January 6, 2012
The destruction and degradation of forestland, caused mainly by expanded agricultural activity in tropical developing countries, currently accounts for roughly 12 percent of global greenhouse gas (GHG) emissions. Slowing or halting deforestation in developing countries is a potentially low-cost way to help reduce global GHG emissions.
For that potential to be realized, however, substantial challenges would need to be addressed. A CBO study, prepared at the request of the Chairman of the Senate Committee on Foreign Relations, examines those challenges and assesses policy approaches for reducing forest-based emissions.
Challenges in Reducing Forest-Based GHG Emissions. If actions to support forest preservation are to play a cost-effective role in a significant international effort to reduce global GHG emissions, three broad challenges would have to be met:
- Obtaining useful measurements of changes in the amount of carbon stored in forests,
- Structuring incentives to reduce total forest-based emissions, and
- Improving governance in developing countries.
Improving governance may be the most intractable of the three challenges.
Policy Approaches for Reducing Forest-Based Emissions. Approaches the United States and other developed countries could take to encourage forest preservation in developing countries fall into two broad categories:
- Providing financial and technical assistance to governments interested in preserving forests, and
- Creating demand in private markets for reductions in forest-based GHG emissions.
The two types of policies might work best together. The viability of markets, for example, may depend on having in place a reliable program for achieving measurable reductions in forest-based emissions—the type of program that financial and technical assistance can help establish.
Challenges in Reducing Forest-Based Emissions
Measuring Changes in Carbon Storage. Establishing programs to reduce emissions of greenhouse gases and assessing the effectiveness of those programs requires methods for measuring emissions. Measuring emissions resulting from deforestation is complicated because such emissions depend on the amount of deforestation and the carbon content of the wood that has been destroyed. Researchers can combine data about the amount of deforestation that they obtain from instruments on satellites with information about the carbon content of the wood gleaned from on-the-ground inventories of the number and size of trees in sample areas to make such measurements. Most developing countries would need to improve their technical capabilities to process such data and conduct inventories in order to credibly participate in any program aimed at reducing carbon emissions from deforestation.
Structuring Incentives to Reduce Total Forest-Based Emissions. To reduce total forest-based emissions worldwide, the design of programs to preserve forests must consider not only how much additional preservation would result but also how much “leakage” would occur—that is, how much of a forest program’s direct reductions in GHG emissions would be negated by additional GHG releases elsewhere. Leakage reduces a program’s cost-effectiveness, and significant leakage might negate the cost advantage of forest preservation compared with other approaches to reducing GHG emissions.
For example, a program that compensates people for preservation in one location might prompt a decline in the clearing of forested land for agriculture or timber production in that area, thus reducing supplies of those commodities and raising their prices. Higher prices, in turn, could encourage uncompensated landowners elsewhere to clear forests to produce agricultural products or timber to sell at the higher prices. Consequently, programs might need to compensate not only new preservation efforts aimed at threatened forests but also the continued preservation of forests that would not be threatened in the program’s absence.
Improving Governance in Developing Countries. Weak governance—the inability to successfully design and implement policies to achieve stated objectives—undermines any efforts to use forest preservation programs to produce verifiable reductions in greenhouse gases. Agencies in developing countries may have inadequate authority for preservation tasks and may lack effective mechanisms for negotiating and distributing compensation to those who preserve forests. Also, the rights to any potential benefits from preserving forest resources may be poorly defined, making the gains from deforestation for agricultural and timber production and the use of wood for fuel more certain than the gains from preserving forests. Finally, government corruption and political instability can undermine laws that promote preservation.
Improving governance may be the most intractable of the three challenges. Of the 25 countries with the largest forest-based emissions in recent years, which together produced 95 percent of such emissions globally, nearly three-quarters rank in the bottom half of all countries on a key indicator used by the World Bank to gauge a government’s effectiveness. That indicator measures, for example, the quality of policy formulation and implementation and the credibility of the government’s commitments to its policies. The World Bank rates the two largest emitters of forest- based CO2—Brazil and Indonesia—at roughly the 50th percentile in terms of governmental effectiveness.
Policy Approaches for Reducing Forest-Based Emissions
Assistance to Governments. Financial and technical assistance can help overcome some of the challenges of pursuing forest preservation. It can help support advances in measuring and monitoring changes in forest carbon, help ensure that developing countries have access to the technologies for doing so, and also help counter leakage by offering incentives for achieving global reductions in forest-based emissions.
Given uncertain funding and the challenges of improving governance in developing countries, the United States and other developed countries could consider focusing efforts on selected countries—for example, Brazil and Indonesia—that have relatively reliable governance, that are rich in remaining forest resources, and whose experiences could inform subsequent policy development.
Markets for Reductions in Forest-Based Emissions. The United States and other developed countries could also generate resources for reducing forest-based GHG emissions by creating demand in private markets for such reductions. They could do that by establishing cap-and-trade programs or by taxing GHG emissions and providing tax credits for those who fund forest preservation activities. The potential for forest preservation in developing countries to lower the private-sector costs of achieving a goal for global GHG reductions might motivate substantial funding from private sources.
This study was prepared by Natalie Tawil of CBO’s Microeconomic Studies Division.