Ending Deforestation Likely to Cost at Least $130 Billion a Year

(Bloomberg) -- It would likely cost more than $130 billion a year to end deforestation by the end of this decade, according to a report from a group of financiers, energy industry executives and academics.The Energy Transitions Commission, which counts senior BP Plc and BlackRock Inc. employees among its members, said the analysis is a first-of-its-kind estimate of how much funds would be needed “to overcome the economic incentive to cut down trees.” The forecast is based on an analysis of the volume of grants or other forms of so-called concessional finance that would be needed to pay landowners not to deforest. Financing forest preservation requires a different approach to investing in the decarbonization of heavy industry or energy systems, according to Adair Turner, the former City of London finance regulator who now chairs the ETC. Instead of the regular debt and equity financings that are used to electrify the power grid or develop new green steel plants, avoiding deforestation requires “a different category of financial flow,” namely “paying somebody not to do something” without expecting a direct rate of return, he said in an interview.The three most likely sources for these grant-based funds are governments that allocate money to protect forests, philanthropic support and carbon credits, Turner said. For companies that have set science-based net zero goals, buying carbon credits on the way to net zero can be an important method for supporting forest conservation, he said.

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ETC said “without a significant flow” of grant payments this decade, any reduction in deforestation would come "too late to make it possible to limit global warming to well below 2C, let alone to 1.5C." Since 2018, 3.2 million hectares of primary forest have been lost each year from non-fire related causes, which is equivalent to a rate of 10 football pitches being lost every minute, ETC said.

A separate academic paper published on Wednesday found that companies can make an impact on deforestation. The researchers found 7,000 square kilometers of Amazon rainforest were spared between 2010 and 2018 thanks to commitments signed by companies under the G4 initiative, which was created following direct pressure from environmental non-profit Greenpeace.The area is equivalent to 15% of the deforestation due to cattle farming that would have occurred during the period, according to models built by researchers. Cattle production is responsible for over 70% of Amazon deforestation, so if all companies signed and implemented zero-deforestation commitments, up to 24,000 square kilometers of rainforest would be conserved.“Even reducing deforestation by 15% is a huge amount,” said Rachael Garrett, a professor at the University of Cambridge Conservation Research Institute and senior author of the report. “If enough countries join the UK and EU in purchasing only deforestation-free beef, it’s likely to have a positive impact on the planet by reducing deforestation.”

But deforestation commitments alone aren’t enough, the study concluded.Under 1% of Brazilian cattle production is exported to the EU, the largest market where policies have been considered to date. By contrast, 81% of production between 2015 and 2017 was consumed domestically, where restrictions and public pressure have historically been lower. Still, increasing involvement by Brazil's three leading supermarket chains—Carrefour SA, Walmart Inc. and GPA—put pressure on the local market, even during Jair Bolsonaro’s presidency, the academic study noted.

For companies there may be financial benefits to protecting forests and other natural ecosystems such as higher credit ratings, according to research from Bank of America Corp. analysts.

Businesses with lower biodiversity risk scores are likely to be rated BBB+ or higher, while those that take measures to restore nature also may face lower financing costs, the bank’s ESG strategists led by Dimple Gosai wrote in a report published last week. Biodiversity is a large driver of financial stability for companies, particularly in the energy, materials and commodity-orientated industries, they said.

Global assets in biodiversity-related investments may rise 20-fold to more than $400 billion by 2030, the strategists said. Investors are already channeling money to things like alternative proteins and food waste-saving technologies, and new projects such as land restoration and sustainable fisheries are attracting capital from impact investors, social enterprises and investments that blend public and private money, they said.

Putting an end to deforestation would be a major step to preserving nature and limiting the increase in global temperatures. Deforestation, which involves clearing land for farms, ranches, timber, urban use and other activities, is responsible for almost 15% of the world’s CO2 emissions, and the global economy won’t reach net zero carbon emissions without putting an end to the practice. Still, finding sufficient funds will be difficult, according to ETC. The Commission said the $130 billion number represents a sum of money, in the form of grant payments, that “could make an important contribution to avoiding deforestation.” The cost of putting a “permanent stop” to all deforestation by 2030 could be as much as $900 billion a year.

In either case, the order of magnitude is so far in excess of current financing for forest protection, which ETC puts at about $3 billion a year. Financial solutions to deforestation will be nothing more than a stopgap without changing the underlying forces that make deforestation economically viable, Turner said. Consumers need to take action by curtailing their demands for meat and palm oil, while governments should outlaw deforestation and enforce it, he said.

“Unless you find a way to switch off the fundamental demand drivers that are driving deforestation, paying people not to deforest is like pushing water uphill,” Turner said.

--With assistance from Saijel Kishan.

(Adds details on second study on Amazon deforestation starting in the sixth paragraph. A previous version added details from ETC and Bank of America.)

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