How do you make a tree worth more alive than dead? This question will certainly not be put so simply but it is one of the main ones occupying the minds of those gathered on the Indonesian island of Bali this week for the UN conference on climate change.

It is a question of vast importance to the world and if an answer is found then we will have gone a considerable way to combating climate change.

Bali is an apt venue. When you include emissions from deforestation, Indonesia ranks third in the world league table of carbon emitters (the US claims the top spot and China is second) and the cause of most of its pollution is the burning of rainforests, responsible for 85 per cent of that country's emissions. Worldwide deforestation is responsible for 20 per cent of all carbon emissions. This is more than that of all the transport on the planet and second only to the production of energy.

We have all seen those disturbing images of ravaged blackened hillsides and heard the stories of some lumber companies and their rapacious ways. The rainforests of the world, while still huge, are being cut down at an alarming rate for their timber and for their land.

Once it is cut down it is mostly gone for ever. And with it goes its brilliant natural ability to store and get rid of carbon, its ability to make rain and its ability to foster a bewildering array of wildlife whose functions we do not yet fully understand. As was said recently, it's like burning down a library without having read the books.

This is why the preserving of forests is high on the agenda among the swaying palm trees on Bali. Stop the forests being cut down and emissions targets are more attainable. In fact Sir Nicholas Stern said in his ground-breaking climate change review this year that forests offer the single largest opportunity for cost-effective and immediate reductions in emissions.

So let's go back to the question: How do you make an economic opportunity out of an environmental necessity? How do you stop the chainsaws that either make way for cattle — an inefficient way of feeding a growing population — or for thousands of acres of palm oil plants to feed the developed world's insatiable appetite for oil-based products?

It is no good just telling developing countries, and human beings like us with the same basic needs and many of the same wants, that they have to stop trying to make a living. We have to make it worth their while to hold on to to their forests — which the Prince of Wales describes as the greatest global public utility — and make it worth our while to help them to do this. There has to be an investment case for conservation and intelligent use of forested land.

Put simply, we have to create wealth worth having. There are various ways of doing this. Brazil has been successful in cutting deforestation by more than half by the implementation of strong laws, which has involved locking up illegal loggers. By increasing the sustainable use of forestry — selective logging — the Brazilians are thinking long-term for their benefit.

Another way is the use of overseas development assistance to pay for maintaining existing forests. This is Brazil's preference to help it to deal with the remaining issues of deforestation. It is also one of the ideas behind Guyana's extraordinary scheme to lease its rainforest to the UK in return for economic aid.

The third way is to use the international markets, with their access to more than enough private capital. This is necessary because public sector money will never be sufficient, private money acts quickly and we are running out of time.

The market mechanism already exists to take pollutants out of the air as part of a cap-and-trade mechanism. For instance, a Chinese cement factory that emits pollution is given the technology to reduce pollution and in the process is given credits that it can sell to companies in developed countries who have yet to reduce their carbon emissions. The world's atmosphere gains (and there is only one) because without this process the Chinese factory would continue polluting.

This market, with a framework created by governments imposing strict limits on carbon emissions, has created a price for carbon that is high enough to persuade money to flow to the right places. This price penalises excess use of carbon, for instance in the inefficient production of energy, and rewards reductions.

What needs to happen now is for there to be a recognition of the carbon value of forests, not only in their ability to preserve carbon but also in their value as ecosystems providing, for instance, water and biodiversity.

The risk is that while there is an enormous supply in terms of forestry that requires saving, the demand is at the moment weak because neither the Kyoto Protocol nor the European trading scheme recognises what is called “avoided deforestation” as an issue that can be dealt with under existing rules and because we haven't set tough enough targets.

This will involve intense and complicated negotiations and the Bali conference is the place where they will happen as a precursor to a new climate change protocol that the world needs to sign up to in two years' time.

Many other things are up for discussion as we attempt to get to grips with climate change. The Bali conference is a remarkable experiment in global policymaking and it must succeed. In the end it may come down to putting a price on a tree.

— James Cameron is vice-chairman of Climate Change Capital

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