Memorandum submitted by Ben Caldecott,
Head of the Environment & Energy Unit, Policy Exchange, Dominick
Spracklen, Institute for Climate and Atmospheric Science, University
of Leeds, Renton Righelato, World Land Trust
SUMMARY
— Stopping climate change in a deforesting
world is virtually impossible.
— Avoided deforestation and peatland
destruction can be dramatically cheaper than the other carbon
abatement options available, with costs ranging from US$0.1-US$30
per tonne of CO2 equivalent.
— Despite their significance in terms
of GHG emission reductions, avoided deforestation and peatland
loss are not rewarded under the Clean Development Mechanism (CDM)
created under the 1997 Kyoto Protocol. Afforestation and reforestation
projects are covered, but have been discouraged by the complex
rules and high costs involved under the CDM and to date account
for only one of a thousand CDM projects.
— 36-45% of credits in the voluntary
market are generated through forest management and this market
is an important financing mechanism for avoided deforestation.
— The backbone of anti-deforestation
financing should come from the carbon market but an international
fund should also be set up specifically to correct market failures.
— There is a legitimate concern that
REDD credits could flood the market and destabilise the carbon
price in existing markets. To prevent this, stricter overall emission
reduction targets are required to ensure REDD credits are additional
to fossil fuel reductions.
— Adequately protecting biodiversity
will require finance streams in addition to those that are available
from the carbon market. To achieve this forestry carbon finance
mechanisms can be coupled with Payments for Environmental Services
(PES).
— Mechanisms must be in place to ensure
that forest communities and indigenous groups are consulted and
compensated.
— Accurately quantifying the GHG emission
reductions from avoided deforestation is vital for a proposed
market in REDD credits to function. Over the past ten years there
have been substantial technological advances in remote sensing
techniques which now allow for an accurate quantitative analysis
of deforestation at the national level.
MAIN TEXT
1. Every year 12 million hectares of tropical
forest are cleared by human activity. This accounts for approximately
20% of total anthropogenic greenhouse gas (GHG) emissions. If
we cannot stop deforestation, it will "use up" one third
of the GHG emissions that humanity can emit during the 21st century,
while still avoiding dangerous anthropogenic climate change (ie
CO2 equivalent kept below 450 parts per million). Stopping climate
change in a deforesting world is therefore virtually impossible.
2. By placing a value on the carbon stored
in forests, deforestation can be stopped. In contrast to most
other climate change mitigation options, deforestation can be
slowed with little new technological innovation and comparatively
small amounts of financial support. Avoided deforestation and
peatland destruction can be dramatically cheaper than the other
carbon abatement options available, with costs ranging from US$0.1-US$30
per tonne of CO2 equivalent (see Figure 1 in Caldecott et al,
2008). In contrast, climate change mitigation through biofuel
subsidies can be expensive, with the 5% biofuel target under the
Renewable Transport Fuel Obligation (RTFO) costing from US$133-US$292
per tonne of CO2 equivalent. Biofuel targets and subsidies can
also create incentive mechanisms that encourage the destruction
of carbon and species rich ecosystems (Righelato and Spracklen,
2007).
3. Efforts to conserve tropical forests
have been aptly described as a "long defeat". Isolated
fragments have been set aside as protected areas, but these are
vulnerable to regional desiccation and climate change and elsewhere
destruction proceeds unabated. Despite their significance in terms
of GHG emission reductions, avoided deforestation and peatland
loss are not rewarded under the Clean Development Mechanism (CDM)
created under the 1997 Kyoto Protocol. Afforestation and reforestation
projects are covered, but have been discouraged by the complex
rules and high costs involved under the CDM and to date account
for only one of a thousand CDM projects (UNFCCC, 2008).
4. In June 2001, the Parties to the Kyoto
Protocol decided to exclude avoided deforestation—meaning
a rate of deforestation below the "business as usual"
baseline—from the first Commitment Period (2008-12). There
were several reasons for this. First, there was concern that the
so called "flexible mechanisms" of the Kyoto Protocol
(ie CDM and Joint Implementation) would allow developed countries
to reach their targets without stringent controls on domestic
fossil fuel use. Avoided deforestation was expected to yield large
reductions in emissions at relatively low cost, potentially providing
all the reductions required under Kyoto with no need for countries
to control domestic emissions. There was also concern that avoided
deforestation would distract attention from what was seen as the
real business of reducing emissions from fossil fuel use. Second,
there was strong opposition from some developing nations worried
about the potential loss of sovereignty and constraints on their
future development. For example, Brazil was in favour of carbon
credits being earned for reforestation but not avoided deforestation.
The sub-text was that Amazonian deforestation was out of government
control so targets to reduce deforestation would be difficult
or impossible to meet. Third, methodological and technical issues
made accurate accounting for emission reductions from forest lands
very difficult. Many developing countries had little or no capacity
to monitor deforestation or ensure that forests were protected
permanently.
5. An underlying constraint was the notion—already
embedded in the thinking of the Global Environment Facility (GEF),
which finances only the "incremental costs" of actions
to yield global rather than national benefits—that avoided
deforestation was already in the interests of forested nations
(because of national benefits received from ecosystem services).
Simply transferring wealth to countries to pay for things that
those countries should be doing anyway was unattractive to many
potential donor governments.
6. The failure of Kyoto mechanisms to stimulate
a market in carbon credits from protection of forests and peatlands
has not prevented a voluntary carbon market from making significant
progress, in financial terms and in driving innovation and the
development of best practices. Thus 36-45% of credits in the voluntary
market are generated through forest management and this market
is an important financing mechanism for avoided deforestation
(Harris, 2006). Verified Emission Reduction (VER) prices from
forestry activities (US$0.5-45/tCO2e) compare favourably with
the costs of projects from the energy sector (US$0.5-20/tCO2e).
7. Important early actors in the voluntary
carbon market were non-profit NGOs, which introduced many forest
protection and restoration projects. Most such projects are aimed
at conserving biodiversity, but they also mitigate climate change
by preventing deforestation and encouraging reforestation. These
are supported by private and corporate donations, and from the
sale of voluntary carbon offsets. Examples include: projects financed
by the Royal Society for the Protection of Birds in Indonesia
(100,000 hectares) and Sierra Leone (75,000 hectares); projects
supported by the World Land Trust in South America and Asia (around
150,000 hectares), plus a joint initiative with the government
of Paraguay to protect a million hectares of dry Chaco forest;
a million-hectare forest restoration project supported by The
Nature Conservancy in Brazil; and a project involving Fauna and
Flora International, local government and private companies which
aims to reduce deforestation by 85% in 750,000 hectares of Indonesia
to avoid the emission of 3.3 million tonnes of CO2 annually. Numerous
private trusts have also bought land for conservation.
8. The voluntary market is also driving
interest and investment in ecosystem services. In March 2008,
Canopy Capital, a private equity firm, announced a deal with Guyana's
Iwokrama International Centre for Rainforest Conservation and
Development, to fund conservation and research in Iwokrama's 370,000
hectares of forest in exchange for the right to market the forest's
ecosystem services. In the absence of detailed figures for all
such activities worldwide, it is estimated that charities and
their for-profit allies have protected at least 100 million hectares
and are responsible for restoring up to a million hectares per
year.
9. The IPCC estimates that deforestation
could be cut by 50% with a carbon price of US$20/tCO2 equivalent.
This would reduce emissions by about 2 billion tonnes of CO2 equivalent
per year (Gullison et al., 2007). Financing a significant reduction
in deforestation is estimated to require at least US$10-15 billion
annually and there is some controversy over the best funding mechanism
to raise this finance. The key difference between a carbon market
with Reduced Emissions from Deforestation and Degradation (REDD)
credits and an international non-market fund is that the former
aims to harness the power of the carbon market to oppose deforestation,
whereas the other relies on donations to a fund from which grants
will go to countries that make a convincing show of reducing deforestation.
Market failures cannot be ruled out and may undermine the impact
of the REDD system, while the other scheme is vulnerable to parsimony
(ie will donors be willing to give enough?), moral hazard (ie
will developing countries misrepresent their levels of success?)
and inefficiency (ie can international technobureaucratic mechanisms
spend money wisely and well enough to achieve good results?).
Given the nature of the risk that is being addressed, getting
the answer right is not unimportant.
10. The poor record of intergovernmental
non-market funding mechanisms such as the GEF is hardly reassuring,
and donor governments may not see another such fund as the best
use of tax-payers' money. On the other hand, the carbon market
can mobilise abundant financing at low political cost, with more
than US$30 billion traded in the carbon market in 2006 alone under
the Kyoto Protocol and the EU ETS (Hasselknippe H & Rine K,
2007). One disadvantage of a market-based system is that it may
allow some countries, with efficient institutions and lower marginal
costs, to dominate the REDD market. Another is that market failures
under REDD may well prove to be just as significant as they are
in other market-based systems. An obvious conclusion is that the
backbone of anti-deforestation financing should come from the
carbon market but an international fund should also be set up
specifically to correct market failures. Such a fund should be
designed to synergise with other governmental and non-governmental
technical assistance and financing flows in areas that also oppose
deforestation.
11. Under a market based system, forestry
carbon credits could either be fully fungible with existing carbon
markets, that is freely tradable with fossil fuel emission reductions,
or could operate through a separate system. Fungible avoided deforestation
or REDD credits could limit the incentive to reduce emissions
from fossil fuels. There is a legitimate concern that REDD credits
could flood the market and destabilise the carbon price in existing
markets. To prevent this, stricter overall emission reduction
targets are required to ensure REDD credits are additional to
fossil fuel reductions.
12. Correctly designed, forest and peatland
carbon credits and markets could be powerful tools to protect
important ecosystem services and biodiversity, in addition to
reducing greenhouse gas emissions. In particular, avoided deforestation
mechanisms offer an unparalleled opportunity to support large
areas of tropical forest. However, adequately protecting biodiversity
will still require finance streams in addition to those that are
available from the carbon market. To achieve this forestry carbon
finance mechanisms can be coupled with Payments for Environmental
Services (PES). PES is a mechanism where the providers of ecosystem
services are financially compensated by those that benefit from
the service. Such schemes already exist, for example in Costa
Rica.
13. Forest carbon markets will provide a
significant financial resource to developing countries with forest
resources. There are potential problems, particularly where there
is danger of corruption and mismanagement of funds. In addition,
where there is no clear land ownership and where forest communities
have limited representation there is a risk of local people becoming
sidelined. Mechanisms must be in place to ensure that forest communities
and indigenous groups are consulted and compensated.
14. Accurately quantifying the GHG emission
reductions from avoided deforestation is vital for a proposed
market in REDD credits to function. Over the past ten years there
have been substantial technological advances in remote sensing
techniques which now allow for an accurate quantitative analysis
of deforestation at the national level. For example, in Brazil
(INPE, 2005) and India (FSI, 2004) remote sensing of forest cover
is operational on a routine basis. There is a wide range of satellite
sensors that are now available and operate at a variety of resolutions
and coverage (Achrad et al., 2007). Coarse resolution (300m—1
km) imagery can be used to survey global forest cover trends ensuring
consistent reporting across national borders and allow monitoring
for potential leakage between forested regions. Higher resolution
images (10-50 m) can be used for detailed monitoring in regions
with active deforestation. A recent study using a probability-based
sampling approach employing low and high resolution satellite
data, quantified the error in global deforestation rate at less
than 6% (Hansen et al., 2008). In addition to monitoring forest
area, calculating GHG gas emissions also requires the change in
carbon stocks to be known. Forest inventory measurements can be
extrapolated using regression-based models to give forest biomass
carbon maps (Gibbs et al, 2007). Above-ground carbon stocks
can also be estimated from aerial imagery.
REFERENCES
Achrad, et al. 2007. Pan-tropical monitoring
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Caldecott, B L (editor, 2008) The Root of the
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October 2008
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