Performance Bonding for Environmental Protection

Performance bonds are a widely used enforcement and assurance mechanism in extractive activities and large-scale projects that are associated with clearly defined environmental liabilities. They are especially effective and useful in conditions where the judgment-proof problem is a pervasive challenge. Bonds provide an assurance for the regulator that funds are available to complete the decommissioning activities and the termination of operations under contingencies where the operator fails to follow the contractual obligations or becomes insolvent. Applications of bonding are found in oil and gas drilling, surface mining, renewable energy projects, and timber concessions. However, real bonding systems are not without issues and limitations. Defining a sufficiently high enough bond has been especially challenging in conditions with limited information about costs and environmental risks and where smaller operators may not be able to secure access to required funds or financial services for posting the bond. The use of surety companies, bond pools, and blanket bonds provides a solution to these problems, albeit not without issues of their own. Furthermore, to keep up with the technological developments in extractive industries and with the inescapable uncertainties related to reclamation costs and environmental damages, the regulator should continually review and update bonding instruments based on new available information. Regulatory rules and statistical models that have been developed to adjust the required bonds, based on observable risk factors, provide some encouraging examples for how to design more responsive and effective bonding systems.

Illegal logging, governance effectiveness and carbon dioxide emission in the timber-producing countries of Congo Basin and Asia

The empirical link between governance and illegal logging is widely accepted amongst scientist, although a minority still purports that illegal logging does not necessarily prevail because of poor governance. However, the nexus linking governance, illegal logging and carbon emission is not well enshrined in scientific literature. This paper seeks to review the literature on illegal logging and governance and empirically investigate the effect of illegal logging and governance effectiveness on carbon emission. Using panel dynamic ordinary least square method on data covering three Congo Basin timber-producing countries and three Asian timber-producing countries, this paper further investigates disaggregated effects between these two groups of countries. The empirical evidence underscores that Congo Basin timber-producing countries are characterised by increasing trend of illegal logging, poor governance effectiveness and corruption. Panel regression reveals a positive and significant impact of illegal logging, governance effectiveness and corruption on carbon emission. Asian producing countries depict a reducing trend in illegal logging and improvements in governance and corruption. There is a positive but not significant impact of illegal logging on carbon emission, and governance effectiveness reduces carbon emission. Thus, the dynamics of governance, illegal logging and carbon emission is not the same between timber-producing countries in Asia and Congo producing counties, thus suggesting the ability of institutions to curb illegal logging and enforce laws to reduce the effects of carbon emission. Multi-stakeholder consultations, government engagement, partnerships and training of control staff can help curb corruption. Legality checks should go beyond having legal documents to effectively check and control of timber concessions and small-scale logging.

The evolution of Brazilian forest concessions

In 2006 Brazil passed legislation allowing concessions for industrial timber harvest in public forests. This decision was part of a broader effort to control deforestation, which had spiked to its second highest level, of about 25,000 km2, in 2004. Specifically, concessions were implemented as a means to control a rampaging timber industry while providing a source of accessible timber for sustainable harvest. Timber concessions, however, are not without their critics worldwide. Here we review the process undertaken to address international concerns over concessions in the policy design, we discuss the process of implementation in Brazil from 2007 to 2014 and then attempt to provide insight into the challenges that lie ahead. Our findings suggest that even though Brazil’s policy designers had the full knowledge of the difficulties with timber concessions, and attempted to design a concession framework to address those concerns, deeper structural problems within the industry and within government itself have prevented the successful scaling up of the concession model. Key hurdles include: government overlap and duplication causing unbearable transaction costs and risks to investors; an industry ill prepared and unwilling to adapt to the stringent requirements set in the policy; and little success in curtailing illegal logging beyond concession borders. While concessions remain a potentially important tool for the management of public forests, additional resources and time will need to be invested to overcome these barriers.