Forest Governance, Carbon and Avoided Deforestation discussion meeting

Transcription

1 Forest Governance, Carbon and Avoided Deforestation discussion meeting Chatham House, 10 St. James Square, London SW1. Monday 10 th September 2007 Chairs: Duncan Brack and Jade Saunders, Chatham House INTRODUCTION Given the significant emissions of greenhouse gases from destruction of forests globally, there is growing international interest in harnessing avoided deforestation (or Reducing Emissions from Deforestation and Forest Degradation, REDD) to tackle climate change. However, while there is broad agreement about its importance, there is still much uncertainty about how an effective mechanism to do this could be designed. The international community will face a number of key challenges before these uncertainties can be overcome, including: establishing and monitoring national baselines; assessing the effectiveness of individual activities within this framework and ensuring that any system is both equitable and effective through appropriate management of revenues. The aim of this meeting is to explore these challenges with reference to lessons learned in the illegal logging debate, the EU Forest Law Enforcement, Governance and Trade (FLEGT) process and the World Bank regional Forest Law Enforcement, Governance (FLEG) processes. SESSION ONE: STATE OF PLAY WITH BALI PREPARATIONS Reducing Emissions from Developing Countries: Update on the UNFCCC Negotiations - Amy Sullivan, Department of Environment, Food and Rural Affairs (DEFRA), UK The negotiation process for Reducing Emissions from Deforestation and Forest Degradation (REDD) began at the 11 th Conference of Parties (to the United Nations Framework Convention on Climate Change, UNFCCC, known as the Kyoto Protocol) in Montreal in The UK is the EU representative in the negotiations. The aim is to reach agreement on a substantive outcome at the 13 th Conference of Parties (COP), to be held in Bali in December There are a number of issues to be resolved: The status of project level activity whether this should be at a national or subnational level. The UK will be negotiating for a national baseline with project level implementation. Stabilisation what approach should be taken towards countries that have stabilised their forests, such as India. 1

2 The UK hopes to agree key principles of participation in Bali. These include: National sovereignty over natural resources. Voluntary participation. The need for positive incentives. Recognition of substantial co-benefits. The use of IPCC Good Practice Guidance. Facilitation of participation through capacity building. Review and verification procedures. Any agreement must provide a bridge to the second commitment period from 2012 and examine whether using the market or a fund is the appropriate means by which to do this. The two are not mutually exclusive and fund-based approaches, such as the FCPF (Forest Carbon Partnership Facility) could contribute to capacity building and provide incentives. The UK believes there must also be a commitment to include REDD in a post-2012 regime and a clear process set out for this. There are clear links between deforestation and forest governance. Illegal logging is a major driver of deforestation and addressing it a key element of achieving credible emissions reductions. FLEGT Voluntary Partnership Agreements (VPAs) could provide a useful example of a workable approach. The FCPF could also play a key role. The pdf file of this presentation is available at: Issues and Government Positions on REDD John Lanchbery, Royal Society for the Protection of Birds (RSPB), UK Appropriate baseline - The carbon and biodiversity benefits of preventing deforestation have long been known. However, a lack of a national baseline means it has not been possible to measure national performance to date. Therefore, it would be possible for a project in one part of the country to reduce deforestation while forests in the rest of the country were logged instead. Most countries now agree that a national baseline is vital, and most agree that any REDD agreement should include degradation, which is often a precursor to deforestation. However, Brazil is against both the national baseline and the inclusion of degradation. Deforestation drivers - Understanding the drivers for tropical deforestation is key to tackling it. Any regime to limit emissions from deforestation will need to provide sufficient resources or incentives to counter these drivers. The costs of halting deforestation will vary between countries and will depend on the type of activity to be displaced. For example, enforcing protected areas is cheaper than preventing conversion to soya bean production. Displacing conversion to oil palm in South East Asia is likely to be even more expensive because of the current boom in biofuels. Estimating emissions - It is essential to be able to estimate emissions reductions adequately. Most countries agree that the focus should be on natural forest rather than plantations, that gross, rather than net, change should be measured, and that IPCC (Intergovernmental Panel on Climate Change) guidelines on the assessment of changes in 2

3 carbon stocks should be used. IPCC methodologies would use national systems and definitions, which avoids the need for complex international definitions, but does not address the problem of how to reliably assess degradation and changes in carbon stocks more generally. Regime scope - There are questions about the scope of an emissions regime; whether it should cover only emissions from reduced deforestation, thereby providing incentives for countries to limit deforestation; whether it should include countries that are stabilising their forests, such as India; and whether it should offer incentives to countries that are reforesting, such as Costa Rica and China. Payments - The phasing of payments also needs to be agreed; a credit for not deforesting would presumably only be given once and so would have to cover present and future avoided deforestation. Leakage - Non-permanence and displacement or leakage are need to be addressed, although it is argued that they do not present significant problems in a regime that is based on national baselines rather than one based on projects. Policy approach - A number of policy approaches have been proposed, ranging from a market-based approach with tradable allowances accrued in excess of a national commitment to limit the rate of emissions from deforestation (proposed by Papua New Guinea and the Rainforest Coalition) to a voluntary fund-based approach (proposed by Brazil). All approaches have associated difficulties. However, the market will only deliver a significant carbon price, and sufficient volume, if there are tight caps on developed country emissions. It is likely that many countries lack the capacity to be able to implement such a commitment, leaving the possibility of significant leakage. Funds are probably easier to implement but may not be sufficient. An alternative would be a step-by-step approach, in which countries with the capacity could take on a market-based approach, others a fund-based approach, and those with least capacity would receive funding to build that capacity. Countries with a high degree of capacity (Brazil) might still adopt a fund-based or limited market approach if they had reservations about a market option. However, this is much more complex. Compliance - Whilst entering a scheme would be voluntary, countries in a scheme would have to comply with its rules, which will be crucial to any scheme s effectiveness. Impact on the CDM - Any international system for reducing emissions from deforestation will have an impact on the Clean Development Mechanism (CDM), for example, by potentially diverting money. Steps must be taken to minimise this impact The pdf file of this presentation is available at: 3

4 SESSION TWO: PROJECT AUDITING, GOVERNANCE AND RISK Governance and Risk: National vs Sub-National Bob O Sullivan, Climate Focus The advantages of a national approach are: Good central oversight may produce coordinated national efforts. Economies of scale larger areas will be covered. Prevention of leakage (deforestation moving to other parts of the country). However there are also a number of disadvantages: May discourage private sector participation because of the additional risks involved. Poor governance (corruption, weak institutions, weak judiciary, limited capacity to design, implement, monitor and enforce national policy) will undermine effectiveness, and grant funding may not help overcome these. Government risk associated with spending with an uncertain return, which may be overcome with grant funding. Low effective participation by countries will not address the problem of international leakage. It may result in less local community participation on the ground in individual countries. Equitable distribution (reduced number of countries participating). Uncertainty over the reduction in emissions levels calculations. Difficulties in monitoring degradation. Indicators identified by the Stern Review show the potential problem of poor governance in eight countries that represent 70% of total emissions from LULUCF (Land Use, Land Use Change and Forestry). All of them have clear governance challenges (see the table in the presentation) which need to be addressed for a national regime to be effective. The advantages of a sub-national, project- or programme-based approach are: Allows private sector participation, by improving supply and demand. Brings direct benefits to local stakeholders. Focuses on hot spots, giving more accurate baseline/er estimates. Helps to establish or confirm property rights over discrete areas of land. Allows more countries to participate immediately, thereby potentially reducing leakage and increasing total reductions globally. The potential disadvantages are: Economies of scale would be harder to achieve, though potentially still possible. Leakage although this could be addressed in a number of ways: o o Only allow a project where the driver of deforestation is local and can, therefore, be tackled. Establish a minimum project to reduce leakage opportunities. 4

5 o o Discount the number of credits. IPCC Special Report LULUCF 2000 showed the possibility of leakage in LULUCF projects is the same as in other sectors, as companies move to other countries. Other issues that need to be addressed include how effectively each approach addresses permanence, the sovereignty over forests, who is liable if the process fails, and the ability of any system to provide a longterm income stream. The pdf file of this presentation is available at REDD and Risk: Carbon Markets, Projects, Governance Johannes Ebeling, EcoSecurities Carbon markets are growing rapidly. Both the Kyoto Protocol and the EU Emissions Trading Scheme (ETS) came into effect in In 2006, US$32.2 billion was traded, of which US$7.9 billion represented CDM projects in developing countries. Voluntary markets exist in parallel to Kyoto markets. No common standard is used, which means very different products are being sold. There is a lack of monitoring, verification and permanence, and quality and price vary considerably (US$0.5- US$45 per tco 2 (tonne of CO 2 ). These markets present potential risks for the buyer. Voluntary forestry projects were the first carbon offsets and are the most visible projects. They represented one third of voluntary offsets in They are easy to market but have been criticised over issues such as variable quality, verification and permanence and, therefore, carry reputational and compliance risks. There is a strong link between project quality and risk. Uncertainties in the project, such as doubt over what carbon credits will result or whether it would be recognised in the EU, are reflected in the price buyers are willing to pay. There are a number of issues to consider when looking at governance risks in relation to REDD: If a country (government) is the project developer and carbon seller: Will it be possible to reduce deforestation and achieve REDD? Many governments have not demonstrated an ability or willingness to address deforestation. What is the country s track record of natural resource management? o Frequently a large share of current emissions comes from illegal deforestation activities, which are very unlikely to be included in any scheme. Illegal logging breaking national laws on harvesting, processing and transporting timber or wood products and the international trade in illegally logged timber is a major problem for many timber-producing countries. It causes environmental damage, costs governments billions of dollars in lost revenue, promotes corruption, undermines the rule of law and funds armed conflict. It retards sustainable development in some of the poorest countries of the world. Some estimates suggest that in five of the top ten most forested countries up to half the trees cut are felled illegally. Is there a strong institutional set-up or willingness to reform in order to establish better governance? 5

6 Are there good monitoring and reporting systems? If a landholder or company is the project developer or carbon seller: What risks to the project arise from governance in the country? o o eg. land tenure security this is potentially the biggest problem as developers could be vulnerable to changes in the law on tenure and land rights. economic, political, judicial stability. If a government is the intermediary for international REDD trading there is a risk of corruption and a lack of transparency. There are questions about how realistic it is to achieve the potential income and reduced emissions; some of the countries with the highest potential carbon income (such as Guinea, Liberia and DR Congo) are those with the most severe governance issues. The pdf file of this presentation is available at: SESSION THREE: WHO BENEFITS? Leo Peskett, Overseas Development Institute, UK Who benefits is likely to be influenced by 1. Buyer motivations: Volumes how much a country has to sell. Risks likely to favour low risk situations. Costs per unit of carbon. Interest in 'co-benefits'. 2. Political motivations (outcome of negotiations) The type of agreement influences the type of benefit and who accesses the market - inside/outside the UN system, fund/market based. Baseline setting for example, historic activities the 'legacy effect' or dryland forest (which will not benefit from REDD so other options need to be identified). Accounting systems definitions of forest; full/partial carbon accounting. National benefit distribution will be influenced by two sets of decisions: those at the international level which are currently under negotiation (an emissions baseline, an open market or fund-based system and rules being set up for REDD to deal with additionality, leakage, permanence and verification), and potential decisions at the national level (such as restrictions on the eligibility of types of emission reductions, or rules that satisfy national priorities within international requirements). There is very little past experience to draw on to learn about benefit distribution in national REDD or national avoided deforestation schemes. However, it appears that risk reduction 6

7 and legal clarity over resources will be key. Safe contractual arrangements will also be important as will institutional arrangements to underpin them. The legal issues are: Private tenure/clear tenure arrangements preferred by buyers this can lead to reduced access and benefits for local people, for example the formalisation of rights may remove indigenous rights systems. Potential non-recognition of customary tenure Ownership of carbon vs. ownership of land/forest this will have an impact on how the REDD system is set up. The contractual arrangement issues are: Land uses/activities that fit with monitoring requirements power often lies with buyers but it is important to deal with cyclical patterns of land use. Payments made after verification of emissions reductions. Liability for potential failure to meet contract? Types of credit and type of payment, such as employment opportunities, which could be implemented at a national level. Most options for institutional arrangements are likely to require at least 6 elements: National/local fund managers. Standardised monitoring, reporting and verification systems. National registry. Legal institution(s). Implementing institution(s). Legal nature of the seller. In existing systems, sellers capture only a very small proportion of the benefits, which is not enough to compensate; most of the benefits are captured towards the buyer end, even from schemes where, for example, verification processes take place in the country of origin. There is also a risk of elite capture where benefits are distributed unevenly to beneficiary groups. On the other hand, increasing the value of the forest because of the potential for REDD could lead to increased prices for timber companies and increased benefits for local people. Although there are risks of governance failures, REDD could provide hope for integrated policy decisions at the national level, could decrease overall implementation and transaction costs compared to the CDM or voluntary carbon markets, and could strengthen forest protection. The pdf file of this presentation is available at: 7

8 A View from the Congo Basin Cath Long, Rainforest Foundation and Samuel Nnah Ndobe, Centre for Environment and Development, Cameroon For local communities, forests are not carbon sinks or sources of timber, but their livelihood. 50 million people in the Congo Basin depend on forests. Carbon payments potentially offer recognition of a service that has been provided for years. There may be billion tco 2 within Congo Basin forests. Two of the eight largest contributors to global deforestation are in the region: Cameroon and DRC (DRC has 60% of the Basin s forests). It is widely acknowledged that there are considerable weaknesses in forest governance throughout the region. The key issues of concern are: Who owns, who controls, who makes the decisions and who receives payments - following independence, new governments took over land, vast amounts of which is now within concessions. Very little remains solely for the use of local communities. Corruption and collaboration between the authorities and logging companies acting illegally is widespread. Logging taxes in Cameroon have had no impact on development in 10 years, although 10% is meant to be returned to local communities; communities are not included in negotiations between governments and companies; and community forests are small and focussed on timber extraction. Human rights implications some indigenous peoples have been moved out of protected areas without compensation. During national park expansions, groups have been relocated and forced to live in plantation areas where they have no livelihoods. The poor are often blamed for deforestation but they are usually the victims. How do carbon payments link with forest communities it is possible that the carbon trade could help local communities through replanting and trading initiatives. There is no working example of development benefits from forestry based VER (Verified Emissions Reductions) projects, nor a thorough review of existing projects. Most countries with large tropical forests have significant governance problems. Until these are seriously addressed, no carbon payment mechanism will have any effect on deforestation. The pdf file of this presentation is available at: Avoided Deforestation: What Role for Co-Benefits Klas Sander, SDN Forests Team, World Bank The objective of avoided deforestation is to decrease global carbon emissions through REDD. Who is eligible is not yet clear but there are imminent threats to forests from deforestation and degradation in tropical and sub-tropical areas. The REDD drivers are: Agriculture large and small scale. Unsustainable management of concessions. Unsustainable use of subsistence products. Factors outside the forestry sector. 8

9 Poverty and forest linkages occur in many areas and to different degrees. For example, there is a strong link between poverty and agroforestry, and much less of a link with national parks. Therefore it would be logical to concentrate activity where it can have the greatest impact, ie. on agroforestry. In this context can REDD be achieved through policies at the national level or interventions at the local level? Currently the priority is the national level. It is important to work out how to achieve the best balance between avoided deforestation and co-benefits. Currently, minimal attention is paid to co-benefits. There are a number of issues to consider when looking at whether REDD can deliver cobenefits: A markets approach will a purely market-based mechanism be able to ensure that cobenefits are delivered in addition to the primary focus of reductions in deforestation? A fund approach issues of corruption or bad governance may mean that funds are not targeted where they are intended. Should only natural forests be included - carbon is stored in high and low biodiversity forests, and forests with good or poor management regimes. Monitoring this is difficult with carbon and will be more complex with co-benefits. Is stabilisation to be included if the focus is not just on natural forests stabilisation is only achieved through man-made forests, not natural processes. Could REDD substitute for overseas development aid (ODA). For REDD to deliver co-benefits, it is crucial to work with the right people. Every REDD payment would need co-financing for co-benefits to be achieved. This applies to both fund and market approaches. Making REDD payments contingent on the delivery of other benefits should be considered, as should taking REDD wider to include stabilisation countries, and re-bound countries, ie. countries in which forests are re-growing. The pdf file of this presentation is available at: SESSION FOUR: IS THERE A ROLE FOR FLEGT? Is There a Role for FLEG(T) in AD Tapani Oksanen, World Bank FLEG Team FLEG not only can, but must, play a central role in any future avoided deforestation (AD) deals. It is not possible to negotiate a credible contract on AD with a country that does not deal with issues around forest crime, such as illegal logging, arson or illegal land conversion. The regional FLEG Declarations and ministerial processes have proved very informative about the key governance challenges and the commitments that countries must resolve to deliver on AD. The key instruments in FLEG processes include: Revisions of laws and regulations to ensure they are equitable and just. Institutional reforms. 9

10 Forest information and transparency systems, which form the backbone for monitoring. National action plans to combat illegal logging and other forest crime these should not work in parallel to efforts to establish forest strategies but should support national forest policies and strategies, and should influence the implementation of AD. AD will force governments to look at governance issues beyond the forest sector; most of the prospective countries entering into AD deals do not perform well on governance indicators, such as the Transparency International corruption perception index. There must be strong incentives for governments to take their commitments seriously on corruption and SFM. FLEG objectives go beyond just AD. AD is not a surrogate or replacement for FLEG but a potential financing source, which could encourage strong political commitment. The pdf file of this presentation is available at: Links Between FLEGT and REDD: Initial Thoughts Valerie Merckx, European Commission FLEGT is the EU s answer to fighting illegal logging. A key part of FLEGT is Voluntary Partnership Agreements (VPAs), but FLEGT also includes support to developing countries on legislation and forest governance as well as engaging private companies and civil society. Key features of FLEGT are: It is a political process and not only a market-driven process. It aims to link national policies and investment in governance to trade. It is targeted at countries which trade wood a subset of potential REDD countries. It does not deal with land-use policies and trade-offs, ie. it is not concerned with what happens outside the forest boundary. Lessons that have been learnt from FLEGT to date are: 1. Building broad consensus is essential to address illegal logging and governance issues. 2. The amount of public scrutiny of forestry issues is very high. 3. Getting political buy-in in a country where forestry issues are controversial requires time. 4. There are a limited number of officials with the ability to negotiate (both internationally and internally). These realities need to be taken into account when discussing REDD. The UNFCCC REDD process has the potential to increase the profile of forestry issues, encourage political momentum and provide an international forum for the exchange of information, experiences and lessons learnt. The REDD mechanism provides innovative international incentives to support action against deforestation, and can influence broad landuse policies often the most difficult issues to tackle. To ensure an effective REDD mechanism at the national level, countries will need: 1. Technical tools such as remote sensing and National Forest Inventories (NFI). 10

11 2. To implement national incentives: grants, taxes, market incentives such as Payments for Environmental Services (PES), carbon certificates, and certification of sustainability. 3. Organisation land planning and cross-sectoral coordination. 4. To address land tenure and usufruct issues community forest, concessions, sharing of benefits. (Usufruct is a civil law term referring to the right of one individual to use and enjoy the property of another, provided its substance is not impaired or changed). 5. Effective land-use governance including agriculture policy. Lessons from FLEGT suggest that points 3-5 above are prerequisites for success. REDD mechanisms should influence local land-use decisions (trade-offs and politics), however, it is not clear how to do this at present. There is an assumption that the very existence of incentive mechanisms at the national or international level will mean that a country will make use of them, but this is not necessarily true. FLEGT could be a very useful tool in this process; it is important to link lessons learned from FLEGT to the emerging REDD process. The pdf of this presentation is available at: FLEGT and REDD: Lessons and Synergies - Ruth Nussbaum, Proforest The EU FLEGT Action Plan has a number of key elements, one of which is Voluntary Partnership Agreements (VPAs) between EU and partner countries. VPAs involve: A negotiated agreement between the EU and partner country addressing illegal logging. A licensing system for legal timber requires implementing and verifying legality in the forest sector. This is a core element as the EU will accept only licensed timber from a VPA country. Clarification and recognition of tenure rights. The key aim is a legality licensing system, and co-benefits are discussed separately. A support programme to address causes of illegality. In terms of negotiations, REDD will be a multilateral process. FLEGT is a bilateral process between the EU and partner country but could be useful in providing experience of negotiating a national approach which is effective and credible but does not undermine sovereignty. The FLEGT approach also delivers core requirements, but is different for each implementing country. Both the EU and partner countries have gained experience of international negotiation in the forestry sector. The implementation and verification of legality are important for both REDD and FLEGT. For FLEGT legality assurance requires five elements: A national definition of legality this is crucial and will be a major part of any negotiating process. A mechanism for controlling the supply chain this will be different for carbon. Verification of implementation. A mechanism for issuing licenses. 11

12 Independent monitoring of the system there will be interesting parallels for REDD here. Legality assurance can be implemented at the national level or by individual market participants at the shipment level. Key elements in legality assurance are: 1. Setting baselines: FLEGT experience of multi-stakeholder processes to define legality may be useful when developing credible national baselines. Incomplete data will be common so decisions need to be made about what is a credible baseline. 2. Data overlap: A lot of data required by FLEGT (inventories, management plans, harvest data) could be used by REDD. 3. National versus project based approaches: FLEGT allows national or project based implementation. It is helpful to consider whether it is sensible to depend on a national government that is potentially responsible for perceived problems. There are useful lessons for REDD here. Project based implementation can be used together with national approaches. 4. Verification of implementation: FLEGT requirements may provide useful input to REDD. Information collected may be directly relevant to REDD. 5. Licensing scheme: Possible comparisons between issuing timber licenses and issuing carbon credits. 6. International monitoring and reporting: FLEGT Independent Monitoring discussions. Use of GIS and satellite images. Land tenure is a crucial issue for both FLEGT and REDD. Growing demands for food and fuel will lead to increasing pressure on land. FLEGT requires the clarification of tenure rights for production forests and this could provide a useful model for other forest areas. In terms of combating forest loss, there is clear synergy between what FLEGT and REDD are trying to achieve. FLEGT actions may provide important support for REDD activities. FLEGT also tackles forest governance, equity, poverty and development, all of which are likely to be relevant issues for REDD. There are major differences between REDD and FLEGT; however, the experiences from FLEGT can be of help to REDD in three ways: The FLEGT experience in both systems and personnel could be useful in the development of REDD approaches. It may be useful to use systems and data from FLEGT to build REDD. Some FLEGT activities will contribute directly to REDD and vice versa. 12

13 The full PowerPoint file of this presentation is available at: Discussion Sustainable forest management (SFM), forest degradation and carbon emissions: There was discussion about whether the debate around carbon and REDD was simply another way of describing the processes and tools for achieving SFM. The tools and mechanisms are already in place for SFM, however REDD processes could bring in new financing opportunities for existing processes. The carbon debate is an opportunity to further improve forest governance; it was suggested that the mechanisms for protecting forests are the same as those for ensuring co-benefits. It is vital that any approach in the carbon debate protects livelihoods and promotes SFM. It was suggested that if the target is the simple reduction in climate change gases, SFM is irrelevant because it does not matter where the gains come from. Furthermore, it was suggested that REDD is a negotiating process in which all achievements in reducing emissions are good. However, although it was acknowledged that finding the key places where emissions cuts can be achieved is crucial, it was felt that forestry management has to be a fundamental part of this, particularly when focusing on the longterm effects in years time. National approach vs project approach: Discussion on the most appropriate approach focused on three issues: 1. Leakage: It was agreed that a degree of leakage is inevitable and has to be accepted. However, it was felt that leakage could be minimised at the country border level, although it was noted that, in some countries, the state level might be a more appropriate boundary, for example, in Brazil. It was agreed that there has to be a political and ideological decision made about the acceptable level of leakage. It was also suggested that if schemes do not involve landowners or devolved government, they will not work and that any mechanism needs to take account of local approaches, even if filtered through a national government. In CDM forestry, those responsible for a project will be penalised for any leakage that occurs as a result of that project; therefore compensation is paid for any income displacement you create, or fuel wood collection allowed in a protected area, or alternative incomes to subsistence agriculture are created. 2. Indonesia: It was pointed out that in Indonesia, only 50% of the forests remain and that there are a number of reasons why forest management has failed. For example, competing interests from different ministries (such as the agriculture ministry s drive for 20 million more hectares to be dedicated to palm oil), a lack of knowledge at the local government level, and lack of engagement with local people. The World Bank is currently working on a REDD strategy for Indonesia which includes a number of pilot projects, for example how to change the way the oil palm companies operate, giving concessions to the mechanical forestry industry to clamp down on illegal logging and fire prevention schemes. 3. The risks of deforestation in different parts of a country: There was discussion about whether a national baseline would be too simplistic because the risk of deforestation will not be the same in each part of a country. It was suggested that it would be possible to 13

14 attract the market to high-risk areas by offering more credits. It was also proposed that the alternative would be to establish a fund, rather than rely on the markets, although there is the question of who makes the decisions on how the fund is distributed and who decides whether Brazil is better than, for example, Cameroon, in addressing certain types of deforestation. Funding: A number of issues were raised about funding: 1. Funding streams: The World Bank (WB) Global Forest Partnership Facility would provide US$250 million, US$50 million for capacity building, and US$200 million for the countries being targeted, such as DR Congo, Costa Rica, Brazil and PNG. In addition, the UK has an Environmental Transformation Fund, Australia are making available Aus$200 million, mainly for SE Asia, and GTZ will be providing some funding. There is also collaboration for a REDD pilot initiative in Indonesia, which is being funded by a number of bodies including the WB and GTZ. 2. Level of required funding: It was pointed out that some oil palm plantations make more in a year than the US$250 million available from the Global Forest Partnership Facility. Questions were asked about how much funding is required and where it will come from. The lowest estimate at present is that US$5 billion per year will be needed, but there is no general agreement yet on this. It is recognised that the most expensive drivers are palm oil production, estimated at $5 million per tco Compensation prices: It was pointed out that driving up the compensation price for taking land out of production is complex. If a cap is set on emissions and the opportunity costs increase and deforestation credits are too cheap, deforestation will occur. It may therefore help to set a lower limit for the economic value of avoiding deforestation, ie. manipulate the market. It was also noted out that if an activity is illegal it does not matter what the costs are because it will not be included, and that there are ways to control deforestation other than compensation payments. 4. Payment for avoided deforestation: It was noted that factors both outside and inside the forest sector change and that there may be a need to change the approach on payment for avoided deforestation; a question was asked about whether the notion of a one-time payment has been finalised. This has not been finally decided and Papua New Guinea, for example, plans to set up a fund to pay compensation to local people indefinitely. Governance: two key issues were discussed on the subject of governance: 1. Governance indicators: There was discussion about the robustness of indicators. It was pointed out that Malaysia scores well on some of the governance measures and yet has overseen the destruction of vast amounts of its forests. However if incentives are put in place to protect forests, it was suggested there was no reason why governance could not be focussed on maintenance and management. This is a longterm process. There was also concern expressed about how applicable these indicators are to the type of governance being discussed at the meeting. 2. Governance risk and prices: There was discussion about the link between governance and prices. There was a suggestion that only the private sector puts a value on risk, but that the carbon market is politically driven and directs incentives to draw in the private 14

15 sector. It was acknowledged that it is an artificial market in which there are a number of ways to increase demand, for example by setting a minimum number of credits that can be bought. But it was suggested that the private sector knows very well how to price risk. REDD is different however, because if deforestation occurs in one part of a country, outside a project boundary, the private sector could decide that the whole country represents an unacceptable risk. Carbon trading: the discussion on a carbon trading system centred on two issues: 1. Consequences of carbon trading system: It was suggested that the consequences would be very different depending on whether a carbon fund or trading system is implemented. Trading is likely to involve bypassing local communities to go direct to landholders; does this matter if it still solves the problem in terms of the climate objective and will there be negative impacts from bypassing communities? Will the right to the carbon become the right to the land? There was agreement that there are real risks in REDD for appropriating land which need to be taken into account and that deforestation will not be halted if these threats are not addressed. It was also noted that years ago biodiversity was at the top of the agenda, along with talk of benefit sharing. This often involved a transfer of responsibilities, not rights, to local communities and a lack of compensation for the management of the land. It is important that this is not repeated. 2. The ability to steer trade into difficult areas: It was noted that the objective of REDD is to reduce emissions as effectively as possible, but that, if the instrument to be used to achieve this is trade, how is it possible to steer the market to areas where the deforestation risk is highest? Trading depends on finding the cheapest and easiest reduction, not locating where the need is greatest. It was suggested that this would depend on how the baseline is established; for example, it could be possible to offer more credits for investing in high-risk areas. 3. Gourmet carbon : It was pointed out that carbon buyers look at co-benefits because they potentially enhance the quality of the product and, hence, the credit being bought. However, a participant pointed out that there was currently only a very small niche market for gourmet carbon, which includes co-benefits, and that there could be market saturation for products with policies on co-benefits. In addition, there is a debate around the robust certification of such schemes. FLEGT: There was discussion around the relevance of FLEGT to the carbon debate and lessons that can be applied: 1. The potential for bilateral relationships: It was suggested that developed countries could invest in the national CO 2 infrastructure of developing countries (possibly on the basis of historical links, such as previous colonial ties), in a similar arrangement to the bilateral FLEGT VPA process in which individual producer countries are developing licensing schemes to identify legal products in return for guaranteed access to EU markets and EU assistance with capacity building. 2. The drawback of a bilateral process: It was suggested that FLEGT would not work in the longterm if it remains a bilateral process between the EU and individual countries; circumventions are likely to make FLEGT unsustainable. A global timber licensing system will therefore be desirable in the future. 15

16 3. Certification, FLEGT and REDD: It was suggested that FLEGT has more relevance to timber-based economies. There is potential for REDD to link into the verification process, however, currently the only incentive to move towards certification is access to markets which is not a sufficient incentive. FLEGT provides a useful baseline, but only 20% of the industry in Ghana is likely to work towards certification. It is possible that REDD could assist with this. 4. Independent monitoring: A participant pointed out the importance of stressing the independence of monitoring. Lessons from the Forest Stewardship Council (FSC) should have been learnt in the CDM but have not been. Up to one third of carbon credits issued to date have not been additional due to the failures of the verifiers. Those seeking validation often pay the validators. It was pointed out that monitoring for FLEGT will be independent because it will not be funded by the operators, and will be system-wide. 16