Approach The Forest Carbon Index estimates each nation's potential to attract forest carbon investment based on profit potential and country-specific risk factors. Profit Potential. Raw profit potential is calculated by subtracting the expected cost of managing a piece of land for forest carbon from expected forest carbon revenues. The Index measures profit potential by looking at biological and economic factors. Risk. The Index discounts raw profit potential by taking into account the institutional, technical, and political risks within a country. It incorporates widely accepted data from the World Bank about governance conditions (including corruption) and the ease of doing business.

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Maps

Eight maps illuminate the potential for forest carbon in global climate policy:

Aboveground Carbon Stocks Opportunity Cost of Land Accessibility to Human Activity Local Forest Carbon Costs

Profit Potential Risk Best Places Country Scores Flows

Aboveground Carbon Stocks

Of the Earth's entire land mass, 85 percent has the potential to be managed for forest carbon. The Earth's soils hold great quantities of carbon, methane, and other greenhouse gases and may have the potential to store even more under the right management conditions. Significant uncertainties exist about current soil data.

Opportunity Cost of Land

Map 2 shows the opportunity cost of land around the world-the amount that would be required to move land into carbon management instead of competing uses, leaving aside transaction costs.

Accessibility to Human Activity

Parts of the world's forests are so inaccessible that they are not under immediate threat from human encroachment and cannot be managed effectively for carbon content. The least accessible carbon-rich tropical forests are in the Brazilian Amazon.

Local Forest Carbon Costs

Many areas of the world seem ideal places to manage forests for their emissions mitigation benefits. More than a third of these potentially cost-effective places are in Brazil and the Democratic Republic of the Congo, and 23 percent are in the Congo Basin. In fact, the Congo Basin accounts for 43 percent of the very cheapest places, with potential prices no more than $3 per ton of CO₂eq.

Profit Potential

Investments will flow to places where the costs of mitigation are lowest and the opportunities for mitigation are plentiful, leaving aside questions of risk. Map 5 shows the theoretical profit potential of some of the most promising places in the world (top 15 percent) where one could manage forests to mitigate climate change.

Risk

The ability of a country or place to conserve forests verifiably will depend greatly on a wide variety of political and social risks. Map 6 categorizes countries based on three types of risk -- national governance conditions, ease of doing business, and a country's readiness to participate in forest carbon markets and incentive programs specifically.

Best Places

The Forest Carbon Index predicts how much a country or place will contribute to the global effort to conserve and manage forests to mitigate climate change by discounting theoretical profit potential by risk. Using this approach, Map 7 highlights the six best places in the world for early forest carbon returns.

Country Scores Flows

Map 8 takes into account existing deforestation rates to better predict the geography of forest carbon investment in the medium term. Once again, Brazil emerges as the best place for forest carbon investments, and Amazon-Andes countries stand out as well. But Indonesia, as a result of rapid deforestation, moves to second place behind Brazil. Australia has many opportunities to offset its industrial emissions by conserving and growing domestic forests. Countries in West and East Africa with high deforestation rates, from Nigeria and Cameroon to Tanzania and Zambia, also come to the fore.

Map 8: FCI Country Scores Based on Flows

Policy Recommendations

These results lead to important insights about how nations should include forests in their climate policies:

1. Forests, particularly in the tropics, must be a central focus of climate policy. Tropical forests can provide up to 25 percent of needed climate solutions between now and 2020. They could reduce carbon prices in developed nations by as much as half through 2020-saving roughly $40 billion over this period and create substantial development opportunities for developing nations.
2. Four needs must be met through public and private funding. Climate policy frameworks must generate resources for 1) planning and capacity building; 2) policy reforms and program implementations; 3) avoiding future risks of deforestation, particularly in nations with low rates; and 4) reducing deforestation, particularly in nations with high rates. As a practical matter, public funding will be required for the first three needs, whereas private-sector carbon markets are likely to satisfy the fourth.
3. For near-term tons, the focus should be primarily on Brazil, Amazon-Andes, and Southeast Asia. In the first years of any new forest carbon programs, nations with relatively good governance, inexpensive land, and significant deforestation provide the greatest opportunities for early returns on investment.
4. Over the medium term, the focus should be on Brazil and Indonesia. For the world to achieve the significant emissions reductions required by 2020, policy frameworks also will need to engage nations with the highest deforestation rates. This means forming active partnerships with Brazil and Indonesia, which together are expected to provide more than 60 percent of the forest carbon supply in 2020.
5. For long-term success, the focus should be on the Congo Basin. Climate policy frameworks must reward not only nations that reduce deforestation, but also tropical forest nations that have very low rates now. Relatively modest payments in the Congo Basin could protect huge, carbon-rich forests that are not currently under threat but soon could be if these nations are not included in new forest conservation frameworks.
6. Policy frameworks must promote public participation and transparency. New forest conservation programs will mobilize substantial funding for developing countries. In many forest-rich developing nations, new funding streams may approach 1 percent of gross national product, or anywhere from 10 to more than 100 percent of current government expenditures as in the cases of Brazil and Cambodia, respectively. These new resources have the potential to create positive economic opportunities for the 1.6 billion forest-dependent people in developing nations.
7. Developed governments should consider creating financial intermediaries. Compared with the private sector, developed governments are in a stronger position to engage developing nations on the social impacts of forest conservation and negotiate forest sector-wide incentive programs that compensate developing nations for emissions reductions. A government-managed financial intermediary would be able to use its bulk purchasing power to lower costs and increase emissions mitigation, while also improving environmental quality and social outcomes.
8. Governments should design policies to channel resources to high-priority areas. Forests have many values beyond carbon. Some contain high biodiversity; others hold cultural significance, enhance security, reduce climate vulnerability, or make special contributions to poverty alleviation and local livelihoods. More analysis is needed to understand where these high-value forests are and design investment frameworks that protect them.
9. Policy frameworks should promote a transition to comprehensive land management and terrestrial greenhouse gas accounting. Food, biofuel, and fiber production compete with forests for a finite land area in developing nations. Changes in tropical forests are driven by that competition as forests are turned into farmlands and rangelands or harvested for timber. To achieve global food security and climate goals, nations must find a way to meet the expected doubling of global food demand by 2050 and also stop deforestation well before then.