Carbon Taxes Are Key To Stop Deforestation

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Science tells us that humanity has about a decade to reverse course and avoid a worst-case climate scenario. A carbon tax in tropical countries would go a long way to reducing aggregate emissions from fossil fuels and deforestation, protecting our carbon sinks and biodiversity, and helping those most vulnerable to climate impacts.


Edward B. Barbier is a University Distinguished Professor in the Department of Economics, Colorado State University and a Senior Scholar in the School of Global Environmental Sustainability. His main expertise is natural resource and development economics as well as the interface between economics and ecology. He has consulted for a variety of national, international and non-governmental agencies, including many UN organisations, the World Bank and the OECD.



Sebastian Troëng is a global conservation executive who is Executive Vice President for field delivery at Conservation International (CI). For the past 20 years, he has worked on marine research and conservation in places like Greece, Fiji, Australia, Indonesia, Sri Lanka, Costa Rica and Panama, and sits on the board of several conservation organizations.



 

Humans destroyed tropical forests last year at a punishing clip — with forest destruction in the Amazon soaring 85% since 2018.

 

In fact, if tropical deforestation were a country, it would be the world’s largest emitter after China and the United States. This is particularly alarming since tropical rainforests are home to more than three-quarters of the Earth’s species and contribute immensely to removing carbon from the atmosphere.

The Amazon, for example, absorbs five percent of global carbon emissions every year. This means that when we cut down our rainforests, we also eliminate one of our best tools for addressing the climate crisis. Thus, to tackle the existential threats of climate change and biodiversity loss and to meet the internationally agreed United Nations Sustainable Development Goals (SDGs), deforestation trends must be reversed, in particular in tropical countries.

 

However, investment in ‘natural climate solutions’ have been inadequate to disincentivize deforestation.

 

Ecosystem conservation, restoration and management received just 3% of global finance for climate mitigation in 2017–18: an average of US$18 billion (CPI 2017).

To fill this funding gap, we urge more countries that have tropical forests (in South and Central America, Africa, Asia and the Pacific) to adopt a tropical carbon tax. This would be a levy on fossil fuels earmarked for investments in natural climate solutions. Economists and scientists agree that carbon taxes help to reduce greenhouse gas (GHG) emissions by creating an incentive for people to use less fossil fuels. However, that is not all they do; carbon taxes are also effective at reducing the GHG emissions created by deforestation itself—making them even more critical to addressing the climate crisis.

Up to 37% of the mitigation needed to hold warming to the Paris agreement goal might be achieved in this way, at a cost of less than US$100 per tonne of CO2 equivalent. One-third of these mitigation options could cost less than US$10 per tonne (Griscom 2017).

Costa Rica and Colombia have both implemented a tropical carbon tax and have seen not only a drop in deforestation rates, but also renewed efforts to restore previously degraded forests that generated revenue for their economies. The programmes have different structures but similar impacts.

Since 1997, Costa Rica has collected a 3.5% tax on fossil fuels. The tax generates US$26.5 million in revenue every year, which goes towards Costa Rica’s National Forest Fund (FONAFIFO). The fund’s resources have been invested in projects to protect 1 million hectares of mature forest and 71,000 hectares under reforestation. Moreover, the funds of US$500 million have been disbursed to roughly 18,000 farmers and landowners that commit to rainforest protection or restoration on their property, including those living across 162,000 hectares of Indigenous lands, such as the Cabécar and Bribri territories. The use of resources contributed significantly to public acceptability of the tax, a survey of fossil-fuel users indicated that they did not object to the tax because revenues were directed towards forest conservation. Transparency and accountability of the fund’s operations are also central to its success and continued popularity, so strategic and operational plans, budgets, financial statements and other details are available online: www.fonafifo.go.cr.

Colombia rolled out a carbon tax in 2016 as part of sweeping fiscal reforms in the context of the country’s peace process. The carbon tax was developed by the Ministry of Finance and Ministry of Environment and Sustainable Development and is collected from companies producing or importing fossil fuels.

Colombia’s tax of US$5 per tonne of emitted carbon has generated more than US$250 million in revenue over the past three years. These funds go to the Colombian Peace Fund (Fondo Colombia en Paz), from which 25% is earmarked to manage coastal erosion, reduce and monitor deforestation, conserve water sources, protect strategic ecosystems and combat climate change. A further 5% is used to strengthen Colombia’s National System of Protected Areas.

 

Programmes implemented in Costa Rica and Colombia also serve as examples of socially just transitions towards decarbonization.

 

They demonstrate that investment in protecting biodiversity can favour poor people as such investments have wider social benefits (Robalino, Sandoval, Barton, and Chacon 2015). Ecosystem services such as drinking-water supply, food provision and cultural services are estimated to contribute between 50% and 90% of income and subsistence for the rural poor and those who live in the forests (CBD 2019).

In Costa Rica, forests and high levels of poverty can often be found in the same districts, which are now prioritized for payments for ecosystem services. The Government assists smallholder farmers and Indigenous communities in submitting requests for funds. Today, 40% of fund beneficiaries are communities that live below the poverty line.

Our model found that if 12 other countries adopted a policy like Colombia’s, they would collectively generate US$1.8 billion every year. If they decided to adopt an even more ambitious proposal in the face of increasing global emissions, their revenue would soar to nearly US$13 billion — equivalent to the GDP of Nicaragua.

Either scenario would have a profound impact on protection and restoration efforts. Countries facing the biggest threats from deforestation, like Indonesia, would have robust funding streams to help restore devastated landscapes. Other countries, like Mexico and Malaysia, would be able to better monitor and resource their protected areas. All the countries would reduce their reliance on fossil fuels.

We call on governments, development banks, financial investors and non-governmental organizations to support those countries that need financial and technical help to implement this policy, and to ensure that the money raised is spent efficiently and effectively on natural climate solutions.

Our research shows that a carbon tax is one of the most effective investments a country can make to fight deforestation, reduce emissions and support rural communities. It is a particularly easy initiative to implement for countries with existing carbon offset programs and projects, like Peru and Ecuador. Governments should consider it, and international institutions should encourage it.

Science tells us that humanity has about a decade to reverse course and avoid a worst-case climate scenario. A carbon tax in tropical countries would go a long way to reducing aggregate emissions from fossil fuels and deforestation, protecting our carbon sinks and biodiversity, and helping those most vulnerable to climate impacts.

Sources and credits: This research was conducted by Dr. Edward Barbier and Dr. Sebastien Troëng—along with Colombia’s Minister of Environment and Sustainable Development Ricardo Loranzo and Costa Rica’s Minister of Environment and Energy, Carlos Manuel Rodriquez— and was first published by all four authors as a Comment “Adopt a carbon tax to protect tropical forests” in Nature. An opinion piece connected to the Nature article, which this blog relies heavily on, was originally published in Climate Home News.