Imagine a project that does the following: It stops the logging of tropical forests, thereby preventing the extinction of the myriad species that depend on them; it takes a major step toward halting climate change; and it raises the living standard of some of the poorest people on the planet. Columbia Business School faculty members and alumni have developed just such a project, and we are pursuing it actively.
Sir Michael Somare, the prime minister of Papua New Guinea, and Oscar Arias, the Nobel Peace Prize–winning president of Costa Rica, lead the Coalition for Rainforest Nations, an alliance of forested tropical countries that is widely regarded as one of the most important initiatives on the international political scene. The coalition’s aim is to modify the Kyoto Protocol to provide financial incentives for forest conservation, thus avoiding the two gigatons of carbon that deforestation contributes annually to the Earth’s atmosphere. The coalition is administered, and its strategy developed, at Columbia Business School.
Deforestation contributes between 20 and 25 percent of all greenhouse gas emissions annually — by comparison, the U.S. economy emits 27 percent — and is a major driver of climate change. Stop tropical deforestation and you make a big dent in climate change, almost as big as stopping all emissions from the United States. In addition, you conserve the many rare and beautiful species of animals, plants and insects that live in these forests, and you protect the livelihoods of the people around the globe who depend on forests for their existence.
I advocated seizing this opportunity in my 2000 book Nature and the Marketplace, in a chapter titled “Forests, Carbon and Kyoto.” But I never had the chance to put this idea into practice until I met Kevin Conrad ’05 (EMBA), an investment banker who grew up in Papua New Guinea and is a confidant of Prime Minister Somare. At the prime minister’s instigation, we hatched a plan to bring together a coalition of countries threatened with deforestation, which became the Coalition for Rainforest Nations. We then presented a proposal at the December 2005 Montreal meeting of the United Nations Framework Convention on Climate Change (UNFCCC), the body governing the Kyoto Protocol.
The wording of the proposal was unspecific and even bland: “Papua New Guinea and Costa Rica, on behalf of many supportive nations, call upon the parties to the UNFCCC and the Kyoto Protocol to take note of the present rates of deforestation within developing nations, acknowledge the resulting carbon emissions and consequently open dialogue to develop scientific, technical policy and capacity responses to address such emissions resulting from tropical deforestation.” Despite a clear lack of enthusiasm from the United States, the minutes of the meeting reflect a consensus in support of developing “policy approaches and positive incentives” for reducing emissions from deforestation.
“Positive incentives” is UN-speak for the use of market mechanisms. The UNFCCC agreed to consider detailed proposals for offering financial incentives for reducing emissions from deforestation in developing countries. Kevin and I were delegates of Papua New Guinea at the Montreal meeting; Kevin is now the executive director of the coalition and has been joined by Federica Bietta ’05 (EMBA) as finance director.
Since December 2005 the coalition has been working with the Secretariat of the UNFCCC to develop detailed proposals for implementing incentives for reducing deforestation. The main idea is to introduce credits for reduced emissions from deforestation, or CREDs. These CREDs would be tradable on the emissions trading market to be established in 2008 under the Kyoto Protocol and also in the existing European Union Emissions Trading Scheme.
The European Union — in particular the leaders of the UK, German and Italian governments — has been extremely supportive of the coalition’s initiative and has provided financial support to the Secretariat through Columbia Business School, as has the World Bank, which recently announced the creation of a $250 million forest carbon facility to prime transactions in this area.
The coalition plans to take a detailed proposal for the establishment and trading of CREDs to the December 2007 UNFCCC meeting in Bali, Indonesia. There are several economic details we have to resolve first, and to be successful we will need support not only from the coalition members and the EU but also from India and China, where deforestation is less rampant. The challenge is to create a scheme from which everyone can gain, even those developing countries with little or no deforestation. Many international leaders are aware that approving this plan would lead to stable forests and greater income for forest dwellers. Approval in Bali would also mean reduced climate change for all.
Geoffrey Heal is the Paul Garrett Professor of Public Policy and Business Responsibility and a faculty leader of the Sanford C. Bernstein & Co. Center for Leadership and Ethics at Columbia Business School.
Geoffrey Heal, Donald C. Waite III Professor of Social Enterprise at Columbia Business School, is noted for contributions to economic theory and resource and environmental economics. He holds bachelors (first class), masters and doctoral degrees from Cambridge University, where he studied at Churchill College and taught at Christ’s College. He has also taught at Sussex, Essex, Yale, Stanford, École Polytechnique, Stockholm and...