FINANCING REDD – A CRITICAL EVALUATION OF THE REDD MECHANISM Patricia Blazey and Hope Ashiabor Patricia Blazey and Hope Ashiabor 1

REDD (Reducing Emissions from Deforestation and Degradation) and REDD+ REDD - UN initiative compensating countries for reducing emissions from deforestation REDD+ promotes forest conservation enhancement of forest carbon stocks and sustainable forest management REDD - UN initiative compensating countries for reducing emissions from deforestation REDD+ promotes forest conservation enhancement of forest carbon stocks and sustainable forest management 2

Location of world’s rainforests 3

Facts and figures on the potential of rainforests to store carbon Forest coverage is 31 per cent of the world’s total land area = 4 billion ha 7 per cent is rainforest Rainforests store about 125 per cent of the carbon found in the atmosphere in vegetation and soil Forests sequester about 652,371 million tonnes of carbon annually 20 per cent is sequestered in rainforests Value of stored carbon – if carbon is selling for US $20 per tonne - the Amazon, Central African Republic, Chile, Costa Rica, the Democratic Republic of Congo, the Dominican Republic, Guatemala, Nicaragua and Papua New Guinea have about US$1.1 trillion worth of carbon sequestered in their rainforests. Forest coverage is 31 per cent of the world’s total land area = 4 billion ha 7 per cent is rainforest Rainforests store about 125 per cent of the carbon found in the atmosphere in vegetation and soil Forests sequester about 652,371 million tonnes of carbon annually 20 per cent is sequestered in rainforests Value of stored carbon – if carbon is selling for US $20 per tonne - the Amazon, Central African Republic, Chile, Costa Rica, the Democratic Republic of Congo, the Dominican Republic, Guatemala, Nicaragua and Papua New Guinea have about US$1.1 trillion worth of carbon sequestered in their rainforests. 4 FAO ‘Global Forest Resources Report’ October 2010; 31-deforestation.html

Per capita income under avoided deforestation v 5

How does REDD work? Compensation to countries who are willing and able to reduce emissions i.e. ‘Compensation for opportunity lost’ Involves local communities and indigenous groups Requires a reference period based on historical or historical adjusted baseline if no records Or a projected baseline - how deforestation might change in the future Compensation to countries who are willing and able to reduce emissions i.e. ‘Compensation for opportunity lost’ Involves local communities and indigenous groups Requires a reference period based on historical or historical adjusted baseline if no records Or a projected baseline - how deforestation might change in the future 6

Capacity support Assessing methodologies Guidance on approaches Remote sensing Implementation of a national forest monitoring and reporting system Development of a verification system Assessing methodologies Guidance on approaches Remote sensing Implementation of a national forest monitoring and reporting system Development of a verification system 7

3 Phases Phase 1 - national REDD strategy supported by voluntary contributions immediately available through the World Bank’s Forest Carbon Partnerships Facility based on demonstrated national commitments to a REDD strategy development Phase 2 - implementation of polices and measures proposed in national REDD strategies whereby funding from a global facility supported by an internationally binding finance instrument Phase 3 - payment for performance based on quantified forest emissions and removals against agreed reference levels. Phase 1 - national REDD strategy supported by voluntary contributions immediately available through the World Bank’s Forest Carbon Partnerships Facility based on demonstrated national commitments to a REDD strategy development Phase 2 - implementation of polices and measures proposed in national REDD strategies whereby funding from a global facility supported by an internationally binding finance instrument Phase 3 - payment for performance based on quantified forest emissions and removals against agreed reference levels. 8

REDD - two separate mechanisms have been set up i) The Readiness Mechanism assists developing countries in estimating their national forest carbon content and sources of forest emissions and help define their reference scenario based on past emission rates. ii) The Carbon Finance Mechanism evaluates pilot incentive programs for REDD based on compensated reduction. i) The Readiness Mechanism assists developing countries in estimating their national forest carbon content and sources of forest emissions and help define their reference scenario based on past emission rates. ii) The Carbon Finance Mechanism evaluates pilot incentive programs for REDD based on compensated reduction. 9

CONCERNS Risky business for donors What social and welfare policies will be implemented to address the situations of forest communities? Will these local communities be rewarded or punished for conserving their forests? Will governments be able to restructure their economies in a manner which is both equitable and sustainable? Are there ways to guarantee that government and private sector interests will not prevail over the least advantaged communities? Will effective monitoring, measuring and verifying reductions in carbon emission occur Risky business for donors What social and welfare policies will be implemented to address the situations of forest communities? Will these local communities be rewarded or punished for conserving their forests? Will governments be able to restructure their economies in a manner which is both equitable and sustainable? Are there ways to guarantee that government and private sector interests will not prevail over the least advantaged communities? Will effective monitoring, measuring and verifying reductions in carbon emission occur 10

Financing REDD - Voluntary Public Finance vs Market-based Mechanism Voluntary funding will not be able to generate funding on the scale required to reduce deforestation Alternative approach is to stimulate private sector funding via a direct carbon market Voluntary funding will not be able to generate funding on the scale required to reduce deforestation Alternative approach is to stimulate private sector funding via a direct carbon market 11

Market-linked financing proposals Certified Emission Reduction Certificates linked with existing carbon market Dual market where REDD credits linked to CER's but do not take their place – favoured as worry that carbon market might crash due to flooding with forest carbon credits New international trading unit under existing Kyoto system. Annex-1 countries carry out a portion of their reduction targets by purchasing this unit, named the Tropical Deforestation Emission Reduction Unit (TDERU) New market for trading REDD credits post-2012, separate from the CDM under Kyoto. The idea is that Annex-1 countries will commit to meet a share of their reduction targets by buying credits in the new market. Certified Emission Reduction Certificates linked with existing carbon market Dual market where REDD credits linked to CER's but do not take their place – favoured as worry that carbon market might crash due to flooding with forest carbon credits New international trading unit under existing Kyoto system. Annex-1 countries carry out a portion of their reduction targets by purchasing this unit, named the Tropical Deforestation Emission Reduction Unit (TDERU) New market for trading REDD credits post-2012, separate from the CDM under Kyoto. The idea is that Annex-1 countries will commit to meet a share of their reduction targets by buying credits in the new market. 12

Current voluntary donor amounts Voluntary donors - pledged amount – Australia US$120 million – Denmark US$10 million 2010 only – Finland US$21 million – France US$330 million – Germany At least US$438 million – Japan US$500 million – Norway At least US$ 1,000 million – Slovenia US$2.5 million – Spain US$27 million – Sweden US$ 63 million – United Kingdom US$ 450 million – United States US$ 1,000 million TOTAL US$ 4 billion Voluntary donors - pledged amount – Australia US$120 million – Denmark US$10 million 2010 only – Finland US$21 million – France US$330 million – Germany At least US$438 million – Japan US$500 million – Norway At least US$ 1,000 million – Slovenia US$2.5 million – Spain US$27 million – Sweden US$ 63 million – United Kingdom US$ 450 million – United States US$ 1,000 million TOTAL US$ 4 billion 13

Conclusion – urgent need to reduce tropical deforestation COP15 recognised ‘the crucial role of reducing emissions from deforestation and forest degradation and the need to enhance removals of greenhouse gas emissions - by forests and agree on the need to provide positive incentives to such actions through the immediate establishment of a mechanism including REDD- plus, to enable the mobilization of financial resources from developed countries.’ 14