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On a recent trip to California I had the chance to meet with the experts in the state government who are managing the development of the world’s only carbon market program that will generate funding to reduce deforestation in tropical forest countries. Since deforestation is an important source of carbon emissions climate policy experts are watching to see how California’s program evolves.

Unlike most of the rest of the US, California has imposed limits on heat-trapping carbon pollution from industries, transportation and other economic sectors. It has put in place a cap-and-trade system that requires enterprises to cut carbon pollution but lets them do it in the cheapest way possible.  Because the planet doesn’t care where carbon pollution comes from, the California program sensibly allows polluters to meet their obligations by reducing carbon emissions from other sectors that don’t have carbon limits and from locations beyond California’s borders. Reducing carbon pollution outside the “capped” sector is called an offset. Offsets are tradable credits that represent verified greenhouse gas (GHG) emission reductions in sectors and sources not covered under the cap.

In California the legislation that created the cap-and-trade program (called AB 32) includes the possibility to cut carbon emissions by reducing deforestation, both within California and in tropical forest developing countries like Brazil and Mexico, through international forest offsets (sometimes called REDD+, or reducing emissions from deforestation and forest degradation).  Carbon emissions from deforestation and forest degradation contribute about 15% to total global emissions so reducing deforestation can be an important step toward halting dangerous warming.  Forests also play a critical role in economic development and in the livelihoods of people who live in and near forests.  And forests house huge stores of biodiversity.  So by reducing deforestation in tropical forests, California polluters get a two-for-one:  not only do they cut harmful carbon pollution but they can contribute to economic development and other environmental benefits.

While California’s domestic offset program is up and running, the international forest offset program under AB32 has been slower to start. (A forthcoming paper prepared as part of CGD’s Tropical Forests for Climate and Development Initiative provides a fascinating assessment of the California REDD+ Experience.) It has taken time to develop the rules and protocols that would enable California’s carbon polluters to take advantage of low cost opportunities to meet their obligations by reducing deforestation in tropical forest countries. California’s clever technocrats have taken time and effort to devise mechanisms to ensure that reducing deforestation in one state in, say, Brazil won’t just lead to more deforestation somewhere else; to make sure that they don’t pay for avoiding deforestation where it wouldn’t have happened anyway and to make sure that people who live in and near forests are not negatively affected. Earlier this year the REDD Offset Working Group submitted a set of final recommendations on how to design international forest offset programs (in technical terms “a compliance-grade jurisdictional (state or province-wide) system for REDD+”) and to link these programs to California’s cap-and-trade system. 

In May 2014 the California Air Resources Board also presented the First Update to the Climate Change Scoping Plan which reports progress in implementing AB 32. Importantly, the Update to the Scoping Plan reaffirms support for linking programs to reduce deforestation with California’s Cap-and-Trade Program. Recognizing the need to address the substantial GHG emissions caused by deforestation and degradation of tropical forests, California has worked since 2008 with other states across the world to form the Governors’ Climate and Forests Task Force (GCF). The GCF currently comprises 22 different sub-national jurisdictions, including states and provinces from Brazil, Indonesia, Mexico, Nigeria, Peru, Spain, and the U.S. that are contemplating low-emissions development policies and programs. At a GCF meeting earlier this month in Rio Branco, Brazil, Governors from 13 states pledged to reduce deforestation 80 percent by 2020.

It hasn’t all been smooth sailing; the proposals have provoked resistance from some environmental and social groups.  Some think that California should be required to meet all of its carbon reduction targets within the state, regardless of cost.  Others express concern that programs to reduce deforestation in tropical forest developing countries may have negative environmental impacts (say, by promoting the conversion of natural forests to plantation forests) or may not respect the rights of groups that live in and near forests.  But most of these concerns have now been addressed by the REDD Offset Working Group (ROW) recommendations.  

With the ROW recommendations and the Scoping Plan Update in place, California now has a set of proposed implementation protocols to reduce deforestation in tropical forest countries linked to its cap-and-trade program and is ready to go, once they have final approval from state legislators.

This is important because California’s cap-and-trade program is so far the only one to include links with international programs to reduce deforestation.  The European Emissions Trading System allows for international offsets in other sectors, but not in forests.  Looking ahead, the EPA’s proposed new regulations to cut carbon emissions from coal fired power plants 30% by 2030 allows states to create new cap-and-trade programs as a way to meet the reduction in emissions.  If these programs link up with California’s cap-and-trade program they could bolster support to reduce deforestation in tropical forest countries even further.

The window of opportunity to cut carbon emissions from deforestation dramatically may be closing.  Since the REDD financing mechanism was first launched in 2008, developing countries have established institutions and agencies and put in place policy measures to reduce deforestation in the expectation that they would be compensated for these efforts by rich country carbon polluters.  So far relatively few resources have been transferred to tropical forest countries to support their efforts.  California has the only cap-and-trade program that may actually do this.  If it works in California it may spread to future cap-and-trade markets. 

It’s an experiment with much hanging in the balance.  Here’s hoping that California will move ahead quickly with its plans for international forest offsets—thereby showing the way for the rest of the world.


CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.