Readings on REDD and Financing

If forest carbon credits are included in global emissions trading, the cost of halving net global carbon dioxide emissions from forests by 2030 is estimated at USD 17-33 billion annually. Two main types of financing needs for REDD are apparent. First there will be the upfront capacity-building costs. Countries need to fulfil minimum readiness requirements, such as ensuring there is adequate infrastructure to enable emissions reduction accounting (through monitoring, reporting and verification), clarification of land tenure, and institutional capacities for law enforcement. This has been estimated to cost up to USD 4 billion over a five-year period for 40 forest nations. Second, and more significantly, there are on-going emissions reduction costs. These include the costs of forest protection (such as tenure reforms, forest law enforcement, taxation of forest lands and recurrent monitoring costs) and the opportunity costs incurred by not deforesting and adapting to more sustainable forms of forest use.

Costs are likely to vary according to many factors and over time. Different forest policies and measures, and therefore costs, will be needed to address deforestation and forest degradation in different forest types. Forests in a forest-agriculture mosaic landscape pose different challenges from forests at the agricultural frontier and again from those beyond the agricultural frontier. For example, policies for improved forest management in the forest-agriculture mosaic lands, may include enforcement of property rights and creation of new markets for environmental services. In forests beyond the agricultural frontier, protecting indigenous rights and averting disorderly frontier expansion by equitably assigning rights are likely to be of greater importance. Public finance is expected to be necessary for forests beyond the agricultural frontier, while private sector finance is likely to migrate towards forest mosaic lands, especially where there is stronger land tenure and better governance.

The public and private sectors are also likely to diverge in the types of cost they finance. Public sector support is most needed for capacity building and achieving readiness, and for leveraging further private-sector finance. This aims to establish an enabling policy environment for effective REDD implementation, especially in weak governance contexts. Private sector finance—especially when incentives are provided through carbon offset markets—is likely to mobilise significantly higher and more sustainable finance than public-sector development assistance. Private sector investments are more likely in countries with stronger governance structures and better defined tenure systems.

More background on this complex but essential aspect of REDD can be found in the readings here.