Financial rewards for forest conservation

04.08.2022
Forest: supporting climate protection and biodiversity

An incentive system providing financial rewards for biodiversity and carbon sink services in forests can rest on two pillars: On the one hand, such a system should fund ecological forest management directly. On the other, it should provide additional funding for carbon sink services in forests by means of a market-based certificate scheme. Working with a team of forest scientists and researchers in further natural sciences and legal experts, the Oeko-Institut has now completed a study on behalf of the German Federal Environment Agency UBA that outlines a modular incentive system.

First pillar: Funding forest conservation

In the first pillar, in order to receive basic funding forest owners must meet basic requirements upon the way they manage their forest areas. These include near-natural development on at least ten per cent of the forest area, maintenance of a healthy soil structure, natural regeneration of trees without seeding or planting, and leaving a greater amount of deadwood in the forest after harvesting. Forest owners who meet additional requirements such as preserving particularly old trees in favour of species diversity, retaining additional deadwood of trees which died naturally and actively removing drainage systems qualify for supplementary funding.

Second pillar: Forest certificates for more carbon sink performance

By engaging in the activities needed to receive basic funding, forest enterprises qualify simultaneously for the second pillar of the incentive system – market-based certificate trading. Here forest owners receive certificates according to the size of the carbon stock built in the forest, as more wood remains in the forest. They can sell these certificates to purchasers wishing to support sustainable forest management. If they sell 30 per cent of their certificates to market actors, the state can provide the funding for the remaining 70 per cent. This feeds additional resources into the system with which the carbon sink performance of forest enterprises is rewarded, making it attractive for them to relinquish a part of the timber harvest. For the system to deliver the intended outcomes it is vital that greenhouse gas emissions in other sectors can not be offset by these forest certificates.

Creating incentives for climate action and biodiversity conservation

Forests render services for climate integrity and species diversity: They store the CO2 that drives global warming, produce oxygen, provide habitats for plants and animals, filter water and prevent soil erosion. Devoting special attention to their preservation and using them ecologically over the long term thus contributes directly to climate protection and biodiversity conservation. Forest owners who manage their forest in a more ecologically-minded manner than the law prescribes suffer financial losses, for instance because they can harvest and sell less wood. This is why various approaches are currently under discussion that compensate such losses of proceeds and thereby ensure that forest conservation is rewarded financially. The study by the team headed by the Oeko-Institut has reviewed the various approaches and subjected them to a feasibility analysis.

“Forest owners need planning security to manage their areas,” notes Dr Hannes Böttcher, forest and climate expert at the Oeko-Institut and coordinator of the study. “An incentive system must ensure that forest enterprises are rewarded financially for their biodiversity and carbon sink services in forests. It needs to be structured in a straightforward and comprehensible fashion, and the proceeds it generates must be attractive to the enterprises. Our proposal for an incentive system builds upon the existing subsidy system and integrates market mechanisms which can be implemented in the near future in a science-based and legally valid manner.”

Development of a financial incentive system for additional climate protection and biodiversity services in forests: Study (only available in German) by the Oeko-Institut, Naturwald Akademie, Unseld Forst Consulting, Prof. Dr Ewald Endres, Dr Justus Eberl and Prof. Dr Klaus Günther-Dieng