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Conservation Financing: Swapping Debt for Carbon?

| Thursday June 17th, 2010 | 0 Comments

One of the profound indicators of environmental degradation is the rate at which forests are being lost around the world, particularly in tropical areas where biodiversity is also threatened. There are many causes of deforestation, including corruption, inequitable distribution of wealth and power, population growth and clearing for agriculture. According to the United Nations Framework Convention on Climate Change (UNFCCC), subsistence farming is responsible for 48 percent of deforestation.

The degradation of forest ecosystems can also be traced to economic incentives that make the clearing of forests more profitable than forest conservation. When Congress finally moves on cap and trade/offset emissions legislation, the pressure to conserve rainforests is likely to increase, making carbon a viable new commodity. Conservation financing will become increasingly attractive as the carbon footprints of businesses are taken into account.

One method of conservation financing, known as debt-for-nature swaps (DNS), were first introduced by Dr. Thomas Lovejoy of the World Wildlife Fund in 1984, to deal with the problems of developing nation debt and its effect on the environment. Traditional DNS occur when a conservation organization acquires a debt at a discount and the debtor country redeems the debt by protecting land in reserves. Bilateral DNS take place between two governments where one country forgives a portion of the debt owed in exchange for environmental commitments from that country.

The concept of DNS has evolved over time as our economic and environmental interests change. The original DNS idea has given rise to “debt-for-development” programs as well as “debt-for-the environment” activities. Debt-for-carbon solutions could be the next evolution.

Many of the debt-for-nature swaps have taken place under the 1998 Tropical Forest Conservation Act (TFCA) which offers eligible developing countries options to relieve certain debt owed to the U.S. Government in exchange for tropical forest conservation activities.

A shift towards placing realistic values on the carbon sequestered in rainforests could have a significant impact on the future. According to a 2005 report from the Food and Agriculture Organization of the United Nations, the forests of Bolivia, Central African Republic, Chile, Congo, Costa Rica, Democratic Republic of Congo, the Dominican Republic, Guatemala, Nicaragua and Papua New Guinea are worth an estimated $1.1 trillion for their carbon sequestration alone. This doesn’t even include the value of biodiversity, recreation and tourism value or the harvest of renewable products.

Developed countries, particularly the United States, are quick to insist that developing countries preserve their rainforests, but they often don’t consider the economic and social impacts of our demands. Individuals depend on the land for survival and utilize the forests for their income. Furthermore, many of these developing countries owe significant debt and are liquidating their forests to provide short term capital and income to pay their debts to developed countries. Conservation programs must include economic incentives and financing mechanisms in order to keep these forests in tact and help lift residents out of abject poverty.

“Debt-for-carbon” swaps could become a new arm of conservation financing whereby commercial corporations, including large utilities, would purchase the debt of poor countries in exchange for the carbon stored in preserved rainforest areas. These offsets would help corporations meet their internal or regulatory carbon emission and offset targets, while at the same time helping to alleviate debt. Commercial corporations have traditionally had limited involvement with DNS, but their role in climate change is evident and their level of engagement is likely to change.


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