Business Standard

Ending deforestation likely to cost more than $130 billion a year: Report

It would likely cost more than $130 billion a year to end deforestation by the end of this decade, according to a report from a group of financiers, energy industry executives and academics

Photo: Bloomberg

Photo: Bloomberg

Bloomberg

Listen to This Article

By Alastair Marsh

It would likely cost more than $130 billion a year to end deforestation by the end of this decade, according to a report from a group of financiers, energy industry executives and academics.

The Energy Transitions Commission, which counts senior BP Plc and BlackRock Inc. employees among its members, said the analysis is a first-of-its-kind estimate of how much funds would be needed “to overcome the economic incentive to cut down trees.” The forecast is based on an analysis of the volume of grants or other forms of so-called concessional finance that would be needed to pay landowners not to deforest. 

Financing forest preservation requires a different approach to investing in the decarbonization of heavy industry or energy systems, according to Adair Turner, the former City of London finance regulator who now chairs the ETC. Instead of the regular debt and equity financings that are used to electrify the power grid or develop new green steel plants, avoiding deforestation requires “a different category of financial flow,” namely “paying somebody not to do something” without expecting a direct rate of return, he said in an interview.

The three most likely sources for these grant-based funds are governments that allocate money to protect forests, philanthropic actors and carbon credits, Turner said. For companies that have set science-based net zero goals, buying carbon credits on the way to net zero can be an important method for supporting forest conservation, he said.
There also may be financial benefits to companies that protect forests and other natural ecosystems such as higher credit ratings, according to research from Bank of America Corp. analysts.

Businesses with lower biodiversity risk scores are likely to be rated BBB+ or higher, while those that take measures to restore nature also may face lower financing costs, the bank’s ESG strategists led by Dimple Gosai wrote in a report published last week. Biodiversity is a large driver of financial stability for companies in the energy, materials and commodity-orientated industries, they said.

Putting an end to deforestation would be a major step to preserving nature and limiting the increase in global temperatures. Deforestation, which involves clearing land for farms, ranches, timber, urban use and other activities, is responsible for almost 15% of the world’s CO2 emissions, and the global economy won’t reach net zero carbon emissions without putting an end to the practice. 

Still, finding sufficient funds will be difficult, according to ETC. The Commission said the $130 billion number represents a sum of money, in the form of grant payments, that “could make an important contribution to avoiding deforestation.” The cost of putting a “permanent stop” to all deforestation by 2030 could be as much as $900 billion a year.

In either case, the order of magnitude is so far in excess of current financing for forest protection, which ETC puts at about $3 billion a year.  Financial solutions to deforestation will be nothing more than a stopgap without changing the underlying forces that make deforestation economically viable, Turner said. Consumers need to take action by curtailing their demands for meat and palm oil, while governments should outlaw deforestation and enforce it.

“Unless you find a way to switch off the fundamental demand drivers that are driving deforestation, paying people not to deforest is like pushing water uphill,” Turner said.

--With assistance from Saijel Kishan.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Apr 19 2023 | 8:47 AM IST

Explore News