Reducing emissions from deforestation and forest degradation in developing countries (REDD)

A combination of markets and fund-based mechanism has been proposed by Norway to finance REDD. New Zealand wants the mechanism to provide adequate financial resources to compensate countries for the economic benefits they lose by reducing deforestation.

There are concerns that if REDD is used to offset emissions in the developed world, then it would flood the carbon market; depress carbon price and slow the transition to clean energy.

At present, most countries struggle to address the drivers of deforestation because of insufficient domestic resources and overly cumbersome requirements from international agencies and donors.

Each party should take leadership over their own REDD process, to prepare for expanded implementation. The participation in this “readiness activity” is voluntary.

It could involve parties inviting interested multilateral and other agencies to use existing platforms, like the World Bank Forest Carbon Partnership Facility and the UN-REDD initiative (UNDP-UNEP-FAO) to coordinate and manage an institutional REDD platform. Each REDD country would have the flexibility to select a lead agency to sub-coordinate national readiness activities.

There are two options for its implementation:

1. Through non-compliance and voluntary market instruments;
2. Through measurable, reportable and verifiable (MRV) emission reductions through compliance based market mechanisms. In other words, developed country parties can use the REDD mechanism to meet their emission reduction targets. 

In addition, specific options are suggested to give developed country parties incentives to use the REDD mechanism to take credits for emission reductions.

1. Credit for early action -- MVR emission reductions obtained during the period from the year 2005 up to the beginning of a future international agreement on climate change can be used to assist in achieving compliance under the terms and conditions of that agreement. This will follow the precedent granted to CDM in the Kyoto Protocol.
2. Fungibility – MRV emission reduction units earned under an agreed reference emissions level should guarantee market access, be fully fungible with AAUs and transacted at a price equal to that applied to credits earned by Annex-1 parties.
3. Ex-Ante crediting – a party could issue allowance credits ‘ex-ante’ agreed an agreed ‘reference level’ subject to the end of term responsibility, considering that a REDD mechanism constitutes a sectoral approach for policy approaches and positive incentives.

The REDD mechanism must be complementary and additional to CDM. It cannot compete with, and lower market prices for, actions taken under CDM.

As REDD will introduce a new supply of carbon credits, Annex-1 parties should agree to deeper emission reductions, as would otherwise have been agreed. The deeper targets that are truly additional, must precede the introduction of this mechanism.

Methodology issues

1. Forest degradation – the methodology developed by IPCC and approved by the parties (IPCC LULUCF good practice guidance) should to used.
2. Enhancement of forest carbon stocks and sustainable management of forest carbon – there is a need to strengthen and expand forest carbon stocks to have a meaningful impact on climate objectives so as to be considered as a mitigation activity. However, the standards imposed by the international community for sustainable forest management (SFM) are very high and require a significant increase in forest resources.
3. The role of forest conservation – in order to recognise the efforts of countries that have maintained or reached stable level of forest cover the following approaches should be considered:

1. Low rates of deforestation – where parties can intentionally increase their reference emissions level in order to generate the revenues necessary to continue maintaining carbon stocks, while overcoming risks of alternative opportunity costs;
2. Permanent forest conservation areas – seek to increase or consolidate permanent forest conservation area by identifying conservation areas. In such cases, non-market instruments, such as auctioning AAUs with parties listed in Annex-1 could be used to support efforts to increase carbon reservoirs.

1. A fund that is paid to developing countries that reduce their rate of deforestation and degradation and
2. Use a KP-type trading regime to allow avoided deforestation to create tradable ‘emission units’.

While a market based approach would flood the carbon market and reduce focus on fossil fuel abatement. But without ‘avoided deforestation credits’ available to Annex-1 countries, they would be forced into far more costly abatement options to meet their obligations.

Need development of specific methodologies to assess emissions and to create baselines.

The mechanism must provide adequate financial resources to compensate countries for the economic benefits they lose by reducing deforestation – loss of revenue in agriculture, forestry or mining. The underlying economics of deforestation are important to assess.

This financial incentive is pegged at US$ 10-40 billion per year according to different estimates. The opportunity cost (compensation for the lost opportunity to use the land for other purposes) is pegged by different studies from US$ 2.5/tonne of CO₂ to US$ 11.26/tonne of CO₂.

A paper presented to the World Bank’s workshop on the costs of REDD (May 27, 2008) suggests that abatement above 60% of the business as usual emissions has a relatively high marginal cost per tonne – above US$20/tonne.

The Kyoto Protocol or UFCCC do not regulate the 20% emissions from deforestation and forest degradation in developing countries. Meeting the 2 degree C target will not be possible without significant reductions in emissions from this sector.

There is need for early action under REDD in order for global emissions to peak at 2015. Reduced emissions from deforestation are additional to, and not substitutes for, deep cuts in developed country emissions.

The REDD mechanism in a post 2012 global climate change regime will need the following issues addressed:

1. The overall architecture will need reliable monitoring emission reduction and mobilising financial resources;
2. A combination of markets and fund-based mechanism will be needed. A market-based mechanism would mobilise resources from the private sector, but could be less effective for countries with low rate of deforestation.
3. If a fund based mechanism, without an offset mechanism, then it will need an effective and sustainable system for mobilising financial resources. A system for auctioning of allowances as proposed by Norway (see?) could be a source of revenue.
4. The focus should be on deforestation and forest degradation. However, in many countries the deforestation rates are historically low but likely to increase in the future (countries in the Congo basin), it is important to establish such a regime.
5. The verification mechanism for REDD should be similar to the expert review system that Annex 1 have established under Article 8 of the Kyoto Protocol and in decision 19/CP.8.
6. A strong commitment to sustainable forest management is necessary to ensure protection of biodiversity. Even though a REDD mechanism should be adopted at a national level, indigenous people who live in or depend on forests should be involved in the construction of the mechanism to compensate them for the forest protection they promote .
7. The REDD readiness programmes – UN-REDD, Forest carbon partnership facility and forest investment programme of the World Bank and the African Development Bank’s Congo Basin Forest Fund, will not be substitutes for REDD mechanism under UNFCCC, but contributions to stimulate early action.

1. Deforestation is change from forest land to another land use and forest degradation is persistent decline in carbon stocks without land use change;
2. The methodology for emissions/removals shall be estimated using the Good Practice Guidance of IPCC.
3. Changes in emissions and removals shall be assessed on a conservative basis relative to a reference emissions level2.
4. The period for assessing changes in emissions and removals from deforestation should be x years starting in year y. Accounting should reflect responsibility over successive and contiguous periods.
5. The incentive should be in the form of payment proportional to the amount by which the emissions are below the reference emissions level for a year within the assessment period.
6. If the magnitude of removals is above the reference period removal, the difference is to be carried forward. The reference emission level for participating countries should be agreed upon before the end of an assessment period and used for subsequent assessment period, on the same basis.
7. Participating countries may choose to accumulate a buffer to be used to reduce or avoid the need for carryover.

1. Will the financing for REDD be market-mechanism based or fund-based? If fund-based, how will it be financed and sourced, particularly given past experience in forest-related cooperation?
2. If it is market-mechanism based, how will we ensure that the supply of new carbon credits will not simply depress the price of carbon and make the transition to clean energy even more untenable?
3. How will the price of forests be valued? It is important to note that forests are not just carbon stores for most of the developing world, but provide multiple uses – from meeting subsistence needs to biodiversity values. How will the price take these functions into account?
4. If the price does not adequately reflect the opportunity cost and other costs particularly borne by local communities, will it not further impoverish people and devalue resources? Does this become a ‘takeover’ of local resources? 
5. Will the complicated and costly assessments and verifications needed to estimate this sector’s contribution, not become another CDM-type consultancy driven creative-carbon exercise?
6. If it is a mitigation option for developing countries, then should it be considered for offset – to meet Annex-1 country commitments – at all? Why should it not be part of the developing countries mitigation action, supported and enabled by finance? Once this is agreed upon, then the only issue to determine is how it can be measured, reported and verified.