REDD+ Finance:Private Lessons For The Public Sphere

Molly Peters-Stanley

Governments have pledged billions of dollars to programs designed to slow climate change by saving endangered rainforests, but the real results to date have come from the private sector and civil society. Here’s a brief look at what policymakers designing tomorrow’s public-sector programs can learn from today’s private-sector projects.

Previous Coverage

Last year, we launced another series built on the findings of REDDX alone. Learn more about the initiative HERE

Part One: Tracking REDD+ Finance: Separating The Payers From The Posers provides an overview of the project and laysout its objectives.

Part Two: REDD Funding: The Horror Story That Isn’t examines the cumbersome accounting behind international aid in general and REDD finance in particular.

Part Three: Germany Beats Fast Start Finance But Sees Need For More Scale reviews the results of Germany’s Fast Start Finance period and reasons why they failed to meet their REDD+ commitment targets but succeeded in other areas.

Part Four: REDD+ Finance Leaves Pilot Projects In Limbo tells the story of a Ghanaian businessman seeking to launch a pilot project but is struggling to find funding from both international donors and private investors.

Part Five: The World Bank And The UN-REDD: Big Names, Narrow Focus provides a detailed overview of the biggest funding efforts of REDD+ as well as their interactions with each other.

Part Six: The Congo Basin Forest Fund Steps Up For REDD+ Piloting in DRC describes how the Congo Basin Forest Fund functions, who are the funders and lessons learned.

Part Seven: Brazil, Indonesia, And DRC Cooperate On Deforestation, See Future In REDD takes a high-level view of the impact of multilateral financing efforts on Brazil, Indonesia, and the Democratic Republic of Congo to date, and examines the prospects for REDD moving forward.

Governments have pledged billions of dollars to programs designed to slow climate change by saving endangered rainforests, but the real results to date have come from the private sector and civil society. Here’s a brief look at what policymakers designing tomorrow’s public-sector programs can learn from today’s private-sector projects.

22 August 2013 | Kenya’s Kasigau Corridor Project that Reduces Deforestation and forest Degradation (“REDD”) protects 200,000 hectares of endangered forest between the Tsavo East and Tsavo West National Parks. The Surui Forest Carbon Project protects 32,000 hectares of endangered forest in the Brazilian Amazon. Cambodia’s Oddar Meanchey REDD+ Project protects 64,000 hectares of endangered forest in the northwest province of the same name. The world’s largest REDD project – the Mai Ndombe REDD+ Project in the Democratic Republic of the Congo – will protect almost 250,000 hectares and dispatch with approximately 175 million tonnes of carbon over its lifetime.

Beyond the fact that each of these endeavors harness carbon markets to reduce greenhouse gas emissions by saving endangered rainforest, each of them has been spearheaded by private initiatives working closely with national, state, and local governments, which means each has managed to identify risk mitigation tools – that appeal to both the private and public sectors.

Each, therefore, is ripe with lessons for anyone looking to develop REDD interventions that will make the leap from “project” to “program” – i.e. from private and local, to public and jurisdictional. Admittedly, there are still gaps in information on finance and activities at the project level, but, Ecosystem Marketplace has been tracking private sector projects since 2005, reporting forest carbon data on the Forest Carbon Portal and in Ecosystem Marketplace’s annual State of the Forest Carbon Markets reports designed to explore these lessons and results.

Through focusing tracking on the project level we have found that the private sector was more likely to support projects that reported at least one revenue stream other than carbon offset sales, like sustainably commodity (including Fairtrade-certified) sales revenue or donor government contributions. The presence of additional non-carbon revenues suggests to private sector actors that the project is more likely to be financially viable in the case that carbon markets are not a long-lived source of project financing. Our more recent findings illustrate that private dollars are also “mobile” – with businesses preferring to catalyze new activities in new locations, which is not inherently conducive to large-scale, long-term REDD activities.

Based on these findings, is the profit motive alone too capricious to support and expand REDD efforts? Should the burden of forest conservation instead rest solely with forests’ traditional public sector custodians? In reality and as reported last week by UNEP FI, seasoned stakeholders conclude that both public and private actors must be at the table if the world is to support existing forestry and land use carbon projects (total of $2.2 – $5.4 billion over an unspecified timeframe, according to Ecosystem Marketplace’s 2012 survey data; cut deforestation in half between 2015 and 2020 ($75 – $300 billion according to Resources for the Future estimates); or protect the world’s hectares that are currently under threat ($1 trillion, based on 55.5 million hectares that will be lost between 2010 and 2020, as estimated by WWF, multiplied by average price per hectare paid for REDD offsets in 2011 [$20/ha] based on Ecosystem Marketplace data). Regardless of your metric of choice, the price tag is too high to ignore anyone with insights into how a significant source of finance can be incentivized to act.            

To this end, private project developers that have honed their business models to become market “survivors” provide proof of concept for the idea of internationally-financed conservation forestry. They have an inherent understanding of why the private sector steps in – or backs out of – forest finance, learned over now-decades of direct experience with private sector stakeholders. They also boast first-hand experience with national and regional government approval processes and gaps in capacity – often including a deep understanding of the extent of local governments’ capacity for enforcement.  
 
Many actors already understand the value of lessons gleaned from these private pilot actions, which is why the Verified Carbon Standard and the American Carbon Registry are working with national governments on Jurisdictional Nested REDD (JNR) that ensure existing projects can be absorbed into national accounting programs. It’s why the Norwegian government is even helping to pilot nested programs around the world.

And it’s why Forest Trends’ Ecosystem Marketplace and REDD Expenditures Tracking initiatives are tracking payments – both public and private, top-down and bottom-up – to uncover “sweet spots” where emerging government REDD programs have successfully engaged the private sector as investor, implementer, or (in an ideal world) both. Private lessons for the public sphere to increase private investment, therefore, include (but are not limited to):

  • Due consideration and recognition of private actors’ early action via public support of credited project-level activities. Indications that governments will support early action REDD projects (via “buyer of last resort” credit purchase guarantees or other purchase programs) would help de-risk new investment or projects in need of re-financing, and could be implemented to reward those already exploring REDD implementation on the ground, in tandem with the development of up-scaled REDD approaches. Such approaches have successfully been taken in other sectors in some countries, as explored in this report.
  • Enacting policies that favor “zero-deforestation” or low carbon products/commodities by recognizing products sourced from verified REDD projects, activities or areas.
  • Engaging with private actors to explore “carbon-linked” funding mechanisms, like REDD/carbon revenue bonds, developing new types of public-private contract structures to deliver low cost REDD emissions reductions. Such efforts would leverage the early experience of project developers managing relationships with donor governments supporting emerging jurisdictional nested REDD programs.              

Unless policymakers are willing to incorporate more lessons from the companies that are already buying REDD project offsets or from the developers who are creating them, they run the risk of re-creating the Kyoto Protocol’s sub-optimal treatment of forest carbon offsets. The world needs a mechanism that incorporates tested methods that work. And that requires more funding for pilot projects and more efforts to harvest existing projects for insights that can be broadcasted from the boardroom to Bonn.    

 

Molly Peters-Stanley is the Co-Managing Director of Ecosystem Marketplace. These views are hers alone and do not represent those of Ecosystem Marketplace, ODI, or the Climate Funds Update.

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About This Series

Forest Trends’ REDDX and the Overseas Development Institute’s Climate Funds Update are launching a collaborative series exploring existing efforts to provide transparency to the global efforts to slow climate change by saving forests and reducing greenhouse gas emissions from deforestation and forest degradation (REDD+). The aim of this series is to identify niches and promote more collaborative approaches that will build up a comprehensive picture of the state of REDD+ policy and finance and lead to more effective gaps and needs analysis.

Part One: REDD+ Finance: Who’s Counting, introduces the series and lays out its goals.

Part Two: REDD+: What You See Isn’t Always What You Get, examines finance accounting in Kenya and Mexico and calls for more civil-society involvement in tracking flows.

Part Three: REDD+ Finance: Lessons From The US explores the different methods of accounting for REDD+ Finance, drawing on examples from the US as well as Norway and the UK.

Part Four
REDD+ Finance: What Do We Know About The Private Sector Contribution? discusses the gap in private sector funding for REDD+ and what can be done about it.

Part Five: REDD+ Finance: Private Lessons For The Public Sphere examines the lessons that policymakers designing tomorrow’s public-sector programs can learn from today’s private-sector projects.

Part Six REDD+ Finance: Where Next? the series’ final installment, provides an overview of steps that need to be taken in order to better understand and track REDD+ Finance.