This Earth Day, more than sixty heads of state gathered in New York to sign the Paris Agreement on climate change. The agreement declared in December the unanimous aim of 196 governments to work toward the near-elimination of greenhouse gas emissions by the second half of this century. The agreement sent a powerful signal that governments want a low-carbon future: energy without fossil fuels; agriculture without deforestation.
Although the New York ceremony represents another high-profile sign of political support for stabilizing Earth’s climate, significant challenges remain. Even if all countries fulfill their current climate pledges, the world would still warm far above governments’ 2 °C (3.6 °F) temperature target, causing rising seas to inundate low-lying island nations and hundreds of American coastal cities. To narrow the substantial gap between individual national pledges and the collective goal established in the Paris Agreement, governments should look to tropical forests. Tropical forests are an attractive climate solution for scientific, economic, and political reasons. The missing piece, however, is funding.
About 10 percent of annual greenhouse gas emissions result from the burning of tropical forests, making this activity more damaging to the atmosphere than the European Union’s pollution on an annual basis. Forests, however, can play an even larger role in mitigating climate change, for unlike power plants and cars, forests can actually remove carbon dioxide from the atmosphere. Halting tropical deforestation, while letting damaged and cleared forests grow back, could reduce annual global emissions by as much as 24 to 30 percent.
Reducing tropical deforestation is a relatively low-cost climate solution. In the next 35 years, the world is on track to lose an area of tropical forest equivalent to the size of India. Much of that deforestation, however, can be avoided cheaply. Reducing emissions by conserving tropical forests would cost less than one-quarter of what it would to reduce emissions in the United States or Europe by reducing fossil fuel use by the same amount. Tropical forests provide many other benefits too: cleaner water, cleaner air, and habitats for two-thirds of the world’s plants and land animals.
Dozens of tropical nations have already committed to halving deforestation by 2020, with the aim of ending it completely by 2030. By comparison, widespread efforts to phase out fossil fuels, as critical as these efforts are, face greater resistance and may take at least two decades longer.
Tropical forests, therefore, figure prominently in the Paris climate agreement. Article 5 of the agreement encourages tropical countries to reduce deforestation and wealthy countries to pay them for the resulting emission reductions if satellite images show that tropical countries have indeed kept their forests standing. For tropical nations, results-based payments transform forest conservation from an economic burden into an economic opportunity. So far, the concept has been tested in Brazil, Guyana, and Indonesia, with some encouraging results.
For decades, the Brazilian Amazon was ground zero for deforestation. Since 2004, however, deforestation has fallen by nearly 80 percent, even while soy and beef production have grown. By reducing deforestation, Brazil has cut its greenhouse gas emissions by more than any other country. Brazil’s remarkable turnaround has been achieved through aggressive forest law enforcement backed-up by bi-weekly satellite monitoring of deforestation, protected areas and indigenous reserves, and self-imposed deforestation moratoria by the soy and cattle industries. These domestic deforestation protection efforts have been bolstered by $1 billion in results-based funding paid by Norway into Brazil’s Amazon Fund since 2008.
In 2010, Indonesia signed a similar $1 billion agreement with Norway. Among other efforts to reduce deforestation, the government in Jakarta stopped granting licenses to oil palm and paper companies to clear rainforests. Yet, deforestation in Indonesia has shown no signs of abating. In late 2015, deliberate land-clearing forest fires raged across the archipelago. The smoke and haze created a public health catastrophe and, on some days, released more daily greenhouse gas emissions than the entire United States economy. Indonesia’s agreement with Norway has not yet been successful in reducing emissions, but the results-based funding aspect of the accord has functioned as it was designed: because Indonesia’s deforestation rates have not fallen, Norway has not paid.
Guyana is the third early test case for results-based funding. In the face of mounting pressure from gold mining and logging companies, this small South American rainforest nation has kept deforestation extremely low relative to other tropical countries. For its success, Guyana has received close to $200 million from Norway. However, the funding has been held in escrow by multilateral development banks seeking to ensure compliance with fiduciary safeguards designed with traditional development projects in mind. The slow pace of disbursement has dampened enthusiasm within the country for low-carbon development.
Experiences with results-based funding for forest conservation in these three countries have been sufficiently positive that more countries are looking to enter, or fund, agreements of this sort. At the Paris conference, Germany, Norway, and the United Kingdom pledged $5 billion in funding for tropical forests, mostly through results-based frameworks. Furthermore, Liberia, Peru, Colombia, and Ecuador have all signed agreements to reduce deforestation in exchange for results-based funding. More than 50 other tropical countries have signaled their intention to participate in similar deals if results-based funding becomes available.
Funding is the missing piece in tropical countries’ fight to reduce deforestation. To make good on the promises made in Paris, three things should happen. First, more wealthy nations should fund tropical forests through their public budgets, either through bilateral agreements or international institutions like the new Green Climate Fund. While contributions from Germany, Norway, and the United Kingdom are welcome, they are only enough to keep international funding for tropical forests at roughly current levels for the next five years. More public funders are needed to reinforce these pledges.
Second, more tropical countries should devote domestic financial resources to combating deforestation. India, for example, reformed its tax system last year so states that maintain more forest cover receive more tax revenue. The roughly $6 billion per year in tax revenue that India distributes is a larger amount of results-based finance for forest conservation than has been allocated by any other country in the world.
Third, and most importantly, carbon markets should open up to tropical forests. International carbon trading—which involves one country transferring its right to release a ton of carbon dioxide into the atmosphere to another country— brings down the cost of fighting climate change by encouraging greater climate efforts from those countries that can afford to cut their emissions most cheaply. In July, California’s Air Resources Board will vote on whether it will allow companies participating in California’s carbon market to meet a portion of their legal emission-reduction obligations by buying credits from tropical states that reduce deforestation. A ‘yes’ vote would lower costs for California companies and consumers while providing a critical new source of results-based funding for forest conservation by tropical countries. Purchases would initially be limited to the state of Acre in Brazil, but could broaden if other states and provinces follow California’s lead. The decision to allow international offsets into California’s carbon market could galvanize forest conservation efforts in tropical countries, many of which are currently wondering if market demand for reduced emissions from deforestation will ever materialize.
Watching world leaders sign the Paris climate agreement this Earth Day was thrilling. But it will take results-based funding for tropical forests, our cheapest, fastest hope of stopping climate change, to deliver.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.