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Market News

 October 27, 2006
Carbon financing could save world's forests

 Washington, D.C. (GLOBE-Net) -- Global 'carbon finance' - the buying and selling of greenhouse gas emissions - could be a powerful tool to prevent deforestation in many of the world's developing countries, concludes a new report from the World Bank. Assigning a value to the carbon sequestration provided by trees could help lift millions out of poverty and encourage forest stewardship.

At Loggerheads? Agricultural Expansion, Poverty Reduction and Environment in the Tropical Forests, portrays the current reality in many countries, where impoverished farmers often clear or burn rainforests that are rich in biodiversity in order to earn a meager income from crops. A farmer in such a situation could clear a hectare of rainforest to earn US$300, releasing 500 tones of carbon dioxide -- an amount of emissions that industrialized countries are paying up to US $7500 to prevent at home, says the report.

The report's authors contend that forests are worth much more while when alive and storing carbon than when used as pasture land. Cleared forests often provide for poor pasture or croplands, and the soil often deteriorates into unfertile desert in a matter of years. In the meantime, a valuable selection of biodiversity and natural carbon storage is lost.

Tropical deforestation accounts for about 20 percent of global greenhouse gas emissions. Farmers in developing countries often have no other options but to clear land to produce income, and are not able to tap into the global carbon market.

The report argues that stronger financial incentives for avoiding cutting down trees could help poor farmers invest in sustainable agriculture in already-cleared fields, instead of cutting down more forest. Tropical forests are currently being lost at a rate of five percent or more a decade, the equivalent of losing an area the size of Portugal each year. By mid-century, once-vast tropical forests could be reduced to mere pockets of trees.

Around 800 million people live around tropical forests. Allowing them to tap into the carbon storage value of trees could allow them to become part of a global carbon finance framework that could help lift them out of poverty while reducing greenhouse gas emissions. Strengthening forest governance is an important step -- resolving claims on forest rights and land, concludes the report. Approaches differ in three forest zones described in the report:
  • In the mosaiclands, patchworks of farms and forest where most people live, environmental services markets could help. In Costa Rica and Mexico, these markets let water users compensate upstream forest owners for reducing sediments in rivers.
  • In forest frontiers, where loggers, plantation owners, and households are competing for trees and land, provision of more secure tenure can fight resource grabs by the elites and deter wasteful deforestation. For example, in Cameroon, forest concessions are now allocated through a public auction, and independently observed so it's conducted in accordance with the law. Part of the forest royalties are distributed to local communities and nongovernmental organizations monitor how concessionaires care for the forests assigned to them using satellite photos and on-site visits.
  • In areas currently beyond the agricultural pressures, the challenge is to head off future conflicts. Regularization of protected areas and recognition of indigenous lands are approaches which have been successfully used in this zone.
The idea of placing an economic value on the natural services forests provide -- carbon storage, air and water filtration, animal habitats -- has been gaining traction in recent years. The World Bank has endorsed the principles of "green accounting" for years.

A group of developing countries has been seeking rewards for reducing deforestation, and hope to include provisions for transfer payments under the Kyoto Protocol for preserving tropical forests.

The environmental work of Canada's boreal forests and the tourism dollars they generate are worth at least $93 billion a year, said Edmonton-based economic consultant Mark Anielski at the National Forest Conference earlier this year. Recognizing this could change the way decisions are made, he noted.

Boreal forests in Canada regulate the climate by capturing and storing an estimated 67-billion tonnes of carbon - worth $1.8 billion based on the price of carbon emissions from the global-insurance industry, said Anielski.

Water filtration and erosion control provided by boreal peatlands is worth $77 billion, he added. All told, the forests provide at least $160/hectare in economic benefits, but that amount isn't recognized in national income accounts or the country's gross domestic product, he said.

The idea of valuing ecological services is established in the field of economics, but its practice in reality is limited. By pricing commodities such as carbon dioxide and clean water, a better indicator of the value of ecosystems could be established, leading to more efficient use of natural resources and economic growth that does not jeopardize important natural systems. Employing carbon financing tools to reduce tropical deforestation and reduce poverty could be one step in this direction.

The World Bank report can be "found here".