How much is a rain forest worth? Until recently the answer was: virtually nothing. A tropical rain forest provides habitat for untold species of animals and varieties of plants; modulates the climate and helps bring precipitation to land thousands of miles away; sequesters billions upon billions of the greenhouse gas carbon dioxide. But the only market value a forest had were the trees within it, cut down. "Forests fall for a simple reason," says Andrew Mitchell, a conservationist and the founder of the London-based Global Canopy Programme, an umbrella group of forest organizations. "They are worth more dead than alive."
But Mitchell and some of his friends in the London financial community are trying to fix what he calls a "market failure." On March 28 the financial group Canopy Capital announced that it would pay the Iwokrama forest reserve in the tiny South American country of Guyana in return for ownership of the forest's ecosystem services and a claim on any profits that might one day be made on them. Canopy Capital wouldn't say how big the deal was, but the firm's managing director Hylton Philipson said it would cover a significant chunk of the reserve's $1.2 million annual budget and run for five years, with an option for renewal. "Our funds will go to strengthening the protection of the forest," says Mitchell.
The move is unprecedented. Private companies in the past have been involved in "avoided deforestation," compensating rain-forest nations to refrain from cutting down their trees in exchange for carbon credits. (Some 15 million hectares of rain forest are destroyed each year, accounting for some 20% of the carbon emissions annually, as burned or cut-down trees release their sequestered carbon into the atmosphere.) But Canopy Capital is the first firm to try to put a market price on all the other ecosystem services provided by a healthy rain forest. Humans have been availing themselves of those services for nothing, like a free utility, but that can't continue. "If you want something you have to pay for it," says Philipson. "If you recognize the services the forests provide to mankind, you have to pay for that utility bill."
It's a bold bet. Right now there is no price set on those rain-forest services, because no market exists to price them. Canopy Capital isn't buying land, and it is essentially paying the Iwokrama reserve for a good that it can't really trade. That sounds an awful lot like philanthropy, but Mitchell and Philipson insist this is capitalism. For now, Canopy will pay simply to protect Iwokrama's ecosystem services, but in the future it's wagering that the world will get desperate enough to limit climate change and deforestation that it will pay Canopy for its stake. "The fundamental difference here is that we hope to make money out of it," says Philipson. "We need to engage the power of the market here. We're hoping to buy low and sell high.
It's certainly possible that moves like Canopy Capital's could begin to generate a real market in the environmental services provided by rain forests. Tropical nations like Brazil and Indonesia, long wary about the impact that international trading could have on their sovereign forests, are beginning to see that markets could be a win-win, allowing them to keep their trees and capitalize on them. For the rest of the world, stopping tropical deforestation is among the most pressing of environmental tasks. Not only would halting deforestation drastically reduce greenhouse gas emissions, it would save the most ecologically diverse and valuable land on the planet, home to animals and plants that can live nowhere else. Charity alone, as we've seen over the past several decades, won't be enough the Stern report, a British government study on climate change released in 2006, estimated that it would take $10 to $15 billion a year to slow deforestation. That's well out of the range of philanthropy, but not if we choose to recognize and capitalize on the market value of forests. Canopy Capital's deal is a great first step in that direction. "This demonstrates that you can use a forest, but not lose it," says Edward Glover, chair of the Iwokrama reserve. Anything that keeps us from losing forests is worth trying.