Can a Latest Forest Alliance Change Nature Finance for the Higher?
Conserving tropical forests is not low cost. Despite the fact that studies have shown that each $1 spent protecting or restoring tropical forests can return as much as $7 in economic advantages, deforestation continues in most tropical rainforest countries.
In Brazil, the Democratic Republic of Congo (DRC), and Indonesia, which together hold over 50% of the world’s tropical rainforests, financial incentives still drive agricultural and extractive industry-related deforestation. While it’s going to be crucial to firmly implement existing laws to regulate this problem, designing novel economic initiatives to encourage forest conservation and restoration will even be paramount.
A recent alliance from these three countries is being touted as an “OPEC (Organization of the Petroleum Exporting Countries) for forests,“ given the potential power it could have in setting the costs and limiting the provision of credits from forest conservation and restoration systems. If successful, the sort of agreement and coordinating body may very well be a game-changer for the DRC, Brazil, and Indonesia. Nevertheless, there aren’t any real specifics for a way this technique would work, and the principles for what’s going to emerge from this alliance have yet to be written. It’s critical, not only for these three countries, but for the entire world, that this technique be equitable and effective at reducing deforestation.
Constructing on Previous Deforestation Mitigation Initiatives
Over the past few years, there have been extensive efforts to pay landholders and countries to cut back and avoid deforestation. The funding sources for these programs vary, from government programs to NGO-driven conservation campaigns, and more recently, carbon credit systems that allow polluters to “offset” their emissions by paying for conservation and carbon sequestration elsewhere. A lot of these credits are traded through mandatory programs run by governments, but others are issued on voluntary markets, which have been beset with scandals and verification challenges in recent times.
One major funding source for reducing deforestation in tropical countries has been Reducing Emissions from Deforestation and Degradation programs, also referred to as REDD+. Emerging within the mid-2000s as a way for wealthy countries and corporations to fund forest conservation and reduce deforestation, REDD+ systems have been increasingly formalized through international treaties just like the Paris Agreement, with the main focus moving from individual project-based financing to broader countrywide agreements, referred to as jurisdictional REDD+. REDD+ systems are viewed as essential in stopping climate change and nature loss, but they’ve faced issues up to now with actually ensuring forest integrity over time and protecting the rights of local communities in and around forests.
As voluntary carbon markets struggle and international bodies look to proceed formalizing REDD+ structures, a recent alliance between Indonesia, the DRC, and Brazil, goals to be a game-changer in the sphere of forest funding. The three countries, who finalized over a decade of negotiations this past November, have agreed to coordinate on conserving forests inside their borders and limiting potential leakage between them. While other organizations of forest states, similar to the Coalition for Rainforest Nations, have tried such arrangements before, the inclusion of Brazil on this agreement would ensure immense bargaining power for this recent forest alliance on the subject of selling carbon credits. This might further impact existing voluntary carbon markets’ viability, and speed up the trend of tropical forest countries taking direct control or an ownership stake in carbon credit projects as exemplified by recent motion in Zimbabwe. But exactly what might occur as this alliance moves forward remains to be unknown.
Rewriting the Power Balance
Ruben Lubowski, an adjunct professor at Columbia University’s School of International and Public Affairs and the chief carbon and environmental markets strategist at Lombard Odier Investment Managers, has extensive experience researching and advising on REDD+ initiatives. He believes that this agreement may very well be potentially transformative, with the possibility to rewrite the facility balance in deforestation-reduction funding.
“The concept that these governments consider this as an economic opportunity is positive. For a very long time, many individuals have argued that each Indonesia and Brazil could grow to be ‘green superpowers’ with a comparative advantage for producing green commodities, not to say carbon sequestration credits. Pondering of this as a green development strategy and as a strategic option for the countries makes a number of sense,” he said. As the most important players on this space, he added, these countries “have real leverage politically on this emerging carbon market and net-zero world.”
Straight away, buyers are dictating terms to setting the costs on the subject of carbon payments and other incentives for reducing deforestation and nature-based services. However it’s entirely possible that countries like these could use their influence to carry richer countries to more ambitious climate goals, and things like loss and damage.
This power, nevertheless, could potentially create issues if used for rent in search of, or exploiting the system for financial gain on the expense of smaller actors.
“When I feel of OPEC, I feel of monopolies and manipulating the value of a commodity, and that may very well be problematic,” Lubowski said. OPEC’s price manipulation of oil is known and has hardly had a positive effect, either on environmental outcomes or on the steadiness of many OPEC countries. In a worst-case scenario, the three forest alliance nations could use their leverage to drawback other carbon credit producers through strategic increases and reduces in prices, which could reduce stable funding for conservation and restoration in smaller countries.
But with some experts estimating that a carbon price of around $100 per metric ton is required to satisfy net-zero targets, and with volatility and issues with maintaining credit quality, supply-side pressure may very well be useful for achieving this goal. By coordinating, these countries can potentially issue carbon credits on a very massive scale. But how the projects that account for these credits would work is one other story. One popular option is a jurisdictional, or “sovereign credit” framework, for issuing deforestation reduction credits, because of its lower possibility of leakage and individual project problems. Organizations just like the Coalition for Rainforest Nations are already driving wider adoption of sovereign credits, which is already starting to impact existing carbon credit markets. Lubowski suggested such a framework would likely be applied to the forest alliance, since coordination might be occurring on a national level.
“The jurisdictional approach solves many problems around leakage and permanence, and can be very in step with a jurisdictional strategy,” he said. But while this approach can be simpler at reducing emissions on a big scale and measuring performance across the entire forest area, “Indigenous groups are rightly skeptical of offers and agreements from the federal government,” Lubowski noted.
Indeed, constructing a system that also accounts for Indigenous and native land rights is maybe essentially the most contentious matter on the subject of successful implementation of a forest alliance. Agricultural and extractive deforestation have devastating effects on Indigenous communities and others who live in and across the forests, because the recent attempted genocide of the Yanomami by the hands of gold miners within the Brazilian Amazon demonstrates. But conservation efforts, and particularly payment for reduced deforestation schemes, have their very own history of sidelining, under-paying, and even displacing Indigenous groups. Brazil, Indonesia, and the DRC have all had issues on this regard, with ruling politicians often serving because the determining factor for a way deforestation reduction and respect for Indigenous rights are handled. If the brand new forest alliance is to achieve success in reversing deforestation, it’s going to need to be sure that the Indigenous communities are lively participants.
Finally, to achieve success, the brand new forest alliance might want to create transparent guidelines for tracking and crediting carbon sequestration and other forest ecosystem services, transparently manage prices with the intention to support the general market, and move the world in a direction of upper carbon prices and clearer pathways for issuing prime quality credits. Then it could potentially transform the broader carbon market and REDD+ systems for the higher. Doing this can require deliberate planning, international buy-in, and above all, careful consultation with the Indigenous groups that live within the forests targeted for conservation.
The stakes are high, and the consequence of this agreement could help define the legacies of those three countries and their political leaders on a world level. Because the alliance becomes further formalized, international organizations committed to reducing deforestation and all players in the prevailing carbon market should concentrate. Whether it is successful, the forest alliance could shape the worldwide landscape of carbon conservation for a long time to return.
Ezekiel Maben is a student in Columbia University’s MPA in Environmental Science and Policy program.