If money grew on trees

Saving the world’s rain forests would be the cheapest way to stave off climate change. But, argues Fiona Harvey, without a business model that works, it is just a hopeless dream.

Walking into the Amazon rain forest, the overwhelming impression is of the sheer abundance of its life. A savoury, soupy smell covers everything, as if nature were in the kitchen – the smell of vegetation sweltering in hot dampness. The noises bewilder, as you swivel to catch a monkey – or was it a bird? – crying as it flits away. Once, straying into a clearing where men had been illegally logging a Brazil nut tree, I was beset by a flurry of what I took to be small insects, fluttering about and landing on my jacket. On closer inspection, they turned out to be hundreds of tiny frogs, each about the size of a fingernail, exquisitely formed.

That we need to preserve such extraordinary places is self-evident – and not just for the glorious abundance of their life. We in the rich west need them for our own sakes, too. Forests represent some of the biggest stores of carbon on earth, and as trees are cut down they release their greenhouse gases into the atmosphere. Saving the world’s last remaining forests would be by far the cheapest way to stave off climate change.

Governments have been locked in negotiations over how to save the world’s forests for more than 20 years. The key concern is rewarding forested nations for maintaining these extraordinary assets, which raises the question of how to compensate the people who live there for the lost opportunity of exploiting their forests for logging or farming.

In theory, it should not be a difficult task. Yet in all those years, the negotiators have managed to save scarcely a single tree.

In late November and early December 2010, ministers from around the world converged on Cancún in Mexico to discuss a global pact on tackling greenhouse-gas emissions. At 2009’s Copenhagen summit, leaders from developed and developing countries agreed for the first time to curb their emissions. But since then the fragile accord has disintegrated into a war of words, chiefly between the United States and China. The White House is also now hamstrung in what it can negotiate because of the hostility of congressional Republicans.

Consequently, Cancún was unlikely to result in much progress on a comprehensive global deal. So what many participants hoped was that by concentrating on one issue – preserving tropical forests – they could salvage something. A chorus of non-governmental organisations expressed confidence that the thorny issue of forestry was to being solved. Even hard-bitten negotiators were caught up in the excitement. “At least we will sort out forests this year,” one told me, hopefully.

I hadn’t the heart to reply that I had been told the same thing at each of the last six such meetings. Still less could I tell him my gloomy prediction – that the 2010 meeting would be the biggest failure yet, because although the world was closer than ever to agreeing a legal and practical framework on how forests should be preserved, we are further than ever from mustering the cash that is the pre-requisite for success.

Edouardo, who I meet at his home near a tiny settlement on the banks of the Amazon river, in Brazil’s Pará province, is typical of the small subsistence farmers of the area. He tells me how as a young father he brought his family here from a village some miles away. He found a convenient spot and made a small clearing to grow the crops his family survives on. Years later, a road was built and more people came to settle in the area. This made it easier for him to sell any surplus crops.

Edouardo is typical of the subsistence farmers who live in forests around the world, eking out a living on a small piece of land. Living so close to the forest, he regards himself as a part of its rich but fragile ecosystem. He laments the deforestation, and the incursions of cattle farmers.

Vital though it is to preserve the world’s forests, it would be wrong to blame small farmers like Edouardo, who are simply trying to feed their families in the only way they can. Any global climate deal must allow these farmers to make a living from their land, or offer them alternatives.

Worse by far are the cattle ranches. By flying over the Amazon, the scale of ranching in the region is quickly apparent. It is now the biggest cause of deforestation in the Amazon, according to Greenpeace, which alleges that many of the Amazon’s products – beef and leather – find their way into luxury goods and western supermarkets.

Reducing Emissions from Deforestation and Forest Degradation (REDD), the subject of a large chunk of the Cancún talks, is supposed to stop all this. It consists of a series of rules, developed over several years, which should provide a formula to gauge the worth of forests – and a mechanism to finance their preservation.

REDD is now nearly complete. It may seem astonishing that this has taken so long, but finally most of the details have been sorted out. We now know, for instance, the correct definition of a tree, how much carbon can be locked up in different areas of land, and how the rights of indigenous people can be safeguarded.

“A lot of progress has been made on REDD – it’s seen as being one of the most positive things in the negotiations,” says Elizabeth Zelljadt, senior analyst at Point Carbon, a carbon market analyst division of Thomson Reuters. “The prospects are good.”

Only one problem remains. Where is the money? REDD cannot succeed unless it generates income for the forested countries to ensure that trees are not illegally cut down, and looks after the needs of indigenous people within these forests. Cash must also be poured into providing the people of these countries with other opportunities for economic growth, such as developing new industries so that people like Edouardo do not have to encroach on the forest to feed their families. At a conservative estimate, the cash required is many tens of billions of dollars a year.

Where will these funds come from? For years, rich and poor nations were locked in a fruitless struggle over whether it should be found in “government to government transfers” – that is, developed country taxpayers’ funds being diverted to poor country governments. Rich countries were reluctant to agree to this, preferring to rely on the private sector to generate funding.

Poor countries should have recognised the ­reality sooner. The lesson from overseas aid is that relying on the generosity of western taxpayers is a mug’s game. Take the funding agreed for REDD so far, which amounts to US$5 billion to $6 billion – in total, not per year – from governments including Germany and the United Kingdom, and chiefly Norway, which has taken a strong interest in this issue. This money is useful, but comes nowhere near the sums that will be needed.

To the question of how to bring in private-sector cash, we already have an answer – one worked out long ago, in the first seven years of these long-running talks. Carbon trading provides a system through which developed countries require their industries to reduce their emissions by a certain amount. Rather than only cutting their own emissions, businesses can offset the greenhouse gases they produce by buying carbon credits from developing countries. Those credits are awarded to projects that reduce emissions – wind farms, for example, or solar power plants. Or, in the case of REDD, projects that protect existing trees, or regrow trees on damaged land.

Over the past five years, since the European Union set up its carbon trading system, and since the United Nations began awarding credits – though not to forestry projects, as that had to wait for REDD to be drawn up – the global carbon trading system has grown to a value of US$144 billion, according to the World Bank. This has been achieved even though some of the world’s biggest economies – the United States and Japan, for instance – have been standing on the sidelines. With other big economies involved, carbon trading could easily generate the funding necessary to save the world’s forests.

Carbon trading has many opponents. Certain vociferous green campaigners compare it to medieval indulgences, by which sinners could carry on sinning if they paid the church. They complain that it does not reduce emissions – though in fact the system clearly does result in reductions if the targets are correctly set. More nuanced criticism comes from observers who say companies in the largest existing carbon trading scheme, within the European Union, have managed to game the system. But this can be stopped, with small revisions to the rules.

Currently, the real problem for carbon trading is that the United States seems extremely unlikely to take part. President Barack Obama promised a “cap-and-trade” system, but his political difficulties have put paid to that. Unless he wins a second presidential term — in 2012 — with a thumping majority in the House and Senate, there will be no carbon trading in the United States, and therefore no global system.

Without a global carbon trading system, where will the money for REDD come from? Zelljadt points to the private sector: companies may choose to offset their emissions by investing in REDD projects to burnish their reputation or fulfil their corporate social responsibility goals.

On current showing, however, this market is also unlikely to be much of a money-spinner. In 2009, companies and individuals spent about US$338 million to offset their emissions, according to Point Carbon. For 2010, it is likely to be less owing to the recession. Five years ago, analysts were projecting that these voluntary efforts on offsetting would amount to several billion a year by now. They overestimated the desire of companies to spend money when they don’t have to.

Without a sturdy fundraising mechanism, REDD is worthless. It is a beautiful vehicle, lovingly crafted down to the last elegant detail, but without an engine; so it is doomed to failure. The engine that could have generated the cash is no longer there. Carbon trading is languishing. It could be revived, with a mighty effort of political will.

Fiona Harvey is the FT’s environment correspondent

© Copyright The Financial Times Ltd 2011

Homepage image from Greenpeace