Funding of REDD and cobenefits

The World Bank's BioCarbon Fund has pioneered afforestation and reforestation activities under the CDM of the Kyoto Protocol. The BioCarbon Fund funded the Pearl River Basin project in China, the first CDM project to be registered, and reviewed in Chapter 2. A second fund of the World Bank, the Forest Carbon Partnership Facility (FCPF), is aimed at REDD by applying value to the carbon in standing forestry.

The FCPF has two parts, the Readiness Mechanism and the Carbon Finance Mechanism. The former assists 20 tropical and subtropical countries in voluntarily readying themselves for future REDD. Strategies are prepared and emissions monitored from deforestation and degradation. The Carbon Finance Mechanism will subsequently select a few countries for the pilot phase which will make incentive payments for independently verified emission reductions by REDD. A variety of approaches will be considered for financing and testing, for example, macro policy and legal reforms in forest conservation and management, land-use policies, payments for environmental services, establishment of parks and intensification of agriculture. The target size for the Readiness Mechanism is US$100 million and for the Carbon Finance Mechanism US$200, the sources being both private and government. It is intended that much larger financial flows will be made possible over the medium term through the knowledge and experience developed in the pilot phase (World Bank, 2008).

A major problem associated with payments for sequestered carbon is that there are no matching payments available for the conservation of biodiversity or environmental services (Hunt, 2008; Miles and Kapos, 2008). Where payment for forestry offsets is stimulating afforestation and deforestation, monocultures are the likely result, as opposed to mixed species plantings that have greater ecological value. Likewise, in the case of market-based REDD, the carbon investment will be likely to be directed to projects where the cost of carbon conserved is least. This asymmetry in funding between carbon and ecosystems means that there is no guarantee that REDD will make a critical difference to the preservation of tropical forest habitat vital to threatened or endangered ecosystems or species.

Under a funds-based approach an integration of carbon and ecosystem investment priorities could more easily be achieved through funds such as the FCPF and the BioCarbon Fund. Projects could be prioritized by the level of carbon preserved in tropical forests together with the level of ecosystem co-benefits that would be achieved.

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