House of Commons - Reducing greenhouse gas emissions from deforestation: No hope without forests

Reducing greenhouse gas emissions from deforestation: No hope without forests - Environmental Audit Committee Contents

5 Paying for forests

Where should funds come from?

71. A system to pay compensation to developing countries for not converting their forests into economic wealth was one of the three key policy levers identified in the Eliasch Review. Payments for reducing deforestation could be an important source of income for rainforest nations and could help to create the political motivation to act on deforestation, and help to change the economic incentives for deforestation. The international climate change negotiations have focused on this issue more than any other.

72. Witnesses suggested a number of ways to fund a forest payment mechanism. Some suggested that carbon markets should be used, while others believed that developed country governments should pay into a fund. Other funding sources could include:

the partial auctioning of international emission credits normally assigned for free to each country; $150 billion could be raised each year if 40 per cent of credits were auctioned at $30-40 per tonne

a levy placed on emission trading transactions. A $3 per tonne levy on the EU ETS until 2012 would raise $570 million. A form of this already exists; a 2 per cent levy is placed on CDM credits for the Adaptation Fund managed by the UN. This will generate $160-950 million by 2012

a levy on international activities that cause climate damage; 5 euros per ticket on international flights could generate 10 billion euros per year

73. The Carbon Market Investors Association and SFM Ltd argued that only carbon markets could deliver the scale of funds required to halt deforestation. They said actions to protect forests should earn carbon credits that could be traded in emissions trading schemes alongside credits earned from industrial sources. The Eliasch Review also recommended a market-based approach.[110] It found that forest carbon credits should be permitted in the EU ETS, albeit with limits is placed on their use.[111] WWF supported a market-based approach, but only if developed countries accepted reduction targets greater than 25-40%.[112] Barry Gardiner MP, Co-Chairman of the GLOBE Dialogue on Land Use Change & Ecosystems, thought that a hybrid approach using both private and public funds would be the way forward. He criticised the UNFCCC negotiations for only focusing on markets as solutions.[113]

74. The European Commission has rejected the use of forest credits in the EU Emissions Trading Scheme (EU ETS) before 2020 and would then permit their use only if it could be demonstrated to be effective. The Commission was concerned that cheap forest credits would destabilize emissions trading schemes by lowering the carbon price. The Commission suggested that Member States could use credits based on reductions in emissions due to degradation and deforestation to meet their non-traded sector commitments, which would have the benefit of trialing the use of these credits. It proposed that a Global Forest Carbon Mechanism (GFCM) should be established to fund governance changes in developing countries, to establish policies for addressing deforestation and to reward reductions in emission due to degradation or deforestation. The Commission indicated that this could be funded using 5 per cent of auction revenues from the EU ETS, providing some 2 billion euros per annum by 2020. More recently, the European Parliament's Environment Committee proposed that 12.5 per cent of auction revenues for Phase III of the EU ETS be spent on forest protection.

75. Other witnesses were concerned that a market-based approach might undermine a move to a low-carbon economy if cheap credits enabled developed countries to defer action on reducing emissions.[114] If buying forest credits was cheaper than paying to reduce their own emissions then industry might stop trying to reduce its emissions and that could undermine efforts to reduce emissions globally. It might also have a detrimental impact on global efforts to reduce emissions if funding for low-carbon development in developing countries was diverted to pay for forest protection.[115]

76. We asked Ministers which approach they supported. Michael Foster MP, the DFID Minister, argued that public funds would not be enough on their own, and that there was "a general view that it has got to be a combination of private and public money and the market is one way in which we can lever in the private funding that is necessary".[116] Joan Ruddock MP, the DECC Minister, stressed the Government's view that public funds could not "possibly provide the level of sustainable funding that would be required. The estimates are between £10 billion and £20 billion a year to halve deforestation by 2030. We think those sums are just beyond the collecting pot and we are going to have to find a market mechanism to do that".[117]

77. We agree with the European Commission that forest credits should not be included in the EU ETS at this stage. This should only happen, if at all, after the impact of such credits has been tested. We also agree with the Government that public finance will not deliver the scale of funds required and that additional funding sources are necessary. Whether international discussions lead to a market-based system of payments or a system funded by another source of revenue there need to be significant improvements in governance and reforms to legal systems and land-ownership if the payments are going to work.

78. A system to pay for sustaining forests is vital. But such a system could be counter-productive if it allowed developed countries to continue emitting unsustainable levels of greenhouse gases or if it diverted funds away from projects that enable developing countries 'leap-frog' carbon intensive development.

79. We do not believe that a forest payment system based on carbon markets will avoid these problems at present. Forest credits should not be allowed in the EU Emissions Trading Scheme at this stage and should be considered only in the future after the impact of such credits has been tested.

80. The Government must suggest ways to pay for sustaining forests. These should include non-market funding sources, such as the hypothecation of a percentage of EU Emissions Trading Scheme revenues and how forest credits could help to meet non-traded sector emission targets.

81. In the search for a suitable mechanism to pay for forests, the Government must also examine the supply- and demand-side issues we have identified. A forest payment mechanism by itself will not stimulate the necessary governance reforms in all countries. The Government must consider how to link payments for forests to reform of governance in rainforest nations. It must also act bilaterally to build capacity and the necessary institutions in rainforest nations. Rainforest nations with severe governance problems will find it extremely difficult to reduce emissions and they could be rewarded for making verifiable efforts to develop independent judicial systems and reform legal, fiscal and land tenure systems that will help halt deforestation in the future.

Wider impacts of a payment mechanism

82. A payment mechanism could herald a new age of forest protection and enhancement if countries are motivated to halt the deforestation of primary and natural forests, as well as establish new forests in a way that enhances biodiversity, mends ecosystems and delivers sustainable forest products. But a payment mechanism for forests will not protect rainforests unless safeguards are in place to prevent primary forests from being converted to plantations. Controls are needed to stop global biodiversity loss being exacerbated by a forest payment mechanism.

83. A forest payment mechanism could lead to natural forests being replaced by tree plantations if payments were made solely on the basis of forest area, or net deforestation rates. Palm oil plantations fit the UNFCCC definition of forests (which only specifies area, tree heights and density) and they could be eligible for payments.[118] Forests could be replaced by plantations with no loss of payments but biodiversity would suffer, in addition to the loss of a carbon sink and the release of greenhouse gases. Even if areas of savannah or heathland are converted to forest plantations there will be biodiversity loss and other environmental damage.[119]

84. Global Witness thought that such impacts could be avoided if payments were graded with credits derived from forests of higher biodiversity value would be worth more, and forests "slated for conversion or under concession agreements with industrial logging companies" receiving nothing.[120] Greenpeace said that "if carbon finance mechanisms are to be effective in reducing emissions from deforestation, they must not support the replacement of natural forests with plantations and must not subsidize the expansion of industrial logging, agri-business and other destructive practices into intact forest areas".[121]

85. The challenge is to ensure that controls do not prevent reforestation, restoration and afforestation—such activities should still receive significant support as they are also critical in mitigating climate change. They can reduce pressure on natural forests and, if implemented sensitively, can lead to habitat recreation and biodiversity improvements.[122] Eric Bettelheim, said that failure to create new forests would prevent deforestation targets from being reached:

It takes at least a decade from the initiation of a plantation to its first harvest. Even if we started today to plant new forest, that is sustainable forests, in the form of plantations of one kind or another, with fast-growing species, in ideal conditions, we would not meet [targets to halve deforestation by 2020]. So the reality is that, if we are to achieve REDD in any meaningful sense, we have to embark simultaneously on a massive shift in an underlying forest product industry. The acreage and the yields from that acreage will have to increase substantially over the coming decades if we are to, in fact, reduce the harvest from the native forest.[123]

86. The Eliasch Review said that experience from the CDM "suggests that there is little appetite for establishing mandatory sustainability standards within UNFCCC mechanisms" and that "primacy of national sovereignty in decision-making about land use means that an international agreement on climate change will not be prescriptive in how nations choose to tackle deforestation".[124] The Review suggested that credits should be made on the carbon content of forests, which would normally be greater in old forests. It also said that credits generated by programmes that deliver wider environmental aims, such as biodiversity protection, "could be given preferential treatment in the international compliance or other markets".[125] But regulation must not be so complicated that it leads to transaction costs so high that countries are discouraged from participating in any scheme.[126]

87. Huw Irranca-Davies MP, the Minister of State at Defra, recognised these concerns. He indicated that the Government would seek to ensure that any payment mechanism would work on a basis that puts "the emphasis on primary forests rather than clearance of forest and then replanting".[127] The Minister seemed optimistic that sustainability would be included in the Copenhagen agreement. He pointed to work that Defra Chief Scientist, Dr Bob Watson, was doing to describe practical solutions to the potential biodiversity impacts of a payment mechanism.[128]

88. We recommend that payments to forest nations to reward reforestation, afforestation or avoided deforestation are designed to protect primary and natural forests. Biodiversity safeguards should be built into any agreement reached at Copenhagen in December. Restoration, reforestation and afforestation will also be significant contributors to halting dangerous climate change and should receive significant support. Balancing these objectives without making a scheme that is so complex that participation is discouraged is the key dilemma in drawing up any international agreement.

110 The Eliasch Review, Climate change: Financing Global Forests, October 2008, p 75 Back

111 Ibid, p 229 Back

112 Ev 154 Back

113 Q 132 Back

114 Ev 97 Back

115 The Eliasch Review, Climate change: Financing Global Forests, October 2008 Back

116 Q 191 Back

117 Q 192 Back

118 "What is a forest?", REDD-Monitor, November 2008, www.redd-monitor.org Back

119 Secretariat of the Convention on Biological Diversity, Draft Findings of the Ad Hoc Technical Expert Group on Biodiversity and Climate Change, November 2008 Back

120 Ev 114 Back

121 Ev 9 Back