Economic complexities of forest restoration: What’s in it for landowners?

Newswise — Where are the billions of trees people promised to plant? Forest restoration, especially in the tropics, is more complex than it seems and comes with major financial risks. A new study in Nature Communications led by the Smithsonian Tropical Research Institute (STRI), shows that economic solutions – such as cost-sharing and carbon payments – can reduce financial barriers and benefit landholders if the right tree species are planted, even on infertile soils. 

In the global push for nature-based solutions to mitigate climate change, forest restoration in the tropics often takes the spotlight – and rightfully so – tropical forests sequester more than 1.5 times more carbon annually than their temperate counterparts. But a critical aspect often overlooked by international climate agreements is that the lands slated for reforestation in the tropics are not vacant: they are home to nearly 300 million people. Complicating matters further is the implicit assumption that the financial burden of forest restoration should rest on the shoulders of people living in tropical nations.  

Basic economic principles indicate that transitioning from one land use to another requires financial gains surpassing those of the original land use. While forest restoration holds financial promise, significant returns often hinge on harvesting high-value timber trees. But the cost of planting or restoring forests for timber is considerable, exceeding $1,500 per hectare in the first year. Unlike cattle ranching, with its deep cultural roots in many tropical regions and with immediate and financial returns are more immediate and spaced out over time, forest landholders must wait 20 years or more before any timber-related financial gain. 

“Waiting decades to see a return on your investment is not an option for most rural residents in low- or middle-income countries in the tropics,” notes co-author Jefferson Hall, STRI staff scientist, who directs the largest tropical reforestation experiment of its kind, the Agua Salud project.

Leveraging 15 years of Agua Salud Project data from the Panama Canal watershed, a team of researchers investigated how carbon payments and cost-sharing mechanisms could offset the expenses associated with forest restoration – focusing on natural regeneration, native species plantations, and enrichment plantings (whereby timber species are planted into underperforming teak plantations). Their study delved into the diverse financial outcomes of timber-derived revenue from these forest restoration techniques.

The authors were surprised by their finding that forests growing back after the trees have been removed are not financially viable based on timber extraction alone. 

“There is this idea going around that secondary forests provide enough high value timber to make this kind of operation profitable,” remarks Katherine Sinacore, lead author of the study and Rohr Reforestation postdoctoral fellow at STRI, “but we found that isn’t the case where we work.” 

The study also found that when annual carbon payments were included, the second-growth forests were suddenly as financially viable as traditional tree plantations. But how much do you pay a landholder for carbon? That question gets to the crux of carbon payments. While many proposed carbon-offset programs base the amount landholders are paid on the actual amount of carbon stored on the land, the authors of this paper took another approach. They modeled their data with a ‘flat payment’ – meaning landholders would receive the same amount each year for 30 years, regardless of year-to-year variation in actual forest growth. 

“If you look at changes in carbon accrual over time, there is a huge increase early on as trees grow, but that soon slows down, even within 10 years,” remarks Michiel van Breugel, co-author of the study and associate professor at the National University of Singapore. 

That would be a hard sell for most potential participants in a carbon program. Indeed, a key finding from a previous article focused on payments for ecosystem services (PES) programs in the Panama Canal Watershed noted that flat payments have the most significant impact on encouraging participation in forest restoration projects. In part because annual flat payments offer a level of predictability and stability for landholders, they ensure a reliable income stream that incentivizes initial and continued participation in forest restoration and ecosystem service projects. 

“Our research underscores the importance of tailoring incentive programs to the unique characteristics of neotropical ecosystems and social contexts,” notes co-author Omar Lopez from the National Secretariat for Science in Panama, SENACYT. “It’s crucial to recognize forest diversity within the region and work collaboratively with local stakeholders for effective and lasting results.”