How to make forest protection profitable

April 05, 2011

Not until we have cut down the last tree will we learn that we can’t eat money, goes an old saying. Even worse, according to many economists over-exploiting nature will leave us with no money either.

The solution, as proposed by the UN program REDD (Reducing Emissions from Deforestation and Degradation) is to put a monetary value on forests and their ability to store carbon. In a few years, cutting down trees could be like burning money. As part of this scheme, Allianz has invested in the protection of a forest area spanning 64,000 hectares (640 square kilometers) in the south of Borneo.

The investment in the Rimba Raya forest in Indonesia will prevent the emission of 90 million tons of CO2 over a 30-year period. The certificates for these savings can be used to compensate for CO2 emissions in areas such as passenger transport, for example, but also for voluntary CO2 neutralization at companies like Allianz. Martin Ewald from Allianz Global Investors explained the concept to Open Knowledge.

Martin Ewald, Investment Manager at Allianz Climate Solutions, visiting a center for orang utan protection in Indonesia: "Endangered species will also benefit from REDD".
Martin Ewald, Investment Manager at Allianz Climate Solutions, visiting a center for orang utan protection in Indonesia: "Endangered species will also benefit from REDD".

From a business point of view, how valuable are forests?

In the past, the value of a forest was solely the price of timber after logging. REDD now puts a price tag on conserving it. Under REDD, it really depends on where the forest is and how much carbon it is able to store.

An African forest in dry areas can consist of fewer trees per square meter than an Indonesian rainforest. And what makes the forest in Indonesia even more valuable is the peat swamp underneath it that stores so much more carbon per square meter then the soil under African trees.

If you are not able to measure exactly how much carbon is stored per square meter projects, you will not be able to get carbon certificates.


Does that lead to a selloff of regions that store especially high levels of carbon?

Theoretically this could happen. Practice nevertheless shows that the specific location of a project always is dependent on the availability of eligible forest, the political circumstances, and the ability to involve local people.

But if you had the choice between two equally attractive projects you would opt for the one which would provide more carbon rights.

Therefore peat swamps would be bestsellers in terms of market value. However, not all countries that have peat swamps have a legal framework for REDD projects. For that reason some projects in regions without an adequate legal framework can’t get off the ground. What do you mean by a legal framework?
In Indonesia, they have a dedicated law to regulate the use of land and consequently the ownership of carbon credits.

In Africa and South America, some states still lack an appropriate legal framework which protects local people while at the same time attracting investors. From an investor's point of view you want to know: how valuable your forest is, in what legal framework are you operating in, and how to embed your business case into the REDD structure.


Might people see REDD more as a CO2-escape route rather than a true commitment to save forests?

Of course there will be some black sheep which will embark on a project only to distract from their emissions. Companies really dedicating themselves, however, first have to measure their carbon footprint and stick to a carbon reduction strategy before committing to offset their own emissions.

For example, since 2006 the Allianz Group has reduced its CO2-emissions by 27 percent. Thereby we have not only surpassed the original benchmark of 20 percent but also fulfilled our aim two years earlier than expected.

Nevertheless, starting a project even without vigorously reducing your own carbon footprint can still have a positive effect. Because if we don’t protect the forests right now, no matter the motivation, they will be gone forever.


Do you fear REDD will be seen as a substitute for rather than a complement to UN carbon trading?

Although REDD is not yet part of the UN framework it is supposed to play a big role for future developments. This was agreed at the Cancun climate talks in late 2010. REDD provides a mechanism that not only aims at saving carbon but avoiding emissions in the first place.

Particularly with regard to Indonesia, it must be a priority to find a way to utilise the forest as a part of the UN convention on climate change.

But as long as this is not the case we have to find a workaround. The key issue in the whole process is measurement. This will take some time but in the meantime it doesn’t make sense to wait. This is why a vibrant market on a voluntary basis has evolved.


Does this indicate that the global economic system is faulty and we have to change our economic behaviour?

Taking part in the REDD market on a voluntary basis could certainly take us in this direction. But from a global point of view it doesn’t matter where you save one ton of carbon.

But the cheapest way, however, of saving one ton of carbon is protecting the forest.

To speak bluntly: if we first cut down the forest and then try to reduce the same amount of carbon we emitted it would be much more expensive than just avoiding deforestation.

REDD is not only about saving carbon but has a strong social component too. Each project needs the support of the local people. It can be a win-win situation as employment leads to improvement of livelihoods. One of the main factors for the positive perception of a REDD project therefore is its ability to create local employment through conservation or other project-related activities.


Who is going to benefit most from REDD, loggers or conservationists?

The point is not to punish one side and reward the other. The point is the livelihood of those people. So if you are not able to show them an alternative why should they stop cutting down trees? Social benefits are the key to success.

Fortunately that’s something REDD really does: it offers job opportunities. Just think of the peat swamp in Indonesia. You not only have to rely on the local knowledge of the people but you also need them to measure the forest. Don’t even think of doing this only with satellites.

And in the long run you need them for tasks like protecting the boundaries or fire fighting. Endangered species will also benefit. I could imagine REDD having a long-lasting impact. Ecotourism has become an important source of income in Costa Rica, for example. People there rely on the survival of the forest not its destruction.

Michael Grimm

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