By Climatico Contributor: Nick Oakes

Durban has mixed meanings for REDD+ finance (Source: UNclimatechange)

Durban finished with the now commonplace but contradictory sense of achievement and disappointment. Achievement that something has been agreed, disappointment that because expectations are so low, any agreement seems like an achievement. REDD+, however, has finished COP17 with a less pessimistic sentiment: plenty was agreed in terms of the technicalities, with accord on the measurement of reference levels of emissions, on environmental and social safeguards, and on MRV; but, as discussed last week, the accord between Parties on these issues has caused disquiet among NGOs.

Technicalities aside, it is perhaps more interesting to think about what COP17 means for REDD+ in bigger picture terms – how can it reengage with the discussions of a legal agreement, how will it be financed and what does it mean looking towards next year?

Stranded at sea

REDD+ has for some time been stranded from the mainland of negotiations, with little clarity on how the mechanism relates back to an international agreement. Or in a more literal sense, it sits in the COP texts on its own as a mitigation action separate to NAMAs. Alas, Durban has presented a slightly clearer picture of the direction and merging of the AWG-LCA track of the AWG-KP track over the next few years, and consequently some more clarity on the context in which REDD+ will form part of a future agreement.

Although still abstract, by “context” we mean that REDD+ could, for example, function largely in the same way as the flexible mechanisms do, the CDM and JI, as addendums to a protocol, or it could be a separate, additional mitigation theme, spanning multiple sources of funding or mechanisms. The latter seems to certainly be the case following Durban, but aside from being – quite literally – separate to NAMAs within the texts, a lot more can be gleaned by looking at the dynamics of the finance discussions.

Finance creeping

Finance made a modicum of progress at Durban, although nothing much was to be expected. Various options for sourcing have yet to be formally considered and objections still arise on the inclusion of the private sector as a source of finance.

Nevertheless, there is agreement that finance should be results-based and, more interestingly, there is text referring to both market based and non-market based approaches to finance. It is generally understood that market based approaches would largely entail the sale of rights to carbon stored in or sequestered by the forest and, as we know, the development of these markets outside of the voluntary sector is moving at a sub-glacial pace.

But exactly what non-market based approaches are is less clear. It should be noted here that we talk about market or non-market based approaches largely in the context of delivery of money, not necessarily the sourcing the money, which could come, for example, from a maritime carbon tax in the non-market based approaches or, perhaps more obviously, the sale of carbon credits in the market based approaches.

Attention non-market based approaches

Envisioning non-market based approaches can be a little ambiguous, but clues can be garnered by thinking about the expenditure patterns of major REDD finance programmes, such as the UN-REDD and the FCPF.

These programmes have spent the majority of money on the development of domestic policies for REDD, whilst also providing help on MRV, reference levels and safeguards infrastructure. At the same time, it is taking – and may continue to take – many years to ensure forest countries, donor countries and the mechanisms themselves are on the same page with regard to expectations of results and finance, thus delaying implementation of REDD+ activities.

Nevertheless, based on these experiences, it seems sensible to conclude that REDD+ finance is going to spend some time yet directed towards early stage technical and human infrastructure, and policy development.

In this sense, the ambiguity surrounding non-market based finance becomes a little clearer. It is, at the moment, publicly sourced and grant-based delivery finance towards REDD+ readiness, purely because this is where it seems to be most needed. The assumption, however, that grant-based finance is inexorably channelled towards early stage REDD+ policy and infrastructure development is far from the truth. There could be non-market based mechanisms that focus on the implementation phases of REDD+, such as subsidy and concessional loan programmes, or guarantee and crediting schemes.

Innovating attendant approaches

Indeed this slight untruth about non-market based approaches, and its conflict between non-market and market based finance should guide the discussions of REDD+ over the coming year. Since there is a lack of a compliance market demand for REDD+ carbon, because most forest countries are in the early stages of REDD+ development, and as it takes years to progress through each stage, Durban could mean that non-market remains a synonym for ‘grants going to REDD readiness’. However, Parties could – and should – move it beyond this connotation and consider how non-market based approaches can evolve, financing the later implementation stages in order to keep momentum and avoid stagnation in REDD+, particularly because Parties now plan to spend four years wrangling over emissions targets and their “legal force.”

By Climatico Contributor: Nick Oakes

REDD+ technicalities agreed, finance not. (Source: Oxfam International)

Recalling last week’s benchmarks for the success of REDD+ negotiations at COP17, we can take each in turn and assess state of the negotiations on each topic. As expected, much of the discussion has been focussed on the MRV text (and addendum) from the SBSTA, which has now been presented to the COP for adoption this week.

There’s agreement that forest countries should be able to choose whether to use Reference Emission Levels (RELs) or Reference Levels (RLs). Forest countries will also be permitted to use RELs or RLs in different regions and aggregate up to a national level, allowing some much desired flexibility to the mammoth task of national accounting of forest carbon.

On the verification of emissions reductions, the text does not specify a body that is responsible for the verification. This could be forest countries, donor countries or third parties. Given the political element to verification – namely the protection of national sovereignty – it seems likely REDD+ could proceed down the same lines as the CDM, meaning forest country bodies approved by the UNFCCC will verify emissions reductions, although we will probably have to wait another year before there is clarity on this issue.

The text puts forward requirements for the reporting of safeguards. Controversially, and attracting criticism from many observers, it does not do enough to measure how safeguards will be respected, and in the event that they are not respected, detail the punitive measure faced by those in violation of those safeguards.

The concern here seems to largely relate to social safeguards – ensuring the rights of local communities are respected and penalties enforced, and their inclusion in the benefits of REDD+. The current text asks only that forest countries submit information on how they are implementing safeguards, which can be compared against standards set for their implementation. It does not require that forest countries submit information on the impacts of REDD+ on local communities, or to put it another way, whether the safeguards that have been implemented are fit for purpose. As Louis Verchot, climate change scientist at the Centre for International Forestry Research noted, “what has been put forward here are standards for reporting, not standards for performance, and we need to see decisions on performance standards to move forward with REDD+.”

The AWG-LCA has drafted a note on the outcomes of a number of working groups, but for the REDD+ working group, tasked with looking in to finance options, the text, unsurprisingly, does not show much in the way of material progress. At the moment the text seems to simply push back a decision on finance by asking the secretariat to provide financing options before the thirty-eight meeting of the SBSTA.

The remainder of COP17 will see the final adoption of the text presented to the COP by the SBSTA, possibly with some more clarity on a timescale and focussed discussions on the possibilities for finance options. With much of the technicalities agreed, however, getting REDD+ off the ground is now intimately dependent on reconnecting it back with discussions of international agreements and finance, to which the remainder of COP17 will be devoted.

By Climatico Contributor: Nick Oakes

Baby steps for REDD+ set to take place in Durban. (Image source: Nick Seers)

REDD+ is one of the building blocks for a new international agreement, and like other blocks, such as finance and technology transfer, it is one that many observers are hoping will become operational relatively soon, perhaps even in absence of a post-Kyoto agreement and the merging of the AWG-LCA with the AWG-KP.

There are four forums/themes in which REDD+ will be discussed at Durban. Most of the discussions so far have taken place within the AWG-LCA and the Subsidiary Body for Scientific and Technological Advice (SBSTA), whilst there have also been discussions in the AWG-KP, and the talks across multiple bodies on the common theme of finance. Briefly analysing each of these forums/themes will indicate some benchmarks for success and the likely outcomes at Durban.

Safeguarding the safeguards

In the Cancun agreements the SBSTA was tasked with building the methodological rigour needed to operationalise a REDD+ mechanism. The SBSTA called on Parties to submit guidance on three issues that need to be addressed for COP17: (1) the systems needed to provide guidance on how safeguards are addressed; (2) modalities of forest reference emission levels and forest reference levels; and (3) modalities for monitoring, reporting and verification (MRV).

Turning first to the submissions on protection of safeguards, these are outlined in Annex I to the Cancun Agreements. They cover a range of topics, from national level policy promotion and consistency with the Convention, to ensuring there are results-based approaches and that relevant stakeholders’ needs are addressed.

There seems to be agreement that the systems for monitoring safeguards will be designed nationally. This means that the UNFCCC process will issue only guidelines on how to build the systems, whilst the systems themselves are constructed by each Party. Norway, however – perhaps resonant of broader developed country sentiment – suggests that Parties should submit information on how the systems are designed, as a means of quality control.

MRV still lurking

Turning to the forest reference levels and MRV – the former of which is a subcategory of the latter, and so probably better presented as one topic rather than two – some Parties have pointed to the lack of clarity on the definition of forest reference emission levels and forest reference levels. One suggestion is that the former cover REDD, while the latter cover REDD+. Establishing guidance used for construction of a reference level moves discussion on to baseline measurement, a key component necessary for operationalising a REDD+ mechanism.

A slight sideshow to this discussion is the inclusion of Development Adjustment Factors (DAF) in the reference levels. These are planned activities that cause deforestation or degradation in the future. It seems that many countries will push for their inclusion in reference levels at COP17, but the definitions and terms of usage may be more difficult to define post-COP, given that DAFs will doubtlessly be highly politicised.

On the principles of an MRV regime, these are broadly in agreement, in that it should be separate and independent from systems created to monitor safeguards, whilst reiterating they should be “non-intrusive, non-punitive, and respectful of national sovereignty and legislation.” Some countries have noted that much of the groundwork is in place for MRV principles, given its primacy at Cancun last year.

Some ad-hoc submissions

The AWG-LCA has continued working on a draft text within an informal REDD+ working group. However, given that the content of this text will be largely contingent on the outcome of the SBSTA, the exact nature of the draft text without agreement on the SBSTA’s submissions is somewhat unclear. Nonetheless, it is possible that if the essential elements of a decision are agreed, at the very least a draft decision on REDD+ could emerge.

With the AWG-KP, however, there is far less of a focussed discussion. It has been agreed that land-use, land-use change and forestry will be considered as an emissions source under the Kyoto Protocol (KP), but little has been negotiated on the subject of REDD+ within the KP.

One submission from a variety of forest countries outlines a possible means of including a REDD+ mechanism within the KP. However, given the amount of work going in to REDD+ outside of the KP, and that the continuation of the KP is by far the largest uncertainty at the talks, there is little chance this proposal will receive much attention.

Financing REDD+

Finance will undoubtedly be raised across a number of forums. For example, it seems to be agreed that the Green Climate Fund (GCF) will have a distinct REDD+ facility, whilst the majority of funding to date has come from Norway, via its own bilateral mechanisms.

It’s probable that forest countries will seek funding from a number of sources as a prerequisite to agreement on other issues, but as a theme itself there is little holistic oversight. In this sense finance has been more of a country-by-country approach, each individually seeking sources of funding. As a result, we are likely to see a push by forest countries to solidify funding commitments from multilateral sources, such as the GCF, whilst simultaneously coveting bilateral ties.

COP17 will undoubtedly result in Parties edging closer to approving the technicalities needed to get a REDD+ mechanism up and running, but given the complex, inter-linked nature of the mechanism’s connections to the overarching discussions on targets and legal nature of a successor to Kyoto, agreeing – possibly even formalising – the technicalities of a REDD+ mechanism and focussing discussions on finance is the most that Durban is likely to achieve. 

Emerging patchwork of supply important for REDD (source: Ken Bosma)

Last month, the second edition of State of the Forest Carbon Markets,was released. All in all, the report painted a positive picture for the forest carbon markets: the volumes, transaction value and average prices in 2010 were all up on the previous year at, respectively, 30.1MtCO₂e, $178 million and $5.50/tCO₂e.

Notably, REDD based transactions dominated the total volume contracted in the primary market – 67% of the 29MtCO₂e primary market, due to the methodologies developed for the voluntary market – whilst afforestation/reforestation projects declined in transactions across every primary and secondary market.

Moving away from multilateralism

Latin America contracted more than half of all projects in 2010, with the EU as the largest source of demand. Of interest, however, is the increase in localised demand: outside of Europe, most of the demand for a region’s credits was from within that region. In North America, for example, demand nearly equalled supply from the region.

This to be expected, if considered in the context of the wider move towards a patchwork approach to climate policy. The patchwork approach is the increasing preference to enact a patchwork of policies to tackle climate change on a sub-national, national and regional level. These efforts are, arguably, being prioritised over the global, multilateral efforts to address climate change by many countries. It seems that forest carbon is no exception; indeed this approach is becoming increasingly important for REDD.

A patchwork of supply

The report finishes by projecting a growth in supply to 373.1Mt over the period 2011-15, of which REDD projects will supply 335.3Mt, stating that the emerging picture is “fundamentally about a small—but growing—cadre of forward-looking buyers and investors making big bets on the future of the forest carbon markets.”

This is true; the bets are certainly “big”. However, with many countries moving towards a patchwork approach to climate policy, the international compliance market-mechanisms look increasingly unlikely to create significant demand – and in turn supply – for REDD, any time soon. In the Panama climate talks, for example, the focus of discussion still appeared to be on the how market-based mechanisms for REDD are to be included, if at all; demonstrating the absence of globally coordinated efforts to source REDD finance and the gap in financial mechanisms.

It’s possible, then, that “bets” are being made on the growth in REDD supply coming almost entirely from the voluntary markets and a patchwork of non-UNFCCC led unilateral or bilateral compliance mechanisms. The voluntary market is already seeing some significant movement in this area, as the report above demonstrates. In the case of unilateral or bilateral compliance mechanisms, however, the growth is more difficult to envision, precisely because it is a patchwork of mechanisms providing supply, but also because their existence is dependent on the need to offset emissions, i.e. the presence of an emissions cap.

The Governors’ Climate and Forests Taskforce (GCF) is attempting to create such a mechanism. The purpose of the GCF is to create compliance grade REDD credits, such that the entity complying with a cap will buy those emissions reductions in the future. This type of mechanism, whereby the sub-national or national entity that intends to cap emissions helps create methodologies for REDD project types, will become increasingly important for REDD over the coming years. This is because the GCF should, hopefully, demonstrate how REDD can work for projects in the compliance markets, but most importantly, it does so in the context of the emerging patchwork approach.

From the perspective of international climate policy, it may look ungainly, and be more difficult to quantify the emissions reductions on a global scale, but if national and sub-national entities with emissions caps and offsetting rules begin to create similar bilateral mechanisms to that being attempted by the GCF, the REDD market will develop far beyond that offered by voluntary markets alone, bridge some of the finance/supply gap left by the absence of a multilateral mechanism, and do so in the context of the bottom-up, patchwork growth in the REDD space.

Rimba Raya Project in Rapid Decline (Source: Timothy G. Laman, National Geographic)

Indonesia’s flagship Rimba Raya REDD project was registered this year under one of the Voluntary Carbon Standard’s REDD methodologies, aiming to preserve “91,215 hectares of tropical peat swamp forest,” equivalent to an emissions reduction of 104,886,254 tonnes of CO₂e over the crediting period of 30 years, according to the registration documents.

The project has long been an exemplar of early action on REDD, hoping to bring the field in to the carbon markets. Indeed many expected it to be the first to issue REDD based carbon credits in the voluntary markets, but this title was taken by the Kenya Kasigau Corridor Project earlier this year. Despite the early success, a recent report by Reuters outlines how hopes for the Rimba Raya project have declined rapidly over the course of the past year.

Back-pedalling and contradictions

At the heart of the controversy is a decision by the Indonesian Ministry of Forestry to cut the project area in just over half, and grant development rights to a palm oil company for some, if not all, of the newly available land, resulting in the economic viability of the project  now coming under review.

The reason for the decision is, unsurprisingly, unclear, but interviews by Reuters suggest that land ownership and competing potential uses of land were root causes for the sudden reversal. Indeed Reuters reports that the decree allocating the project’s land area to the REDD project developers was never formally signed by a Minister, allowing the original claimants – PT Best, a palm oil company – the development rights of the land that was originally allocated to them.

Most of those involved seem to be genuinely startled by the sudden turnaround of the government, particularly given the decision’s seeming opposition to the government’s purported stance. It appears to highlight deep divisions between the national government and the civil service, or perhaps even amongst ministers themselves, on the level of action needed to stop deforestation.

It all comes down to price

More importantly, however, it draws attention to the magnitude of the political risk faced by those investing in a new, politically unstable market, and demonstrates with painstaking lucidity the potential losses facing an investor, should a project either not sit well with the government or should there be more profitable, competing uses of the land. And herein lies the fundamental problem: the existence of more profitable uses for land often result in REDD offset credits being unable to compete with the alternative uses of land, since profits are dependent on a low carbon price.

The number of participants, presence of willing buyers and the involvement of Gazprom all seem to suggest that, over the 30 year crediting period, the project is likely to be profitable. But the Ministry of Forestry seems to disagree, exemplified by the Secretary-General of the Ministry of Forestry, asking “who will pay for the dream of Rimba Raya? Who will pay? Nobody, sir!” Although a legitimate question to ask, this apparent rationale does beg the question of how the government expects the project to pay for itself if it is slashed in half.

Nevertheless, it seems that the Rimba Raya project may have fallen victim to the whims of political infighting. Irrespective of the reason, the presence of an economic case that argues against the implementation of a REDD project will never sit well with governments handing out permits. Perhaps more importantly, it allows any number of potentially illegitimate reasons for derailing the halt of deforestation to mask behind this inconvenient – albeit legitimate – concern.

Finally, turning back to the price, it is worth reiterating an obvious but important point: if the carbon price were at a level that demonstrates clear economic viability for REDD projects over and above alternative environmentally destructive uses of the land, these kind of problems would be far less likely to arise in the first place.

Commodities Futures (Image by: Lars Plougmann)

As already discussed on Climatico, using REDD+ as a private sector offsetting mechanism runs the risk of creating perverse incentives, exposing land to market price volatility and causing supply-induced price suppression. However, for the purposes of a deeper exploration into the market-related issues of REDD+, let’s assume these problems are solved and that forest carbon can, in theory, be commoditised and traded. This begs the question of whether forest carbon can be treated and traded like any other commodity.

A report by the Munden Project earlier this year attempts to answer this question. The authors’ conclusion was that forest carbon is not suitable for commodity trading. In response, trade association the Carbon Markets and Investors Association (CMIA) this month issued a response to the report.

Don’t commoditise forest carbon

Turning initially to the findings of the original report, first, the report highlights the risk of creating a monopsony structure, largely due to the limited number of organisations capable of verifying carbon measurements to IPCC standards. This results in the homogenisation of prices offered by the credit buyer to a project developer. More importantly, it also diverts the benefits of REDD+ away from communities and towards the middle men, in contrast to REDD+’s stated developmental objectives, whilst increasing the costs of REDD+.

Second, the high level of complexity and uncertainty surrounding forest carbon greatly increases the delivery risk for buyers. In short: there is no universally agreed process for carbon accounting; the costliness of an accounting method influences its use and consequently the mass of carbon that’s measured; and baselines can be manipulated. This affects the volume of credits that can be used to meet contractual obligations, whilst also leaving traders somewhat befuddled on the exact nature of the underlying physical asset.

Third, the uncertainty arising from the issues highlighted above, combined with the unavoidably high margin of error inherent in carbon measurements, is unacceptably high for commodity trading. If forest carbon transactions are executed on an exchange, they will be cleared by a clearing house, the latter of which takes on the counterparty risk. A clearing house will ensure that it can cover 99% of potential losses on a single day. However, the margin of error in carbon measurements is an order of magnitude higher than the uncertainty tolerated by a clearing house. Therefore, forest carbon will either not be exchange traded or a sub-standard commodity will be created instead.

Do commoditise forest carbon

Turning now to the CMIA’s responses, the CMIA first argue that primary market prices will not be homogeneous since the demand for credits is determined by the size and design of a compliance regime that permits offsetting via REDD+. And since any compliance regime has more than one compliant entity, there will always be more than one buyer. There is ample evidence from existing carbon markets to support this contention.

The Munden report is correct, however, to point out that there are only a limited number of organisations capable of verification to IPCC standards. This will almost certainly lead to higher costs and price manipulation by a limited number of organisations, subsequently diverting money away from communities and inflating the total cost of REDD+.

In response to the Munden report’s conclusion that uncertainty and complexity in verification causes problems meeting contractual obligations, the CMIA stresses this can – and currently is, in existing carbon markets – mitigated by the prices and volumes stipulated in the contract. This is true, but mitigation to the level of accuracy that a clearing house demands, this is unlikely. However, the assumption by the Munden report authors that primary market transactions need to be cleared via a clearing house is incorrect.

Copycatting the CDM

It is far more likely that primary market transactions will be executed in the same way as those in the CDM. This means that the delivery risk will be taken on by the two parties that drew up the contract, and that the transaction is very unlikely to be executed on an exchange and cleared through a clearing house. Meeting the high level of accuracy demanded by a clearing house is therefore immaterial.

This leaves a somewhat more familiar landscape. A compliance market will create demand from multiple buyers and result in price differentiation. The high level of uncertainty regarding the potential volume of issuable credits will be accounted for in the unique structure of each contract, and the transaction will be cleared bilaterally. The secondary markets can then trade a commodity that, crucially, already exists – since it has been issued and contains no delivery risk – on an exchange, using a clearing house.

It seems that the Munden report is correct in highlighting the risk of inflated costs caused by there being only a narrow group of capable verifiers, and the consequent diversion of benefits away from communities and the increased costs of fighting deforestation. It fails, however, to properly appreciate the primary-secondary market distinction that currently exists in the carbon markets, and how this is likely to be replicated in a private sector compliance market for REDD+, should one ever exist.

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.

(Image by: Green Antilles)

In recent years the transfer of climate finance has emerged as a policy response to equitably addressing climate change mitigation and adaption in developing countries. Much attention has been given to setting up the multilateral or bilateral mechanisms needed to classify, transfer and disburse the funds pledged by donor countries. Of those that have sprung up, thirteen out of the twenty-four major funds focus on REDD+ as the sole or a major objective.

For some observers it has been difficult to keep track of the progress made by the new funds, not least because all thirteen emerged in the space of three years. Nevertheless, using the UK government’s recently commissioned analysis of existing REDD+ targeted funds as a springboard, some preliminary analysis on the progress made by the REDD+ targeted funds can be carried out.

What is being financed?

As a starting point, progress can be defined as the stage at which the most funding for REDD+ has been applied. The three phases that denote the proximity of a country to full implementation of REDD+ based emission reductions are readiness, demonstration and roll out at scale.

At present there has been very little funding applied beyond phase one, with only three countries – Norway, Australia and the USA – targeting phase two, and one country – Norway – targeting the final phase. Rather than an inherent unwillingness to fund beyond readiness, however, this is likely a result of the fact that both the bilateral and multilateral mechanisms have a strategic focus largely on the first two phases.

How much has been spent?

The level of disbursement at each phase perhaps gives a greater insight in to the progress being made. For the multilateral funds the disbursement has a range from zero to twenty per cent of the funds committed, with the Global Environment Facility at zero and the UN-REDD programme at twenty per cent, with all other multilateral funds lying in-between.

The multilateral fund to which the largest amount has been pledged, the Forest Investment Programme, has disbursed a total of £2 million or 3% of the total £335 million pledged. The World Bank’s flagship REDD+ fund, the Forest Carbon Partnership Facility, with its Readiness Fund dedicated to investing in phase one and the Carbon Fund dedicated to investing in phases two and three, has spent 11.4% of its Readiness Fund and none of its Carbon Fund as of FY10.

When considering the rates of disbursement, it is worth remembering that disbursement does not necessarily mean expenditure. As an example, take the UN-REDD programme. Funds are disbursed to the forest country offices of the United Nations Environment Programme, Food and Agriculture Organisation and United Nations Environment Programme, who then administer expenditure on behalf of the UN-REDD programme.

The move away from multilateralism

Possibly in response to the slow progress made by multilateral mechanisms, or perhaps due to domestic political motivations, bilateral approaches seem to be emerging as the preferred funding channel for REDD+. According to the UK government’s analysis, to date 67% of committed REDD+ funding has passed through bilateral mechanisms.

The implementation of phases II and III also appears to be moving ahead much quicker through bilateral mechanisms. Take Norway’s Internal Climate and Forest Initiative as an example: it’s currently developing a results-based payment scheme whereby the government of Guyana can receive up to US$250 million over 5 years from 2010 for REDD+ based emissions reductions.

Scratching at the surface

The reasons for low funding levels and the move towards bilateralism are unclear. Multilaterals often cite poor forest governance and a difficulty in establishing clear monitoring, reporting and verification (MRV) guidelines as the prime reasons for the low funding follow through. The move away from multilaterals is often attributed to ill-equipped organisations with anachronistic disbursement procedures.

However, the greater speed of implementation of phases II and III through bilateral mechanisms, the apparent preference for bilateral funds and the slow progress made by multilateral funds suggest that the reasons above only scratch at the surface. Moreover, they hint towards the idea that determining the real reasons may require some introspective analysis by the funds themselves.

Deforestation in Ecuador © stevemonty

Article by Guest Contributor: Natalie Antonowicz

During the second week of negotiations at Cancun, expectations for progress on the United Nations’ Reducing Emissions from Deforestation and Forest Degradation (REDD) program declined. Delegates remained divided about rules on safeguards and finance, as well as the scope of REDD.

Overall, however, the second week of the Cancun Conference can be regarded as a success, in terms of the progress on REDD. In the agreement concluded in Cancun, “REDD is also part of the package and proposed mitigation actions [that] include conservation and enhancement of forest carbon stocks and sustainable management of forests”. The agreement “calls for the creation of national systems of monitoring and reporting actions that save forests, but also for sub-national monitoring and reporting as an interim measure”. Concerns for human rights, have also been integrated into REDD. The overall goal of the agreement signed at Cancun is to integrate and unify existing pilot projects.

While some consensus has been achieved at Cancun regarding social and environmental safeguards, as well as measures for ensuring transparency of funding, many concerns voiced by delegates have not yet been addressed. Topics related to REDD that remain to be decided upon include whether REDD ought to be financed via market-based mechanisms, and whether the Green Climate Fund will be used for REDD financing remains to be decided upon by the COP. Several Latin American states and NGOs remain concerned with whether the REDD program is able to adequately protect the rights of indigenous populations. Additionally, preventing corruption remains a central issue for REDD.

The agreements signed in Cancun represent the first time that REDD has been officially recognized in a United Nations climate change agreement.

Ms. Simona Gómez Lopez. Representative of the Indigenous peoples of Mexico. (Source: UNFCCC)

Article by: Ruth Brandt

The first week of the COP16 has come and gone, with barely a mention of REDD+ in the official negotiations. Some delegates attribute this to the fact that the REDD+ negotiating text is one of the more advanced ones, and that negotiators either want to bring other texts to a comparable level or just rather not open a nearly completed text to further negotiations.

A very different trend can be seen in the unofficial dealings – REDD-related side events abound, including a whole day dedicated to forests and climate change, and several reports dealing with various aspects of the REDD mechanism have been launched during the past week.

One issue that has been on the rise is the affect of the final structure of any REDD+ agreement on indigenous people. Before the beginning of the talks in Cancun the Bolivian ambassador to the UN, Pablo Solon, condemned the REDD mechanism saying that “”Now they want to put a value on nature … this is what got us here in the first place”. A concern over the REDD mechanism however has long been voiced by grassroots organisations, who are not as easily accused of trying to throw a spoke in the climate talks wheels as representatives of the Bolivian government can be.

These concerns have, in the past week, made it into the official talks – in the opening session of the COP, Adelfo Regino Montes from Mexico spoke on behalf of the International Indigenous Peoples Forum on Climate Change (IIPFCC) saying that market based mitigation strategies, including REDD, threaten the rights of local communities, such as the right to free, prior and informed consent (FPIC).

However, as the actual negotiations on the REDD+ framework have yet to start in earnest, it is too soon to say whether stronger safeguards to protect the rights of local communities will indeed be incorporated into any agreement, or even whether their role in protecting forests will be officially recognised at all.