Fixing the Amazon Forest Market Failure

Daniel Nepstad:

Hello, I’m Dan Nepstad. I’m the president and founder of the Earth Innovation Institute. I’m really happy to be talking with you today about an amazing opportunity to slow and reverse the loss and destruction of the Amazon forest. It starts with the basic premise that saying, “You should”— the moral argument is not enough. It’s much better to find ways of making forest conservation make sense for the people who control it: the governments, the companies, the communities and farmers. We land on three pillars of a strategy. First, make forest conservation generate more benefits to the people who practice it.

Make it feasible and rewarding to comply with the law. Make it a good place to do business. And finally let’s really accelerate the transition to a bioeconomy beginning with fish. Now, the story starts in 1984 I was a graduate student at Yale university and I just moved to the town of Paragominas in the far eastern fringe of the Amazon forest to start my field work for my PhD dissertation on how you accelerate the recovery of tropical forests, of Amazon forests in abandoned lands, abandoned pastures. Now this place was full of abandoned pastures.

It had huge cattle ranches. It had hundreds of sawmills pulling logs, huge trees, out of the forest. There were land settlements, people trying to reclaim chunks of land to get by and being pushed off often violently by land grabbers. There were indigenous people seeing their territories encroached and encroached upon. All of this was happening in this amazing town where I lived for a few years and eventually lived in the Amazon for about 12 years. And the lessons from that time were: I learned something about forest recovery and how to accelerate it but my biggest lesson was about the people.

Because it didn’t fit the notion I had when I went to the Amazon. Most of the people and my friends from Paragominas are hard-working courageous families that have gone to the Amazon from the south from the drought and poverty-stricken northeast to find a better life through hard work. And it’s understanding their perspective that is the key to getting to a forest friendly development pathway. Now I went on as a scientist for the next 25 years focused on figuring out how the forest was going to fall apart in the face of climate change in the face of deforestation, in the face of logging, drought, and fire.

I did wonderful huge experiments to determine the threshold of drought beyond which giant trees start to die the number of fires a forest can take before grasses start to move in and it’s no longer a forest because it’s burning so much. And every year that ticked by I got more and more interested in solutions. And I made my pivot from the science of destruction of how the Amazon would be destroyed to the science of solutions. That decision was manifested in 2010. I decided to set up an organization called Earth Innovation Institute located in San Francisco to be close to the epicenter of innovation Silicon Valley the great universities of the Bay Area of California but also the epicenter of evolution for climate policy California.

California had implemented a climate policy that included a way of rewarding tropical forest governments that were succeeding in reducing deforestation not at the pilot level project level but across entire states some of the states far bigger than California. It launched a network in 2009 called the Governors’ Climate and Forests Task Force, and our institution was really designed to support that network. How do we help these governments step up to the plate step up to the challenge and achieve forest friendly development? One of the first things we ran into in Brazil but also in Peru Colombia Indonesia where we were working with teams resident on the ground was that forest conservation was not delivering the benefits that it should.

Take the Brazilian farmer. The farmer has to keep by law eighty percent of his farm his or her farm under forest. And on top of that, riparian zone forests, steep slopes have to be forested. And if there’s forest beyond that requirement that they have the legal right to clear they’re very motivated to do so because when you clear forest your land increases in value three four fivefold. And that can give me a thousand dollar boost in my property value per hectare cleared. And all of that 80 percent under forest it just seems to be a burden I’m conserving forests to help the world but I’m not getting a return on that forest set aside.

And compare that to the benefit to the global economy of keeping a single hectare of forest standing and it’s about 50,000, 55,000 per hectare if you take 500 or so tons of CO2 that go to the atmosphere when you clear forest and multiply that by the 100 per ton value of the US EPA under the Obama administration their estimate of the social cost of carbon. And that is a market failure where there’s a fiftyfold gain globally if you keep the forest standing but because of the thousand dollar gain 50 times smaller the decisions are made repeatedly.

So that is a major challenge. And the challenge varies depending upon the sector the type of land manager. Indigenous people of course have always depended upon forests. Their livelihoods are tied to forests. They do a little bit of small-scale clearing for crops and staple crops. And they have different issues, though. They are facing economic hardship. They need economic alternatives. ” They need economic alternatives. I’ve heard this from several indigenous leaders they’re currently dealing with COVID. The need is even greater. Small-scale families most of them you find either along the rivers they’re long-term communities [community name unclear].

But there’s immigrant farmers that are in settlements, settlements to basically give landless people land. And they often rely on cattle too because they don’t have the technical assistance to develop better production systems to sell to local markets, produce lettuce, tomatoes, and that stuff continues to be imported from outside of the Amazon. So the economic logic of forest conservation varies with what type of producer, type of community you are. And that’s the logic that’s the basis of a large-scale slowdown and reversal of deforestation. Now let’s get to the three pillars how do we make forest conservation make sense deliver more benefits?

For farmers—and that’s the biggest piece of this, probably— it’s a question of paying them for the forests that they can legally clear. That’s the top priority. And there’s emerging a huge opportunity to do that and it’s through the climate-neutral movement. More and more companies are declaring their commitment to be climate neutral. And they can achieve some of their reductions in greenhouse gas emissions themselves in their own operations. But invariably they need to buy some credits from other projects or programs that are reducing emissions more than they need. The California policy was supposed to set in place a market that recognized and rewarded that progress in reducing emissions across entire states across the tropics.

Still not fully implemented, but we have a standard. And pretty soon several states a few states at least will be verified under that standard and able to sell their emissions reductions to these companies that are striving to be climate neutral. What’s particularly important about these state programs the ones that California recognizes is that they’re systemic they’re statewide. Mato Grosso which is twice the size of California was the biggest deforester and the fastest to reduce deforestation once this ambitious Brazilian program was put in place in 2004 has a program that should be verified soon under the tropical forest standard of California that’s delivering benefits to indigenous people to small-scale farmers in settlements to supporting the government’s law enforcement efforts and eventually it will deliver payments to farmers who are preserving their forests beyond the legal requirement.

And it’s barely funded. It has 50 million euros from Germany and the UK and it could expand greatly. It’s a perfect place for corporations striving to become climate neutral to invest with a huge multiplier. Now, I mentioned Brazil launched, embarked upon an amazing strategy to reduce deforestation and the measures used were expanding the protected area system more than half of the forests of the Amazon are protected today: Indigenous territories parks, preserves. They cut off credit to farmers in high deforestation counties. Extraordinary measures, cracking down on illegal operators but it was all sticks not enough carrots.

And that’s why this first pillar, make forest conservation beneficial, is so important another pillar is making legal compliance feasible and rewarding and today it’s neither. Take that Forest Code that makes every farmer keep 80 percent of their farm at least in forest. Eight years ago, the CAR was created. It’s the environmental registry the rural environmental registry. And farmers have delivered their applications to get the car that will show that they’re in compliance with the forest code or on their path to becoming compliant. And there’s a huge backlog: 95,000 applications in the state of Mato Grosso alone being processed a few a day when it should be hundreds a day.

And we’re working with the state of Mato Grosso to support greater efficiency in processing car. Once that is achieved, it will be much easier for forest conserving farmers to be identified and rewarded through several different mechanisms including paying them to keep their forest standing. Third is the shift to a bioeconomy, much talked about for many years. It’s an economy based on the biological processes and cycles and natural, native species,. The circular economy, really, where energy and mass and products are recycled and [phrase incomplete in the source]. And the basis of the protein economy of the Amazon going back millennia has been fish and it was only in the ’60s that cattle came in and displaced fish as the main source of protein.

”. ”. Cattle ranchers, small-scale farmers, Indigenous communities, [community name unclear], rubber tappers, are all moving into fish at some scale. Aquaculture. But also, communities along the rivers are moving into and have been for years community-based management of lake reserves on the flood plain of the main channel. Species like [fish name unclear], this giant, enormous fish, [description unclear], are being managed through traditional techniques and by keeping the big industrial fleets out of the lakes. The communities are doing that. Now how do we move all of these together? For us the unit is an enormous scale: it’s the state.

And we need to recognize and reward and support those states that have begun their journey towards forest friendly development. I mentioned Mato Grosso, but San Martín in Peru, the state of Acre in Brazil, Pastaza in Ecuador, Caquetá in Colombia. Our teams are in all of those and many others supporting this transition to forest friendly development that’s socially inclusive that’s making it more beneficial to keep forest standing. We help them become better places to do business. We help them find the partners they need the investors, the buyers, the groups that want to set up processing facilities.

So cacao producers in Caquetá are getting better prices and better markets for their products. And we are trying to establish a new narrative that’s less about wagging your finger and saying “You folks in the tropics should do this,” and it’s more about “You are embarking on an incredible, unprecedented journey towards forest-friendly development, and we’re ready to help you. ” So, please, this is an agenda that requires hundreds of organizations and people and supporters. And let’s do this together. Thank you.