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Climate change threatens to reverse decades of development gains in poor countries, and its impacts are likely to be felt first and worst in poor countries and communities. Avoiding irreversible catastrophic events is not possible without reducing emissions from forest loss. This CGD initiative is investigating performance-based financing mechanisms to help safeguard forests and the benefits they provide to the global climate and more directly to the people who live nearby.
Learn more about the forest team’s new book on saving tropical forests to prevent climate change
Climate and Development
Climate change threatens to reverse decades of development gains in poor countries. It is especially pernicious because its impacts are likely to be felt first and worst in poor countries and communities. Despite the urgency of the problem, progress in UN negotiations proceeds at a snail’s pace.
Climate and Forests
Reducing carbon emissions from deforestation and forest degradation has become an important part of the international climate agenda. The 2006 Stern Review identified reducing emissions from deforestation as one of four pillars of any climate mitigation strategy. UNEP’s 2011 Bridging the Gap report shows that better forest conservation could provide up to 18 percent of emissions reduction before 2020.
The world can’t hold global warming below 2 degrees Celsius—above which climate impacts on food production, water supply and ecosystems are projected to increase significantly and irreversible catastrophic events may occur—without reducing emissions from forest loss. Forests are also crucial to economic output, livelihoods, and ecosystem health on which many people in developing countries depend.
Performance-Based Approaches to Forest Conservation
A proposed payment mechanism called REDD+ would transfer funding from industrialized countries to developing countries with tropical forests to “Reduce Emissions from Deforestation and forest Degradation” (REDD) and to sustainably manage forests and conserve and enhance forest carbon stocks (the “+” part).
Under REDD+, finance from industrialized countries would be contingent upon recipients achieving verified results and compliance with social and environmental safeguards. Current work on the REDD+ mechanism is seen as a bridge to a future in which industrial countries make ambitious commitments to reduce their own emissions. Some portion of these commitments can be met by paying for reductions in forest countries.
While there is international consensus on the need to conserve forests, progress on establishing a global REDD+ mechanism has been slower than many had hoped. A host of important initiatives have made progress in understanding and testing the component parts of REDD+. But large-scale pay-for-performance international finance directed to the national level is only in the early stages of piloting through a few bilateral agreements.
The development of the REDD+ mechanism has been hampered primarily by lack of ambitious climate commitments by industrial countries. In addition, there are problems regarding the adequacy of available data and methods to establish baselines and measure change; the weak institutional capacity and policy standards in recipient countries; the lack of consensus on the appropriateness of a market-based financing mechanism for forests; and the complexities introduced by the use of Official Development Assistance (ODA) funds to finance REDD+ programs.
CGD’s prior work on COD Aid and other performance-based funding models, and the rapid progress in high-frequency remote sensing techniques to monitor forest status, including FORMA, provide an opening to help address these problems.
Accelerating Performance-Based Finance for Forest Conservation
In the face of these challenges and in view of the critical importance of conserving forests, CGD will conduct research, communications, and policy outreach activities to increase understanding of the central role of forests in meeting climate and development objectives, and to increase the availability of performance-based finance for forest conservation.
In particular, CGD will explore the potential to apply the principles and ongoing experiences with COD Aid to forest conservation.
To this end, CGD senior fellow Frances Seymour and research fellow Jonah Busch are leading the preparation of a book titled “Why Forests? Why Now?” that will bring together the most up-to-date science, economics, and politics surrounding forests, climate, and development to make the case that forests conservation is more urgent — and more achievable — than ever.
On the basis of the evidence from the report, CGD senior associate Michele de Nevers is organizing an expert Working Group that brings together high-level development, aid, finance, and climate experts and decision-makers to identify options to reinvigorate, scale up, and finance performance-based solutions to meet the objectives of REDD+.
This report examines the impact of the REDD+ agreement between Guyana and Norway on indigenous communities in the country. It aims to understand the concerns, hopes, and fears of indigenous communities at the start of the agreement, and the effects, if any, that communities have faced from REDD+.
Of course, the world hasn’t stood still since we hit “send” on our manuscript in October 2016. The scientific and economic literature on the importance of forests for climate and development continues to grow. More noticeably, near-term politics have shifted in decidedly unhelpful ways, dominated by the new American presidential administration. However, the fundamental messages of our book remain as important and urgent as ever: tropical forests are an undervalued asset for fighting climate change and promoting development, and payment-for-performance finance holds promise as a way for rich countries to partner with developing countries to reduce deforestation.
If we were to write a second edition to Why Forests? Why Now? today we’d have plenty of new material to add. Chapter by chapter, here’s a roundup of a few of the most significant developments of 2017:
New evidence confirms that tropical deforestation is a big part of the climate problem—and tropical forests are an even bigger part of the solution.
In Chapter 2 we described how carbon dioxide emissions from tropical deforestation are a large share of the climate problem and keeping tropical forests standing can be an even larger share of the potential solution. New research is showing how deforestation warms the planet in more ways than just by releasing carbon dioxide: Natalie Mahawold and her colleagues quantified how tropical deforestation affects the climate through methane and nitrous oxide emissions, while Natalie Schultz and her colleagues quantified the effect of deforestation on local temperatures, with daytime heating exceeding nighttime cooling, especially in the tropics. New studies have affirmed the critical role of forest protection in meeting the goals of the Paris climate agreement: avoiding deforestation and other land-based climate solutions can contribute more than one-third of the abatement needed to meet a 2 ˚C climate goal, according to Bronson Griscom and his colleagues, and one-quarter of the abatement needed to meet a 1.5 ˚C target, according to Stephanie Roe and her colleagues.
Even more links have emerged between tropical forests and development.
Forests are still the best option for carbon capture and storage.
In Chapter 5 we showed how reducing deforestation can make the global response to climate change cheaper, cooler, and faster. We illustrated how forest protection is far more ready than other carbon-capture-and-storage prospects with a comparison to the ill-fated Kemper “clean coal” plant in Mississippi. After years of delays, cost overruns, and corruption allegations, the Kemper CCS project was finally shuttered in June 2017. The pan-tropical modeling by Jonah Busch and Jens Engelmann that underpinned the book’s estimates of how much deforestation could be reduced where and at what cost was published in Environmental Research Letters in December.
A field trial shows that paying to keep trees standing pays off.
In Chapter 6 we recounted the history of decades of initiatives intended to “make forests worth more alive than dead”—non-timber forest products, bioprospecting, ecotourism, and the like. A new paper by Seema Jayachandran and her colleagues was the first to evaluate the cost-effectiveness of payments for ecosystem services using the gold-standard randomized controlled trial method, finding that emissions could be avoided for $2.60 per ton of carbon dioxide by paying landowners in Uganda to keep trees standing on their property. This adds another strand to a rope of evidence finding that forest protection offers plentiful emission reductions for less than $10/ton.
New research indicates that formalizing indigenous land rights can make a difference in reducing deforestation.
In Chapter 7 we presented approaches that have been shown to stop deforestation, both in Brazil and beyond. These include designating protected areas, recognizing the territories of indigenous peoples, enforcing forest laws, and paying land owners for their forests’ ecosystem services, as well as limiting the destructive potential of roads and clearing for the production of agricultural commodities. Empirical evidence on the effect of formalizing greater land rights for indigenous people is nascent, but that’s starting to change. Allan Blackman and his colleagues showed that awarding land title to indigenous people reduced deforestation in Peru.
Progress toward deforestation-free commodity supply chains is moving slowly.
In Chapter 8 we described how global demand for commodities produced in the tropics is a key driver of deforestation, and how perverse policies in consumer countries such as biofuel subsidies exacerbate the problem. We also identified “demand-side” policies that could be part of the solution by providing incentives for legal and sustainable production. A 2016 assessment documented slow progress toward achieving corporate targets to get deforestation out of commodity supply chains, and multi-stakeholder coalitions are now focusing their attention on implementation at the scale of subnational jurisdictions.
The action on REDD+ is now at the country level.
In Chapter 9 we recounted the fraught history of international negotiations on forests, and how the link to climate change shifted a confrontational dynamic to one of cooperation on Reducing Emissions from Deforestation and forest Degradation (REDD+). With endorsement of REDD+ in the Paris Agreement, the center of gravity has shifted to country-level implementation in the context of Nationally Determined Contributions toward the goals of the Agreement. More than two dozen countries have now submitted reference levels to the UNFCCC as a step towards eligibility for results-based payments under REDD+, although many are incomplete.
Forest politics remain volatile in Brazil and Indonesia.
In Chapter 10 we analyzed the political economy of forest resource management in developing countries, with a particular focus on Brazil and Indonesia. In both countries, domestic constituencies for forest conservation have continued to struggle against the forces of deforestation-as-usual, while international actors have applied a mixture of carrots and sticks to incentivize reform. In Brazil, an uptick in deforestation in 2016, attributed in part to law enforcement leniency in the midst of a broader political and economic crisis, led to a decrease in performance-based REDD+ payments in accordance with the provisions of its agreement with Norway. In 2016, Indonesia became the first country in the world to obtain the right to issue licenses for the export of legally certified timber to the European Union, reflecting progress in addressing illegal logging. In 2017, government efforts to protect carbon-rich peatlands were dealt a setback when, in the face of industry pressure, the Supreme Court struck down a 2017 ministerial regulation imposing new obligations on holders of fast-growing timber concessions.
In the US, hopes for action on forests and climate have shifted to non-federal leadership.
In Chapter 11 we focused on the politics of REDD+ finance in rich countries, describing how recognition of reduced tropical deforestation as a cost-effective climate mitigation option layered on top of existing rationales for international cooperation to protect forests, such as conservation of biodiversity. In 2017, support for international cooperation on forests weathered national elections in Norway, Germany, and the United Kingdom. In contrast, the unexpected results of the US 2016 presidential election, and the subsequent announcement of the Trump administration’s intention to withdraw from the Paris Agreement, dashed any hopes of stepping up US finance for forests and climate change. However, the abdication of climate leadership at the federal level has injected new energy into non-federal initiatives such as the State of California’s cap-and-trade program, which is now linked to the Canadian provinces of Quebec and Ontario, and retains the possibility of including international forest offsets in the future.
The missing piece? It’s still finance.
In Chapter 12 we described how the availability of international finance has fallen far short of the amount needed to constitute meaningful incentives for change in tropical forest countries, and how disbursement of pledged REDD+ funds has been slowed by a process of “aidification” by donor agencies. In 2017, the board of the Green Climate Fund approved a $500 million pilot program for results-based payments for REDD+, while a handful of countries inched their way toward concluding the first Emission Reduction Performance Agreements under the Forest Carbon Partnership Facility’s Carbon Fund. And a report assessing progress toward Goals 8 and 9 of the New York Declaration on Forests revealed the continuing large gap between forest mitigation potential and available funding. So finance remains the missing piece.
2018 will no doubt be another exciting year for tropical forests, climate, and development. We invite you to start it off right by downloading a free copy of Why Forests? Why Now?
This post originally appeared on theguardian.com, as part of CGD’s sponsorship of the Guardian’s Global Development Professionals Network. Frances Seymour is now a distinguished senior fellow at the World Resources Institute.
If tropical deforestation were a country, it would rank third after China and the United States as a source of emissions. Currently a large part of the problem, forests can be an even bigger part of the solution because trees offer the potential to achieve negative emissions. For example, ending tropical deforestation and allowing damaged forests to recover could reduce global net emissions by up to 30 percent.
The 2015 Paris agreement recognises the importance of forests in achieving climate goals. The agreement incorporates a framework of reducing emissions from deforestation and forest degradation (Redd+). The “plus” connotes the enhancement of forest carbon stocks.
Here are three reasons why Redd+ is a valuable tool in the fight against climate change.
1. It offers a low-cost path to climate stability
Paying developing countries to reduce deforestation is one of the cheapest emission mitigation strategies available to industrialised countries. It allows them to take on more aggressive climate targets at a lower additional cost. Bilateral Redd+ agreements have been drawn up with commitments of only $5 (£4) per tonne of avoided emissions, compared to the $100 per tonne estimates for “clean coal” technologies.
Brazil has led the world in cutting emissions by reducing deforestation in the Amazon. And it did so at an out-of-pocket cost of only one-third the amount spent on hosting the 2016 Olympic Games. And that reasonable expenditure does not take into account all the other benefits produced by standing forests such as generating fresh water for drinking, irrigation, and hydropower.
2. It encourages better international cooperation
While funding for developing assistance is always under pressure, it is particularly so in times of economic austerity and resurgent nationalism. An inconvenient truth is that decades of aid to the forestry sector has not turned the tide on tropical deforestation. But due to its novel payment-for-performance feature, Redd+ promises to be different by focusing on ultimate outcomes rather than proximate inputs.
If the desired results are not achieved, no payment is made. This feature of Redd+ is also politically attractive to developing country governments. A focus on results frames payments as a business transaction among equal partners rather than a paternalistic relationship between donors and recipients.
3. It helps developing countries be part of the global climate solution
Developing countries increasingly recognise that protecting forests is in their own interest, above and beyond the opportunity to obtain results-based finance. Many have signalled their intention to reduce emissions from deforestation as part of their national contributions to reaching the global climate goals, and have pledged to do more with international support.
The map below indicates the dozens of countries that are taking part in internationally-funded Redd+ programmes. Only those highlighted in orange have so far been promised any performance-based reward for success.
Only those highlighted in orange have so far been promised any performance-based reward for success. Source.
If Redd+ is so attractive to industrialised and developing countries alike, why hasn’t more funding been promised? Here are three criticisms put forward by aid agencies, and why they no longer hold up.
1. “It’s hard to measure forest-based emission reductions”
It used to be extremely difficult to monitor forest loss. Before images from satellites became widely available and affordable, it was almost impossible to know if remote areas of forest had been protected or cleared. But now advances in remote sensing technologies have made it possible to detect forest cover change in areas the size of a baseball diamond every few days. In addition to this, our ability to estimate the carbon stock contained in forests is constantly improving. These tools make it feasible to estimate the carbon emissions that result from forest loss with sufficient accuracy to provide a sound basis for results-based payments.
2. “There’s a high risk of corruption”
Some aid agencies have been reluctant to assign funds on a payment-for-performance basis due to fears of corruption. But compared to traditional funding for project participation, results-based finance offers fewer opportunities for diverting funds because payments are not made unless agreed outcomes are achieved.
3. “It has adverse impacts on communities”
To address possible risks to the rights and interests of local communities when a value is placed on forest carbon, principles for safeguards and benefit-sharing have been built into Redd+. Indeed, indigenous groups have used Redd+ policy forums at national and international levels to advance their agendas, and have begun to access a share of Redd+ finance directly.
The main complaint of Redd+ opponents is that buying the carbon protection services of developing countries lets rich, heavily polluting nations off the hook in reducing their own emissions. Let’s be clear: we need both to end deforestation and reduce emissions in rich countries. As Why Forests? Why Now?, the new book that I’ve written with Jonah Busch details, payment-for-performance for protecting tropical forests can be structured in ways to ensure that emission reductions are real and additional. By doing so, rich countries are “buying their way up” rather than “buying their way out”.
The science, economics, and politics of Redd+ are finally aligned. It’s time for results-based finance to follow.
Tropical forests help people live safer, healthier, and more productive lives in many ways, not least by reducing climate change. In fact, tropical forests contribute to achieving more than half of the 17 sustainable development goals agreed by world leaders in 2015.
Goal 1: No poverty
Communities living in or near tropical forests get an average of 21 percent of their income from forest products other than timber, according to a survey of 24 countries. However, there is often more money to be made by clearing forests for beef pastures, soy fields, or oil palm plantations—though often by different people than those who benefit from rainforests. So the challenge for forest conservation is to find ways to make them worth more alive than dead. Eco-tourism and international carbon payments are just two of the ways this can be done.
Goal 2: Zero hunger
Tropical forests’ contributions to food security go far beyond the fruits, nuts, vegetables, mushrooms, and meats that account for 7 percent of the income of households living in and around them. The birds, bees, and bats that live in forests improve the productivity of nearby fields by providing free pollination and pest control. Forests also recycle moisture as cool, wet air that is better for downwind farming, while their cover contributes to the health of inland fisheries. They even support breadbaskets at continental scales by creating vapour clouds or “flying rivers” that carry atmospheric moisture from the Amazon to the fertile growing regions of southern Brazil.
Goal 3: Good health and wellbeing
Tropical forests are a source of both traditional and modern medicines. People living in and around Makira National Park in Madagascar use 241 local plants as medicines to treat 82 types of illness. Modern medicines derived from rainforest plants include vinblastine (an anti-cancer drug), progesterone (an ingredient used in contraceptives), quinine (an anti-malarial), and tubocurarine (a muscle relaxant). Mature tropical forests also suppress malaria due to cooler temperatures, less standing water, and more species that eat or compete against mosquitoes.
Forests keep water clean by preventing erosion and filtering out pollutants. Converting Indonesian forests to oil palm plantations was found to cause a 500-fold increase in sediment in streams. To preserve water quality, cities as diverse as Bogota, Harare, and Singapore have set aside protected areas in upland watersheds.
Forests make many economic contributions to developing economies, but you wouldn’t know it by looking at gross domestic product (GDP).
Goal 7: Affordable and clean energy
Hydroelectric dams supply two-thirds of Latin America’s electricity, and the productivity of these dams depends on having an abundant, reliable, and clean supply of water. Forests limit the amount of sediment that flows into reservoirs, maintaining generation capacity and avoiding costly repairs and dredging. Where deforestation has been rampant, as in the watershed above Haiti’s Péligre Dam, electricity production has plummeted (pdf).
Goal 8: Decent work and economic growth
Forests make many economic contributions to developing economies, but you wouldn’t know it by looking at gross domestic product (GDP), which doesn’t count goods and services that don’t enter formal markets. However, economic estimates of the value of forests, and the costs when they are destroyed, are becoming more common. The World Bank calculated that Indonesia’s catastrophic 2015 forest fires caused $16bn (£13bn) in damages to health, infrastructure, and agricultural output—more than double the potential revenue from growing palm oil in cleared areas.
Goal 9: Industry, innovation, and infrastructure
Forests form a natural “green infrastructure” that protects towns from floods, fires, droughts, and other natural disasters. Hillsides with less deforestation had fewer landslides after a deadly 1999 tropical storm in eastern Mexico; and coastal mangrove forests protected villages from deadly waves following the super cyclone in Odisha in 1999 and tsunamis in the Indian Ocean in 2004 and Japan in 2011.
Goal 13: Climate action
Deforestation is the second-leading cause of climate change after burning fossil fuels. On many days in 2015, forest fires in Indonesia produced more greenhouse gas emissions than the entire US economy. Net deforestation is responsible for about 10 percent of climate emissions. When you consider that forests can remove carbon from the atmosphere too, protecting tropical forests while restoring damaged forests could contribute up to 24–30 percent of the potential climate solution.
Goal 14: Life below water
Forests don’t just keep carbon dioxide out of the atmosphere, they also keep it out of the ocean, where it forms carbonic acid and breaks down the calcium carbonate that marine animals need to form hard shells. Meanwhile, coastal mangrove forests serve as breeding grounds and nurseries for a wide variety of fish, crustaceans, and other sea life. Thirty percent of the fish catch in southeast Asia and 60 percent of commercial fish species in India rely on mangroves at some stage of their life cycle.
Goal 15: Life on land
Tropical forests are extraordinarily diverse, ranging from high montane cloud forests to lowland seasonally flooded forests to dry deciduous forests, each with its own distinct array of plant and animal life. One square kilometre of tropical rainforest in Malaysia can contain more tree species than all of the United States and Canada; a single tree in the Peruvian Amazon may be home to more ant species than the entire British Isles. Conserving tropical forests protects the habitat of two-thirds of all species, including some of the most charismatic: jaguars, gorillas, orangutans, and birds of paradise.
Forest conservation, long at the centre of efforts to protect earth’s biodiversity, is increasingly understood to make important contributions to the other SDGs as well.
Last Thursday President Trump announced he’d withdraw the United States from the Paris climate agreement—a shameful act of self-harm. Condemnation has been swift, widespread, and gratifying. But if dangerous climate change is to be prevented then dissenting statements must be backed up with strong climate policies. Fortunately some countries, states, cities, and businesses are already matching words with deeds on climate. Here’s a rundown:
The greatest climate success story of the last decade is one many haven’t heard of because it’s not about energy, it’s about trees. While the most ambitious countries and states aspire to cut emissions 80 percent by mid-century, it’s worth noting that Brazil already cut deforestation in the Amazon by 80 percent between 2004-2014, making it the country that reduced emissions more than any other. It did so while growing beef and soy production, and it cost governments just one-third the cost of the Rio Olympics, as Frances Seymour and I describe in our book, Why Forests? Why Now?
In the wake of Trump’s announcement, a bipartisan group of governors from nine states formed a United States Climate Alliance aimed at meeting the US climate goals, chaired by the governors of California, New York, and Washington. Ten more governors have expressed support for the Paris Agreement but have not yet joined the Alliance (the most up-to-date list seems to be on Wikipedia).
State governments can match climate words with deeds by putting a price on carbon pollution. This is happening not just in California, where the legislature is vigorously debating alternative proposals for extending cap-and-trade as a cost-effective way to meet the state’s ambitious climate targets. Virginia’s Governor Terry McAuliffe has ordered a carbon cap on power plants. And several gubernatorial candidates in New Jersey have stated intentions for the state to rejoin the northeastern states’ cap-and-trade program, the Regional Greenhouse Gas Initiative (RGGI).
Since Trump’s announcement nearly 200 mayors and counting have adopted the Paris Agreement. To back words with deeds, they can make their cities higher-density with more alternatives to driving, as Josh Barro writes. Former New York City Mayor Michael Bloomberg contends that the US will meet the climate targets it set in 2015 on the basis of actions by states and cities alone; this seems overly optimistic, but certainly worth a try.
The list of captains of industry with harsh words for President Trump included Apple’s Tim Cook, Disney’s Bob Iger, General Electric’s Jeff Immelt, and Goldman Sachs’ Lloyd Blankfein. But even better than critical statements is demonstrating the profitability of climate-friendly businesses. An Elon Musk disassociation from Trump is fine; low-cost Tesla batteries and electric cars are far better. It’s worth noting that technological advances, while critically needed, are no substitute for strong public policies on climate change—both are needed.
Lost in the noise from the announcement, Exxon Mobil shareholders passed a resolution over management’s objections instructing the company to report on the impact of climate protection policies on their business. (The New York Attorney General is fast on the heels of Exxon Mobil for misleading investors on the costs of climate change.)
President Trump’s announcement told the world he doesn’t care to act on climate, but he’d been showing this for months by deprioritizing climate within executive agencies and issuing executive orders to unravel his predecessor’s achievements on clean power, fuel efficiency, methane emissions, pipelines, drilling on federal lands, and more. However, Trump has had less success pushing an anti-climate agenda through Congress. He has failed in efforts to roll back other Obama-era methane regulations and cut funding for clean energy research and the Landsat satellite program, for example. I hope climate supporters in Congress don’t just oppose Trump’s announcement through statements, like those from Senators Kamala Harris (D-CA) and Susan Collins (R-ME), but continue to fight to uphold critical functions of the federal government on climate through the remainder of President Trump’s time in office and beyond.
The pronouncements on climate from within the United States and around the world in the last few days have been inspiring; now let’s hope strong words lead to more strong actions.
The international forest and climate communities have placed high hopes on the potential for compliance carbon markets to generate funding to reduce tropical deforestation through international forest offsets. At a meeting last week in San Francisco on “Navigating the American Carbon World” (NACW) it seemed as if these hopes are likely to be dashed. Or at least not realized in time to save the vast tropical forests in time for them to play a significant role in combatting dangerous climate change.
Reducing deforestation and conserving forests is a critical part of a solution to global climate change. Compelling evidence for this is at the heart of a recent CGD publication Generating results-based funding to pay tropical forest countries for their performance in reducing deforestation has been envisioned as a promising approach to mitigating dangerous greenhouse gas (GHG) emissions, and was enshrined in Article 5 of the Paris Agreement.
One way to generate funding to reward forest countries for reducing deforestation is to include forest offsets in compliance carbon markets. Carbon offsets allow GHG emitters to pay others for actions to reduce GHG emissions cheaply, outside the capped enterprise or sector, such as from uncapped sectors like forests. Offsets can provide an important tool for keeping the cost of emissions reduction low. As our CGD Working Group report, Look to the Forests, noted, there is not yet enough results-based funding, so hopes have been pinned on the potential of carbon markets to generate funding to pay for results.
In recent years over 50 jurisdictions have implemented policies to put a price on carbon. Some of these programs, including China and Korea, allow for the use of domestic forest offsets. But so far, only California has an active compliance carbon market (cap and trade program) that includes the potential to use international forest offsets in its enabling legislation.
The International Civil Aviation Organization (ICAO) has set itself voluntary goals to offset emissions from air travel and is also considering buying high quality international forest offsets in its market based program CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation). If cap and trade programs are allowed to purchase international forest offsets, this could be a boon to global efforts to reduce and halt deforestation, with enormous benefits both for local communities and the globe.
Where is California’s market today?
California has developed robust procedures that that would allow capped entities (polluters) to pay tropical forest countries to reduce their deforestation as a way to offset their own emissions. But until now, the procedures have not been cleared for use by the California legislature.
The launch of California’s international forest offset program has been slow and subject to continuous delays. There are several reasons for this. First, international forest offsets will compete with domestic (within California) offsets, which are already up and running. In California, the cap & trade program has generated an entire industry engaged in producing domestic offsets within the state. They have gained lots of experience with developing and implementing the domestic forest offset protocol. Companies that are required to reduce GHG emissions are keen to see more offsets because it drives the price of compliance down. But companies that generate offsets within the state are not interested in encouraging international offsets because they may be cheaper and compete with the domestic offsets.
Second, in California there is an active and outspoken community of people from disadvantaged communities located either near heavily polluting industries or major transport corridors. These communities, referred to as the Environmental Justice (EJ) community, and others, are opposed to the use of offsets, and in fact oppose trading emission permits altogether. They believe that there is a correlation between emission of GHGs and local pollutants that are harmful to health, and they hope to tackle the latter by forcing polluters to reduce more emissions in situ rather than through trading or offsets. The pressure from the EJ community is strong and finding a more sympathetic audience in the California legislature. The legislature is currently reviewing the impact of cap & trade, and especially offsets, on reducing local toxic and criteria air pollutants. There is pressure to stop cap & trade after 2020 and to replace it with direct command and control regulations, or even a carbon tax.
In the current California political climate, REDD+ and the use of international forest offsets are considered toxic. Some legal experts are even questioning whether carbon trading across borders is constitutional. Only sovereign governments are allowed to enter into international treaties. Do the agreements between sub-national governments like California and Ontario, or a future agreement between California and the state of Acre in Brazil, constitute an international treaty?
Perhaps the most significant obstacle is regulatory uncertainty in California. California’s cap & trade program is due to expire in 2020. The legislature is considering legislation that would extend it to 2030. There is solid support for the program in Governor Brown’s administration and by the majority democratic assembly and senate. But extending the program is likely to require a two-thirds supermajority vote and this would be more difficult to ensure. The administration already expended considerable political capital in passing the recent $52 billion transportation bill, which required a two-thirds majority, so there are questions about the level of political energy that remains to pass the cap & trade extension by a two-thirds majority. When California first put in place its cap & trade program (AB32), which goes till 2020, only a simple majority was needed. In the meantime, law suits were filed against AB32 claiming that revenues from the program are actually a tax, which requires passage by a two-thirds majority of the legislature. While the courts ruled that cap & trade revenues are not in fact taxes, but are regulatory fees, in 2010 voters approved Proposition 26 which stipulated that a two-thirds supermajority vote in the legislature is required to pass any fees, levies, charges or taxes that previously could have been enacted by a simple majority.
All this means that the potential for compliance cap & trade markets to generate funding to encourage tropical forest countries to halt deforestation is uncertain. At the NACW, experts suggested that California’s international forest protocols would be unlikely to be approved before 2020, and possibly as late as 2025. This is bad news for tropical forests. At current rates of deforestation, by 2025 a huge swath of tropical forests could be gone. Given that reducing deforestation, and reforesting degraded areas, can account for as much as 30 percent of current global emissions, maintaining forests is critical to halting dangerous global warming, and is one of the most cost-effective options to do so. With funding from compliance carbon markets in question, new ideas to generate funding for a financial incentive to halt deforestation are badly needed.
The Green Climate Fund (GCF) could begin offering results-based payments for protecting and restoring tropical forests as early as July. That’s good news for the climate and for developing countries, where tropical deforestation can be nearly half of low-cost emission reductions. Yet funding to protect forests remains low and slow, as Frances Seymour and I explain in our book, Why Forests? Why Now? As the GCF moves to enable results-based payments for forests, earlier initiatives offer valuable lessons on two things the GCF should—and can—get right: 1) keep rules simple, and 2) recognize that institutional procedures built for upfront investments may not always be appropriate for results-based payments.
Progress on forests at the Green Climate Fund
The GCF is a financial institution created by the United Nations Framework Convention on Climate Change (UNFCCC) in 2011, with headquarters in Songdo, Korea. It aspires to finance not just a collection of climate-friendly projects, but a “paradigm shift towards low-emission and climate resilient development.” The GCF has received more than $10 billion in pledges to date, though when the US will follow through with $2 billion remaining from its Obama-era $3 billion pledge appears uncertain as this funding was not included in the President’s budget request to Congress.
So far the GCF has approved 43 projects for climate mitigation and adaptation, totaling $2.2 billion in grants and loans. Two of these projects involve forests protection—$41 to finance Ecuador’s REDD+ action plan, and $53 million for smallholder farmers in Madagascar’s eastern rainforests. But the GCF hasn’t yet moved to systematically enable results-based payments for reducing emissions from deforestation (REDD+). It looks like that’s about to change.
When the GCF Board meets this July, it could issue a request for proposals for tropical countries to apply for results-based payments for reducing emissions by protecting and restoring forests. Last week in Bali the GCF convened a meeting of board-nominated REDD+ experts to discuss what might go into that request for proposals. I was invited to this meeting as a facilitator.
If the GCF enables results-based payments, it will join a diverse public funding landscape for REDD+ of about $8.7 billion from 2006-2015. More than half of this funding has been for inputs—readiness and policies. Less than half pays for results, including bilateral agreements of Brazil, Guyana, and Indonesia with Norway, and the multilateral Carbon Fund. The roughly $1 billion per year pace looks set to continue with an announcement in Paris in 2015 by Germany, Norway, and the United Kingdom of $5 billion, with the bulk of that on a results-basis.
Private finance for REDD+ makes up only about $1 billion, coming in the form of companies voluntarily offsetting their emissions. This amount is far less than anticipated a decade ago when it appeared reasonably likely that cap and trade programs in the United States and elsewhere would pass and would allow regulated companies to meet a portion of their emission-reduction obligations by purchasing REDD+ offsets. A carbon-neutral growth agreement by the International Civil Aviation Organization looks set to include offsets that could potentially include REDD+. However, a market for tropical forest offsets in California remains in political limbo, as my colleague Michele de Nevers describes.
GCF is a very important addition to the financial landscape for REDD+ because it is the only institution directly responsible to the mandate of the UNFCCC, with the legitimacy and balanced governance that comes along with universal representation of countries. The 2015 Paris climate agreement included a prominent role for protecting and restoring forests through results-based payments for REDD+; the GCF is the most direct way to operationalize that part of the agreement.
As a relative latecomer to the REDD+ finance landscape, GCF has the benefit of being able to learn a lot from earlier funds, both in terms of valuable precedents and cautionary lessons.
Make rules as simple as possible (but no simpler)
The most similar institution to the GCF—and thus the most valuable for learning—is the $736 million Carbon Fund, a multilateral consortium of 11 donors housed in the World Bank. I’ve previously written about my hopes and questions for the Carbon Fund in 2013, as well as its frustratingly slow pace of progress as of 2016, based on my experience as a technical advisor during the creation of the fund’s rulebook, the Methodological Framework. (As of today the Carbon Fund has started or will soon start negotiations on results-based payment agreements with Costa Rica, Democratic Republic of Congo, Chile, and Mexico, and has an additional 15 programs in its “pipeline.”)
Any results-based payment program needs rules. Reference levels provide a benchmark for measuring success in reducing emissions; social safeguards prevent harm to indigenous peoples. At this point the issues around such rules have been thoroughly discussed, and different REDD+ initiatives have taken different approaches, as detailed in Why Forests? Why Now?
In hindsight, one reason the Carbon Fund became complicated and slow was its desire to craft rules that could work for both carbon markets and public funds. Each is complicated in its own way—market designers typically ask for sophisticated carbon accounting rules to ensure the environmental integrity of offsets; public funders tend to ask for elaborate rules to minimize the risk that funds from their taxpayers will be misused. Trying to meet both sets of donor demands in a single set of rules led to complexity. The cost of complication is delay, burden on forest countries, and discouraging the submission of worthy applications.
GCF has more than twice as many principals (a 24-country board, divided evenly between developed and developing countries), so is it doomed to be even more complicated? Not necessarily. GCF has a big advantage over the Carbon Fund that it can choose to set rules only for public funding, and leave aside for now rules related to tradeable credits. Furthermore, to the extent that overcomplication at the Carbon Fund emerged from donors operating in a recipient-free rulemaking environment, the GCF’s 50-50 board structure has the potential to bring more balance. During the GCF’s expert workshop I was encouraged to see participants trying to operationalize decisions already made by the UNFCCC rather than setting up duplicative rulemaking processes.
Recognize that results-based payments may need different procedures than upfront investments
Another reason the Carbon Fund became slow and complicated was the need for its programs to adhere not only to the rules noted above but also to various institutional requirements of the World Bank. The issue here is not that a financial institution would impose safeguards and due diligence processes on its projects—as indeed they should—but rather that institutional requirements set up to finance upfront investments may not always be appropriate for results-based payments.
Safeguards and due diligence
All programs in the World Bank must follow that institution’s safeguard procedures, which are long and detailed and must be completed upfront. Meanwhile, the UNFCCC negotiations agreed to a set of Cancun Safeguards in 2010, which number just seven, but are purpose-built for REDD+ and can be assessed continually. Similarly, as part of its due diligence process, the World Bank requires that investment proposers provide project documents that specify upfront and in great detail many aspects of the activities to be undertaken. But with results-based finance, specifying all plans in advance may suffocate the flexibility needed to learn by doing on the way to producing results.
The same issue of heavy upfront documentation versus lighter ongoing assessment and planning appears likely to crop again at the GCF, which applies the safeguards of the International Finance Corporation, and requires planning documents of its upfront investments. However, The GCF might have some advantages over the Carbon Fund when it comes to processes that accommodate results-based payments. It’s a new institution, its mandate includes results-based finance, and such programs could potentially become a significant portion of its portfolio. I’m hopeful that the GCF can find ways to extend flexibility to results-based payments programs in recognition of their differing needs.
Applicants for upfront investment finance from the GCF are asked to predict in advance how many tons of carbon dioxide their projects will keep out of the atmosphere. But these claims are speculative—there’s no way to truly estimate the emission reductions a project or program will achieve until after the fact, and even then it can be challenging to attribute results to any particular policy, program, or project. Predicting future benefits is even more challenging for forest projects than engineering projects such as solar plants or seawalls.
Upfront predictions of eventual project successes shouldn’t be confused with true results, and they certainly shouldn’t prevent the GCF from offering a blend of across upfront and results-based finance. Indeed the concept of “multiple phases of REDD+” was agreed to encourage exactly this blend to occur. My colleague Bill Savedoff has written more about issues around “double counting,” as part of a larger body of work on cash-on-delivery approaches to development finance that also includes analysis on results-based payments for forests, including at the GCF.
Start now, and learn
The GCF has yet another advantage when it comes to results-based payments for forests: its requests for proposals can be easily modified in future iterations. Thus the GCF has every reason to issue a first request for proposals that helps it learn the ropes on paying for results, and then adapt as needed in subsequent requests.
By enabling results-based payments this year, the GCF can give a much-needed financial boost to tropical countries’ efforts to fight climate change by protecting and restoring forests.
Protecting and restoring tropical forests represents one of the biggest, cheapest, and fastest ways to fight climate change, as Frances Seymour and I show in our book, Why Forests? Why Now? Yet climate conversations in rich countries remain heavily dominated by energy, while tropical forests often feel like climate’s best kept secret.
1. Acknowledge that a stable climate requires multiple solutions.
Thirteen years after Pacala and Socolow’s “stabilization wedges” illustrated that many actions are needed in combination to effectively fight climate change, there’s still lots of thinking that climate change is only an energy problem. Fighting climate change indisputably involves shifting energy to cleaner sources. However, focusing policy efforts on fossil fuels alone makes solving the climate problem needlessly slow, weak, and expensive. Including the relatively cost-effective emission reductions from tropical forests in the global climate policy portfolio would help the world achieve a cooler climate more cheaply.
2. Expand the media’s focus.
There’s a big gap between how often media coverage of climate change discusses energy versus deforestation. News stories involving climate change mention energy 58 times as often as deforestation; they mention renewable energy 168 times as often as tropical deforestation. For every news story that mentions that carbon dioxide increases in the atmosphere are “driven by the burning of fossil fuels and deforestation,” dozens more mention only that carbon dioxide is “produced by burning fossil fuels.” Closing the gap in media attention would do much to raise awareness of forests as a climate solution. The damage wrought to tropical forests daily, and as a result to the world’s climate, contains myriad human stories which could bring a media story to life; while the opportunity offered by protecting and restoring forests is ‘solutions journalism’ waiting to be written.
Academia is considerably more vocal in linking climate change and deforestation. Scholarly articles on climate change mention energy 13 times as often as deforestation, and renewable energy 18 times as often as tropical deforestation—that’s still a wider gap than the roughly six-fold difference between emissions from fossil fuel use and net deforestation, but it’s substantially narrower than the gap in media coverage.
Forests are underdiscussed relative to their potential to slow climate change
Search results for "climate change"+...
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Note: Searches conducted Monday, March 13, 2017. "Energy" includes emissions from electricity and heat production, buildings, industry, and other energy. It excludes emissions from transport and agriculture (IPCC 5AR WG3 Summary for Policy Makers Figure SPM2). Net and gross emissions from tropical deforestation (IPCC 5AR WG3 Chapter 11 Figure 11.8).
3. The IPCC’s synthesis reports should unpack net emissions into gross emissions and removals.
The Intergovernmental Panel on Climate Change’s assessment reports are towering scientific achievements. The IPCC reports form the bedrock of what we know about how the climate is changing, what the consequences will be, and how to prevent it. However, as communication tools the reports sometimes come up short. One way the IPCC reports downplay the role of forests in fighting climate change is by displaying net emissions from deforestation in its various charts showing emissions from different sources. But unlike emissions from energy, industry, buildings, or transportation, net emissions from deforestation can be not just driven to zero, but made negative. That is, forests can take carbon out of the atmosphere.
The IPCC could improve understanding of forests’ potential role in fighting climate change by unpacking net emissions into gross emissions and removals in its Summary for Policy Makers, just as it does all the way down on page 827 of Working Group Report 3, Chapter 11. There one finds a bar chart showing that the 8 percent or so of annual emissions that come from net tropical deforestation are comprised of gross emissions of around 16-19 percent, while regrowing tropical forests remove around 8-11 percent of emissions from the atmosphere. This means that if all forest loss were halted, while letting cleared and damaged forests regrow, global net emissions would be reduced by as much as 24-30 percent. (In Why Forests? Why Now? we discuss several reasons this number could be lower—or higher.)
4. Realize we already have a carbon-capture technology.
In an era of technological marvels, it’s tempting to hope that humanity will be able to invent our way out of climate change. As welcome as it would be to have a new “breakthrough” engineering solution to remove carbon dioxide from the atmosphere involving tubes or wires or chemicals, let’s not forget to take full advantage of the safe, natural, proven, large-scale “carbon capture and storage technology” we already have—forests. Photosynthesis has been turning carbon dioxide into solid carbon perfectly well for millions of years. And it’s not just regrowing forests that take carbon dioxide out of the atmosphere—mature forests do too. A new study in Carbon Balance and Management finds that in eight out of nine Amazonian countries between 1980-2010, mature forests took more carbon dioxide out of the atmosphere than fossil fuel use put into it. So, let’s not try to inventing a carbon-capture technology; let’s invent another one, while deploying the leafy green technology we already have.
5. We are the vested interests we’ve been waiting for.
Some climate solutions will create legions of jobs—think wind technicians, “America’s fastest growing profession.” Others will produce a new generation of billionaires, a la Elon Musk of Tesla fame. These people make powerful advocates for a low-carbon future. The irony to fact that reducing deforestation is a relatively low-cost climate solution (suggested to us by David Kaimowitz, a reviewer of Why Forests? Why Now?) is that there’s nobody who stands to see their stock price double, or land a big federal contract. That’s not that nobody benefits from keeping forests standing. Far from it—standing tropical forests provide healthier air, cleaner water for farming, and more energy from hydroelectric dams. But the beneficiaries of these services are dispersed, uncoordinated, and (even worse as far as Congress is concerned) living overseas, so they are less likely to take to the halls of Congress to advocate on their on behalf. Domestically, the vested interests in tropical forest conservation lie with all of us concerned about a stable climate, so the more we speak up to our representatives about protecting them, the more they might listen.
In spite of the five hurdles above, many countries are moving forward on policies to protect forests. In fact, forests make up a full quarter of the emission reductions pledged by countries in the lead up to the Paris climate agreement in 2015, according to a new study in Nature Climate Change.
What’s lacking, however, is results-based finance from rich countries, as enshrined in the Paris climate agreement. While more than fifty tropical countries have stated their willingness to reduce emissions from deforestation in return for results-based funding, only seven have seen payment-for-performance agreements with rich countries materialize. More attention to forests could lead to more results-based funding, leading in turn to more forests and a cooler planet.