Land Use

Section six

Land Use


Section six | Land Use


The land use sector incorporates all of the natural capital stocks and ecosystem services that provide the world’s people with benefits such as water filtration, food, fibre, fuel and livelihoods.

Enabling financing for, and better provision and management of, “natural infrastructure” is therefore critical to delivering on our global aims of inclusive growth and climate action. Global demand for food, fuel and fibre is growing rapidly, increasing pressure on natural capital and ecosystems and exacerbating climate risks. By 2050, agriculture will need to supply 70% more food than today to feed a growing population, delivering on Sustainable Development Goal (SDG) 2: ending hunger, in a way that does not harm the soil, water, biodiversity, ecosystem services or climate upon which human well-being and development depend.1

Wood products are also increasingly in demand, propelled by the emerging and developing countries. One 2012 projection is for a tripling in demand by 2050, while a widely accepted and more recent projection forecasts increases from 28% (for sawnwood) to 192% (recycled paper products for pulp) to 2060.2 Although the majority of tree removals in 2015 still came from natural forests, planted forest area increased by 66% from 1990 to 2015, and now accounts for 7% of the world’s total forest area.3 Of the estimated 264 millino hectares (ha) of planted forests in 2010, roughly three-quarters had commercial wood product production as their main purpose.4 These plantations are highly concentrated in a small number of countries, including China, United States, Russia, Japan and India.5 On a smaller scale in terms of total area but larger scale proportionately, plantations of major tree crops are growing in tropical forest countries such as Indonesia, Malaysia, Brazil, Cambodia, Colombia, Liberia, and Peru.6 Remote sensing shows that more than half the tree cover of peninsular Malaysia, for example, now consists of tree plantations, and plantations constitute nearly 16% of tree cover in Indonesia.7

Meeting the surging demand for food, fibre and fuel will require major changes to land use and water management practices. More than 25% of the world’s agricultural land is now severely degraded, and at least another 8% is close to being so.8 About 12 million ha of productive land are lost each year due to unsustainable farming practices,9 and about 7.6 million ha of forest are permanently converted each year to other uses.10 Global fresh water withdrawals have increased sevenfold since 1900, and 70% of current global water use is for agriculture, ranging from 21% of withdrawals in Europe to 82% in Africa. Water scarcity is becoming a serious problem in some regions: in 2011, 41 countries were considered “water stressed”.11

Estimates suggest more than 15 million ha of land continue to be degraded each year – primarily in developing countries – to the point that they can no longer produce economic goods or provide ecosystem services. Land use practices – including, but not only, deforestation and the conversion of land into agricultural uses – were also responsible for around 24% of man-made global GHG emissions in 2010.12 Agriculture accounted for 13% of all global GHGs, with over half of this coming from livestock directly. Land use change, such as deforestation, accounted for 11%.13

It is not possible to successfully combat climate change without transforming the way that land is used. Deforestation and forest restoration, land rehabilitation, livestock emissions abatement, improved soil and water management, and changing cropping practices are investible activities, provided that the right incentives for behaviour change are in place. Overall, research for the Global Commission has estimated that land use interventions could deliver between 15–35% of the emissions reductions needed globally to put us on a 2°C pathway by 2030.14

Land use not only has strong emission reduction potential – it is also the only sector that can currently remove carbon from the atmosphere on a large scale. Conserving and restoring forests and rehabilitating degraded lands are critical if we are to maintain and increase carbon storage – both above and below ground – as well as other crucial ecosystem services. Agricultural practices also play a key role in maintaining, enhancing or reducing soil carbon sequestration. Recognising this, France launched the “4 for 1,000” initiative at COP21 to emphasise that the world’s soils store 1,500 Gt CO2e, and increasing this by 0.4% per year, which is technically feasible, would compensate for a massive amount (4.3 Gt CO2e) of other emissions.

Land use, natural capital and green infrastructure

Land is natural capital, and as such, it has significant and complex interconnections with built infrastructure. It can effectively serve as natural infrastructure, such as when wetlands provide a buffer from floods, and sand dunes protect from storm surges in coastal areas. But built infrastructure – from roads, to dams, to agricultural facilities – can also take a serious toll on the land and the natural resources it holds.15 For example, a meta-analysis of the relationship between road development and deforestation in tropical developing counties found that new roads were highly associated with significant new deforestation.16 Yet new road infrastructure is projected to grow globally by 60% (25 million km) over 2010 levels by 2050, with 90% of additions occurring in developing countries.17 Already, 43% of global road infrastructure is in developing-country areas that have relatively higher environmental sensitivity.18

However it is also possible to develop incentives – such as regulatory enforcement measures, fiscal policies and subsidies – that encourage people and businesses to value the natural resources and the potential uses of land as an integral part of the real economy,19 weighing the short-term opportunity costs of converting natural resources against the long-term loss of ecosystem services or capital stock.20

Humans already place a high value on the natural infrastructure services that landscapes provide, though they may fail to capture these values economically (see Box 27). For example, natural infrastructure strategies (such as using wetlands as flood buffers instead of building flood walls, or revegetating a slope to prevent landslides) are more beneficial and make better economic sense than human-built “grey infrastructure” alternatives. Natural infrastructure may be more robust to climate change impacts and variability, and it is easier to adjust and adaptively manage than “grey” infrastructure, which is often socially and economically difficult to reverse or remove once built.21 More effectively recognising and emphasising the benefits of natural infrastructure for climate mitigation and adaptation in particular could increase access to dedicated climate finance.

Box 27 — Landscapes as a form of infrastructure

  • Water filtration: Forests are important for maintaining clean, stable drinking water supplies for downstream cities and other users. Rainwater percolates through forest soils before entering groundwater, filtering out impurities. Leaves and forest floor debris prevent sediment from entering streams and lakes. A US study found that drinking water treatment costs decrease as the amount of forest cover in the relevant watershed increases. In fact, the share of forest cover in a US watershed accounts for about 50–55% of the variation in water treatment costs.
  • Landslide prevention: Through their roots and forest floor debris, forests on slopes can hold soils in place and thereby prevent landslides during heavy rains. In Switzerland, the benefits of protected forests are estimated at US$2–3.5 billion per year due to avoided costs of avalanches, landslides, rock falls and flooding.
  • Flood mitigation: Forests and forested wetlands can affect the timing and magnitude of water runoff and water flows by acting as “sponges”. Water is stored in porous soils and debris, and then is slowly released over time. Through this process, forests can lower peak flows during heavy rainfall or flood events. In the Upper Yangtze River Basin in western China, for instance, flood mitigation provided by forests saves an average of US$1 billion annually from avoided storm and flood damage.
  • Coastal protection: By serving as “speed bumps” for incoming storms, some coastal forests can attenuate the impact of storm surges and thereby avoid costly damage. In Vietnam, the restoration of 18,000 ha of mangrove forests resulted in annual savings of US$7.3 million in sea dyke maintenance and storm surge protection, an estimated cost avoidance of US$405 per hectare.
  • Air quality improvement: Forests can improve local and regional air quality. Trees can trap or absorb air pollutants emitted by power plants, factories and vehicles – such as sulphur dioxide, nitrogen dioxide, and small particulate matter – that can trigger asthma or other respiratory problems. The lack of systemic consideration of land use or “natural” infrastructure enhancement in grey infrastructure planning, natural resource assessments and policy-making can lead to inefficient use of scarce finance and to incoherent policies. Integrated systems for climate, land use, energy, and water management can remedy these shortcomings.

The annual cost of degradation of productive landscapes is presently estimated to be on the order of US$100 billion.22 Most of the world’s degraded land is inhabited by poor people with few other opportunities for livelihoods, and land degradation further undercuts their development opportunities. Hence, strengthening investments in land use can contribute to achieving the SDGs. For example, restoring just 12% of degraded agricultural land in developing countries could boost smallholder farmers’ incomes by US$35–40 billion per year and feed 200 million people per year within 15 years.23 Initiating forest restoration of at least 350 million ha by 2030, meanwhile, could generate US$170 billion per year in net benefits from watershed protection, improved crop yields and forest products.24

The land use challenge is most important for developing countries, which currently account for the majority of GHG emissions from land use.25 These are also the parts of the world where infrastructure investment choices are most important in terms of magnitude and impact on growth rates. To grow sustainably and build resilience, developing countries will need significant investment in both conserving and restoring natural infrastructure, combined with other investments in grey infrastructure.

Reconciling near-term growth with sustainable, resilient and equitable development requires a whole “landscape” approach26 that associates increased access to new grey infrastructure with better governance of natural resources. Integrated system planning for natural and grey infrastructure investment, which has been done successfully with water and sanitation in a number of places, for example, can deliver large benefits. As laid out in Better Growth, Better Climate, prospering via land use requires both “producing” and “protecting” at the same time. Infrastructure – grey and green – is central to this.

The sustainable land use investment gap

Reversing land degradation is crucial to achieving the kind of growth we need, and will require massive investments in landscape rehabilitation and protection, particularly in developing and emerging countries. Rehabilitation is important, but it is not cheap. Typical out-of-pocket rehabilitation cost for forests in formal projects in developing countries are about US$1,000–3,000 per ha, exclusive of land costs, and depending on species, method, natural conditions and scale of operations.27 As a gross estimate, exclusive of land values, restoring 350 million ha of forest landscape over the next 15 years would cost between US$350 billion and more than US$1 trillion, or US$23–67 billion per year. This scale of finance is even more challenging because it might take decades for trees to grow and all the benefits to be realised.

Forest conservation financing has the additional problem that, while some costs can be recouped thorough expanded ecotourism and support for green infrastructure from water companies and cities, most of the returns to forest conservation are not directly market-mediated. Cooperation is required to monetise payments for valuable ecosystem services, and especially for transfers across national borders, as only some incur the cost of conservation, but all benefit.

Agricultural land restoration can cost even more per hectare than forest restoration, depending on the extent of the project and the infrastructure used. However, the economic benefits tend to come much sooner than for pure forests. Better Climate, Better Growth recommended putting 150 million ha of degraded agricultural land into restoration by 2030, or about 12% of all degraded agricultural land. Even at a simple estimate of US$1,000 per ha, at the low end of the forest restoration project cost range, 150 million ha of agricultural land restoration would add US$150 billion in cost.

Independent estimates of global land restoration needs are in the range of US$200–300 billion per year, a figure in tune with the estimates above.28 Comparing this with current investment flows on the order of US$50 billion per year,29 this leaves a global shortfall of about US$150–250 billion per year. The vast majority of the required new investment in conserving forests and restoring degraded lands will be required in developing countries, since that is where almost all net new landscape degradation, forest or agricultural, is occurring.30 Roughly 80–90% of the current flows for land conservation and restoration in developing countries are from private sources, including farmers themselves. This suggests a large potential for the public sector to partner with companies and other investors from the private sector in scaling up investment.31

Beyond investment in forestry and agriculture, the provision of secure and clean water resources is a significant driver of land use investments today. Recent studies estimate that the global community invests about US$12.3 billion per year to protect, manage and restore natural infrastructure to secure water resources.32

Policies and incentives can transform how natural capital is allocated and used

Sustainable approaches to land use in rural areas, especially in developing countries, will generally need to contribute to several objectives: increasing agricultural productivity for overall economic growth, poverty alleviation, and food security; ensuring resilience and security of livelihoods for people living on the land; and managing forests and soil to capture and store CO2 to help limit climate change while also delivering essential ecosystem services for adaptation.

New policies and incentive structures can capture the true value of natural capital, reallocate resources and incentivise new investments in sustainable land use management and use. For example, countries can reform price-distorting subsidies (e.g. on water and fertilisers) and tax structures that favour business-as-usual agricultural practices, and redirect resources to provide extension services for farmers (particularly in developing countries) to improve climate resilience. There are also various approaches to payments for ecosystem services for land use management – including REDD+ – that can deliver a range of mitigation, adaptation and local socio-economic benefits where markets do not yet exist, or are unlikely to take hold without policy intervention.

The following sections explore different areas of action, investment frameworks and policy options to help deliver finance to support better land use and thus help achieve both development and climate goals.

Box 28 — How smarter fiscal policies can incentivise better land use: the case of Indonesia

Indonesia’s land use sector contributes nearly half of its GDP; it is also the leading driver of deforestation and GHGs.33 Reducing deforestation and degradation (REDD+) lie at the heart of Indonesia’s plans to reduce emission by 29% by 2030, but analysis suggests fiscal policies currently support unsustainable land use and management. Opportunities for progress include:

  • Taxing production area, rather than volumes or profits, may encourage new methods to achieve higher productivity per hectare of land; 93.5% of all land use revenue (IDR400 trillion) in Indonesia comes from taxing profits instead of taxing land area. Taxing land area would create an incentive for producers to use land more efficiently.
  • Aligning tax revenue allocations to local governments with land management decisions, and reducing dependence on business models that encourage land expansion. Local and regional governments now depend heavily on land-based taxes (such as land and building permits) for their revenue, so land conversion is in their interest. Value-added taxes, corporate and export taxes from agricultural production, which raise significantly higher revenues, go to the national government and are not recycled to regions. Returning these revenues to regions could incentivise local practices that promote efficiency and sustainability of land use.
  • Where earmarking mechanisms exist, linking revenue use to performance and returns, such as compliance with protected areas, yield improvements, or payment for ecosystem service (PES) schemes, could incentivise regional and local governments to implement sustainability programmes or meet sustainability targets in order to access regional funds. In Indonesia, the central government-managed Adjustment Funds can be earmarked, and have enjoyed successive replenishments, though no earmarking currently prioritises sustainable land use management. This is an opportunity to be realised.

Addressing price distortions and market failures

Improving governance is fundamental to addressing land use challenges, especially in developing and emerging economies. The quality (or lack) of governance can determine the impact of regulatory and investment-based incentive policies.34 Key elements include clear, enforceable property rights and land tenure; ensuring that local communities are properly engaged and informed; building local customs into national legislation; and implementing robust monitoring and enforcement systems. Policies that guarantee secure land tenure are especially important to catalyse investment, as appropriate land tenure protects the investment asset, reduces risks, and provides a critical form of collateral for credit.

Reforming subsidies and other incentives for unsustainable land use

In scaling up the amount of finance for sustainable land use, the main challenge is not a lack of funding, but how to ensure that the funding is channelled in a desirable way, and that investments are coordinated and do not work at cross purposes.35 Pricing reforms, including the reform of harmful subsidies, could create new financing opportunities and remove distortions that currently encourage the wasteful use of resources. Governments spent an estimated US$1.1 trillion subsidising consumption of resources such as water, energy and food in 2011.36

An essential first step is to reform subsidies for agricultural commodities and agricultural inputs to align prices to promote climate-smart and resilient land use and development. Developing countries have subsidised agriculture for a long time, but more recently subsidies have grown rapidly in the main emerging economies in Asia, primarily in the form of input subsidies, and in some developing countries in Africa.37

Subsidies based on inputs such as pesticides, nitrogen fertilisers, electricity (to pump irrigation water), and agricultural vehicle diesel, can create incentives for overproduction or overuse of environmentally harmful inputs. Market price support also artificially reduces prices for agricultural commodities without taking into account the cost of agriculture-related environmental externalities, such as the loss of fertile topsoil.

Many countries subsidise these key agricultural inputs, but a growing body of evidence suggests these subsidies often do not reach those most in need and can lead to waste and environmental damage.38 For example, while synthetic fertilisers are critical to agricultural intensification, they are also subject to overuse, particularly when subsidised, degrading the quality of water and land over time. There are many other examples of subsidies with counterproductive results. What is obvious is that when subsidies are not specifically tailored to drive positive land use impacts, they can in fact have negative impacts, and may run at odds with subsidies or measures designed to incentivise sustainable land use.

Multiple studies have attempted to quantify the extent of agricultural subsidies. OECD countries spent an estimated US$266 billion to support farming in 2012.39 While progress has been made to shift this support away from the most damaging subsidies, the total number and volume remains significant.40 Meanwhile, agricultural subsidies in China rose to US$73 billion in 2012, or 9% of agricultural output, with at least US$18 billion of the payments based on input use.41 India provided roughly US$28 billion in input subsidies to nitrogenous fertilisers and electricity for pumping agricultural water in 201042 but the government has recently taken measures to slash subsidies to fertilisers bringing these US$10.4 billion per year in 2016-17.43

A number of countries in Africa have subsidised fertiliser in an attempt to increase its usage, which can be beneficial under some conditions – such as when soils are nitrogen-deficient and when there are market challenges such as volatile international fertiliser prices, low commercial development, thin input markets, lack of knowledge, and illiquidity.44 In such cases, the key is to have a clear exit strategy in place that can help avoid locking in subsidies beyond their usefulness.

Phasing out direct agricultural input subsidies would incentivise better, more targeted use of inputs, reduce associated pollution and GHG emissions and save taxpayers’ money. For instance, more efficient use of fertiliser in China alone has the potential to reduce GHG emissions by 200 million tonnes of CO2e per year45 and more efficient use of water in India could reduce close to 100 million tonnes of CO2e per year.

Box 29 — India’s Jyotigram Scheme

In the state of Gujarat, free groundwater and subsidised electricity to pump it contributed to severe groundwater overdraft, as well as poor power supply for farmers and other rural residents.46 But any efforts to price groundwater and electricity to reflect their value met great resistance by farmers.

An alternative approach, the Jyotigram Scheme, was introduced in 2003. Instead of providing subsidies by default, the scheme providing limited subsidies where needed, and priced electricity where possible. Villages are given 24-hour, three-phase power supply at metered rates for domestic use and in schools, hospitals and domestic industries. Farmers operating tube wells continue to receive free electricity, but for 8 hours rather than 24 and on a preannounced schedule designed to meet their peak demands.

This separation of agricultural energy from other uses and the promise of quality supply of power proved sufficient to gain political and social backing for implementation of the subsidy reform. The Jyotigram Scheme has now radically improved the quality of village life, spurred non-farm economic enterprises, and halved the power subsidy to agriculture. And while groundwater itself is still free, the programme has indirectly raised the price of groundwater supply, thus providing a signal of scarcity and reducing groundwater overdraft.

Subsidies can also undermine conservation. A recent ODI study found Brazil and Indonesia spent more than 120 times more in subsidies to the palm oil, timber, soy, beef and biofuels sectors between 2009 and 2012 than the US$346 million they received in international conservation aid. Thus, for every US$1 they received to preserve their rainforests under the United Nations REDD+ scheme, they gave more than US$120 to sectors that are driving deforestation.47

International financial support can play an important role in helping countries achieve their own goals in domestic subsidy reform to reduce deforestation. For example, REDD+ readiness finance can be used to help identify, quantify and reform subsidies, and REDD+ finance could also be linked to subsidy reform. For instance, Brazil’s reform of rural credit is notable for making a successful contribution to reducing forest loss, demonstrating that controlling credit availability using policy and governance can have a significant impact on forest loss.48 Brazil’s leadership, backed by significant REDD+ finance from Norway, has delivered strong results that contributed to a rapid expansion of protected forest areas since 2000, a real decline in deforestation rates – from a high of 28,000 km2 per year in 2004 to roughly 5,000 km2 per year in 2013/2014 – and to a more than 40% decline in GHG emissions in Brazil over the 2000–2012 period. This all coincided with an increase in economic growth of about 30% between 2000 and 2013.49 Maintaining these gains will require ongoing commitment and leadership from the Brazilian government.

The negative impacts of subsidies can also be transboundary. For example, US subsidies on biofuels – mostly corn ethanol – have been shown to have a knock-on effect on food prices in Mexico.50 Efforts to reform harmful subsidies also need to look at effects beyond national borders and consider trade and supply chain impacts, in order to ensure policy coherence.51

Other pricing reforms to address market failure and deliver environmental sustainability in land use

The services provided by forests and ecosystems are often not properly valued in economic decisions, even when they have tangible economic impacts in neighbouring spaces.52 For example, preserving trees on slopes is important for preventing erosion and landslides. Yet if people upslope cut down trees, it is the people downslope who suffer the consequences. This gives rise to market failures, because people upslope have no incentive to protect the trees, even though they are very valuable to others. Incentive systems combined with cooperative approaches across those dependent on a common set of natural resources can be used to encourage investment in activities that preserve ecosystem services, including delivering the dual benefits of emission reduction and protection of natural assets. It is important to note that market solutions like these work best when backed by secure land tenure and functioning governance structures to enforce the rule of law.

Payments for ecosystems services (PES) schemes provide payments or other incentives to farmers, landowners and other land users to provide ecosystem services such as water filtration or CO2 capture from trees, other vegetation and soil. While it is clear that PES will never be large enough to compensate fully for the forgone short-term market value of resource exploitation, particularly in tropical rainforest, they can help land use authorities to win land users’ support for policies to protect natural capital.53

PES often provide uniform per-hectare payments for protecting an important natural habitat. Since 1997, Costa Rica’s PES programme has helped to conserve nearly 1 million ha of forest through payments for protection (90% of the area), reforestation (6%), sustainable management (3%) and more recently, regeneration (1%).54 Mexico initiated its Payments for Hydrological Environmental Services Program in 2003, paying out US$489 million between 2003 and 2011 to more than 5,000 landowners who adopted good land management practices. The programme has preserved more than 3.2 million ha of forests.55 Reverse-auction mechanisms, used in Australia for old-growth forests, in Indonesia to reduce soil erosion and in the US to improve agri-environment practices, have been shown to help improve the cost-effectiveness of PES.56

REDD+ can be seen as a form of international PES, to provide financing to support the delivery of climate mitigation and other global public goods benefits of reducing deforestation and forest degradation. Though progress to date has been slow, and the amount of forest finance and PES funding needed is 100 times what is currently available, REDD+ and other PES schemes have considerable potential to help catalyse the transition to a low-carbon economy and development cooperation and finance has a role to play here.57

REDD+ has made significant strides in recent years, developing an appropriate international policy framework, building the necessary capacity for implementing its programmes and piloting performance-based funds (e.g. the World Bank’s Forest Carbon Partnership Facility Readiness Fund and Carbon Fund).58 As a result, payments for verified emissions reductions are increasing, and REDD+ offsets now account for 80% of all transactions of forest carbon offsets.59 As the first country to submit its forest reference emissions levels for payments under REDD+, Brazil has received around half of the total approved international finance from REDD+ (through the Amazon Fund). Among others, Norway has provided US$1 billion to Brazil through REDD+ for validation of national reforms to tackle deforestation.60 In December 2015, Norway, Germany and the United Kingdom together pledged US$5 billion to REDD+.61

Over the past five years, a number of tropical forest nations have entered into REDD+ agreements with developed nations and multilateral development banks with explicit carbon prices. Brazil, Guyana, Guatemala and Peru have all used a carbon price of US$5 per ton of CO2e, and Indonesia is moving in that direction.

These payment and pricing schemes, with international support, can occur on a variety of scales: from global trading platforms for carbon emission reductions to local watershed initiatives for slope protection, water supply and purification. A common characteristic is that they create a market for ecosystem services – though in some cases, the payments go beyond ecosystem services. Yet most of the needed new investment will have to come from domestic sources such as local landowners and farmers, and from greatly expanded investment from the international private sector.

Colombia has in place a well linked up system of providing funding to localities to do sustainability planning, and over time has combined it with disaster risk reduction. One longstanding programme trains women living in or near high risk zones to be “Slope Guardians” (Guardianes de Ladera): to maintain slope vegetation, control drainage channels, monitor slope stabilisation work, report problems and changes in land use, keep an updated register of families in high-risk areas, and raise neighbours’ awareness. The women receive ongoing training and earn about US$400 per month for a service that is highly valued within their communities.62

Creating markets for ecosystem services can be facilitated by complementary measures such as eco-labelling and certification schemes, which inform consumers of the products’ green qualities, and also by green public procurement, which stimulates demand for these products.63 Consumers are willing to pay a premium for these goods and services, which generates revenue; one study estimates that certified products related to sustainable land use could generate US$10.4–30 billion annually by 2020.64 This demand provides a financial incentive for producers to adopt green production methods and approaches.

Strengthening investment frameworks, institutional capacity and policies

Investing in restoration of degraded agriculture and forest lands is a key aspect of natural infrastructure investment to help achieve food, water and energy security goals. The large finance gap of US$150–250 billion per year in agricultural and forest landscape restoration and conservation investment suggests the urgent need for major new leadership in achieving scale-up of investments and policies designed to halt further landscape degradation and to restore degraded landscapes. Most of this investment will need to be on a for-profit basis by private-sector actors. However, achieving these levels of private investment will require much more attention from governments and public-sector financial institutions to establish enabling policy conditions and to provide catalytic public finance.

The capacity-building needs, start-up costs, and risks associated with restoration and conservation investments in agricultural and forest landscapes in developing countries will keep private investment low, unless public and philanthropic entities can bear a larger share of those costs. And the necessary public support will only happen if public financial institutions, both domestic and international, can make a rock-solid case that supporting such private investments is the most efficient way to achieve the desired environmental and social impacts at scale. This will require a new focus on improving project design for impacts, developing and using accepted metrics, and putting in place procedures for demonstrating impact transparently. More also needs to be done to support larger public-private partnerships for impact.

Scaling up and shifting public investment

Public investment will continue to be a key part of the solution to financing sustainable land use, but it will have to become a smaller share of such investment over time. Where it can be most powerful is in catalysing and leveraging private investment to drive change.

In developing countries, where domestic resources are limited, international public finance is vital. There are two main types of international public finance today that can support sustainable land use investment: traditional development finance, targeting the agriculture and forestry sectors for growth and poverty alleviation, and climate finance, for adaptation and mitigation.

It is useful to consider where development or climate-themed finance mechanisms are most likely to be needed. The mix of the two kinds of finance depends primarily on the wealth of the recipients and the scope for mitigation of and/or adaptation to climate change, which in turn affects whether the public goods being sought are primarily social or environmental. Figure 11 depicts these relationships for mitigation.


Figure 11

Infrastructure Financing Requirements for Emerging Markets and Developing Countries

Public development investment to support policy reforms and national programmes for natural infrastructure is critical to capacity-building for climate-smart agriculture and forestry. Good practice among development cooperation providers is to work through and with national governments to ensure country ownership and tap into local knowledge while also strengthening it. That, in turn, can facilitate greater access to finance through local counterparts or intermediaries and internationally.

A number of governments are using REDD+ programmes to finance efforts to halt deforestation or restore forests. As noted above, REDD+ facilitates international support for countries’ commitments to maintain more forests. A recent analysis of international public project finance found US$5.8 billion per year in commitments for land use mitigation and adaptation activities in developing countries, representing just over 4% of total public international climate finance tracked in 2012 and 2013.65 Official development finance commitments to agriculture and forests in developing countries for all purposes is on the order of US$11 billion per year, so only about half of this is addressing climate change as an objective and of this about one-third is targeting REDD+.66 But this is not nearly enough to halt global deforestation and reverse emission trends from unsustainable land use.

There is a disconnect between the ways that climate-smart landscapes will need to be managed and the current financing systems available to support them. Funds for agricultural development, food security, climate mitigation and climate adaptation generally come from different sources even though these goals are inextricably linked in agricultural systems. In addition to seeking extra sources of public financing, the efficiency of existing funding sources can be improved. Some of the public sources of climate finance need to be integrated with those supporting agricultural development and forest restoration, to create a single mechanism that could flexibly support climate-smart agriculture. Similarly, development finance aimed at supporting food security and combating desertification may also have climate benefits. A recent review found more scope for REDD+ funds to be used in ways that deliver not just on climate change but on other sustainable development goals, such as poverty reduction.67

For example, as a multilateral climate fund of US$280 million, the BioCarbon Fund Initiative for Sustainable Forest Landscapes, was created in 2013. It seeks to reduce GHG emissions from land use through REDD+ and sustainable agriculture, as well as smarter land-use planning, policies and practices. The initiative will deploy results-based finance to incentivise changes at the landscape level. Its programmes will cover a variety of geographies and will transform large rural areas by protecting natural forests, restoring degraded lands, and enhancing agricultural productivity, thereby improving livelihoods and local environments.

Similarly, the Investment in Forests and Sustainable Land Use (IFSLU) was recently set up by UK Department for International Development (DfID) to support public-private partnerships and initiatives that demonstrate how the private sector can contribute to reducing deforestation. A range of related activities will help address the policy environment.68

Another example of bringing development and climate finance together is the US$2.7 million Great Green Wall for the Sahara and the Sahel Initiative, which brings together more than 20 African countries, international organisations, research institutes, civil society and grassroots organisations and has become Africa’s flagship initiative to combat the effects of climate change and desertification. The initiative supports local communities in the sustainable management and use of their forests, rangelands and other natural resources, aiming to contribute to food security, livelihoods, and climate change mitigation and adaptation. Already, about 120 communities in Mali, Burkina Faso and Niger have created a green belt on more than 2,500 ha of degraded and arid land, planting over 2 million seeds and seedlings from 50 native species.69

Box 30 — Managing watersheds as a key natural infrastructure investment

Managing watersheds for specific water services, represents the largest portion of natural infrastructure investments to date. A wide range of players have initiated promising efforts to protect and enhance water systems across the globe, with multiple benefits:70

  • Reducing reservoir sedimentation: Deforestation and other land use changes increase soil erosion, which can clog up reservoirs and lower their capacity to store water and generate power. To reduce sedimentation and avoid costly reservoir dredging, the Costa Rican hydropower company Enel Latin America, in partnership with the national government, is helping finance reforestation efforts upstream of its hydropower reservoirs. In addition to increasing efficiency and extending the lifespan of Enel’s power facilities, the effort has provided more reliable streamflow, reduced GHG emissions, and compensated landowners for opportunity costs.71
  • Regulating water flow: Several communities and corporations have invested in restoring forests for their key role in regulating aquifer and stream recharge to secure reliable water supplies. For example, as part of a PPP between the São Paulo (Brazil) water utility, the Nature Conservancy and private companies, landowners in São Paulo’s watershed are paid US$95 per hectare to protect or restore forests. Conserving the target 14,300 ha of hydrologically sensitive land around São Paulo is projected to save US$2.5 million by improving water quality and quantity, reducing sedimentation, and increasing the longevity of São Paulo’s Cantareira reservoir system.72 By supplementing landowners’ incomes, the programme also helps alleviate poverty.
  • Purifying water: Several municipalities have invested in restoring and protecting forested watersheds to improve water quality – at lower costs than if they used only treatment plants or other grey infrastructure. For example, in Ecuador, a Water Conservation Fund (FONAG) funds watershed management projects that will protect one of Quito’s water sources for the long term. FONAG now disburses almost US$1 million a year for conservation projects, raised through fees from water users.73

The benefits of managing natural infrastructure extend beyond forested watersheds. Mangroves, for example, play a key role in mitigating coastal flood damage, while supporting aquaculture and fisheries.74 Trees along rivers can shade and regulate stream temperatures at a lower cost than cooling towers.75 Protecting floodplains can reduce downstream flood risk, while providing rich agricultural land and valuable habitat for fish and bird species.76

For example, a partnership between China Three Gorges Corporation and the Nature Conservancy found that restoring and managing the function of floodplains on the Yangtze River, in combination with improving dykes and other downstream grey infrastructure, would reduce flood risk more effectively and at a lower cost than upstream dams alone. Under the proposed strategy, China Three Gorges Corporation could increase hydropower production valued at up to US$350 million per year by maintaining higher water levels in the reservoirs, while also releasing a more natural flow that benefits a downstream fish reserve.77

Risk of natural disasters and uncertainty are central to any investment calculation – especially in land use, where major uncertainties abound. Risks have known distributions and in theory can be insured against with reasonable premiums. Uncertainties, however, lead risk-averse actors (including insurance companies) to assume worst-case scenarios, raising costs all around. The issue of uncertainty is particularly prominent for land use because of the potentially large impacts of climate variability and climate change on temperatures, precipitation, and even pests and diseases. Land use – especially agriculture – is the most climate-sensitive sector of all. Thus, difficulties in estimating true risks lead to pricing and discount rates that are less favourable than they could be. The state of climate science is unlikely to help much, in a practical sense, in the immediate future.

Official development assistance totals devoted to protecting natural infrastructure are hard to assess, but only about 3% of ODA in 2012 went to environmental issues, and 6% to agriculture – in both cases, not much relative to the need.78 A comparison between uninsured losses and total ODA (US$135 billion disbursed to developing countries in 2014) shows that every second dollar of ODA spent may be washed away by uninsured disaster risk, particularly as the largest share of losses due to natural disasters in developing countries remain uninsured.79 These figures suggest that ODA may have an important role to play in terms of increasing capacity for risk assessment, related decision-making, and targeted sectoral risk reduction measures. However, ODA faces challenges in providing financial instruments that help people and businesses in developing countries insure against disasters. Box 31 provides an innovative example of using public development finance to catalyse private investment to mitigate and respond proactively to drought risk.

Box 31 — African Risk Capacity (ARC) insurance

Rising risk of natural disasters, such as drought and flooding due in part to climate change, particularly in developing countries, highlights the need for innovative public-private initiatives to deliver de-risked finance solutions that work for the poorest countries and populations.  A large share of current disaster risks is not insured, particularly in developing countries, so these communities are shouldering the losses directly. A key challenge is to protect the poorest from natural disasters as they often operate outside of the market system and commercial insurance is not a viable option.

ARC insurance is a climate-related, sovereign risk insurance scheme, launched in 2014. It is a specialised agency of the African Union that is helping member states resist and recover from natural disasters. Its primary focus is currently food security, and its main activity is an indexed insurance plan covering rainfall shortages. The aim is to catalyse a transition from the traditional ad hoc, ex-post disaster response system to a more efficient, pre-emptive continental risk management system. ARC Insurance has issued parametric disaster insurance policies to several African governments, starting with Kenya, Malawi, Mali, Mauritania, Niger, Senegal, and the Gambia.

ARC uses the Africa RiskView tool, developed by the UN World Food Programme, to estimate crop losses and drought response costs before a season begins and as it progresses, triggering insurance payouts at or before harvest time if the rains have been poor. A cost-benefit analysis, performed by the financial affiliate of ARC, estimates that spending US$1 on early intervention through parametric insurance from ARC can ultimately reduce the economic impact of drought due to crop losses by as much as US$4.50.

To qualify for sovereign-level insurance, participating countries must have a contingency plan for how they will use the insurance pay-out as well as institutional mechanisms to manage the funds once allocated. ARC is designed to complement and reduce reliance on external appeals, such as for humanitarian aid, that typically take much longer to disburse and occur only after the disaster has hit. Cost-effective contingency planning is an essential element of national implementation to protect livelihoods and development gains. In early 2015, Mauritius, Niger and Senegal countries were disbursed a total of US$24 million. In 2016, ARC is planning to expand its coverage to include flood and other extreme event insurance.

ARC Insurance Company Limited (ARC Ltd) is the financial affiliate of ARC. The initial capital behind the insurer was provided by founding members KfW (Germany) and DfID (United Kingdom) in the amount of roughly US$200 million of public development finance.

Scaling up private investment

Even though private investment in sustainable land use is rising – some estimates suggest that it grew by over 600% between 2004–2008 and 2009–2013 – the scale of the challenge to fill the financing gap remains significant.80 There is a need to increase the amount of money going from primary investors (“limited partners”) into entities such as impact funds that can originate and help develop viable projects.

Green bonds, discussed in detail in Section 3, are increasingly used in the energy sector, and  may eventually hold promise for land use as well. However, the proportion of green bonds dedicated to agriculture and forestry is still very small, accounting for only 2.2% of the total US$42 billion  issued in 2015.81 and less than 1% of all climate-aligned bonds issued to date; it is also not always clear that the proceeds from such bonds in land use are in fact financing greener land use as opposed to other green activities by land users such as renewable energy.82 Clearly uncertainties peculiar to the land use sector are discouraging to investors such as banks and pension funds seeking long-term stable returns with low risk. A majority of the green bonds issued in agriculture and forestry to date involve paper and pulp companies with Forest Stewardship Council certification.83 Forest bonds, though long discussed, have not been issued at significant levels.

The market for private investments in sustainable land use is challenged by a shortage of investment projects with appropriate risk-return profiles and experienced management, and lack of standardised impact metrics. The concept of green bonds in land use restoration (e.g. fixed income investments) is attractive in principle, but only likely to be marketable at scale if well protected against loss by first-loss and impact equity, as discussed below, and if backed by harmonised standards.84

Impact investment opportunities related to land use, on the other hand, which achieve social and environmental impacts along with financial returns, are growing and have great potential. Impact investing for land use in developing countries is expected to reach at least US$6 billion total in 2014–2018, triple the level of the previous five years (see Box 32).

Box 32 — Impact Investment

Impact investing in restoring and conserving landscapes is a medium- to long-term business, but the financial bottom line matters to impact investors, as in all private investing. Of 42 impact funds identified by IMPACTBase as primarily targeting environmental impacts, only one reported a willingness to accept below-market returns. The investors’ targeted internal rate of return85 on investments involving real assets (such as land) was 15%, although known cases of below-market rates of 5.5% in environmental impact investing were acknowledged. Fund managers sought internal rates of return of 5–10% in the conservation area. Investments in Africa on average needed internal rates of return of 5% higher than comparable conservation investments in Latin America.86 Managing risks is key to increasing investment at any given rate of return.

Initiative 20×20 in Latin America and the Caribbean, which is defined by active participation of private sector impact investors, has achieved particular momentum. Launched at the Lima Climate Change Conference in December 2014, it aims to bring 20 million ha of degraded agricultural and forest lands into restoration by 2020. The 20 million ha goal for pledges has already been significantly exceeded, and an announcement by an international organisation of an associated small first-loss equity facility is expected to occur very soon.

Initiative 20×20 is facilitating technical support to countries committed to restoration, and the plan is to do the same for the two civil society regional programmes that have submitted restoration pledges. Studies and workshops are targeted at key common issues such as fiscal and regulatory incentives for restoration, monitoring systems, assessments of specific restoration opportunities, and increasing access to seeds for native species.

Private-sector impact investors are actively participating in Initiative 20×20. Permian Global, Moringa Fund, Althelia Climate Fund, Rare, Terra Global Capital, the Forestry and Climate Change Sub-Fund, Sustainable Land Management Partners, EcoPlanet Bamboo, Carana, the EcoEnterprise Fund, the Andes Amazon Fund, and the Amazon Reforestry Fund have earmarked an aggregate of over US$1 billion for investment in 20×20 projects as of August 2016; others are likely to join over time. Contacts have also been initiated with institutional development and climate finance investors with a regional focus on Latin America, both to explore options for a first-loss risk facility and to boost resources available to impact investors.

There seems little doubt that the 20×20 partnership is facilitating collaboration between those with a stake in degraded land, and international investors who seek impact in addition to returns. Much has been achieved in a short time; the key now is to follow through with effective implementation.

Key barriers need to be overcome to ensure a good supply of deals with adequate collateral, sufficient prospects for future cash flow, and acceptable risk-reward profiles. Investors in rural areas of developing countries tend to face all the usual risks of investment, but also additional concerns about commodity market risks, policy risks, political risks, macroeconomic risks, weather risk, and commercial risks, such as poor infrastructure and difficulties in finding trained managers. Differential risks are an often-cited reason why some borrowers pay higher interest rates, and why some projects need to have a higher return than others to attract investors.

To reduce financial risks, “capital stacking” could play an important role, provided the right transparency and accountability mechanisms are in place. This is a common risk-sharing approach in which institutional or philanthropic investors typically provide first-loss equity, impact investors provide preferred equity, and other private investors provide protected debt equity (see Figure 12). Publicly funded institutional investors can leverage private capital by accepting a first loss for being the junior equity partner in a stacked capital deal. The evidence suggests that pooling risks across institutional investors and developing expertise within one facility can lead to cost savings.87 Capital stacking is relevant to land use, but also more broadly to sustainable infrastructure financing.

Figure 12

Capital stacking for impact

Public private partnerships can be created to establish infrastructure funds attracting private investors. By structuring the fund to meet investors’ risk appetite, a limited public investment can be used to attract private capital and boost available resources for investment. The Africa Agriculture and Trade Investment Fund is one example (see Box 33). While still in their infancy, experience from such funds is promising and can be be scaled up and replicated for investing in sustainable infrastructure and related business  activities.

Box 33 — Africa Agriculture and Trade Investment Fund: An Innovated Public Private Partnership to Blend Funds for Sustainable Agriculture Finance Solutions

The Africa Agriculture and Trade Investment Fund (AATIF) is a USD 146m fund that invests across the entire agricultural value chain in Africa. It illustrates an new type of asset class in the form of a public-private infrastructure fund or structured public-private partnership that is designed to support sustainable infrastructure and related business practices investment. he AATIF uses a first-loss layer (capitalized by Germany’s Federal Ministry for Economic Cooperation and Development (BMZ)) and a mezzanine layer (capitalized by KfW and Deutsche Bank) to encourage private investment in the fund.

The mandate is to target direct investments in agricultural cooperatives, commercial farms, and processing companies, and indirect investments in financial and other intermediaries that on-lend predominantly to smallholder farmers. As of June 2015, AATIF had deployed about USD $110m and its portfolio included four direct investments and four indirect investments, including three investments in financial institutions and one investment in a non-financial intermediary.

Importantly, AATIF’s has Social and Environmental Safeguard Guidelines (based on the IFC performance standards) and AATIF partners with an independent Compliance Advisor to ensure that these are enforced and shape projects in the course of their preparation.  Parallel to the fund, an associated Technical Assistance (TA) Facility provides grant-based support to projects to help ensure AATIF investments reach their development potential. This Facility is managed by the Common Fund for Commodities and capitalized with EUR 6m from BMZ and AATIF itself.  Nearly every investment made by AATIF includes a TA component. These include: grant funding to support research, employee training, and the implementation of Environmental and Social Management Systems (SEMS), among other capacity building efforts. In the future, the Facility also intends to deploy funding for feasibility studies and other project preparation activities.

The AATIF experience highlights useful lessons for others considering blended funds, including the need to match the fund structure to investors’ risk appetite; the opportunities associated with a flexible investment mandate; the need for consistent and effective communication among stakeholders; and the benefits of streamlined governance and decisionmaking processes.  It is also an example of an innovative public private financial partnership to deploy capital to sustainable agricultural practices and trade in Africa.Public-sector finance has an important role in creating the conditions to increase the supply of bankable deals and mobilise private investment at scale. The Global Environmental Facility (GEF) is a successful example. Since 2006, when land degradation became a focal area, the GEF has invested more than US$876 million in resources for at least 190 projects and programs that encourage use of sustainable land management leveraging more than US$3 billion of private co-financing. Similarly, governments and philanthropic organisations sometimes create dedicated global funds or facilities (such as new windows of existing funds) for public co-financing of landscape restoration and conservation, leveraging private investment. Adequate attention and finance should be provided to building capacity to formulate bankable projects. Transparency and inclusion are also key.

There is not a lot of experience with large risk guarantee funds working on a multi-project basis across countries. International cooperation that combines impact-oriented multilateral public funding for mitigating risk with public and private investment for producing impact could help scale up the amount of total capital for impact considerably.

The different objectives of different types of investors provide an opportunity to improve risk-return profiles for each through collaboration, boosting the overall pool of resources available. Public or philanthropic institutional investors may be most concerned with impact, but worry that their potential concessional funding is too small to meet needs. They may take bigger risks to leverage higher levels of good investment by others. Others, such as pension funds, may be content to have a lower but predictable long-run return on debt that is well protected from loss.

For instance, TIAA-CREF Global Agriculture is a series of limited partnership investment funds that seek to capitalise on positive macroeconomic fundamentals by investing in agricultural natural resources and related agricultural investments on a global basis.88 Its investment strategy is designed to gain exposure to an asset class that is characterised by low correlation to other asset classes, provides an effective hedge to inflation, and is expected to benefit from attractive market fundamentals. TIAA-CREF is currently investing in a US$4.4 billion global farmland portfolio that includes over 800,000 acres on more than 600 properties on four continents: North and South America, Europe and Australia. The farmland portfolio is part of a broader US$8 billion Global Natural Resources & Infrastructure portfolio that also includes timber, energy and infrastructure.

Innovative financing in agriculture and food has mobilised about US$1 billion over the last three years. The number of funds (both public and private), the amount of capital invested, and the number of projects financed all show a positive trend, and there is scope to use creative financing mechanisms to fund interventions that will lead to more sustainable land use practices.89

Box 34 — Supply-chain deforestation commitments

In recent years, an important movement has emerged among large companies of taking action and investing across their supply chains to reduce negative environmental impacts. In 2010, the Consumer Goods Forum (CGF) – an industry association representing consumer-facing companies with more than US$3 trillion in annual revenues – pledged to eliminate deforestation from its members’ supply chains and achieve “zero net deforestation” by 2020.90

The CGF pledge became a primary driver of the 2012 creation of the Tropical Forest Alliance 2020 (TFA), a shared multi-stakeholder platform, including governments, companies and NGOs, to eliminate commodity deforestation. These developments were partly the result of pressure from local and global NGOs, including biodiversity, environmental and rights-based groups. As such, they demonstrate the power of consumer-based movements to change business models and shift investment from business-as-usual patterns towards sustainable land use.

Over the last few years, most of the world’s major commodity traders – large agribusinesses such as Wilmar, Cargill and Archer Daniels Midland that dominate global agricultural trade – have committed to zero-deforestation policies. While each company’s policy has its nuances, the overall commitment is simple: to stop buying agricultural commodities grown on recently deforested land. The shift has been most rapid in the palm oil industry. In December 2013, the world’s largest palm oil trader, Wilmar International, introduced a groundbreaking “No Deforestation, No Peat Land, No Exploitation” commitment across its entire supply chain.91 Since then, other major commodity and consumer goods companies have pledged to break the link between palm oil and deforestation, while also protecting the rights of local communities. Today, it is estimated that the majority of globally traded palm oil is supplied by companies that have committed to responsible sourcing guidelines.92

The collective pledge by CGF members, the launching of the TFA, and the cascade of commitments to zero-deforestation policies are very significant. The task now is to make the vision of deforestation-free commodities a reality, by building internal company support, creating plans with aggressive timelines, making sourcing relationships more transparent, and transmitting strong incentives for deforestation-free goods from buyers to sellers.

Boosting agricultural RD&D investment

Remedying distortions in incentives (Section 6.1) is key to encouraging good behaviours and discouraging bad ones with respect to reducing GHG emissions from land use and enhancing their absorption.  It will also be vital to invest in the productivity and sustainability of land use to meet rising needs  for food, fibre and fuel.  These needs will be met in some fashion, but under business as usual it is unlikely that they will be met in a way consistent with even a 2 degree C pathway. The Global Commission on the Economy and Climate has shown that land use interventions have the potential to generate 30% of the total potential annual mitigation of greenhouse gases by 2030.93 To do so however requires investment in forward looking R&D in land use sectors to deliver innovative practices and technologies in a timely way, and investments in the rapid deployment of existing low-emission and high-reslience practices and technologies.

Agricultural R&D is largely underfunded, given the urgency of the needs. Data on R&D spending in agriculture are scant, though some estimates are available. In 2008, governments spent about US$32 billion globally on R&D in agriculture (including livestock) and agroforestry– including US$15.6 billion (2005 PPP) in developing and emerging economies. Private-sector funding added about another US$18 billion (2005 PPP), mostly in developed countries.94 More recent figures for advanced countries in 2013 show that only 3% of public R&D in those economies focused on agriculture, compared with 4.2% for energy, 6.3% for industrial production, and 24.9% for defence.95

The Consultative Group on International Agricultural Research (CGIAR), which focuses on investing in tropical food crops, is one the oldest and most successful collaborative research initiatives in this field. It is a nearly US$1 billion-a-year global agricultural research partnership involving 15 research centres around the world, combining public and private-sector funds and partners. CGIAR centres were instrumental in the original Green Revolution. They bring together high-level scientific capacity, significant and stable funding, and institutional capacity on sustainable agriculture and natural resource management practices in developing countries. This enables them to provide farmers with vital science and technology support. The CGIAR Research Program on Climate Change and Food Security (CCAFS) is the global instrument for promoting research on climate-smart agriculture in developing countries. 

Globally and in specific regions, rapid advances in biological sciences are opening up great possibilities for developing new, more productive and resilient crop varieties. New technologies are making it possible to quickly screen huge volumes of material for desired traits and then cross-breed them into seeds, revolutionising the business.96 Breeders have developed methods for mapping and labelling portions of plant DNA associated with useful traits such as drought tolerance or pest resistance. This makes it possible to identify the most promising seedlings for further breeding before the plants are fully grown.

Between 2010 and 2014, the EU and the UN Food and Agriculture Organization (FAO) provided €41 million to support the Africa Climate Smart Agriculture (CSA) Alliance, which invests in enhancing productivity and climate resilience while reducing emissions from agriculture.97 CSA aims to work with 6 million smallholder farmers across sub-Saharan Africa by 2021. The goal is to boost food and nutrition security for the rural poor, even in the face of a changing climate. CSA practices enable farming communities to sustainably and reliably increase agricultural productivity and incomes, adapt and build resilience to extreme weather events and a changing climate, and where appropriate, contribute to reducing GHG emissions and concentrations.

An active area for research is how to fulfill the rising demand for wood and wood-based commodities, and the role that planted forests may play to help decrease the reliance on clearing natural forests for wood. Projections from various sources suggest that planted forests for wood products will cover from 303 to 345 M ha by 2030, roughly a doubling since 1990, with most of the increase from 2005 occurring in Asia.98 Plantation forests are much less biodiverse than natural forests, and often fail to provide anything like the level of vital ecosystem services provided by intact natural forests.99 Enhancing productivity in planted forests can contibute to sustainable afforestation and reforestation strategies, reducing pressures to source wood from natural forests.

Making plantation forestry more sustainable has technical and social components that are complex but relatively well-known.100 However, these barriers can be difficult to overcome when it is easier and cheaper to harvest natural forests instead. This highlights the fundamental importance of monitoring and governance in preventing deforestation and encouraging plantation forestry to use more sustainable approaches.101 Some potential possibilities can be seen through a pilot project in Vietnam.  More than 43,000 households in central Vietnam have received access to micro finance and technical support to establish over 76,500 hectares of plantation forest under a World Bank-supported project. A key component is certification of pilot areas through the International Stewardship Forest Certification process, where the price of certified timber is 30% higher than non-certified timber of the same type.

With respect to agriculture, the Global Alliance for Climate-Smart Agriculture (GACSA) was launched at the UN Climate Summit in 2014.102 It is a voluntary alliance dedicated to addressing the challenges facing food security and agriculture in a changing climate by scaling up climate-smart agriculture. Specific goals include sustainable and equitable increases in agricultural productivity and incomes; greater resilience of food systems and farming livelihoods; and reduction and/or removal of GHG emissions associated with agriculture, where possible. GACSA is supported by a Facilitation Unit, hosted by the FAO and financed through a five-year (2015–2019) multi-donor trust fund with contributions pledged from Norway, Switzerland and the US.

As seen above, the most recent estimate of global annual R & D in agriculture and forests, public and private, of all types was of the order of US$32 billion.103 This is much less than similar investments in renewable energy, Of this amount, it is likely that less than one-third or roughly US$10 billion was for climate-smart agricultural technologies and practices.104 This may reflect the greater difficulty for the private sector to capture the gains from funded research on climate smart agriculture compared to renewable energy innovations. The fact remains that R&D in land use sector is underfunded, given that it has the potential to generate 24% of global emissions mitigation potential by 2030. This is a priority area to step-up R&D funding, as well funding for the rapid deployment and spread of existing low-emission and high-resilience solutions.

  1. FAO, 2015. How to Feed the World in 2050. Food and Agriculture Organization of the United Nations, Rome. LINK

  2. International Sustainability Unit, The Prince’s Charities, 2015. Tropical Forests: A review. London. LINK The underlying studies are: World Wildlife Fund, 2012. Chapter 4: Forests and Wood Products, In WWF Living Forest Report. Washington, DC. LINK; and Elias, P. and Boucher, D., 2014. Planting for the Future: How demand for wood products could be friendly to tropical forests. Union of Concerned Scientists, Cambridge, MA. October. LINK

  3. FAO, 2016. Global Forest Resources Assessment 2015: How Are the World’s Forests Changing? 2nd ed. Food and Agriculture Organization of the United Nations, Rome. LINK

  4. Food and Agriculture Organization of the United Nations (FAO), 2010. Global Forest Resources Assessment 2010. Rome. LINK

  5. Schirmer, J., R. Pirard, and P. Kanowski. 2016. “Promises and perils of plantation forestry”, Chapter 9 in R. Panwar, R. Kozak and E. Hansen, eds. Forests, Business and Sustainability. (London: Earthscan and Routledge) 153-178.

  6. R. Petersen, et al. 2016 “Mapping Tree Plantations with Multispectral Imagery: Preliminary results for seven tropical countries”.  World Resources Institute Technical Note, January 18 pp.

  7. Calculations by Rachel Petersen, WRI, from the dataset developed in the previous reference.

  8. FAO, 2011. Scarcity and degradation of land and water: growing threat to food security. Food and Agriculture Organization of the United Nations, Rome. LINK

  9. UNCCD, 2015. Desertification, Land Degradation and Draught – Fact Sheet. LINK As cited in: UN, n.d., Desertification. LINK [Accessed 13 June 2016]

  10. This is the estimated annual average for 2010–2015. Reforestation and afforestation averaging 4.3 million ha per year reduce the net loss to 3.3 million ha per year, but old-growth and new forests are not ecologically equivalent. See:

    FAO, 2016. Global Forest Resources Assessment 2015: How Are the World’s Forests Changing? 2nd ed. Food and Agriculture Organization of the United Nations, Rome. LINK

  11. See FAO’s Aquastat: LINK and OECD statistics: LINK [Accessed 12 June 2016]

  12. See: IPCC, 2014. Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Core Writing Team, R. K. Pachauri, and L. A. Meyer (eds.). Intergovernmental Panel on Climate Change, Geneva. LINK

    For a more detailed discussion of the contributions of agriculture, forestry and other land use to global greenhouse gas emissions, see Chapter 3 (Land Use) in: GCEC, 2014. Better Growth, Better Climate: The New Climate Economy Report. The Global Report.

  13. GCEC, 2014. Better Growth, Better Climate, Chapter 3.

  14. Ibid.

  15. Chomitz et al., 2007. At Loggerheads? Agricultural expansion, poverty reduction, and environment in the tropical forests. World Bank Policy Research Report. Washington, D.C.

  16. De Luca, G. D., 2007. Roads, Development, and Deforestation: a review. World Bank Development Research Group., Washington DC. LINK

    See also: LINK

  17. Dulac, J, 2013. Global Land transport Infrastructure Requirements: Estimating Road and Railway Infrastructure Capacity and Costs to 2050. Report. International Energy Agency. Cited in Lawrence, W. et al., 2014. A global strategy for road building. Nature (513): 11 September. 229-234

  18. Lawrence, W. et al., 2014. A global strategy for road building. Nature (513): 11 September 2014.

  19. Assunção et al. 2013. Production and Protection: A First Look at Challenges in Brazil. Climate Policy Initiative, Rio de Janeiro. LINK

  20. Assanção,  J., Gandour, C., and Rocha, R., 2013. Does Credit Affect Deforestation? Evidence from a Rural Credit Policy in the Brazilian Amazon. Climate Policy Initiative and Nucleo de Avaliaco de Politicas Climaticas, PUC Rio. Rio de Janeiro. LINK

  21. See Ozment, et al. 2015. Natural Infrastructure in the Nexus. International Union for Conservation of Nature, Gland. LINK

    Garcia-Escribano, M., Goes, C., and Karpowicz, I., 2015. Filling the Gap: Infrastructure Investment in Brazil. International Monetary Fund, Washington, DC. LINK

  22. See: Delgado et al., 2015. Restoring and protecting agricultural and forest landscapes and increasing agricultural productivity. A Contributing Paper for Seizing the Global Opportunity: Partnerships for Better Growth and a Better Climate. LINK

    This estimate covers only the value of the net annual economic loss from new degradation, not the much larger value of annual production or the cumulative loss over years. It is the sum of a cost estimate for soil degradation from the Food and Agriculture Organization of the United Nations (US$40 billion per year), and applying an estimated value of US$3,100 to US$6,120/ha to an FAO estimate of 13 million ha gross deforestation annually, yielding US$40 to US$80 billion for forest degradation.

    See: FAO, n.d. Land Degradation AssessmentLINK

    FAO, 2010. Global Forest Resources Assessment 2010. FAO Forestry Paper 163. Rome. LINK

    The per hectare estimates are from: TEEB, 2010. The Economics of Ecosystems and Biodiversity Ecological and Economic Foundations. Edited by Kumar, R. Earthscan, London and Washington. LINK

    Costanza, R., de Groot, R., Sutton, P., van der Ploeg, S., Anderson, S.J., Kubiszewski, I., Farber, S. and Turner, R.K., 2014. Changes in the Global Value of Ecosystem Services. Global Environmental Change, 26. 152–158. DOI:10.1016/j.gloenvcha.2014.04.002.

    The International Resource Panel Report (in conjunction with UN REDD+): LINK

    TEEB, 2009.

  23. GCEC, 2014. Better Growth, Better Climate, Chapter 3.

  24. Delgado et al., 2015. Restoring and Protecting Agricultural and Forest Landscapes and Increasing Agricultural Productivity.

  25. FAO, 2011. The State of the World’s Land and Water Resources for Food and Agriculture – Managing Systems at Risk. Rome. Available at: Note that on the forest side a net 260 million ha of forest were eliminated in Africa, Asia, Central and South America combined between 1990 and 2012; a net 10 million ha of forest were added in Europe and North America combined. LINK

    Developing countries are also where the vast majority of agricultural emissions from ruminants, rice, and over-application of nitrogenous fertilizers occur (the latter primarily in India and China). See C. Delgado, M. Wolosin and N. Purvis. 2015. Restoring and Protecting Agricultural and Forest Landscapes and Increasing Agricultural Productivity. New Climate Economy, Washington DC. LINK

  26. Global Canopy Programme, 2015. The Little Book on Sustainable Landscapes. LINK

  27. Lars et al, 2014. A Guide to the Restoration Opportunities Assessment Methodology (ROAM): Assessing forest landscape restoration opportunities at the national or sub-national level. International Union for Conservation of Nature, Gland, Switzerland. LINK

  28. Credit Suisse, World Wildlife Fund, and McKinsey & Co., 2014. Conservation Finance: Moving beyond donor funding toward an investor-driven approach. LINK

  29. Parker, Cranford, Oakes, & Leggett, 2010. Little Biodiversity Finance Book. The Global Canopy Program, Oxford. LINK

  30. The high-income countries accounted for less than ¼ of global cropped area in 2010, so it is no surprise that the brunt of degraded agricultural land is presently in developing countries, although the developed countries of today had massive landscape degradation in the past. For details on location, see FAO, 2011. The State of the World’s Land and Water Resources for Food and Agriculture. On the forest side, 260 million ha of forest were eliminated net in Africa, Asia, Central and South America combined between 1990 and 2012; 10 million ha of forest were added net in Europe and North America combined. LINK Massive forest fires in the far northern regions of the world have been a major factor in the case of forest degradation in very recent years, but these are not included here as anthropogenic.

  31. UNFCCC, n.d. Fact sheet: Financing climate change action. Investment and financial flows for a strengthened response to climate change. LINK

  32. Ecosystem Marketplace. 2014. Gaining Depth: State of Watershed Investment 2014 – Executive Summary. Washington DC. LINK

  33. Mafira, T., Sutiyono, G. and Falconer, A., 2015. Improving Land Productivity through Fiscal Policy. Climate Policy Initiative. LINK

  34. Morrison-Métois, S., and Lundgren, H., 2016. Forests and Sustainable Forest Management. OECD, Paris. LINK

    Frechette A, de Bresser, M and Hofstede, R, 2014. External Evaluation of the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (the UN-REDD Programme). UNEP, Nairobi. LINK

    Tipper et all, 2011. Real-Time Evaluation of Norway’s International Climate and Forest Initiative. OECD, Paris. LINK

  35. Falconer A et al., 2016. Three Tools to Unlock Finance for Land Use Adaptation and Mitigation. CPI, London. LINK

  36. Dobbs, R., Oppenheim, J., Thompson, F., Brinkman, M., and Zornes, M., 2011. Resource Revolution: Meeting the world’s energy, materials, food and water needs. McKinsey Global Institute, Washington, DC. LINK

  37. OECD, 2016. Agricultural Policy Monitoring and Evaluation. OECD, Paris. DOI: 10.1787/22217371

  38. OECD, 2012. OECD review of agricultural policies: Indonesia 2012. Paris. LINK

    Osario et al, 2005. Who is Benefitting from Fertilizer Subsidies in Indonesia? The World Bank, Washington DC. LINK

    OECD, 2015. Indonesia Policy Brief: Agriculture – Achieving Greater Food Security. Paris. LINK

    Hedley, D., and Tabor, S.R., 1989. Fertilizer in Indonesian Agriculture: the Subsidy Issue. Agricultural Economics. DOI: 10.1016/0169-5150(89)90038-8. LINK

  39. OECD, 2013. Agricultural Policy Monitoring and Evaluation 2014. Paris. DOI: LINK

  40. OECD, 2015. Aligning Policies for Low-Carbon Economy. Paris. LINK

  41. Gale, F., 2013. Growth and Evolution in China’s Agricultural Support Policies. Economic Research Service Report No. 153. US Department of Agriculture, Washington DC. LINK

  42. Grossman, N., and Carlson, D., 2011. Agriculture Policy in India: The Role of Input Subsidies. USITC, Washington DC. LINK

  43. India’s FY 2016-17 budget (effective in April) includes 70,000 crore rupees for fertilizer subsidies. That amounts to about US$10.4 billion by today’s exchange rate. See: PTI, 2016. Budget 2016: Subsidy bill cut by over 4% to Rs 2.31 lakh cr for 2016-17. The Economic Times, 29 February. LINK

  44. For a discussion of when and how fertiliser subsidies make sense in Africa, see: The World Bank, 2007, World Development Report 2008, 150-153, Washington DC. LINK

  45. Zhang W. et al., 2013. New technologies reduce greenhouse gas emissions from nitrogenous fertilizer in China.

  46. United Nations World Water Assessment Programme, 2014. World Water Development Report 2014 – Water and Energy. UNESCO, Paris. LINK

  47. Reducing emissions from deforestation and forest degradation and foster conservation, sustainable management of forests, and enhancement of forest carbon stocks. McFarland, M., Whitley, S., and Kissinger. G. 2014. Subsidies to key commodities driving forest loss. Implications for private climate finance. ODI, London. LINK

  48. Assunçao, J. e Gandour, C.C. & Rocha, R., 2012. Deforestation slowdown in the legal Amazon: prices or policies. Climate Policy Initiative, Rio de Janeiro. LINK

  49. Morrison-Métois, S., and Lundgren, H., 2016. Forests and Sustainable Forest Management.

  50. Wise, T., 2012. The costs to Mexico of US corn ethanol expansion. Tufts Global Development and Environment Institute, Boston. LINK

  51. King, M., 2013. Green Growth and Poverty Reduction: Policy Coherence for Pro-poor Growth, OECD Development Co-operation Working Papers, No. 14, OECD Publishing, Paris. DOI: LINK

  52. To put the full environmental value of tropical forest in context, a well-accepted figure is US$6,120/ha/yr. This includes both market-mediated and non-compensated ecosystem services, such as food, water, raw materials such as timber, genetic resources, medicinal resources, improved air quality, climate regulation, regulation of water flows, waste treatment, water purification, erosion prevention, recreation, and tourism. See: TEEB, 2009. The Economics of Ecosystems and Biodiversity (TEEB) Climate Issues Update. LINK By contrast, in the resent section, we are only including tangible benefits such as foods produced, services sold, or the impacts on the market-valued production and services of others.

  53. GCEC, 2014. Better Growth, Better Climate. Chapter 3, Land Use.

  54. Porras, I., et al., 2013. Learning from 20 years of Payments for Ecosystem Services in Costa Rica. International Institute for Environment and Development, London. LINK

  55. FAO, 2013. Case studies on Remuneration of Positive Externalities (RPE)/ Payments for Environmental Services (PES). Rome. LINK

  56. OECD, 2015. Strengthening Incentives for Sustainable Land Use.  In Aligning Policies for a Low-carbon Economy, OECD Publishing, Paris. LINK

  57. For a recent evaluation of REDD+ and other development cooperation programmes designed to reduce CO2 from forests and deforestation, see OECD 2016, Morrison-Metois and Lundgren, op cit. Examples in this section also drawn from: OECD, 2015. Strengthening Incentives for Sustainable Land Use.

  58. UNEP, 2014. External Evaluation of the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (the UN-REDD Programme).

  59. Ecosystem Marketplace, 2014. Gaining Depth: State of Watershed Investment 2014 – Executive Summary.

  60. Norad, 2014. Real-Time Evaluation of Norway’s International Climate and Forest Initiative Synthesizing Report 2007-2013. LINK

  61. Barrett, K. and Goldstein A, 2015. Norway, Germany, UK Pledge $5 Billion to Combat Tropical Deforestation. Ecosystem Marketplace, Paris. LINK

  62. Bartlett, S. and David, S., 2016. Cities on a Finite Planet: Towards transformative responses to climate change. Routledge, Abingdon.

  63. OECD, 2013. Agricultural Policy Monitoring and Evaluation 2013: OECD Countries and Emerging Economies. Paris. LINK

    OECD, 2013. Putting Green Growth at the Heart of Development. Paris. LINK

  64. Parker, C., M. Cranford, N. Oakes, and M. Leggett, ed. 2012. The Little Biodiversity Finance Book. This citation gives estimates of “biodiversity finance”, but this is taken as a good indicator of both conservation and landscape restoration finance.

  65. Falconer, A., Parker, C., Kennlyside, P., Dontenville, A. and Wilkinson, J., 2015. Three Tools to Unlock Finance for Land-Use Mitigation and Adaptation.  This draws on OECD DAC CRS LINK

  66. Ibid.

  67. Morrison-Métois, S., and Lundgren, H., 2016. Forests and Sustainable Forest Management.

    German Federal Ministry of Economic Cooperation and Development (BMZ), 2015. REDD+: Protecting forests and climate for sustainable development. Berlin. LINK

  68. UK Department for International Development, n.d. Investments in Forests and Sustainable Land Use. London. LINK

  69. UNCCD, 2016. The Great Green Wall. Research and compilation of news, success stories, references to projects, opinions, etc. Bonn. LINK

  70. DiFrancesco, K and Gartner T, based on the Nexus Dialogue Synthesis Paper (Ozment, et al. 2015), as adapted in Bhattacharya et al., 2016. Delivering on Sustainable Infrastructure for Better Development and Better Climate.

  71. Hanson, C., Talberth, J., and Yonavjak, L., 2011. Forests for water: exploring payments for watershed services in the U.S. South. World Resources Institute, Washington, DC. LINK

  72. TNC, 2012. Water Funds Business Case : Conservation as a Source of Competitive Advantage. The Nature Conservancy, Arlington. LINK

  73. TNC, 2012. Water funds – conserving green infrastructure. The Nature Conservancy, Arlington. LINK

  74. Rönnbäck, P., 1999. The ecological basis for economic value of seafood production supported by mangrove ecosystems. Ecological Economics, 29(2), 235–252.

  75. Rutberg, L., 2013. In the Northwest, Innovative Projects Use Trees to Cool Streams. High Country News, Paonia. LINK

  76. Sommer, et al., 2001. California’s Yolo Bypass: Evidence that flood control can be compatible with fisheries, wetlands, wildlife, and agriculture. Fisheries, 26(8), 6–16.

  77. TNC, CTG, Goldman Sachs Group, et al 2011. Yangtze River Sustainable Hydropower. The Nature Conservancy, Arlington. LINK

  78. Development Initiatives, 2016. Improving ODA allocation for a post-2015 world. Bristol. LINK

  79. Loeffler K, 2015. Experiences with risk transfer, sharing and financing. Allianz Climate Solutions, Munich. LINK

  80. NatureVest and EKO Asset Management Partners, 2014. Investing in Conservation: A landscape assessment of an emerging market. The Nature Conservancy, Arlington. LINK

  81. Climate Bonds Initiative, 2016. 2015 Green Bond Market Roundup.

  82. Climate Bonds Initiative, 2016. Bonds and Climate Change: The State of the Market 2016.

  83. Ibid.

  84. Recognising the importance of land use in addressing climate change, the Climate Bonds Initiative convened a Land Use Technical Working Group in 2014 to develop criteria for bonds in this sector. A first set of criteria is nearing approval; a second phase will focus on adaptation and resilience. See: Climate Bonds Initiative, 2016. Bonds and Climate Change.

  85. At its simplest, an IRR measures with one number the percentage returns to capital at a given time of an income stream when all inputs and outputs are valued at market prices (more technically, the discount rate that is needed to make the net present value of an income stream equal to zero). From a finance standpoint, an IRR that exceeds the “opportunity cost of capital” (or what it costs in the relevant marketplace to borrow to invest) is profitable. Public impact investors such as the World Bank currently tend to prefer “Economic Rates of Return” (ERR), which are similar to IRRs, except that all inputs and outputs are valued at their undistorted (and often somewhat theoretical) real economic values that include allowances for non-market costs and benefits (i.e. impacts).

  86. NatureVest and EKO Asset Management Partners, 2014. Investing in Conservation: A landscape assessment of an emerging market.

  87. GCEC, 2015. Seizing the Global Opportunity.

  88. The first fund closed to new investors in 2012 having reached its subscription objectives, and the larger second partnership ($3 billion) closed to new investment in 2015. After closure the investments are implemented until the partnership is liquidated. LINK

  89. GCEC, 2014. Better Growth, Better Climate.

    GCEC, 2015. Seizing the Global Opportunity.

  90. Consumer Goods Forum, 2010. Board Resolution on Deforestation. Paris. LINK

  91. Greenpeace, 2015. Palm oil giant Wilmar caves to public pressure, commits to end forest destruction. Amsterdam. LINK

  92. Consumer Goods Forum, n.d. Palm Oil: Deforestation. Paris. LINK

  93. GCEC. 2015. Seizing the Global Opportunity: Partnerships for better growth and a better climate p. 7.

  94. Beintema, N., Stads, G.-J., Fuglie, K., and Heisey, P., 2012. ASTI Global Assessment of Agricultural R&D Spending. International Food Policy Research Institute, Washington, DC, and Global Forum on Agricultural Research, Rome. LINK

  95. OECD data, Government appropriations of budget outlays for R&D, 2013 or latest year available, downloaded on 22 May 2014. LINK The largest share of OECD government allocations for R&D go to general outlays (e.g. universities) followed by health.

  96. Marker-assisted selection (MAS) is a biotechnology used in plant or animal breeding whereby a marker (morphological, biochemical or one based on DNA/RNA variation) is used for indirect selection of a trait of interest (e.g. productivity, disease resistance, abiotic stress tolerance, or quality).

  97. News Agency of Nigeria, 2016. EU, FAI, ACP inaugurate 41m euros Action Against Desertification in Africa. Abuja. LINK

  98. Schirmer, J., R. Pirard, and P. Kanowski. 2016. “Promises and perils of plantation forestry”, Chapter 9 in R. Panwar, R. Kozak and E. Hansen, eds. Forests, Business and Sustainability. (London: Earthscan and Routledge) 153-178.  Also see: Carle, J. and P. Holmgren. 2008. “Wood from planted forests: a global outlook 2005-2030, Forest Products Journal, 58 (12) 6-18 and Warman, R. 2014. “Global wood production from natural forests has peaked”, Biodiversity and Conservation, 23, 1063-1078.

  99. The literature on this is vast and there is not much disagreement on the points concerning lower biodiversity and loss of vital ecosystem services compared to intact natural forest.  See for example Schirmer, J., R. Pirard, and P. Kanowski. 2016. “Promises and perils of plantation forestry”, Chapter 9 in R. Panwar, R. Kozak and E. Hansen, eds. Forests, Business and Sustainability. (London: Earthscan and Routledge) 153-178.  Also see: Jenkins, M. and E. Smith. 1999. The Business of Sustainable Forestry: Strategies for an industry in transition. Washington, D.C.: Island Press.

  100. See for example: Higman, S., J. Mayers, S. Bass, N. Judd, and R. Nussbaum. 2005. The Sustainable Forestry Handbook, 2nd edition.  London: Earthscan

  101. This was a major thrust of the GCEC, 2014. Better Growth, Better Climate, Chapter 3, which reviews evidence here.

  102. FAO, n.d. Climate-Smart Agriculture. Rome. LINK

    Higman, S., J. Mayers, S. Bass, N. Judd, and R. Nussbaum. 2005. The Sustainable Forestry Handbook, 2nd edition.  London: Earthscan

    Jenkins, M. and E. Smith. 1999. The Business of Sustainable Forestry: Strategies for an industry in transition. Washington, D.C.: Island Press.

  103. ASTI. 2012. Global Assessment of Agricultural R&D Spending. LINK This assessment is based on data to 2008 and includes a wide survey of data for diverse sources.  Agroforestry and related fields are included but pure forest research is not.

  104. This proportion has not been estimated on a global basis, is if anything likely a large overestimate of the share of agricultural and forest research that is climate-smart; it is roughly the share of the World Bank’s agricultural portfolio that was coded as being “climate smart” in 2015, even as the Bank works to achieve 100% climate smartness over time.

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