Could a new forestry alliance change nature finance for the better?

Finance


Could a new forestry alliance change nature finance for the better?

By Ezekiel Maven
|June 20, 2023

Conserving tropical forests doesn’t come cheap. Deforestation continues in most rainforest countries, even though studies show that for every dollar spent protecting or restoring rainforests, there is an economic benefit of up to $7.

In Brazil, the Democratic Republic of the Congo (DRC) and Indonesia, which together account for more than 50% of the world’s rainforests, financial incentives continue to drive deforestation associated with agriculture and extractive industries. Managing this problem requires strong enforcement of existing laws, but it is also paramount to plan new economic initiatives to promote forest protection and restoration.

felled trees in the forest

Felled trees in the forest. Photo: Andre Moura (via Pexels)

A new alliance of these three countries has been touted as the “OPEC for forests” because of its potential power in setting prices and limiting the supply of credits from forest conservation and restoration systems. ing. If successful, this kind of agreement and coordinating body could be game-changing for the Democratic Republic of the Congo, Brazil and Indonesia. However, there is no specifics on how this system will work, and no rules have yet been written for what will come out of this partnership. That the system is equitable and effective in mitigating deforestation is crucial not only for these three countries, but for the whole world.

Building on previous deforestation mitigation efforts

Over the past few years there have been widespread efforts to pay landlords and countries to reduce and avoid deforestation. Funding sources for these programs range from government programs to NGO-led conservation campaigns and, more recently, carbon credit systems that allow polluters to ‘offset’ their emissions by paying for conservation and carbon sequestration elsewhere. Various. Many of these credits are traded through government-run compulsory programs, while others are issued on independent markets and have been plagued by scandals and verification challenges in recent years.

One of the main sources of funding for reducing deforestation in tropical countries is the program to reduce emissions from deforestation and degradation, also known as REDD+. Emerging in the mid-2000s as a way for wealthy countries and companies to finance forest conservation and reduce deforestation, the REDD+ system has become increasingly formalized through international treaties such as the Paris Agreement, with a focus on individual projects. We are moving from base financing to broader country-wide agreements. , known as jurisdictional REDD+. REDD+ systems are considered important in preventing climate change and natural loss, but in the past, they have actually been used to ensure long-term forest integrity and improve the rights of communities in and around forests. I was facing the problem of protecting the .

As voluntary carbon markets struggle and international bodies seek to continue formalizing REDD+ structures, a new alliance of Indonesia, the Democratic Republic of the Congo and Brazil aims to make a difference in the field of forest finance. . The three countries, which ended more than a decade of negotiations in November this year, agreed to work together to conserve forests within their borders and limit the potential for forest leakage between the two countries. While other forest state organizations such as the Coalition of Rainforest Nations have attempted such arrangements in the past, the inclusion of Brazil in the agreement will give the new forest alliance immense bargaining power when it comes to selling carbon credits. will be ensured. This could further impact the viability of existing voluntary carbon markets and accelerate the trend for tropical forest countries to take direct control and ownership of carbon credit projects, as exemplified by recent actions by Zimbabwe. There is However, it is still unclear what will happen as this alliance moves forward.

Rewriting the balance of power

Ruben Lebowski, adjunct professor in the Department of International Public Relations, Columbia University and chief carbon and environmental markets strategist at Lombard Odier Investment Managers, has extensive experience researching and advising on REDD+ initiatives. He believes the deal is potentially transformative and presents an opportunity to rewrite the dynamics of deforestation reduction financing.

“The idea that these governments see this as an economic opportunity is positive. For a long time, many have believed that both Indonesia and Brazil have comparative advantages in producing green commodities, let alone carbon sequestration credits. has the potential to become a “green superpower” with It makes a lot of sense to think of this as a green development strategy and as a strategic option for countries,” he said. As major players in the space, these countries “have a real political stake in this emerging carbon market and net-zero world,” he added.

Currently, buyers set pricing terms for carbon payments and other incentives to reduce deforestation and nature-based services. However, it is quite possible that such countries will use their influence to impose more ambitious climate change targets, losses and damages, etc. on wealthier countries.

Tropical rainforest shrouded in fog.

Photo: David Riaño Cortés via Pexels

However, this power can potentially cause problems if used for rent seeking or if the system is abused for financial gain at the expense of smaller entities.

“When you think of OPEC, you think of monopolies and commodity price manipulation, and that can be a problem,” Lebowski said. OPEC’s manipulation of oil prices is legendary, but has had little positive impact on the environment and stability of many OPEC countries. In a worst-case scenario, the three Forest Alliance countries could use their influence to penalize other carbon credit producers through strategic price increases and decreases, thereby helping to conserve and rehabilitate smaller countries. of stable funding may decrease.

However, some experts estimate that a carbon price of around $100 per tonne would be required to reach the net-zero target, and volatility and problems with maintaining credit quality have led to this trend. Supply-side pressure could help reach the target. Together, these countries have the potential to issue truly large-scale carbon credits. But how a project with these credits works is another story. One popular option is the jurisdictional, or “sovereign credit,” framework for issuing deforestation reduction credits, due to the low potential for leakage and individual project issues. Organizations like the Coalition of Rainforest Nations are already driving the widespread adoption of sovereign credits, which are already beginning to impact the existing carbon credit market. Lebowski suggested that such a framework would likely also apply to the Forest Alliance, as coordination would take place at the national level.

“A jurisdictional approach would solve many of the issues around leakage and persistence and would be very much in line with jurisdictional strategies,” he said. But while this approach is more effective for large-scale emissions reductions and measuring performance across forest areas, “indigenous groups are understandably skeptical of government proposals and agreements,” Lebowski said. bottom.

Indeed, establishing a system that also considers indigenous and local land rights is perhaps the most controversial issue in the successful implementation of the Forest Union. Agricultural deforestation and extractive deforestation, as the recent attempted genocide of the Yanomami at the hands of gold miners in the Brazilian Amazon has shown, is critical to indigenous communities and other peoples living in and around forests. has a devastating effect on But payments for conservation activities, especially deforestation reduction programs, have their own history of ignoring, underpaying, or even displacing indigenous peoples. Brazil, Indonesia and the Democratic Republic of the Congo all have problems in this regard, with dominant politicians being the determining factor in how to deal with deforestation reduction and respect for the rights of indigenous peoples. many. For the new forestry alliance to be successful in reversing deforestation, it needs to involve indigenous communities actively.

Finally, for the new forest alliance to be successful, it will need to develop transparent guidelines for tracking and crediting carbon sequestration and other forest ecosystem services, manage prices transparently to support the overall market, and globally needs to move towards higher carbon prices. A clearer path for issuing high-quality credits. Doing so has the potential to change the broader carbon market and REDD+ system for the better. Doing this will require careful planning, international buy-in and, above all, careful consultation with the indigenous peoples of the forests we conserve.

The stakes are high and the outcome of this agreement could help define the legacy of these three countries and their political leaders on a global level. As this alliance becomes more formalized, it will need to be taken seriously by all actors in international organizations and existing carbon markets working to reduce deforestation. If successful, the Forestry Alliance could shape the global landscape of carbon conservation for decades to come.

Ezekiel Maven is an MPA student in the Environmental Science and Policy Program at Columbia University.




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