that drive deforestation in each country and each region. Based on this analysis, investment plans can be established by tropical forest countries, donors, NGOs, communities and private investors that allow each party to contribute what they do best to protecting forests, and do so now!