Green Carbon, Black Trade: Finding Comprehensive Solutions for an Intersectoral Problem

Sunday, December 2nd, 2012

It has become a truism to describe transnational problems as interconnected. However, a recent joint report “Green Carbon, Black Trade: Illegal Logging, Tax Fraud and Laundering in the World’s Tropical Forests”by the United Nations Environment Programme (UNEP) and INTERPOL shows that illegal logging is a case that truly demonstrates the need for cooperation across sectors to reach efficient solutions. No single solution will be enough; action will be needed at each stage of the supply and demand chain at both local and international levels. Many of the proposed solutions have major shortcomings. Still, as with most global-scale problems, the absence of perfect solutions should not preclude proceeding with less-than-perfect ones.

Supply and Demand of Illegal Logging

When assessing the demand and supply of illegal timber, it is imperative to assess who gains and who loses from illegal logging. Most obviously, on the supply side, those who stand to gain include corrupt officials and the illegal loggers themselves. The report notes that it is difficult to change the behavior of these groups because “illegal logging and laundering offer much higher profits [than sustainable trading initiatives] and very low risk.”[i]

However, the question is murkier on the demand side. The report takes the perspective that consumers—meaning firms that use timber, not retail consumers—want to buy legal timber. It is difficult to ascertain which timber is legal and which is not, so customers end up buying illegal timber. Is this the full picture, or do some consumers actually want illegal timber? After all, tropical hardwood has a high retail value and it is easy to hide behind explanations of good intentions but hard realities. Moreover, in addition to firms directly using timber, actors in the financial system also stand to benefit from illegal logging. The primary non-governmental organization working on sustainable resource extraction, Global Witness, recently reported that HSBC Bank continues to generate income in the form of interest and fees from logging companies in Sarawak, Malaysian Borneo, which exports more tropical logs than all African and Latin American countries combined.[ii] The UNEP-INTERPOL report discusses the difficulty of disinvestment in illegal logging by those who actually want to disinvest. Changing the behavior of those who do not want to disinvest will be more difficult. One way to encourage disinvestment is through NGOs such as Global Witness; however, this route is most feasible with companies such as HSBC, which have a retail component, and which are based in liberal democracies where individuals are free to protest and to choose which firm’s products they wish to consume. Applying pressure on state-owned enterprises in non-democracies is much more challenging.

Who, then, benefits from legal logging, or why is illegal logging a problem at all? Assuming for now that legal logging is sustainable, the broad answer is that groups who want to maintain natural forest cover drive the demand for legal logging. Most immediately, forest cover affects native peoples who live in and of the forest. Of course, native peoples have little to gain from any logging at all, but at least legal logging is a better alternative than uncontrolled illegal logging. Secondly, legal logging would allow states to collect taxes and tariffs on timber products instead of individual corrupt officers doing so; assuming a benevolent state, these revenues could then be used to promote development and wellbeing in a country. In the long run and in a more diffuse sense, all humans will suffer from illegal logging as carbon sinks are reduced and biodiversity is lost. On the supply side, suppliers of legal timber suffer from illegal logging because of price depreciation; to combat this in the United States, the U.S. timber industry supported the Combat Illegal Logging Act (S.1930) and the Legal Timber Protection Act (H.R.1497).[iii]

A comprehensive solution will have to decrease the demand and supply for illegal timber while increasing the demand and supply of legal timber. Physically reducing the supply of illegal timber requires measures that address the increasingly sophisticated ways of illegal logging. Illegal loggers now circumvent the legal framework by using counterfeit permits, bribing to obtain permits, logging beyond concessions, hacking government websites to obtain permits, and laundering illegal production. The solutions that the report presents include capping total production per area, nationalizing permit distribution, and encouraging tax fraud investigation. To assist countries in reaching these solutions, the report advocates strengthening the Law Enforcement Assistance to Forests program under UNEP and INTERPOL, while collaborating with The International Consortium on Combating Wildlife Crime partners.

Interestingly, the report takes as a given that legislation is already in place, and that supply-side solutions are solely a question of implementation. However, the Forest Stewardship Council (FSC) remarks that:

"Legality alone is not a guarantee against forest degradation, biodiversity loss, violation of worker and community rights…and national legislation in timber-producing countries is not a guarantee of ecologically and socially sound forest management practices, protection of High Conservation Value Forests, and prohibition of natural forest conversion."[iv]

The report would be strengthened by a discussion of the adequacy of existing logging legislation in affected countries.

The report also addresses the potential and limitations of the Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD+) program on impacting the supply of illegal timber. As mentioned above, the viability of sustainable alternatives, such as REDD+, is threatened if the flow of revenue is greater through illegal logging. Moreover, combating corruption is essential both in preventing the misuse of REDD+ funds and decreasing the scope for illegal logging. To achieve these goals within the broader framework of supporting national governments to design and implement effective REDD+ strategies, the Food and Agriculture Organization of the United Nations (FAO), the United Nations Development Programme (UNDP) and UNEP have jointly established the United Nations Collaborative Initiative on Reducing Emissions from Deforestation and Forest Degradation (the UN-REDD Programme). The UN-REDD Programme addresses corruption by facilitating communication between anti-corruption agencies and REDD+ teams on both national and international levels; by funding, policy and technical support; and by disseminating information. The last point is particularly interesting as concession agreements between governments and timber companies are often confidential. The lack of transparency of these agreements as well as the difficulty of addressing corruption at the highest levels of government pose severe challenges for the UN-REDD Programme’s anti-corruption efforts. However, even with the challenge of corruption, it is encouraging that the report discusses REDD+ in addition to law-enforcement approaches; without alternative livelihoods, the low-level loggers may be left with no choice but to log even if that means doing so illegally. Still, efforts must be redoubled to ensure that REDD+ funding really reaches those at the bottom of the supply chain.

Demand-side Solutions

On the demand side, private, voluntary forest certification schemes including the FSC and the Programme for the Endorsement of Forest Certification (PEFC) work to improve the sustainability of commercial forestry. However, as the report points out, only 8 percent of the world’s forests are certified, and 90 percent of those forests are in North America and Europe. Instead of attempting to increase the area of forests certified under existing schemes, the report advocates for a parallel system of classification and ranking specifically related to illegality. In this parallel system, INTERPOL would classify areas in relation to their suspected degree of illegal logging as well as rate companies that operate in areas with high levels of suspected illegal activity. It is dubious whether another certification system is the best way to move forward; adhering with each additional framework takes more resources, and consumers also tend to become confused as to which certification is the gold standard and which is a cheap copy. Moreover, instituting a new framework may be a sign of mission creep on the part of UNEP and INTERPOL. As FSC and PEFC have already established themselves as the central frameworks for sustainable logging, it would make more sense to bolster them with an illegal logging component and then lobby international logging companies to broaden the scope of their FSC/PEFC-certified purchases than to build a whole new framework. The report argues for the new system on the basis that it would translate ethics into financial language, and that the new system would not require significant legislation or broader international negotiations. However, it is unlikely that any action with consequences on investment that would be implemented internationally would not require international negotiation.

In addition to voluntary schemes, there have been attempts to impact demand through legislation; the European Union, the United States, and Australia have all passed legislation to ban the import of illegally sourced wood. In the United States this occurred when the provisions of the Legal Timber Protection Act and Combat Illegal Logging Act were passed as part of the Farm Bill in 2008. While it is clear that a ban alone will not be enough to stop illegal logging, it is surprising that the report does not mention this type of legislative action. The exception is in the case of the European Union, where the report mentions that the EU passed timber regulation as a part of the Forest Law Enforcement, Governance and Trade initiative. It is notable that some major consumer countries have at least indicated their concern for the problem; the next challenge in this area will be to elicit similar action from Japan and China, which are also major timber importers.

Overall, “Green Carbon, Black Trade” provides a comprehensive overview of the challenges caused by sophisticated illegal logging and possible solutions that local and international law enforcement can deliver if adequately funded. However, while the report emphasizes the need to lower the profit margins of illegal logging, it does not explain the demand-side drivers that contribute to these high profits. Regarding supply-side solutions, the report shows that the enforcement of laws is lacking, while assuming that the legislation itself is satisfactory. This may overestimate the quality and scope of national legislation. Finally, although UNEP and INTERPOL themselves have limited mandates, readers of the report should bear in mind that a broader bolstering of a state’s capacity and willingness to respond to its constituents, including the indigenous and rural poor, is essential for truly sustainable forestry management and trade.