In reviewing key proposals that are on the table for reducing deforestation and forest degradation (REDD) in developing countries, some issues emerged that are bound to affect the inclusion of REDD in a market mechanism. A market mechanism in this context is one where the emission-capped nations offset their emissions and thus lower their costs of compliance by purchasing REDD credits from developing countries.
The underlying and most fundamental issue is whether a tonne of CO2e prevented from entering the atmosphere as a result of REDD is equivalent to a tonne of CO2e abated through other measures. Because the protection of a forest is easily reversible in the future, REDD credits may be deemed temporary. If so, then a REDD carbon credit cannot be traded in global markets on the same footing as other units such as Assigned Amount
Units, the allocation of which reduces emissions permanently. We already see difficulties of permanence in the CDM where forestry credits are not deemed equivalent to, and are therefore discounted heavily compared with, other Kyoto units. If the price of REDD units is low then the incentive to earn them by developing countries will also be low and the potential for REDD will be stalled.
Other doubts on the credibility of the quantification of emissions avoided through REDD are thrown up by the following queries:
• whether the reduction in a developing country's emissions by REDD would have happened anyway;
• whether leakage internationally is being fully accounted for given that not all nations are expected to enter a voluntary scheme for REDD;
• whether degradation is being fully accounted for.
Operational difficulties extend to the method of rewarding countries that have reduced their deforestation below their baseline or target. The total global reduction in emissions from REDD may be compromised by some countries failing to meet their targets. This would mean a discounted distribution of REDD credits to countries that had made progress. But the introduction of penalties for exceeding targeted levels of emissions would have the undesirable consequence of deterring countries from entering the REDD scheme. Moreover, it seems unavoidable that national targets negotiated will be based on political compromises and as such may tend to undermine the veracity of the REDD achieved and consequently the value of credits in a market.
A further operational limitation that applies to a market-based mechanism, where nations subject to a cap on their emissions invest in the delivery of REDD offsets, is the indirect nature of the investments that need to be made. To make progress, policies and institutions need to change, pervasive illegal logging needs to be stopped, large multinationals need to be somehow mollified, and agricultural communities need to be convinced that abandoning agricultural development and replacing it with stewardship of the forest will benefit them socially and economically.
The poor state of governance in many of the countries responsible for most of the emissions from deforestation and forest degradation increases the risk to investors who will be concerned whether the funds advanced against future REDD credits will in fact reach their targets. Guarding against risks of failure of projects is another factor that, together with its other political, economic and socioeconomic complexities, could make REDD much more expensive than has hitherto been suggested by prominent researchers and commentators. To tackle poor law enforcement and corruption, action will be required not just by governments initiating REDD programs but by concerted efforts by industries, the general public and forest communities within countries as well as consumer groups outside them.
The funds-based approach is preferred notwithstanding the emphasis given a market approach to REDD in the Waxman-Markey Bill, H.R.: 2454: American Clean Energy and Security Act of 2009. In the near term, REDD should augment the reduction of emissions from the burning of fossil fuels, rather than offer a way of offsetting and reducing the cost of such reductions.
There is urgency in the need to reduce the rate of deforestation both from a climate change and a biodiversity conservation perspective. Existing programs can be stepped up immediately, thus supplementing the development of a post-Kyoto agreement that sets global and national targets for the reduction of greenhouse gas emissions. The funds-based approach also shows promise in being able to expeditiously couple the funding of biodiversity conservation and socioeconomic goals with that of carbon sink protection. If a market-based REDD scheme does emerge, the funds-based approach will have contributed much to its development.
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