Analysis

As debates on market-based instruments continue, forests continue to be lost

Endless debate of 'market-based' instruments are stalling real progress.
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There has been frenzy in the past decade over market-based instruments for the conservation of tropical forests.
There has been frenzy in the past decade over market-based instruments for the conservation of tropical forests.

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A few years ago, “carbon cowboys” arrived in the forests of Papua New Guinea and announced to the perplexed Papuans that rich countries would soon pay for the carbon stored in their forests in order to fight against climate change. Today this example seems almost of another era, as forest carbon markets through the Reducing Emissions from Deforestation and forest Degradation (REDD+) mechanism appear moribund.

Millions of hectares of natural tropical forests continue to disappear each year, and other market-based instruments are emerging regularly. How will we analyze such instruments? Have we learned the right lessons?

Carbon markets were the culmination of a contemporary reflection on environmental (or ecosystem) services. These cover the various benefits that man derives from nature — control of soil erosion, hydrological regulation, maintenance of soil fertility or the enjoyment provided by the beauty of a landscape.

These environmental services enable the identification of various benefits provided by nature and lead to their monetary assessment in order to guide management decisions. This utilitarian approach — a term I use not in a pejorative but simply an economic sense — leads to a reflection on market-based instruments intended to lead to sustainable forest management. Indeed, a monetary value implies the possibility of charging a beneficiary and thus encouraging the production of a good — in this case, an environmental service.

This simple observation explains the frenzy in the past decade over market-based instruments for the conservation of tropical forests. These instruments cover payments for environmental services (PES) based on conditional contracts negotiated between beneficiaries and providers of a service, various grant or taxation programs, forest certification through entities such as the Forest Stewardship Council, the promotion of non-timber forest products markets for the purpose of conservation, and many others.

However, the term “market” must be interpreted broadly, and few terms are used so confusingly. This concept includes fixed payments determined by a government to reward virtuous practices, as well as the establishment of markets in which commodities are traded freely with minimal state intervention. Yet it is crucial to make the distinction, as it informs the limits of their implementation in practice. It is also important to understand that many market-based instruments presented as “innovative” are in fact only recycling conventional public policy instruments that do not correspond to the so-called modern vision of the market, which is presented as a new remedy able to succeed where others would have failed.

I contend that the risks are limited because of their narrow scope. Besides, who complains that agricultural production is sold on markets, even though it is an environmental service (a provisioning service, according to the evaluation of the Millennium Ecosystem Assessment)?

My point: debates and speeches in this field have often smashed against realities on the ground. The experiments were either shaky (carbon markets for avoided deforestation); simply resulted in new names for traditional grant programs (emblematic PES programs in Costa Rica); represented a determination by development agencies and conservation NGOs to implement PES projects with high cost/preserved unit ratios; or reflected the desires of the private sector (conservation banks to protect biodiversity in the USA).

LOSING PRECIOUS TIME

The problem with these debates and experiments for market-based instruments lies not so much in what the Cassandras would have us believe — namely that the commodification of nature is under way and that people will quickly forget their intrinsic motivation to manage their resources sustainably when faced with conservation incentives in the form of hard cash.

Instead, these debates are problematic insofar as they make us lose precious time in the race against tropical deforestation. They divert our attention from the real solutions that we must address as fast as possible and that actually consist of changing the nature of our economic growth. Markets are not well-adapted to the thorny question of conserving tropical forests, and the aggressive treatment we are witnessing is at best futile, at worst counterproductive.

It is probably other markets that will lead to better protection of tropical forests — those that deal more explicitly with the goods produced from forest conversion and that encourage us to change our diets, to reduce our paper consumption, or to adopt intensive farming practices to limit the expansion of cultivated areas. Or else we must return to a more traditional conception of market-based instrument to change these behaviors, namely using a smarter tax system that changes relative prices based on their environmental impacts. In the particular case of climate change mitigation, this means a shift from carbon markets to a carbon tax; the former was only preferred to the latter for political reasons, not on economic grounds.

Anyone interested in reducing tropical deforestation should also face the “elephant in the room”: environmentally harmful subsidies, especially those supporting fuel energy consumption. These lead us to destroy our environment by making profitable forest logging and conversion in places where it should not be, and can also be a significant source of funding for the fight against deforestation if diverted from their current use. We are dealing in this case with a large-scale market-based instrument for destroying nature.

Editor’s Note: This article is based on the book “Peut-on sauver les forets tropicales ? Instruments de marché et REDD+ versus principe de réalité,” published in 2013 by Presses de Sciences-Po, Paris.

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