23 December 2011

Alternatives to carbon markets to finance REDD

At the beginning of the UN climate negotiations in Durban (COP17), FERN published a short report looking at carbon markets as a means of financing REDD. The briefing, which was signed on to by 28 organisations explains why carbon markets will not deliver for southern governments, forests and people

By Chris Lang | REDD-Monitor | 23rd December 2011

Alternatives to carbon markets to finance REDD

The briefing can be downloaded here. It starts with the question, “How much money is needed?” and explains that although this has been a primary focus of discussions on REDD, it is the wrong question. More important than the amount of money needed, is “a clear action plan to address the underlying drivers of forest loss coupled with sufficient political will to implement the plan”.

In the period 2010-2012, more than US$8 billion has been promised or is expected from government funds for REDD, compared to US$600 million from voluntary markets and nothing whatsoever from compliance markets. This is unlikely to change much before 2020, the briefing argues, because the largest carbon market, the EU Emissions Trading Scheme does not currently accept forest offset and will not do so until at least 2020.

Most of the growth in carbon trading volume up to 2010 was in the secondary markets. In other words, most carbon trading is carried out by banks and speculators. Even this growth is currently stagnating. Since 2008 Bank of America, ABN Amro, UBS
Warburg and Credit Suisse have closed or reduced the size of their carbon trading desks. Meanwhile, “Forest offsets in the voluntary carbon market have been fraught with difficulties,” the briefing notes. There are several examples of dubious or damaging forest carbon projects in the largely unregulated voluntary carbon market.

Even with a forest carbon market, little money would actually reach the forests. Most of the money would end up in the hands of intermediaries: speculators, banks, consulting firms, certifying firms and so on. It is also unlikely that a carbon market would finance forest conservation in countries where the risks of corruption are high. More than 75% of CDM projects are in three countries: China, India and Brazil. A similar pattern is likely with REDD finance via carbon markets.

The briefing also lists some alternatives to financing REDD through carbon trading (see the briefing for footnotes and sources). REDD-Monitor welcomes discussion on the merits (or otherwise) of these suggestions:

Financial Transaction Tax (FTT)

A tiny tax on financial transactions – as little as one hundredth of a percent – could raise US$650 billion per year.[17] Although many adaptation and mitigation measures would need to be financed through such a fund if it ever materialised, a small proportion would provide enough to help reduce deforestation. The European Commission and many European governments, including Germany and France, already support the FTT, and research from economic institutions including the International Monetary Fund (IMF) has shown it to be technically feasible.[18]

Tax on international shipping and aviation

There are many different proposals on the table to tax international aviation and ‘bunker’ (shipping) fuel. The emissions from these industries are significant, and they are currently not only under-taxed, but also benefit from fossil fuel subsidies.[19] Redirecting these subsidies to climate mitigation and adaptation is another potential large source of finance.[20]

Public funds

Even in times of austerity measures, if government spending priorities were brought in line with their climate change policies, money would also become available for forest projects and for activities to deal with the drivers of deforestation. Government funding is still the major funding source for REDD as chart 1 shows.

Public funds could also be used to address illegal logging. The World Bank (WB) estimates that illegal timber may comprise over a tenth of a total global timber trade worth more than US$150 billion a year.[21] More funding and political support to address illegal logging would therefore go a long way to keep forests standing and provide funds to Southern governments.

Private investments

Projects where companies buy forests to speculate on financial markets (as is the case with trading in forest carbon credits) have led to many problems. However the Forest Trust’s Climate Tree project is an example of an initiative which channels private investment into improving forest use without letting Northern companies off the hook with regards to reducing their own emissions as carbon offset projects do.[22]


17. Bonn Brief no. 8, Innovative sources of climate finance, June 2011.http://www.foe.co.uk/resource/briefings/Bonn_2011_08InnovativeSources.pdf
18. See: World Bank Group, IMF, OECD. Mobilizing Climate Finance: A Paper prepared at the request of G20 Finance Ministers, September 19, 2011; and: IMF (2010). A Fair and Substantial Contribution by the Financial Sector, Final Report for the G-20.www.imf.org/external/np/g20/pdf/062710b.pdf
19. http://www.guardian.co.uk/environment/2010/aug/03/fossil-fuel-subsidies-renewables
20. For more information about these alternatives and others see, Assessing the Alternatives – Financing Climate Change Mitigation and Adaptation in Developing Countries http://www.stampoutpoverty.org/?lid=10939
21. OECD, OECD Environmental Outlook (Organisation for Economic Co-operation and Development, 2001), p122.
22. http://www.tft-forests.org/climate-tree/

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