The recently published Stern Review on the economics of climate change offers a rounded and informative picture of the underlying issues and interests relating to forestry with regards to the economics of climate change.  It underlines the significant financial opportunities that climate change now offers the forestry sector, and the new ways in which the sector may figure in economic policy.  Many will see it as putting another nail in the coffin of industrial logging in old growth forests.  However, while the renewed focus that the report brings to the interface between climate change and forestry is welcome, some of its key proposals may prove difficult to implement.

It is essential that the proposed solutions do induce the desired changes. Radical ideas are needed not only at the level of understandings but also of forward strategies. The Stern Review is much stronger on the former than the latter, and leaves a lot of questions unanswered on implementation, particularly the downstream practicalities of bringing avoided deforestation into climate change mitigation efforts.

The key to progress according to Stern is protecting existing forest, as this provides the means to secure large stocks of carbon currently at risk.   Whilst Stern’s own analysis is sophisticated, the evidence on which he draws for ideas for the future does tend to have a rather optimistic tone.  As regards forest conservation, the realities on the ground in terms of the ease of forest protection are really not that encouraging.  Would that they were…

• National forest programmes, even those with international commitment and instruments in place to manage them, have tended to suffer from low national ownership and have ended up being propped up by donors.
• Conservation policies in most parts of the developing world have also often met the same fate;
• The experience of integrating forestry into national planning frameworks (PRSPs and the like) has not been wholly successful.
• The record of environmental NGOs has also been uneven, and their willingness and ability to champion the environmental interests of the poor certainly cannot be assumed.

Understanding what the implications of these realities are for implementation is going to require some honest reflection on the failures of international forest policy, particularly relating to the interests of the forest-dependent poor. It will also require substantial further research. Taking each key message in turn:

1. Curbing deforestation is a highly cost-effective way of reducing greenhouse gas [GHG] emissions and has the potential to offer significant reductions fairly quickly. It also helps preserve biodiversity and protect soil and water quality. Encouraging new forests, and enhancing the potential of soils to store carbon, offer further opportunities to reverse emissions from land use change. 
   • Reducing GHG emissions through avoided deforestation may or may not be an appropriate response in developing country situations (it hasn’t yet been tested on a large scale) – but before implementing any policy, one would need to be certain that it is both cost-effective and equitable.  The key issue here is the question of access rights.  Our brief on avoided deforestation refers.
   • Granted the value of planting new forests, but policies need to ensure poor people do not lose their residual access rights (which is often all that separates them from chronic poverty) and that natural vegetation which serves multiple purposes does not give way to monocultural plantations which serve very few.  Cutting down trees is not always a problem if there are the right incentives to replant them, and the right mix of species.  All too often, incentive structures are markedly anti-trees.
2. Policies on deforestation should be shaped and led by the nation where the forests stand but there should be strong help from the international community, which benefits from their actions.
   • How is the international community going to pay for the global public goods values in ways that satisfy these economic and social conditions? Statistics for transfers at the national level may tell one little about the distribution of benefits.
   • One needs to be cautious about policies driven by solely by the climate change agenda because, as discussed at a recent ODI meeting, these often bring a technical focus to policy development and impose conditionalities that would not be present in ‘normal’ forest protection schemes.  Both of these tend to constrain poor farmers in ways that may reduce, rather than enhance, their ability to respond positively to their changing environment.
3. At a national level, establishing and enforcing clear property rights to forestland, and determining the rights and responsibilities of landowners, communities and loggers, is key to effective forest management. This should involve local communities, and take account of their interests and social structures, work with development goals and reinforce the process of protecting the forests.
   • In principle, this must be right. The lack of tenurial rights for the poor is a major policy failure in the tropics (as is underlined in the recent World Bank report, ‘At Loggerheads’). However, the unfortunate fact is that aid has had a poor record in forcing recalcitrant governments to sign away ownership rights to those with the least power in society.  Without shifts in political power on a revolutionary scale (of the sort that aid generally seeks to prevent rather than encourage), radical reforms in tenurial regimes are unlikely to occur.
   • We also need to take note of the views of people like Prof. Mushtaq Khan who argue that the governance failure in this area is not only the result of the colonial inheritance and subsequent government inertia but also the fact that smallholder agriculture does not generate the wealth needed to create the institutions for the defence of tenurial rights under modern political regimes.  One can quibble with Khan on the role of factors such as community tenure in lowering transaction costs but his basic point – that creating effective judicial systems is a very expensive business at the periphery – is surely strong. 
     • Does carbon finance offer an innovative way to overcome this weakness, and allow poor people to effectively defend their rights? The challenge is to ensure that carbon finance is implemented in such a way as to avoid a transfer of land ownership out of community tenure into the hands of the moneyed classes, which is the most likely outcome of any significant capitalisation of land.
4. Compensation from the international community should be provided and take account of the opportunity costs of alternative uses of the land, the costs of administering and enforcing protection, and managing the transition. Research carried out (for the Stern Review) indicates that the opportunity cost of forest protection in 8 countries responsible for 70 per cent of emissions from land use could be around $5 billion annually, initially, although over time marginal costs would rise.
   • It is clear that if developing countries are to adopt policies that are designed to support the global good, then the global community should pay for them. But the benefits have to go not only to those who can protect the forest, but those who bear the costs of its protection. 
   • The challenges here are significant. How, for example, can one identify the opportunity costs for alternative land uses in situations where there are multiple forest users for the same land (as is often the case with the poor)? It is hard to see how direct incentive payments (or policy interventions that incentivise other land use practices) can target all these users accurately.
5. Carbon markets could play an important role in providing such incentives in the longer term. But there are short-term risks of de-stabilising the crucial process of building strong carbon markets if deforestation is integrated without agreements that increase demand for emissions reductions, and an understanding of the scale of transfers likely to be involved.
   • This is one of the main arguments for reticence on the issue of avoided deforestation. But notwithstanding this concern:
     • The question of how much carbon is fixed by what kind of plantation or avoided deforestation is still often very uncertain. This needs to be carefully thought out to ensure farmers do not end up planting trees in specified patterns just to ensure they fit into particular carbon-fixation modes.  In a recent ODI Forestry Briefing, we consider the danger of such off-the-shelf prescriptions, in relation to voluntary carbon schemes.   This paper also discusses the problem of aligning the motivations of the investors (certainty of carbon sequestered, positive effects on corporate image, etc.) with the interests of producers (certainty of benefits for the individual farmer and the host country). Both of these considerations argue in favour of the establishment of standards, if carbon markets are to play a role in incentivising forest protection.
     • It is already difficult for small producers to obtain certification for sustainable forest management – will this not also be the case for carbon certification? 
     • It is also important to be aware of the problems that the CDM continues to face in terms of forestry, which Stern himself acknowledges.  These relate to the complexity of the international system required to ensure that units can be traded easily and the related transaction costs. Overcoming these issues is not proving too easy for forestry, so how much confidence should we have in introducing a newer and much larger forestry component into the same, or a similar system?
6. Action to preserve the remaining areas of natural forest is urgent. Large-scale pilot schemes are required to explore effective approaches to combining national action and international support.
   • OK, but what will these ‘large-scale pilot schemes’ look like and (equally important) who will get them off the ground? The World Bank has intentions in this area, but a broad agreement is needed at national, sub-national and international level as to what would be involved before setting up such ventures in the forest sector. Large scale schemes smack of standardisation and conformity, not adaptation and responsiveness, as tend to be required to safeguard the interests of the poor.

Thus, there are still a lot of questions that need to be answered and challenges to be overcome in formulating policy in this area. ODI is working on these issues. A particular interest is voluntary offset schemes.  We are also seeking to marry some of our established interests in pro-poor development and governance reform with climate change themes, developing research to help policy makers reach balanced judgments and put in place policies that can bring together the development and climate change agendas in the area of forestry. This includes work on avoided deforestation and the judicial process (tying in with work undertaken in our VERIFOR project).

Like development, climate change is a major global challenge. It is crucial, given the increasing attention being paid to the issue (thanks in part to reports like Stern), that global responses do not fail the poor.

Some ways forward:

In summary, many of are very valid and opportune on the normative level at which they are pitched. The challenge lies in putting them in to practice.

• The absolute requirement for these financial flows to work to the benefit of the poor must be a favourable tenurial regime. But this won’t come about only through pressure from donors for national policy reform. What is needed is the whole package of legal reforms which will allow the poor both to assert and defend their property rights. This means ensuring that the poor have access to the basic democratic channels to express their voice, and putting in place institutions to arbitrate between competing claims and paths of legal redress (ombudsmen, for example).
• It also means ensuring that administrative decision-making upholds the intentions of the law. All too often, defending rights in the constitution and statute comes to nothing because those rights are then overridden in administrative decision-making.
• A sceptical attitude is needed to those existing institutions which control access to the forest estate.  These are rarely working in favour of the poor.  Optimistically promoting those actors who are conventionally viewed as the champions of the poor (NGOs for example) is no guarantee that they will act as such. Such players may well have a positive role to play, but most likely in support of existing political processes, not in opposition to them.
• Finally, it needs to be remembered that, even in Europe, forests survive only because of the heavy subsidies they receive. The costs of forest conservation in the tropics are likely to be even greater.  Reconfiguring incentive regimes must take into account the true costs of maintaining forests as a form of land use, and these are likely to be significant.  It is important that they are not borne only or primarily by those who are least able to bear them. The urgency of climate change should not be allowed to break this golden rule.