Editing IPCC:AR6/WGIII/Chapter-7 (section)

=== Box 7.12 | Financing AFOLU Mitigation; What Are the Costs and Who Pays? ===

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Achieving the large contribution to mitigation that the AFOLU sector can make requires public and private investment. [[#Austin--2020|Austin et al. (2020)]] estimate that in forestry, USD178 billion yr –1 is needed over the next decade to achieve 5 GtCO 2 yr –1 , and investments need to ramp up to USD400 billion yr –1 by 2050 to expand effort to 6 GtCO 2 yr –1 . Other land-based options, such as mangrove protection, peatland restoration, and agricultural options would increase this total cost estimate, but have smaller to negligible opportunity costs.

Financing needs in AFOLU, and in particular in forestry, include both the direct effects of any changes in activities – costs of planting or managing trees, net revenues from harvesting, costs of thinning, costs of fire management, and so on – as well as the opportunity costs associated with land-use change. Opportunity costs are a critical component of AFOLU finance, and must be included in any estimate of the funds necessary to carry out projects. They are largest, as share of total costs, in forestry because they play a prominent role in achieving high levels of afforestation, avoided deforestation, and improved forest management. In case of increasing soil carbon in croplands through reduced tillage, there are often cost savings associated with increased residues because there is less effort tilling, but the carbon effects per hectare are also modest. There could, however, be small opportunity costs in cases where residues may otherwise be marketed to a biorefinery. The effect of reduced tillage on yields varies considerably across sites and crop types, but tends to enhance yields modestly in the longer-run.

Opportunity costs are a direct financing costs for activities that require land uses to change. For instance a government can encourage planting forests on agricultural land by (a) requiring it, (b) setting up a market or market-based incentives, or (c) buying the land and doing it themselves. In each case, the required investment is the same – the planting cost plus the net foregone returns of agricultural rents – even though a different entity pays the cost. Private entities that pay for carbon credits will also bear the direct costs of planting plus the opportunity costs. In the case of avoided deforestation, opportunity costs similarly must be paid to individual actors to avoid the deforestation.

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