CARBON CONCESSIONS IN PERU

By Walter Vergara, Vice President, Climate Institute

Abstract

This report examines the context and performance of forest concessions in Permanent Production Forests in Peru, documenting their impact on the economy and reviewing the overall results of the concession system. The analysis assesses the financial outcomes of both 100,000-hectare (ha) and 50,000-ha forestry concessions, as well as similarly sized concessions focused on avoiding logging to reduce carbon emissions, and a 30,000-ha plantation of native precious hardwoods.

Despite forest land being one of the nation’s largest natural capital assets, the wood sector does not proportionally contribute to the economy. Most current forestry concessions, particularly those under 50,000-ha, are unlikely to yield financially attractive results. To achieve profitability, small concessions would need to aggregate in scale. Larger concessions (100,000-ha and above) are financially viable under current market and regulatory conditions and promote efficient and sustainable resource utilization.

Avoiding logging in approved forestry concessions to reduce carbon emissions could generate high-quality, credible carbon assets, characterized by robust additionality and permanence and therefore could benefit from premium prices in the carbon market. Under these conditions, the use of Permanent Production Forests for carbon reduction/removal activities as an “Improved Forest Management” use, could yield better financial results when compared with forestry concessions under current markets. However, these activities entail lower economic activity and require a smaller labor force. Nonetheless, they offer better protection for natural capital assets and may contribute to governance improvement and reduced illegality.

Scaling up the use of carbon concessions could displace timber in the domestic and export markets. Investing in plantations of precious hardwoods in degraded areas could meet these requirements over time but demands significant investment in technical capacity, training, and nursery production. Plantations of native species, however, would generate higher economic activity, employ a higher-quality labor force, and may result in valuable carbon removals. Developing native species plantations would drive R&D investment in forestry, alleviate pressure on primary forests, and advance the nation’s forest restoration objectives.

By Walter Vergara, Vice President, Climate Institute