Ending deforestation for fines this decade would likely cost more than $130 billion a year, according to the report by a group of financiers, energy industry executives and academics.
The Energy Transitions Commission, which counts senior employees from BP PLC and Black Rock Inc. among its members, said the analysis is the first guess at how much funding would be needed to overcome the economic incentive to cut down trees. “The forecast is based on an analysis of the volume of concessions or other forms of so-called concessional finance that would be needed to pay landowners not to deforest.”
Financing forest conservation requires a different approach to investing in decarbonising heavy industry or energy systems, according to Adair Turner, the former City of London financial regulator who now chairs the ETC. Instead of the regular debt and equity financing used to electrify the power grid or develop new green steel plants, avoiding deforestation requires “a different category of financial flow,” namely, “paying someone not to do something” without expecting a direct rate of return.
Governments allocating money to protect forests, philanthropic support and carbon credits, are the three most likely sources of these grant-based funds, Turner said. For companies that have set science-based net-zero targets, purchasing carbon credits on the path to net-zero can be an important method of supporting forest conservation, he says.
ETC said that “without a significant flow” of grant payments this decade, any reduction in deforestation would come “too late to allow limiting global warming to less than 2°C, let alone 1.5°C.” . Since 2018, 3.2 million hectares of primary forest have been lost each year to non-fire related causes, which is equivalent to a loss rate of 10 football fields per minute, missing ETC.
According to research by analysts at Bank of America Corp, there may be financial benefits for companies to protect forests and other natural ecosystems, such as higher credit ratings.
Companies with lower biodiversity risk scores are highly likely to be rated BBB+ or higher, and those that take steps to restore nature may face lower financial costs, the bank’s ESG strategies led by Dimple Gosai underscored in a report Biodiversity is a big driver of financial stability for companies, particularly in energy, materials and commodity-oriented industries, accentuation.
For strategists, global assets in biodiversity-related investments could grow 20-fold to more than $400 billion by 2030. Investors are already funneling money into things like alternative proteins and technologies to save food waste, and new projects like catering. land development and sustainable fisheries are attracting capital from impact investors, social enterprises and investments that mix public and private money, they said.
Ending deforestation would be a great step to preserve nature and limit the rise in global temperatures. Deforestation, which involves clearing land for farms, ranches, timber extraction, urban use and other activities, is responsible for about 15% of the world’s CO2 emissions, and the global economy will not achieve the net emissions of zero carbon without putting an end to this practice.
For ETC, despite this, it will be difficult to find the necessary funds. The Commission said the $130 billion figure represents a sum of money, in the form of grant payments, that “could make a significant contribution to avoiding deforestation.” The cost of putting a “permanent halt” on all deforestation by 2030 could reach $900 billion a year.
Either way, it is an order of magnitude higher so far than current funding for forest protection, which ETC estimates to be around US$3 billion a year. Financial solutions to deforestation will be no more than a stopgap without changing the underlying forces that make deforestation economically viable, Turner said. Additionally, it highlights that consumers must take steps to reduce their demands for meat and palm oil, while governments must ban deforestation and enforce it.
Finally, Turner considers that “Unless you find a way to disconnect the fundamental demand drivers that drive deforestation, paying people not to deforest is like pushing water uphill.”
Published by Emirates Herald, news and information agency.