Incentives to Save the Planet - Part 1

Incentives to Save the Planet - Part 1
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For better or worse, environmentalists have the same task that economists do: in order to bring about sustainable behavior on the part of businesses, consumers, governments or anyone else, we need to get the economic incentives right.

At first, the idea of framing workable incentives for keeping our food, water, air and livable climate from collapsing along with threatened ecosystems seems crazy. Saving the planet should be on what your Economics 101 professor would call a vertical cost curve. If you happen to need an appendectomy, you'll pay whatever it costs. The demand curve for it is vertical; it does not fall off as the price of the lifesaving surgery increases. One would think that the demand for planet-saving interventions that preserve forests and biodiversity, make agriculture and other resource-based livelihoods sustainable and make our planet livable would also be on a vertical curve, worth any price to us.

But it's not, at least not yet. There are still perceived tradeoffs between the larger goal of saving the planet and the complex web of interests in global economic activity. Governments need to manage their economies, businesses need to stay in business, people in producer countries need employment, people in consumer countries need to products that are affordable as well as sustainable. That means sustainability has a price as well as a value and needs incentives in order to click with economic forces.

Twenty years ago this month, at a time when the world was alarmed by rapid deforestation in the Amazon, the Rainforest Alliance launched a program called SmartWood to protect the world's forests that recognized this truth. It was dedicated to the idea that we could not preserve resources by simply forbidding resource-based livelihoods, on which some 2 billion people depend. Our founders realized an outright ban on tropical forestry would just lead to more pirated wood and more clear-cut forests. Instead of a negative inducement to stop operating, foresters needed a positive incentive to make their operations sustainable.

The SmartWood program articulated voluntary but rigorous standards for sustainable harvesting and planting, creating buffer zones, preserving habitats and carbon sinks, protecting workers and investing in local communities. It helped forestry operations adopt best practices to meet those standards and certified the ones that achieve and maintain compliance. We incentivized the system by giving certified wood access to markets, a special seal of approval that distinguished it from non-certified wood for consumers and a "chain of custody" certification for downstream companies showing its wood was sourced and processed sustainably. That gave certified wood a competitive advantage over non-certified wood.

At the same time, in 1990 Rainforest Alliance launched another program based on the same principles to certify sustainable agriculture, since agriculture is a main driver of forest loss.

The vision of global-scale forest management, and even the idea that wood products companies should track the provenance of their wood, were novel in 1990. We pioneered them and identified the incentives that could make certified sourcing catch on. Our was soon incorporated into the Forest Stewardship Council (FSC) system, which the Rainforest Alliance helped establish in the early 1990s.

20 years later, these innovations have caught on and scaled up. Today, the Rainforest Alliance is the leading certifier of FSC forests worldwide, including forestry operations covering more than 157 million acres, plus over 3,000 chain-of-custody certificates, in 70 countries. Our sustainable agriculture program has also given many thousands of farms realistic, competitive alternatives to full-sun, chemical intensive coffee that could otherwise thrive naturally in forest shade, or monoculture palm oil plantations that destroy carbon-sequestering peat forests, or slash-and-burn cattle grazing which is the single worst cause of forest degradation.

Back in 1990 it was a hard to get companies to understand why they should even bother tracking where their wood came from. But today, it's the norm. Tracking supply is the basis of every credible sustainability regime and has also become law -- the US and the EU have both passed enforceable bans on illegal logging and sourcing illegal wood, which include strict tracking mechanisms for companies.

The Rainforest Alliance also helped launch the idea that forest conservation has an economic value that can provide sufficient incentive for concrete investment. Today, that principle is enshrined in the UN's REDD (Reducing Emissions from Deforestation and Degradation in Developing Countries) program, which is one of the bright spots in the climate treaty process. It has the potential to conserve the world's remaining forests and cut global greenhouse gas emissions by up to 17%, or the equivalent of the planet's entire transport sector.

When you consider that the Rainforest Alliance's SmartWood program has been around for 20 years and FSC for even less time, and that FSC has already captured 15% of the global market and continues to grow explosively, it puts our present dilemmas in useful context. Yes, forests are still under threat. But certification is an accelerating force for preserving them, growing rapidly while overall forest loss has slowed. Yes, glacial progress on a global climate treaty and the low expectations for COP16 are lamentable. But FSC's success is an encouraging sign that we can also find the right balance of incentives to adopt REDD+ and make incentive payments for forest preservation work. If the UNFCCC achieves that, other successes will follow. If FSC and other sustainable certification regimes continue to grow as they have for the next 20 years, just imagine the impacts they will have on the global economy and environment in 2030.

I look at a more pessimistic take on FSC in The Economist, examine some of the specific incentives that are driving FSC's growth, and consider the potential for market-led innovations vs. government regulation to save the world's forests in Part 2 of this blog.

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