Why a price on carbon will not stop deforestation

By Chris Lang | REDD-Monitor | 17th February 2010

Three straws in the wind: Two pieces of policy news and a new piece of research. Two weeks ago, a leaked document from the EU revealed that the European Commission and some member states hope to include oil palm plantations in the definition of forests. Yesterday, the Jakarta Post reported that Indonesia’s Forestry Ministry is drafting a decree to reclassify oil palm plantations as “forests”.

Last week, the European Commission’s Science for Environment Policy put out a News Alert with the headline “Pricing carbon insufficient to save tropical forests from deforestation”.

There are two related issues here. The first is the definition of “forest”. Currently, the UN defines a forest as any area larger than 500 square metres with crown cover of 10 per cent and trees capable of growing two metres high. Clearly, this definition fails to address the conversion of native forests to monoculture industrial tree plantations. (Incidentally, the UN has not yet attempted to agree a definition of forest degradation. The latest document from the Ad-hoc Working Group on the Kyoto Protocol, includes two alternative lists of definitions. But the word “degradation” is not included in either list, not even in square brackets.)

The second issue is whether deforestation (including conversion of forests to monocultures) can be prevented by putting a price on carbon. Recent research, published in Environmental Science and Technology found that putting a price on carbon is unlikely to prevent forests being cleared for oil palm plantations. Part of the problem is that a higher carbon price drives up demand for biofuels (as an alternative to expensive fossil fuels). This in turn increases both the price of biofuels and the likelihood that forests are converted to oil palm plantations.

Under the EU’s Renewable Energy Directive, 10 per cent of all road transport fuel will have to be “renewable” by 2020. This directive has helped drive a massive expansion in the area of oil palm plantations for biofuel, which has resulted in the destruction of vast areas of forest (and therefore increased greenhouse gas emissions). Instead of addressing this problem, the EU seems determined to make matters worse. A draft communication (available here – pdf file 98 KB) from the European Commission was recently leaked. It is supposed to provide guidance to EU member states on the use of biofuels, but it includes the following extraordinary statement:

“Continuously forested areas are defined as areas where trees have reached, or can reach, at least heights of five metres, making up a crown cover of more than 30 percent. They would normally include natural forest, forest plantations and other tree plantations such as palm oil. . . . This means, for example, that a change from forest to oil palm plantation would not per se constitute a breach of the criteria.”

Rainforest Rescue and Friends of the Earth Europe are campaigning against this attempt to reclassify oil palm plantations as forests.

Indonesia is the world’s biggest producer of palm oil, with oil palm plantations covering an area of 7 million hectares. Currently these plantations are classified as an agricultural crop. But earlier this week, the head of research and development at the Forestry Ministry, Tachrir Fathoni, explained to the Jakarta Post that Indonesia wants to re-classify this area of monoculture as forest. “It is to anticipate the implementation of the REDD scheme,” he said.

Fathoni argued that Malaysia already includes oil palm plantations in its forest sector. “By doing so,” he said, “Malaysia can reap financial incentives from the UNFCCC [from] carbon trade.” Financial incentives, that is, to clear forests and replace them with oil palm monocultures. Obviously, providing carbon credits for oil palm plantations is not quite what most people have in mind when they think about REDD. Equally obviously, the UN needs to sort out its definition of forests in order to exclude industrial tree plantations.

A common “solution” put forward to prevent the conversion of forests to plantations is to make the forest worth more standing because of the carbon stored in it than the palm oil would be worth from the plantation that replaced the forest.

It sounds simple, but recent research by Martin Persson and Christian Azar at the Chalmers University of Technology in Göteborg, Sweden indicates that a price on carbon may not be enough:

“We estimate that deforesting for palm oil bioenergy production is likely to remain highly profitable, even in the fact of a price on the carbon emissions from forest clearing.” [*]

An important part of their findings is that increasing the price of carbon will not solve the problem. The European Commission’s Science for Environmental Policy summarises their argument as follows:

“Landowners anticipate gains in the future because they expect carbon prices to rise over time. This means that landowners can pay a relatively low price for carbon emissions from deforestation now and profit from a greater willingness to pay for bioenergy in the future as climate policy is strengthened and carbon and energy prices rise. As a consequence, the value of land will also rise. A higher carbon price will not only increase the cost of forest clearing but also the revenues from doing so.”

Persson and Azar are not arguing that tropical deforestation should be kept out of future international climate regimes. “That would only make matters worse,” they write. But their research has major implications for REDD, particular given the direction that REDD is currently heading – trading the carbon stored in forests and hoping that the magic of the markets will keep the profits from carbon trading higher than the profits from palm oil trading.

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[*] ^ Martin Persson and Christian Azar (2010) “Preserving the World’s Tropical Forests—A Price on Carbon May Not Do“, Environmental Science and Technology, 2010, 44 (1), pp 210–215, DOI: 10.1021/es902629x.

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