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Memorandum submitted by Thomas Legge, Alison Hoare and Jade Saunders, Energy, Environment and Development Programme, Chatham House (FOR04)
Summary · Avoided deforestation and forest degradation offers a cost-effective means for reducing greenhouse gas emissions. · A new mechanism,
Reduced Emissions from Deforestation and Forest Degradation (REDD), is likely
to form part of the negotiations on a new climate deal in · Countries will receive financial rewards, most likely ex-post, for the carbon emissions avoided through reducing deforestation. · Major capacity-building will be required to allow countries to participate in the scheme and to address the drivers of deforestation. · Building this capacity in forty countries over five years is estimated to cost $3.7 billion. · The mechanism should be carefully
designed to ensure that emissions savings do not occur at the expense of local
communities or other benefits of forests such as biological diversity. 1 Introduction 1. Deforestation is estimated to account for about 20 percent of global greenhouse gas emissions, rivalling the level of emissions from transport or industry. The tragedy is that these forests could be worth much more standing than felled; just the value of the avoided emissions, if they could be traded on an international market like the European Union's Emissions Trading Scheme, could far exceed the value that farmers and loggers gain by clearing the forests for farmland or timber - and this is to say nothing of the inestimable value of the world's great forests as repositories of rare plants and animals and their cultural patrimony. The UK Government's 2006 Stern Review of the Economics of Climate Change estimated that compensating eight major rainforest countries - accounting for 70 percent of the world's deforestation - for the economic losses associated with not cutting down their forests would cost about US$6.5 billion a year.[1] This is a relatively small figure when measured against the $24 billion worth of carbon credits that were traded in the European Union's still new trading scheme.[2] 2. The Kyoto Protocol allows funding -
through the Clean Development Mechanism and Joint Implementation - for
afforestation and reforestation but it does not reward countries for avoided
deforestation or avoided forest degradation, which is often a precursor to
deforestation and is a source of carbon emissions in its own right. Two reasons
for this exclusion are the potential problem of leakage (the risk that a
project to stop deforestation in one region would simply displace deforestation
elsewhere), as well as concerns about the permanence of such efforts. The
post-Kyoto deal is likely to allow credit for avoided deforestation and forest
degradation, however, following a proposal by 3. This paper considers ways to ensure
that countries have sufficient capacity to participate in REDD. In part this is
a technical question of monitoring and verification and it will require the
development of baselines, reference scenarios and accurate ways to measure the
stock of carbon in forests and changes in this stock. But in many countries
with large forest resources, governments have limited control over their forests,
due to poor governance; leading to the uncontrolled clearing of land, unclear
land tenure and illegal logging, among other problems. The success of REDD will
demand the creation of sufficient capacity in rainforest nations to
participate. We estimate that the cost of building sufficient capacity in forty
forest nations will be up to US$3.7 billion over five years.[3]
Importantly, this money will not actually pay for any reduction in carbon
emissions from reduced deforestation or forest degradation; rather, it would
only be sufficient to build an enabling environment to allow REDD projects to
be implemented. For this reason this money will probably have to be raised by
governments rather than the private sector. 4. Tackling deforestation and forest degradation could provide a cost-effective means of reducing carbon emissions, with costs likely to be between $2 and $10 per tonne of carbon dioxide equivalent (tCO2e) avoided, including administrative or transaction costs.[4] The shape of the REDD mechanism remains to be decided in the UN negotiations but three possible design options are as follows: · Under a national-baseline approach, payments would be made to national governments for reductions in national rates of deforestation calculated according to an internationally agreed baseline set at the national level. · Under a project-based approach, payments would be made to individual projects based on the amount of deforestation that was avoided in a specific project area. A project-based approach is vulnerable to leakage, but it could allow the injection of capital to the forest sector in lieu of capacity at the national level to manage REDD projects. · Under a hybrid approach there are various possibilities, including a so-called nested approach which would allow individual projects to generate credits but require government simultaneously to reduce national deforestation against a national baseline. 5. Another question relates to the source of the money that will finance REDD. Payments will likely be made ex-post, i.e. retrospectively, for avoided deforestation or forest degradation. For this reason, the financial rewards for the carbon savings cannot be directly used to fund the activities that reduce deforestation. Instead, funds for such activities must be raised beforehand. This money could come from the private sector or from governments, for instance through an international fund, or a combination. 6. No matter what form REDD takes, there will still be a need for investment to build the necessary capacity in countries to allow them to participate in REDD in the first place. This paper focuses on the costs of building that capacity. 3 National capacity to avoid deforestation 7. Deforestation and forest degradation are caused by a complex combination of factors including various market drivers, policy and governance failures that combine to make it more attractive to fell trees than to keep them.[5] Weak governance and poor policy have together prevented many rainforest nations from controlling deforestation, and these factors will also be a key determinant of countries' ability to participate in new financial mechanisms for forest protection, particularly REDD. While such a mechanism has the potential to generate significant payments to countries that reduce rates of deforestation, achieving this is likely to depend on a number of governance-related factors: a basic practical level of control over the forest resource, the means to address the causes of deforestation, and the institutional capacity both to manage the resulting funds and to provide the necessary certainty that any reduced emissions are real and quantifiable. 8. The drivers of deforestation can be divided into four broad types of activities (both legal and illegal): infrastructure development, agricultural conversion, forest-production extraction and accidents (see Table 1).[6]
Table 1: Drivers of deforestation
9. In addition to addressing these drivers, countries must be able to control and manage their forest resources, demonstrate any reductions in deforestation rates and guarantee their permanence, and manage the resulting funds. A range of governance factors will need to be in place, including: · effective institutions, with clearly defined roles and responsibilities; · clear and appropriate legislation; · clear land tenure; · ability to enforce legislation; · monitoring capabilities. 10. Because it is difficult to make any direct link between investment in this type of governance and capacity-building and reductions in emissions, these activities are not likely to be funded by the money that is likely to flow for REDD-related greenhouse gas emissions. Moreover, the private sector in particular is unlikely to invest in countries with poor governance or inadequate policies. Therefore, it may be necessary to consider addressing these underlying factors as part of the preparation for REDD. 11. Table 2 presents a summary of governance interventions that will be necessary for both national-baseline and project-based approaches to REDD. The governance requirements for a project-based approach should be seen as a subset of the requirements under the national-baseline approach. It should be noted that there is a continuum between those interventions that can be regarded purely as part of readiness requirements and those that are part of implementing a REDD strategy. Similarly, there is a range covering those interventions that can be considered essential and those that may simply be desirable. This distinction depends in part on the level of risk that investors are willing to take, but also on political decisions about the level of risk that will be acceptable related to the wider impacts of REDD - in particular, its potential impact on poor and marginalised people. The better the level of governance within a country - for example, if there is an effective judiciary, the rights of indigenous peoples are recognised and there is a high level of transparency within government - the greater the chance that a REDD mechanism will not be to the detriment of the poor and will not be subverted by vested-interest groups.
Table 2: Summary of governance interventions
12. Depending on the design and scope of the REDD mechanism, achieving the minimum capacity to allow a country to participate in REDD is likely to include relatively minor criteria like the ability to maintain a national registry to, more fundamentally, the ability of a country to control deforestation within its territory. If a purely project-based approach is favoured, only some of these measures will be essential. If, however, a national-baseline or hybrid approach is chosen then a broader suite of governance improvements will be required. 4 Estimated costs of building REDD governance capacity 13. We estimated the cost of implementing the governance measures outlined in a report to the Eliasch Review.[7] We considered the types of intervention required to address the drivers of deforestation and then estimated the costs of each of these interventions by comparing them to the cost of similar activities that have already been implemented. Based on this data, we estimated a range of costs for each intervention. We then calculated a range of total costs for a generic country by estimating the cost of introducing all of the governance interventions. If a project-based approach is adopted, minimal interventions may be required, and in some countries, none at all, whereas a hybrid or national-baseline approach would require a greater level of intervention. This rough calculation allowed us to arrive at an indicative figure for the range of possible costs over five years. 14. For a national-baseline approach to REDD the potential costs (in US$) for a country over five years range from $14 million to $92 million.[8] Multiplied by forty to reflect the forty rainforest countries that might participate in REDD, this indicated a range from $550 million to $3.7 billion. For the project-based model, the minimum costs to allow projects to begin could be as low as $1-2 million per country in order to establish an approval process. These figures should be considered with caution, since they are based on the cost of past projects that were not necessarily successful. But even the high end of the cost spectrum calculated for readiness is a relatively low total global figure for five years' investment, given what may be achieved and the magnitude of donor commitments already made. This is encouraging for the prospects for a REDD mechanism. 15. Nevertheless, the relatively low cost of REDD capacity-building is based on a number of assumptions that may be difficult to establish in reality. First, the figure assumes that REDD readiness projects will be successful in achieving their aims despite being based on historical cost data for projects that have often not been able to do so. The greatest challenge for most projects is the absence of political will among those that need to make critical leadership decisions or change their behaviour in order for a project to succeed. Therefore spending this amount of money will not provide any guarantee of achieving readiness in the absence of effective project design and political will - and nor will it necessarily allow the establishment of a functioning REDD mechanism unless some of the overwhelming current economic incentives for deforestation are reduced. 16. Second, the figure assumes that all implementation costs for REDD, which are likely to be orders of magnitude higher than the figures quoted here, will be paid for by carbon revenues. Given that any payments are likely to be ex-post, implementation funds will need to come from either governments or the private sector. In either case, this model will favour countries that are already relatively developed and well-governed, as those that are not will have less government revenue for up-front investment and a national risk profile that is likely to deter private-sector investors in the absence of sizeable potential profits. 17. Third, the figure assumes that there will be sufficient demand for REDD carbon, depending in part on there being a stable and ambitious carbon price, and a sufficiently practical and efficient mechanism for implementation, which together are necessary to ensure substantial money flows to those responsible for reducing deforestation. 18. It remains unclear from the current debate whether all of these conditions will be met. Therefore the relatively limited spectrum of readiness costs may underplay considerably the real cost of establishing a REDD market that would be accessible to more than a handful of tropical forest countries. Given the political pressure for REDD not only to reduce greenhouse gas emissions but also to achieve a range of other ambitions, such as poverty reduction and biodiversity conservation, the establishment of a mechanism in which relatively few countries could participate can only hinder efforts to reach consensus on this issue within the highly volatile political context of the UNFCCC. 19. While it is probably reasonable to assume that protecting forests contributes positively to maintaining biodiversity, areas which offer the best potential for conserving carbon may not be priorities for biodiversity. Therefore, a focus on forest protection to conserve the most carbon at the lowest cost will not always protect important biodiversity. 20. There is also a risk that diverting large amounts of money into countries and sectors that suffer from corruption could compound existing problems. A comprehensive strategy to tackle corruption in the forest sector is therefore likely to be needed alongside a credible REDD programme. 21. Avoiding deforestation is not necessarily in the interests of the poor and forest-dependent, and increasing the value of forests could lead to greater government involvement in forest resources at the expense of local communities. In those parts of the world where traditional use is technically illegal, or illegal use has been driven by poverty and lack of alternatives, such efforts are likely to result in the prevention of traditional and essential subsistence activities, resulting in further marginalisation and increased poverty for many people. 5 Recommendations 22. These issues could be addressed in a number of ways: · The development of a national strategy on REDD that includes a wide range of stakeholders, particularly affected parties, could help identify approaches that are appropriate for poor forest-dependent peoples, indigenous peoples and biodiversity. Evidence from other processes such as FLEGT suggests that where there is wide participation results can be more sensitive to poverty imperatives. Therefore, investing as part of 'readiness' in either a national strategy process or a project planning process which is as inclusive as possible is likely to have long-term benefits in reducing any negative impacts on the poor and biodiversity and, where possible, increasing co-benefits. · There may be scope for linking REDD to other projects funded by official development assistance that help finance co-benefits such as biodiversity conservation. · Public money could be made available to establish institutions and implement a range of activities in the least developed countries to help support and develop REDD projects where private financing would not otherwise flow. · It may be necessary to facilitate REDD projects that go above and beyond the minimum standards that are likely to be established under UNFCCC rules. This could allow companies and/or governments to demand higher standards relating to the impact of REDD on the environment and social benefits (akin to 'Gold Standard' CDM projects).
October 2008 [1] Maryanne Grieg-Gran, The Cost
of Avoiding Deforestation. Update of the Report prepared for the Stern Review
of the Economics of Climate Change ( [2] Karan Capoor &=and Philippe Ambrosi, State and trends of the carbon market 2007 ( [3] Alison Hoare et al., Estimating
the cost of building capacity in rainforest nations to allow them to
participate in a global REDD mechanism. Report produced for the Eliasch Review
by Chatham House and ProForest with input from the Overseas Development
Institute and EcoSecurities ( [4] See, e.g., K. M. Chomitz, At Loggerheads? Agricultural Expansion, Poverty Reduction, and Environment in the Tropical Forests (World Bank Policy Research Report, 2060). [5] For example see E. Trines, Investment Flows and Finance Schemes in the Forestry Sector, with Particular Reference to Developing Countries' Needs (Report for the Secretariat of the UNFCCC, 2007), citing Trines et al., 2006 identifies five broad categories of barrier: economic, risk related, political / bureaucratic, logistical and educational / societal barriers. [6] Helmut J. Geist & Eric F. Lambin, What drives tropical deforestation? A meta-analysis of proximate and
underlying causes of deforestation based on subnational case study evidence
(Louvain-La-Neuve: [7] Hoare et al., Estimating the cost of building capacity in rainforest nations to allow them to participate in a global REDD mechanism. [8] Amounts are rounded up to two significant figures in order to emphasise that they are rough estimates designed to present an order of magnitude rather than an accurate calculation. |