From REDD to Green: A Global Incentive System to Stop Tropical Forest Clearing - Working Paper 282

Dan Hammer
Robin Kraft
December 22, 2011

In this paper, David Wheeler and co-authors develop and illustrate a prototype incentive system for promoting rapid reduction of forest clearing in tropical countries. Their proposed Tropical Forest Protection Fund (TFPF) is a cash-on-delivery system that rewards independently monitored performance without formal contracts. The TFPF incorporates both monetary and reputational incentives, calculated quarterly, and includes rewards for (1) exceeding long-run expectations, given a country’s forest clearing history and development status; (2) meeting or exceeding global REDD+ goals; and (3) achieving an immediate reduction in forest clearing.

The authors drawing on monthly forest clearing indicators from the new FORMA (Forest Monitoring for Action) database to illustrate a prototype TFPF for eight East Asian countries: Cambodia, China, Indonesia, Lao PDR, Malaysia, Myanmar, Thailand, and Vietnam.

The results demonstrate the importance of designing financial flexibility into the proposed TFPF. Its incentives are calculated to induce a massive, rapid reduction of tropical forest clearing. If that occurs, a TFPF for East Asia will need standby authority for disbursements that may total $10–14 billion annually for the next two decades. The TFPF is designed to self-liquidate once all recipient countries have achieved clearly specified benchmarks; its major financial responsibility would be discharged by 2040.

Data disclosure: The data and Stata code behind this analysis are available as a data set.

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