Finance sector favours ‘nested’ approach to REDD+
A hybrid mechanism, in which tradable credits can be issued directly to forest carbon projects, as well as to national governments, is the clear preference of the private finance sector for rewarding projects that reduce deforestation and forest degradation (REDD+), according to a report from the UNEP Finance Initiative.
“The most promising policy option for private sector involvement in REDD+ is the ‘nested’ approach,” says the report REDDy Set Grow (part 2). “There is a high likelihood of private sector involvement in REDD+ activity implementation and financing … as long as private entities at the sub-national level are eligible for crediting”, it concludes.
The authors reiterate the findings of the Eliasch Review of 2008 which concluded that a 50% reduction in deforestation rates is needed by 2020 if the forest sector is to play its part in holding global temperature rise to below 20C. This will require upfront investment of approximately $17 billion - 40 billion each year, Eliasch estimated. “Investment at this scale is highly unlikely to come from governments alone,” the UNEP report says.
Indeed, given the austerity measures currently in place in many industrialised countries, the public finance available “is absolutely dwarfed by the scale of the funding needed,” noted Abyd Karmali, global head of carbon markets at Bank of America Merrill Lynch, at the launch of the report.
“Public sector funding alone won’t be sufficient,” agreed Steven Cornelius, head of forests and land-use negotiations at the UK’s Department of Energy and Climate Change.
The ‘nested’ approach has significant advantages over alternative policy options, the report says. Among them, it notes:
- a crediting mechanism is preferable to an international fund as it means carbon emitters will be paying rather than taxpayers;
- a market-based mechanism will give a price signal that will incentivise the private sector to address the root causes of deforestation;
- country and regulatory risk is much reduced compared with an approach in which all REDD+ revenues are administered and distributed by government agencies;
- the environmental integrity of the system can be safeguarded by ensuring that regional and activity-level baselines are harmonised with national baselines; and
- it allows for a smooth transition from the current patchwork of scattered voluntary projects to national-level policies, agreed under the UN Framework Convention on Climate Change.
The first part of the REDDy Set Grow report was published in May and addressed to financial institutions.The second report focuses on policy recommendations.