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Supporting transition – the matter of incentives, supply and demand


Supporting transition – the matter of incentives, supply and demand

Supporting transition – the matter of incentives, supply and demand

Europe and the USA got rich on the back of coal fired industries, and China is still doing so. Unsurprisingly, coal rich developing nations also see it as an asset, and need incentives to change their patterns of use. An example, and one with a local resonance, is the $8.5bn promised to South Africa yesterday (by the UK, USA and EU nations) to help end its reliance on coal as an energy source.

This, like much of the COP process, is not just about rich countries agreeing on their own GHG policies, but also on how much they should pay (as incentives or compensations) to less developed countries who agree to follow suite. At heart it is a debate about justice. 

This was also true of the debate over forest clearance that led to the agreement (on 2 November) on deforestation. The 128 signatories, who control over 85% of the world’s forests, agreed to halt deforestation by 2030. 

The deforestation of Europe was already under way in the bronze age, and England’s South Downs were already cleared when the Romans landed. The first European settlers in the present USA began by clearing forests, and continued doing so for generations. These clearances ultimately allowed the economic rise of the west. One can understand why countries like Brazil say, ‘it’s our turn now’ and resent the interference of western governments who tell them that the destruction of tropical forests has to cease.

On the other hand, one can see why the pressure is being imposed: deforestation generates 10-12% of GHGs annually, the second greatest contribution after fossil fuels. But forests are not just global assets, they are also national assets with financial value. Clearing them for timber, and replacing them with palm plantations, grazing lands or soya plantations, while costly at a public international level, is privately profitable. If an LDC prevents its citizens clearing forests, some incentive will be needed. One approach is bilateral negotiations between a developed nation and a poorer forested one; however, these bring substantial freeriding by other parties. Nonetheless, the UK and Indonesia bilaterally arranged such a deal to end deforestation by 2030. The ideal though, is naturally a multilateral agreement. It was really pleasing to hear that over 100 forested countries, including Canada, Russia, Brazil, Indonesia and the DRC, had agreed to end deforestation by 2030. Importantly, the agreement comes with funding. This may explain why Brazil, despite its recent record, undertook to curb further clearances by 2028.

In any agreement, the devil is in the detail, and this one provides remarkably little. Recall the 200 signatories to the 2014 New York Declaration on Forests, who jointly undertook to halve global deforestation by 2020 and to end it by 2030. In the seven years since it was signed, little has happened. 

The agreement focusses on the supply side of forests and the products they produce. For it to work, the demand side will also have to be considered. Timber in particular is a valuable resource, and plantations take time to grow. If major timber buying nations do not police their demand and the supplies they receive, the incentives to cheat will undermine the agreement. China is, by a considerable margin, the world’s largest importer of tropical hardwoods. Its demand drives much of the logging in tropical forests, and unless it successfully controls and monitor its imports of hardwoods, there is a good chance that the agreement will fail.

About the Author(s)

Anthony Leiman

Emeritus Associate Professor of Economics, University of Cape Town

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