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Permanent forest bonds: A pioneering environmental impact bond for Aotearoa New Zealand

2 Feb 2017

This working paper sets out the case for a world-pioneering Permanent Forest Bond which belongs to the wider classes of green and climate-aligned bonds. The innovation is not only to fill a funding gap for budget-constrained government entities, it is to shift the environmental spending paradigm so that the New Zealand Government pays for positive environmental results rather than services. 

The foundations for the Permanent Forest Bond are based upon the idea of an Environmental Impact Bond, built upon pay-for-performance contracts. The Environmental Impact Bond is an extension of a Social Impact Bond, of which there are now over 60 issued worldwide. However, the impact bond model is better suited for environmental impacts than social impacts, particularly because measurement is less controversial and better established.  A major advantage of Environmental Impact Bonds over Social Impact Bonds is the preexisting science and economics of monitoring and valuing environmental assets.

This working paper concludes that an Environmental Impact Bond model could plausibly be adapted to address the challenge of afforestation in New Zealand. A Permanent Forest Bond is technically feasible, in certain ways more feasible than the Social Impact Bonds that are currently under development in New Zealand. Theses advantages include the pre-existence of established conventions for environmental measurement and monitoring; the creation of “hard assets” that can generate revenue streams that are well-understood; and the potential avoidance of costs to the nation’s long-term prosperity that are large and often quantifiable.

There is, however, no guarantee that a Permanent Forest Bond would succeed. The reasons for this need not be because the model itself is essentially flawed, but because successful implementation depend on the contingencies of the actual negotiation process, including the conduct of the parties involved and the strength of their commitment to the shared goal of expanding permanent forest. 

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