When it comes to fighting climate change, California is already a world leader on pricing carbon, transitioning to renewable energy, and decarbonizing the world’s eighth largest economy.  California now has yet another golden opportunity to lead on climate, by green-lighting finance to protect tropical forests. 

California’s landmark cap-and-trade law allows regulated companies to meet a portion of their emission-reduction obligations by purchasing credits from provinces that reduce emissions from tropical deforestation. But the implementation of this “sectoral offset” provision has been delayed for years, as explained last year in a CGD Working Paper by Jesse Leuders and colleagues at UCLA. Now this Wednesday in Sacramento, the California Air Resources Board is set to host a public hearing on this issue, a sign that the train may finally be leaving the station.

Here are eight reasons for California to do the right thing in the coming months and accelerate performance-based finance for tropical forests:

1. To fight climate change comprehensively. Climate change is awful enough for Californians facing drought and sea-level rise. It’s many times worse for people in poor countries who are more exposed and less able to adapt. Fighting climate change by regulating smokestacks and tailpipes is essential, but it’s not enough to keep global temperature rise below dangerous levels. Emissions from deforestation can’t be ignored — if tropical deforestation was a country, its emissions would be the world’s third-largest, behind China and the United States and ahead of Europe.

2. To contain costs. Reducing tropical deforestation is a bargain. Relative to California, tropical forests offer about 55 times as many low-cost emission reductions. By letting regulated companies purchase these low-cost emission reductions to meet a fraction of their climate obligations, California can meet its ambitious climate goals at a lower cost to companies and the customers they serve.

3. To be the standard-setter for the world. What California decides will have an outsized importance for the world’s tropical forests that goes well beyond the few million tons of emission reductions its companies might buy each year. The rules that California writes may set the precedent for how to use tropical forest offsets in cap-and-trade programs in Quebec, Ontario, northeastern US States, or countries even farther afield.  Just as with clean air laws a generation ago, California once again has the chance to be Standard-Setter for the World, Rule Maker, Writer of Precedents (with apologies to Carl Sandburg).

4. Because there are side benefits for development. Deforestation isn’t just bad for the climate, it’s bad for people living near and within the forests. Brazil’s deforestation has been blamed for its record-setting drought; Indonesia’s land-clearing forest fires and peat fires are choking Southeast Asia with a carcinogenic haze.  By financing forest protection in the tropics, California will help provide people with cleaner water, more hydroelectricity, and safety from landslides and storm waves. California will be contributing to Global Sustainable Development Goals on poverty, food, water and sanitation, health, and energy. And since tropical forests are home to two-thirds of all plant and animal species that live on land, California will be helping to meet international agreements on biodiversity too.

5. Because it’s a tested model. The concept is simple: rich countries pay poor countries for reducing deforestation, monitored by satellite.  National performance payments for conserving forests are being tested, and they are working.  Brazil’s anti-deforestation policies have reduced greenhouse gas emissions in the last decade by more than any other country, with international financial contributions to the Amazon Fund playing a key supporting role. Guyana has kept its deforestation rates extremely low by world standards, while building a state-of-the-art forest monitoring system from scratch. Even in Indonesia, where deforestation rates have not yet fallen (“a successful case of non-payment for non-performance”), the prospect of performance-based finance has encouraged sweeping institutional changes including a moratorium on new licenses to clear forests.

6. To support indigenous peoples. Evidence to date suggests that performance-based finance for forest conservation can benefit indigenous peoples. Brazil has increased indigenous territories to an area larger than Greenland. Guyana has accelerated titling of indigenous lands. And in Indonesia, a court decision recognized indigenous peoples’ claims to 40 million hectares of forest.

7. Because technical issues are surmountable. Following Wednesday’s hearing, the Air Resources Board has laid out a number of next steps.  Most are technical in nature. Issues around monitoring, reference levels, registries, and social safeguards are important but doable. And this is well-trodden ground. Regulators at ARB can find many good ideas for addressing these issues in the report of the REDD Offsets Working Group. They can also look to standards used by the Forest Carbon Partnership Facility Carbon Fund or the Verified Carbon Standard, as well as Norway’s and Germany’s bilateral programs. A new working group report by CGD suggests keeping rules simple and practical.

8. Because finance is the missing piece. Climate diplomats have finished negotiating global rules of the game for performance-based finance for tropical forests. These rules are expected to become part of an international climate agreement in Paris this December.  Dozens of tropical forest countries and provinces are queuing up to participate.  The missing piece is finance. Of the 55 or so countries that have signaled their intention to reduce emissions in return for performance payments, only seven have signed agreements for performance-based funding, and just two have received performance payments. 

By green-lighting tropical forest offsets in its cap-and-trade program, California will open up a new source of finance to help tropical countries conserve their forests, with all the attendant benefits for climate and sustainable development.

Yet again, California has a golden opportunity to lead.