Remembering the rainforests (Image by: Ben Britten)

As the number of public sector financial mechanisms targeting REDD+ has increased, and consequently the volume of money flowing in to REDD+, observers are increasingly pointing out that the public sector alone cannot supply the huge sums of money needed to combat deforestation. The private sector is thus needed to share the cost and supply some of the money.

The most commonly proposed mechanism of engaging the private sector is via some sort of carbon market offsetting scheme. However, the world’s largest emissions trading scheme (ETS), the EU ETS, explicitly disallows the use of REDD+ offsets as compliance units in the EU ETS, and seems unwilling to allow offsetting for REDD+ on a large scale before 2020.

This is largely because the EU ETS is concerned that monetising the huge sums of carbon stored in tropical forests could quickly flood the carbon markets with credits, pushing down the price of carbon and further compounding the EU ETS’ ongoing price issues.

Despite this objection, there is still a large drive to engage the private sector in REDD+ financing as soon as possible. Much of the discussion for attracting private finance has focused on creating investable conditions for private actors. High transaction costs, political and regulatory risk, and the absence of any clarity on the monetary value of credits within a compliance carbon market post-2012 must be mitigated, it is said, before private money will flow to REDD+.

However, much less attention has been given to the safeguards that must be put in place to ensure that private sector engagement does not compromise the environmental integrity of a project, credit, or damage the reputational issues of the financial mechanism.

Reputational and Functional Problems

The CDM is an example of how these exact problems have materialised. The reputation of the CDM has been compromised by private sector participants that previously increased the generation of pollutant gases – and subsequently destroyed them – in order to generate more credits. Moreover, the environmental integrity of the credit has been undermined since the credit is treated – although not necessarily priced – in the same way as a credit generated from a project that is genuinely contributing to sustainable development.

Although the specific problems with the CDM are not directly transferable, abstract slightly from the CDM, and the potential for similar problems with a market-based REDD+ mechanism become fairly evident.

First, should perverse incentives exist, they will be exploited. For example, assuming that REDD+ payments can override the opportunity costs of logging, palm oil, mining, etc., there still remains the possibility that virgin forest could be logged and replaced with trees that have higher carbon content, are easier to measure or have a dual revenue stream, such as plantations. The proper restrictions must be in place to ensure the forest’s existence prior to monetisation.

Second, exposing deforestation reductions to market price volatility – often subject to the whims of speculative traders – can quickly result in the revenue gained from a REDD+ project shifting in favour of alternative forms of revenue generation. This causes investors to pull out of projects and private sector funding to slow down. Indeed this is happening right now in the CDM: the exchange-traded price is dropping below the price that project developers are willing to sell the credit, squeezing profit margins for buyers of credits and halting new funding of CDM projects.

Third, limits would need to be put in place to avoid supply-induced price suppression. Limitless offsetting via REDD+ would result in an oversupply as developers attempt to monetise the vast volume of carbon stored in existing forests, causing the exact problem that the EU ETS is concerned with, and resulting, again, in alternative uses of land becoming more profitable. A REDD+ based crediting scheme would thus require a carefully thought-out limit on REDD+ offsets so as to not depress the price of carbon – and in turn deter additional REDD+ projects – simply by its inclusion.

The momentum behind the discussion on the private sector’s inclusion in REDD+ finance is gaining. However, without serious attempts to mitigate the problem highlighted above, the momentum can quite easily be turned on its head. It therefore seems sensible to posit that REDD+ will be reliant on public sector funding for some time, not just because the private sector is hesitant about investing in an unknown market, but because the regulators are unsure of how to adequately overcome these concerns.

Article by Guest Contributor: Natalie Antonowicz

Deforestation in Capixaba, Acre, Brazil (Image source: visionshare)

Launched in 2008, The UN’s Reducing Emissions from Deforestation and Forest Degradation programme aims to enable developing countries to reduce rates of deforestation via financial stimulation. Updated to REDD+, the program now encompasses conservation, sustainable management of forests and enhancement of forest carbon stocks. The program currently maintains nine pilot projects in Africa, Asia and Latin America.

Ahead of the Cancun Conference, the Environment Committee of the European Parliament has called upon the EU to support REDD+. Stressing the role of forests in addressing climate change, the European Parliament has passed a resolution calling for increased action against deforestation and forest degradation.

As described by German MEP Karl-Heinz Florenz, deforestation represents a common responsibility, as “deforestation, illegal logging, burning off of the rain forests in Brazil, Indonesia and other countries cause about 6 billion tons of CO2 annually”, and is responsible for 25 per cent of global greenhouse gas emissions. This acknowledgement is key, as developed-developing country cooperation – and their clear commitment – are vital for the success of REDD.

At COP15, states did not agree on what type of finance ought to be used for REDD- related activities and initiatives. As such, it remains to be decided how a previously proposed fund for all climate activities would be managed, and whether REDD would be included in it. Additionally, varied proposals exist regarding the scope of REDD+, and clarification of this is needed. The same is true for social and environmental safeguards for REDD, which have been discussed at previous climate conferences, but have not been definitively agreed upon. Specifically, the issue of how to hold funders and recipients responsible for safeguards remains ambiguous.

Significant progress on issues related to deforestation and forest degradation is expected at COP16. While pundits remain doubtful about the prospect of reaching an agreement about accounting and financing, as it pertains to REDD, many are optimistic about general REDD-related progress at the conference, and some have gone as far as to dub the conference ‘REDD-COP’.

Ultimately, delegates must tie the loose ends, and settle outstanding debates about REDD and REDD+, to ensure that states are able to adequately address environmental issues arising from deforestation and forest degradation.

Author: Jennifer Helgeson

Deforestation and uncontrolled grazing leads to erosion (Image by: treesftf)

As negotiations continue, Reduced Emissions from Deforestation and Degradation and Enhanced Carbon Stocks (REDD+) is viewed as one of the only mechanisms expected to be agreed upon during the ongoing climate change talks in Copenhagen.  But an excellent point is being made – a successful REDD+ program requires a strong global CO2 target.  Without a global objective, any framework agreed for REDD+ will continue to allow deforestation without a clear finish line in view.  So, before we can even approach the complexity of the REDD+ mechanism itself, we require: a CO2 limitation target, a full understanding of the carbon stocks and governance structures for forests, and a sense of the financial commitments available, among other things.  The debate around REDD+ has been focused on issues of methodology, local communities, and indigenous people, as well as finance mechanisms.

That is a lot to settle in the one remaining week of COP15!

Running up to Copenhagen, REDD+ was often lauded as a sort of silver bullet towards addressing large-scale CO2 output reductions.  Draft REDD+ text coming into Copenhagen included a global objective for halving deforestation by 2020 and totally halting net forest loss by 2030.  The UNFCCC had assumed that forests account for about 20 % of global CO2 output, but Dutch researchers recently reported that the maximum level is likely closer to 12 % (Van der Werf, et al., 2009.

Surprisingly, discussions of REDD+ do not appear to have been damaged too much by this report.   “Even with lower emissions, avoiding deforestation remains the cheapest and quickest way to realize huge reductions,” says Herbert Christ from the Congo Basin Forest partnership (CBFP), a platform of ten Congo Basin countries.

Sure, a global REDD+ objective can help the world stay at or below 2C warming, but this does not come free of charge.  It is vital that developed countries commit to the level of funding consistent with realizing the goals of a REDD+ plan.  All this week, the potential socio-economic outcomes of REDD+ have been discussed at multiple side-events to the official negotiations.  It is stressed that REDD+ can simultaneously reduce emissions and alleviate poverty through rewarding local communities for forest conservation efforts.  But realizing side benefits depends heavily on significant and reliable streams of funding.  And well, once funds are secured, how they are distributed and monitored is a major concern.

All aspects of the Copenhagen negotiation package require funding, e.g. technology transfer, adaptation, mitigation; thus, it is hard to imagine that REDD+ will come off fully-funded with ease.  The “Copenhagen Launch Fund” was announced by Prime Minister Gordon Brown at the summit of Commonwealth Leaders last week in Trinidad & Tobago.  But the proposed 10 billion USD funding (meant to come from donations by the UK and other developed nations) to help poor countries adapt to the impact of climate change is not enough, says Solomon Islands Permanent Representative to the United Nations, Ambassador Colin Beck.

Throughout the week , this has been the ardent position of the developing nations.  Thus, when adaptation funding offered is barely ten-percent of what developing nations require (110 billion USD), how can REDD+ expect to be fully financed (by the 11 donor countries) in a totally separate pool of money?

However, there has been impressive movement by some developed nations on setting the framework of REDD+ and the associated Land Use, Land Use Change and Forestry (LULUCF).  Thursday, France clashed with other EU states in advocating strong baselines under this system for all nations.  French climate ambassador, Brice Lalonde, called accounting methods proposed by EU nations most dependent on forestry “sloppy, and even fraudulent.”  He went on to state that “the EU cannot embrace fraudulent methods and then turn around and ask developed countries to accept something that they are not willing to impose on themselves.” Lalonde.  Coming up to Copenhagen, France worked with REDD+ countries (especially those of South America) to establish viable methods for that program as well (click here to read more).

There were a number of side events concerning REDD+ throughout this first week of COP15.  Many of these events highlighted REDD+ pilot projects in some of the 37 nations covered under the plan.  Naturally, the implementation of a final REDD+ system will be complex due to differences in country and local-level needs in forest conservation.  But the general idea to which many negotiators are distilling REDD+ to over the last days is a system whereby developing countries are rewarded with carbon credits for sustaining their forests.  The same concerns were voiced by nation after nation.  Primarily, concerns fall under two themes: 1) protection of indigenous peoples’ rights; and 2) distribution of funds from federal government to localities.

Throughout the week, Guyana stressed the need to implement standardized Readiness Preparedness Proposal (RPP) procedures for countries covered by REDD+.  There is an evident capacity gap in the understanding the extent of deforestation in many countries, especially when left to self-report.  There is temptation to overlook some illegal logging, and without GIS technology, it is difficult to be accurate; chances of non-additionality and leakage are extended as well.  To this point, Guyana has also discussed a National Inventory Process that would be supported and standardized under REDD+.

Though many countries seem convinced that they will benefit from the REDD+ program, indigenous voices continue to warn that money from national-level carbon credits might not make it to them.  In this view REDD+ is intertwined with human rights laws.  To this point there has been discussion of adopting “pro-poor policies,” that protect the most marginal of indigenous peoples.  Yet, that seems to be a cloaked way of calling for total national reform to protect indigenous people in 37 countries, some of which qualify as the most unstable in the world.  And well, some of those nations still hope to get credits for forest plantations that are not cut but used for generation of products, like palm oil.

So many loose ends seem apparent… So, the real question is—does REDD+ put the cart before the horse?  Are all the discussions tailoring details without a solid and viable holistic vision of REDD+?  Not to mention PINC?

For a more comprehensive overview of all proposals on REDD+ and PINC, see the Little REDD+ Book.

Author: Kelly M. McManus

REDD+ is considered as one of the more actionable items on the COP agenda, and it is predicted that a binding agreement on forests may be one of few substantive outcomes of the Copenhagen summit. However, REDD+ is widely criticized by most stakeholders, from broad calls for the three “E”s-equity, efficiency, and equality, concerns that have carried over from Poznan, to admonition of REDD+ as “carbon colonialism” by indigenous peoples who have seen their lands and livelihoods usurped in the name of the CDM.    Despite these criticisms, an acknowledgement of the critical need to halt deforestation, which garners support not only on the basis of emissions reductions, but also as a strategy for protecting biodiversity and providing essential ecosystem services, drives the REDD+ process along.

But can REDD+ deliver on its essential task of reducing emissions? New research suggests that deforestation probably accounts for around 12% of global carbon emissions, both because deforestation rates have decreased in real terms and other sources of carbon emissions have increased in proportion to deforestation emissions (Van der Werf, et al., 2009).   The significant challenges of implementing REDD+ mean that actual emissions reductions from deforestation will be somewhat less than this. Substantial issues have been raised in determining appropriate baseline levels of deforestation, developing methods to prevent “leakage“-i.e. deforestation displaced from forests under REDD+ governance to those which are not , and ensuring that compensation is only given to projects that are truly additional, that is, forests that would be deforested without the injection of REDD+ monies.   None of these are simple questions, and what is appropriate in one nation or for one driver of forest conversion, may be disastrous in another.

Furthermore, long-term ecological modeling studies in the Amazon suggest that under conditions of drought and higher average temperatures, forest dieback may switch the forest from being a carbon sink to a carbon source (Cox et al., 2004).

The uncertainties on REDD+ extend beyond emissions reductions.  REDD+ represents the largest potential financial investment into mitigating deforestation that has ever been undertaken.  This investment will be delivered to developing nations for avoided deforestation (RED), forest degradation (REDD), maintenance of existing forest stocks (PINC), and/or enhancement of standing forest carbon stocks (REDD+), or some combination of these options, depending upon which proposal is ultimately adopted.  If REDD+ (or RED or REDD) prioritizes carbon storage above all other currently non-market forest services (e.g. biodiversity, hydrological and nutrient cycling), it will create trade-offs between these services that may prove to be ecologically-and economically, if the critical role of water and nutrient cycling are to agriculture and human systems-unsound.    

To counter these very real challenges, we have added ‘D’s and ‘+’s and ‘PINC’s and a plethora of caveats to what started as a relatively simple economic, though potentially dangerous, economic tool. We have created a REDD giant.

Given the high stakes and high uncertainty associated with REDD+, it is necessary that we critically evaluate the potential  that the current market-based proposed REDD+ mechanism may ultimately cost too much, do too little, and have adverse impacts on biological and social systems.

These are not easy questions, and the political momentum behind REDD+, after literally years of negotiations and consensus-building, makes it unlikely that delegates will want to reopen this Pandora’s box.  But if they were to just take a quick peek inside, they might be well advised to consider one aspect of deforestation that is becoming increasingly more clear-the increasing proportion of deforestation that is caused by export-driven commodity markets, namely cattle ranching, soya production, and oil palm plantations.  If the problem with deforestation were narrowed to simply commercial markets for these commodities (albeit admittedly leaving the smaller but important problem of poverty-based deforestation for another, perhaps aid-based, mechanism) deforestation could conceivably be addressed through a trade-based, demand-side solution, akin to the EU’s Forest Law Enforcement Governance and Trade (EU FLEGT) Program.  Perhaps the market that needs to be regulated is not the one that does not yet exist for forest carbon, but the very well established markets for global “deforestation” commodities.   The thought of changing course so late in the game may seem the type of thing to send a delegation into a frenzy, but fear not, we merely need to add on a consonant. Ladies and gentlemen, meet REDD+T.