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open markets, investments, and new types ofassistance.In a world Beyond Aid, new investment vehicles suchas IFC's Asset Management Corporation would createnew channels for intermediating capital throughprivate investment.In a world Beyond Aid, new financial instrumentswould insure smallholder farmers against drought, orcountries against hurricanes, would create localcurrency bond markets and leverage new equityinvestments, and develop new local commodityexchanges, or hedging instruments for developingcountries.In a world Beyond Aid, support for innovation andscientific breakthroughs would develop drought-resistant, more nutritious, and better yielding crops;create efficient non-carbon energy sources; and findnew life-saving vaccines. Developed countries need to recognise their self-interest in helping developing countries get on apathway to sustainable growth. They need to honourtheir commitments. But we also need to recognise thatthe climate for aid will grow colder as donor countriesstruggle with debt.Taxpayers have a right to know that the World Bank and other development institutions are responsiblestakeholders, too. We need to do a better jobdemonstrating the effectiveness of aid, showing value for money, and pointing to results; leveraging aidmore effectively through new instruments; andexpanding the contributors by involving morestakeholders through more innovative approaches. nThe above remarks are extracted from Robert B. Zoellick'sspeech "Beyond Aid" delivered at George WashingtonUniversity on 14 September 2011. For further informationvisit: www.worldbank.org082FINANCE & INVESTMENTBelow: Developedcountries need torecognise their self-interest in helping developingcountries get on a pathway to sustainable growthPhoto: © World BankPhoto below:

" "REDUCING DEFORESTATIONAND FORESTDEGRADATION CANMITIGATE CLIMATECHANGE LESS EXPENSIVELYTHAN MANY OTHERTECHNOLOGY-BASED ABATEMENT OPTIONS FINANCE & INVESTMENT083he lack of a clear price signal to useforests in a more sustainable way is thekey reason why deforestation and forestdegradation continue unabated. Changesin financial incentives are needed to both tacklecommercial activities, taxes and subsidies that lead toforest loss (the "downside") as well as stimulateactivities and initiatives that promote the protectionand sustainable use of forests (the "upside"). Forest carbon markets are one way, but not the onlyway, to stimulate the upside while counterbalancingthe downside. Markets for forest carbon, however, willnot succeed unless the drivers of deforestation areconfronted and given greater prominence. The conservation and sustainable management offorests, especially in the tropics and sub-tropics, areessential parts of the international effort to reduceglobal greenhouse gas (GHG) emissions and stabilisethe global climate system. It is necessary to state upfront, though, that forests are not only about greenhousegas (GHG) emissions and climate change. They providea host of ecosystem services such as soil stability, waterregulation and habitat for biodiversity -services thatspecifically underpin the climate, food, energy, waterand health security on which more than a billion peopledepend on a daily basis. Given the opportunity todevelop a global system to reduce emissions fromdeforestation and forest degradation (REDD+) throughthe UNFCCC negotiations, however, this report logicallyfocuses on the ecosystem service of car sequestrationand -stocks in forest biomass and soils.The protection and enhancement of forests, especiallyin the tropics and sub-tropics, is an essential part ofthe international effort to reduce global greenhousegas (GHG) emissions and stabilise the global climatesystem. Previous research suggests that a 50 per centreduction in deforestation is needed by 2030 if theforestry sector is to effectively support global effortsaimed at holding global temperature rise at below 2degrees Celsius (UNFCCC, 2010). During the pastdecade, 13 million hectares of tropical forests havedisappeared annually on average (FAO, 2010). This isequivalent to about six billion tonnes of carbon dioxidebeing released into the atmosphere - about 17 percent of global man-made GHG emissions. Thepotential of forests to mitigate climate change is vast:stopping tropical deforestation and forest degradationand planting new forests could represent theequivalent of doubling current global nuclear energycapacity, or the construction of two million new windturbines (Pacala and Socolow, 2004).However, considerable investment is needed for thispotential to be realised, estimated at a minimum ofUS$17-33 billion per year to halve emissions from theforestry sector by 2030 (Eliasch, 2008). UNEP'sGreen Economy Initiative comes to the conclusion thatannual investment in the order of US$40 billion isneeded to both halve global deforestation by 2030 aswell as to increase reforestation and afforestation by140 per cent by 2050 relative to business as usual.Reducing deforestation and forest degradation canmitigate climate change less expensively than manyother technology-based abatement options and withimmense potential co-benefits such as biodiversityconservation and watershed protection - "free"services with an estimated annual value of up toUS$45 billion by 2050 (TEEB, 2010). These services are central to human well-being andeconomic progress in the medium to long term:estimates show that on a business-as usual path, thedeforestation-related impacts of climate change on theFINANCING FOREST-BASEDCLIMATECHANGEMITIGATIONTHE UNITED NATIONS ENVIRONMENT PROGRAMME FINANCE INITIATIVE (UNEP FI)T