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 afforestationsuch
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
122
Secretariat of the Convention on Biological Diversity, Draft
Findings of the Ad Hoc Technical Expert Group on Biodiversity
and Climate Change, November 2008 Back
123
Q 78 Back
124
The Eliasch Review, Climate change: Financing Global Forests,
October 2008 Back
125
Ibid, p 191 Back
126
Q 85 Back
127
Q 207 Back
128
Q 207 Back