The basic concept behind the Tropical Forest Forever Facility (TFFF) is compelling: paying for existing forest cover and deducting penalties for every hectare cleared is a promising idea. This is precisely why the current financial model needs scrutiny.
The last climate conference was shaped in large part by a multibillion-dollar fund intended to deliver the breakthrough that global rainforest protection so urgently needs: with USD 25 billion in public money and USD 100 billion in loans from private investors, the Tropical Forest Forever Facility (TFFF) was to speculate on global financial markets on behalf of the rainforest and pay rainforest countries USD 4 a year for every hectare of forest out of the returns.
Just under a year after its launch in Belém, less than a third of the public money has been pledged. Following public criticism, the financial model, which provides for annual costs in the hundreds of millions for administration and asset managers alone, has been under revision behind closed doors for the better part of a year. In the fund's FAQ, the promised $4 has since become an "indicative payment objective".
The basic idea of the TFFF is compelling. Paying for standing forest and deducting at least $400 for every hectare cleared is a promising approach. Where previous programmes pay for avoided deforestation, the TFFF aims to reward forest countries for their standing forest.
That is precisely why the current financing must be scrutinised. Together with Aidan Hollis, professor of economics at the University of Calgary, I presented the first independent stress test of the financing model ahead of the last climate conference in Belém. Our finding: the returns that are meant to pay for the forest are not a reliable source of income but a premium for the risk that debtor countries will default – and that premium swings with the markets from year to year. In the extreme case, the fund can collapse before any meaningful payments reach the forest countries: public billions for the rainforest then compensate private investors for their losses – and are lost in the process.
How the Fund Is Supposed to Pay for the Forest
The idea is Brazilian: Tasso Azevedo, the founder of MapBiomas, conceived the payment per hectare in 2010. The idea of paying for the forest out of investment returns, by contrast, goes back to the former World Bank treasurer Kenneth Lay. At first, Brazil called the fund an endowment, "because we expected there to be grants and people donating money", as João Paulo de Resende, then state secretary at the finance ministry, said in Davos. The donations never came. As late as 2023, in Dubai, Brazil was soliciting $250 billion, mainly from sovereign wealth funds. Only in 2024 did this become today's model, in which every public billion is leveraged with four further billion in private loans, which it insures against losses.
The principle is easily explained. The TFFF invests its money mainly in emerging-market government bonds, which promise higher interest than the fund pays the donor countries for the money it has borrowed. From this difference, the TFFF first pays the interest to its lenders and its administrative costs. Only what is left goes to the forest countries. According to TFFF Watch, the full $4 per hectare would currently require around $2.7 billion a year. At least 20% of every payment goes directly to Indigenous peoples and local communities; the share was designed with their representatives and is enforceable. The German Institute for International and Security Affairs (SWP) describes in detail how it works.
Why the Payment Is Not Reliable
1. The spread the forest is supposed to live on is the price of a real risk. Emerging markets pay higher interest because they cannot always service their debts. In the crisis years 2020 and 2022 alone, Argentina, Ecuador, Zambia, Sri Lanka and Ghana defaulted. Since the summer of 2025 we have therefore been asking the same core question: if it were reliably possible to borrow cheaply and invest at a substantial excess return – why confine the approach to a few billion for rainforest protection? If it were that easy to generate billions in returns with borrowed money, the same model could be set up for every global public good, from the oceans to pandemic preparedness. And the governments of the Global North could even have eased the pressure on their national budgets with such a "magic money tree" long ago.
2. Taxpayers' money insures private creditors – with nothing in return. For every dollar from the donor countries, the fund borrows four from private investors (p. 41). Losses hit the public money first: if the TFFF loses a fifth of its investments, the public billions are wiped out entirely. By the fund's own calculations for the past twenty years, that would have happened twice, in 2008 and 2020. The donor countries then act as the private investors' insurance, yet despite taking on this massive risk they receive only the low interest rate of safe US Treasuries (p. 35).
3. The forest is paid last and cut first. If the investments lose just around 6% of their value, the forest payments are cut, according to the concept note of October 2025. Those cuts would come precisely when rising interest rates are also straining the forest countries' budgets. Arrears are paid only if the fund's finances later improve (p. 10).
In the end, little arrives. According to the calculations in our book on the rainforest fund (Missing Billions), even the full $125 billion fund, with the returns since 2008, could have paid only about 60 cents per hectare instead of the envisaged $4. Of the fifth for Indigenous peoples and local communities, only a few cents would remain. And that applies to the large fund, financed with $25 billion of public money. What currently seems realistic, however, is a Mini-TFFF of around $10 billion: while the running costs would still be around $100 million a year, the potential rainforest financing shrinks with every missing billion. A large part of those costs would go in fees to the financial industry, which publicly backs the fund but has so far not addressed the open questions about its financial model.
Reliability in Rainforest Policy
The incentive model only works if the $4 flows reliably every year. Forest protection costs money every year: for forest rangers and protected areas, for Indigenous peoples and local communities, and for state enforcement against illegal clearing. Brazil, for instance, cut deforestation in the Amazon by more than four fifths between 2004 and 2012. Forest countries, however, can only budget for the promised payment if they can influence its amount themselves by clearing less.
If the payment fails to materialise despite all their efforts because financial markets turn, recipient countries cannot budget for the promised payments, and the incentive the TFFF is designed to create is largely lost. The governments of the forest countries then bear not only the political risks of forest protection but ultimately its costs as well. The concept note knows this: long-term forest policy, it says, is only possible if "long-term, predictable financing" is in sight (p. 69). Four pages later, it announces that the payments will be cut in times of crisis.
The fund was nonetheless sold as safe. At the launch in Belém, Norway's prime minister, Jonas Gahr Støre, declared that the fund could give forest countries "secure financing that lasts". In the same statement, Norway tied its money to "a sustainable financing model with acceptable risk". Therein lies the current danger: a fund that invests more safely also earns less. The result would be a zombie fund: a Mini-TFFF that starts with significantly less capital, takes on less risk and, on top of that, retains part of its profits each year as a cushion instead of paying them out to the forest countries. It could reach the political minimum target of $10 billion and would hardly ever go bankrupt, but it would fob the forest off with cents. That would save face for all those who committed to the model too early – but possibly not a single hectare of rainforest.
The Charge of Exploitation
Some accuse the TFFF of profiting from the high interest rates of poorer countries. After decades of debt crises, the suspicion is understandable. The interest on a government bond, though, is owed regardless of who holds it. If the TFFF buys additional bonds from emerging and developing countries, that should, if anything, marginally lower those countries' interest burden and so relieve their public budgets.
The fund's problem lies elsewhere: in the risk, which forest countries and donor countries bear first. The TFFF also does not bring about the often-feared "financialisation" of the rainforest: rather, the model provides forest countries with the means to fund measures against commercial clearing.
Doubts Are Growing
Experts now share our concerns, each by their own route. Bård Harstad, professor of economics at Stanford, reminds us, with reference to the TFFF, that there is no "free lunch" in international capital markets. Robert Nasi, director general of the Center for International Forestry Research (CIFOR), writes that the yield the design depends on is "not free money". Azevedo, the inventor of the payment per hectare, also asks publicly why anyone should put money into the TFFF rather than into US Treasuries, which are "safer and guaranteed".
Even donor countries are demanding a sustainable financial model. And this despite having largely co-developed the current design themselves before it was publicly questioned: Germany, Norway and the United Kingdom sat on the working groups that drafted it. Norway has nonetheless not earmarked a single krone for the fund in its 2027 budget and is having the model reviewed by two pioneers of its oil fund, including its founding chief executive Knut N. Kjær. The oil fund itself caps emerging-market bonds at no more than 5% of its bond holdings. In contrast, the TFFF plans to invest predominantly in such bonds – and with borrowed money at that. Further, the Netherlands has tied its latest contribution to a review and does not intend to decide until mid-2027. Germany's billion-euro pledge is also conditional: the Bundestag will decide at the end of November. Andreas Mattfeldt, the CDU budget committee member responsible for the file, wants to block the first instalment because, he says, the government has issued a "blank cheque".
What Is at Stake
A failure of the fund would be a political catastrophe. In our simulations, in which we ran the fund on actual market data for every start year from 2000 to 2018, sixteen out of nineteen funds would have lost more than half of the donor countries' money by today, and one would have lost everything. The TFFF is currently regarded as the flagship project of forest protection, was presented in Belém as a central initiative of the climate conference, and is to be counted, at least in part, as climate finance.
Herein lies an enormous risk: the failure of such a massive financial-market speculation with billions in public money would hand the opponents of international cooperation a ready-made narrative that could, in the short and medium term, pose a real political danger to future rainforest protection, but also to climate finance and global cooperation as a whole. Especially at a time when climate finance and development cooperation are already under enormous political pressure, that is a potentially fatal scenario.
The Change Needed
The promising core of the TFFF must be preserved: the payment of $4 per hectare, the deduction of at least $400 for every hectare cleared, and the fixed share for Indigenous peoples and local communities. Two things are missing.
First, transparency: before further public money flows, the revised financial model must be published; the vote in the Bundestag and COP31 are the right moment for that.
Second, stable financing that does not depend on the risk premium of emerging markets. Aidan Hollis and I proposed TFFF 2.0 for this ahead of Belém: the donor countries lend the fund money interest-free. The fund uses this money to buy safe government bonds of the donor countries, and the interest on those bonds finances the payments for standing forest. In essence, the donor countries only pay the interest and get their money back in full. The key difference: this time without default risks and without risky leverage through private loans. At a 5% yield, $50 billion of such loans would generate $2.5 billion a year for the forest.
Several such proposals are currently under discussion, and none of them rests on financial-market speculation with rainforest money.
Brazil has delivered the right idea. It would be up to the donor countries to provide the necessary financing.
