In the studies of carbon price and the carbon sequestration potential reviewed above, there was no estimate of the secondary benefits of avoiding deforestation or reforestation and afforestation, yet these are often substantial. Benefits are environmental, such as conservation of biodiversity and improved water quality, as well as social, such as improved fuel supplies. The estimation of the value of these non-market goods and services and their value for inclusion in market models is extremely difficult, if not impossible. This means that there is likely to be a continual underestimation of the total benefits of avoided deforestation. (The biodiversity implications of incentives for forestry are the focus of Chapter 4.)
BOX 8.1 PAYMENTS FOR AVOIDING
DEFORESTATION IN DEVELOPING COUNTRIES: THE CASE OF PAPUA NEW GUINEA
Papua New Guinea (PNG), a country straddling the equator north of Australia, has massive carbon stores in its primary forests. Deforestation is at a rate of 139 000 hectares a year, mainly for smallholder subsistence crops but also for palm oil production. PNG also hosts a logging industry exploiting several large concessions.
At the United Nations Framework Convention on Climate Change (UNFCCC) in Montreal in 2005, PNG, along with Costa Rica, spearheaded the reconsideration of the application of incentives to avoid deforestation in developing countries. The move was successful in that discussions have ensued in the UNFCCC on amending the Kyoto Protocol.
Guaranteeing the permanent protection of primary forest in PNG will be hampered by weak governance and pervasive and strong customary land tenure. The question looms large whether the compensation to conserve carbon rather than grow crops would be equitably distributed and efficiently used. Landowners receive only a small proportion of the value of exported logs, the government retaining the larger share of the proceeds even though customary tenure of land, and by implication the ownership of the forest, is enshrined in the PNG constitution (Hunt, 2002).
Investors in forestry offsets will need to be convinced that PNG is a profitable place in which to invest in carbon sequestration. Establishing project baselines for forest and carbon, and monitoring forest areas using remote sensing will be expensive. Carbon investment on any scale from the private sector seems unlikely unless the investor is also a donor, such as Australia, willing to bear the high risks.
The irony is, however, that by the time any renewed Kyoto incentive scheme that compensates developing countries for avoiding deforestation becomes a reality, that is post-2012, PNG's remaining commercially viable logging concessions are all likely to have been committed to logging. Post-2012, PNG may well have no areas of forest to bring to the table in which it can claim it is avoiding deforestation (Hunt, 2006). If the aim on the other hand is to reduce deforestation by smallholder cropping and oil palm estates then negative social and economic consequences could result that would need to be addressed.
Unless the PNG state successfully transfers income from the sale of forestry offsets to local communities, agricultural activities and the clearing of forests are likely to continue. The case illustrates that governments of developed countries and investors need to be aware of the wider consequences of large-scale conservation of forests for their carbon value and the need to formulate integrated development proposals for the developing countries affected.
8.5.7 Prospects for Harnessing Private Sector Funds
While this book has supported market approaches to the inclusion of forestry in climate change policy, it has also pointed to the low level of support for forestry instruments in the global markets under the Kyoto Protocol. This section takes a closer look at whether such a market approach to REDD will attract private investment.
To be credited, any REDD scheme must prevent deforestation or forest degradation that would have taken place without the scheme. This means that some or all of the instrumental actors - individuals, communities, commercial enterprises (both indigenous and multinational), institutions and government departments - must be persuaded with financial or other incentives to change their behavior. Under the market model the funds to compensate the actors for their loss of income, and to provide alternatives, are to come from the demand for forestry offsets from the private sector within countries with binding emission targets who wish to reduce their cost of compliance. Chapter 1 provides models of how forestry offsets in the case of reforestation and afforestation can be effective in reducing compliance costs.
Implicit in most REDD schemes that have been proposed in workshops and elsewhere is the control of the processes by the developing country itself. This recognizes developing country sovereignty and is deemed essential for developing country participation. Schlamadinger et al. (2005: 56) offer specific advice on the form of credits and the responsibility for enhanced emissions. Investors cannot be held liable for the possible failure of measures introduced by governments: 'It is a prerequisite that the host country assumes full liability for the carbon stocks, not only in the commitment period during which the credits are issued but also in future commitment periods, and for all lands that were monitored and accounted for at the outset' (Schlamadinger et al., 2005: 56).
This is already the approach used for Annex I countries under the Kyoto Protocol. Modifications could be made to accommodate countries with decentralized forest governance.
The private sector, having invested in a project, will look to a return on its investment in the form of marketable credits issued by the developing country, certified by an international agency similar to the CDM Executive Board, or in the form of payments generated by the sale by governments of certified REDD credits.
The developing country government would be in control of how it persuaded the actors within its borders to change their practices, soliciting international support from the private sector and funds for programs such as lifting agricultural productivity which would augment the cash incentives to agricultural producers.
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