The Energy Transitions Commission (ETC, Energy Transition Commission) has published a new report providing fresh analysis on the costs of ending deforestation, stating that by 2030 this would amount to at least 130 billion US dollars per year.

Its report, "Financing the Transition: The Costs of Preventing Deforestation", highlights the financial challenges involved in stopping tree felling. This is a supplementary report to "Financing the Transition: How to Make the Money Flow to Ensure a Net-Zero Economy". The new report examines how concessional or grant payments, such as carbon credits, can reduce emissions and halt deforestation. It analyses various estimates of the payments required to incentivise landowners not to fell trees. The report also highlights why it is vital to address the primary drivers of deforestation.

Why end deforestation by 2030?

The loss of forests due to human activity accounts for approximately 15% of total carbon emissions. The main reason for tree loss in tropical forests is agriculture, whereas in temperate and boreal regions, the primary causes of deforestation are forestry and forest fires.

Despite commitments by governments and the private sector to halt deforestation, there are minimal signs of a slowdown in the rate of forest clearance. Unfortunately, according to the IPCC, it is impossible to limit global warming to 1.5°C without immediate measures to stop deforestation. The report states that ending deforestation is theoretically possible through non-financial measures, including:

• significantly reducing consumer demand for products that drive deforestation (e.g., meat and palm oil). Pasture for beef production accounts for 40% of tropical deforestation.

• the development of alternative business models that can profit from standing forests, such as ecotourism and sustainable agroforestry.

• government measures to make deforestation illegal, when combined with effective enforcement of legislation.

While these measures are possible, they are time-consuming, offer only partial solutions, and are generally effective only in the short term.

Therefore, to address these issues, it is crucial to introduce concessional/grant payments to compensate for them by paying landowners enough to cover the costs of lost economic opportunities and to buy time until policy changes are implemented, according to the ETC.

ETC Chair Adair Turner noted: "Without a significant flow of concessional/grant payments, any reduction in deforestation will happen too late to limit global warming to well below 2°C, let alone 1.5°C. But finance alone cannot achieve an end to deforestation. Action to reduce the underlying consumer demands that drive deforestation is also essential and must be a priority for governments, companies and consumers."

How much money is needed?

The ETC analysis distinguishes between two different categories of financial flows:

Capital investment in technology and assets: essential to create a net-zero carbon economy by 2050. In principle, these investments can yield a positive return for investors and lenders. Between now and 2050, an average of approximately 3.5 trillion US dollars per year will be required.

Concessional/grant payments: for decarbonisation measures that are essential to limit warming to 1.5°C, but which will not happen fast enough without payments to economic actors to compensate for lost profit opportunities. These will help to phase out, for example, coal mining earlier than is economically beneficial, limit deforestation, and pay for CO₂ sequestration. Approximately 300 billion US dollars per year is needed in low- and middle-income countries.

Concessional funding will be provided from these three sources:

• voluntary carbon credit markets

• philanthropists

• high-income countries

Using data from the Intergovernmental Panel on Climate Change (IPCC) on deforestation, the report concludes that the cost of protecting all high-risk deforestation forests by 2030 would be very significant – at least 130 billion US dollars every year.

The aforementioned 130 billion US dollars is 50 times the amount currently paid for forest protection through carbon credits. Currently, funding allocated for forest protection is only 2-3 billion dollars per year. Moreover, the report notes that the current price of carbon credits intended to avoid deforestation (REDD⁺) is insufficient to cover the marginal costs of avoiding deforestation caused by commodity extraction.

The report sets out an ambitious but feasible financing strategy from each of these three funding sources. Analysts also look at the issue of ensuring that carbon credits for preventing deforestation truly deliver the promised reductions. They refer to the carbon market integrity standards – the Core Carbon Principles – established by the Integrity Council for the Voluntary Carbon Market.

* An international coalition of leaders from various energy sectors committed to achieving net-zero emissions by the middle of the century, in line with the Paris climate goal of limiting global warming to well below 2°C, and ideally to 1.5°C.