House of Commons - Environmental Audit Committee

Reducing greenhouse gas emissions from deforestation: No hope without forests - Environmental Audit Committee Contents

Memorandum submitted by the Sustainable Forestry Management (UK) Limited

EXECUTIVE SUMMARY

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— Without a major contribution from tropical and sub-tropical forestry, the mid-century goal of climate stabilisation cannot be achieved. At the same time, there is a growing gap between demand and supply of wood products from natural forests. Demand is increasing for both industrial wood products, fuel wood and charcoal due to population and economic growth in the developing world. This growth in demand will continue for the next several decades. To achieve a significant reduction in tropical deforestation there must be a concomitant and a significant increase in afforestation and reforestation to both mitigate climate change while also meeting rising global demand for forest products. This requires a profound structural shift from the present situation in which over 80% of wood is harvested from native forests.

— Most of this change must occur in the developing world where rural populations are dependent on forest and agricultural areas for survival. Rising demand for tropical agricultural commodities for export must also be met. In the absence of real, stable and long-term financial incentives, continued conversion of forest land to agricultural use and illegal logging will not only continue but accelerate.

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The role financial mechanisms might have in helping to address emissions from land use change

1. The carbon markets under a mandatory cap and trade approach are the only conceivable method by which the amount of capital required to address climate stabilisation can be delivered. Of course, regulation, taxation, and standards have a role to play but these should be complementary to the carbon market. The IPCC put the forestry and land use sector into the climate context and the Stern Review put it into an economic context. The contribution of land-use change and forestry, and the two are intimately involved with one another, to greenhouse gas emissions amounts to over 30% of annual global greenhouse gas emissions and provide over 30% of mitigation at less than €40 per MtCO₂e.The emissions from deforestation alone are greater than those contributed by the global transportation sector.[1]

2. The opportunity cost of reduced deforestation was identified in a subsequent study by Lord Stern. The study concluded that estimates of the opportunity cost of halving global deforestation reached as much as $33 billion annually.[2] This number, which implies a cost of $66 billion a year to stop deforestation, does not include the cost of establishing and maintaining plantations and managing existing forests on a sustainable basis to replace the lost supply from native forest harvest. The cost of such measures will be, at least, as much as $66 billion. Annual investment in the forest sector of at least $100billion for the next several decades will, in our view, be required to shift supply to sustainable sources. Although there are various proposals for public sector funding, donor governments and agencies show little sign of being able to contribute funding necessary at that level for the required period.[3]

3. Private sector capital is therefore essential to make any appreciable difference. The only source of capital on this scale is from mandatory emissions reductions schemes. The voluntary market and the public sector will never provide more than a small fraction of what is required. Cap and trade carbon markets should therefore be the preferred policy tool to tackle greenhouse gas emissions, in that it will deliver climate stabilisation goals most effectively, with greatest efficiency (at lowest cost), and most equitably.[4]

4. One of the primary concerns of policymakers in the design of an effective carbon trading scheme is to ensure that the cost of compliance does not jeopardise the competitiveness of those sectors of the economy bearing them, while ensuring that the environmental goals of the scheme are achieved. Cap and trade schemes have already demonstrated their efficiency.[5] Forest-based credits are essential to keeping the cost of compliance at a reasonable level.[6] A second concern of policy makers is to ensure that carbon prices are high enough to encourage a transition to low carbon technologies. Forest credits are not, as sometimes asserted, "cheap" and they will not "flood" the market or reduce compliance costs to such an extent that they will reduce incentives for industrial change. The best estimate is that they could potentially reduce overall compliance costs by some 13%.[7]

5. The use of trading emissions credits to achieve environmental outcomes is no longer new. It is instructive to look at the success of the US SO₂ market, the precedent for the greenhouse gas market. When a trading scheme was initially proposed as a method for bringing down the levels of sulphur dioxide (the cause of "acid rain"), many economists and industry representatives predicted that the cost of a tonne of SO₂ would be far greater than that which would be delivered by "top-down" governmental regulation and that the environmental benefits of reduced SO₂ emissions would take years to accrue. Informed estimates prior to trading predicted costs per tonne in the thousands of dollars.[8] The success of the SO₂ market, in terms of price and speed of compliance refuted both of these fears. As the figures below show, trading has increased substantially over the life of the program, while prices remained significantly lower than expected. The environmental benefits are now clear to all observers (see maps overleaf). The latest compliance report compiled by the US EPA shows compliance with the program at 100%, and the benefit cost analysis shows a 40:1 benefit/cost ratio ($122 billion: $3 billion).[9]

Figure 8: Cumulative SO₂ Allowances Transferred (through 2004)

6. A global carbon market is more complex than the national SO₂ market. However, the principles underpinning the market are identical: price discovery and emissions trading can deliver the environmental benefits of reduced industrial pollutants at the lowest cost to industry and to society, it can do so in the near to medium term. Unlike various favoured technologies, biological sequestration is available almost everywhere and at a reasonable cost. A critical component of the SO₂ scheme was that it did not prescribe how the reductions were made only what had to be achieved. A fatal flaw in both the Kyoto and EU trading schemes is that they seek to prescribe how reductions must be made—for example, by restricting or banning the use of forest and land-use based carbon credits. The result is both to artificially increase costs and to cause perverse side effects such as continued tropical deforestation coupled with reforestation in temperate zones such as the United States. (see map below in Paragraph 29)

The environmental and social risks and benefits of using such financial mechanisms

7. In the absence of private sector, market-based financing mechanisms there will be no change in the fundamental economics of land-use and forest management in the developing world. Unless that change occurs the current trends will continue regardless of environmental and social side effects, most of them negative.[10] If, alternatively, such mechanisms are used, the most carbon rich areas will be preserved because they become more valuable and land-use policies will be adjusted to take advantage of the additional value of carbon sequestration. In other words, such mechanisms will shift priorities to preserve intact forests because they have many times more carbon than any other areas and thus enhance conservation goals immeasurably in terms of bio-diversity, fresh water resources, local weather stabilisation and soil preservation.

8. The social benefits of stabilising the environments in which the poorest and most vulnerable people live has been amply demonstrated by the work of the Green Belt Movement, among many others, which resulted in a Nobel Peace Prize. The risk of continued unsustainable practices are also clear: continued deforestation, desertification, flooding and the inevitable displacement of people turned into environmental refugees. One of the greatest advantages of markets and private sector investment is they require the payments to reach the people who ensure the sequestration and continued storage of the carbon. This, in turn, requires land tenure to be secured by those people and they receive the payment for their services. Contrary to many rumours of "land grabs," our real experience is that the potential value of carbon storage to poor communities and indigenous people accelerates the resolution of such issues in their favour. Markets and investors will not purchase or seek credits from sources which are the subject of dispute nor from sources, which result from the abuse of human rights.

9. There is, in contrast, a substantial risk that government-led initiatives will be subject to political incentives, as opposed to economic, leading to a diversion of funds to non-productive use, reduced amounts actually received by local people and communities and will tend to favour vested interests. Governments have a poor record in conservation. Most "protected areas" in the developing world are, in fact, unprotected not least as a result of inadequate financial and human resources because government funding is both inefficient and subject to competing priorities. Public sector funding also tends to be relatively short term. It is essential that payments for carbon sequestration and storage persist and are received by local people for decades to come. If the payments are interrupted, by government diversion or otherwise, there will be an immediate reversal of behaviour and reallocation to alternative use: timber and agriculture.

10. The social and conservation benefits of tropical forest preservation, restoration and sustainable management are multiple and have been extensively documented.[11] These include providing both climate mitigation and the means of adaptation to climate change, particularly for the world's most vulnerable people. All other financial mechanisms have been tried: government to government grants, multi-lateral loans, foreign aid, charitable donations, not-for-profit organisations; debt for nature swaps; purchases of land by wealthy philanthropists; and all have failed. The only financing mechanism yet to be tried is market-led private sector investment. The environmental and social risks of not trying it and repeating past failures are far greater than the risks of doing so.

The use of land use change credits in carbon markets and in meeting emissions targets

11. Soon after publication of the Stern Review, Vattenfall AB and McKinsey & Company published the results of studies that put the economics of land use into a business context; it put forestry and land-use, and particularly in the tropics and sub-tropics, where 90% of deforestation occurs, onto a price curve in comparison with other climate mitigation strategies. The result has been a fundamental reversal of strategy and rapidly growing awareness that mankind cannot reach its goal of climate stabilisation by mid-century without a radical reduction in deforestation and a radical increase in reforestation and afforestation, particularly in the tropics and sub-tropics. This requires a fundamental change in land-use policy.

12. The McKinsey analysis has exhaustively examined potential abatement scenarios for reduction of emissions to 31 GtCO₂e/yr at a cost below 40 €/tCO₂e[12]. Reductions to 450 ppm at a price less than 40 €/tCO₂e require the inclusion of abatement opportunities from avoided deforestation, reforestation, and agriculture. Forestry and agriculture represent over 30% of the available mitigation potential to deliver on this target. Beyond business-as-usual, the potential 2030 abatement from reducing deforestation is approx. 3.3 GtCO₂e/year, from reforestation is 3.4 GtCO₂e/year, and from agriculture 1.5GtCO₂e/year.[13] This total, of over 8GtCO₂e/year, is larger than potential abatement from any other sector including the industry and energy sector. Without forest and agricultural offsets, achievement of emissions reductions targets at an acceptable cost is simply impossible.

13. One of the myths of the debate about forests is that they are "cheap" sources of carbon offsets. As McKinsey has demonstrated, this is simply not true.[14] The costs of forest activity vary widely. Avoided deforestation in Indonesia, for example, is among the most expensive of all sources of offsets as it competes with the use of the land for oil palm plantations. The cost of afforestation and reforestation throughout the tropics vary from hundreds to thousands of dollars per hectare and this does not take into account the political risk presented by many developing countries. The related myth is of "flooding".[15] Both myths need to be discarded if a rational approach to climate change is to be adopted.

14. While the European Union is considering the proposed Parliamentary amendments to include forest credits for the first time,[16] it should be noted that all other emissions trading systems have adopted rules that incorporate forest-based credits. In New Zealand, forestry is the first sector covered and the inclusion of agriculture is contemplated in the future[17]; in Australia, the New South Wales ETS includes offsets from forestry and it is almost certain that the proposed national scheme will as well;[18] in the United States the Regional Greenhouse Gas Initiative (RGGI) makes provision for forestry credits as does the Western States Climate Initiative which provides that covered installations may use forest credits for up to 49% of their compliance obligation.[19] Both the US Senate and the House of Representatives have now included provisions for international forest carbon credits in draft legislation.[20] Finally, it should not be forgotten that the Kyoto Protocol's CDM and JI flexible mechanisms both include, in principle, the use of forestry credits and that all Annex 1 countries are entitled to include their forest and agricultural carbon sinks in their national accounts for this purpose.[21]

The World Bank's Forest Carbon Partnership Fund

15. The World Bank has been instrumental in leading the development of carbon markets. The Prototype Carbon Fund and its successors, the Bio-Carbon and Community Carbon Funds have lead the way for many years. The Forest Carbon Partnership can serve the same function in respect to tropical deforestation. Pioneering efforts such as these are essential but cannot (and are not designed to) marshal the scale of resources required to solve problems of this magnitude. The pathfinder role is of critical importance to developing policy approaches, to reducing emissions associated with deforestation, and to supporting the development of strong institutions and frameworks, particularly in the developing world. Without investments in local and national institutions, legal and other governance frameworks, and enhanced technical capacity, developing countries' ability to participate in and benefit from carbon markets in a timely and efficient manner—if at all—will be significantly hindered. Investments in national and local institutions will allow for adequate levels of engagement by all sectors of society, increasing the likelihood of success for any national-level emissions target. Information and lessons learned must be shared within and across regions. Appropriate public policy and legal reforms, including land use policies and land tenure, must be addressed to ensure the widest participation particularly of lesser developed countries. The World Bank is well suited to this role.

16. The FCPF should be used to build capacity in those countries requiring technical help in establishing and monitoring land-use and deforestation baselines. Funds should be used for terrestrial carbon and biomass inventory techniques, regulatory and monitoring structures, land tenure resolution, delineating the role of protected areas, and encouraging improvements to agricultural productivity. The long-term value for climate, biodiversity, and livelihoods from these types of investments will far exceed the costs. In addition, the knowledge and capacity generated can be directed toward complementary programs in the development and environmental management sectors, and used to support achievement of the Millennium Goals and those of the other Rio Conventions.

The role of technologies such as remote sensing in the verification of land use change credits

17. Concerns over measurement of carbon biomass have been addressed over recent years. The science and technology is now both strong and coherent in accurately assessing long-term gains and losses of biomass carbon and other emissions from the forest and land use sector. Landholders and government agencies now measure and monitor forest status and growth using a combination of techniques including direct field measurements, satellite and aerial photography and computer modelling. Many protocols for measuring and monitoring carbon project benefits exist.[22] The Good Practice Guidance for Land Use, Land-Use Change and Forestry (GPG-LULUCF)[23] produced by the IPCC provides methods and guidance for estimating, measuring, monitoring and reporting on carbon stock changes and GHG emissions. It is consistent with guidance for other sectors and can be used to quantify changes in GHG from a diverse range of forestry and land-use management practices. The guide assists in the production of inventories for the sector that neither "over" nor "under" estimates. It supports the development of inventories that are transparent, documented, consistent over time, complete, comparable, assessed for uncertainties, subject to quality control and quality assurance, and efficient in the use of resources.

18. Measuring and monitoring deforestation emissions at the national level is practical, reliable, and cost-effective. A combination of remote sensing and field-based surveying is an appropriate methodology to ensure an adequate level of accuracy. In the last decade, advances in computer modelling have created the possibility for nearly every country to monitor its deforestation rates to a high degree of accuracy. Broad deforestation can be measured with a margin of error of just 0.5%, and up to a 10% error margin for illegal logging.[24] Even with these relatively small margins of error, the principle of conservativeness prevails both in the Kyoto Protocol and in the IPCC GPG-LULUCF.[25] The argument that carbon measurement is not accurate enough to justify forest credits' participation in emission trading schemes no longer holds water.

Field-based monitoring of biomass

19. In order to reliably measure and monitor biomass, countries must develop a network of permanent biomass plots including the range of major rainfall and elevation gradients, using standardized methodologies.[26]

Remote Sensing monitoring of forest cover

20. Countries can conduct comprehensive, high-resolution baselines of deforestation patterns that can be updated every two or more years. This is a cost effective methodology given the availability of Landsat and similar satellite data, and the availability of free data for circa 1975, 1990, 2000 and expected for 2005. Because these data have a resolution of 30 meters, clearings of one hectare in size can be observed. In addition, these data enable the creation of a nearly complete global baseline of deforestation patterns and rates, with better coverage in more recent years.[27]

21. With modest investment in capacity building and committed international coordination, all countries can be capable of precise and comprehensive monitoring of deforestation and resulting CO₂emissions, with updates every two to five years.[28] This would produce additional benefits for countries, such as allowing countries to deliver required information to the other Rio Conventions, including the Convention on Biological Diversity(CBD).

22. International coordination for measuring and monitoring forest carbon is already underway. The Group on Earth Observations (GEO) is linking together environmental monitoring systems, data sets, and models to produce the Global Earth Observation System of Systems (GEOSS), which will be the world's most scientifically and technologically advanced and robust monitoring system to ensure the availability and sustainability of repetitive long-term observations and reliable methodologies for measuring forest carbon. This global system aims to make its remote sensing tools and results universally available and importantly, will render national data in a comparable format.[29] The GEO comprises 73 countries and the European Commission.

The success or otherwise of Government efforts in reducing emissions from international land use change

23. The history of emissions from land-use change since 1992 speaks for itself. No government in the developing world has reduced such emissions. On the contrary, such emissions are rising and are projected to continue to rise. Indonesia and Brazil are, respectively, the third and fourth largest emitters of greenhouse gases and almost all of this is due to deforestation and land-use change. Deforestation and land-use change are the overwhelming source of emissions from the developing world excluding India and China. This is true of the latter two countries largely because of almost complete deforestation and conversion to agriculture of their native forests prior to 1992.

24. The lesson is clear: Government action cannot, except in totalitarian societies (and even there only for limited periods), change the underlying forces of demand and supply for timber and agricultural products. Indeed, governments are responsible for exacerbating the situation through perverse subsidies which encourage conversion of forest to agriculture. These subsidies now extend to biofuels and to the translocation of populations to remote areas to relieve population pressures.[30] Only those countries with very small populations relative to forest and land area (such as Surinam and Guyana) or those which have suffered from persistent violence (such as Congo and parts of Indonesia), have been able thus far to resist the pressures of increasing timber and agricultural demand. Most of those countries are now also likely to succumb to the same land-use patterns seen in other countries; as they respond to global demand unless the fundamental change in values, which a carbon market can provide, are delivered to them.

The Congo Basin Forest Fund

25. In our view the Congo Basin Fund has the advantage of concentrating a large-enough sum to begin to make a difference in an area of the world where it is difficult for the private sector to operate efficiently. The key question is what will the funds be used for? If used to establish the necessary legal, administrative, technical and scientific infrastructure to enable the countries of the area to attract private sector capital to the forest and carbon forest sectors, it will be money well spent. It is particularly important that the granting and supervision of forest concessions be radically improved to ensure that real sustainable use of this vital resource is achieved. This requires, above all, greatly increased efforts in respect to governance, enforcement and training as well as improvements in the environment for foreign investors.

26. Land-use policy as a whole needs significant improvement in the Congo Basin not only in respect to forest management but in respect to agro-forestry and agriculture in order to reduce pressures on existing forests and to increase agricultural yields. Indigenous people, particularly forest dwellers, must see direct benefits of good stewardship of carbon-rich resources and be given the means to enforce their land rights. The non-timber forest products and services can be of enormous value but need to be the subject of substantial work. The eco-tourism potential in the area, for example, is substantial but again requires the active participation of the private sector. The Congo Basin Fund, if focused on establishing the public sector framework necessary for the private sector, as opposed to trying to substitute for it, can be of significant benefit. To do so, however, it must be managed by people with private sector experience and disciplines. It should be, in our view, used as a means to leverage private sector capital to enable the countries in the area to manage themselves towards low-carbon development, not to become dependent on a new form of foreign aid.

The interaction of carbon finance mechanisms with the timber trade

27. In any assessment of the need for carbon forestry in the developing world it is critical to understand that without it the laws of supply and demand will overwhelm, as they have for decades, all other efforts to address the loss of native forests. Projected world demand for industrial round wood and sawn wood will be met partially by an increase in plantation forestry, particularly in the developed world; the balance of timber supply together with consumption of wood for fuel will, unless forest carbon offset projects are incentivised, continue to be met through the destruction of native forests in the developing world. At current rates of exploitation the tropical forests will be largely exhausted by 2050 and will have ceased to be intact ecosystems.[31]

28. Recent trends show an alarming picture of changes in the world's wood growing stock.[32] Deforestation is concentrated in the poorest areas of the world along the tropical and sub-tropical belt. As can also be seen, reforestation is increasing in the temperate forests of the developed world. In other words, the world's most important forests, measured in terms of carbon sequestration, as well as other environmental services such as bio-diversity and fresh water, are being destroyed and the least important are being restored.

29. Total global forest area in 2005 was 3.95 billion hectares, just over 30% of the world's land area. Tropical forests account for some 6% of the world's land area. Deforestation, mostly due to land conversion to agriculture, runs at nearly 13 million hectares annually and almost all of it in the tropics. Net forest loss (including temperate forests) from 1990-2000 was 8.9 million hectares annually; from 2000-05 this slowed a net loss of 7.3 million hectares per year due to reforestation in the Northern Hemisphere but deforestation is increasing in the Southern Hemisphere. South America and Africa have recently shown the largest annual net loss of forest by far, 4.3 and 4.0 million hectares respectively.

30. Forest plantations are being planted at an increasing rate though they make up only about 4% of total forest area, or about 140 million hectares. About 78% of forest plantations are established for wood and fibre production (known as "productive plantations"); the other 22% have been established for water and soil conservation. From 2000-05, productive plantations increased by 14 million hectares (about 2.8 million hectares annually). Productive plantations currently stand at about 109 million hectares or about 2.8% of the total global forest area, up from about 1.9% in 1990. Ten countries account for 73% of productive forest plantations with China, the United States, and Russia accounting for more than half of the total.[33] At 2000-05 rates, the rate of plantation establishment would have to increase by 2.6 times in order to offset global net forest loss of 7.3 million hectares per year. This, of course, ignores the differences in biodiversity and productivity between North and South and the crucial role which tropical forests play in the lives of the rural poor in the developing world.

Demand for Wood Products

31. Consumption of wood products is dominated by the use of wood for energy, industrial uses and for sawnwood. Disparities between regions are significant; fuel for wood is the primary use in Africa while it is a relatively minor energy source in North America. The US, on the other hand, is the largest market for industrial uses of wood. On a global basis, fuelwood accounts for about 46% of overall consumption with industrial roundwood and sawnwood accounting for the other 54%. In the developing world, however, wood is the primary source of energy, constituting 87% of wood use in Africa, 68% in Asia, and 54% in Latin America and the Caribbean.[34] There is a growing disparity between demand for wood and what can be supplied by natural forests:[35] Wood consumption is also set to rise in some regions as governmental biomass energy targets take effect in the next decades.

32. Consumption of wood products is set to increase dramatically in the developing world due to economic and population growth and rising standards of living. From 2000-05, China's imports of logs increased by 500%, from 5 to 25 million m3 annually; total imports of forest product increased by 300% from 1997-2004. Some predict that China will face an annual RWE (roundwood equivalent) shortage of 120 million m3 by 2010. India's population will grow to about 1.25 billion people by 2020, 70% of whom will be between the ages of 16 and 65. By 2020, it is estimated that India will face a shortage of industrial log supply of 20-70 million m3. Likewise, consumption of industrial roundwood in Latin America is forecast to grow from 120 million m3 in 1990 to over 200 million m3 by 2020.[36]

33. It is clear that curbing deforestation will restrict the supply of wood flowing to the market from natural forests. Therefore it is also clear, that given projections of population growth and increased global purchasing power, that the area of productive plantations must be dramatically increased to satisfy the increased demand for wood products.

34. The market is responding to the need for an increase in wood supply from plantations. In 2000, plantations supplied about 35% of harvested roundwood, a figure forecast to grow to about 45% by 2030 and to about 50% by 2040. In volume terms, roundwood production was about 331 million m3 in 1995 and is projected to increase to 906 million m3 by 2045.[37] However, even with an increased supply of industrial roundwood from plantations, the FAO has concluded that present plantation development is not sufficient to offset growing consumption, deforestation and declining harvests from native forests.[38] Clearly additional incentives are required. The logical incentive is valuing carbon.

35. Globally, consumption of woodfuel was 1.8 billion m3 in 2000[39] and is expected to grow by about 1.3% annually. The International Energy Association forecasts that in 2030, 2.6 billion people will rely on traditional biomass for cooking and heating, nearly all of which will be produced and consumed locally.[40] This ignores demand from the developed world for biomass fuel a significant part of which must come from imported wood and agricultural products.

36. Government policy which combines energy security and climate change concerns could also have an effect on wood demand. The European Union, for instance, has set policy targets for the use of renewables in the energy supply of 12% by 2010 and 20% by 2020. As wood is a major part of the renewables base, meeting these ambitious targets will increase the demands of the forestry sector. In fact, a wood supply deficit of 185 million m3 by 2010 and up to 448 million m3 by 2020 is forecast if the EU achieves the goals of its renewables policy.[41]

Carbon Credits and Deforestation

37. Credits from avoided deforestation and reforestation allow a real commercial alternative value to be placed on tropical forests if they are integrated into carbon credit trading systems in a fungible and transparent manner. The carbon market can in many cases "tip" the balance of economics in favour of forest conservation. According to the World Bank's most recent study of the subject, the world loses annually about 12 million hectares of tropical forest; tropical forest value cleared to pasture is worth between $200-500 per hectare. Based on its average CO₂ storage per hectare of 500 tonnes, its value as a carbon store is between $1,500-10,000 per hectare (@ $3-20/tCO₂).[42] Even at the low range of carbon prices, continued deforestation would become unprofitable in many land systems:[43]

Illegal Logging

38. Illegal logging must first and foremost be understood as an economic activity in which the participants are responding to demand for a commodity. Illegal logging costs developing countries worldwide around US$15 billion a year in lost revenue[44]. It also causes deforestation, environmental degradation and biodiversity loss measured at many times that.[45] It damages livelihoods and is associated with corruption, organised crime and the fuelling of armed conflicts. But like the trade in illegal drugs, it is pointless to ignore the underlying demand for the product. Fortunately there is a lawful way to meet the demand and on a cost-competitive basis by valuing the carbon in both existing forests and planted trees. This will incentivise governments, providing new resources to improve law enforcement and to incentivise private sector enterprises to expand their activities in developing countries.

39. The economic and environmental consequences of illegal logging can be extensive. By definition, reliable statistics on illegal activities are difficult to gather and quantify. The Center for International Forestry Research (CIFOR) has made some estimates of the costs and volume of illegal logging activities in various countries:

— In Indonesia, as much as 50 million cubic meters of timber are estimated to be illegally cut-down each year.

— At least one-fifth of Russia's annual timber harvest is taken illegally, and illegal harvesting may account for as much as 50% of the total in East Asia.

— In Cambodia in 1997, the volume of illegally harvested logs was ten times that of the legal harvest.

— In Cameroon and Mozambique about half of the total annual timber harvest is illegal.

40. In monetary terms, the estimated value associated with the production of illegal roundwood, lumber, and plywood products was $23 billion in 2002. About $5 billion of these products entered world trade, about 7% of the value of world trade in primary wood products ($69 billion). In volume terms, illegal logging represents approximately 8-10% of global wood products production. This number does not include secondary wood products, furniture, or pulp and paper; including these products would suggest that illegal logging has an even greater impact on the global forestry industry. Most illegal wood products are used domestically. In aggregate, it is estimated that 8% of the world's roundwood is illegally sourced; in export markets, estimates are that 12% of softwood roundwood, 17% of hardwood roundwood, and up to 23% of plywood are illegally sourced.[47]

41. Aside from its direct economic impacts, illegal logging can affect the resource base in a way that makes future legal commercial exploitation unattractive for project developers:[48] The environmental impacts of illegal logging are also severe. Illegal logging can be responsible for a host of environmental problems, ranging from deforestation, habitat destruction, loss of biodiversity, loss of watershed protection, and carbon emissions. Crediting forests with payments for carbon emission reductions provides a sustainable alternative and can reduce the incentive for illegal logging and its negative repercussions.

42. If the rate of tropical deforestation is to be swiftly reduced and if we are to achieve atmospheric carbon stabilization in the medium term, the rural poor of the developing world must be provided with sustainable, alternative ways of life. To accomplish this it must be based on a reliable long-term supply of compensatory payments and incentives, which substitute for illegal logging as well as other lawful forms of forest degradation.

Government progress on tackling illegal timber since the EAC 2006 Report on sustainable timber

43. SFM is not in a position to comment on this.

Government sustainable procurement of forest products

44. Encouraging public sector purchase of environmentally certified forest products has been useful in encouraging timber producers and distributors to move towards sustainable practice. Of even greater potential is encouraging the public, not least by government example, to make similar demands. There is evidence of major forest product companies responding to such demand and it should be encouraged.

The success or otherwise of the EU Forest Law Enforcement, Governance and Trade (FLEGT) Action plan, and Government support for it

45. SFM is not in a position to comment on this.

13 October 2006

1 Stern, Nicholas, 2006, "Stern Review: The Economics of Climate Change", November 2006: Watson, Robert et al. eds." Land Use, Land-Use Change, and Forestry. A Special Report of the IPCC", Cambridge University Press 2000. Back

2 Stern, Key Elements of a Global Deal on Climate Change, London School of Economics and Political Science, 2008 Back

3 Castro, G. and I. Locker. 2000. Mapping Conservation Investments: An Assessment of Biodiversity Funding in Latin America and the Caribbean. Washington, D.C.: Biodiversity Support Program. Back

4 op. cit. Stern, Key Elements of a Global Deal on Climate Change Back

5 See: "US EPA Acid Rain Program 2004 Compliance Report." Back

6 A Cost Curve for Greenhouse Gas Reduction, The McKinsey Quarterly (February 2007). Back

7 Pedro Piris Cabezas and Nathaniel Keohane. "Reducing Emissions from Deforestation and Degradation in Developing Countries (REDD): Implications for the Market." Environmental Defense: 22 May 2008. http://www.edf.org/documents/7975_REDDandCarbonMarketAnalysisReport_EDF_0508.pdf Back

8 See Bohi, Douglas and Dallas Burtraw, "SO₂ Allowance Trading: How Experience and Expectations Measure Up," Resources for the Future Discussion Paper, February 1997. ICF Consulting forecast prices at $1,500 per tonne at the inception of trading. Back

9 See: "US EPA Acid Rain Program 2004 Compliance Report." Back