The European Union will preserve the ambition of its climate action targets in the way that it accounts for forests, its Energy and Climate Commissioner told RTCC on Wednesday.
Markets may soon value rainforests as living entities rather than for just the commodities produced when they are cut down, said a tropical forest researcher speaking in June at a conservation biology conference in the South American country of Suriname.
Andrew Mitchell, founder and director of the London-based Global Canopy Program (GCP), said he is encouraged by signs that investors are beginning to look at the value of services afforded by healthy forests.
**Crisis of values**
Speaking to an audience of more than 500 scientists at the annual meeting of the Association for Tropical Biology and Conservation, Mitchell said the world presently faces a crisis of values, which translates to threats to food security, energy security, and environmental security.
"These are combining to create a kind of a perfect storm that we have going on right now," he said. "You see it in rising food prices, rising energy prices, and a great land grab to produce biofuels. The easiest way to grow these crops is to grab lands in the tropics... from rainforests."
"Meanwhile the developing world sees climate change as a train crashing through their countries, but something that is not their fault," Mitchell continued.
But hope is on the horizon.
Mitchell believes that valuing forests for the services they provide could play a critical role in addressing climate change, rural poverty, and the food crisis, as well as safeguarding biodiversity.
"Forests fall because they are worth more cut down than standing. This is a classic example of a market failure," Mitchell told mongabay.com in an interview following his speech. "But ecosystem services could change that."
According to Mitchell, the concept really gained momentum in 2005 after Michael Somare, the prime minister of Papua New Guinea, told developed countries at an international climate meeting that if they wanted tropical nations to stop cutting down their forests, they would have to pay them. Since then the idea has won wider support from interests ranging from environmentalists to business to politicians. Even some indigenous rights' groups see the concept as offering potential to protect forests and improve rural livelihoods, provided it takes their historical land rights and access into consideration.
**Four ways to reduce emissions from deforestation**
Mitchell said the world is presently looking at four ways to deal with emissions from deforestation: First, plantation forestry, which has been slow to get approvals under the Kyoto Protocol's CDM mechanism; second, REDD or reducing emissions from deforestation and degradation, a proposed mechanism for compensating countries that reduce their deforestation rate; third conserved carbon stocks, which would pay countries for the carbon contained in their forests; and fourth, ecosystem services, a broader compensation scheme based on the value of the multitude of services provided by healthy forests. Of these, Mitchell has the most hope for payments for ecosystem services.
Mitchell said plantation forestry suffers from concerns over the use of alien species, lack of biodiversity, and whether local communities see benefits from industrial-scale plantations since up-front costs make it difficult for small projects to win approval.
REDD, a concept which won tacit approval in last December's climate talks in Bali and has been lauded by many for its capacity to reduce emissions and protect biodiversity, also has limitations in that the only countries that may qualify are those with high deforestation rates. Countries with low deforestation rates will see little funding under the proposed system since carbon credits are only issued for emissions reductions, not carbon stored.
A broader scheme, known as preventative or conserved carbon credits, is seen as a way to include countries that have effectively preserved their forests, but still faces some shortcomings. While the mechanism could incorporate other carbon-rich ecosystems, notably peatlands, U.N. negotiators were concerned that the sheer volume of carbon stored in global ecosystems could lead to an oversupply of credits, triggering a collapse in the price of carbon and therefore undermining the market and the incentive to reduce emissions. But Mitchell said that if the forest compensation system was expanded to include other ecosystem services, it may offer better incentives to conserve forests.
Mitchell compared forests to giant utilities that offer services on local, regional, and global scales. Locally forests offer watershed protection, stabilize soils, and buffer against flooding. At the regional and global levels, forests generate rainfall, moderate climate, and support biodiversity.
He cited the rainforest in the Brazilian Amazon as an example. The forest contains some 60-70 billion tons of carbon, discharges 55 percent of the world's freshwater, and generates 20 billion tons of rain per day, supplying water to the $1 trillion agricultural industry in the La Plata river basin in Argentina.
Mitchell believes financial markets will eventually pay for this hugely valuable utility. He said emerging models - including FUNDECOR in Costa Rica and the Amazonas Initiative in Brazil - offer some clues on who will pay and at what price. In the end, Mitchell argued that future markets will be about more than just carbon and that payments for ecosystem services could drive billions of dollars per year to forest-owning nations.
"Philanthropy and taxes by governments aren't going to be enough to fund forest conservation efforts on the kind of scale that's going to be needed to have a real impact," Mitchell told mongabay.com. "But for a market $10-15 billion is quite manageable. That's about what we drink in wine and champagne every year in Britain. For a fraction of the percent of the three trillion dollar-a-year insurance business we could save forests."
According to Mitchell the key to making ecosystem services markets a reality is political will to create a regulatory framework that can serve as a basis for investment. The idea is already gaining political momentum with the Forests Now Declaration in September 2007, the Lake Victoria Commonwealth Climate Change Action Plan in November 2007, the decision on REDD at the U.N. climate talks in Bali in December 2007, and a flurry of recent agreements signed between provincial and state governments in Brazil, Indonesia, and other countries. Mitchell noted that Prince Charles has become a high profile advocate for ecosystem services markets and that Bharrat Jagdeo, president of Guyana, has offered to turn over all his country's forests for such a scheme.
**The services and the buyers**
With Suriname as the setting - the nation with the highest percentage of tropical forest cover of any country in the world - Mitchell talked extensively about the ecosystem services provided by the Amazon.
Mitchell stated that Brazilian researchers lead the world in understanding the full extent of biospehere-atmosphere interactions of tropical forests. Dr Antonio Nobre of INPA has revealed that the Amazon accounts for 16 percent global freshwater supplies and generates 20 billion tons of rainfall per day. He said that while scientists don't yet know what would happen to rainfall if the Amazon is razed, replacing Brazil's hydro capacity - which accounts for 70-80 percent of its electricity - would cost $100 billion. This figure implies a value of $260 per ha for water alone for Brazil's remaining forests. Mitchell added that Brazil's agribusiness - soya, beef and sugarcane - all depend on rain and that 40 percent of Brazil's cars can run on ethanol. In other words, any decline in rainfall would have a tremendous impact on the Brazilian economy.
On a broader scale, Mitchell said that the Amazon appears to have a role in weather moderation as well, comparing it to a regional air-conditioning unit. The Amazon drought in 2005 coincided with record Caribbean hurricanes which caused more than $80 billion in insurance losses in the United States alone. The Amazon also helps stabilize climate by sequestering billions of tons of carbon in its vegetation and soils ' this service would also add value. He speculated that the market may eventually distinguish between "dead carbon" - mainly emissions from energy that can be captured and stored (CCS) at a cost of $40 per ton of CO2 - and "living carbon" which is stored in forests and ecosystems at a fraction of the cost of CCS and can provide a sustainable livelihood for 1.4 billion people worldwide.
"The central issue in this whole debate is how we put a true value on standing rainforest to the world community," he said.
Mitchell said that once a market is established, buyers could include utilities, agribusiness, hedge funds, banks, and even governments.
**Amazonas and Iwokrama**
Mitchell cited two examples of projects to show how ecosystem services payments are working today.
The Amazonas Initiative launched by the Brazilian state of Amazonas last year includes provisions to protect large tracts of forest while simultaneously improving the standard of living in remote rural areas. The initiative includes the Bolsa Floresta program which pays forest families living near Uatuma Reserve about $25 per month to not clear primary forest lands in return for making 'no smoke'. Residents are also provided with health care, clean water, and greater access to education.
Mitchell also highlighted the recent agreement signed between the government of Guyana, and Canopy Capital, a private equity firm advised and set up by the Global Canopy Program. The deal, signed in March, secures the rights for Canopy Captal to measure and acquire a value for the ecosystem services of a million-acre (371,000 hectare) reserve of forest in Guyana. This, the first deal of its kind to be signed, has attracted investor interest from all around the world. Although deforestation rates in Guyana are presently low, the deal seeks to capitalize on the role that Guiana shield forests play in maintaining rainfall in South America. Canopy Capital plans to develop investment instruments like ecosystem services bonds that will be sold in financial markets. The proceeds will be split with 80 percent going to reserve and the communities of Iwokrama. Mitchell believes that because these services presently have no value in the markets, the price can only appreciate.
Mitchell noted that involvement of local people is key to the project's success. He explained that scientists and development experts will work with local peoples to design sustainable businesses as well as forest monitoring programs. A similar project is being tested in the African country of Cameroon. Villagers are trained how to map field data with GPS units. All data is logged and put into a database that can be displayed on Google Earth. Communities swap information and can see things like when illegal loggers or miners are encroaching into their forest.
"The indigenous communities probably have the best track record of any group in looking after their forests and preventing deforestation," he told mongabay.com. "The problem that we face is that under the REDD mechanism being developed by the UN, there is a danger that these groups won't see compensation because they have a low deforestation baseline and are therefore not emitting."
"We need to think about how these communities who have succeeded in protecting their forests should get paid. As I see it, a method for this is the ecosystem services they are providing the world."
Mitchell concluded by noting that carbon emissions will continue to have increasing financial, environmental and societal costs, making conservation actions increasingly valuable.
"It's time to stop talking and start acting," he said. "The world is waking up to this and will drive capital to the canopy."
Chatham House is assessing the scale and effectiveness of the response to illegal logging and the related trade around the world. Full details of this work, including analysis and data, will be available online soon.