Could 2021 be a turning point for forests and climate change?

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Ruben Lubowski, Chief Natural Resource Economist, Environmental Defense Fund & Rupert Edwards, Head, Policy and Market Analysis, Climate Change Capital & Jacinto Coello, Programme Management Officer, UN Environment & Gabriel Labbate, REDD+ Team Leader and Regional Coordinator for Latin America and the Caribbean region, UNEP

• There is a renewed sense of optimism around tackling climate change – the international community must harness this momentum and scale-up efforts to protect and restore tropical forests.
• A coalition of private and public sector partners have launched the Green Gigaton Challenge, which aims to mobilize funds to achieve its target of one gigaton of high-quality emissions reductions, per year, by 2025.

There is a good possibility that 2021 may turn out to be the spring after a long, dark winter. The light at the end of the COVID-19 tunnel now appears within reach. The largest economy in the world has rejoined the international community in fighting climate change. The second largest economy has committed to a carbon neutrality target. The climate ambitions of the EU not only survived the pandemic, but rather got bigger and bolder.

Private sector commitments to net-zero are growing very rapidly indeed (often under pressure from governments). More companies are taking steps to address their climate risks and impacts, resulting in strong demand potential for offsets as a supplementary tool alongside internal de-carbonization. This renewed sense of optimism is an opportunity not to be wasted.

However, if we are going to make 2021 a turning point for forests and climate change, we need to adjust our strategy. Delivering the full mitigation potential of forests will require as much ambition as it will require pragmatism and recognizing where the opportunities lie for a quantum shift in scale, funding and results. We need to concentrate efforts and attention on coming together to support an ambitious objective for COP-26 and embrace flexibility on scaling-up finance to protect and restore tropical forests – or REDD+, which stands for Reducing Emissions from Deforestation and Forest Degradation.

Setting a measurable and ambitious objective for COP-26

We propose that COP-26 delivers a public-private bid for one gigaton of high-quality emissions reductions with a floor price for forest carbon starting at $10/tCO₂e and adjusted gradually upwards over time. This would represent an unmistakable signal of financial ambitions and be a powerful force to help change the economics and politics of deforestation in many parts of the world so as to make conservation and sustainable use of forests an attractive alternative. Success in delivering one gigaton of emissions reductions would in turn catalyse further even larger-scale private and public funding commitments. We are calling this the Green Gigaton Challenge.

We aim to replicate for deforestation what has been one of the drivers of change pushing for decarbonization in electricity and other sectors of the world economy: the combined effect of carbon prices and predictable demand (such as feed-in tariffs or other subsidized revenue streams for renewable energy). Prices send information to citizens (or “market participants”) on scarcity, and this in turn, signals opportunities for investment and behaviour change. https://www.youtube.com/embed/bd1ygXQ5aTk?enablejsapi=1&wmode=transparent

Development finance grants and loans will still play an important role in protecting forests. However, given the huge investment costs for forest country governments of ending deforestation, the bottleneck of due diligence process, accompanying traditional “input-based” aid has little hope of giving forest countries the fiscal resources to meet ambitious targets.

On the other hand, results-based finance that pays for delivery of measurable outcomes in terms of forest and climate protection has the potential to facilitate larger scale and more effective international funding support, as well as to mobilize private sector participation. Results-based finance allows donors to commit more resources to verifiable results as the risk of achieving those results is shared with the countries responsible. Another advantage is that forest countries themselves are better able to choose their own pathways to achieving goals, avoiding the conditionality often associated with input-based aid programmes.

Private sector investment and innovation as well as efforts by agribusiness companies and consumer countries to take deforestation out of commodity supply chains will also be important in delivering the full mitigation potential of forests. However, these actions can only go so far in the absence of ambitious policies and incentives on the ground in forest countries.

Predictable flow of finance is essential

With a sufficiently high and predictable carbon revenue stream, forest countries could expand national budget allocations knowing that the investment needed to achieve REDD+ outcomes would not lead to a long-term increase in the national debt. Credit rating agencies and development finance institutions could treat efforts to achieve and go beyond NDC goals as investments delivering positive financial returns. And donor governments could more confidently provide additional grant funding for capacity building.

Results-based payments have already shown results, even at low scale. Over the period from 2004-2012, Brazil demonstrated that a combination of indigenous territories and protected areas, strengthened law enforcement, finance reforms, supply chain initiatives plus some at-scale incentives can achieve dramatic results.

During this period, Amazon deforestation fell by 80%, reducing an estimated 3 billion tons CO₂e, or more than any other country has achieved in terms of reducing global emissions. It is also true that with lapsed enforcement, scant economic incentives to protect forest, and a government hostile to forest protection and indigenous rights, in 2019 deforestation rose to its highest level since 2008. While this trend is a major concern, deforestation remains below pre-2005 levels.

What’s the World Economic Forum doing about deforestation?

Halting deforestation is essential to avoiding the worst effects of global climate change.

The destruction of forests creates almost as much greenhouse gas emissions as global road travel, and yet it continues at an alarming rate.

In 2012, we brought together more than 150 partners working in Latin America, West Africa, Central Africa and South-East Asia – to establish the Tropical Forest Alliance 2020: a global public-private partnership to facilitate investment in systemic change.

The Alliance, made up of businesses, governments, civil society, indigenous people, communities and international organizations, helps producers, traders and buyers of commodities often blamed for causing deforestation to achieve deforestation-free supply chains.

The Commodities and Forests Agenda 2020, summarizes the areas in which the most urgent action is needed to eliminate deforestation from global agricultural supply chains.

The Tropical Forest Alliance 2020is gaining ground on tackling deforestation linked to the production of four commodities: palm oil, beef, soy, and pulp and paper.

Get in touch to join our mission to halt to deforestation.

The $2 billion provided to Brazil through the Amazon Fund over 11 years was a small sum in the context of ending deforestation in the Amazon basin, especially when compared to agricultural loan subsidies offered annually without any environmental conditions. While recognizing the generosity of a too-limited group of donors, and being genuinely grateful for these contributions, they are not enough to sustain and extend progress and must be paired with significant policy and finance reforms.

Whether the Green Gigaton Challenge can make a difference is a function of price and volume: there is a number where the economics for conservation becomes overwhelmingly compelling. For example, a 1 gigaton annual bid over a decade starting at a floor price of $10/tCO₂e and increasing gradually to $30/tCO₂e would move the needle and change the trajectory of forest-use in the Amazon, Congo and Indonesian forests.

If you think this is an extreme example, keep in mind that a price of $30/tCO₂e is below the price of the allowance in the European ETS and that the total size of the bid is a fraction of the forecast costs of achieving the goals of the Paris Agreement – costs which could rise very rapidly if we cannot end deforestation. A recently published paper shows that realizing the full estimated potential for REDD+ would reduce the risk-adjusted carbon price by $45/tCO₂ in 2030, such that mitigation at prices below is expected to generate net mitigation cost savings for society).

Embracing flexibility

The launching of a REDD+ bid and the establishment of an attractive floor price will require financial support from the international community, and therefore a consensus on what constitutes a high-quality emission reduction. We believe that jurisdictional REDD+ is the best approach to ensure high levels of social and environmental integrity, as well as to mobilize the government actions that are needed to drive forest protection at a large scale.

In past years, several REDD+ standards have been used to assess quality, each attached to a particular funding source. Among them, and not considering project-based carbon credits for the voluntary markets, we have the standard applied by the World Bank`s Forest Carbon Partnership Facility, the Tropical Forest Standard endorsed in 2019 by the California Air Resource Board (though REDD+ credits are not yet allowed in its Cap-and-Trade Program) and the Scorecard by the Green Climate Fund, which is currently under review. ICAO’s CORSIA has approved two REDD+ standards at the jurisdictional level, ART-TREES (Architecture for REDD+ Transactions – The REDD+ Environmental Excellence Standard) and the VCS-JNR (Verified Carbon Standard – Jurisdictional and Nested REDD+). The latter is currently undergoing a major revision.

It would be simpler to have a single REDD+ standard that gains the trust of donors, countries and private stakeholders. Those of us who interact with REDD+ government officials regularly hear complaints about the transaction costs of having to meet different standards for RBPs. These complaints are genuine and valid. In the meantime, we believe that ART-TREES is a good candidate to enable the market to get started and this does not close the door to the coexistence of high-quality standards. Our focus is on quality.

Jurisdictional approach and REDD+ projects

Would the choice of a jurisdictional approach close the door to participation of the private sector through REDD+ projects? Absolutely not. Private sector action and innovation on the ground is vital and can come in through projects as well as a variety of other public-private partnership arrangements within jurisdictional approaches. We do not believe that the available pot of private funding for forest conservation is fixed or limited – quite the contrary. It could grow rapidly once supply of high-quality emission reductions is unlocked. However, jurisdictional REDD+, including nested projects, provides significantly higher levels of social and environmental integrity than a stand-alone project approach. There is no need to wait for the nesting issue to be resolved before scaling the demand signal. Our proposal for a gigaton REDD+ bid will create incentives to accelerate jurisdictional programmes, including nesting of projects and other on-the-ground efforts.

Looking ahead

This year provides a unique opportunity to make forests a real pillar of climate mitigation efforts. This will require great ambition, a focus on key elements of change, as well as pragmatism and flexibility as we scale-up REDD+. A key element of change, and one that has not been tried so far, is to send a clear and unmistakable signal of ambitions for REDD+. The Green Gigaton Challenge aims to be such a signal. Let´s work together to ensure a bid for a gigaton in high-quality REDD+ emission reductions by COP-26.