Report: $250bn of hydropower dependent on water provided by threatened tropical forests

More than 90% of cloud forests are found in 25 developing countries

Climate and nature-based asset solutions specialists Earth Security has published a new report examining the “cloud forests” across 25 countries that are crucial to supporting the creation of hydroelectricity.

The Cloud Forest Assets: Financing a Valuable Nature-based Solution found that almost 1000 hydropower dams are currently operating in countries where more than half of water demand comes from “cloud forests”.

Cloud forests are mountain tropical forests, constantly shrouded in clouds, which sit at the headwater of river basins. They are a crucial natural asset in providing fresh, clean water to communities as well as water flows to hydropower plants. More than 90% of cloud forests are found in 25 developing countries.

The report warns that of the 1,084 dams that are at various stages of planning to support the energy transition across these cloud forest countries, 684 – almost two-thirds – are set to rely on cloud forest water in the future. This represents almost $250bn in electricity production which the report warns is at risk due to a lack of protective measures in existence for the forests.

Earth Security’s founder Alejandro Litovsky said: “We have focused on cloud forests because of the potential for countries and companies to monetise the hydrological function of forests, and to develop new financial opportunities that reward nature protection. Combining the carbon sequestration and water services of cloud forests can almost double the economic value of keeping these forests standing.

“Banks and investors, hydropower operators and other water-intensive industries that benefit from cloud forests will recognise the value at risk from deforestation, and the role that cloud forests play in their resilience to droughts and climate change. For all stakeholders, you could say that this is probably the only time when ‘having your head in the clouds’ is the pragmatic thing to do.”

Financing protection

The IEA’s 2021 edition of its Renewables Market Report, found that hydropower was the third-largest source of new renewable capacity additions.

According to the report, new renewable capacity additions were forecast to rise to 290GW by the end of the year. 60% of this total was accounted for by solar, mainly in China and the US. Wind was the second-largest contributor, and hydropower was the third.

However, the new Earth Security report calls for the forests that hydropower producers rely on to be protected.

The report claims that these cloud forests are “crucial assets” in the net-zero transition and should therefore be protected. The report notes, however, that many are located in poor economies that are still facing debt distress caused by the Covid-19 pandemic, worsening climate impacts and the rising costs of food and energy imports.

Earth Security recommends that banks, investors and nature-based asset experts work collaboratively to develop protection mechanisms. Specifically, the report calls for the development of a ‘Cloud Forest Bond’, with three design options that are matched to the individual market circumstances of each of the 25 cloud forest countries, as well as a Cloud Forest 25 Investment Initiative, to bring countries and investors together to co-create solutions.