It could cost more than $130 billion a year to end deforestation by the end of this decade, a report by a group of financiers, energy industry executives and academics has found.
The Energy Transitions Commission, which counts senior BP and BlackRock employees among its members, said the analysis was an estimate of the funds 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 engage in deforestation.
Financing forest preservation requires a different approach to investing in the decarbonisation of heavy industry or energy systems, said Adair Turner, the former City of London finance regulator who now leads the ETC.
Instead of the regular debt and equity financing 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, Mr Turner said.
The three most likely sources for these grant-based funds are governments that allocate money to protect forests, philanthropic support and carbon credits, he 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.
Without a “significant flow” of grant payments this decade, any reduction in deforestation would come “too late to make it possible to limit global warming to well below 2°C, let alone to 1.5°C”, the ETC said.
Since 2018, 3.2 million hectares of primary forest have been lost each year from non-fire related causes, which is equal to a rate of 10 football pitches lost every minute, ETC said.
A separate academic paper published on Wednesday found that companies could have an effect on deforestation.
The researchers found 7,000 square kilometres of Amazon rainforest were spared between 2010 and 2018 thanks to commitments signed by companies under the G4 initiative, which was created following direct pressure from environmental non-profit group Greenpeace.
The area is equal to 15 per cent of the deforestation due to cattle farming that would have occurred during the period, models showed.
Cattle production is responsible for more than 70 per cent of Amazon deforestation, so if all companies signed and introduced zero-deforestation commitments, up to 24,000 square kilometres of rainforest would be conserved.
“Even reducing deforestation by 15 per cent is a huge amount,” said Rachael Garrett, a professor at the University of Cambridge Conservation Research Institute and senior author of the report.
But deforestation commitments alone are not enough, the study found.
Less than 1 per cent of Brazilian cattle production is exported to the EU, the largest market where policies have been considered to date.
By contrast, 81 per cent of production between 2015 and 2017 was consumed domestically, where restrictions and public pressure have historically been lower.
Still, increasing involvement by Brazil’s three leading supermarket chains — Carrefour, Walmart and GPA — put pressure on the local market, even during Jair Bolsonaro’s presidency, the academic study said.
For companies, there may be financial benefits to protecting forests and other natural ecosystems such as higher credit ratings, research from Bank of America analysts found.
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 (environmental, social and governance) strategists led by Dimple Gosai wrote in a report published last week.
Biodiversity is a large driver of financial stability for companies, particularly in the energy, materials and commodity-orientated industries, they said.
Global assets in biodiversity-related investments may rise 20-fold to more than $400 billion by 2030, the strategists said.
Investors are already channelling money to things including alternative proteins and food waste-saving technology, and new projects such as land restoration and sustainable fisheries are attracting capital from impact investors, social enterprises and investments that blend public and private money, they said.
Putting an end to deforestation would represent a major step towards preserving nature and limiting the increase in global temperatures.
Deforestation, which involves clearing land for farms, ranches, timber and urban use, is responsible for about 15 per cent of the world’s carbon dioxide emissions, and the global economy will not reach net-zero carbon emissions without putting an end to the practice.
Still, finding sufficient funds will be difficult, the ETC said.
The commission said the $130 billion figure 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, Mr Turner said.
Consumers need to take action by curtailing their demands for meat and palm oil, while governments should outlaw deforestation and enforce it, he said.
“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,” Mr Turner said.