Carbon payments could prove more profitable than mining or logging for some nations
by Amy McDermott
Logging, mining, and other activities plow through the tropical forests of developing countries, releasing 10 to 18 percent of the greenhouse gas emissions that drive climate change. One proposed solution is for wealthy countries to pay developing nations to keep their forests intact. A new study in World Development suggests the approach could make financial sense for the governments of tropical nations. In Guyana, the research showed, carbon payments could offer the government much more money than extractive industries such as gold mining and logging.
Looking to pay countries to protect their forests, the United Nations conceived a program about 10 years ago, now called REDD+ (Reducing Emissions from Deforestation and forest Degradation, plus sustainable management and forest conservation). Now in its early demonstration phase, REDD+ invites developing nations to document their annual carbon footprint from deforestation and damage without clear-cutting. If that footprint shrinks the following year, the country is compensated with a carbon payment from a developed partner country. Early this year, the UN Green Climate Fund accepted the first proposal for a forest mitigation results-based payment, which will pay Brazil $96 million. “That shows the wheels are moving,” says economist Jonah Busch of the Earth Innovation Institute.
Previous studies found that land users would make more money per hectare from some destructive industries than from REDD+ payments, giving them little incentive to stop cutting trees. While those findings were discouraging, United Nations REDD+ payments are bestowed upon governments, not private individuals, and past papers didn’t scale up their findings to ask how much revenue was captured by the state.
What makes the paper new, Busch says, is that it tries to “compare government income from carbon versus government income from destructive industries.” He adds that the novelty stems from “running those calculations for a national government.”
The study’s lead author, Han Overman, pored over Guyana’s national reports and documents it provided to the UN to find government income from the country’s major extractive industries, gold mining, diamond mining, and logging. The documents also reported the extent of Guyana’s deforestation in hectares, and the amount of wood passing through customs, in cubic meters. Overman used the information in those reports and documents to estimate how much money the government made per hectare deforested; he also calculated Guyana’s annual emissions from logging.
At the baseline price of $5 per ton of carbon, Overman estimated that Guyana could make as much as $231.5 million a year in carbon payments through REDD+, compared to about $24 million from timber, gold, and diamonds. Mining and logging are legal, privatized, and taxable industries in Guyana. To get around the taxes, private industries smuggle gold and wood out of the country illegally, especially in rural areas where law enforcement is weakest, Overman says. One way that Guyana and other developing nations might use future REDD+ payments, he says, is to strengthen law enforcement to reduce illegal activity.
While the potential of REDD+ is an order of magnitude higher than Guyana’s leading extractive industries, it’s not clear which partner developed countries would pay that much, Busch says. And from a developing nation’s perspective, not all money is the same. “Logging and gold are cash in hand,” Busch explains, while carbon payments are promised but generally take years to transfer. Norway set aside $250 million for Guyana beginning in 2009, as a trial run of the REDD+ program. Guyana kept their deforestation low, and Norway paid. But Guyana has had a hard time “getting the money transferred and spent on useful projects,” Busch says. “A dollar from timber isn’t necessarily the same as a dollar from carbon, if one you put straight into the bank, and the other takes a decade to get moving.”
Guyana is also special case. It still has a lot of intact forest, its trees are unusually dense in carbon, and the country has a low rate of deforestation compared to most developing forested countries. In principle, the country shouldn’t have much interest in REDD+ because Guyana doesn’t have high levels of emissions they could be compensated for. But the country borders Brazil, where deforestation is a much bigger problem. If Brazil reined in its deforestation, logging companies might move into Guyana. Donor countries interested in REDD+ pay the country generously in hopes of holding steady their current emissions rate. “Basically that money is to ensure Guyana is not welcoming logging companies to come to their country,” Overman says.
Guyana’s potential to earn hundreds of millions a year reflects their unusual standing, says Frances Seymour, who specializes in tropical forests and climate change at the World Resources Institute, and co-wrote a book with Busch in 2016. “I’d caution against assuming that’s equally applicable to most forest countries,” she says. The new paper is a welcome addition to the field, Seymour adds, that highlights just how little governments earn from the industries that destroy their forests
Busch, who helped with the Norway-Guyana agreement in 2009 while working at Conservation International, says the possibility that REDD+ could compete with destructive industries is encouraging. “The hope was the Norway money would be the tip of the iceberg and a lot of other countries will follow,” he says while adding that the “experience so far has been that the reality has been much lower than the potential.”
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