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This Week's Commentary Previous Commentaries Future Commentaries Objectives

February 25, 2008
Series Editor: Ian Parry
Managing Editor: Felicia Day
Assistant Editors: John Anderson and Adrienne Foerster

Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.

Environmentalists have long been exasperated by the loss of biodiversity from the progressive destruction of tropical forests. Ironically, heightened concerns about global warming at last offer some hope of slowing deforestation. As discussed in this week's commentary by RFF Senior Fellow Roger Sedjo, allowing firms in developed countries to offset some of their emissions by purchasing credits, which maintain the carbon stored in tropical forests, might provide very strong incentives for slowing rates of deforestation.

Next week, Richard Morgenstern and William Pizer will discuss evidence on the effectiveness of voluntary programs to reduce pollution emissions.

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Addressing Biodiversity and Global Warming by Preserving Tropical Forests

Roger A. Sedjo

 
Tropical forests have long been recognized as providing habitat for a huge share of the world’s wildlife and plant species. For decades, however, concern has been mounting that these sensitive ecosystems, which constitute over 50 percent of the planet’s forested area, are in peril. The clearing of large tracts of tropical forests and conversion of that land for other uses destroys habitats and threatens many species with extinction.

Why should tropical forests be protected? One longstanding argument is that governments should protect these areas, rich in biodiversity, because of their untapped potential for the pharmaceutical industry. For example, a plant currently undiscovered, deep in the forest, could one day prove helpful in the fight against HIV/AIDS. However, this reasoning has not held up over time. A famous project saw Merck & Co., Inc., one of the world’s largest pharmaceutical companies, providing $1 million dollars to Costa Rica in return for 1,000 plants collected from its forests. Although the Merck project successfully raised money for Costa Rican biodiversity research, few, if any, drugs have been developed, and the model has not been transferred elsewhere.

However, a new justification is emerging. Real hope lies in the idea of protecting forests for their value in the fight against global warming. Forests contain huge amounts of carbon, and are often referred to as carbon “sinks,” for they absorb and store carbon dioxide from the atmosphere. As concerns about the consequences of global warming grow, and as more people understand how carbon dioxide contributes to that warming, it is possible not only to estimate the value of a forest for sequestrating carbon, but also to provide landowners with incentives to avoid deforestation. Simply put, by controlling deforestation we can significantly affect our carbon emissions. Studies suggest that halting deforestation in the tropics and other judicious uses of forestland for carbon control and storage could substantially reduce the costs of mitigating global warming.

Recent market transactions on the European Climate Exchange place the value of carbon somewhere between $10 and $100 per ton. Furthermore, the exchange provides a vehicle to allow landowners to capture the value of the carbon benefits. Even if we use what seems like a fairly conservative price of $20 per ton, that means that the almost two billion hectares of tropical forests currently hold captive a whopping 300 billion tons of carbon, worth about $6 trillion.

If we add the 140 billion tons of carbon in the dead wood, litter, and soils on the forest floor, the additional value is $2.8 trillion, meaning an impressive total value of $8.8 trillion for the globe’s tropical forests.

Sorting out the value and benefits of these forests is one thing. Next we need to work out how much we’re willing to pay to keep them intact.

For a landowner, one study suggests the value of cleared land works out to $300 per hectare, on average (Pearce 1996). So let’s assume that governments will need to pay $500 per hectare to stop them from felling their trees. That adds up to a $1 trillion cost across all of the world’s tropical forests. Yet the benefits of sequestered carbon in those forests, even at modest prices, are about 8.8 times as great as the costs.

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Roger Sedjo, Senior Fellow, RFF

Sedjo is a senior fellow and the director of RFF's Forest Economics and Policy Program. His research interests include forests and global environmental problems; climate change and biodiversity; public lands issues; long-term sustainability of forests; industrial forestry and demand; timber supply modeling; international forestry; global forest trade; forest biotechnology; and land use change.

The difficult question remains, however, as to who will pay to sustainably maintain these forests. Until now, no one has come forward with the requisite large amounts. However, with carbon credits selling for up to $100 per ton, tropical countries may find it in their interest to take heed. The concept is that countries that can reduce or eliminate high rates of deforestation could receive carbon credits that would be recognized and could be transacted in the carbon markets. Countries that found it difficult to meet their carbon emissions targets under the Kyoto Protocol or subsequent climate agreements could purchase the credits generated by avoided deforestation to meet those targets. Thus, benefits would accrue to both buyers and sellers of carbon credits, and the benefits of tropical forests could be preserved for humankind.

Another approach would be to focus on the tropical lands that are particularly subject to deforestation. Most of the world’s tropical deforestation takes place in eight countries, with 50 percent occurring in Brazil and Indonesia. So, in order to maximize efficiency at the start, an initial approach might be to focus "avoided" deforestation strategies and funds on these countries. Studies estimate that in order to substantially reduce tropical deforestation, annual expenditures of between $2.2 to $5 billion would be needed for an extended period.

Protecting tropical forests will not be easy. Measurement, monitoring, and an administrative and regulatory structure would be required. Efforts would need to be made to ensure that deforestation activities are not simply deflected to other regions or countries with less stringent governance. Such enforcement would be complicated, but is possible if satellites and density-measuring lasers are employed (DeFries et al. 2007). The compensation costs and outlays for monitoring would still be far less than the economic benefits of carbon capture, even without considering the other environmental benefits of the forests. Even though a system of forest protection might not be easily implemented, the potential total benefits of protection are great. Halting deforestation would be a powerful tool to help humans effectively address the peril of climate change.

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Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.


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Further Readings:

Costello, C., and M. Ward. 2006. “Search, bioprospecting, and biodiversity conservation.” Journal of Environmental Economics and Management Vol 52, Issue 3: 615-626.

Costanza, R. et al. 1997. The Value of the World’s Ecosystem Services and Natural Capital. Nature 387: 253–260.

Pearce, D. 1996. Global Environmental Value and the Tropical Forests: Demonstration and Capture, in Forestry, Economics and the Environment, edited by W.L. Adamowicz, P.C. Boxall, M.K. Luckert, W.E. Phillips and W.A. White, CAB International. pp. 11-48.

DeFries, R. et al. 2007. “Earth observation for estimating greenhouse gas emissions from deforestation in developing countries,” Environmental Science & Policy, 10, (20-07) 385-394.

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