REDD

1. REDD Arild Angelsen Professor, IØR, UMB, Ås & Senior Associate, CIFOR, Indonesia

2. Forests and climatechange Forests and global warming

3. Share of GHG emission

5. It’s getting hot

6. How much hotter?

7. Institutt for økonomi og ressursforvaltning Payment based on ER Emissions reduction (ER) = Actual emissions - Reference levels

8. Why include Reducing Emissions from Deforestation and forest Degradation (REDD) in a global climate regime • BIG: • 1/5 of GHG emissions, but • not included in global climate regime • CHEAP: (Stern report) • Negative - $5/ton • 50 % red: USD 5-15 billion • But problems of implementation (transaction costs) • QUICK: • Stroke of pen reforms • No deep restructuring of economy or new technoloigy • A wooden bridge to a clean energy future • WIN-WIN • Large transfer • Good governance? Institutt for økonomi og ressursforvaltning

9. Reducing Emissions from Deforestation and forest Degradation (REDD) Institutt for økonomi og ressursforvaltning

10. International carbon markets(e.g. Kyoto AAU market, EU-ETS, …) Global funds (e.g. Global Facility, FIP) Global readiness funds (e.g. FCPF, UN-REDD, bilateral initiatives) INCENTIVES INSTITUTIONS REDD fund (national or sub-national) Regular budgets (national or sub-national government) Verification Sub-national projects Policies and Measures (PAM) Performance payments (e.g. PES) Monitoring, Reporting Forest management types Carbon rights holder Other stakeholders State (production) Concession holder Energy users INFORMATION State (conservation) National & sub-national government agencies Environmental services users Private Land owner Farmers Community Community Consumers Others Others Others

11. REDD in a global climate agreement • What is REDD: • Aid • PES • CAT • Agreement on some broad principles in Copenhagen – maybe! • “Technical solutions exist, it’s a question of political will” ???? • Distribution • Hold-out game

12. Scope of REDD Forest carbon (C) = forest area (ha) * carbon density (C/ha)

13. Finding the right scale? Credit to countries, projects or both? • Nested approach: • Sequential: first project,then national • Simultaneous: both coexist • The most flexible: • Harmonization issues • Credit sharing Institutt for økonomi og ressursforvaltning

14. Finding the money • Voluntary market • CSR • Individuals • Compliance carbon markets (offsets) • UNFCCC • ETS • US • Global fund • Bilateral donors • Auctioning of emission quotas (AAU) • Taxes (carbon, air travel, …) Institutt for økonomi og ressursforvaltning

15. Finance: Current carbon markets Institutt for økonomi og ressursforvaltning

16. MRV Institutt for økonomi og ressursforvaltning

17. MRV … • The technologies are (almost) there • But they come at a cost, sometimes a very high cost • MRV not an hindrance for moving ahead, but impose limitations for what we can do • IPCC guidelines fairly good for deforestation, less developed for degradation • Reward better MRV (e.g. the level of discounting) Institutt for økonomi og ressursforvaltning

18. Reference level • Shouldwepay for 100% oftheemissionsreduction, or a smallerpercentageofthem? • The two meanings of baseline: 1. Business as Usual (BAU) baseline • a technical prediction of what would happen without REDD • benchmark to measure the impact of REDD policies 2. Crediting baseline (= reference level) • benchmark for rewarding the country (or project) if emissions are below that level (or penalize if above, depending on liability) • like an emission quota in a CAT system

19. How to predict (BAU) deforestation? • National historical deforestation • National circumstances: • Forest cover, reflecting stage in forest transition • GDP/capita • War, disasters, …. • Other factors? • Population • Commodity prices • Ex ante adjustment • Brazilbeingrewarded due to theeconomiccrisis Institutt for økonomi og ressursforvaltning

20. Past emissions (historical baseline) REDD credits Realized pathCrediting baselineBAU baseline Time Commitment period Reference levels Forest carbon stock Institutt for økonomi og ressursforvaltning

21. How to set reference levels • Main principle:BAU + common but differentiated responsibilities • Crediting baseline < BAU: Abalancebetween: • The risk of ’tropical hot air’ and highereffectiveness • REDD participation and acceptability • “Positive incentives” (UNFCCC) • No-lose systems • No liability • REDD: move from IPES to CAT • Who ownsthe REDD rent? Institutt for økonomi og ressursforvaltning

22. Costs and reference levels Carbon price determines reductions RL determines overall pay & participation $/tC Marginal costs of AD Carbon price REDD rent REDD costs 0 Change in tC (forest cover) BAU defore-station Ref.level Realized reduced defore-station

23. A proposal (Meridian report, Norwegian UNFCCC submission) • Reference levels based on: • Historical natioanal deforestation • National forest cover • GDP/capita (or LDC) • Global additionality (scaling) factor (global RL < global BAU) • OSIRIS scenarios:

24. What are the implications? • USD 5 billions in a fund based approach • Large distributional impacts • Deviations from BAU reduce effectiveness (reduced participation)

25. …. …. implications? • Global additionality scaling might increase effectiveness, particularly at high funding levels • Generous reference levels have a costs (e.g. 100 to 130 % scaling (option 4), with USD 5bn reduce global emission reductions from 42 to 29%)

26. National REDD policies Institutt for økonomi og ressursforvaltning

27. Appropriate deforestation? • Some deforestation ok: benefits > costs • But strong externalities.... • ... and policy failures $ Production net benefits after policy distortions Production net benefits Environmental costs A B C deforestation market failure policy failure C: actual deforestation; A: optimal deforestation

28. 3. A framework for an agent-based analysis of causes of deforestation Microeconomic defor. models • Distinguish variables at different levels(e.g. in regression analysis) • Think within a cause-effect framework • Avoid ’cheap’ political explanations • Focus on micro-level models (level 1-3)

29. Some key issues in economic modelling of deforestation • Smallholders or large actors:“the needy or the greedy” • Deforestation an investment or dis-investment; agent or national/global level modelling • Frontier deforestation (open access) vs. mgt. of land with secure property rights • Subsistence (population) or market approach

30. a. Subsistence approach Basic relationship (needs = production) sN = xH <=> H =s N/x What drives deforestation (higher H)? • poverty (reach subsistence level s) • population growth (increase in N) • low productivity (x)

31. b. Market approach (von Thünen) • What drives deforestation? • high prices (p) • high productivity (x) • low wages (alt.empl.) (w) • small access costs (q) • extension: forest clearing gives property rights

32. Comparison • Subsistence (pop.) approach: • Farmers clear forest to survive • Ignore consumption aspirations • Ignore migration effects • Development (aid) community • Market approach: • Farmers clear forest because it is profitable • Unconventional results: intensification, discount rates, land reforms, credit programmes • Different policy implications

33. Extension of market approach • Homesteading, land races • Constraints at the farm level • Several farming systems • Environmental effects • Costs of property rights

34. Value Agricultural rent Global + local + private forest benefits Local + private forest benefits Private forest benefits D B A C Deforestation Introducing forest rent

35. Capture forest rent • Much of forest rent is a public good. • Key question: how to “internalize externalities” • Institutional arrangements (CFM) • Markets (PES) - Assumes property rights allocated and secure

36. Policies for reduced deforestation

37. In the end: REDD is a game • What game is it? • A collective action game • The development aid game • Very high expectations • The very different perceptions and interests • “Squeeze the lemon” (developing countries): get as much $$$ for as little action as possible • Avoid massive $$$ transfers (developed countries):get as much action for as little $$$ as possible Institutt for økonomi og ressursforvaltning

38. Main players • Northern governments • Climate benefits • Use as offset • Southern governments • Dramatic impacts of CC • Quick and big money • NGOs (divided) • Concern about market flooding & buying out • Project funding • Indigenous & local people • Elite capture, buying forests • Opportunities for making money • Private sector • CSR • Cheap offsets Institutt for økonomi og ressursforvaltning

39. 5. Norway: 15 billion kroner (perhaps) • It’s a good idea • Climate change is real • Important to stop deforestation • Money can make things move forward • Buy credibility and influence • Development aid as a political instrument • High risk of being naïve in two ways: • Can money buy forests? • Super-optimistic about what aid can do • Previous aid projects a mixed success • Beware the game played • Conditionality: performance-based support • Long term targets as the only feasible way