Market-based Solutions to Deforestation

updated January 2017

The favoured model for action on deforestation is an approach known as “reducing emissions from deforestation and forest degradation” (REDD+). This is a finance-driven solution which perceives deforestation as the consequence of failure of the world’s market economy to award any value to the intrinsic environmental assets of the tropical forest.

The correction of this malfunction envisages a “payment for environmental services” to custodians of a forest area in return for a measurable reduction or cessation of the rate of deforestation. The objective is that tropical forests will acquire greater economic value standing than cut down.

The emergence of carbon markets as a mechanism for controlling greenhouse gas emissions provides the final component of this model. Credits are awarded for preserved forest carbon which can be offset against the investor’s commitments to emission reductions, or traded in carbon markets.

For many years this market mechanism has gained only modest momentum due to the reluctance of climate change negotiators to embed the connection between deforestation and mitigation of carbon dioxide. The Kyoto Protocol, the international legal regime for reducing emissions agreed in 1997, excluded any measures to tackle deforestation.

This impasse was gradually softened by successive reports by the Intergovernmental Panel on Climate Change confirming that deforestation accounts for a significant share of global greenhouse gas emissions. The 2013 report puts this share at about 10%. The Paris Climate Agreement of 2015 duly endorsed the importance of the REDD+ approach.

Long years of UN funding support for developing countries in tropical and sub-tropical regions for “getting ready for REDD” should now begin to bear fruit. These preparations have concentrated on creating the very considerable legal, administrative and technical capacity necessary to monitor and report on deforestation.

Ironically, it is the market itself which casts the greatest shadow over prospects for deploying financial mechanisms to protect the tropical forests. Demand for carbon credits is created through pressure on developed countries to meet commitments to emissions reductions. Lacklustre ambition of climate agreements has so far failed to impose sufficient pressure to drive up prices. The prospect of a flood of forest carbon credits into a market that has already failed reinforces doubts as to the credibility of this business model.

These considerable teething problems for the REDD+ approach have not prevented a generous flow of multilateral and bilateral donor support for projects based on its principles. The Center for Global Development estimates that aggregate pledges of public finance for REDD+ totalled about $9 billion for the period between 2006 and 2014. Norway has led the way in pledging $1 billion each to Indonesia and to the Amazon Fund established by Brazil, subject to achievement of results. A similar scale of pledges, led by Norway, Germany and the UK, has been forthcoming for the period up to 2020.

Such activity does not disguise the long term reality that donor funding, sourced ultimately from hard-pressed public treasuries of the richer countries, will not meet the formidable cost of halting global deforestation.

Major corporations are enthusiastic participants in carbon markets but recourse to the private sector in forest programmes attracts much criticism, especially from grassroots NGOs and indigenous groups. Objections focus on the polarising characteristics of private capital – firstly in its preference for the lowest political and regulatory risk found in stable middle income countries – and secondly in its tendency to disregard the wider social and environmental issues involved in forest programmes.

REDD+ has indeed been criticised for its obsessive focus on carbon measurement, rather than  its implications for the local economy and families working in and around the forest. Such concerns led to a negotiatied set of “safeguards” in the operation of REDD+, stressing the importance of joining up forest plans with poverty reduction and food security strategies. These safeguards have been acknowledged by the Paris Climate Agreement.

Such complexities, combined with the slow progress of climate action, serve only to allow the ultimate costs of reducing deforestation to escalate. The opportunity cost of preserving the tropical forests increases in line with the long term upward trend in prices of timber, paper, furniture, minerals, fossil fuels, meat, cosmetics and biofuels, each of which is linked with forest destruction.


Forest monitoring to help curb effects of climate change – the REDD approach requires accurate measurement of the health of forests
From Center for International Forestry Research

Mapping deforestation – Research scientists from the University of Edinburgh discuss a new remote sensing technique for more accurate measurement of deforestation

more Forests briefings
Importance of Tropical Forests
Deforestation and Forest Degradation
Tropical Forests and Climate Change
Causes of Deforestation
Sustainable Development Goal for Deforestation
Consumer Solutions to Deforestation
Rights-based Solutions to Deforestation
Source material and useful links

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