October 7, 2022

InsiderPlays

Creating Possibilities

Does citizen ownership of natural resources hold the key to realizing deforestation commitments? (commentary)

  • The approaches to COP26’s global commitment to stop deforestation by 2030 may be inadequate, as they can only partly address the major drivers of deforestation.
  • An additional approach based on transparent economic data disclosure and mobilization of public awareness could be a promising addition to that commitment.
  • Such approaches that emphasize citizen ownership of natural resources, and which quantify net owner shares, losses, and the very large prospective societal returns, could work, a new op-ed argues.
  • This article is a commentary. The views expressed are those of the author, not necessarily of Mongabay.

Many words and billions in funding were pledged at last year’s ‘Nature COP’ in Glasgow, resulting in a global commitment to stop deforestation by 2030. However, the challenge of how to achieve this explicit and ambitious goal was less clear at the event and in subsequent reporting. The emerging main approaches are direct funding of forest protection and land rights of Indigenous peoples and local communities (IPLCs), combined with increased demand-side pressure for deforestation-free commodities. However, given past performance and little to directly address the main powerful commodity drivers of forest loss (beef, palm oil, soy, timber, minerals), the overall effectiveness towards stopping deforestation by 2030 may be limited in practice.

For instance, forestland owned by or designated to IPLC is currently estimated at 14% of total forest area (with 67% government administered). Expansion of IPLC forestlands would increase commercial pressure on non-IPLC forestland, if not increase tension between the two tenure types. In addition, as long as commercial forest uses yield more public revenue and employment than IPLC lands, the inclination of decision-making governments seems evident.

Clearly, the international influence on land use in sovereign developing countries is limited and can only be done through incentives and international market regulations. But what if the domestic opinion on commodity sectors could be influenced? Recent quantitative research suggests this can have a huge potential for both forest conservation and boosting equitable national welfare, from several billion U.S. dollars of homegrown net public revenue per year, per developing country.

Development and expansion of commodity sectors such as minerals, timber, beef, soy and palm oil into forest areas, is generally justified by national governments as being crucial for economic development, countries’ progress, employment, GDP, etc. Potential harm caused to forests, rivers, and the citizens who live there, like IPLCs, is written off, implicitly or more explicitly, as an unfortunate but inevitable byproduct of national progress and ‘feeding humanity’s needs.’

Indigenous Makushi youth helping his mother on their farm in Guyana. Image courtesy of Han Overman.

A well debated but less quantitatively assessed topic is whether these allegedly inevitably expanding sectors are managed optimally and fairly. This is particularly relevant given that these sectors (whether made up of private or state-owned companies) extract, deforest, and damage natural resources that are owned by the citizens of the country. As such, a government body should be considered an asset manager of natural resources, accountable to the public. Yet while the government is sworn in and generally well-paid to perform this duty, it is often not well-checked on its making of multi-million dollar decisions with the people’s money and natural resources. In addition to often very friendly consequences of malfeasance, this situation of ‘high returns with low risk of personal costs’ constitutes a core problem of suboptimal country governance (more on this below).

Fair share…

How is overall net profit on these commodities distributed among the resource owners (the population, represented by government) and the exploiter (the different stakeholders in the supply chains)? In practice, both private and ministerial financial figures are often either not made public, incomplete, or littered with deterring and complex jargon, an obvious red flag. A cursory wealth comparison between ground-level actors (small miners, loggers, ranchers, farmers) versus high-level stakeholders (middle men, company owners, exporters) along the supply chain, turns the flag a deeper shade of red.

Yet while these commodity sectors are often financial black boxes to the public, it is possible to deduce several approximate assessments from ‘what goes in and comes out.’ Such analysis shows that the private share of overall net profit is several orders of magnitude higher than the public share, in addition to revealing several resolvable points of ‘leakage’ of revenue and natural resources. The inordinate profitability higher up supply chains, combined with below par government accountability, clarifies much of the cause, malignancy and obstinacy of the chronic disease ailing many tropical countries: continued deforestation and poverty, but it also reveals a cure.

An effective public media campaign summarizing such information along with the many socio-economic and environmental benefits of legitimate interventions would logically generate strong, countrywide, apolitical, public support for policy corrections. Domestic opinion can nowadays be collected from a click on citizens’ phones (or by recorded hand-vote in remote villages).

The examples below demonstrate that an approach of mandatory full financial disclosure of any sector that impacts the population’s natural resources or local citizen livelihoods has enormous legitimate potential for forest conservation, IPLC land rights, biodiversity and climate, as well as strong equitable country welfare, across the tropics.

Small-scale gold mining
Small-scale gold mining in the Marudi mountains, Guyana. Image courtesy of David Papannah.

A recent quantitative analysis [1] of artisanal and small-scale gold mining (ASGM) shows that these sectors, present in 70-80 developing countries, are severely hemorrhaging those countries’ gold and forest resources for decades, in return for barren landscapes and injecting poisonous mercury into watersheds. This situation is caused by a combination of suboptimal exploration, extraction and processing techniques, plus poor law enforcement and rehabilitation, and a low royalty rate (the public share). These weaknesses are shared by most if not all tropical ASGM countries. Underlying these losses is a lack of public finance.

Potent cure

A recently developed conceptual framework (GoldEq) would comprehensively optimize (and formalize) a country’s ASGM sector, with estimated operational costs well below 10% of its financial returns. It would capture all the above losses, briefly, through mandatory introduction of optimal exploration and extraction techniques, with permanent education and (checked) law enforcement at every small-scale mine site and processing center, supported by regional (checked) police surveillance.

This country-level systemic transformation can be phased in (step by step and/or geographically), with much increased financial returns from initial steps funding subsequent steps. Demonstration sites comparing GoldEq vs. typical mining, would convince all witnessing stakeholders and provide a country-specific estimate of gains. International support would speed up the transformation.

Simulations show that when applied nationwide, this framework would equitably and securely yield public treasuries several billions dollars in extra net revenue per year, conservatively estimated. Depending on the country, this can imply 160—1,120 times more net annual public revenue from the sector than now.

At the same time, this more efficient and controlled ASGM sector would decimate deforestation per extracted ounce of gold (and boost forest restoration speed). It would further strongly reduce sector corruption and crime, eliminate mercury use, and raise all mining sector livelihoods to good, safe and respected levels, as they become a pillar of the sustained boost in country welfare.

For a country like Guyana, the annual, homegrown, extra net public revenue would equate to 5.4 times the entire country’s budget ($1 billion in 2017, under a $1,230 gold price). This would form an enormous apolitical incentive for public mobilization. It could finance ample equitable welfare, including, for example, climate adaptations in lieu of promised but delayed finance, which are in fact loans.

Corruption, political gains

The sheer magnitude of prospective socio-economic returns incentivizes public insistence on an impartial public role in accounting. The GoldEq framework contains a solid digital checks-and-balances system for this purpose, from mine site to treasury. This eliminates embezzlements (including smuggling), and creates several thousands of jobs, paid from the strategy’s gross returns.

Finally, apart from gaining economic independence from neighboring countries’ royalty rate policy (smuggling risk), a government that boosts the welfare of its people and nature can count on a huge re-election advantage, plus national and international legacy benefits. Surely there will be obstacles along the way, but as the private sector knows well, finance can solve a lot of obstacles, as the approach phases in and corruption and injustices phase out.

See related: Secrecy shrouds new gold mining deal in Guyana’s Marudi mountains

Logging trucks in Gabon. Image by jbdodane via Flickr (CC BY-NC 2.0).

The approach can also be applied to the logging sector. From 2001—2012, the 750,000 Guyanese owners earned a net $1.06 per cubic meter on their exported, world-class timber (e.g. greenheart, purpleheart). Meanwhile, the 8-10 private persons owning the links of the supply chain (from the logging operation to the parquet store in the North) divided approximately $1,200 net profit on the same cubic meter. This implies a 0.08% net owner share, other countries would not likely fare much better.

Annual export of timber from Guyana was around 500,000 m3 during this period, which was associated with the annual degradation of 46,000 hectares of primary forest. Even under a low carbon price of $5, the sector’s forest damage would cost the country 43 times more in forgone REDD+ income than it receives (Figure below).

Note that this modest $0.5 million net owner share for 46,000 hectares of degraded forest would be dwarfed by the $5.4 billion via the ‘GoldEq mining’ model, creating a comfortable negotiating position, particularly if timber producing tropical countries join hands.

Net revenue for resource-owner vs. private sector profits, for small-scale gold mining and logging in Guyana, and their REDD+ opportunity costs under varying carbon prices.
Net revenue for resource-owner vs. private sector profits, for small-scale gold mining and logging in Guyana, and their REDD+ opportunity costs under varying carbon prices. Graphic via Han Overman et al in journal article published by World Development.

Agricultural commodities

The above two analyzed sectors demonstrate considerable legitimate latitude for optimization and more equitable shares between stakeholders, in particular for the resources’ owners.

While beef, soy, and palm oil are not natural resources like gold and timber, these sectors use up huge amounts of citizens’ forests resources. Given numerous other factors (some mentioned below), chances are that similar comprehensive sector analyses would point to various legitimate correction options, with significant benefits for public revenue, equity, and environment. Some of these factors are: (a) agricultural sectors operate in similar political environments, (b)  the mere existence of large, powerful agribusiness lobbies, (c) ample reporting over the years on illegal and unfair outcomes, (d) legal landgrabbing (‘deforest it and the land is yours’) that is not conducive to forest conservation, and (e) insufficient government support for deforestation-free alternatives and other initiatives.

Distributing summaries of such comprehensive, dialogued, socio-economic analyses through social media to a national citizenry could drive broad domestic support for implementation of legitimate corrective measures, or create public pressure toward full financial disclosure.

Consequences of unequal profit distributions

Finally, two deeper consequences of highly skewed profit are worth mentioning, as these emphasize the need for the approach proposed in this article. The first is that money generates power, and power allows one to ignore the truth. Stakeholders with equal power at a negotiating table have to engage in dialogue with cogent arguments, meaning dealing with truth and reality, to each obtain the maximum of their wishes through compromise. A powerful stakeholder, however, can largely ignore or bend the truth to get what he wants, ‘bullying through’ his wish list. This manifests as a source of persistent unfairness and injustice for other stakeholders.

Building on this, many people find continued inaction by government and business to be incomprehensible thirty years after the Rio Summit as dire global consequences pile up around us and scientific predictions come true. A recent global review revealed multifaceted reasons, but pointed to the strong central role of power and influential vested interests behind all the reasons. To help explain the persistence in the face of severe climate impacts, it may be useful to ponder the parallels with addiction, in this case to profit, status and power. Once tasted, few ever go back, and most want more, with a high risk of trading in their honesty, hence unfairness in their actions. Worse, in contrast to all other addictions, kicking off money, status and power yields no personal benefit, only drawbacks (adding to persistence). Unfortunately it is also rather contagious, as a cursory look at the world confirms.

Disinformation and polarized societies nicely serve the status quo. Truthfully informed, mobilized national societies may well be the only force able to crack entrenched status quos, to urgently put humankind on a livable path, instead of continuing to merrily ignore, or vainly complain, until we go off the cliff into evolution’s bin, on top of our victims. 

In summary

The approaches to COP26’s global commitment to stop deforestation by 2030 may be inadequate, as they can only partly address the major drivers of deforestation (commercial ranching, farming, mining and logging). An additional novel approach based on transparent economic data disclosure and mobilization of public awareness appears not only promising toward substantially reducing commercial forest pressures, but also feasible, via strong domestic buy-in.

Instead of commodity sectors sailing under the ‘inevitable’ flag, approaches like GoldEq emphasize citizen ownership of a country’s natural resources, and quantify net owner shares, losses, and the very large prospective societal returns (in public revenue, equity, justice, poverty alleviation, reducing corruption and crime, accountability, IPLC rights, forest conservation, biodiversity, and climate) from legitimate interventions.

As few efforts before, it would economically incentivize large majorities of the population of sovereign developing countries to mobilize and support, or demand, corrective improvements in these sectors, from an effortless click on citizens’ phones.

Simultaneously, such wide-spectrum benefits should incentivize similarly diverse international support to help realize or speed up this curative transformation, which would yield unprecedented bang for the donor buck. The approach matches with all six Efforts of the Glasgow Forest Declaration.

 

Dr. Han Overman is an independent socio-economic ecologist. He has worked in, and on, the tropics for 35+ years,  for universities including Amsterdam, Harvard, New York State, and Stanford, and other organizations. View his published research here.

[1] Overman H, 2021. Whose Gold Is It ?  Harnessing a domestic economic drive for highly beneficial systemic equitable transformation of Artisanal and Small-Scale Gold Mining sectors in 70-80 developing countries:  the GoldEq Strategy.  Proof of Concept. 40p. Internal document.

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