Workshop offers economic and financing models for restoration

Photo: Chiaki Karen Tada

21st October, 2016 - Models for forest restoration of native forests for economic purposes and funding for the recovery of Permanent Protection Areas and Legal Reserves for non-economic purposes were the themes of a workshop held by the Brazilian Coalition on September 30, 2016, in São Paulo, at the headquarters of Brazilian Rural Society. About 40 people participated in the event "Economic modeling for reforestation for economic purposes with native species”.

In the first part, the first results and economic modeling of the VERENA project, an initiative of WRI Brazil and IUCN, were funded by the Children's Investment Fund Foundation (CIFF). The second part was conducted by specialists from the Center for Sustainability Studies at the Getulio Vargas Foundation (GVces), which presented the premises and the initial evaluations of a study done in partnership with the Brazilian Federation of Banks (Febraban). These two fronts both seek ways to finance and realize the restoration of forests in the country. In addition to Brazil's inclusion commitment to restoration and recovery of 12 million hectares as part of its Paris Agreement goals, planting forests is one of the most efficient ways to mitigate the effects of climate change.

Focus on the investor

The VERENA project started this year, with the goal of demonstrating the viability of restoration of native species for economic purposes. Within the scope of the project are diverse economic plantings (various species), monoculture (one species), mixed plantings (exotic and native) and agroforestry systems. The project began with the selection of three cases of companies that work, each in its own way, with this activity: Amata, which among other activities grows paricá, a species native to the Amazon region of Pará; Symbiosis, which plants different native species in southern Bahia; and Fazenda da Toca, which invests in the agroforestry system in the countryside of São Paulo.

Based on workshops held at these three companies, with specialists from different areas, VERENA has listed 12 performance markers, of which two stand out: the research and development of native species forestry (R&D) and economic models. The latter, the main theme of the workshop, is how to reach the investor and show that there is less risk and more gain in investing in the native species.

These models are being developed from the perspective of the investor looking at the forest, said WRI Brasil's Claudio Pontes. "What is the language used by the investor? What does he want to understand? Economic modeling has all the mechanisms so that the investor can understand, opening doors to enter the restoration game." Capital costs, discounts and other items for each case were evaluated. Alan Batista, an investment analyst at WRI, said the goal is to raise native planting to the level of eucalyptus, perceived as a low-risk, high-return investment. "We want native species to become a mainstream investment.”

At the end of this first part, Batista also presented the R&D platform project being worked on within the Coalition Restoration/Reforestation WG. "For research and development in this platform we will act on three fronts: genetic improvement, production systems and monitoring." To learn more about the platform, read the interview with Alan Batista here and watch the Restoration/Reforestation WG here.

Contributions from the financial system

In the last part of the workshop, GVces and Febraban presented the initial results of a study on recovery of Permanent Protection Areas and Legal Reserves without economic use, focusing on management and financing. The biomes were the Cerrado and the Atlantic Forest. "This study is taking place in the context of a partnership between Febraban and GVces, which is already three years old, about how the financial system can contribute to the transition to a low carbon economy," explained Beatriz Secaf, from the sustainability area at Febraban. The purpose of the presentation was to discuss the assumptions used and contributions to create a robust study, which should be completed in about a month.

Initially, GVces conducted 18 interviews with producers, representatives from the financial sector and specialists, to identify the main obstacles for financing of this type of restoration, which does not generate a direct economic return, but a high positive externality for society. Among the challenges is the fact that, in order to guarantee the return of financing, the bank evaluates the results of the main activity of the property, which must be profitable enough to pay the institution. Another difficulty is the high cost of observing and monitoring to assure if restoration is actually happening.

"There are a number of small obstacles, in addition to all this being new for the sector," said Paula Peirão, of GVces. "With the study, we want to find points to facilitate the process." The analysis sought to understand how much of a producer’s income would be compromised to make an environmental adjustment or forest restoration. Among the first conclusions is the importance of economic incentives for the proprietor to make the adjustment and to price externalities.

For the following step, the project should focus on assessing what can change in existing lines of credit and how to encourage the rural landlord to obtain funding for restoration. The training of financial sector representatives and rural landowners, in addition to transparency and communication of information, are among the fundamental points to be considered for the success of forest restoration in Brazil.

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The article was originally published in Portuguese and translated by WRI.