As evidenced by the recent Earth Summit, interest in protecting the world's forests is growing. Turning this interest into action is difficult due to concerns that an effective international forest protection effort would entail a binding agreement that might infringe on national sovereignty. Recognizing that the global environmental and ecological outputs of forests can be protected only through international cooperation, researchers at Resources for the Future have proposed a global system of tradable forest management obligations that would internalize the benefits of forest conservation to forest owners, thereby providing incentives for sustainable forest management. Modeled on the U.S. system of tradable emissions permits, the proposed system could emerge from a recent forestry initiative, which envisions voluntary forest partnerships between the developed and the developing countries.
Just before the United Nations Conference on Environment and Development, the so-called Earth Summit held in Rio de Janeiro in June 1992, President Bush announced an initiative that would commit the United States to substantially increasing its current expenditures to protect the world's forests, particularly tropical forests. Far from being a feeble last-minute effort to gain credibility with the environmental community, the "Forests for the Future" initiative was actually the outgrowth of the Houston Communique drafted in July 1990 by the Group of Seven (G7) member countries—the United States, Canada, the United Kingdom, France, Germany, Italy, and Japan. The communique called for negotiations to be completed by 1992 on an international convention or agreement to curb deforestation, protect biodiversity, stimulate positive forestry actions, and address threats to the world's forests.
The forestry protection efforts urged by the Houston Communique appear to be more concrete and substantive than the highly general set of "forest principles" that emerged from the Earth Summit. These principles express concerns, goals, and intentions regarding forests, forest management, and forest protection. The nonbinding "Statement of Forest Principles" adopted at the summit stresses that "forest lands should be sustainably managed to meet [the] social, economic, ecological, cultural, and spiritual human needs of present and future generations." In addition to affirming the responsibility of countries to ensure that forestry activities within their jurisdiction or under their control do not cause damage to the environment, the statement explicitly acknowledges the sovereign right of individual countries to exploit their own forest resources. Indeed, it was the reluctance of countries to relinquish sovereignty in domestic activities that precluded a binding agreement that would prescribe, for example, specific forest management efforts and the quantity of forest each country must protect and preserve.
Although it appears modest, the "Forests for the Future" initiative announced by Bush may prove to be a greater catalyst for increasing protection of forests than the "Statement of Forest Principles." On the surface, the initiative consists simply of a unilateral pledge to increase the current sum of $120 million for forest conservation efforts in the developing world, Eastern Europe, and the former Soviet Union to $270 million in 1993, and to further increase monetary assistance in the future if other countries also contribute to these efforts. When viewed in the context of the Houston Communique, however, it is clear that the real import of the initiative is not the pledge of financial assistance but the intention of precipitating major commitments to forest conservation by the other industrialized nations.
To avoid the problem of encroachment on sovereignty that has plagued most attempts to develop forestry programs that could be accepted in the context of a global agreement, the "Forests for the Future" initiative envisions voluntary forest partnerships between developed countries and developing countries. Through these partnerships, the developed countries would finance forest protection, conservation, and restoration projects proposed by the developing countries. Since it is unlikely that all of these projects could be funded, donor countries would allocate money to the countries they felt had developed the best proposals. To bring potential donors and recipients together, the initiative calls for the convening of a forest partnership forum as early as the end of 1992.
The importance of the Bush initiative lies in the intention to precipitate commitments to forest protection by other industrialized nations.
The concept of partnerships between the developed and developing countries was echoed in a communique issued at the G7 summit in Munich in July 1992. This communique calls for "rapid and concrete action" to create "worldwide partnerships" to follow through on the initiatives emerging from the Earth Summit, and it specifically mentions the "Statement of Forest Principles" in connection with these partnerships.
Global environmental and ecological outputs of forests
Why should the world's forests need the special protection urged by the "Forests for the Future" initiative, the Houston Communique, and the "Statement of Forest Principles"? The answer is that not all of the outputs of forests can be captured and allocated by markets or nonmarket actions on the part of individual governments. Those that cannot be captured and allocated are undervalued and, as a result, are likely to be degraded over time.
Two types of forest outputs are likely to be valued and thus protected within national economies. These are commodity and direct service outputs, such as timber and recreation, and local environmental outputs, such as local watershed protection. Markets provide incentives for the efficient capture and allocation of commodity and direct service outputs, with socially desirable results. Local environmental outputs, on the other hand, often require nonmarket interventions such as government regulation if they are to be captured in any orderly way. These interventions can be made on a local level and would not benefit from the involvement of other countries.
In contrast, the capture of two other kinds of forest output—global environmental outputs, such as carbon sequestration, and global ecological outputs, such as biodiversity—requires international cooperation. It is the realization that neither existing markets nor actions by individual governments are likely to protect these outputs that have led the G7 to seek a global forest agreement.
Alternative approaches to global protection of forests
Several approaches to preserving the global environmental and ecological outputs of forests have been suggested. The basic dilemma of these approaches is to achieve real protection of forests without undermining national sovereignty.
One approach would be a binding agreement that sets forth (for example) country-by-country forest-cover quotas and prescriptions for sustainable forest management. Such an agreement could substantially increase forest protection because it could impose tough compliance and monitoring standards. However, many countries view the imposition of such standards as unacceptable due to considerations of national sovereignty.
Under the proposed system of tradable forest management obligations, industrialized countries might fulfill their "surplus" obligations by investing in efforts to curb destruction of the Amazonian and other rain forests
Another approach would be a series of nonbinding principles or expressions of intent. While avoiding the politically unacceptable constraints imposed by a binding agreement, such principles and expressions are often shallow and typically lead to little, if any, action. Thus the forest principles agreed to at the recent Earth Summit are likely to generate little forest protection.
The problems with the two above approaches suggest that if any international system of forest protection is to be effective without infringing on national sovereignty, it must meet four criteria. First, such a system must create incentives for producing global environmental and ecological goods that will balance the already existing market incentives to produce commodity and direct service goods and the political incentives to produce local environmental goods. Second, it must allocate responsibilities for forest protection to all nations. Third, it must allow flexibility in how these responsibilities are met. And fourth, it must promote cost-efficient ways of meeting them.
Applying the concept of tradable emissions permits
The system of tradable emissions permits that is increasingly used in the United States to control air pollution could provide a model for a global system of forest protection that satisfies the criteria noted above. The permit system is implemented by fixing an acceptable amount of pollution, issuing emissions permits equal to that amount, and establishing some system for fairly distributing the permits to the entities creating the pollution. These entities are allowed to emit more pollution than the amount specified by the permits they hold, but they are free to sell their permits or buy those of other entities. Because the permits can be traded, they become an asset. Even though permits are initially received free of charge, their use precludes their sale and thus involves opportunity costs.
The number of permits created and thus the amount of pollution allowed is a nonmarket decision, as is the distribution of permits. Once the permits have been distributed, however, the market reallocates them so as to penalize increases and reward reductions in pollution. In this way the polluter is forced to bear a cost that had been borne collectively by society. This cost creates an incentive to reduce pollution.
Under a global system of tradable forest protection obligations, poor countries would, in effect, be compensated for the environmental and ecological benefits provided by their forests.
The concept of tradable pollution permits could be applied to forestry activities with the objective of internalizing the benefits of forest conservation to forest owners, thereby providing incentives for the sustainable management of forests. To do this, researchers at Resources for the Future have proposed a global system of tradable forest protection obligations whereby countries would voluntarily accept the responsibility to maintain or improve the quality of forests within their own jurisdictions, within other countries, or both. This system would be implemented by creating a set number of obligations and distributing them among countries. Like emissions permits, the obligations would be tradable. Countries could fulfill them directly or induce another country to assume them, presumably in return for payment.
One of the attractive aspects of the proposed system is that, through the distribution of obligations, poor countries would be compensated for the environmental and ecological benefits provided by their forests. Poor countries, particularly those with large amounts of forested land, would assume obligations to protect less forested land than actually exists within their boundaries. Wealthy countries, on the other hand, would assume obligations to protect more forested land than actually exists within their boundaries. Thus they would fulfill their "surplus" obligations by protecting forests in poorer countries.
To fulfill these obligations, wealthy countries could provide payments to poor countries to facilitate efforts to protect critical forests. These efforts could include the establishment of forest preserves, the restoration of forest habitats, or the introduction of sustainable management practices. In some cases, payment might be made only after countries were successful in maintaining the integrity of protected areas for some specified period of time. Thus the payments could be tied to actual performance and not simply to promises.
Under the proposed system, protection of any one acre of forest would not necessarily be equivalent to protection of any other one acre of forest. In fact, the system would be fairly complex in operation. It would recognize that forests differ in type and in condition and management, and therefore differ in their capacity to generate global environmental and ecological outputs. Thus the system would make distinctions in the value of protecting, for example, ten acres of virgin wet tropical forests, which are rich in biodiversity, and the value of protecting ten acres of northern boreal forests, which are less rich in biodiversity and far more abundant than virgin wet tropical forests. This means that if a country fulfilled its obligations by protecting tropical forests, it would have to protect fewer acres than if it fulfilled its obligations by protecting northern boreal forests.
The proposed system would recognize that forests differ in their capacity to generate global environmental and ecological outputs, and thus would make distinctions in the value of protecting different types of forests.
Transition to a system of tradable obligations
A global system of tradeable forest obligations would have to be implemented gradually because it would constitute a sharp departure from the usual manner in which foreign assistance is allocated and because initially only the wealthy countries would be in a financial position to assume obligations. However, Bush's "Forests for the Future" initiative could be the first step in the transition to such a system.
The major achievement of the initiative is that it encourages the participation of the G7 countries and other industrialized countries in forest protection efforts that are in the spirit of the "Statement of Forest Principles" that emerged from the Earth Summit. Like the proposed system of tradable obligations, the initiative calls for these countries to make investments in forest management in developing countries. While the initiative only proposes fixed monetary expenditures (as opposed to fixed obligations) for this management, it is similar to the proposed system in that it considers forest conservation to include not only the creation of protected areas, but the promotion of broad multiple uses of the world's forests. Moreover, the forest partnership forum proposed in the "Forests for the Future" initiative could serve as a clearinghouse for facilitating creative investments in these uses under a global system of tradable obligations.
Roger A. Sedjo is a senior fellow in the Energy and Natural Resources Division at Resources for the Future.
A version of this article appeared in print in the October 1992 issue of Resources magazine.
A version of this article appeared in print in the October 1992 issue of Resources magazine.
