Saving forests? Take a leaf from insurance industry's book
A group of environmental scientists say a problem-ridden economic model designed to slow deforestation can be improved by applying key concepts from the insurance industry.
REDD (Reduced Emissions from Deforestation and forest Degradation) is a UN-promoted scheme that allows countries to trade in carbon credits to keep forests intact. It is mainly targeted at developing nations where deforestation and exploitation are a major threat.
In a paper published online in the journal Conservation Letters, ecology researchers from Australia and South Africa argue that REDD projects can suffer from three major problems. They have proposed strengthening the scheme by using insurance policies and premiums, creating a new scheme known as iREDD.
"The idea of paying a nation to protect its forests in exchange for carbon pollution offsets can potentially reduce overall emissions by keeping the trees alive, and ensure a lot of associated biodiversity gets caught up in the conservation process," says Professor Corey Bradshaw, Director of Ecological Modelling at the University of Adelaide's Environment Institute and a senior author of the paper.
"However, there are three main problems with REDD: these are known as leakage, permanence and additionality."
Leakage - "This occurs because the original forest area that was targeted for protection under the agreement remains intact, but the deforestation that would have otherwise occurred merely gets shifted to an adjacent forest, so the net effect is the same. It results in biodiversity loss and no emissions reduction," Professor Bradshaw says.
Permanence - "This problem occurs because there is no guarantee that your investment – the forest – remains intact for a sufficient period into the future to account for the carbon being offset."
Additionality - "This a way of describing 'what would have happened anyway'. In other words, if a particular area of forest was never targeted for deforestation, then being paid to maintain it is a false investment because the service was never in any real danger."
Professor Bradshaw and colleagues from James Cook University and the University of Pretoria have suggested using a form of REDD 'insurance policy' (iREDD) to avoid these problems.
iREDD involves the buyer and seller together assessing the risk in a forest conservation project, agreeing on that risk and then purchasing an insurance policy scaled to that risk.
"iREDD can be used to ensure that both the seller and the buyer are protected. In this case, the seller represents those who manage the forests, and the buyer is the company, nation or individual who wishes to buy into the forest for its carbon offset potential.
"In this scheme, everyone wins," Professor Bradshaw says.
"If the sellers fail, then the buyer is compensated and can invest elsewhere. If the sellers do well, they get more money. Most importantly, it increases the probability that atmospheric carbon will be reduced – or at the very least, the rate of emissions will be slowed – and the forest's associated biodiversity will remain, protecting thousands of species against local extinction."
Workable financial mechanisms are essential to abate greenhouse gas emissions. Deforestation, which contributes a large proportion of total global emissions, must be avoided as an effective emissions-reduction tactic, and to alleviate biodiversity loss and poverty. However, incentives to reduce emissions from deforestation and forest degradation (REDD) have had mixed and suboptimal success because of opportunity costs and administrative and technical issues, in particular, leakage, permanence, and additionality. We show that these latter concepts can be ambiguous, potentially contrived and in some cases, generate perverse outcomes. Encumbering avoided-deforestation projects with these administrative shackles risks massive increases in global deforestation and a concomitant loss of biodiversity, ecosystem services and emissions-reduction opportunities. We offer a solution built on a proven insurance-based hedging principle, a concept we call iREDD, that could indirectly address specific technical and administrative challenges, whether real or contrived. Project-specific iREDD insurance policies and premiums would be negotiated upfront using a simple assessment of risk based on governance quality, the integrity of management plans, liquidity, monitoring and evaluation frameworks, and political acceptability. iREDD acts as both an incentive for prudent forest management given the seller's potential financial windfall if forests are diligently managed, and guarantees not to disenfranchise the buyer.