FFRN Risk Briefing - 4.0 ANTHROPOGENIC FINALgpatenau/ForestFinance/Forest... · 2012. 9. 13. · 3...

1 FFRN BRIEF 4.0: ANTHROPOGENIC

FFRN RISK BRIEFING 4.0 Anthropogenic factors Forest Finance Risk Network, August 2012 The Forest Finance Risk Network (FFRN) was established in August 2011. It is funded by the Natural Environment Research Council (NERC) (grant no: NE/I022183/1) and hosted by the University of Edinburgh. The network provides a means of knowledge exchange between the NERC-funded and wider UK research community and end-users in the finance sector. Initially, the network is focused on risks associated with natural hazards, anthropogenic interferences, and forest specific regulatory risks that might affect forest investments. Principal Investigator: Dr Genevieve Patenaude: [email protected] Knowledge Translator: Susan Davies: [email protected] General Approach The first phase of the project entails identifying (i) the status quo with respect to UK research and expertise on forest loss risks, and (ii) the information requirements of investors and insurers involved in sustainable forestry investments (referred to generically as ‘finance end-users’). Whilst the focus is on UK experts and UK end-users, the project will support forest risk assessment in any country to support the global nature of forest investments. Where appropriate, reference may be given to key work being undertaken elsewhere in the world where it is of major significance. The broader requirements of financial institutions will be defined in a later peer-reviewed publication, however a key requirement is that models are sought that are replicable across different forest locations and types i.e. not just developed for 1 or a few specific forest locations. Furthermore, to be operable outside academia, they should not require large amounts of data input or specialist knowledge. Otherwise, they should be used to pre-generate simplified outputs and datasets for wider use. As such, the focus for FFRN is to identify key models/research and experts that meet these criteria rather than providing an exhaustive list. Further information on the project can be found on the FFRN website: http://xweb.geos.ed.ac.uk/~gpatenau/ForestFinance/Forest_Finance_Risk_Network/Links.html Feedback and suggestions for additional inclusion gratefully received. Comments to: [email protected] Links to models, datasets and contact details for experts are provided. A summary spreadsheet of these links and those from other risk briefings will also be made available via this website at the end of the project. NB: Whilst every effort has been made to identify publicly and freely available sources where possible, the authors do not guarantee that this is the case. Users of the information must verify copyright issues and usage rights as appropriate.


INTRODUCTION TO FFRN BRIEFING SERIES It is important for investors in forests to have a clear understanding of the risks involved in any potential investment. These include market related risks such as timber/carbon prices; credit risks i.e. the risk of default from potential counterparties; political, legal and regulatory risks; and finally -‐ a wide range of operational risks. Included in the latter, are the risks of unplanned forest losses whether from natural hazards such as fire and wind, or from unplanned anthropogenic actions such as illegal logging. During the due diligence phase prior to any investment, investors will assess each of these risks in terms of their likelihood and impact, and will compare the total quantified risks to the potential returns of the project. If such risk-‐adjusted returns exceed the given investor’s hurdle rate then a decision to invest may proceed. In the case of some risks the investor may factor in the additional costs of mitigation -‐ for example insurance can reduce the risks associated with certain natural hazards. Investors can invest in forests either directly (e.g. direct equity stake) or indirectly – for example, through investment in funds that hold part of their portfolio in forests, specialist forest funds, Timber Investment Management Organisations (TIMOs) or forest bonds etc. Where investors invest indirectly they will primarily be concerned in the performance of the investment vehicle and the competence of its management and are unlikely to assess the underlying forest loss risks themselves. For the purposes of this briefing, the term ‘investors’ refers primarily to those investors who would be making the actual risk assessment prior to investment in a specific forest investment e.g. forest fund managers investing in forests as opposed to pension fund managers investing in such forest funds. The FFRN is focused on providing access to better information on the risks of forest loss from natural hazards and unplanned anthropogenic actions to such investors, and to insurance companies who may provide insurance against such losses. Better risk information will help investors decide if such risks are an important consideration in their investment and whether or not take out insurance. It will also assist insurance companies in pricing premiums for forest insurance. Previous briefings have focused on natural threats to forests including the risks from fire, wind, pests and diseases and climate change. The purpose of this final briefing is to look at the anthropogenic (i.e. human) factors that have the potential to cause a greater threat to forests than all other risks combined.


ANTHROPOGENIC Introduction Whilst the briefings in this series so far have focused on natural hazards to forests such as fire, wind and pests and diseases, this briefing focuses on arguably the biggest threat to forests -‐ humans. Deliberate policy to clear land for agriculture or other purposes, and logging concessions can create large-‐scale deforestation. Even within sustainably managed concessions and protected areas, illegal logging still has the potential to cause wide-‐scale forest loss. Whereas the other briefings focused on identifying models and approaches that could attempt to quantify the likelihood of the various risks and their impacts on forest loss, anthropogenic factors such as political and regulatory risk do not lend themselves to a probability type approach e.g. it is unlikely to be possible to identify the annual probability of a reversal of support for e.g. sustainable forest management or carbon offsets. For this reason, this briefing is primarily focused on providing a summary list of sources of advise/expertise on various anthropogenic related risks. Where possible, sources of information and qualitative/quantitative assessments of relative risk e.g. indices are provided. The briefing looks first at political/regulatory related risks before moving on to deforestation and illegal logging. POLITICAL/REGULATORY RISKS Country level risk - general At the highest level, individual countries differ widely in terms of the relative competence and ability of national governments and related institutions to develop an appropriate and effective regulatory infrastructure and to enforce the rule of law and adherence to policies. In addition, the development of sustainable forest policies is particularly difficult in countries where there is political instability and a risk of corruption at different levels of the political system. A number of respected institutions provide widely used indicators of the relative competency of different countries in terms of such general governance-‐related criteria:

• Worldwide Governance Indicators (WGI), World Bank – The World Bank provides a percentile rank listing for all countries according to the following governance criteria: Control of Corruption; Government Effectiveness; Political Stability and Absence of Violence/Terrorism; Regulatory Quality; Rule of Law; Voice and Accountability. Whilst none forest-‐specific they provide high-‐level guidance on the relative strength of governance and are freely available and widely used. Link: http://databank.worldbank.org/ddp/home.do


• Ease of Doing Business, World Bank. A ranking of 183 countries according to 10 equally weighted assessment criteria related to the ease with which business can be conducted. These are: Starting a Business; Dealing with Construction Permits; Getting Electricity; Registering Property; Getting Credit; Protecting Investors; Paying Taxes; Trading Across Borders; Enforcing Contracts; and Resolving Insolvency. Rankings are provided for each individual criterion as well. Link: http://www.doingbusiness.org/rankings

• Ernst & Young Attractiveness Surveys – E&Y produce annual regional and country

attractiveness surveys, which provide an overview of trends in foreign direct investment and the business environment in general. These include Africa, Europe and Asia. They are not focused on forestry but a useful source of information on current business trends: http://www.ey.com/ZA/en/Issues/Business-‐environment

• Country Risk Classification, Organisation for Economic Cooperation and

Development (OECD) – The OECD ranks countries in terms of risk from 0 to 7 where 0 represents low risk and 7 the highest risk. All high-‐income OECD and Eurozone countries are ranked as zero. Other countries are ranked according to the ease of repatriating funds i.e. risks around capital and exchange controls; and the risks of force majeure e.g. war, expropriation, natural disasters etc. The rankings also include financial and economic factors. They do no however equate to sovereign risk. Link: (latest ranking 29/6/12): http://www.oecd.org/document/49/0,2340,en_2649_34171_1901105_1_1_1_1,00.html

• Armed Conflict and Location and Events Dataset (ACLED) – public collection of

political violence data for developing states. Coverage extends through Africa, several Asian states and Haiti. Includes real time information for Africa. Over 60,000 events recorded as of early 2012. http://www.acleddata.com

Country level risk – forest related Rising demand for timber, the emergence of the forest carbon market, and other unique factors of forestry such as low correlation to other asset classes and the advantage of being able to delay felling until market conditions are favourable have led to forestry proving an attractive investment class. As the value of timber and carbon rises, the pressures on forests will increase concurrently. In less well-‐governed countries there is a danger that established concessions may be vulnerable to illegal logging and corruption. Multiple layers of government increase the risk of potential corruption and issues over land tenure further compound the risk. Indices and other tools that assess countries according to how well their governance structures and infrastructure support forest investments specifically are therefore important and include the following:

• FAO (Food and Agriculture Organisation of the United Nations) – Every five years the FAO produces a Global Forest Resources Assessment, which contains a comprehensive assessment of a wide range of global forestry statistics by country. The full report and associated statistical tables can be freely downloaded. The latest report was issued in 2010, link: http://www.fao.org/forestry/fra/fra2010/en/. Within this report and


associated statistical tables are a number of indicators on forest governance including forest policy and legal framework, human resources within forest public institutions, state of ratification of international conventions and so forth.

• Forest Investment Attractiveness Index (IAIF) (formerly known as the Jose Rente

Attractiveness Index) – this index was originally developed as part of a project sponsored by the Inter-‐American Development Bank. The index covers 23 countries in Latin America and the Caribbean: Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, Suriname, Trinidad and Tobago, Uruguay and Venezuela. The index aims to score the relative attractiveness of the countries for forest investment based on an amalgamation of 3 sub-‐indices which cover macroeconomic factors affecting all business sectors, related sectoral business that impact on forestry; and factors affecting the profitability of the forestry sector itself. The index was created in 2004 and an updated version released in 2008. A presentation on the original 2004 version is available from the IDB and can be freely downloaded: http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=975603. Production of the IAIF has now been handed over to a private consultancy firm – Sustainable Forest Business. Links to the latest IAIF are available however only in Spanish. Link: http://www.sustainableforestbusiness.org/english/tools/01/?area=conteudo&id=1

• Forest Carbon Index – was the product of a year’s research in 2009 by a collaboration of

Resources for the Future (a think tank), Climate Advisers (a consultancy), and the International Institute for Applied Systems Analysis (IIASA) and supported by the United Nations Foundation. It is a global index that aims to highlight the most attractive areas for forest carbon investment. It is displayed via a global map available online and combines information on forest carbon resources, estimated costs and profit potential together with risk defined as a combination of governance, ease of doing business and REDDiness indicators (i.e. readiness for REDD). In summary it also highlights what it concludes to be the best places for investment. Further details are available in freely downloadable reports providing details on the analysis and how the index was calculated. Use of the index for commercial purposes is restricted as all rights are reserved. Link: http://www.forestcarbonindex.org/ Contact: [email protected] regarding permissions.

• Diagnostic tool for forest governance, PROFOR -‐ This tool was developed following an

initiative by PROFOR, the World Bank and the FAO to avoid duplication in the development of tools to assess forest governance as a number of organisations were developing separate tools. The report outlining the tool was published by PROFOR in June 2012 with support from the World Bank, FAO, and the European Forestry Institute. It is initially aimed at governments or public organisations aiming to bring together forest stakeholders in order to develop indicators on forest governance and systems of monitoring in order to identify areas of weakness and develop better governance. Whilst not primarily aimed at financial institutions it is potentially useful to them in terms of identifying what constitutes good forest governance. The tool is freely downloadable from: http://www.profor.info/profor/knowledge/defining-‐forest-‐governance-‐indicators


Tenure Forest tenure relates to the ownership of forests and the rights and arrangements around the use of forest resources. A key risk for investors in countries with less well developed political and regulatory institutions and structures is to ensure that forest tenure is clear and enforceable and that contracts are entered into with the appropriate counterparties. Standardised assessments and information on forest tenure include:

• Regional Forest Tenure Studies, Food and Agriculture Organisation – The FAO has conducted detailed regional tenure studies and additional case studies in 3 regions: Africa (20 countries); Asia (19 countries); and Latin America (13 countries). Detailed breakdowns of the number of hectares of forest in each type of ownership structure are provided and include information on resource rights. This includes breakdowns of public and private ownership structures and management and operation rights. See: http://www.fao.org/forestry/tenure/en/ken/

Indigenous Forest Peoples The rights of indigenous forest peoples add an additional dimension to issues around forest tenure. Where forests are of high value, the rights of forest peoples are at risk where the rule of law is weak and forest tenure issues are uncertain. Investment in a forest proposition that does not respect the rights of forest peoples brings with it a high risk of damage to an investor’s reputation and runs the risk of the investor becoming a target for NGO and related pressure. Investors therefore need to ensure that a given proposition does not contravene forest peoples rights. Ensuring such rights are an on-‐going area of contention in the REDD+ regulatory process,. Sources of information:

• Forest Peoples Programme – is an international NGO that promotes the rights of indigenous forest peoples in South America, Africa and Asia. In particular it pushes for free, prior and informed consent (FPIC) i.e. the right of peoples to prevent proposed projects on lands that they live on, own or use in some way. This ensures that organisations that wish to set up a project must negotiate with indigenous peoples. FPP promotes responsible finance whereby forest funds are accountable to local rights holders. FPP produces a number of freely available publications that provide guiding principles e.g. for FPIC and information on the current state of forest peoples’ rights in different countries. Link: http://www.forestpeoples.org/.


Forest Certification There are a number of forest certification bodies that aim to verify whether forests are managed sustainably and in accordance with ethical principles. Investment in a certified forest is therefore one way to reduce the risks of poor forest management and reputation related risks. Forest certification, whilst not directly related to the risks that FFRN is focused is therefore an indirect means of risk reduction and is included briefly here for completeness. More information on forest certification can be found from the websites of the two main certification bodies:

• Forest Stewardship Council (FSC) -‐ Link: http://www.fsc.org/ • Programme for the Endorsement of Forest Certification (PEFC) -‐ Link:

http://www.pefc.org/ REDD – regulatory Whilst forest timber markets are well established, forest carbon markets are in their infancy and driven by voluntary offset markets and impact investors. The successful introduction of a compliance based REDD market could lead to a significant expansion of this fledgling market, however, at an international level, REDD remains caught up in international negotiations and the regulatory process. The voluntary REDD carbon credit market is however vibrant, and in a very short time has dominated the forest carbon market, responsible for 67% of voluntary carbon credits sold in 2010 (Diaz et al., 2011)1. There are a number of sources of information on the latest status of the REDD regulations and the relative ability of different countries to support REDD investments at present, including:

• Forest Carbon Partnership Facility (FCPF) –The FCPF has developed a framework to support countries in developing the technical infrastructure to implement REDD+ -‐ so-‐called REDD readiness. It includes guidance on developing reference scenarios, monitoring and management etc. So far 37 countries (14 in Africa, 15 in Latin America and 8 in Asia-‐Pacific have become partners. Membership of the FCPF is therefore a good guide towards which countries are working towards appropriate governance structures for REDD+. A list of member countries and links to key documents on their REDDiness can be obtained from the website: http://www.forestcarbonpartnership.org/fcp/node/203 . Main website: http://www.forestcarbonpartnership.org/fcp/.

• The REDD Desk – is an independent website run by the Global Canopy Programme,

which provides a variety of information on the status of REDD, legal and governance issues and existing projects. The website includes a database on selected countries which provides comprehensive information on their ‘REDDiness’ to implement REDD initiatives including plans, policies, legal frameworks and institutions of relevance. At present coverage is limited to a few key countries. As of June 2012 this included: Brazil, Cameroon, Ecuador, Guyana, Mexico, Laos, Sri Lanka, Vietnam. Link:

1 Can also be downloaded from: http://www.forest-trends.org/documents/files/doc_2963.pdf


http://www.theredddesk.org/ Once registered the user can freely download a range of reports and studies on REDD and implementation related issues.

• UN-REDD Programme – the official website provides access to the latest regulations,

news and publications as well as updates on the progress of negotiations. It includes policy briefs and annual reports on the status of the international REDD framework. http://www.un-‐redd.org/Home/tabid/565/Default.aspx

Experts on political/regulatory issues Many of the experts on political/regulatory issues -‐ and particularly forest carbon markets -‐ are to be found in the private sector, however, the FFRN’s primary purpose is to link academic expertise with potential end users in the finance sector and so it has focused on this area. The list below does however contain some key non-‐academic experts recommended by academics during the year and some non-‐academic FFRN members:

• Ascui, Francisco, Lecturer in Business and Climate Change, Director, MSc in Carbon Finance, Business School, University of Edinburgh. Francisco is an expert in forest carbon markets who prior to joining the business school had undertaken over 50 consultancy projects for organisations including the World Bank, European Investment Bank, United Nations Environment Programme, Food & Agriculture Organisation, UNCCD, UN Global Compact etc. He provides expertise on the challenges of bringing forest carbon into the financial markets, particularly mechanisms such as the CDM and potentially future integration into the EU ETS. This includes expertise on the technical processes surrounding compliance markets. He is a founding member of FFRN. T: 0131 650 8343, Email: [email protected]

• Enviromarkets – provide advice and technical support on market-‐based financing

solutions including risk assessment for ecosystem restoration and sustainable management and also specialise in forestry-‐related projects. They assist market facilitators in designing and implementing effective market frameworks for particular policy objectives and are leading proponents in the development of forest bonds. Clients include leading financial, government and civil society groups. They are founding project partners to FFRN. Contacts: Simon Petley: [email protected]; Jon Grayson: [email protected], Tel: (0)20 709619 56/55. Link: http://www.enviromarket.co.uk/

• Humphrey, Dr David, Open University, is an expert on political and regulatory risks,

particularly in relation to the status of international conventions impacting on forest markets. He is an expert on global environmental governance and how related policies impact on national governments and international organisations e.g. the status of REDD negotiations and policies. He has been an advisor to the World Commission on Forests and Sustainable Development, a member of the Scientific Advisory Board of the European Forest Institute and part of various UK government delegations to the United Nations


Forum on Forests. He has also published several books on forest governance and politics and various journal articles e.g. (Humphreys, 2008). FFRN Member. Email: [email protected]

• McDermott, Dr Constance, James Martin Senior Fellow, Environmental Change Institute,

Oxford University and Chair of Forest Governance Programme, Oxford Centre for Tropical Forests – Constance is an expert in forest governance and has worked in North and Central America, South Asia and globally. Her research examines forest governance in its many forms, from international and national forest law and policy, to voluntary certification, to REDD+. In addition to her academic research and teaching, she has served as Principle and Co-‐Principle Investigator on numerous consultancy projects, including a current EU Seventh Framework Programme project where she is leading an assessment of the EU’s global forest footprint and policy responses. She has published as a Coordinating Lead Author for two Global Forest Expert Panels hosted by the International Union of Forest Research Organizations, and authored books, journal articles and in-‐depth reports. FFRN Member. Email: [email protected]

• Guay, Bruno, Technical Adviser, UN-‐REDD Programme, United Nations Development

Programme (UNDP). Bruno is an adviser to the Democratic Republic of Congo and supports the coordinate of the REDD programme. He is an expert on the risk of illegal logging in the region including threats to existing concessions and the implications for legal logging, REDD and future investment. FFRN Member. Contact: Tel: +243(0)99 702 6504, Email: [email protected]

• Nature Conservation Research Centre, Ghana, (NCRC). http://www.ncrc-‐ghana.org/

NCRC is a non-‐profit conservation organisation that provides support for the development of conservation related projects that bring benefit to local communities and the economy, including REDD projects. Support can cover a range of areas including technical assistance and capacity building e.g. baseline mapping, legal analysis, registry issues, project design etc. as well as involvement in national policy issues. They are a leading organisation in Anglophone countries in West Africa, Ethiopia and East Africa and have worked with development institutions, private banks and insurance organisations in relation to REDD+ and wet carbon projects to VCS/CCBA standards. They have helped provide links between investors and projects as well as working on novel insurance products to guarantee tree crop yields. FFRN contact: John Mason, Executive Director. Email: [email protected] , Telephone: +233-‐26-‐4697485


DEFORESTATION/ILLEGAL LOGGING The focus of FFRN is the exchange of information between academics and other UK researchers working on forest loss risks, and potential end users of that information in the finance sector. Put slightly differently – FFRN is focused on the risks of forest loss that impact on investment decisions including related insurance and carbon buffer considerations. It is important to note therefore, that deforestation only constitutes a risk to an investor or insurer where it impacts on a specific financial interest. Conversely, in the case of REDD, the baseline rate of deforestation is in fact a determinant of the forecast opportunity i.e. the size of the potential revenue stream from avoided deforestation as opposed to the potential risk. Academic research to determine the most accurate way to determine baseline rates of deforestation and quantification of carbon is therefore not the focus of FFRN -‐ the focus in on unplanned deforestation/illegal logging that impacts on investments i.e. the risk side of the equation. However, what does represent a risk to carbon investors is if the uncertainty in measuring the baseline and quantifying carbon leads to a future change in the amount of carbon that can be credited. The risk here is not however in the methodology per se, but in whether future changes in methodology are likely to lead to a decrease in the measured level of baseline deforestation and carbon (an increase would of course create more revenue and so is not a risk). In other words, the investor does not need to know the state of academic debate on how to measure a baseline or quantify carbon – the concern is whether the accepted baseline or carbon methodology for a particular investment is likely to change to their detriment. Therefore the analysis required is whether or not the current methodologies are changing in a way that is likely to increase or decrease the quantification method chosen under various carbon standards i.e. trends in the range/volatility of developing carbon/baselining methodologies. Carbon investment is therefore based on projected future revenue streams, and the key point is that ex post retrospective revision of carbon stocks or the baseline against which they are measured could damage the market if they result in a reduction of forecast revenues. In this, lessons can be learned from the use of feed-‐in-‐tariffs to support renewable energy projects. Retrospective reduction of tariffs in Spain damaged the market, whereas regulation to prevent retrospective reductions in Germany reduced the risks to investors. The pursuit of academic excellence in measuring deforestation and carbon stocks may lead to regularly revised methodologies, however, regulations for REDD and other forest carbon markets could be designed in such a way to ensure that implementation of new methodologies does not damage existing investments or this will increase the perceived risks in this area. There are additional problems in the current application of academic research on deforestation to finance related end-‐users. Most research to date on deforestation risks focuses on identifying the key drivers/agents of deforestation, which typically relate to socio-‐economic factors such as the value of timber, need for agricultural land, proximity to roads and towns and so forth. Identification of the key drivers in a particular region/site then supports further development of agent-‐based models to predict the areas most likely to be at risk. One of the simplest conceptual


frameworks for such an approach is the ACEU method. (NB: more sophisticated models exist, however, the ACEU approach is discussed here for its simplicity in order to illustrate a point):

• ACEU approach – ACEU is not a formal model but a conceptual approach that seeks to use a simple formula to identify areas at risk of deforestation. Areas of forest that are ‘Accessible’, ‘Cultivable’, of ‘Extractable’ value and ‘Unprotected’ are said to be most vulnerable. This approach was originally used as part of a technical specification for a project under the Plan Vivo standard for the conservation of Miombo woodland in Mozambique. It was first defined by Richard Tipper, now of Ecometrica -‐ a project partner to FFRN. The approach does not attempt to express a probability or likelihood of deforestation but simply to identify relative risk. Plan Vivo specification: http://planvivo.org.34spreview.com/wp-‐content/uploads/MOZavoided-‐deforestation-‐technical-‐specification.pdf

The principles of the ACEU approach form part of the development of the Biocarbon tracker:

• Biocarbon Tracker -‐ a freely accessible web-‐based tool provided by Greenergy in association with Ecometrica, the University of Edinburgh and the National Centre for Earth Observation. The tracker provides an interactive map that provides global information on above ground biocarbon and overlays it with information of the risk of deforestation based on the ACEU approach. The maps also provide a comparison of carbon stocks between 2005 and 2009. Link: http://biocarbontracker.com/. Contact: Richard Tipper, Ecometrica (FFRN founding project partner).

Application of these tools to investment risks as opposed to deforestation risk in general is however problematic. For timber investments, forests must be accessible, cultivable and of extractable value by definition, or else they are not viable. ACEU risk criteria are therefore also key requirements. However, strong demand for alternative land use and a lack of protection lead to a higher risk of illegal logging or reversal of land use policy, which is therefore the primary threat to such timber investments. REDD projects by definition must be located in areas where baseline deforestation is medium to high to realise the carbon benefits of avoiding deforestation. As such, REDD projects will be located in areas where sufficient deforestation risk exists i.e. somewhat of a tautology. Similarly, REDD projects aimed at reversing forest degradation must also be in accessible areas or else they would not have suffered from degradation, and are likely to be in areas of high value forest where resources were extractable. Furthermore, carbon forestry is increasingly combined with other forms of revenue e.g. agro-‐forestry projects. These necessitate accessibility, cultivability and value although the implied presence of a strong local community that benefits from the project can increase local protection. Low risk carbon offsets could be realised in areas of low ACEU factors but then the implication is that these forests were never under threat, which undermines the basis for REDD. In summary, by definition, REDD projects must be in areas with reasonable ACEU factors.


Assessment of deforestation risk is therefore a question of degree – insufficient risk of deforestation risk and credits will not be generated, however, too much risk and there may be a problem with the permanence of the project/conservation effort. Defining this ‘tipping point’ is not currently addressed by existing models but is an important concept. Application of such tools may also have an additional indirect use depending on how the development of REDD regulations progresses in future. A national baseline for assessing deforestation creates a risk that a successful REDD project may lose its carbon offsets if deforestation ‘leaks’ elsewhere and national targets are not met. If this approach is favoured then approaches such as ACEU may be of wider use in predicting the likelihood of deforestation elsewhere offsetting any carbon projects. At present a nested approach seems to be favoured by investors, whereby projects will retain their offsets despite national targets being missed. Until the regulations are agreed, however, the applicability of existing models is uncertain. Other approaches Other generic approaches to identifying areas at risk of deforestation:

• Dinamica, Centre for Remote Sensing, Federal University of Minas Gerais, Brazil. Dinamica is a spatial simulation model that supports environmental modelling. Maps of ecological and socio-‐economic factors can be overlaid and spatial algorithms used to simulate the impacts on the landscape. The model has been used to simulate deforestation in the Amazon (Soares-‐Filho et al., 2006) and Mexico, as well as forest fire risks. The software and operating manuals are freely available for educational and scientific purposes but not commercial. It is however complex to operate and requires technical knowledge and so is unlikely to be usable by the finance sector, however, the centre does provide training programmes. Interested parties could contact the centre to discuss applications. Contact: Britaldo Silveira Soares Filho. Link: http://www.csr.ufmg.br/dinamica/ Guidebook: http://www.csr.ufmg.br/dinamica/tutorial/Dinamica_EGO_guidebook.pdf

• Global Forest Watch, World Resources Institute – this website provides interactive

maps for a limited number of key countries with various layers of data that can be selected. Countries covered are Alaska, Brazilian Amazon, Cameroon, Canada, Central Africa, Congo, Indonesia, Peru, Russia and Venezuela. Information varies by country but can include details on logging concessions, roads and access, national parks and protected areas, deforestation and degradation. The maps are easy to use but some data may be out of date e.g. fire information and urban zones data for the Brazilian Amazon is from 2004. Link: http://www.globalforestwatch.org/english/interactive.maps/index.htm


Deforestation – remote sensing general Although there are issues in terms of the relationship between deforestation and risk as outlined above, deforestation information is of interest to forest carbon investors. Remote sensing is the most widely used tool within academia to monitor deforestation on a standardised global scale but requires technical interpretation. A brief, high-‐level overview of some of key remote sensing technologies of potential applicability and interest to investors and insurers is below: Optical Satellites The most common kind of satellites used to monitor forests are optical satellites which produce at their most simple satellite images similar to a digital photograph in appearance. These satellites detect in the optical and near infrared wavebands and measure the solar radiation reflected from the Earth’s surface. Measurements from such sensors can be hindered by atmospheric conditions such as haze or dust in the atmosphere, or can have their view entirely obscured by cloud cover, which can prevent imaging taking place. In addition, those sensors best suited to map forest properties on a very regular basis (less than weekly) have ground resolution in the order of a few 100 metres, whereas those instruments that can measure in greater ground detail (10s of metres) can make measurements only every month, but can therefore be hindered by cloud cover. These sensors can typically only establish a level of ‘greenness’ i.e. they can provide a measure of canopy cover but cannot normally distinguish forest types, nor can they identify degradation. Algorithms can be used to refine measurements calibrated by sample plots in the chosen destination. The two most widely used satellites for monitoring deforestation are Landsat and SPOT:

• Landsat – NASA and the US Geological Survey set up the Landsat Program in 1972. The optical satellites under this program monitor carry a number of multispectral sensors that scan the Earth once every 14-‐16 days to provide images of landcover. Landsat is widely used to provide estimates of deforestation on account of the public availability of data and length of historical record. It is also relatively easy to interpret given that it is a traditional multispectral image that does not require very advanced software to process. However, since 2003 a fault in the latest satellite, Landsat 7, has reduced the availability of good quality data. This will be remedied with the launch of the Landsat Data Continuity Mission, planned for launch in late 2012 or early 2013. Technical information on Landsat including satellite specifications and links to data sources can be obtained via: http://landsat.gsfc.nasa.gov/about/technical.html

• SPOT (Système Pour l’Observation de la Terre) – is a high-‐resolution optical satellite

originally initiated by the French Space Agency (CNES) that has been monitoring the Earth since 1986. It has an off-‐nadir (i.e. not straight down but to an angle either side) sensor, which means that it can survey more frequently (2-‐3 days but not spatially continuous) and has a higher chance of capturing cloud free data if an area of interest is specifically tasked. It also supports stereoscopic (3D) sensing and has a higher resolution than Landsat. However, its costs are prohibitive for most forest projects. EADS Astrium which was merged with Infoterra to create Astrium Geo Information Services recently acquired SPOT. http://spot4.cnes.fr/spot4_gb/index.htm


Other:

• China-Brazil Earth Resources Satellite (CBERS) – this is a Chinese/Brazilian satellite series, providing Landsat-‐like data for free over China and the Amazon. Link: http://www.cbers.inpe.br/ingles/satellites/control.php

• The Advanced Spaceborne Thermal Emission and Reflection Radiometer (ASTER) –

this is similar to Landsat but provides higher resolution data. It has been in operation since 200, and is a cooperative effort between NASA, Japan's Ministry of Economy, Trade and Industry (METI), and Japan Space Systems. Link: http://asterweb.jpl.nasa.gov

Radar Radar remote sensing measures the return echoes of short pulses of microwave radiation transmitted towards the Earth’s surface. It can be done from both satellites and airborne systems i.e. carried on-‐board special planes. Radar has the advantage of being able to distinguish deforestation and degradation and suffers no interference from cloud cover in the bands used for forestry, a large advantage over optical systems in the typically cloudy tropics. Radar can map aboveground biomass, providing quantification related to changes in forest structure; however there is a limit to this sensitivity for higher biomass forests when the sensitivity reaches a threshold level of biomass beyond which there is not further sensitivity. The precise point of this ‘saturation’ depends on the type of radar used and the details of the forest structure and moisture variability. There are currently no global operational radar satellites. However, ALOS PALSAR collected global data from 2007-‐2010, with annual mosaics having been made available by JAXA (the Japanese Space Exploration Agency) for the years 2008 and 2009 through the Kyoto and Carbon Program (http://www.eorc.jaxa.jp/ALOS/en/kc_mosaic/kc_mosaic.htm) with further data (typically 4 scenes per year) available for purchase or for research purposes. ALOS-‐2 is due to be launched in 2013. Historical radar data in longer wavelengths (most useful for forestry) is largely lacking, but the JERS-‐1 satellite did collect such data globally from 1992-‐1998. A free global mosaic product is available through JAXA for the year 1996. Further data has been collected from the late 1980’s by the European Space Agency through a series of satellites, but the short wavelength of these data (aimed at monitoring ice) make them of limited use for forest monitoring. Airborne imaging remote sensing has the advantage of being below cloud level and so more accurate sensing at higher resolution is possible, however, the lower height means less ground is surveyed and so it tends to be used for smaller areas and is more costly per unit area. Investors/insurers could commission a specific airborne survey for a potential investment but it is likely to prove costly.


Lidar Lidar works by firing a series of pulses of laser light at the ground and detecting the time they take to come back to the sensor. Lidar is able to distinguish the time taken for pulses to return from the canopy as opposed to the forest floor and so can be used detect tree heights and under canopy topography, and can therefore be used to determine above ground biomass derived from tree heights. There has only been one satellite based lidar sensor which is no longer in use. Lidar can also be airborne but operation is costly and coverage restricted, although the level of detail collected is far greater than imaging systems alone. Around 30% of global Lidar usage is to monitor forests. It is used by the UK Forestry Commission and in the US. Key datasets:

• ICESat/GLAS -‐ The Geoscience Laser Altimeter System (GLAS) is carried on the Ice, Cloud and land Elevation Satellite (ICESat) which was launched in January 2003 (http://www.csr.utexas.edu/glas/ ). Whilst it was designed to measure ice sheet topography it can also provide topographical information on land in its path. Of key interest to FFRN is the forest height map derived from this data Links: http://www.nasa.gov/topics/earth/features/forest-‐height-‐map.html and http://www.nasa.gov/topics/earth/features/forest20120217.html

Future developments

• Astrium/Radar – the UK Government is working with Astrium to launch a radar satellite in the next few years called NovaSAR. Although this is only a demonstrator the aim is to launch a longer-‐term operational satellite (i.e. with a commitment to monitor and so should a fault arise a replacement satellite would be launched). The exact remit of this satellite is to be determined but one aim is to try and use the information to support the ‘City’ and carbon finance for forestry. The advantage of radar is that there is less distortion from clouds and imaging can detect height information.

• BIOMASS – UK researchers are heavily involved in a bid to launch a long wavelength

radar satellite specifically designed to monitor forest biomass. This satellite is down to the final three in an internal ESA competition. Links to further information: http://esamultimedia.esa.int/docs/EarthObservation/SP1324-‐1_BIOMASSr.pdf

• Cubesats -‐ one area of potential interest to the finance sector is the development of

cubesats. These are effectively small off-‐the-‐shelf satellites – the size of a coffee mug – that piggyback off other satellites. Since they are launched along with the main satellite they are much cheaper and can be tailored to a client’s requirements and it brings the cost of owning and operating a tailor-‐made satellite within the realms of possibility for larger finance institutions or industry associations etc. The US military currently use these and they could become more widely available within a very few years. Such satellites could be developed in less than 1 year for less than $1m (pers comm, Craig Clerk).


• National Centre for Earth Observation – work is underway at NCEO to try and work

towards collated, standardised datasets of remotely sensed information for usage by the UK research community and private sector under various international and national initiatives. Andy Shaw is leading on this initiative and has worked with a number of FFRN members. He can provide an overview of existing initiatives and welcomes input from FFRN on potential user requirements. FFRN will continue to work closely with NCEO. Email: [email protected], Tel: 0118 3787997

Illegal logging Illegal logging is a major threat to forest investments in certain countries where it takes place on agreed concessions or forest carbon projects. The risks of illegal logging vary by country and measures of overall governance provide an initial guide to where they are most likely to take place. Additional sources of information that focus specifically on illegal logging include:

• Illegal-logging.info website, Chatham House, London – This website maintained by the independent Royal Institute of International Affairs (housed at and often referred to as Chatham House) is probably the best source of generic information on illegal logging. It aims to provide key information on illegal logging, forest governance and the trade in illegal timber. It provides a wealth of information on issues including certification, FLEGT (see below), the US Lacey Act, public procurement policies, REDD+ and governance as well as information by country and region on illegal logging and links to the latest policies, publications and related institutions. It also includes guidelines for banks and financial institutions. Regular meetings for stakeholders are held at Chatham House, notifications of which can be received by signing up to the mailing list. Link: http://www.illegal-‐logging.info/approach.php?a_id=275

One means of reducing illegal logging is to restrict overseas market for illegally logged timber. Various initiatives that aim to do this are also useful sources of information on where illegal logging is prevalent:

• Forest Law Enforcement, Governance and Trade (FLEGT) initiative – In order to try and stop illegally logged timber entering Europe, the European Union set up the FLEGT initiative whereby trade accords known as Voluntary Partnership Agreements (VPAs) are set up with timber exporting countries. The agreements aim to ensure that timber arriving from these destinations comes from forests operated according to good forest governance practices and does not include timber from illegally logged sources. Further details on VPAs and the countries that have signed up to them are available from the website: http://www.euflegt.efi.int/portal/ . FLEGT also aims to encourage financial institutions to adopt appropriate due care procedures.


• Legality Verification Systems – Proforest have produced a useful briefing note which

summarises the verification systems available which verify forest management and supply chains to ensure the legality and traceability of wood and timber products (as of February 2011) See: http://www.proforest.net/objects/publications/an-‐overview-‐of-‐legality-‐verification-‐systems

Experts

• Brack, Duncan – is an Associate Fellow at Chatham House (Royal Institute of International Affairs) in the UK. He has worked on aspects of the debates around illegal logging, forest governance and the trade in illegal timber since 2000. His main areas of expertise include consumer-‐country measures, public procurement and REDD+. Contact: [email protected]

• Grainger, Dr Alan, Leeds University -‐ is an expert in modelling and monitoring tropical

deforestation and land use change. Email: [email protected], Tel: 0113 34 33335

• Mitchard, Dr Edward, Edinburgh University -‐ is an expert in using satellite data to monitor woody cover and biomass from space, especially in the forests, savannahs and woodlands of Africa. He also has expertise in the relative strengths and weaknesses of different remote sensing techniques and their applicability to monitoring deforestation. He is a member of FFRN. Tel: (0)131 651 4314, Email: [email protected]

• Quegan, Dr Sean, Sheffield University – Head of the National Centre for Earth

Observation and lead of the BIOMASS mission. Email: [email protected], Tel: 0114 2223778

• Thomson, Dr Amanda, Centre for Ecology and Hydrology (CEH), Edinburgh – expertise

in remote sensing for vegetation and land management. She is involved in the UK greenhouse gas inventory for land use, land use change and forestry (LULUCF). Amanda works with Mark Broadmeadow of FFRN. Telephone: (0)131 4454343, Email: [email protected]

• Woodhouse, Dr Iain, University of Edinburgh – is an expert in the remote sensing of

forests, deforestation and degradation of forests with a particular specialism in radar and lidar based remote sensing. He is a co-‐investigator to the FFRN project and a good first point of call for investors/insurers interested in the latest remote sensing techniques and available technologies of interest. Contact: Tel: (0) 131 650 2527 Email: [email protected]


REFERENCES DIAZ, D., HAMILTON, K. & JOHNSON, E. 2011. State of the Forest Carbon Markets 2011 - From

Canopy to Currency. Ecosystem Marketplace. HUMPHREYS, D. 2008. The politics of 'Avoided Deforestation': historical context and contemporary

issues. International Forestry Review, 10, 433-442. SOARES-FILHO, B. S., NEPSTAD, D. C., CURRAN, L. M., CERQUEIRA, G. C., GARCIA, R. A.,

RAMOS, C. A., VOLL, E., MCDONALD, A., LEFEBVRE, P. & SCHLESINGER, P. 2006. Modelling conservation in the Amazon basin. Nature, 440.

FFRN Risk Briefing - 4.0 ANTHROPOGENIC FINALgpatenau/ForestFinance/Forest... · 2012. 9. 13. · 3...

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