Updated: Cap-and-trade highlighted as best means of cutting deforestation

Forestry should be incorporated into global carbon markets as part of a strategy designed to halve deforestation levels by 2020 and make the entire global forest sector "carbon neutral" by 2030.

That is the central recommendation of the Eliasch Review, a 250 page report into how best to finance efforts to tackle deforestation commissioned by the UK government and published today.

Johan Eliasch, the UK's Special Representative on Deforestation and the man who oversaw the report, argued that with deforestation accounting for 17.4 per cent of global greenhouse gas emissions, forestry must form a central component of any post-Kyoto deal.

He added that new financial mechanisms that challenge the scenario where " cutting down and burning trees is more economic than preserving them" must be developed as a matter of urgency.

"Without action on deforestation, avoiding the worst effects of climate change will be next to impossible, and could lead to additional climate change damages of $1 trillion a year by 2100," he said, adding that addressing deforestation represents the most cost effective means of cutting carbon emissions.

"Including the forest sector in a new global deal could reduce the costs of tackling climate change by up to 50 per cent and therefore achieve deeper cuts in emissions, as well as reducing poverty in some of the world's poorest areas and protecting biodiversity," he said.

The report outlines detailed plans for the phased introduction of forestry into the global carbon markets as the best means of achieving the goal of a carbon neutral forestry sector by 2030 where any carbon released as a result of deforestation is offset through reforestation projects. It argues that to achieve this, deforestation levels will have to be cut by 75 per cent, with the remaining 25 per cent of deforestation covered by tree re-planting programmes.

In the long term, the report claims that a global cap-and-trade scheme would represent the most effective means of slashing deforestation levels and outlines plans for a system similar to the EU emission trading scheme, where the level of emissions from deforestation are capped and countries that come in below that cap can then sell excess carbon credits to fund their forest protection measures.

However, Eliasch's team recognise that many of the countries responsible for tropical forests are unlikely to sign up to a scheme that would see them have to buy in extra credits if they fail to curb deforestation sufficiently.

Consequently, the report sets out an interim proposal that would see forestry brought into the carbon market through an offset model where areas of forest that have been independently certified as protected would be able to sell carbon credits.

It also outlines plans for international investment of $4bn over five years to fund so-called capacity building that would see the international community and countries managing tropical forests develop the base line measurements, policing mechanisms, satellite tracking technology, and demonstration projects necessary to lay the foundations for a global cap-and-trade scheme.

While the integration of forestry into the carbon markets is the preferred option, the report recognises that it is unlikely to operate on the required scale in the short- to medium-term. The need to ensure that the carbon market is not flooded with new credits means that there is likely to be a funding shortfall that will have to be plugged by governments if the 2020 and 2030 targets are met. The report estimates that this funding gap could be between $11bn and $19bn by 2020, with the carbon markets contributing just $7bn to forestry protection.

However, many of the proposals in the review attracted condemnation from environmental groups, who argued that incorporating forestry into carbon markets will inevitably result in corruption and increase pressure on indigenous communities to leave their land.

In addition, Friends of the Earth's International Climate Campaigner Tom Picken argued that allowing industrialised nations to buy forestry-related credits would limit pressure on them to curb their own emissions.

"Allowing rich countries and businesses to offset their carbon dioxide emissions by buying up huge tracts of forest is riddled with problems and will do little to tackle climate change," he argued. "The Eliasch plan will simply create a smokescreen allowing us to carry on polluting – it’s the climate change equivalent of sub-prime mortgages."

He added that rather than seek to monetise forests through a carbon market, forestry policy should seek to address "the underlying causes of deforestation, such as biofuels, excessive meat consumption and industrial logging".

However, despite on-going concerns about how forestry protection schemes will be policed, the report has secured early endorsements from the governments of Papua New Guinea, Costa Rica, Indonesia and Norway and is expected to inform the UK's negotiating position at upcoming UN talks to agree a successor to the Kyoto Agreement.