16/02/2009 (Carbon Positive) - Using carbon markets to prevent deforestation in developing countries is unlikely to provide a high enough economic incentive to save tropical forests, a study has found.  The European Commission’s Science for Environment Policy unit quotes a study published in the journal Environmental Science and Technology, which compares the returns from clearing tropical forest for palm oil plantations with the likely carbon costs if such emissions were priced.

The study, “Preserving the World’s Tropical Forests: A Price on Carbon May Not Do” by Persson and Azar, concluded that “in almost all cases it is more profitable to clear forests for palm oil production, even when the carbon price on emissions from deforestation is taken into account”. It specifically challenges the claim that deforestation in the tropics can be reduced at very low carbon prices.

The most likely carbon pricing mechanism to tackle deforestation is REDD, an international scheme under which developed countries would pay developing countries, their landowners and forest communities to leave forests standing. Carbon prices under such a global avoided deforestation system are foreseen in a range of $US4-10 per tonne of CO2 emissions avoided. Early REDD projects in the voluntary carbon market point to prices in this range.

The study makes the point that it is not simply that carbon prices would be too low to succeed in preventing deforestation. It says that the interconnection of energy and carbon markets mean that higher carbon prices would go hand in hand with higher bio-energy and, in turn, land prices, making if difficult for forest carbon payments to compete at most levels. For carbon prices to curb deforestation they would have to reach high enough levels as to make other non-biofuel renewable energy alternatives for transport more competitive.

The authors suggest that other measures on top of carbon pricing will be needed to preserve forests, such additional payments for environmental benefits that forests deliver. Examples of such ‘ecosystem services’ are biodiversity and freshwater protection, for which markets are in their infancy.