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REDD Arild Angelsen Professor, IR, UMB, s & Senior Associate, CIFOR, Indonesia Slide 2 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Forests and global warming Forests and climate change Slide 3 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Share of GHG emission Slide 4 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Slide 5 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Its getting hot Slide 6 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no How much hotter? CO2 concentration IPCC 2001Range of other estimates 4000.8-2.40.6-4.9 6501.8-5.51.5-11.4 10002.8-8.32.2-17.1 Slide 7 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 7 Emissions reduction (ER) = Actual emissions - Reference levels Payment based on ER Slide 8 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 8 Why include Reducing Emissions from Deforestation and forest Degradation (REDD) in a global climate regime 1. BIG: 1/5 of GHG emissions, but not included in global climate regime 2. CHEAP: (Stern report) Negative - $5/ton 50 % red: USD 5-15 billion But problems of implementation (transaction costs) 3. QUICK: Stroke of pen reforms No deep restructuring of economy or new technoloigy A wooden bridge to a clean energy future 4. WIN-WIN Large transfer Good governance? Slide 9 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 9 Reducing Emissions from Deforestation and forest Degradation (REDD) Slide 10 Others Community Private State (conservation) State (production) Forest management types Others Community Land owner National & sub-national government agencies Concession holder Carbon rights holder REDD fund (national or sub- national) Policies and Measures (PAM) Performance payments (e.g. PES) INFORMATION Regular budgets (national or sub- national government) Regular budgets (national or sub- national government) Others Consumers Farmers Environmental services users Energy users Other stakeholders INCENTIVES Sub-national projects Sub-national projects 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) Verification Monitoring, Reporting INSTITUTIONS Slide 11 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no REDD in a global climate agreement What is REDD: Aid PES CAT Agreement on some broad principles in Copenhagen maybe! Technical solutions exist, its a question of political will ???? Distribution Hold-out game Slide 12 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no 12 Scope of REDD Changes in:Reduced negative change Enhanced positive change Forest area (hectare) Avoided deforestation Aforestation & reforestation (A/R) Carbon density (carbon per hectare) Avoided degradation Forest regeneration & rehabilitation (carbon stock enhancement) Forest carbon (C) = forest area (ha) * carbon density (C/ha) Slide 13 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 13 Finding the right scale? Credit to countries, projects or both? Nested approach: 1.Sequential: first project, then national 2.Simultaneous: both coexist The most flexible: -Harmonization issues -Credit sharing Slide 14 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no 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 konomi og ressursforvaltning 14 Slide 15 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 15 Finance: Current carbon markets Slide 16 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 16 MRV Slide 17 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi 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) Slide 18 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Reference level Should we pay for 100% of the emissions reduction, or a smaller percentage of them? 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 Slide 19 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 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 Brazil being rewarded due to the economic crisis Slide 20 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 20 Reference levels Time Past emissions (historical baseline) Realized path Crediting baseline BAU baseline Commitment period REDD credits Forest carbon stock Slide 21 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 21 How to set reference levels Main principle: BAU + common but differentiated responsibilities Crediting baseline < BAU: A balance between: The risk of tropical hot air and higher effectiveness REDD participation and acceptability Positive incentives (UNFCCC) No-lose systems No liability REDD: move from IPES to CAT Who owns the REDD rent? Slide 22 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Costs and reference levels Change in tC (forest cover) 0 BAU defore- station Marginal costs of AD Carbon price Realized reduced defore- station REDD rent REDD costs Ref. level $/tC Carbon price determines reductions RL determines overall pay & participation Slide 23 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no 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: Scenario National historical deforestation Forest cover GDP per capita/ LDC quota Global additionality scaling factor Funding (USD billions/year) Meridian 1 (M-1)100 5 M-2100201005 M-3100101005 M-410020101005 M-1 w/ scaling100905, 10, 20 M-1 w/ scaling100805, 10, 20 M-1 w/ scaling100705, 10, 20 M-1 w/ scaling100605, 10, 20 M-1 w/ scaling100505, 10, 20 Slide 24 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no What are the implications? USD 5 billions in a fund based approach Large distributional impacts Deviations from BAU reduce effectiveness (reduced participation) Slide 25 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no . . 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%) Slide 26 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 26 National REDD policies Slide 27 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Appropriate deforestation? Some deforestation ok: benefits > costs But strong externalities.... ... and policy failures deforestation Production net benefits Environmental costs market failure $ Production net benefits after policy distortions policy failure A BC C: actual deforestation; A: optimal deforestation Slide 28 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no 3. A framework for an agent-based analysis of causes of deforestation 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) Microeconomic defor. models Slide 29 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Some key issues in economic modelling of deforestation 1. Smallholders or large actors: the needy or the greedy 2. Deforestation an investment or dis- investment; agent or national/global level modelling 3. Frontier deforestation (open access) vs. mgt. of land with secure property rights 4. Subsistence (population) or market approach Slide 30 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no 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) Slide 31 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no b. Market approach (von Thnen) What drives deforestation? high prices (p) high productivity (x) low wages (alt.empl.) (w) small access costs (q) extension: forest clearing gives property rights Slide 32 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no 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 Slide 33 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Extension of market approach Homesteading, land races Constraints at the farm level Several farming systems Environmental effects Costs of property rights Slide 34 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Introducing forest rent Deforestation A Global + local + private forest benefits Local + private forest benefits Agricultural rent Value BD C Private forest benefits Slide 35 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Capture forest rent Much of forest rent is a public good. Key question: how to internalize externalities 1. Institutional arrangements (CFM) 2. Markets (PES) - Assumes property rights allocated and secure Slide 36 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Policies for reduced deforestation Policy Effectiveness (forest conservation) Direct costs of policy (efficiency) Effect on inequality/ poverty Agricultural yield Political viability 1.Reduce (extensive) agriculture rent Depressing agric prices HighNegative Very negativeVery low Creating off-farm opportunities HighMedium/highNeutral/positiveUncertainHigh Support to intensive agric sector Moderate/ highHighUncertainPositiveHigh Selective support to extensive agric Uncertain/ moderate HighPositive Moderate Ignore extensive road building HighNegative Low/ moderate More secure property rights UncertainMediumUncertainPositive Moderate/ high 2.Increase forest rent and its capture Higher price of forest products ModerateLowPositive/uncertainSmallModerate CFM capture local public goods ModerateLow/mediumPositiveSmallModerate PES capture global public goods Potentially highMedium/highUncertain/positiveSmall Moderate/ high 3.Protected areasModerate/ highMediumUncertainSmallModerate Slide 37 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Institutt for konomi og ressursforvaltning 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 Slide 38 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no 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 konomi og ressursforvaltning 38 Slide 39 UNIVERSITETET FOR MILJ- OG BIOVITENSKAP www.umb.no Its 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 nave in two ways: 1. Can money buy forests? Super-optimistic about what aid can do Previous aid projects a mixed success 2. Beware the game played Conditionality: performance- based support Long term targets as the only feasible way 5. Norway: 15 billion kroner (perhaps)