Private Sector Not off the REDD Table in Bangkok

Negotiators at climate change talks in Bangkok say that carbon offsets won’t be used to reduce emissions from deforestation and forest degradation on a wide scale until the middle of the next commitment period. But that doesn’t mean private money won’t be flowing into forest protection, as Maria Bendana explains.

29 September 2009 | Tony La Vií±a, who chaired the REDD+ negotiations in the August Bonn sessions of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention (AWG-LCA) and who will be facilitating agreement on the role of forests in climate change in Copenhagen for COP-15, has made a list and checked it twice. He’s turned countries’ (here on out referred to as ‘parties’) wish lists into a proposed negotiating text for REDD+ from Bangkok to Copenhagen.

At the root of it (no pun intended) is a strong desire to establish a mechanism for using carbon offsets to both reduce greenhouse gas emissions from deforestation and forest degradation (REDD) and promote the so-called “plusses”: “enhancement of carbon stocks” (reforestation), “conservation” (recognition of efforts to protect forests that are not immediately in danger), and “sustainable forest management” (harvesting mature trees and other practices) – which, together with REDD, make “REDD+”.

This mechanism will address a quarter of the world’s emissions in a manner that is cost-effective and preserves the integrity of the environment. It will be separate from the Clean Development Mechanism and will probably be funded through a combination of public funds, market-linked funds – such as allowance auction proceeds – and likely recognition of credits in the context of emissions trading schemes.

As the language in the text currently states, national-level participation is not a requisite at the beginning, and subnational accounting, monitoring, reporting, and verifying will be allowed in the interim. If so, project-level activity will be given direct market access at the onset. As in the US climate bill, it will probably need to transition to national level after a reasonable amount of time.

Once a national baseline, land-use plan, registry, and monitoring system are in place, then the project-level activity can be accounted for, and national crediting can begin. Sandro Federici from the Rainforest Coalition disagrees, “With regard to market crediting, there is a strong political will that subnational and project activities will not be permitted direct market access unless incorporated within a national accounting system.”

In the sausage-making process that is policy making, it is very probable that project level crediting might get knocked out in favor of national-level crediting.

Early Actors to Receive Credit

Early actors will be able to apply for consideration to receive credit during the period from 2005 to 2012 (see paragraph 118.c of the revised consolidated REDD text).

However, the “cookbook” of recipes for accomplishing this, including the ‘how to’, ‘who benefits’ and ‘how much’, are yet to be determined. Below you will find an analysis of the stance of major players in the REDD+ arena as well as a detailed analysis of the AWG-LCA consolidated revised negotiating text that will be used from Bangkok to Copenhagen. Stay tuned this week for more coverage from the Ecosystem Marketplace on the fate of REDD+ and the role of the private sector as delegates reunite in Bangkok for their penultimate meeting before Copenhagen.

Building Momentum for REDD+

The Wednesday after the opening of the 64th session of the UN General Assembly (UNGA), Secretary-General Ban Ki-moon hosted a High-level Event on Reducing Emissions from Deforestation and Forest Degradation (REDD) to highlight the need for immediate action on reducing deforestation as a critical part of the solution to climate change. The event garnered the participation of over 100 countries and over 150 representatives from international and non-governmental organizations, academia, think tanks, and the private sector as well as 18 heads of state.

Industrialized countries in support included Australia, Belgium, Norway, Japan, Sweden, and the United Kingdom. Norway has promised to allocate up to US$500 million yearly to REDD, and Australia is already investing US$175 million in Indonesia and Papua New Guinea. Sweden, which heads off the EU Presidency, spoke at the event in support of immediate action and scaling up financing for REDD+ “for preparatory activities, for results-based payments, and for investments based on national plans”, stated Swedish Prime Minister Fredrik Reinfeldt. Developing countries in support included heads of states and high-ranking officials from Bangladesh, Bolivia, Colombia, the Democratic Republic of Congo, Ecuador, Gabon, Guyana, Indonesia, Papua New Guinea, the People’s Republic of China, and the Republic of Congo.

The Major Players: To Offset or Not to Offset?

REDD credits have been excluded from the biggest compliance markets such as the UNFCCC Clean Development Mechanism (CDM) and the European Union Emission Trading Scheme (EU ETS). The European Commission, a key driver behind the formulation of EU climate policy, has traditionally opposed inclusion of forestry credits in emissions trading based on concerns about the impact of REDD credits on the price of carbon in the EU ETS, as well as concerns of inadequate capacity by developing countries to address technical and methodological issues concerning REDD+.

However, the EU has not been entirely opposed to REDD signaled by the willingness to earmark a portion of allowance auction revenues for REDD+ activities. Moreover, member country positions have varied. According to Climate Focus, France, Spain, the Netherlands, and Belgium have actively supported the inclusion of forestry credits into the EU ETS, whereas Denmark, Hungary, Finland, and Austria have opposed it. However, the Swedish Presidency of the European Union represents an opportunity or a turning point in policy. The Swedish speech at the UN High Level REDD event signaled a strong indication of support for scaling up financing for REDD+, which would likely involve the recognition of forest carbon in emissions trading such as the EU ETS, but more definitively support for market linked revenues going to REDD+ such as proceeds from allowance auctions.

The revised negotiation text with attribution relating to REDD+ (or paragraph 1(b) (iii) under Mitigation of the Bali Action Plan) has been replaced with a consolidated revised negotiating text on REDD+ and background material to the text – and its link has been since disabled. Paragraph 120 of the negotiating text with attribution survived into the consolidated revised negotiating text and credits the European Union with saying that measurement, reporting, and verification (MRV) of REDD+ actions shall be carried out according to guidelines established by the Conference of Parties (COP), which should take into account advice resulting from the outputs of the work program established under the Subsidiary Body for Scientific and Technological Advice (SBSTA), “while recognizing that higher levels of measurement, reporting, and verification will be required for market-based eligibility.” This statement is a strong indication that REDD+ credits may be recognized in an emissions-trading context if they meet stringent international standards.

Norway in its REDD: Options Assessment Report and the United States by virtue of the strong REDD provisions in its climate legislation (more commonly known as Waxman-Markey) advocate a combination of both fund- and market-based mechanisms. The reasoning is that markets are needed to mobilize the private sector but public financing is needed for countries with low rates of deforestation and for capacity-building activities. Offsets are also seen by the US as a cost-containment measure.

Brazil would like REDD+ projects to be funded through direct financing mechanisms such as the Amazon fund Brazil created last year, which has already received a $1 billion donation from Norway, instead of through tradable carbon emissions credits. Brazil opposes a market-based solution for REDD+ due to concerns over sovereignty, reversals, and for equity reasons such as rewarding states that have done the least to protect their forests.

However, standards and methodologies that have evolved in the voluntary carbon market in the past year for REDD activities – such as the Voluntary Carbon Standard AFOLU methodological guidance – contain innovative measures to address permanence and leakage issues through buffers and insurance mechanisms. Incidentally, these have proven to be more favorable among investors and buyers than the temporary crediting solution used in the CDM to address permanence.

Either way, conservative risk assessments and adjusting baselines according to individual country’s circumstance would address the inherent permanence issues and perverse incentives of REDD+. Regardless, Brazil has a complicated land tenure system and would need to clarify tenure as well as establish rules for how carbon rights and benefits will be handled before participating in an international REDD+ market scheme.

Another reason for not allowing REDD+ offsets and the resulting credits to be fungible in a future cap-and-trade mechanism is for these activities not to be linked to so-called quantified emission limitations or reduction objectives (QELROs), or, more simply, targets of developed country parties.

Thus, the resulting logic has been to deal with the risks inherent in REDD+ by making the mechanism additional to proposed reduction targets. Other wishes include adding a 10-20 year timeframe to halt deforestation, ensuring sovereignty and national as well as local decision-making power and addressing fundamental factors that could undermine the environmental integrity of the REDD+ mechanism such as non-permanence, leakage, and additionality. SBSTA is the body charged with considering these methodological issues and will meet again for its 31st session in Copenhagen in December.

On the other hand, about 40 developing country parties in favor of a market-based mechanism for REDD+, the Coalition for Rainforest Nations, have proactively formed unified negotiating positions, workshops, and collaborative programs. They think developed country parties should be able to use offsets to meet their QELROs. They see the REDD+ mechanism as a step towards a low-carbon economy and as a way they can help stabilize and reduce GHG concentration in the atmosphere.

Who Would Benefit from REDD?

According to the OSIRIS model developed by Conservation International’s Center for Applied Biodiversity Science, Brazil and Indonesia not only represent 2/3 of total carbon abatement potential in the world but together they would receive half of international REDD+ revenues. The Democratic Republic of Congo (DRC), in third place, would receive 6 percent of REDD revenues. However, in relative terms, some countries would stand to benefit greatly from the percentage increase to their Gross Domestic Product (GDP) from REDD revenues. On average, countries would experience a .17 percentage increase to GDP from REDD revenue. In descending order the following countries would receive the highest annual percentage increases to their GDP from REDD:

• Solomon Islands: 31%
• Liberia: 19%
• DRC: 16%
• Papa New Guinea: 8%
• Zimbabwe and Mongolia: 6%
• Timor-Leste, Zambia, and Guinea Bissau: 5%

Objectives and Scope of the REDD+ Mechanism

REDD+ is defined as reducing emissions from deforestation and forest degradation in developing countries – plus taking into account the role of conservation, sustainable management of forests, and enhancement of forest carbon stocks. The key question in paragraph 106 is whether agriculture should be included in a REDD+ mechanism. Norway envisions REDD+ taking three phases in its evolution (106.1):

• Phase 1 – National REDD+ strategy development and core capacity building
• Phase 2 – Implementation of policies and measures in combination with compensation for proxy-based results for emissions reductions and removals from selected forest activities and land use and land-use change categories
• Phase 3 – Results-based compensation mechanism for fully measured, reported, and verified emissions reductions and removals from the whole forestry sector and other selected land use and land-use change sectors

Principles of REDD+ Mechanism (107)

• Stabilization of greenhouse gas gases within a time frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened, and to enable economic development to proceed in a sustainable manner
• Country-driven and voluntary
• Integrated into National Appropriate Mitigation Actions (NAMAs)
• In accordance with countries’ capabilities and national circumstances
• Equitable access to adequate, predictable, and sustainable finance and technology
• Facilitate sustainable development, reduce poverty and respond to climate change in developing countries
• Maximize participation of countries (108)
• Sustainable forest management, improved forest governance, permanence, co-benefits, biodiversity conservation, and other ecosystem services should be promoted (108)
• Domestic leakage should be avoided (108)
• Safeguards against the conversion of natural forests to forest plantations (108)
• Indigenous people and local community involvement/engagement in the design, development, and implementation of REDD+ actions, having their rights respected (including full, prior, and informed consent) (109)

It should be noted that these principles in referring to maximizing country participation do not mention that participation has to be at the national level. Thus, project -level activity initiated by the private sector will theoretically be eligible.

Guidance and Requirements for REDD+ Implementation

a) Develop – as necessary – national and subnational-level REDD+ planning for different phases of implementation (readiness phase, policy implementation, and demonstration activities phase and a full implementation phase). (110)

Planning or strategizing will probably entail similar processes to those involved in developing a Forest Carbon Partnership Facility Readiness-Plan, UN-REDD Joint Programme Documents, and the Forest Investment Program’s readiness processes with a timeline and a budget as well as a core REDD+ staff residing within the designated national authority.

b) Designate a national authority for coordinating, registering, supporting, approving, and implementing REDD+ actions. The designated national authority will be responsible for the full and effective participation of relevant stakeholders including indigenous peoples, local communities and women in all the different phases of implementation.

How can this be done? Through frequent public consultation meetings at the different phases in the geographic regions that will be most likely affected by a REDD+ mechanism.

c) Establish national reference emissions levels according to national circumstances and capabilities which can be independently reviewed and adjusted over time and submit them to the future REDD+-coordinating mechanism under the UNFCCC.

d) Develop robust and transparent national forest carbon monitoring, reporting, and accounting (or registry) systems for emissions and removals in the forest sector according to national circumstances and capabilities that are subject to review with the establishment of subnational accounting as an optional measure in the meantime for demonstration activities, but as part of the national system. Each developing country will develop a unique system for its forestry sector that includes all subnational activities.

What’s in a NAMA?

REDD+ activities may be considered Nationally Appropriate Mitigation Actions (or NAMAs) if developing country parties ensure that (112.2-6):

• Actions are taken to avoid national and international leakage or emissions displacement
• REDD+ activities are permanent and do not result in reversals at a later time
• Appropriate governance structures are put in place to facilitate the transparent transfer of REDD+ funds
• Consultative mechanisms and domestic legislative arrangements are in place to avoid infringement of the rights of indigenous peoples and local communities
• Land tenure systems are recognized
• Actions are consistent with the conservation of biological diversity

However, REDD+ projects resulting from NAMAs will not result in tradable credits in emissions-trading schemes.

REDD+ Readiness Fund

The purpose of the Readiness Fund (text consolidated by Canada and Indonesia) is to:

• Strengthen forest governance
• Scale up demonstration activities
• Measure, monitor, and verify emissions reductions and increases in removals and changes in carbon stock from the forest sector (113)

The fund will be financed by contributions from developed country parties, market-linked revenues, proceeds from auctioning of national emissions-trading allowances or of assigned amount units at the international level, and penalties or fines for non-compliance of developed country parties with their emissions reduction and financial resources commitments. It will be additional to ODA and complementary to GEF and bilateral and multilateral funding.

National or Subnational Accounting

Accounting of emissions reductions from deforestation may be at either the national or subnational level as decided by each party (112). However, REDD+ activities implemented at the subnational level must address and account for leakage in a comprehensive and conservative way. Thus, project-level activity initiated by the private sector will theoretically be eligible.

Baselines and Registries

Option 1 – Developing country parties must register their national forest-emissions level in a ‘National Schedule’.
Option 2 – Developing country parties requesting funding must register their REDD+ actions undertaken within their national implementation plans under a NAMA registry and specify the amount and type of support requested, and any information and outcomes on their systems for measurement, reporting, and verification of actions.
Option 3 The Conference of Parties will develop appropriate MRV systems for REDD+ NAMAs. To assist, developing countries must develop:

• National capacity-needs assessments
• National forest inventories
• National and, where appropriate, subnational baselines to calculate changes in emissions from deforestation and forest degradation
• Strategic plans to reduce emissions from deforestation and forest degradation
• Quality assurance and control regulations to ensure funds for REDD+ are used directly for that purpose and not diverted

Option 4 – Developing country parties requesting funding and market-based eligibility must submit to the future REDD coordination mechanism under the UNFCCC their national REDD+ implementation plans as well as information on their REDD+ actions, the amount and type of support requested, and any information and outcomes on their systems for measurement, reporting, and verification of actions.

Measurement, reporting and verification (MRV) of REDD+ actions shall be carried out according to guidelines established by the COP which should take into account advice resulting from the outputs of the work program established under SBSTA at the same time the European Union added: “while recognizing that higher levels of measurement, reporting and verification will be required for market-based eligibility.”

Verification will be carried out by an expert review team appointed by the COP according to agreed rules and guidelines or a MRV technical panel appointed by the future coordinating REDD mechanism. In the case of national-scale activities verification will be done by national experts and peer reviewed by international teams under the guidance of the COP and by independent bodies in the case of subnational activities.

The Future of REDD: Global Baselines

Early actors will receive credit during the period from 2005 to 2012. A global reference level will be established to preserve the environmental integrity of the mechanism and in order to avoid international leakage. The methodology for establishing it will be robust and based on objective, measurable, and verifiable criteria as well as ensure additionality at the national and international level compared to business-as-usual scenarios.

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