Boosting profits while combatting emissions

Channels: Carbon, Equity, Investment

Companies: Permian Global

People: B. Holt Thrasher

The next 20 years could see a boom in the forestry sector which increases profitability at the same time as solving major environmental problems, says B. Holt Thrasher.

In the past few months, following the success of the Paris climate change summit (COP21), several leading scientific studies, reports, and governmental statements have turned the corner and firmly recognised the critical importance that global forests must play as a core solution to climate change. Underpinning the new momentum is awareness that it is not possible to achieve a 1.5°C global warming limit without forest carbon sinks.

B. Holt Thrasher is CEO of Permian Global, an investment firm dedicated to the protection and recovery of natural forests to mitigate climate change.

He will deliver a keynote address at the Forest Finance & Sustainability conference in London on 13 July.

The joint statement issued on 15 June by the governments of the US and Norway on Deeper Collaboration on Forests and Climate Change emphasises that "forests and land use currently represent nearly one-quarter of global emissions, but forests alone may contribute up to one-third of the pre-2030 mitigation."

This lays out a well-developed list of approaches needed to address and manage a REDD+ based system of large landscapes, with the private sector playing a central role. (REDD+ is a system of generating carbon credits through reducing emissions from deforestation and forest degradation in developing countries.)

We now have the opportunity for a 15 to 20+ year commercial boom in the forestry sector, which will help solve our environmental problems at the same time

The most important of the priorities is the need for a rapid effort to increase the growth and careful location of plantation development away from carbon-rich forests (peat and relatively undisturbed tropical forests) and towards those highly degraded lands that cannot be reforested as diverse ecosystems.

Technology overcomes obstacles

At the same time, the commercial development of a range of new information technology supports the regulatory framework to monitor, report and verify carbon storage. This evolution overcomes the last of the major obstacles to the implementation of forest emissions mitigation as a viable and scalable solution to global warming.

The result is that we now have the opportunity for a 15 to 20+ year commercial boom in the forestry sector, which will help solve our environmental problems at the same time.

Such large-scale, transitional opportunities come about infrequently and are notoriously hard to predict. Like the establishment of the internet or commercial aviation, new industry formations typically arise due to a massive combination of technological innovation followed by large capital investments to fund the required infrastructure build outs, which then meet the "pull" or demand of a new product or service by the consumer.

The forestry sector opportunity is different only in that the catalyst is based on the clear moral imperative to develop a solution to climate change. The downside of inaction is too great.

Why now? Unfortunately, for the past 10 years, governments have been riding the brakes on developing a forestry solution to climate change.

The time is right

The UN summed up its views in 2004 that forests "cannot physically deliver permanent emissions reductions" due to the uncertainties of "accurate carbon storage and 'leakage' risks, lack of capable monitoring and reporting of carbon stocks", and the risk that even effective forest-based solutions would disrupt other efforts to create a functioning carbon market due to the large volume of forest-based offset credits.

Today is different. We can measure and monitor forests with greater precision, allowing regulatory frameworks to work effectively.

The forestry industry, even after a period of steady growth, stands as a key participant in the solution, which could easily result in a doubling of its historic revenue growth rate.

In addition to the earlier inabilities to create forest regulations, the leading solutions to climate change have been framed by scientists, the media and politicians as 'push' solutions (large subsidised transitions to renewable energy, carbon taxes or cap-and-trade mechanisms) by governments historically reluctant to implement and enforce tough regulations.

Creating a 'pull' solution

The land management sector must lead the creation of a 'pull' solution driven by consumer behaviour; this is the private sector's role. The consumer has only been aware of the threat of higher costs to pay for such mitigation, based on dated and often obsolete implementation methodologies, which overstate the true costs involved.

In order to make the critical next step, governments – constructively aided by leading forest industry companies and NGOs – need to establish a global land use framework that can underpin an orientation of new plantation siting which is founded on tightly-defined landscapes versus unnatural province, state or national boundaries.

This can be compared to the work an industry standards body would undertake to create a regulatory framework for a new product development (a great example is the telephone industry, which quickly developed the GSM standard to unify core network components and spectrum usage for consumer cellular communications). Once this is accomplished, private sector investment will have a clear path to prioritise new plantation capability.

The ultimate benefit will not only enhance the profitability of the forestry sector as larger scale industrial efficiencies and fewer supply chain disruptions are achieved, but accelerate the reduction of deforestation, forest degradation and carbon emissions from critically sensitive environmental ecosystems – a major step forward in achieving our climate change objective.