Climate change is “the greatest and widest-ranging market failure ever seen”, Nicholas Stern’s landmark review for the British government stated in 2006.
Because we very often put no economic value on the services provided by natural capital assets, like the sequestration of carbon from the atmosphere by rain forests, we destroy them without accounting for the catastrophic costs such destruction incurs at the bottom line.
This is the thinking underlying the most innovative proposal before the UN’s Cop30 on Climate Change in Brazil. Brazilian president Lula da Silva has challenged attending states to establish a new Tropical Forest Forever Facility, which would pay countries and communities to keep their forests standing.
On the face of it, this addresses the skewed short-term economics that today rewards communities far more for destroying forests than for preserving and restoring them. Given that the loss of the capacity of these forests to sequester greenhouse gases is one of the main drivers of climate change, the costs of which are growing exponentially, it seems a good idea in principle.
RM Block
But the Brazilian proposal requires a complex financial mechanism: richer countries contribute to a seed fund of $25 billion, which must then attract private finance of $100 billion, the total to be invested in secure bonds. Part of the interest generated is to be paid to countries that have reduced deforestation rates to below 0.5 per cent.
A number of environmental NGOs have dismissed the plan as the “monetisation” of nature, and argue that it distracts from direct action for preservation, and for cutting greenhouse gas emissions. They have a point, but perhaps the real problem may be that Lula’s scheme does not value nature highly enough.
As currently constituted, it would result in payments as low as a few cent per hectare of preserved forest to local people – a glaring example of the risible incentives we give to the critical necessity of climate protection. The market still fails climate needs massively, two decades after the Stern review.
