Climate Change and Forestry: A REDD Primer

One of the most contentious issues in the debate over how to tackle climate change is the role of REDD (Reducing Emissions from Deforestation and Forest Degradation) in market-based mitigation strategies. The Ecosystem Marketplace summarizes the key issues.

19 May 2008 | In 2007, more than 50,000 fires raged through the Brazilian Amazon, reducing what were once lush rainforests to charred plains stretching to the horizon. Meanwhile, on the other side of the world, fires on the island of Borneo consumed millions of hectares of old-growth forests.

Drenched by more than 75 inches of rain annually, neither the Amazon nor Borneo have ecosystems that are naturally adapted to fire. Instead, these fires were set with the express purpose of clearing the forest – to open the land for soy production and cattle farming in the Amazon and for palm oil plantations in Borneo. While fires consumed these forests harboring some of the world’s most diverse ecosystems, they released the carbon that had been stored in the trees’ woody matter for as much as 1000 years.

Land-use change, such as the conversion of Amazonian forests to industrial mono-crop agriculture, accounts for approximately 20% of global greenhouse gas emissions – more than the emissions from the transportation sector worldwide. The majority of these land-use change emissions come from deforestation in developing countries, where forests are being cleared for agriculture and timber. Currently, the international climate change community is considering how to create incentives for reducing emissions from deforestation and forest degradation – or “REDD”.

Forests and Carbon Emissions

Forests play an integral role in mitigating climate change. Not only are they one of the most important carbon sinks, storing more carbon than both the atmosphere and the world’s oil reserves, they also constantly remove carbon from the atmosphere through photosynthesis, which converts atmospheric carbon to organic matter.

But while forests are working diligently to clean up the carbon we have emitted through burning fossil fuels, deforestation is pumping carbon right back into the atmosphere.

The Drivers of Deforestation

Deforestation in developing countries is frequently driven by agriculture, logging, and road expansion. Rising prices for soy, palm oil, and beef make it increasingly profitable for landowners in developing countries to clear forests and convert the land to agriculture. Often, burning is the cheapest and easiest way to clear the land.

Contrary to popular belief, when logging occurs, only a fraction of the wood that is cleared ends up as dimensional lumber and eventually in housing and other structures. The majority of the forest vegetation ends up as waste, and thus the majority of the carbon from the forest ends up in the atmosphere.

And it’s getting worse as policies that expand road infrastructure provide access for loggers, farmers and homesteaders to the previously inaccessible forest interior.

Deforestation Highest in Indonesia and Brazil

Deforestation is not evenly distributed around the world. In fact, Indonesia and Brazil account for 50% of the world’s deforestation emissions. Because of these deforestation emissions, Indonesia and Brazil are ranked third and fourth among the top greenhouse gas (GHG) emitting countries. If Indonesia and Brazil were able to abate their deforestation, their ranking would fall to 15th and eighth, respectively.

The irony is that we normally associate high GHG emissions with development and increasing GDP, but the activities that drive deforestation generally have low economic returns. Thus, Indonesia and Brazil are among the top GHG emitters, but their emissions are from low-return activities.

Low-Cost Emission Reductions

Analyses examining the cost of REDD activities indicate that abating deforestation is one of the most cost-effective ways to reduce emissions. In their conservative calculations, the Intergovernmental Panel on Climate Change (IPCC) estimates that approximately 25% of deforestation emissions can be abated at a cost of less than $20 per metric ton of carbon dioxide (tCO2).

By comparison, the market price for carbon on the European Union Emissions Trading Scheme (EU ETS) was $35/tCO2 in the first quarter of 2008. It is important to note that the IPCC’s cost estimates are based on the opportunity cost of probable land uses and don’t include transaction costs such as monitoring, enforcement, and capacity building.

The Role of REDD

Given the magnitude of deforestation emissions and the low cost of abating those emissions, REDD is poised to play a very important role in the global strategy to abate GHG emissions.

“We cannot solve the climate problem if we do not include forests,” said Stuart Eizenstat in testimony before the House Select Committee on Energy Independence and Global Warming. A former Under Secretary of State in the Clinton Administration, Eizenstat now advocates the need to include market-based incentives for REDD activities in any future climate-change policy.

In addition to the benefits from reducing emissions, REDD activities can protect the biodiversity and important ecosystem services provided by tropical rainforests. Although Eizenstat and others see REDD as an opportunity to collaborate with developing countries to shore up a huge source of emissions at relatively low cost, there are no incentives to pursue REDD in any of the market-based mechanisms of the Kyoto Protocol.

Banishing REDD from Kyoto

In 1997, the Kyoto Protocol laid out target emission reductions and the different mechanisms by which countries could achieve those targets. In order to achieve target emissions levels, countries had two options: either take actions to reduce their own domestic emissions, or pay someone else to reduce their emissions and thus offset the country’s domestic emissions with reductions somewhere else.

The Kyoto Protocol established the rules and financing structures surrounding different types of offset mechanisms. At that time, the Parties to the Protocol excluded REDD from the offset mechanism because of uncertainties about the magnitude of deforestation emissions and the ability to monitor deforestation.

The Kyoto Protocol does recognize credits from reforestation and afforestation – the first being when you replant forests that have recently been chopped down or otherwise destroyed, and the second being when you plant forests that have either been gone for quite some time or never existed. Both can be used to generate offsets under the Kyoto Protocol’s Clean Development Mechanism (CDM), but only if they meet a narrow definition of success.

Because of their exclusion from regulatory markets, REDD credits have been limited to the voluntary market, where a handful of projects are generating credits. These credits are sold at a fraction of the regulatory market price to buyers concerned about reducing their carbon footprint for reasons other than compliance with the law, as documented in State of the Voluntary Carbon Markets 2008, published by the Ecosystem Marketplace and New Carbon Finance.

Bali: REDD Rising?

The outlook for REDD changed at the 2005 Conference of the Parties in Montreal. Costa Rica and Papua New Guinea, on behalf of the Coalition for Rainforest Nations, proposed to give developing countries access to the carbon market through credits generated from REDD activities. In response, the United Nations Framework Convention on Climate Change (UNFCCC) launched a two-year initiative to examine the potential of REDD. Those two years culminated at the 13th UNFCCC Conference of the Parties (COP 13) in Bali.

Officially, the Bali decision was quite modest. The Bali Action Plan formally listed REDD among other mitigation activities as a potential means to achieve emissions targets and encouraged voluntary action on REDD. The decision of whether and how REDD will fit into the international climate mitigation strategy was put off until COP 15 in 2009 in Copenhagen.

And yet, Bali was a turning point for REDD.

“Bali put REDD on the broader COP agenda,” explains Tracy Johns, Policy Advisor and Research Associate at Woods Hole Research Center. “Bali legitimized REDD as a tool for the UNFCCC’s broader strategy to mitigate climate change, and put it on the same track and timeframe as the post-2012 discussion.”

The Bali decision sent a signal that the international climate change framework will take on the problem of emissions from deforestation, but the financing mechanism is far from decided.

Still, the Bali decision encourages capacity building and the development of pilot projects. By ameliorating some of the uncertainty about the future of REDD, the Bali decision encourages developing countries and project developers to begin investing in REDD activities.

Three Shades of REDD

Broadly speaking, you can break all REDD activities into three categories: project-based, policy-based, and sectoral.

Project-based REDD activities would generate credits based on the maintenance of carbon stocks in a localized area.

Many of the current REDD projects focus on forest conservation that creates reserves and parks to protect threatened forests. These place-based REDD projects preserve the carbon stocks on a parcel of land that otherwise would be deforested.

Policy-based REDD activities would generate credits by reforming land use policies in a manner that would lead to reduced deforestation.

Emissions from deforestation can be reduced by land use policies. Agricultural subsidies, for example, often create incentives to deforest, and transportation networks provide access to clear forests and remove timber. Reforming land use policy could lead to significant reductions in forestry emissions, just as reforms in energy policy are expected to reduce emissions rates in the electricity sector.

Sectoral REDD activities would generate market-based credits by reducing net deforestation rates over an entire country.

A country or province could take on an emissions cap in the forestry sector in which they would commit to a target emissions rate from forestry. For some developing countries, actively pursuing emissions targets in the forestry sector might be the most appealing and powerful way for them to participate in the global effort to mitigate climate change. Eizenstat points out that the voluntary participation in sectoral targets in the forestry sector could create “a model for other developing countries to take targets in other sectors, such as electric power or transportation.”

These three shades of REDD – project, policy, and sectoral targets – capture the different scales at which REDD activities could be implemented, and each have their own set of strengths and weaknesses.

An Argument for Every Shade

Project-based REDD activities could be modeled after the forestry CDM, and there are a number of project developers ready to begin investing in REDD projects. However, the CDM model has its strengths and weaknesses.

Because REDD projects would be geographically-bound, they would be easier to implement than sectoral or policy-based activities. There are, however, also a number of technical challenge that must be overcome – such as minimizing and accounting for “leakage”, which is what happens when preventing deforestation in one place encourages it somewhere else. This is dealt with in more detail under the heading Technical Issues.

Further, emissions from deforestation account for 20% of global carbon emissions, and there is concern that there would never be enough REDD projects to have a meaningful impact on the large magnitude of emissions from deforestation.

In contrast to project-based activities, policies and sectoral caps that reduce emissions from deforestation may be better matched to the scale of the problem. Consequently, they would also require more coordination, and some countries don’t have a sufficiently strong central government or the proper governance institutions to monitor and enforce these programs.

In reality, countries currently have very different capacities on the ground to implement REDD activities. A climate change policy could allow a spectrum of REDD activities, creating incentives for countries to take actions at the most appropriate scale for them. All three shades of REDD face a number of technical and policy-design challenges that must be addressed to ensure an environmentally robust REDD mechanism. These challenges differ with each shade of REDD. For example, projects that maintain carbon stocks on a hectare of land would require different accounting mechanisms than sectoral caps that reduce emissions rates over a country’s entire forests.

Potholes on the Road to Copenhagen

Although uncertainties still linger, the technical sub-committee that focused on REDD for the two years leading up to Bali concluded not only that the magnitude of deforestation emissions was significant – approximately 20% of global emissions – but that sufficiently cost-effective methodologies exist for measuring forest carbon and monitoring deforestation.

Support of the measurement and monitoring methodologies was a significant first step in overcoming the technical challenges that face the implementation of REDD policies, but there are a number of additional hurdles (technical and political) that lie on the road from Bali to Copenhagen.

Technical Issues

Leakage means that preventing deforestation in one place might actually encourage deforestation somewhere else. It could, for example, take the form of the actual deforestation agents shifting their equipment and labor to a nearby patch of forest. But it can also be less direct. If REDD activities force up the market price of timber, livestock, and crops, they could drive deforestation somewhere else.

Unless all global forests are included in a REDD policy, leakage cannot be eliminated; however, it can be minimized through careful project design. Further, leakage can be accounted for by requiring that a percentage of a project’s REDD credits be held in reserve and not be sold (the so-called “buffer” approach). In this manner, the reserve account would offset or neutralize the leakage that was assumed to have taken place.

Concerns over permanence are rooted in the idea that emission reductions are potentially reversible due to forests’ vulnerability to fires, pest outbreaks, changes in management, and other natural and anthropogenic disturbances. However, the scale at which REDD activities are implemented affects the risk of impermanence. For example, as you move to policy- and sectoral-scale activities, credits would be generated based on net deforestation rates over some political jurisdiction.

As a result, you are not bound to maintaining forest carbon in any one specific location, and increases in deforestation in one place can be offset with reducing deforestation somewhere else. As you move to scale, there is greater flexibility in how land is managed, and there is greater impermanence in any specific site.

Too Much of a Good Thing?

Because REDD credits are expected to be relatively inexpensive, there is concern that a mechanism that incentivizes REDD activities will flood the regulatory market with cheap credits, deflating the price of carbon and shifting attention away from low-carbon technologies such as carbon capture and storage.

The realistic extent of this concern depends on the extent to which REDD projects can be implemented and begin generating credits. While the potential for REDD credits is high, it’s not clear how much of this potential could be realized in a timely fashion. In reality, because many countries need to develop on-the-ground capacity before they can begin generating REDD credits, fears of a deluge may be over-stated.

Even so, the decision about whether to include REDD credits in a cap-and-trade program cannot be separated from the negotiations about future emissions targets. More aggressive emissions reductions targets would neutralize any effects on the price of carbon.

Policy Design Issues

Even more challenging are the policy design issues that will decide the extent to which a REDD instrument will interact with the over-arching climate change mitigation strategy.

In 2005, the Coalition for Rainforest Nations proposed creating market based incentives for REDD activities – arguing that because market prices for agricultural goods drive deforestation in many countries, then international prices for carbon would drive forest conservation if REDD is allowed into a global carbon-trading scheme. This, they said, would offset the incentive to chop down forests for agriculture, while enhancing economic development.

Some countries, however, oppose linking REDD activities to the compliance carbon market and favor creating a fund where REDD activities would be financially rewarded. Proponents of the fund approach argue that linking REDD credits to the carbon market will delay the transition of developed countries to low-carbon technologies and will restrict developing countries in their ability to reform land use policies.

Additionality and Baselines

As if leakage and permanence aren’t difficult enough issues to wrestle with, how do you prove that a REDD regime actually saves a forest that is in danger of being chopped down?

The typical answer is “baselines”, which are the yardstick by which countries measure whether they have successfully reduced deforestation or not. There is confidence in the ability to establish historic deforestation rates based on existing remote sensing imagery, but many regions and countries argue that historic rates don’t indicate the current risk of deforestation.

For example, some countries currently experiencing political instability have a low rate of deforestation because the domestic turmoil suppresses access to forests and markets. They argue that deforestation pressure will increase if the domestic situation subsides, and that the historic baseline thus underestimates the real pressure on the forests.

And what about countries that have already taken action to prevent deforestation? Some argue that countries with low rates of deforestation should be rewarded to avoid creating a perverse incentive for these countries to increase deforestation in order to then qualify for REDD incentives. However, in order to maintain the environmental integrity of a REDD policy, credits can only be generated by additional reductions in emissions from deforestation, and these countries would have to be rewarded through other means.

Co-Benefits and Sustainable Development

REDD activities are often touted because of the added benefits that come with preventing deforestation, such as preserving ecosystems and encouraging sustainable development.

“Investors express a preference for and will pay a premium for projects that demonstrate social and environmental benefits in addition to robust climate benefits,” observes Joanna Durbin, Director of the Climate, Community & Biodiversity Alliance (CCBA) that developed a design standard for climate change mitigation projects to ensure the projects are designed to support sustainable development and biodiversity in addition to their carbon benefits.

Although the Bali agreement recognizes that “reducing emissions from deforestation and forest degradation can promote co-benefits,” Durbin and others are concerned that if REDD-generated credits move into a compliance market, the incentives for multiple benefits will be lost.

REDD policies promise to face all of the governance and equity challenges that have marked the international climate policy negotiations. The long-term success of REDD activities on the ground relies on ensuring that the priorities of forest-dependent communities are met and the benefits from REDD activities reach the communities bearing the burden of forest stewardship.

The Bali agreement recognizes the importance of forest-dependent communities, stating: “The needs of local and indigenous communities should be addressed when action is taken to reduce emissions from deforestation and forest degradation in developing countries.” However, critics argue that local and indigenous communities currently don’t have a voice at the negotiations table, and thus their needs are not being heard.

Two-Year Sprint

There is much work to be done. In December, 2009, the Parties will meet in Copenhagen to negotiate new target emission levels. Further, the parties will decide the mechanisms by which countries can meet those targets, including whether REDD will be incentivized through market-based incentives, or if REDD activities will be accomplished through a fund that rewards countries for measurable, reportable and verifiable reductions in emissions from forestry.

Though much ink will be spilled over the next 2 years addressing the technical and policy challenges facing REDD, the role that REDD will ultimately play in achieving global emissions targets depends on the on-the-ground capacity to implement REDD activities. “Readiness for REDD”, a term often used for the technical and institutional capacity to implement REDD activities, varies tremendously from country to country and province to province. In an effort to build capacity for REDD a handful of new initiatives have been launched to improve readiness among key developing countries.

Priming the Pump

At COP-13 in Bali, the World Bank launched the Forest Carbon Partnership Facility (FCPF), a $250 million fund focusing exclusively on REDD. In its first stage, the FCPF will help about 20 developing countries to build capacity to implement REDD activities. These capacity-building activities could include helping to assess national forest carbon stocks and sources of forest emissions, define past and future emission rates, calculate opportunity costs of REDD activities, and design REDD strategies. Australia launched a similar fund called the Global Initiatives on Forests and Climate (GIFC) that will focus on Southeast Asia and the Pacific.

The challenges facing the incorporation of REDD into mainstream climate change policies are not trivial. However, the potential rewards from getting it right stretch beyond the emission reductions themselves and include the sustainable development of forest-dependent communities and the conservation of some of the world’s richest forest ecosystems.

With the World Bank’s Forest Carbon Partnership Facility (FCPF), the Australian government’s Global Initiative on Forests and Carbon (GIFC) and other funds catalyzing REDD activities on the ground, and the clock already ticking on the UNFCCC’s countdown to a decision at Copenhagen, the next two years offer a unique opportunity to shape how the worlds forests can join the fight to mitigate climate change.

Erin C. Myers is a consultant for Resources For the Future and a Master’s candidate at the Donald Bren School of Environmental Science and Management – University of California, Santa Barbara. Questions or comments can be sent to [email protected].

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