New Report Shows How Fiscal Reforms Can Positively Influence Forest Conservation and Ecosystem Health

Mar 29, 2021

Fiscal policies with the right incentives can be a powerful tool to help governments reduce deforestation and forest degradation and promote the sustainability of forests, according to a new report from the CIF Forest Investment Program (FIP) and the World Bank, commissioned by the CIF Evaluation and Learning (E&L) Initiative.

The report identifies fiscal reforms that can positively influence forest conservation and management while freeing up resources to be used for national development. These reforms include:

Environmental commodity taxation to encourage forest conservation and land use change.
Ecological fiscal transfers in which more money is allocated to regional and local governments whose forests are better preserved.
An agricultural subsidy reform which rewards the sustainable management of forests and farmland.
A fee-and-rebate mechanism (known as a “feebate”) which offers tax discounts for companies that meet the required sustainability standards.

This report is an urgent call to action and provides policymakers with information to enable the design and implement fiscal policies that reduce incentives for deforestation, forest degradation, and land use change and instead encourage forest conservation, sustainable management, and green global value chains. The authors recommend that, while fiscal policy is not a ‘silver bullet,’ it should be part of a comprehensive policy package that encourages sustainable land use.

Saving forests by shifting incentives
At present, governments’ existing fiscal policies often incentivize short-lived economic growth through exhausting natural resources and merely turning natural capital into physical capital without creating net value. This report aims to change this situation by empowering decision-makers to harness the power of fiscal policy to create incentives that direct development onto a more sustainable path.

The report’s proposed policies will create incentives for forest conservation, sustainable management, and green global value chains. The end result of this will not only benefit the environment, but countries’ economies too. The report finds that implementing the right fiscal instruments can help to meet climate, development, and COVID recovery goals without diverting large amounts of public funds or increasing public debt.

CIF Head Mafalda Duarte said: “This report shows the tremendous potential of using fiscal policy to create the right incentives for forest conservation and the sustainable management of our valuable ecosystems. Importantly, it does not just highlight the problem of some of the current fiscal incentives that are in use, but it offers a vital reference for policymakers to make the changes that are urgently needed."

The report builds on CIF’s extensive experience of empowering developing countries to manage their natural resources of forests through the Forest Investment Program (FIP). It provides direct investments to address the drivers of deforestation and degradation. CIF prioritises forest sustainability because this achieves a “triple win” of being good for forests, good for development, and good for the climate.

The International Tropical Timber Organization (ITTO) supported the development of this publication financially and intellectually, including the funding of a workshop that brought together academics and practitioners across relevant disciplines to present and discuss the mechanisms proposed within the publication.

You can download the report here.

You can also click on individual chapters from this list: