Where angels fear to tREDD

Having had a chance to examine the REDD text of the Cancun Agreement, I find it a relatively positive step forward that manages to avoid some, but not all, of the misperceptions and biases that I encountered while attending REDD-oriented side events during my time at the COP. Below are some observations and lingering concerns.

The emphasis on national-level REDD.

Section C of the Cancun Agreement calls on developing countries to produce national strategies and action plans, national forest reference emissions levels, and national forest monitoring systems. The emphasis on national levels of deforestation and degradation is important in order to limit leakage from REDD projects—without national-level policies or controls, economic activities that cause deforestation could easily move from protected sites to non-protected sites at little to no cost, rendering efforts to reduce deforestation pointless in terms of decreased carbon emissions. True, trans-national leakage, where the deforesting activities shift from countries with strong forest protection policies to those with weaker rules, could still occur under an international REDD regime that does not cover all forest nations. However, trans-national leakage is not 100%, particularly if there are high costs associated with shifting deforesting activities from one country to another, or if the driver of deforestation in one country is ecologically suboptimal in another. For example, stopping the expansion of palm oil plantations in Indonesia would not likely cause the expansion of palm oil in, say, the Amazon, since Amazonian soils are far less nutrient rich than the Indonesian peat soils.

I note that the emphasis on national-level REDD is important because I found at several side events, including even those involving country delegates, a disconcerting enthusiasm for generating carbon sequestration credits via sub-national and project-level REDD. This enthusiasm is understandable, since countries are eager for REDD financing to start flowing and the national-level actions called for in the Cancun Agreement require time and political will, the latter admittedly in short supply within many developing countries. In the midst of this enthusiasm, concerns about leakage have been downplayed, even overtly ridiculed, in the panel discussions I attended, particularly by private corporations that are currently implementing pilot REDD projects in parts of the developing world. I suspect that this enthusiasm is the reason that mention of sub-national actions remains in the Cancun text at all. Thankfully, subnational reference levels and monitoring are allowed only as interim measures and are meant to be aggregated and developed, eventually, into national-level measures.

Financing options.

The Cancun Agreement largely sidesteps the issue of how to finance REDD. Paragraph 77 passes the buck to the AWG-LCA, requesting it “explore financing options for result-based actions” adding in a footnote that results-based actions require national monitoring systems. Again, the emphasis on national monitoring is welcome, and I suspect its inclusion is due to the influence of countries like the USA, which has expressed reluctance to continue climate financing without robust MRV.

That the financing issue remains unresolved is a positive, as again, there are a number of misperceptions swirling around the REDD discussion that need to be resolved, and the issue calls for closer scrutiny. The first is whether REDD financing will take the form of a market mechanism like CDM. I suspect that this will be unlikely, despite the enthusiasm on the part of private contractors currently implementing pilot projects (and the distinct lack of enthusiasm on the part of anti-REDD protesters… more on them in a minute). A market mechanism for REDD is a terrible idea due to the fact that the success of any national level REDD project is subject to a great deal of information asymmetries—even with MRV, REDD buyers must depend on the word of the seller regarding the robustness of their forest protection policies and governance. A market mechanism for subnational REDD would be an even worse idea, given the high risk of within-country leakage. Markets would be an efficient way of allocating funding for carbon sequestration services if the risks were well-understood. However, in the case of REDD, particularly at the initial implementation, the risks are not well-understood at all.

Fortunately, many countries are uneasy with a market mechanism for REDD, probably due to a combination of ideological biases against markets and a desire for predictable financing that would not be subject to market fluctuations. It is true, however, that when fully implemented public financing alone will likely be insufficient for an international REDD regime. I heard a lot of talk at the COP about leveraging public funds to encourage private “investment” into REDD, but few specifics on how this could occur. Given that REDD must occur at the country-level to limit leakage, REDD financing will likely involve national governments receiving funding that would hopefully then be distributed to forest communities. The source of this funding, be it private, bilateral, multilateral, or some combination thereof, has yet to be determined.

That brings us to the issue of the anti-REDD protestors like Climate Justice and its ilk (see picture). It strikes me that these people do not really know what they are protesting against, aside from some vague idea of capitalism that REDD, in its final form, is unlikely to resemble. Given that REDD will occur primarily via funding distributed to national governments, from some sort of internationally coordinated funding source, the final state of REDD would not be capitalism or market-based in any meaningful way. Essentially, REDD would be the developed world giving money to the developing world to undertake forest conservation, a premise that I doubt the anti-REDD folks would object to if phrased in this way. This would make REDD more similar to debt-for-nature swaps or conservation concessions than to CDM. With all this in mind, including all the safeguards of indigenous people and local communities that are explicitly specified in the Cancun text, it seems to me that the anti-REDD protestors object to a straw man caricature of REDD rather than anything based on fact. For example, I heard one REDD protestor call for command-and-control strategies to limit deforestation, apparently unaware that nothing in REDD disallows such as policy. So long as indigenous and local human rights are respected, command-and-control would be a perfectly viable policy option for a country seeking to reduce its deforestation rate. But where could the financing for implementing such a policy come from? If you guessed “REDD”, then, congratulations, you have thought through the issue a little more thoroughly than the protestor in this particular example.

No capitalism of forests? Then what's the sticker printed on, magic?

Double standards in carbon services.

With all the excitement over reduced emissions from deforestation and degradation, it is easy to overlook what is apparently the red-headed middle stepchild of terrestrial carbon sequestration: reforestation. At REDD panels, concerns about additionality, leakage, and permanence were swept aside. At CDM panels, I found concerns about the same issues prevent reforestation credits from being admissible into the ETS. Without access into the European market, reforestation projects comprise only a small percentage of CDM offsets, and are largely relegated to the unruly, uncertain voluntary market.

Why the double standard? I suspect it is due to the fact that people consider sequestered carbon as a permanent, physical good, when carbon sequestration ought to be viewed as a transitory service. Reforestation, particularly for rotation timber harvesting in lieu of agriculture, is considered impermanent sequestration. In contrast REDD, for some ill-defined reason, is considered “permanent”, probably due to the inclusion of “degradation”, a veiled reference to logging. Many thus think that sequestered carbon only has value if such sequestration is permanent. However, this is a common misconception. Here’s why: carbon is a stock pollutant, where the damage caused by carbon depends on its overall total concentration in the atmosphere, not by the flow at any particular time. Carbon dioxide stays in the atmosphere at 100-year time scales, spanning generations, hence it is the stock at any given moment of time that we should be concerned with, not the flow. This means that delaying the emission of a unit of carbon into the atmosphere results in avoided damages even if the delay is not permanent. In economic parlance, the “shadow price” of a unit of carbon sequestered for one year is the total discounted damages avoided by delaying its contribution to the atmospheric stock for one year. Avoiding those damages, even for one year, has value, thus impermanent sequestration has value as well. The analogy I used when trying to explain this concept to people at the COP was seeking medical treatment for a terminal illness. Someone with a terminal illness would still seek medical treatment if such a treatment allowed them to prolong their days of healthy life, even if the treatment does not cure the illness and hence is impermanent. The impermanence of the treatment, a transitory “service” rather than a durable “good”, does not render the treatment valueless if there is a net benefit to the patient (i.e., the patient values the extra time afforded by delayed death more than the costs of the treatment).

I would explain this to people, and they would tell me to publish a paper on it. Of course, comparing climate change to a terminal illness may not be the mostly hopeful analogy, however apt…