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Growing money on trees

Deforestation is responsible for one-fifth of annual carbon emissions - more than the entire transport sector. Yet a new global scheme to 'reduce deforestation' could end up rewarding the companies and governments that cause it, writes Oscar Reyes

January 31, 2008
8 min read


Oscar ReyesOscar Reyes is an associate fellow at the Institute for Policy Studies and is based in Barcelona. He was formerly an editor of Red Pepper. He tweets at @_oscar_reyes


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On the eve of last December’s UN climate conference in Bali, the Indonesian government announced that it would plant 79 million trees in a single day to ‘offset’ the emissions of the entire conference. But this world record attempt could not mask the presence of another, less flattering statistic in the 2008 Guinness Book of Records – which awarded the country the world record for the fastest rate of deforestation. From 2000 to 2005, an area of forest equivalent to the size of 300 football pitches was destroyed every hour in Indonesia, the key factor in its having the world’s third highest rate of greenhouse gas emissions behind the USA and China.

This high proportion reflects the fact that tropical forests store enormous amounts of carbon and that its release, through deforestation, accounts for one-fifth of annual carbon emissions. In response, a proposal for ‘reducing emissions from deforestation and degradation’ (or REDD) was agreed as part of the ‘Bali roadmap’.

Banking on forest carbon

The logic underpinning REDD is fairly simple. At present, the short-term economic gains from deforestation outweigh the long-term good of forest conservation. By investing up to £7.5 billion globally per year into saving forests, the economic balance is believed to change in favour of the latter. This money would be paid in the form of carbon credits, worked out in relation to national deforestation rates – the more a country saves, the more it earns.

The Bali roadmap was vague on how this might be achieved, but in handing the World Bank responsibility for administering REDD pilot schemes through its new Forest Carbon Partnership Facility (FCPF), it laid a clear foundation for a market-based approach. ‘The facility’s ultimate goal is to jump-start a forest carbon market,’ according to Benoit Bosquet, the Bank official who lead the development of the facility.

The Bank has considerable form in this area. ‘When the Bank launched its first prototype carbon fund in 1999, it was envisioned as a short-term catalyst to jump start private finance in the international carbon market,’ explains Janet Redman of the US-based Sustainable Energy and Economy Network. ‘Eight years later the Bank’s portfolio has grown to more than ten carbon funds with over $2 billion in offset money.’

The British government, which has pledged $30 million (over £15 million) to kick-start the FCPF, is also keen that credits from forests will be tradable on an international market. In a speech on ‘The Future of the World Bank’ last April, for example, Hilary Benn advocated a ‘global carbon trading scheme … to protect the world’s forests’.

Putting a price on forests

Such a scheme is fraught with problems; and the evidence of existing carbon trading projects shows why. According to the UK Treasury’s 2006 Stern Review, climate change is ‘the greatest market failure the world has seen’ – in response to which, somewhat perversely, it advocates the expansion of carbon markets. These take the form of carbon trading, a system that allows polluters to pay others to cut their emissions so they don’t have to.

The idea, as encapsulated in the Clean Development Mechanism’ (CDM), is that carbon markets offer an efficient system of global emissions reductions because the market’s hidden hand will guide investment towards the cuts that are the cheapest. In practice, though, the CDM offers handouts for continued pollution in both the global North, where companies and governments are offered a cheap means to keep on with business-as-usual, and in the South, where the CDM projects that generate the most credits offer subsidies to some of the world’s most polluting companies.

REDD schemes apply a similar approach to the problem of deforestation, reducing this complex problem to a carbon pricing mechanism that fits the models of mainstream economists. ‘REDD simplifies the function of forest ecosystems to that of a carbon store,’ says WAHLI (Friends of the Earth Indonesia). This undervalues them as water catchment areas, habitats for biodiversity and as the basis of indigenous and local peoples’ livelihoods.

An additional danger is that schemes to ‘avoid deforestation’ become a further means for rich countries to avoid responsibility for over-consumption and evade emissions cuts. ‘The debate on REDD changes the focus away from Northern country behaviour to what is happening in the South, which is politically very palatable for industrialised countries,’ says Jutta Kill of the Forests and European Union Resource Network (FERN).

But carbon stored in forests is not equivalent to the carbon released by burning fossil fuels. ‘Carbon in forests is always released into the atmosphere at some point, as part of a cycle, whereas the release of fossil carbon is a one-way road,’ says Jutta Kill. In the case of industrial tree plantations, this ‘storage’ capacity is very short – since they involve the planting of fast-growing trees like eucalyptus, which are cut after only eight to 15 years. For this reason, among others, the proposed inclusion of tree plantations as carbon ‘sinks’ within the CDM proved highly controversial when the Kyoto Protocol was first negotiated.

Seeing REDD

When the Kyoto Protocol was agreed, measures to protect natural forests were excluded from the CDM on the grounds that investment in deforestation projects in one area would simply displace the problem to other areas. REDD schemes now under discussion try to address this by requiring a reduction of deforestation on a national level rather than just a project-by-project basis. But this brings with it a new set of problems.

‘In many tropical countries, states … legally define the remaining forests as so-called “state land”,’ explains Tom Griffiths of the Forest Peoples Programme. This provides them with a means to ignore the land claims of indigenous peoples. With REDD payments administered top down by governments, companies and conservation NGOs, “the risk is that forest-dependent peoples would be evicted in order to ‘protect lucrative forest carbon “reservoirs”‘.

The real drivers of deforestation

Such an approach targets indigenous and marginalised peoples as the ‘drivers’ of deforestation. In the Kampar Peninsula in Riau, Indonesia – which, aside from its rich biodiversity and being the habitat of the endangered Sumatran tiger, sits on one of the deepest peatland stores of carbon in the world – the APRIL pulp and paper company has proposed a ‘ring’ of plantations to protect the remaining forest from illegal logging. It is now seeking additional funding for the project from the REDD scheme.

Yet the project itself would directly clear nearly half of the remaining forest cover in the region, while doing nothing to address the underlying driver of deforestation: the overcapacity of APRIL and rival firm APP’s paper mills. Between them, the two companies process over 4 million tons of pulp each year, the bulk of which comes from the deforestation of the region’s natural forests and is exported either as pulp or paper to the North.

The problem is not restricted to the Riau province. Across much of Indonesia, the demands of the logging industry are being exacerbated by the expansion of oil palm plantations. The Indonesian government has already granted concessions for forestry and plantations spanning more than 60 million hectares (an area the size of the UK and Japan combined). Palm oil finds its way into a range of food and cosmetics products found in the UK, including such well-known brands as Kit-Kat, Pringles, Flora margarine and Head and Shoulders shampoo. The further expansion of these palm oil plantations is being fuelled by the growing trade in agrofuels, which is being driven by EU and US ‘biofuel’ targets and subsidies. REDD does nothing to address these real drivers of deforestation.

Instead of REDD?

What, then, would be a better solution? There is no simple answer, but activists in Riau province, and throughout Indonesia, are calling for a moratorium on logging in peatland areas, as well as for the restructuring of the pulp and paper industries in the country. ‘There are many factors driving deforestation, including the international trade in soy and paper, as well as EU biofuel targets,’ says Jutta Kill. ‘We should first address those drivers rather than throwing money at companies cutting down trees, when we continue to give them incentives to do so.’

Financial incentives could play a role here, insofar as they support the recognition of land rights for indigenous communities or education projects. Such measures, which would cost far less than the proposed financing for REDD, could be of genuine worth in avoiding deforestation. But they are unlikely to show up on the balance books of a forest carbon-trading scheme whose main purpose seems to be providing Northern countries with yet another escape from their responsibility to reduce emissions at home.

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Oscar ReyesOscar Reyes is an associate fellow at the Institute for Policy Studies and is based in Barcelona. He was formerly an editor of Red Pepper. He tweets at @_oscar_reyes


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