Center for Clean Air Policy

Transcription

1 Center for Clean Air Policy Dialogue. Insight. Solutions. Application of International REDD Agreements to California s REDD Offset Program A Three Phase Approach Applied to Subnational REDD Strategies and AB 32 Produced as input to the California Air Resources Board and the REDD Offsets Working Group March 2012 Written by: Diana Movius Pipa Elias Stacey Davis Matt Ogonowski Supported by: The Energy Foundation Norad

2 Contents The three phase approach and its relevance to California... 3 Design of a high- quality subnational REDD offsets program under a three phase approach... 5 Environmental requirements and safeguards... 7 Social requirements and safeguards Governance requirements and safeguards Additional considerations for subnational programs Conclusions and next steps Appendix I: Checklist of suggested offset requirements Works Cited... 20

3 The three phase approach and its relevance to California Introduction As an environmental leader and emerging buyer in the carbon markets, California can use its influence to support the development and use of high- quality forest offsets. It can help set a precedent for others in devising strong rules on the types of subnational projects to accept, as well as on considerations and concepts that are crucial to high quality offsets from reducing emissions from deforestation and forest degradation, or REDD. California is already taking a leading role on REDD through its subnational cooperation agreements with the governments of Chiapas, Mexico and Acre, Brazil. Establishment of high standards for REDD offsets on issues such as crediting baselines and environmental and social safeguards will help to demonstrate that REDD offsets can reduce the cost of compliance for California businesses while also ensuring the initiatives result in real emissions reductions and fair treatment of indigenous communities. The implementation of the international forest offset provisions of AB 32 can be viewed as a "proof of concept of REDD credits in a compliance market. In developing offset criteria for REDD projects, we encourage the REDD Offsets Working Group (ROW) and the Air Resources Board (ARB) to build from elements that already have considerable agreement or have been decided within the United Nations Framework Convention on Climate Change (UNFCCC) REDD negotiations. Specifically, we encourage California to follow the internationally accepted three phase approach (discussed in the next section) and utilize IPCC methodologies for measuring both deforestation and degradation. Internationally, the concept of the three phase approach to REDD is widely accepted and codified in the Cancun Agreements 1, to which the United States is a Party. And while the Cancun Agreements indicate a clear preference to move towards national level accounting and crediting, the text defines an interim role for efforts at the subnational level. The language specifies that subnational approaches are interim and as appropriate according to national circumstances, and that the three phase approach also applies to subnational activities. Subnational REDD programs as envisioned in California should as much as possible be consistent with and support this larger framework. To support California in implementing a strong example of REDD crediting at the subnational level, this paper explains and elaborates on the elements of the three phase approach, and draws from these elements in recommending specific standards that REDD offset projects would need to meet before they can be used for compliance under California s AB32 cap- and- trade system. 1 The Cancun Agreements were reached in December 2011 in Cancun, Mexico, at the 2010 UNFCCC. Cancun.unfccc.int. Decision 1/CP.16, at 3

4 The three phase approach to REDD The three phase approach, listed in the text box below and described in more detail in The REDD Options Assessment Report 2 (REDD- OAR, Angelsen et al. 2009), explains three distinct stages in REDD policy development and competency within a country. This framework ensures there will be sufficient domestic REDD capacity and planning before the country is eligible for international finance for implementation of policies and measures, and further ensures sufficient experience in implementing accounting methodologies before additional activities can be eligible for crediting. For example, the REDD- OAR suggests that before a country can become eligible for international finance (to support implementation under phase 2,) certain minimum conditions must be met, including: A review of past forest conservation efforts, A commitment from many levels of the government and stakeholders to participate, A national REDD strategy, and An institutional framework to lead or oversee changes in resource management. The three phase approach Phase 1: National REDD strategy development, including national dialogue, institutional strengthening, capacity- building, and demonstration activities. Phase 2 : Implementation of the policies and measures proposed in those national REDD strategies. Phase 3 : Payment for performance on the basis of quantified forest emissions and removals against agreed reference levels. And as implementation proceeds, the level of international finance could be periodically adjusted based on: performance, accountability, and continuous improvement of methodologies for monitoring, reporting and verification (MRV), domestic co- investment, benefits for indigenous peoples and local communities, and ecological co- benefits. The REDD- OAR further suggests a list of eligibility requirements for phase 3, which are: Meeting all the phase 2 eligibility requirements, Methodological requirements for greenhouse gas measurements, and An internationally agreed- upon reference level. A year and a half after the Options Assessment Report was published, the Cancun Agreements (1/CP.16) codified a three phase approach in paragraphs 73 and 74, beginning with capacity building and development of national plans, to demonstration activities and implementation of national strategies, and finally culminating in results- based REDD (- /CP.16): 73. Decides that the activities undertaken by Parties referred to in paragraph 70 above 3 should be implemented in phases [emphasis added] beginning with the development of national strategies or action plans, policies and measures, and capacity- building, followed by the 2 The REDD Options Assessment Report (REDD- OAR) was commissioned by the Government of Norway to support reduced emissions from deforestation and forest degradation. 3 Paragraph 70 discusses subnational activities. 4

5 implementation of national policies and measures and national strategies or action plans that could involve further capacity- building, technology development and transfer and results- based demonstration activities, 4 and evolving into results- based actions that should be fully measured, reported and verified [emphasis added]; 74. Recognizes that the implementation of the activities referred to in paragraph 70 above, including the choice of a starting Phase as referred to in paragraph 73 above, depends on the specific national circumstances, capacities and capabilities of each developing country Party and the level of support received; This language signified international acceptance of the three phase approach to REDD, which represents significant progress in developing a more standardized international framework. However, the Cancun Agreements do not specify many implementation details, and even the REDD- OAR lacks guidance on what phase 3 entails beyond verified carbon emissions reductions or increases in removals. In 2011, discussions leading to the Durban Conference of the Parties (COP) focused on information systems to report on social and environmental safeguards, the roles of public and private finance, and setting reference levels. The United Nations discussions will further elaborate elements of REDD in 2012, including MRV and financing. However, although many experts expect a list of criteria to form a dividing line between phase 2 and phase 3, it is unclear whether these details of the phased approach will be negotiated this year. As a first mover in advancing subnational REDD crediting, California has an opportunity to help elaborate and shape the future requirements for REDD offsets internationally. And by emphasizing crediting in the context of a three phase approach, California will help ensure that offsets generated by its partner states and accepted within the California AB32 program will be compatible internationally and consistent with US policy directions. Design of a high- quality subnational REDD offsets program under a three phase approach Although California's offsets protocols will apply mainly to phase 3, California should review the outcomes of phase 2, and ensure that partner states phase 2 activities position them effectively towards phase 3 and ARB requirements. Based on the Cancun Agreements, countries can establish REDD programs under phase 2, demonstrating how national strategies will achieve mitigation goals, while phase 3 will be implementation of REDD activities that can be measured, monitored, and verified for results- based payments. Within both of these phases all Parties must also meet the environmental, social, and governance safeguards established by the Durban and Cancun Agreements. California must also consider the requirements of the Mexican Forest Offset Protocol (MFOP). Phase 2: REDD implementation Phase 2 is focused on learning by doing implementation, where governments put strategies into action, develop new policies or adjust current policies. These might include forest protection policies, changes to concessions and land leasing programs, land tenure and ownership reform, or changes to forest management policies. For example, governments should develop the capacity for and foundations 4 Demonstration activities are designed to test alternative approaches to implementing REDD at the local level, and are also referred to as pilot projects. 5

6 of coordinated management of the country s forest resources, which will likely span across many government agencies. For example, resource agencies (forestry, minerals, wildlife, water, etc.) will likely need to coordinate with technical (research, remote sensing, etc.), social (housing, planning, development, indigenous peoples, etc.), and enforcement agencies. Simultaneously, on- the- ground capacity building, technology development and transfer, and results- based demonstrations can be used to support governance and institutional frameworks as they are implemented. Phase 2 is also an experimental stage that uses adaptive management, which is a process of refining strategies based on setting goals and assessing progress towards that goal, thereby eliciting the most effective strategies. Demonstration activities (or pilot projects) and operation of new institutional responsibilities should be constantly analyzed and compared against REDD safeguards and regional/national goals. If goals are not being met, these analyses should lead to policy changes. In many countries, phase 2 will require constant evaluation of lessons- learned as new policies, institutions, and REDD activities are implemented through the national strategy. Social safeguards must be fully operational in phase 2, though the requirements will likely be different than what would be expected in phase 3 in terms of institutional arrangements, technical capacity, the scale of implementation, and measures of performance. Phase 3: Pay for performance (e.g. offsets) Phase 3 will use the lessons learned from phase 2 to support creations of forest emissions reductions that are measureable and can be verified. To qualify for phase 3, REDD activities must be able to fulfill MRV requirements and compare the emissions reductions achieved to reference emissions levels (or reference levels) (RELs/RLs) 5. A set of stepping stones, or subcomponents of requirements may help countries envision how to move from phase 2, where new or adjusted institutions are being piloted in demonstration activities, to phase 3 where activities meet MRV requirements. This paper suggests some of these subcomponents. Phase 3 is acknowledged as the highest bar for REDD mitigation. Unlike phase 2, phase 3 policies and programs result in statewide or countrywide emissions reductions (and increases in removals that are both real and measurable). In phase 3: Parties should have policies and programs in place to address drivers of deforestation and ensure the highest levels of safeguards. Parties must be able to transparently and accurately show MRV of carbon, safeguards, and finance. All REDD policies should be integrated into other regional or national policies and programs, to reduce the risk of perverse incentives and contradictory policies and increase the possibility of fully incorporating REDD into national economic development. All REDD activities must adhere to the full range of the environmental, governance, and social safeguards included in the Cancun Agreements In the sections that follow, we elaborate on the environmental, social and governance requirements that should be evident in phase 3, and also highlight special considerations for sub national- level programs. 5 Reference levels (RLs) are a benchmark for the amount of emissions from deforestation/degradation as well as removals from sustainable management of forests and enhancement of forest carbon stocks; Reference emissions levels (RELs) are a benchmark for the amount of emissions from deforestation/degradation only. 6

7 Environmental requirements and safeguards Environmental requirements and safeguards are necessary to ensure that REDD achieves real emissions reductions, avoids perverse environmental impacts, and leads to co- benefits such as biodiversity protection. Many of the key environmental safeguards (e.g., guarding against the conversion of natural forests to plantations, protecting biodiversity, achieving permanence, and reducing leakage) have already been outlined in the Durban and Cancun agreements. However, at the international level, the details on how to meet and report on these safeguards still need to be defined. Meeting Durban and Cancun safeguards A number of REDD environmental safeguards were agreed upon during the 16 th COP to the UNFCCC in Cancun, and during the 17 th COP in Durban in December 2011, including: guarding against the conversion of natural forests to plantations, protecting biodiversity, achieving permanence, and reducing leakage within the country. Meeting these safeguards is necessary throughout all the phases of REDD, and should be articulated in the standards for subnational REDD offsets established by the California Air Resources Board. We explain each of the key safeguards agreed to in Cancun and suggest ways of meeting them. We feel it is important to define ways of meeting the safeguards, because the international community has not yet elaborated standards, and those being developed unilaterally at the national and subnational levels differ or lack sufficient detail. a) REDD programs should guard against the conversion of natural forests to plantations. Conversion of natural forests to plantations can generate significant carbon emissions 6 and can negatively affect floral and faunal biodiversity 7. To prevent crediting of REDD states where this behavior is encouraged, it is critical to know whether it is happening. Where REDD emissions reductions are sold for credit, programs need to include monitoring, reporting and verification systems capable of capturing such conversions. Ideally this would include one of the measurement approaches described below combined with use of satellite maps and ground truthing. Reporting on both gross and net emissions. Gross emissions are emissions from deforestation alone, not including carbon uptake from activities such as reforestation. The gross emissions metric captures the deforestation step of conversion from national forests to plantations as a source of emissions in addition to other types of deforestation activity. Measuring gross emissions allows the region to better understand its deforestation emissions trends, but does not isolate emissions from conversion to plantations. The net emissions metric includes both emissions from deforestation as well as carbon uptake from tree planting and other activities. This can indicate whether tree planting or sequestration in another area offset the gross deforestation emissions. Activity- based MRV captures emissions from conversion with somewhat greater specificity than with the gross emissions metric. This reporting will follow the IPCC activities: 1) forests being converted to non- forest land, 2) forests remaining as forests (potentially with changes in sequestration levels) and, 3) non- forests becoming forests. Reporting on the emissions and sequestration from each of these activities will provide a picture of forest management within a REDD jurisdiction and better isolates emissions from forest conversion. 6 Liao et al Barlow et al

8 b) REDD programs should protect biodiversity. There is a risk that REDD programs could reduce biodiversity by failing to prioritize this feature, inadvertently allowing deforestation to shift to or continue in biodiverse areas. The Cancun Agreements prioritize biodiversity protection in implementation of REDD programs. To prevent the loss of biodiversity, in addition to payments for GHG emissions reduced, an additional payment could be made to areas depending on the level of biodiversity protected. Creative policy approaches are needed to incorporate biodiversity into systems aimed mainly at carbon payments. We recommend that California work with partner states to develop standardized biodiversity indicators so that REDD offset- providing states can examine in the program s impact on biodiversity. This could open the option to receive extra payments based on biodiversity, which may appeal to progressive constituencies or corporations in California. c) REDD programs should address the risk of reversals (or provide for permanence) including a plan to address reversals. REDD programs have a risk of being reversed; in other words, forest emissions could increase as a result of natural or human causes, even after the reduction had been credited. Addressing this risk within the implementing region in the host developing country is critical to ensure that offsets generated are real over the long- term. States providing REDD offsets must have a plan to address reversals. Policies and strategies for reducing the risks of, and associated with, reversals include: Insurance programs (i.e. keeping a reserve of reductions that can be tapped if some reductions are reversed), such as the ones specified in Climate Action Reserve programs; Applying an increasingly ambitious crediting baseline to REDD countries so that extra reductions that are not credited need to be made each accounting period; Only providing payments for a short time period, as with temporary certified emissions reductions (T- CERs). d) REDD programs should minimize the risk of leakage. Leakage, the shifting of deforestation emissions to outside of the REDD program s jurisdiction area, remains a particular concern for subnational REDD programs. The risk of leakage can be reduced in various ways. We recommend that California take a multipronged approach to reducing the risk of leakage, including using data and regional planning procedures, engagement of local communities, and enforcement of proper accounting procedures. California may wish to include a list of leakage options for offset providers to consider while developing REDD activities. Recommendations include: Regional planning, including appropriate site selection that moves away from small- scale projects. Addressing the drivers of deforestation on a broad scale. Ensuring that REDD financially benefits and involves the local community. Strong community engagement, including ensuring that local communities derive income from sustainable activities and are involved in day- to- day operations of the project, will discourage them from attempting to resume in new areas outside the program s boundary previous subsistence or commercial activity that involves deforestation. Signing leakage contracts with landowners or business owners specifying that they will 8

9 refrain from deforesting outside the boundary of the REDD activity. While these are not necessarily enforceable, they can be an education tool about leakage, and create a sense of responsibility for REDD in those who sign. Using accurate and transparent accounting practices, including high- quality off- site monitoring that surveys the area around the REDD activity for evidence of leaked deforestation. Ideally, forest offset providers from Chiapas or Acre would be able to measure outside of their borders using satellite data and ground truthing. If such data are not available, partner states would need to rely on data provided by the national government or the surrounding states, which could be of a lower quality (lower tier). Transparency will ensure that accounting is not used to conceal leakage, and that credits will not be granted for the emissions leaked. Ex post leakage discounting 8 of carbon credits, which lowers the amount of credits given by the percentage of emissions estimated to be leaked. e) Subnational reference emissions levels and reference levels should harmonize with the national ones. Reference emission levels (RELs) and forest reference levels (RLs) reflect the business- as- usual deforestation and degradation that is happening in a forest. Following the Cancun Agreements, international negotiators have been working to develop procedures and requirements for these baselines. Subnational RELs and RLs must meet the same baseline requirements, with the additional requirement of a transparent system to harmonize with RELs/RLs at the national level. California should require that subnational REDD offsets follow the appropriate baseline methodologies and be linked, to the extent practicable, to national level baselines. Additional recommended environmental safeguards Beyond the safeguards already identified in the UN negotiations, California should consider several other factors to ensure offsets sold to California are sufficiently protective of the environment. Specifically, California should set a strong standard for measuring and monitoring GHG emissions from forests, including requiring use of Tier 2 or 3 accounting methods, use of transparent accounting practices and a plan to address degradation emissions. a) Requiring the use of Tier 2 or Tier 3 IPCC accounting methods. The 2006 IPCC Guidelines for National Greenhouse Gas Inventories elaborate three different quality tiers for estimating GHG emissions from forests. To be eligible to sell REDD offsets, countries should have moved beyond the Tier 1 method, under which estimates of forest carbon emissions and removals are developed based on general assumptions about the carbon effects of changes in forest area, forest management practices, and other factors. Tiers 2 and 3 call for measurements and monitoring that are more specific to the conditions of the particular forest. The Tier 2 inventory methods include some country- specific data for each of the factors used in the Tier 1 assessment. Tier 3 further improves estimates by using detailed country- specific data and models of forest processes, such as growth rates, the ratio of above- and below- ground carbon, and forest management activities. By requiring the use of either Tier 2 or Tier 3 methods, California can ensure a higher degree of accuracy in the credits generated and sold for compliance under AB32. Alternatively, California could require some factors in the 2006 IPCC guidelines to be met 8 Schwarze et al

10 with Tier 3 data (i.e. biomass) while others (i.e. soil carbon) could be met with Tier 2 data. However, as subnational governments may not have the capacity required to undertake Tier 3 data collection (e.g., the capacity to obtain and analyze remote- sensing data) and may not have detailed on- the- ground inventories, capacity building would be required (and should be funded during the phase 2 implementation stage) to enable the Tier 3 accounting standards to be met. b) Use of transparent accounting practices. Transparent accounting practices are needed to prove adherence to environmental requirements. This includes: Regularly providing data that are consistent and openly accessible on forest carbon stocks, emissions/removals, reference levels, biodiversity data, etc. Data should be available to the public, both online and by request. National governments will also be required to provide these data to the UNFCCC on a regular basis. To be eligible to sell REDD offsets to California, subnational governments should be expected to provide data in a consistent format that clearly addresses California s requirements, and also make data available to in- country stakeholders. Providing transparent documentation of Tier 3 data and models. Because Tier 3 carbon estimates use a great deal of local data and process- based models, the 2006 IPCC guidance calls for transparent documentation of the validity and completeness of the data, assumptions, equations and models used at Tier 3. c) Special care is needed when REDD offsets cover deforestation but not degradation. Because of the added challenge to measure GHG emissions from forest degradation (as opposed to deforestation), some REDD programs may opt to cover only deforestation while still working through phase 2 for degradation. However, this creates an added risk of leakage (from deforestation to degradation). For example, jurisdictions could reduce deforestation rates while still removing large amounts of timber by leaving some trees remaining on the land. This both causes emissions and threatens the sustainability of the forested ecosystem. However, some precautions may be taken to avoid this form of inter- activity leakage, including one or more the following steps: National and subnational entities should have a publicly available plan for reducing the time period during which deforestation will be in phase 3, but degradation is in phase 2. Institutions (e.g., the COP, multilateral funding agencies) may require a prescribed time period for this transition. Degradation baselines should be set in the same timeframe as deforestation baselines (starting in the same year) to avoid perverse incentives from any leakage that does occur between these two activities. Because this is only possible where data are available to enable this comparison efforts measure degradation emissions should begin at the same time as efforts to measure deforestation. d) Both deforestation and degradation should be integrated into longer- term plans to address the drivers of deforestation. In most cases, this will require improving the ability to measure degradation. Again, California can encourage this for its offset- providing states by requiring initiation of a degradation monitoring program. 10

11 Social requirements and safeguards The majority of social requirements for REDD are encompassed in the safeguards established by the Cancun Agreements. However, the information systems used to demonstrate adherence to these safeguards require further definition and clarification. These issues were of discussed during the Durban COP, and continue to be a high priority in international REDD negotiations. Meeting Durban Platform and Cancun Agreements safeguards The text of the Cancun Agreements specifies that REDD initiatives should: Show respect for the knowledge and rights of indigenous peoples and members of local communities (noting the United Nations Declaration On The Rights Of Indigenous Peoples); Enable The full and effective participation of relevant stakeholders, in particular, indigenous peoples and local communities The Cancun Agreements on REDD further indicate that systems should be in place for providing information on how safeguards are addressed and respected. Similarly, the Durban Platform specifies that all safeguards from Cancun must be implemented during each phase of a three phase approach. The information system should: Provide transparent and consistent information that is accessible by all relevant stakeholders and updated on a regular basis; Be transparent and flexible to allow for improvements over time; and Provide information on how all of the safeguards referred to in appendix 1 to decision1/cp.16 are being addressed and respected. Neither the Cancun Agreements nor the Durban Platform described specific indicators that could be used to track compliance with safeguards. To ensure that these standards are met for the REDD programs used for California s AB32 compliance, we suggest that California develop its own list of acceptable indicators as guidance to its partner states to facilitate compliance with UNFCCC language on social safeguards and reporting. Specifically, data on meeting requirements should include: Identification of communities that will be affected by REDD, and analysis of the potential threats and benefits to them; Identification of governance gaps that would impede adherence to safeguards; Coordination of REDD with existing community development and rights agencies; Transparency of plans used to disburse funds to communities and small landholders; and Integration of indigenous and community knowledge into technical aspects of the REDD program. Additional recommended social safeguards In addition to the safeguards specified by the COP, CCAP suggests that trading programs accepting offsets generated in the third phase of a REDD program should require use of transparent metrics and established dispute resolution mechanisms (Figure 3), as well as sharing of benefits with affected local communities and constituencies. An important indication of a country s ability to meet phase 3 social requirements will be adherence to social safeguards throughout phases 1 and 2. For example, during phases 1 and 2, countries may need to resolve land tenure issues to be prepared for local benefits distribution. These can be some of the early tasks of new or evolving institutions created for effective 11

12 distribution (so long as they re coordinated with other institutions that preside over these issues). These additional safeguards and ways to implement them are detailed below. a) Meeting social safeguards must be measurable. REDD implementing states should develop indicators of social safeguards on, for example, how the program may negatively or positively impact communities, metrics for consultation and consent of local peoples, and data for land tenure and benefits distribution. b) Dispute resolution systems. These will be needed during all phases of REDD to ensure that problems are solved in ways that are respectful to the involved stakeholders. By phase 3, such systems should be widely publicized, and transparent. Further, any inadequacies identified during phase 2 should have been addressed. California policy developers should consider the adequacy of dispute resolution mechanisms that were used in the second phase of a REDD program before accepting offsets in the third phase. c) Payments distributed at the local level. Payments to affected local communities and constituencies is considered accepted practice in REDD. It helps reduce leakage, ensure the success of REDD and address some drivers of deforestation. Possibilities may include payments to subnational governments, land users, landowners, and community groups. As part of its offsets approval process, California should assess the effectiveness of the state s benefit distribution plan. e) Benefits distribution indicators. Subnational regions within REDD countries should be able to report transparently on benefits distribution, and ensure compatibility with national benefits distribution procedures. This will ensure that national reporting of payments is comparable to international reporting of distributions, and local reporting is comparable to national approaches. Governance requirements and safeguards The term governance refers to the process by which decisions are made, including engagement of stakeholders outside the government. The approach to governance will vary from one country to another, as described in the World Resources Institute s The Governance of Forests Initiative. While capacity support for adequate governance is critical during all phases of REDD, governance requirements are needed in phase 3 to promote REDD as an effective, efficient system, and one that avoids perverse incentives and addresses the drivers of deforestation. Good governance will include promotion of sustainable REDD systems while complying with all safeguards. Within the UNFCCC REDD negotiations, implementation of good governance is one of the least developed areas of discussion; therefore, many of the suggestions in this report are based on CCAP s on- the- ground experiences. These proposals should be viewed as examples for how governance can be improved to implement a successful REDD system one that includes coordination across agencies within a state, coordination between the national, state and local governments and development of new necessary programs to address the drivers of deforestation and fix program failures, if any. 12

13 Government bodies and implementers of a REDD system must be held accountable for: establishing and adhering to appropriate methodologies for transferring financial resources from funds generated from offset sales to meet emission reduction and forest protection goals, for determining how funds are distributed in a way that is transparent and considers community input, and for any delays in distribution. To meet transparency safeguards, actions taken to meet phase 3 governance requirements should be documented and freely available. Meeting Cancun and Durban and governance safeguards The Durban Platform and Cancun Agreements specified 3 key principles on REDD governance: 1. Transparency of forest governance structures. 2. Financial transactions should be transparent, measureable, and reported upon starting from the funder, all the way to distribution of financial benefits to members of the community. 3. MRV of finance applies to all REDD parties and actors. Additional recommendations for California In addition to those specified by UNFCCC negotiators, CCAP recommends additional governance safeguards, as follows: a) By phase 3, countries should have government- wide programs to identify and re- evaluate the drivers of deforestation. This information should be used to identify both domestic and international opportunities to leverage the drivers and improve REDD. b) Programs and policies to address failures is another element of governance requirements. There are many ways REDD actions can fail they can violate safeguards, emissions reductions can be reversed, the program structure could fail to provide results, or perverse incentives can create hot air. Good governance will provide systems to address all of these issues. Countries may choose to identify agencies that are responsible for different types of failures. That is, who is responsible for addressing reversals versus the responsible party in violations of social safeguards? These decisions, for the various sources of failure, should be made by the time countries enter phase 3. Furthermore, if failures occur during phase 3, countries should have a pre- determined plan for assessing the magnitude and causes of the failure and a response system or safety valve for moving forward and adjusting the system to avoid reoccurrence. c) Coordination across government agencies and jurisdictions within the stat (horizontal coordination). Horizontal coordination even within a state ensures that policies across the government promote REDD, and that political decisions include all relevant agencies (ranging from land managers to political staff). For example, some states may need increased horizontal coordination if pledges for REDD financing made by one branch of the government must be fulfilled by a different ministry and disbursed through local programs. Horizontal coordination can occur through working and advisory groups, promoting networking among staff, or creating REDD- specific positions at multiple agencies. It could also include non- governmental actors such as representatives of indigenous communities and civil society. These coordination programs should be efficient and effective, rather than simply adding another layer to REDD governance. Bottom- up coordination, in which technician- level staff is encouraged to participate, is an effective method, and one that ensures on- the- ground perspectives and experiences are incorporated into the program. Additionally, ultimate decision- makers should 13

14 be identified early on to avoid impasses. d) Vertical coordination links processes and institutions for REDD across multiple levels of government. This is important at the state level, where REDD requires coordination among municipalities, districts, local working groups as well as with statewide environmental ministries. It is also important to coordinate between local, subnational, and national technical efforts and policies (i.e. federal efforts and policies with provincial, municipal, and community REDD). Vertical coordination is needed on technical aspects of the REDD program, including methods for harmonizing subnational emissions reductions and incorporating local monitoring to national- level MRV efforts. In addition, policy links should ensure that national, provincial, and local regulations, incentives, and planning are mutually beneficial and effectively implemented among these various levels of government. Vertical integration should work in both directions from the national level downwards and from the local level upwards. e) International national - subnational coordination is also needed to ensure domestic technical capacities are compatible with international commitments and requirements, and to facilitate international analyses of the impact of REDD on climate change mitigation. Additional considerations for subnational programs Subnational implementation should be seen as a way to identify the strengths and co- benefits of REDD, and not simply as a more convenient way to generate offsets. These strengths can then be incorporated into the national planning process. Under the UNFCCC framework, Phase 1 includes development of a national plan; therefore, it is very unlikely that a subnational jurisdiction would be prepared for phase 3 without at least the nascent development of a national- level plan. Governance elements, especially standards for coordination between the national and subnational government (e.g., vertical coordination standards), may help guide improved coherence and synergies between subnational and national plans. For this coordination to occur, countries should ensure a representative from each jurisdiction has a seat at the planning table of the other, they should create a regular communication system, and they should create systems for incorporating subnational implementation into national REDD programs, including measures to address conflicts between approaches at these two levels. In some countries, subnational jurisdictions may be prepared for REDD phase 3 before the entire country. The Cancun and Durban Agreements allow for interim subnational programs, though the extent to which this will occur is still unclear. Subnational implementation is thought to advance REDD quickly, but also to increase the risks of leakage and non- permanence, which are particularly problematic for results- based payments in phase 3. Because of these risks, it is likely that some countries and funders will decide to opt- out of subnational programs entirely. Any participants willing to engage in subnational- level implementation must be able to address the additional risks of leakage and transparency, as well as the need to ultimately comply with the national program. This will likely mean requirements above- and- beyond those already needed for phase 3. International subnational examples Currently some multilateral initiatives are piloting REDD programs that phase countries into systems that are similar to phase 3 within the expected forest carbon offsets market in California. For those countries that attempt to achieve phase 3 at subnational jurisdictions, the Carbon Fund of the Forest 14

15 Carbon Partnership Facility may serve as a model for performance payments at a subnational level. In this program, subnational implementation must meet six additional criteria beyond those of national approaches. Specifically, subnational programs must: 1. Be undertaken at a significant scale; 2. Be consistent with (emerging) national REDD strategies; 3. Ensure that emissions reductions can be measured and reported; 4. Be consistent with the national RL/REL; 5. Be integrated into a national institutional framework that will manage and coordinate subnational programs; and 6. Provide for an assessment of and measures to minimize leakage, non- permanence, and other relevant risks. The Carbon Fund is designed to deliver emissions reductions from the range of REDD activities approved by the COP (reducing deforestation, reducing degradation, sustainable management of forests, conservation of forests, and enhancement of forest carbon stocks). Payments from the Carbon Fund will be based on performance; therefore, participants will need to compare results against RL/REL. Similar to other phase 3 requirements, the Carbon Fund will try to promote co- benefits, create a sustainable system of emissions reductions, work to reduce the risk of non- permanence, use clear and transparent benefit- sharing mechanisms, promote transparency, and integrate multiple stakeholders. The Carbon Fund is still relatively new, but the participants may be able to provide lessons applicable to other programs that are developing phase 3 implementation procedures. Conclusions and next steps Conclusions The UNFCCC COP has not yet provided guidance on subnational implementation, but it is unlikely that subnational REDD jurisdictions will be allowed to meet less- stringent rules on safeguards, RELs/RLs, and MRV than those established for national approaches. The Carbon Fund model, above, requires subnational implementation to meet the same guidelines as national implementation, in addition to others. Currently, most multilateral and bilateral REDD activities that allow for subnational REDD implementation acknowledge that it is a step towards full national implementation. The Governor s Climate and Forest Task Force agreement is not clear on UNFCCC- determined safeguards, a phased approach, and the interim status of subnational REDD activities in eventually supporting national- scale action. California should maintain compatibility with international negotiations and decisions also take steps beyond those agreed in Durban and Cancun to achieve high quality for both subnational REDD approaches and phase 3 pay- for- performance activities. To do so, CCAP has suggested environmental, social, and governance safeguards building on the UNFCCC, World Bank, and independent analyses. As the first large scale pilot of subnational REDD credits in a compliance market, California will be the first test of phase 3 (e.g., offsets) within a three phase approach, and CCAP urges California to set a high bar for quality offsets. 15

16 Next steps As a next step, California should focus attention on the administrative processes including reporting and verification procedures that will be used to ensure that the needed phase 3 requirements are met for REDD credits used for compliance under AB32. Ideally, streamlined reporting and verification procedures can limit transaction costs to CARB and the other government and private sector entities involved in the REDD offset transactions. While initial thoughts are presented below, CCAP hopes to consider these program elements in further detail to support use of high quality standards in California s AB32 program. Reporting. Partner states should generate reports to California to support market confidence and ensure that the elements of a sustainable REDD program will achieve real and verifiable emissions reductions and/or enhancements in removals. Reporting is needed to demonstrate adherence to safeguards and other requirements, such as those outlined in this report, and to show improvements in meeting these standards. Reports from states generating REDD offsets for the California AB32 compliance market should: Promote transparency, so that stakeholders, funders, and the international community can assess the success of REDD with respect to adherence to social, environmental and governance safeguards and special subnational considerations; Encourage sharing of information on the different REDD design elements among implementing jurisdictions, which can help improve implementation nationally and globally; Create a reporting matrix in which REDD implementing authorities provide updated information on REDD elements listed in this report; Identify a unified list of required REDD design elements and an approach to reporting this information. Such a checklist can reduce the transaction costs of generating offsets that will be accepted for sale in California and facilitate outside evaluation and replication of California s approach; and Integrate documentation of carbon and safeguards to improve efficiency of the overall data collection system. Independent, third party verifiers. These expert companies could be used to evaluate whether subnational credits from partner REDD states meet the goals and criteria outlined by California (such as those suggested in this document). Third- party verifiers can be used to lower the administrative burden on the state. Small gaps in the ability to achieve any REDD element should be identified and addressed; however, large gaps may result in the inability to achieve the mitigation results required for REDD offsets under phase 3. California policymakers may wish to follow existing processes such as: 1) the UN- REDD; 2) the Interim REDD Partnership; 3) the Forest Carbon Partnership Facility; 4) REDD on voluntary carbon markets; and 5) other multilateral initiatives that can be forums where gaps are identified, lessons on how to fill them are shared, and funds to fill them are coordinated or delivered. Workshops with multiple stakeholders are also an important tool in identifying missing or incomplete elements, and creating strategies to fill them. 16

17 Appendix I Checklist of suggested REDD offset requirements To assist CARB in developing options to evaluate REDD offsets in terms of eligibility for use under AB32, CCAP developed a checklist of key items based upon UN requirements and our recommendations in the previous sections. Environmental requirements and safeguards The subnational REDD program guards against the conversion of natural forests to plantations by: Reporting on emissions from conversion of natural forests to plantations through reporting of gross emissions from deforestation or through activity- based MRV. Reporting on efforts to manage or compensate for conversion of natural forests to plantations, for example, by reporting on net emissions to understand whether tree planting or sequestration elsewhere negates or offsets the gross emissions from deforestation. The subnational REDD program encourages and rewards protection of biodiversity by: Applying indicators that allow the REDD program to assess their impact on biodiversity. [NOTE: California should consider developing standardized biodiversity indicators in consultation with its partner States.] In consultation with its partner States, California should consider developing standardized guidance on payment levels for high levels of biodiversity The subnational REDD program addresses the risk of reversals (or ensures permanence) with an approved back- up plan that includes one or more of the following: Insurance programs (i.e. keeping a reserve of reductions that can be tapped if some reductions are reversed), such as the Climate Action Reserve; Application of a declining baseline to REDD countries; Provision of payments for a short time period, as with temporary certified emissions reductions (T- CERs). The subnational REDD program addresses and minimizes the risk of leakage using the following standards: Social engagement by: ensuring REDD projects financially benefit and involve the surrounding community; signing leakage contracts; ensuring high- quality off- site monitoring; Ensuring proper accounting procedures so that any leakage is reported and is addressed through ex post leakage discounting 9 and using appropriate site selection that moves away from small- scale projects; Addressing the drivers of deforestation on a broad- scale 9 Schwarze et al

18 The subnational REDD program uses reference emissions levels/reference levels that are consistent with international baseline methodologies and national reference emissions levels. Specifically: The Subnational REDD program has a plan to harmonize subnational reference emissions levels and reference levels with the national ones. The Subnational REDD program follows the appropriate baseline methodologies. The subnational REDD program uses Tier 2 or Tier 3 IPCC accounting methods, in one of the following ways: The partner state commits to using Tier 2 and/or Tier 3 methods. California requires some factors to be met with Tier 3 data (i.e. biomass) while others (i.e. soil carbon) could be met with Tier 2 data. The subnational REDD program uses transparent accounting practices in MRV systems. The partner state commits to provide data needed to monitor reduced emissions from deforestation and degradation and achievement of safeguards (e.g., forest carbon stocks, emissions/removals, reference levels, biodiversity data) in a consistent and openly accessible format and on a regular reporting schedule. The partner state commits to provide transparent documentation of Tier 3 data and models, as applicable. The subnational REDD program considers both deforestation and degradation The program addresses both deforestation and degradation; or The program includes explicit plans and monitoring provisions for future integration of degradation. The plans limit the amount of time during which deforestation will be in phase 3, but degradation is in phase 2. Where the data are available, degradation baselines are set in the same time frame as deforestation baselines (starting in the same year). Social requirements and safeguards The subnational REDD program: identifies communities that will be affected by REDD and analyses the potential threats and benefits to them; Identifies governance gaps that would impede adherence to safeguards; Coordinates REDD with existing community development and rights agencies; Has established transparent procedures to disburse funds to communities and small landholders; Integrates indigenous and community knowledge into technical aspects of the REDD program. The Subnational REDD program distributes payments to local communities and provides adequate reporting on such payments. Specifically, the partner state: Has developed indicators to track the distribution and impacts of payments or benefits given to local communities. Indicators are compatible with national and international approaches. Provides transparent reports on the distribution of benefits to local communities and ensures compatibility with national benefits distribution procedures. 18

19 The Subnational REDD program has established adequate dispute resolution systems. The partner state has implemented a dispute resolution system under phase 2. The partner state s dispute resolution system is widely publicized and transparent. Governance Requirements and Safeguards The subnational REDD program meets governance requirements and safeguards. For example, the program: Tracks and reports on the funds received from developed country funders in a transparent way, including all expenses and uses. Tracks the effectiveness and transparency of forest governance structures. The subnational REDD program has government- wide programs to identify and re- evaluate the drivers of deforestation. The subnational REDD program has programs and policies to address failures. If failures occur during phase 3, countries should have a pre- determined plan for assessing the magnitude and causes of the failure and a response system or safety valve for moving forward and adjusting the system to avoid reoccurrence. The subnational REDD program provides for communications among the relevant stakeholders. Specifically, the partner state: Promotes coordination across government agencies and jurisdictions (Horizontal coordination), including identification of decision- makers; Has a plan for eventually linking with a future national program, or at least a plan for communicating with the national government on technical issues such as reference levels, methods for harmonizing subnational emissions reductions, and incorporating local monitoring to national- level MRV efforts. Should ensure compatibility with international commitments and requirements. Subnational Considerations The Subnational REDD program should demonstrate it will: Be undertaken at a significant scale; Be consistent with (emerging) national REDD strategies; Ensure that emissions reductions can be measured and reported; Be consistent with the national RL/REL; Be integrated into a national institutional framework that will manage and coordinate subnational programs; and Provide for an assessment of and measures to minimize leakage, non- permanence, and other relevant risks. 19

20 Works Cited 1. Angelsen, A., Brown, S., Loisel, C., Peskett, L., Streck, C., and Zarin, D. (2009). Reducing Emissions from Deforestation and Forest Degradation (REDD): An Options Assessment Report. Dillon, CO. 2. Barlow, J., Gardner, T.A., Araujo, I.S., Avila- Pires, T.C., Bonaldo, A.B., Costa, J.E., Esposito, M.C., Ferreira, L.V., Hawes, J., Hernandez, M.I.M., Hoogmoed, M.S., Leite, R.N., Lo- Man- Hung, N.F., Malcolm, J.R., Martins, M.B., Mestre, L.A.M., Miranda- Santos, R., Nunes- Gutjahr, A.L., Overal, W.L., Parry, L., Peters, S.L., Ribeiro- Junior, M.A., da Silva, M.N.F., da Silva Motta, C., and Peres, C.A. (2007). Quantifying the biodiversity value of tropical primary, secondary, and plantation forests. Proceedings of the National Academy of Sciences of the United States of America, 104 (47), Forest Carbon Partnership Facility. (2010). Forest Carbon Partnership Facility (FCPF) Operational Arrangements under the Carbon Finance Mechanism Issues Note. 4. IPCC IPCC Guidelines for National Greenhouse Gas Inventories, Prepared by the National Greenhouse Gas Inventories Programme. In H. Eggleston, L. Buendia, K. Miwa, T. Ngara, and L. Tanabe. IGES, Japan. 5. Liao, C., Luo, Y., Fang, C., & Li, B. (2010). Ecosystem Carbon Stock Influenced by Plantation Practice: Implications for Planting Forests as a Measure of Climate Change Mitigation. PLoS ONE, 5 (5), e Schwarze, R., Niles, J.O., & Olander, J. (2002). Understanding and managing leakage in forest based greenhouse gas mitigation projects. The Philosophical Transactions of the Royal Society A, 360, UNFCCC Decision 1/CP.16 : The Cancun Agreements: Outcome of the work of the Ad Hoc Working Group on Long- term Cooperative Action under the Convention. Available at: %22#beg 8. UNFCCC: Draft Decision - /CP.17: Guidance on systems for providing information on how safeguards are addressed and respected and modalities relating to forest reference emission levels and forest reference levels as referred to in decision 1/CP.16. Available at 9. Voluntary REDD+ Database. (2011). Interim REDD+ Partnership. 20

21 Since 1985, CCAP has been a recognized world leader in climate and air quality policy and is the only independent, non- profit think- tank working exclusively on those issues at the local, national and international levels. Headquartered in Washington, D.C., CCAP helps policymakers around the world to develop, promote and implement innovative, market- based solutions to major climate, air quality and energy problems that balance both environmental and economic interests. For more information about CCAP, please visit Center for Clean Air Policy 750 First Street, NE, Suite 940, Washington, DC USA Tel: ; Fax: