A Celebration of Innovative U.S. Foreign Policy for the Environment

April 26, 2024 By Guest Contributor – Nav Dayanand

The dual crises of nature loss and climate change threaten the health, security, and vitality of our shared planet. The magnitude of the challenges posed requires bold, ambitious, innovative, and durable solutions. As such, these solutions can emerge from many dimensions— private and public, through science, business, public policy, local commitments, and behavior change.

This is a moment to recognize the bold and innovative step which took shape in 1998, when the U.S. Congress enacted the Tropical Forest Conservation Act (TFCA). This has proven to be an incredibly smart fiscal tool which has helped shape American foreign policy and the global commitment to the environment. More importantly, it has resulted in the manifestation of a simple but innovative idea of converting sovereign debt owed to the United States into in-country environmental conservation investments. This has greatly improved globally important biodiversity and local livelihoods all while bolstering cooperation and relationships with key U.S. allies.

As we celebrate the 25th anniversary of this debt-for-nature swap program this year, the work of the U.S. Department of the Treasury, U.S. Agency for International Development (USAID) and that of the U.S. Department of State in stewarding vitally important tropical forests—the lungs of the planet—cannot be understated. This would not have happened but for a strong bipartisan group of lawmakers who got together in the late 1990s to fashion a program that recognized and ameliorated a situation where high foreign debt had led countries to ignore and let nature depreciate.

Based on a model that had worked in Latin America, Congress enacted the TFCA focusing on U.S. government-held debt that could be reduced in eligible countries and with funds generated from reduced repayments to be used to support programs to conserve tropical forests within the debtor country. Typically, this allows for the reduction of existing U.S. -dollar denominated debt; creation of a Tropical Forest Agreement and payments for the loan that otherwise would have left the country to be deposited in local currency equivalents in a Tropical Forest Fund.

Monies generated through such a fund are distributed in the form of grants to local conservation groups or the debtor government conducts conservation activities for tropical forests. The TFCA has enabled over $248 million in debt reduction agreements in 14 countries (covering 21 transactions) which will have generated nearly $360 million in tropical forest conservation at the conclusion of these agreements by further leveraging private and philanthropic contributions. In 2019, Congress renewed its commitment to this program by expanding eligible countries and program scope to include coral reef ecosystems. Consequently, this program is implemented today as the Tropical Forest and Coral Reef Conservation Act (TFCCA).

At The Nature Conservancy (TNC), such innovative ideas and action fuel our work. We have been able to participate in 12 of the 21 TFCCA agreements and together with our partners—World Wildlife Fund, Conservation International and most recently Wildlife Conservation Society—we have contributed an additional $25.5 million enabling more debt to be treated. For example, in Indonesia, the second TFCCA agreement entered in 2011 was focused on protecting significant biodiversity, increasing carbon sequestration, and improving community livelihoods for protecting forests in Kalimantan. TNC proposed the Berau Forest Carbon Program (BFCP) as part of our commitment in four target districts (Kapuas Hulu, Mahakam Ulu, Kutai Barat, and Berau) to focus on community-based natural resources management, community-based production of non-timber forest products, orangutan conservation, and sustainable forest management.  By 2018, this investment had already secured more than 250,000 acres of forests from conversion through social forestry incentives. The latest deal announced in December 2023 with Peru will mobilize nearly US $20 million to support the conservation of the Peruvian Amazon by empowering indigenous peoples and local communities to engage effectively in the management of protected areas and creating economic opportunities that foster sustainable livelihoods. Such examples abound from this innovative fiscal policy investment across all the geographies it has reached.

While addressing nature loss and the climate crisis will continue to challenge us with finding more innovative solutions, the TFCCA has laid a strong foundation for many more financial and legal tools the U.S. government is deploying today through USAID, the U.S. International Development Finance Corporation (DFC) and other U.S. agencies.

TNC has leveraged this experience into a second generation of debt conversation transaction in partnership with the DFC and the Inter-American Development Bank, focused on helping countries refinance private, commercial debt, in exchange for conservation and climate commitments with dedicated funding. To date, these transactions have refinanced $1.2 billion of debt collectively in Seychelles, Belize, Barbados, and Gabon and are expected to generate $400 million in funding for conservation over 15-20 years. Using a similar structure, the Pew Charitable Trusts, sponsored a debt conversion project for the Galapagos in Ecuador last year which raised $650 million of new funding and an additional $450 million for conservation.

Based on these recent examples, we see the potential to scale these financial outcomes by two orders of magnitude. To learn more about how TNC is collaborating with the U.S. government on innovative nature finance, please see our Nature Bonds work.

Additional Resources:

Debt-for-Nature Initiatives and the Tropical Forest Conservation Act (TFCA): Status and Implementation (Congressional Research Service)

Tropical Forest Conservation Act (The Nature Conservancy)

Image credit: Daniel Maraña/TNC Photo Contest 2019 ©. This picture is of the Reserva Pacaya Samiria in Perú.