- Breaking the Climate Deadlock is an initiative led by former UK Prime Minister Tony Blair and The Climate Group to build support for a post-2012 international climate agreement. This document discusses issues related to reducing emissions from deforestation and forest degradation (REDD) in developing countries. - Key issues discussed include the challenges of accurately setting a reference level for emissions reductions given varying deforestation rates among countries, concerns about equity outcomes if REDD is implemented at a large scale, and the importance of technical assistance and safeguards to ensure social and environmental protections. - The document makes recommendations such as including REDD in post-2012 agreements as part of a deal with more ambitious emissions targets overall, and addressing concerns about

1. ReducingEmissionsfromDeforestationand
DegradationinnonAnnex1countries
RomainPirard
InstitutduDéveloppementDurableetdes
RelationsInternationales
(IDDRI)
BreakingtheClimateDeadlock
BriefingPaper

2. ‘BreakingtheClimateDeadlock’isaninitiativeofformerUKPrimeMinisterTonyBlair
andindependentnot-for-profitorganisation,TheClimateGroup. Itsobjectiveistobuild
decisivepoliticalsupportforapost-2012internationalclimatechangeagreementinthe
leaduptothe2009UNClimateChangeConferenceinCopenhagen. Itsparticularfocus
isonthepoliticalandbusinessleadersfromtheworld’slargesteconomies,particularly
theG8andthemajordevelopingcountries. TheinitiativebuildsonMrBlair’s
internationalleadershipandadvocacyofclimatechangeactionwhileinoffice,and
TheClimateGroup’sexpertiseinbuildingclimateactionprogrammesamongstbusiness
andpoliticalcommunities.
ThisbriefingpaperanditscompanionswerecommissionedbytheOfficeofTonyBlair
andTheClimateGrouptosupportthefirstBreakingtheClimateDeadlockReport–
‘AGlobalDealforOurLowCarbonFuture’–launchedinTokyoonJune27th
2008. Written
byrenownedinternationalexpertsandwidelyreviewed,thepapers’purposeistoinform
theongoinginitiativeitselfandprovidedetailedbutaccessibleoverviewsofthemain
issuesandthemesunderpinningnegotiationstowardsacomprehensivepost-2012
internationalclimatechangeagreement.Theyareanimportantandaccessibleresource
forpoliticalandbusinessleaders,climatechangeprofessionals,andanyonewanting
tounderstandmorefully,thekeyissuesshapingtheinternationalclimatechange
debatetoday.
Theviewsexpressedandinformationprovidedinthispaperarethesoleresponsibility
oftheauthor.TheClimateGroup,theOfficeofTonyBlairandthestaffofBreakingthe
ClimateDeadlockInitiativeacceptnoresponsibilityforanyerrorsoffactortheopinions
containedherein.
Forfurtherinformationsee:www.breakingtheclimatedeadlock.com
Aboutthe‘BreakingtheClimate
Deadlock’Initiative
Copyright©TheClimateGroup2008.Allrightsreserved.

3. • DeforestationandforestdegradationinnonAnnex1countriescontributeto
approximately20percentofglobalcarbonemissions.
• Reducingtheseemissionsisdeemednecessaryinordertoachievesignificant
mitigationglobally.Moreover,thesereductionsareassumedtoberelativelylow
costinmanycases.
• TheREDD(ReducedEmissionsfromDeforestationandDegradation)mechanismis
beingnegotiatedintherun-uptoCOP15inCopenhagen,andwouldbechargedwith
organizingfinancialtransfersfromAnnex1countriestosupportsuchemissions
reductioneffortsinnonAnnex1countries.
• Severalapproachesarepossibletosupportvirtuousendeavoursindeveloping
countries.Theyrangefromrewardstogovernmentsinproportiontodemonstrated
quantifiedreductionsagainstanagreedreference,tosponsorshipofbroad
policiesandmeasuresagainstdeforestation.
• Whiletechnologiestomeasurecarbonemissionsfromdeforestationand
degradationareimprovingconstantly,theestimationofemissionsreductions
necessarilyreliesonthesettingofareferencelevel.However,various
methodologicalchallengesmakeitdifficulttosetthisreferencelevelwith
accuracy.
• Whatevertheselectedmethodologiestoestimatereferencelevelsandthe
selectedapproachestosupportvirtuousendeavoursindevelopingcountries,
itwillbenecessarytotakeintoaccountthenationalcircumstancesofeach
participatingcountry.Indeeddeforestationpatternsvarywidelyamong
themajorcountries.
• REDDisseenasapowerfulmeanstoraiseunprecedentedfinancialresourcesin
Annex1countries(“carbonfinance”).Theseresourcescanberaisedinvarious
ways,includingcarbontrading,auctioningofallowances,proceedsfromtaxation,
bindingfinancialcontributions,andothers.
• Ahybridmechanismcouldhelpfinancebothappropriatelongtermpoliciesand
measures,andurgentlocalactions.OntheonehandpublicfundsfromAnnex1
countrieswouldbeavailabletosupportandfinancereformsandthedesirablelong
termpoliciesandmeasuresdeemedabletocounterdeforestationdynamics.On
theotherhandprivatefundswouldbedirectedtourgentactionwithmeasurable
impactsonGHGemissionsfromdeforestationandforestdegradation.
• REDDhasthepotentialtoprovideglobalenvironmentalbenefitsthatother
mitigationeffortscannot(e.g.biodiversityconservation),whichisastrong
argumenttosupportitsimplementation.
• EquityoutcomesareaconcernifREDDisappliedatalargescale.Inappropriate
financialcompensationstolocalagentsofdeforestationthatbearopportunity
costs,isariskthatdependsondomesticredistributionsystems.
• Technicalassistanceandconditionalitieswouldhelpensurethatpoliciesand
measuresinhostcountriesobeytominimalstandardsintermsofsocialimpacts,
acknowledgmentofindigenousrights,faircompensationstostakeholderswho
loselivelihoodsopportunities
• ReadinessisamajorandnecessarycomponentforanyREDDstrategytocounter
deforestationandforestdegradationinthetropics.Thisencompasses
institutional,technicalandpoliticalmeasures.
Recommendations
• InclusionofREDDinpost-2012agreementsshouldbepartofaglobalclimatedeal
withmoreambitioustargetsforemissionsreductionsoverall.Ratherthanrelying
onREDDtomeetexistingcommitmentsatalowercost,theAnnex1countries
shouldpreferablyuseREDDfornegotiatingdeepertargets.
• ThefungibilityofREDDwithothercarbonmarketsshouldbeviewedwithcaution,
atleastuntilglobalmarketsaresufficientlymature.Twomainrisksareassociated
withfungibility:destabilisationofmarkets,andlackofenvironmentalintegrityif
creditsdonotrelatetorealemissionreductions.
• ThefungibilityofREDDwithothercarbonmarkets,ifandwhenithappens,should
resultinmorestringentGHGcommitmentsforAnnex1countriesassuggestedby
theEuropeanUnion(20%targetmightbecome0%ifaglobaldealisachieved),in
ordertosecureadditionalglobalemissionsreductions.
ExecutiveSummary
Breaking the Climate Deadlock
Briefing Paper

4. • Ashiftofparadigmwouldbeusefulregardingcarbonfinance.Effortshavebeen
focusedsofaronthewaystosolvebarrierstocarbontradingandfungibilityof
REDDwithglobalcarbonmarkets.Effortscouldexpandtoalternativeand
innovativeschemesthatalsogeneratecarbonfinanceandprovideincentives
toachieveperformance.
• TheEuropeanUnioncouldtaketheleadinproposingandtestinginnovativefunding
schemesbasedontheEUETSmarket.Theoptionofusingproceedsfromauctioning
ofemissionallowancesispromising.
• Earlyactionforreadinessisaprerequisitewhateverthefuturedecisionsregarding
thedesignofREDD.Itencompassesinstitutional,technicalandpoliticalmeasures
thatmightimprovethecapacityofthedevelopingcountriestoparticipatein
themechanism.
Breaking the Climate Deadlock
Briefing Paper

5. Forestscoverathirdoftheworld’slandsurface.Theystore50-100percentmorecarbon
thaniscurrentlyintheatmosphere,and–togetherwithotherterrestrialecosystems–
absorbbilliontonnesofcarbonannually1
.Theyarealsosensitivetoclimatechange.
Forestsofferfourmainopportunitiestomitigateclimatechange:increasedforestland;
increasedcarbondensityofexistingforests;substitutionoffossilfuelsandother
carbon-intensiveproductsbysustainablyproducedforestproducts;andreduced
emissionsfromdeforestationandforestdegradation.Thelastofthesehasthegreatest
potentialtomakeabigdifferencequickly–deforestationanddegradationaccountfor
15–20percentofhuman-inducedgreenhousegasemissions.Thevastmajorityofthese
emissionsoccurinthetropics.RecentNASAdataapportionresponsibilityfor
deforestationemissionsinthehumidtropicsbetween2000and2005asfollows:roughly
60percentintheAmericas(especiallyBrazil),percentinAsia(especiallyIndonesia)
and5percentinAfrica2
.
TheSternReviewpointstoreduceddeforestationanddegradationasanopportunity
tocutglobalemissionssignificantly,quickly,andrelativelyinexpensively.TheUN
FrameworkConventiononClimateChange(UNFCCC),followingitsannualmeetingin
BaliinDecember2007,isnowconsideringhowtodevelopamechanismforReduced
EmissionsfromDeforestationandDegradation(REDD).Theopportunityisgreat,but
thetechnicalandpoliticalissuesthatneedtobeaddressedarechallenging.
Thispaperpresentstheoptionsandchallengesinreducingemissionsfrom
deforestationandforestdegradationinnonAnnex1countries,withafocusonseveral
coreissuesthatareawaitingpoliticaldecisionsatCopenhagen.Thepaperisstructured
asfollows:
• TherationaleandprocessforREDD
• Basicfactsandfiguresondeforestationandclimatechange
• Methodologicalupdate
• Keyissuesfornegotiations
• Coststoreduceemissionsfromdeforestationanddegradation
• Theequityissue
• Recommendations–guidingprinciples
TherationaleandprocessforREDD
TherationaleofREDDistofinanceforest-relatedemissionreductionsindeveloping
countriesatalargescale.TheprincipleofREDDwasofficiallyadoptedintotheUN
negotiatingprocessattheClimateConferenceinBali.There,countriesdecidedthat
duringthetwoyearsuntiltheDecember2009ConferenceinCopenhagen(andpossibly
after),demonstrationactivitieswouldtakeplaceinanumberofdevelopingcountries,
withtheirapproval.Pendingmethodologicalissuesarebeingdebatedamongst
countriesundertheUNFCCC’sscientificandtechnicalsubsidiarybody.Basedon
outputsfromthisentireprocess,decisionswilleventuallybemadeconcerningthe
design,scopeandperiodforapplicationofREDD.
Adecadeago,negotiationsaroundtheKyotoProtocol’sCleanDevelopmentMechanism
(CDM)failedtoinclude“avoideddeforestation”intheCDM’sscope,inparticularbecause
ofsignificantrisksof“leakage”(theriskthatemissionsreductionswithintheproject
boundarieswouldgeneratemoreemissionselsewhere).Nonetheless,whenPapuaNew
GuineaandCostaRicaproposedtoputtropicaldeforestationontheclimateagenda
againin2005,itwaswidelyagreedthatemissionsfromsuchdeforestationhadtobe
addressedinordertostabilisetheclimate;REDDwasthentackledasatechnicalissue.
ReducingEmissionsfrom
DeforestationandDegradation
innonAnnex1countries
Breaking the Climate Deadlock
Briefing Paper

6. Overthepasttwoyears,allcategoriesofstakeholders(includingcountries,research
centres,thinktanksandNon-GovernmentOrganisations(NGOs))havedraftedand
disseminatedavarietyofproposalsonREDD.Suchbrainstorminghasbeenimmensely
useful.Thispaperfocusesonseveralissuesthatweviewasthemostimportantinthe
debate,andthatrequirepoliticaldecisionsintherun-uptoCopenhagen.
Basicfactsandfiguresondeforestationandclimatechange
Forestecosystemsinteractcloselywithclimatechange
Ontheonehandhighertemperatures,droughts,floods,andotherclimateevents
affectforesthealthandcomposition,withresultingneedsforadaptationmeasures.
Ontheotherhandchangesinforestcoverleadtocarbonemissionsorremovals.Forest
plantationsestablishedonlandswithoutforestcoverarecarbonsinksbecausethey
sequesternetamountsofcarbon
.Undisturbedmatureforestsemitaboutasmuch
carbonastheyabsorb.Forestdegradation,throughcommercialtimberproduction
forinstance,generatescarbonemissionswhosemagnitudedependsontheforest
managementsystems
.Lastly,forestconversionforalternativelandusesgenerates
thegreatestamountsofcarbonemissions–overall,aswellasperhectare.
Tropicaldeforestationisresponsibleforonefifthofcurrentglobalemissions
LatestofficialfiguresreleasedbytheIntergovernmentalPanelonClimateChange5
(IPCC),indicatethatlandusechangecontributedtomorethan20percentofglobal
carbondioxideemissions,ofwhichtropicaldeforestationverylikelymakesthelargest
part.A2005study6
estimatesthatforestconversion,forestdegradationandshifting
cultivationaltogetherwereresponsibleforcarbonemissionsequivalentto15–5
percentoffossilfuelemissionsinthe1990s.Whilethesefigureshavealargedegree
ofuncertainty,theystresstherelevanceofincludingeffortstocombatdeforestation
inclimatenegotiations.
Tropicalcountriesshowcontrastedpatterns:deforestationratesandcarbonstocks
Whiledeforestationisaconcerninmosttropicalcountries,historicdeforestationrates
showdisparities.Asiaincludescountrieswithupto2percentannualnetdeforestation
(Indonesia)andcountrieswithanetincreaseinforestcover(China,India).TheAmazon
BasinisahotspotfordeforestationandBrazilalonelostmorethanmillionhectares
annuallyinrecentyears(about0percentofthenetlossofforestcoverintheworld).
TheCongoBasincountriesshowrelativelylowratesofdeforestation(lessthan0.5
percent),butmightcontributeincreasinglytotropicaldeforestationoverallduetothe
verylargeremainingforestareasinCentralAfricaandthedevelopmentdynamicsin
theregion.
Tropicalforestsgenerallycontainlargecarbonstocksperhectare,yetwithdisparities
betweenforestbiomes.AccordingtotheUN’sFoodandAgricultureOrganisation(FAO)7
carboninlivingbiomassamountsonaverageto110tC/hainSouthAmerica,77tC/hain
SouthandSouthEastAsia,and155tC/hainSouthandCentralAfrica.
Tropicaldeforestationisnotexpectedtodecreasesignificantlyinthecomingyears
DeforestationratesmightincreaseinCentralandWesternAfricawhenthepolitical
contextandbetterinfrastructureprovideamoreattractiveenvironmentformassive
investmentsintheforestryandagriculturalsectors.Sofardeforestationhasbeen
limitedbyseveralfactorsthatmightpartiallydisappearinthefuture.Yetforest
degradationisamajorissueinthisregion,asreflectedbythefactthatCentral
AfricancountriespushedforitsinclusionintheREDDagenda8
.
IntheAmazonBasinandSouthEastAsia,pressuresonnaturalforestsarefarfrom
fading,withgrowinginvestmentsinthetimberandagriculturalsectors.Brazilsends
contradictorysignals:ontheonehandithaslaunchedambitiousinitiativestocounter
illegalloggingactivities(suchas“OperationArcofFire”);ontheotheritprovides
undisputedpoliticalsupportfortheestablishmentofvarioustypesofplantations
(soy,sugarcane)andextensivecattleranching.InIndonesiaclear-cuttingofnatural
forests,toenableexpansionofthepulpandpaperandbiofuelindustriestosupport
developmentgoals,istolerated.
Breaking the Climate Deadlock
Briefing Paper

7. Overallcarbonemissionsfromdeforestationanddegradationcouldpossiblyremain
atcurrentyearlylevels,althoughanypredictionishighlydebatable.Twoforcesarelikely
topushinoppositedirections.First,foresttransitionsleadingtolowerdeforestation,
eithercausedbythescarcityfactor(lessforesttoaccess)orthedevelopmentfactor
(EnvironmentalKuznetsCurve)areobservedinanumberofcountries9
.Second,
structuralfactorsleadingtomoredeforestationarelikelytostrengthen:population
growth,roadinfrastructures,agriculturalcommodityprices,andsoon10
.
Methodologicalupdate
Technologiesareassumedavailabletoprovideestimationsofemissions
fromdeforestation
Technologieswillprovideaccurateestimatesofdeforestationinagivencountry,once
definitionsof“forests”and“deforestation”areagreedupon(e.g.specificthresholds
fordeforestation).Itwillbefeasible,mostlywithremotesensingimagery,tomonitor
thegrossdeforestation(i.e.notincludingreforestation,afforestationornatural
regeneration)whichisthefirstbestmeasureforREDD.
Emissionfactorsforagivendeforestedareacanbeobtainedatdifferentlevels,or
Tiers,ofdetailandaccuracy:Tier1reliesondefaultvalues(e.g.thoseprovidedbythe
IPCC);Tier2oncountry-specificdata;andTieroncompletenationalinventorieswith
repeatedmeasurements.Atrade-offisrequiredbetweenthecostsofobtainingthe
data(prohibitiveforTier)andthenecessitytoprovidereliableestimates.TheTier2
approachwillcertainlybepreferred,usingmeasurementsofcarbonstocksinanumber
offorestbiomesforeachparticipatingcountry.
Thesettingofreferencelevelsiscontroversial
Anyestimationofemissionsreductionsrequirescomparisonofactualemissionswith
areferencelevel,whichtypicallyreferstowhatwouldhavehappenedinaworldwithout
REDD(“business-as-usualscenarios”).Inotherwords,reductionsofdeforestation
ratesmustbeassessedadditionaltothereferencescenarioinordertobeeligiblefor
recognitionbyREDD.Thisisnecessarybothtopreservetheenvironmentalintegrity
ofthemechanism,andtoachieveahigherlevelofefficiencyandequityamong
participatingcountries.
Thisadditionalityrequirementistheweakestlinkinapproximatingtheperformance
achievedbyhostcountriesandinassessingthepaymentstheydeservefortheir
initiativestocombatdomesticdeforestation.Stateofthearttechnologiestomonitor
actualcarbonemissionsareofnouseiftheyarenotbasedonarelevantsettingof
referencelevels.Yettropicaldeforestationreactstonumerousstimuli,involvesmany
agents,resultsfromhumanandnaturalcauses,andthusappearsdifficulttomodel
andpredict.Itishardtostatequalitativelytheimpactsofpoliciesandincentiveson
deforestation,letalonequantifytheseimpacts.
Inordertobypassthismajorimpedimenttothedeterminationofbaselines,andthus
toreliableestimationsofemissionreductions,acommonlyproposedalternativeisto
considerhistoricaldeforestationrates.Thisoptioniscontroversial:somecountries
havehadhighlyfluctuatingrates,thusmakingitdifficulttochoosetheappropriate
referenceperiod(Brazil);somehavehadverylowratescomparedtolikelyfuture
trajectories,thusmakingithardtogainanythingwithREDD(DemocraticRepublic
ofCongo);andothershavehadveryhighratesthatwilldiminishinany
circumstance(Malaysia).
Inclusionofforestdegradationmightbeanincentiveformoreconservation
InclusionofforestdegradationintotheREDDmechanism,inadditiontodeforestation,
isanoutstandingissuethatposesconsiderablechallengesintermsofmeasurements.
Thishasmostlybeenadvocatedbyproponentsofsustainableforestmanagementinthe
CongoBasincountries,basedontheassumptionthatforestmanagementplansallow
timbercompaniestoreduceemissionscomparedtoconventionalloggingtechniques.
Infact,itisyettobeproventhatthesereductionsaresignificant,andevenReduced
ImpactLoggingtechniquesmightyieldmarginalgains.Thedebatehasthereforeshifted
fromsustainableloggingversusconventionallogging,toconservationversuslogging.
REDDmightthereforeprovideanincentivetostopanykindoflogging.
Breaking the Climate Deadlock
Briefing Paper

8. Keyissuesfornegotiations
Amongthenumerouspointsaddressedindiscussionsaboutsuchacomplex
mechanism,therearethreeoutstandingissueswhoseoutcomesarelikelyto
shapeREDD.
Howtosupportvirtuousendeavoursindevelopingcountries?
AssumingAnnex1countriesarewillingtofinanceforest-relatedemissionsreductions
indevelopingcountries11
,thereismuchdebateonhowtoallocatethesefinancial
resources.Thereareessentiallytwoways,withconsiderablepossibilitiesfor
combinations:governmentsarerewardedonthebasisofdemonstratedquantified
reductionsagainstanagreedreference,ortheyaresponsoredforimplementing
relevantpoliciesandmeasures.
Rewardsbasedondemonstratedquantifiedreductions
DebatesonREDDinpublicfora,inthegreyliteratureandinacademicjournalshavebeen
givingprioritytotherewardofquantifiedemissionsreductionsfromdeforestationand
degradationagainstareferencelevel.Thisorientationisclearlyconnectedtotheriseof
paymentsforenvironmentalservices,ontheconditionthatsuchservicesaredelivered
effectively.Furthermore,thisapproachhasbeenpromotedinparallelwiththeriseof
globalcarbonmarketsthatrequireverifiedemissionreductionsasatradable
commodity.Athirdfactoristhatpastexperienceswithdevelopmentassistanceand
programmesaimedatcurbingtropicaldeforestationhaveyieldedpoorresults.
Proponentsofthisapproacharguethatitshouldideallybeappliedatanationallevel,i.e.
withnationalaccountingofemissionsreductions,inordertominimiserisksofleakage
(wherebyemissionsaredisplacedratherthansuppressed).Therearesimilaritieswitha
cap-and-tradeapproachinthesensethatparticipantcountrieswouldbefreetoreduce
emissionsbyanymeansoncethereisagreementonthereferencevalue(the“cap”).Asa
consequence,though,thismightimplylessmonitoringbythirdpartiesoftheactions
eventuallyundertakenbyparticipantcountries:somewouldbeconcernedthatthis
wouldallowundesirableorinequitablepoliciestobeputinplaceinordertocapture
REDDrewards.Ontheotherhand,ofcourse,otherswouldarguethatsuchautonomy
ofpolicymakingisunavoidable,orevendesirable,forreasonsofsovereignty.
Concernswiththisapproachalsostemfromthefactthatquantificationsofemissions
reductionsfromdeforestationanddegradationrequirereferencelevelstobeset,which
isacontroversialmatter(see“MethodologicalUpdate”above).Itislikelythatreference
levelswilleventuallybeanoutcomeofnegotiationswithrepresentativesofparticipant
countries.Thisprocesswasobservedinthepast,whenforestcreditingcapswereadjusted
forsomeAnnexIpartiesintheMarrakechAccords12
.YetinthecaseofREDD,participant
countriesmightnothavebindingtargetswithassociatedsanctions.Rewardswouldonly
bedistributedforemissionsreductions,andtheserewardswouldbebasedonreal
reductionsforthesakeofenvironmentalintegrityandtheoptimalallocationofscarce
financialresources.Whiletheparticipationofthemajortropicalcountriesshouldbe
securedtotheextentpossible,itiscriticalthatreferencelevelsarenotsettoohighin
ordertoavoid“hot-air”13
situationsthathaveplaguedthefirstcommitmentperiodof
boththeKyotoProtocolandtheEuropeanUnionEmissionTradingScheme.Furthermore,
inthecaseofREDD,laxobjectivesriskprovidingincentivesfornotdoingmuchagainst
deforestationifthestipulatedreductionsaretooeasilyachievable.
Sponsoringrelevantpoliciesandmeasures
Analternativeapproachwouldconsistinsupporting(ratherthanrewarding)activities
deemedabletocounterdeforestation.Thisapproachcouldbelabelled“successful
efforts-based”,inthesensethateffortsaresupportedaslongasbeneficiaries
demonstrateperformancetosomeextent(qualitativelyratherthanquantitatively).
Withfinancialsupportthatdoesnotattempttobeproportionaltoanassumed
quantificationofemissionsreductions,itwouldbeeasiertofinancepoliciesand
measureswhoseimpactsarehardlymeasurable,especiallyintheshortterm.Whileit
isdifficulttoimputevolumesofemissionsreductionstospecificpoliciesandmeasures,
itmightbepossibletoassesswhethertheseinitiativeshaveapositiveimpacton
deforestationdynamicsoverall.Financialsupportcouldbeprovidedforlandreform,
landuseplanningandidentificationoflandswithoutforestcover,technicaland
Breaking the Climate Deadlock
Briefing Paper

9. financialassistancetoagricultureintensification,andcontrolandmonitoringofillegal
logging–aslongasscientificassessmentsconfirmthepositiveoutcomesofthese
actions.Arecentstudyprovidedmethodologicaloptionsforsuchassessments1
.
Althoughthisisdebatable,wearguethatmakingrewardsproportionaltoquantified
emissionsreductionswouldbringmoreconstraintsthanbenefitstotheREDD
mechanism.Rather,allowingproposalstogobeyondastrictperformance-based
approachwouldallowthemechanismtocapturetheadvantagesofbothapproaches:
theincentivetoachieveresults,andtheflexibilitytolaunchambitious(whilenot
immediatelymeasurable)activitiesagainstdeforestation.
Howtoraisefinancialresources?
REDDisseenasapowerfulmeanstoaccessunprecedentedsourcesofmoneyto
combatdeforestationforclimatechange.Thebeautyofcarbonfinanceisthatit
providesmanywaystoraisefunds,asitencompassesallfinancingschemesthat
convergetowardscarbonemissionsreductionsintheforestrysector,including
salesofcredits,auctioningofemissionsallowances,loansandtaxes.
Asnocertaintyexistsaboutwhichavenuecarbonfinancewilleventuallytake,weset
outsomealternativesbelow,withoutjudgingtheirrelevanceorpracticability:weprefer
nottoopposemarkettonon-marketfinancingmechanisms,ascombinationsofboth
arelikelytooptimiseoutcomes.Weshouldnotealsothatmarketsarenotlimitedtothe
tradeofcarboncredits,andthatcandidatecountrieswillcompeteforanyallocation
offunds.
ThepurchaseofcarboncreditsbyAnnex1countries
Carboncreditswouldbeissuedforcarbonemissionsreductionsagainstan
agreedreferencevalue.Thesecreditscouldbetradedoncarbonmarketsandused
byAnnex1countriestomeettheirGHGcommitments,inthesameveinastheflexibility
mechanismscreatedbytheKyotoProtocol.Asanoption,tradingcouldbelimitedto
aseparatemarketduringapreliminaryphase(“dual-marketapproach”)witheither
separatecommitmentsbyindustrialisednationstopurchasecertainamountsof
REDDcredits,oraglobalcooperativetrustfundthatwouldbuybackREDDcredits.
Thisalternativeisbasedentirelyonthetradingofcarboncredits,whichhas
twoimportantconsequencesfortheincentivestotakeactioninthetropical
forestednations:
• Financialresourceswouldlogicallyberaisedaccordingtothepayment-upon-
deliveryprinciple,whichimpedesinitialinvestmentsbyhostcountriesand
increasesrisk
• TheproceedsfromREDDcreditsaleswouldremainuncertainuntilreductions
areassessedandsalesconcluded.
ThesebarriersseriouslylimitREDD’spotentialincandidatehostcountries.However,
donoragenciesandthebanking/insuranceindustrywouldcertainlyproposeproducts
toovercomethesebarriersbasedonexpertforecastsofREDDcreditsvolumeandvalue.
Inadditiontoincreasesintransactioncosts,theseremediesmightplayaroleinthe
negotiationprocessforsettingreferencevaluesthatreducerisksofinsolvency(i.e.lax
referencevalues).
ProceedsfromauctioningofGHGemissionsallowancestoAnnexIpartiesunderKyoto
Protocoland/orindustrialcompaniesundernationalcap-and-tradeschemes
Emissionsallowancesareeitherallocatedfreeofchargetoindustrialcompanies
accordingtothe“grandfathering”approach,orauctioned.Thelattercaseisincreasingly
beingconsideredandthedomesticemissiontradingschemesaremovinginthis
directioninbothEuropeandNorthAmerica.Allocatingafractionoftheproceedsof
theseallowanceauctionswouldensuresustainableandsignificantcarbonfinanceto
supportREDDactivities.Itisworthnotingthatraisingfundsthroughtheauctioningof
allowances(insteadofissuanceofcarboncredits)isawaytoavoidanyinterferencewith
existingcarbonmarkets.Thiswouldenhancethestabilityandeffectivefunctioningof
thesemarkets.
Breaking the Climate Deadlock
Briefing Paper

10. BindingfinancialcontributionsbyAnnex1countries
Currentnegotiationsonpost-2012emissioncommitmentsfortheindustrialisedworld
willcertainlyleadtomoreseveretargetsandhighermitigationcosts.REDDispartof
thenegotiationsonaglobalclimatedeal,ofwhichoneobjectiveistoachieveglobal
reductionsatthelowestpossiblecost.Annex1countrieswouldmoreeasilyaccept
deeperemissionreductioncommitmentsiftheycouldachievetheseatareasonable
cost.Assumingthatemissionsreductionsfromdeforestationarerelativelylowcost,
theremightbeagreementonasystemthatallowsAnnex1countriestocarveoutx
percentoftheirdomesticcommitments,whichwouldbemonetisedanddeposited
inaFundforREDD.
Proceedsfromtaxation
Thisisavariationonthepreviousoption,stillbasedontheprinciplethatdeeper
commitmentsinAnnex1countrieswillgeneratenewcoststobeborneinthese
countries.Anewtaxmightbesetupinternationallyorrestrictedtoanumberofparties,
andfocusedonspecificsectorsorappliedtoabroadrangeofproductionactivities,
inordertoprovideincentivesfordomesticindustriestoloweremissions.Proceeds
fromthesetaxescouldbeusedinvariousways,oneofwhichwouldbetocontributeto
reductionsabroadthroughfinancingofactivitiesagainstdeforestationindeveloping
countries.Themostprominentoptionsareacarbontaxandanaviationtax.
CreationofalevyontransactionsamongPartiesintheinternationalcarbonmarket
ThissystembuildsontheexistinglevyonCDMprojects(2percent)thatflowstoaFund
foradaptationtoclimatechangeindevelopingcountries,andfinancesadministrative
costsassociatedwiththeoperationoftheCDMExecutiveBoard.Therationaleisto
capturepartofthe“benefit”thataccruestoindustrialisedcountrieswhen,toachieve
theircommitmentsatlowercost,theyusetheKyotoProtocol’sflexibilitymechanisms
toexternaliseemissionsreductions.
Voluntarycontributionsbydonors
ThisalternativewouldentailthescalingupofexistinginitiativesbyStates,international
organizations,NGOs,andotherbodiesthatfinancecapacitybuildingorprojectsfor
forestconservation.ExceptforTrustFundsthatsecurelongtermfinancialflows,these
voluntarycontributionsarecommonlycriticisedfornotensuringsustainablefinancing
andthusforachievingmixedresults.
ShouldREDDbefungiblewithinternationalcarbonmarkets?
FungibilitywouldmeanthatAnnex1countriescanachieveapartoftheir
commitmentswiththepurchaseofcarboncreditsfromREDD.Twomainarguments
havebeenadvancedinpromotingfungibility:first,thatcarboncreditsmarketswill
ensuresustainableandsignificantamountsofcarbonfinance;andsecond,thatthey
willincreaseefficiencyintheuseofavailablefinancialresources.Thesearguments
werequestionedinthetwoprevioussections:thereareinfactseveralwaystoaccess
carbonfinanceinAnnex1countriesinasustainableway,justasthereareseveral
waystosupportvirtuousendeavoursindevelopingcountries.
Negotiatorsmightbecautiousaboutfungibilityforanumberofreasons.Someofthese
arespecifictoREDD,whileothersapplytoanyprematureextensionofexistingcarbon
marketstodevelopingcountriesoutsideAnnex1:
Riskofmarketdestabilisation
Thecostsandmagnitudeofachievableemissionsreductionsfromdeforestationand
degradationindevelopingcountriesareunknown.Consequently,destabilisationof
marketsisarisk,andsafeguardsarenecessarytoatleastminimisethisrisk.Onthe
onehand,marketfloodingandadropinthepriceofcarboncreditsmightoccurif
referencevaluesarelax(asdiscussedabovein“Rewardsbasedondemonstrated
quantifiedreductions”)orifdeforestationratesaresignificantlyreduced.Thismight
resultinlowincentivesforAnnex1countriestoreduceemissionsdomestically,andfor
developingcountriestopursuevoluntaryefforts.Ontheotherhand,carboncredits
wouldbescarceifdeforestationratesremainedclosetoorhigherthanreferencelevels,
inwhichcaseAnnex1countrieswouldfaceproblemsinachievingtoughercommitments
thathadbeennegotiatedwiththeexpectationthatREDDwouldfunctionasa
flexiblemechanism.
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11. Barrierstoaccurateestimationsofemissionsreductions
Thebarrierstoaccurateestimationsofforest-relatedemissionsreductionsin
developingcountriesareamajorconcern.Indeed,thecompensationprovidedbyREDD
carboncreditsforhigheremissionsinAnnex1countriesmustbeassessedaccuratelyin
ordertoensureenvironmentalintegrityatagloballevel.Ontheotherhand,theprovision
oflimitedcompensationunderaconservativeapproachmightsignificantlyreducethe
financialrewardseventuallydeliveredtodevelopingcountries.Negotiatorsshould
thereforecarefullybalancethecostsandbenefitsoffollowingthefungibilitypath.
Coststoreduceemissionsfromdeforestationanddegradation
Coststoreduceemissionsfromdeforestationaremadeupofthecostsofstrengthening
hostcountries’capacitytoparticipatetoREDD(“readiness”);administrationcosts;and
opportunitycostswhenforestsarenotearmarkedfortimberproductionorconversion
intoalternativelanduses.
TheSternReview15
ontheeconomicsofclimatechangeaddressedtheopportunity
costs16
ofavoidingdeforestation,whichisviewedasapromisingoptioninglobal
mitigationefforts:
“Asubstantialbodyofevidencesuggeststhatactiontopreventfurther
deforestationwouldberelativelycheapcomparedtoothertypesofmitigation”.
Therestofthestatementisofimportance,asitstressestheneedto“[putinplace]
therightinstitutionalstructures”andthereforegoesbeyondthescopeofpayments
forprotectedareas.Thereportestimatesopportunitycoststoavoiddeforestation,
ineightcountriesresponsiblefor70percentofglobalemissionsfromlanduse,tobe
approximately$5billionperyear.Thisfigureisbuiltoncalculationsofnetpresentvalues
perhectarein0yearsforlandusesthattakeplaceafterforestconversion.Asthe
authorsacknowledge,estimationsofcostsatsuchascalemustrelyonover-simplistic
assumptionssuchaszeroleakage,fulladditionality,andscalingupofcostsperhectare
forahandfuloflanduses.
Whilemoststudiesconsidertheconceptof“opportunitycosts”,fewofthemsharea
commonmethodologytomakecalculations.Inparticular,theseopportunitycostsare
sometimesassumedequaltoprofitsgeneratedperhectare,butinothercasesthecosts
includeallexpensesthatanactivitygenerates.Thiscreateshugedifferencesinvalue
foragivenlocationandlanduse.Muchdependsonthescaleoftheopportunitycost
estimation–individual,localornational–becausecapitalisscarceandmightmove
toothersectorsorlocationsifinvestmentscannottakeplaceinforestedareas.For
instance,preventingtheestablishmentofapulpwoodplantationafterconversionof
anaturalforestinIndonesiacouldleadeithertodisplacementoftheplantationinto
nearbybareland,toinvestmentsinothersectorsoftheIndonesianeconomy,orto
investmentsabroad.Outcomesintermsofforegonerevenues,profits,employment,
canbecontrastedatthelocalandnationallevels17
.
Anotherproblemwithcalculationsofopportunitycostsasavailableintheliterature
istheirstaticstance.Mostanalysesdonotconsidertheincreasingpressureonhigh-
carbon-densitylandastheworldneedstoproducemoreandmorefood,fibreandfuel
overthenextdecades.Notonlyisglobalpopulationprojectedtoincreasedramatically,
butconsumptionpatternsassociatedwithhigherlivingstandardswillprovidestrong
incentivestoconvertforestsintopasturesoragriculturalfields.
Tosummarize,opportunitycoststoreduceemissionsfromdeforestationand
degradationcouldbeanywherewithinabroadrangeofvalues($/tCO2).Thelowerend
ofthisrangewouldapplytocultivationbysmallholders(e.g.cassava,ricefallow),and
thehigherendtolarge-scaleindustrialagricultureandplantations(e.g.oilpalm,soy,
cattleranching).
Itisalsodebatablewhetherthecostsofconservationequaltheopportunitycosts.
Indeed,localagentsofdeforestation,especiallywhentheyarevillagerslivinginor
nearbytheforest,mightnotstoptheirusuallivelihoodsandactivitiesoncetheyreceived
compensation.Additionalactionisrequired,suchassupervision,control,orthe
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12. provisionofalternativeeconomicactivities,inordertoensureforestconservation
inthelongterm.Moreover,itisunlikelytobefeasibletomakeregularadjustments
oncompensation(withtheassociatedtransactioncosts)toreducetheriskof
compensatedpeoplebecomingtrappedinpoverty.Inotherwords,thesearchfor
low-costsourcesofemissionreductionsfromdeforestationgeneratesrisksof
socialinequityatthegloballevel.Weaddressthisissueinthenextsection.
Theequityissue
Themainforesteddevelopingcountriesmighthaveanincentivetoconserveadditional
millionsofhectares,andmightbeabletogainbillionsofdollarsfromREDDoverfive-
yearperiods(seeExhibit1),Itisthuslegitimatetoquestiontheconsequencesinterms
ofequity.Indeed,anylandusechangegeneratesgainsandlossesforvariousagents,
andforestconservationmightenrichcountriesthroughthefinancialtransfersfrom
REDDbutsimultaneouslyimpoverishgroupsofagentsbecauseoflostopportunities.
Inotherwords,REDDislikelytogeneratesignificantandcontrastingeconomicimpacts
onthedomesticagentsintropicalforestedcountries.
Exhibit1
Orderofmagnitudefor
potentiallandusechanges
andfinancialtransfers
overonefive-year
creditingperiod
Source
FAO2006
Totalforestloss With10%reductiondeforestation With30%reductiondeforestation With50%reductiondeforestation
2000–2005(1,000ha) and$5/tC and$10/tC(million$) and$20/tC(million$)
Forest Financial Forest Financial Forest Financial
conservation transfer conservation transfer conservation transfer
(1,000 ha) (million $) (1,000 ha) (million $) (1,000 ha) (million $)
Brazil 15,515 1,551 85 ,65 5,120 7,757 17,066
Indonesia 9,55 95 60 2,806 2,161 ,677 7,20
DR Congo 1,595 159 12 78 72 797 2,72
WithrespecttoREDD,thenationalauthoritiesinforesteddevelopingcountrieswill
haveadualrole.Theywillsell“avoideddeforestation”throughREDDandaccesscarbon
finance;andtheywillbuy“avoideddeforestation”bycompensating(ornot)impoverished
agents.Dependingonwhichpoliciesandmeasuresareimplemented,theywillbuy
beforeselling,throughincentivisationandPaymentforEnvironmentalServices(PES)
schemes;ortheywillsellbeforebuying,throughregulationswithorwithoutcompensation.
Equityoutcomeswilldependbothonwhichpoliciesandmeasures,andwhich
redistributionmechanisms,areimplementedinparticipantcountries.Redistribution
mechanismscontainthreedimensions,whichincombinationswilllikelyyield
contrastingresultsintermsofequityoutcomes:
Redistributionprinciple(natureoffundutilization)
Thechoicehereisbetweenindividual(includingcorporate)compensation;
anddevelopmentactivitiesatahigherlevel(localtonational).Whileindividual
compensationsarepresumablybetterdesignedforensuringequityofredistribution,
thewelfareofimpoverishedagentscouldbenefitmorefromdevelopmentprojects,
providedtheserequiredempowermentandtraceabilityoffunds.
Institutionalarrangement(fundcollectionandallocationdecisions)
Thechoicehereisbetweenthemanagementofaspecialfundunderanindependent
authority,whetheratlocal,regionalornationallevel;andtheinclusionofREDD
paymentsinthestatebudget.FactorssuchasthepoweroftheParliamentandthe
capacityoftheindependentauthorityinchargeofaspecialfund,arekeytothe
equitableuseofREDDpayments.
Levelofdevolution(implementationandspendingofpayments)
Essentially,finalusersofREDDpaymentscanbesplitbetweennational,regionaland
locallevels.Intuitively,itcanbeassumedthatthedeeperthedevolution(andthelonger
thechaintothefinalusers),thegreatertheopportunitiesforembezzlementand
illicitcapture.
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13. Politicallandscape
TheissuespresentedinthisBriefingPapershapeapoliticallandscapewithcontrasting
stancesamongPartiesbothinthedevelopingandindustrializedworlds.Inparticular
thereareopposingviewsontherolethatthefungibilityandcarbonmarketsshouldplay.
ThemostprominentadvocateoftheglobalmarketoptionisPapuaNewGuinea(PNG)
whosepositionisinfluencedbytheCoalitionforRainforestNations.Countriesthat
sharePNG’sviewincludeGuyana,andIndonesiaaswellasothersfromtheCongoBasin
andCentralAmerica.Thesecountriesarguethatcap-and-trademarketinstruments
wouldprovideusefulincentivesforconservation.Accordingtotherationaleofany
marketapproach,itprovideshostcountrieswithopportunitiestocapturenetfinancial
gainswithforestconservationifopportunitycostsarelessthanthesellingpriceof
carboncredits.
BrazilfavorsthecreationofaFundsupportedbycontributionsfromindustrialized
countriesaspartoftheirbindingGHGemissionreductioncommitments.Brazilrejects
thenotionthatdevelopingcountriesshouldshareasignificantpartoftheglobal
mitigationburden,andopposesproposalsthatwouldallowAnnex1countriestoreplace
domesticreductionsofGHGwithcarboncreditsissuedthroughREDD.Sovereigntyis
saidtobeanotherargumentforsuchanapproach,becausehostcountrieswouldnot
havetoreportemissionsreductionsortoallowexternalmonitoringandverificationon
theground.Infact,itcouldbethereverseifconditionalitiesareassociatedtothe
financialsupporttopoliciesandmeasures.
TheCommissionfortheForestsofCentralAfrica(COMIFAC)givesspecialsupporttothe
inclusionofforestdegradationintheREDDmechanism.TheseCongoBasincountries,
backedbyFrance,arguethatForestManagementPlansshouldberewardedagainst
conventionallogging.
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14. Breaking the Climate Deadlock
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15. • Griffiths,T.O,2007:
Seeing‘RED’?‘AvoidedDeforestation”andtherightsofIndigeneousPeoplesand
localcommunities,
ForestPeoplesProgramme.
• Kanninen,M.,Murdiyarso,D.,Seymour,F.,Angelsen,A.,Wunder,S.
etL.German,2008:
Dotreesgrowonmoney?Theimplicationsofdeforestationresearchforpoliciesto
promoteREDD,
ForestPerspectives,CIFOR,Indonesia.
• Pirard,R.andA.Karsenty,2009(forthcoming):
Climatechangemitigation:Should“avoideddeforestation”(REDD)berewarded?
JournalofSustainableForestry,Vol28(-).
• RubioAlverado,X.andS.Wertz-Kanounnikoff:
Whyareweseeing“REDD”?Ananalysisoftheinternationaldebateonreducing
emissionsfromdeforestationanddegradationindevelopingcountries,
CollectionAnalyses,Iddri,Paris.
FurtherReading
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16. Breaking the Climate Deadlock
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17. Annex1: Listofdevelopedorindustrialisedcountrieswithbinding
commitmentsundertheKyotoProtocol
CDM: CleanDevelopmentMechanism
CO2 : Carbondioxide
COP: ConferenceoftheParties
EUETS: EuropeanUnionEmissionTradingScheme
FAO: FoodandAgricultureOrganization
FCPF: ForestCarbonPartnershipFacility
GHG: GreenhouseGas
IPCC: IntergovernmentalPanelonClimateChange
PES: PaymentforEnvironmentalServices
REDD: ReducedEmissionsfromDeforestationandDegradation
UNFCCC: UnitedNationsFrameworkConventiononClimateChange
GlossaryofTerms
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18. Breaking the Climate Deadlock
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19. 1
Forestsaretheterrestrialcarbonsink’smaincomponent.J.CanadellM.Raupach‘ManagingForestsforClimateChange
Mitigation’Science,13June2008,Vol320
2
MatthewC.Hansenatal.(2008).Humidtropicalforestclearingfrom2000to2005quantifiedbyusingmultitemporaland
multiresolutionremotelysenseddata.PNASJuly8,2008vol.105no.279439-9444.
3
Forestplantationsmightnotsequesternetamountsofcarbonwhenestablishedonlandswithforestcover.Indonesiaisthe
perfectexample,wheretheestablishmentofAcaciaplantationsonpeatlandforestshasgeneratednetemissionsoverall.
4
Shiftingcultivationisaspecificcasethatmaybeconsideredasdegradationordeforestation:inthetropicsshiftingcultivation
leadstorapidvegetationregrowthoncecultivatorsmovetoanotherplot.
5
Denman,K.L.,Brasseur,G.,Chidthaisong,A.,Ciais,P.,Cox,P.M.,Dickinson,R.E.,Hauglustaine,C.,Heinze,E.,Holland,D.,Jacob,
U.,Lohmann,S.,Ramachandran,P.L.,daSilvaDias,D.,Wofsy,S.C.andZhang,X.2007.CouplingsBetweenChangesintheClimate
SystemandBiogeochemistry.In:Solomon,S.,Qin,D.,Manning,M.,Chen,Z.,Marquis,M.,Averyt,K.B.,Tignorand,M.andMiller,
H.L.(eds.)ClimateChange2007:ThePhysicalScienceBasis.ContributionofWorkingGroupItotheIPCC.
6
Houghton,R.A.,(2005).TropicaldeforestationasasourceofGHGemissions.In:Moutinho,P.,Schwartzman,S.(Eds.),Tropical
DeforestationandClimateChange.AmazonInstituteforEnvironmentalResearchandEnvironmentalDefense,Belém,Brazil,pp.
13–22.
7
FAO,(2006).GlobalForestResourcesAssessment2005.Progresstowardssustainableforestmanagement.FAOForestryPaper,
vol.147.FoodandAgricultureOrganization,Rome.
8
See,e.g.,thereportTheforestsoftheCongoBasin:Stateoftheforest2006,availableonhttp://carpe.umd.edu/2006-state-of-
the-forests-reportforinformationonforestdynamicsintheregion.
9
Forexample,see:Rudel,T.K.,Coomes,T.K.,Moran,E.,Archard,F.,Angelsen,A.,Xu,J.,Lambin,E.,(2005).Foresttransitions:
towardsaglobalunderstandingofgloballandusechange.GlobalEnvironmentalChange15,23–31.
10
Forareviewofthecausesofdeforestationsee:Geist,H.J.,Lambin,E.F.,2001.Whatdrivestropicaldeforestation?LUCCReport
Series,vol.4.UniversityofLouvain.
11
By“developingcountries”wemeannonAnnex1countries.WeareawarethatcountrieslikeBrazilorChinawouldbetterqualify
as“emergingcountries”.
12
TheMarrakechAccordswereagreedbyKyotoProtocolPartiesin2001.Theyestablishedanddefinedtherulesarisingoutofthe
basicprinciplessetoutintheProtocol.
13
‘Hotair’referredoriginallytotheconcernthatsomecountrieswouldbeabletomeettheirtargetsforgreenhouse-gasemissions
undertheKyotoProtocolwithminimaleffortandcouldthenfloodthemarketwithemissionscredits,reducingtheincentivefor
othercountriestocuttheirowndomesticemissions.
14
CombesMotel,P.,Pirard,R.and.Combes,J-L,2008,Amethodologytoestimateimpactsofdomesticpoliciesondeforestation:
CompensatedSuccessfulEffortsfor“avoideddeforestation”(REDD),EcologicalEconomics,InPress.
15
Stern,N.2006.Sternreviewontheeconomicsofclimatechange.UKGovernmentEconomicService.London,www.sternreview.
org.uk.
16
Administrationcostswereroughlyestimatedintherange$4to$15/haforexistingprojectsandnottakingaccounteconomies
ofscale.
17
Pirard,R.,2008,EstimatingopportunitycostsofAvoidedDeforestation(REDD):Applicationofaflexiblestepwiseapproachto
theIndonesianpulpsector,InternationalForestryReview,Inpress.
Endnotes
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20. Breaking the Climate Deadlock
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21. ThankstoMatthieuWemaëre,CyrilLoisel,BernhardSchlamadingerandRalphAshton
fortheirthoughtsandcomments.
Theviewsexpressedinthispaperarethoseoftheauthoranddonotnecessarilyreflect
thepositionorviewsoftheBreakingtheDeadlockProject,TheClimateGroup,orthe
OfficeofTonyBlair.Anyfactualerrorsarethesoleresponsibilityoftheauthor.
Acknowledgements
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