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WWF on REDD financing: Asking forest nations to engage in a 30 year activity, “where the rewards beyond year 2 or 3 are completely unknown”

WWF on REDD financingUnder a REDD mechanism, forests are valued primarily as stores of carbon. REDD aims to save the forests by trading the carbon stored in the forests, making the trees worth more standing than cleared. For REDD to save the forests, we have to create a market for forest carbon.

Even on its own terms, REDD is not working. The market for forest carbon is tiny and the price has collapsed. And that’s ignoring the inconvenient truth that carbon trading doesn’t reduce emissions, locks in polluting technology and provides a dangerous distraction for the immediate task of reducing greenhouse gas emissions from burning fossil fuels.

A recent report by WWF, titled “Stimulating interim REDD+ demand – the Forest Finance Facility“, puts forward a fascinating analysis of where we currently stand with REDD. Over the past five years, “dozens of conferences, hundreds of papers and billions of dollars have been devoted to accelerating REDD+”, but these efforts, “are not currently delivering what is required”. This post on REDD-Monitor considers WWF’s analysis of the problem. A second post will look at WWF’s proposed “solution”, the Forest Finance Facility.

WWF’s analysis of the problems that REDD is running into is clear. The money is not being delivered. Northern countries are not handing over the money because the Southern countries are not REDD-ready. Southern countries are not very interested in jumping through the endless REDD-readiness hoops, because there is no guarantee that they will ever make any money from REDD. The private sector has no interest in financing REDD-readiness for similar reasons and there are plenty of other potential activities that they can finance (like mining, infrastructure, plantations, hydropower etc.) where they have a much better chance of making a profit on their investment.

WWF uses Johan Eliasch’s target of reducing deforestation by 50% by 2020 and suggests a target of 25% by 2015 as an interim goal. Based on Ecosystem Marketplace’s estimates of REDD activities up to 2015, WWF states that we would need, “an immediate increase of over 16 times the current REDD+ activities to get back ‘on track’”. As the report points out, the delays in setting up REDD projects make that just about impossible to achieve.

Meanwhile, Northern governments have not promised enough money for “REDD+ fast start funding”. And the vast majority of the money that has been promised has not been delivered. WWF gives four examples of the percentage of disbursed to pledged funds:

  • FCPF Readiness Fund: 5%
  • Forest Investment Fund: 1%
  • UN-REDD: 33%
  • Guyana REDD+ Investment Fund: >1%

WWF could have included Brazil’s Amazon Fund (24%), the Congo Basin Forest Fund (7%) and the Indonesia-Norway US$1 billion REDD deal (0.3%). In December 2011, the Telegraph described as “incompetence on an appalling scale”, the fact that although the FIP was yet to spend any money on reducing the rate of deforestation, it had run up a bill of US$15 million on its own administration costs.

WWF’s analysis of the problem is succinct and comes with a diagram:

“[T]the essence of the REDD+ mechanism is to provide financial incentives to developing countries to reduce emissions, avoid emissions or enhance their carbon stocks. The REDD+ ‘elephant in the room’ is that there is currently no such short to medium term incentive for forest countries and there is no credible financial mechanism which will pay for medium or long term results at scale.”

There’s a fascinating comment on the issues of permanence and leakage:

Those who doubt the ability of REDD+ to generate large scale, permanent emissions abatement often cite issues such as permanence and leakage as reasons for the exclusion of forest carbon from future large scale market mechanisms. These allegations are hard to refute as no large scale REDD+ demonstration programmes are operating where a forest country- or part thereof- has committed to REDD+ ‘permanence’ at scale. The reason for this is that there is simply no means by which anyone producing verified emissions reductions at scale over multiple years can be assured of payment.

WWF notes that REDD projects in many cases rely entirely on carbon finance. This is in contrast to CDM projects such as hydropower dams, wind farms or biomass projects for example produce income through electricity generation. Carbon finance accounts for 5-20% of project revenue.

Yet it is far from clear where the carbon finance is going to come from. In a footnote, WWF provides an analysis of financing under the World Bank’s FCPF Carbon Fund:

The Forest Carbon Partnership Facility Carbon Fund is an example. We are using rough numbers based on the following assumptions. The FCPF Carbon Fund will be fully capitalized at USD 220 million. Assuming no transaction costs, and an equal split between the 5 eligible countries (although contracts will be signed at a jurisdictional level), that equates to a USD 44 million allocation per country. We can use the State of Acre in Brasil to put these numbers in context. Acre expects to produce about 10-12 million tons of verified emissions reductions each year through its low carbon development plan. If we assume only half of the emissions reductions have to be paid for (the other half of emissions reductions could come from policy interventions like improved governance, more efficient land use planning, removal of perverse incentives etc.) then roughly 5 million tons of carbon will have to be paid for annually using the lower bound of the estimates. At $5/t, this would cost USD 25 million/year ($5/t * 5 million tons) and at $10/t would cost USD 50 million/annum. Based on a USD 44 million allocation per country, this means that a sub-national scheme would draw down the entire allocation for the country in under 2 years at $5/t and would last less than a year at $10/t.

WWF sums up the problem of financing REDD projects as follows, “What is currently being asked of forest nations is to ignore lucrative alternatives to conserving the forests, and to engage in what might be a 30 year activity where the rewards beyond year 2 or 3 are completely unknown.”

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  1. This readdresses many of the key points on national REDD development and potential successes, true, in some case where tobacco and mining are possible, REDD will never compete, but you are missing a very important point. REDD is an alternative land use choice for communities who live, work and exist on that land, mining and large scale agricultural development rarely return revenue to those people, REDD has the potential to change that. As a private sector REDD developer with a project in the voluntary carbon market, we are watching these global developments with great interest, especially in Tanzania. Our project is working well but the communities we work with WANT to conserve THEIR environment from externally driven slash and burn agriculture, this is not always the case. REDD can work in some places and not others and each area has it’s own variables to consider, private sector investment is essential for REDD to succeed and be maintained over the long term. What is the bottom line here. Easy to be critical of REDD but I NEVER hear the great alternative, CDM has been a failure in Tanzania. What is it Chris?? Do you simply want all forests conserved? How? By whom? Who pays? How is it equitable? You talk about opportunity cost, 5usd a tonne may not be much to you or the corporations and governments your talking about but to the Hadza it represents the ability to maintain their cultural and spiritual survival, pay for education and medical supplies. We are losing 400kha a year in Tanzania, thats not going to be sopped overnight, REDD will not address it, BUT REDD combined with provision of alternative cooking fuels, better land management, conservation agriculture, tourism revenue and conservation NGO work all help. REDD is jigsaw piece not a silver bullet.

  2. Well said Marc! This is what REDD is all about albeit not a perfect model in an ideal world. I’ve been working with, and I have been (still am) close friends with many indigenous landowners / dwellers over the past 36 years and believe I have some experience to comment on what REDD has the ability to deliver to the impoverished, isolated communities in Indonesia and PNG in particular. Stop the criticisms of REDD and give the landowners/forest caretakers some incentives not to permit logging, mining, palm oil and the like. They have a right to derive an income from their environment and their traditional lands. Let’s hear some real alternatives to REDD that will deliver some real form of social equity and benefit to the many people who genuinely want to retain their forests however not just to keep select NGOs commentators happy by paternalistic ridicule of traditional landowners and the many others who genuinely have the landowners interests at heart. Many of us have been stridently working to ensure genuine “free, prior and informed consent” on options for their future. I would suggest many of the many anti-REDD commentators have not ever lived in or visited many of the forests that may hopefully be preserved though REDD. I would be happy to invite the genuine sceptice to spend a few weeks in the field to see firsthand the conditions of village life in remote forests under threat of deforestation and broaden their knowledge on what REDD offers and what the local people want.

  3. REDD is a workable concept if we can derive a REDD baseline and do proper land use plans. But the problem is the financial mechanisms. The financial mechanisms that are now on the table are not workable and would lead to more forest governance and other corruption issues. Therefore, REDD should be viewed as a climate change solution, but also as potential threat to forest governnace and other corruption issues as well. Only when you look at REDD from these two contrasting view points, you will appreciate that REDD is actually problematic at the moment. But that does not mean that it will not succeed. If we can take the criticisms and suggestions Chris Lang and the NGOs are throw at us, we can improve on what is current be put on tha table and advance REDD in a positive way. While REDD is dragging on, climate change is accelerating, so we have to move fast. Northern nations will have to listen to us in the south because it is our forests and land that they want to use to solve a problem that they largely responsible for.

  4. Interesting discussion. I haven’t read the WWF report, but from what Chris describes of it, the underlying problem that perhaps it is not addressing is that the current formulation of REDD simply does not represent a credible investment prospect (and probably never will do). Largely, in my view, this is because the whole concept has been so fixated on carbon (and the trading thereof), which immediately undermines REDD because the technical problems associated with measuring and then storing carbon in forests in knowable quantities over very long periods are so complicated and uncertain that no-one in their right minds is going to be convinced it is worth investing in. (And of course the greed-bags like the Nature Conservancy and Environmental Defense Fund have made it all so much worse by pushing for sub-national schemes where leakage is basically impossible to prevent, so no-one now believes that REDD projects are going to represent ‘additional’ carbon savings).

    I’ve been told by many potential investors that there is actually no shortage of money around – it just needs for someone to come up with a convincing idea that they will want to invest it in. To my mind, the obvious starting point would be for forested countries to come up with, say, five year, peer-reviewed, costed, intensive action plans as to what would really need to happen in their country to, say, reduce deforestation by 50% by 2020. So, what exactly needs to be done to stop legal and illegal logging? change national forest zoning plans so as to allow conversion to things like palm oil only in already severely degraded areas? legalise indigenous and community forestry rights? strengthen environmental ministries etc. (And frankly, if countries can’t or won’t come up with such plans, then they are NEVER going to save their forests, no matter how much carbon money got thrown at them).

    Then, instead of the total waste of time and money trying to count carbon volumes and supporting scores of useless over-paid REDDocrats in the World Bank’s offices in Washington (or profligate aid-disbursers in Oslo), perhaps we need hard-nosed business sense and strict performance-based payments for delivering funding, of the kind that the Gates Foundation has brought to the battle against the world’s worst diseases.

    My guess is that if presented with convincing national ‘reduced deforestation plans’, and credible mechanisms to deliver funding, the money would soon be found from the international community, public, private AND philanthropic.