Differing views on market-based approaches for REDD+plus finance

Bonn,  22  May  (Hilary  Chiew)  –  Parties  differed  in their  views  on  the  use  of  private  finance  for  forest-related  activities  at  the  spin-off  group  under the Ad Hoc  Working  Group  on  Long  term  Cooperative Action under the Framework Convention on Climate Change  (AWG-LCA)  to  discuss  the  financing  system for ‘REDD-plus’ on 19 May.
While  most  countries  that  made  interventions preferred  the  use  of  both  public  and  private  funding sources  and  favoured  the  market-based  approaches, Bolivia,  Sudan,  Tanzania  and  India  differed, particularly in the use of offsets within these market-based approaches.
The  forest  related  activities,  known  as  ‘REDD-plus’, cover  reducing  emissions  from  deforestation  and forest degradation in developing countries, the role of conservation,  sustainable  management  of  forests  and enhancement of forest carbon stocks

Boivia  pointed  to  its  proposal  on  the  idea  of  joint mitigation and adaptation approaches that is reflected in paragraph 67 of Decision 2/CP.17. It said there is no  doubt  that  in  the  context  of  REDD-plus,  the development  has  been  related  to  the  carbon  market and mitigation.
(Paragraph  67  of  the  decision  adopted  by  the Conference of Parties last December in Durban reads as follow: “Notes that non-market-based approaches, such as joint mitigation and adaptation approaches for the integral and sustainable  management  of  forests  as  a  non-market  alternative
that  supports  and  strengthens  governance,  the  application  of safeguards  as  referred  to  in  decision  1/CP.16,  appendix  I  , paragraph  2  (c-e)  ,  and  the  multiple  functions  of  forests,  could be  developed”.  Decision  1/CP.16  was  adopted  in Cancun in 2010.)
It  warned  that  Parties  must  be  careful  of  the temptation  to  move  automatically  to  market  against non-market and that to move forest towards the non-market  approach  is  imperative.  It  said  to  start  this non-market  approach  requires  moving  the  thinking on  mitigation  to  incorporate  both  mitigation  and adaptation,  moving  from  carbon  to  the  multiple benefits  of  forests,  thus  applying  what  integral development means in practice.
Stressing  that  this  approach  is  closely  related  to  a sustainable reduction of emissions and has a lot of co-benefits, Bolivia said the challenge from now until the end of the year is to move work towards non-market approaches and linking forests to public funding.

Sudan rejects offsets and requested for major sources of public funding. It said MRV (measuring, reporting and  verifying)  of  funding  must  be  provided  for  the implementation  of  the  third  phase  of  results-based action with full implementation of direct and indirect benefits.  

Tanzania  said  Parties  are  deceiving  themselves  if they think that finance is coming from the market. It said  the  Durban  decisions  has  not  changed  the
principles  of  the  Convention  which  said  that  large share of finance should come from the public sector. It  highlighted  that  the  financial  mechanism  for
REDD-plus  should  take  into  account  that  drivers  of deforestation differ from one country to another.  In the LDC (Least Developed Countries) context where 80% of the biomass are needed for food security, the drivers  of  deforestation  are  linked  to  needs  of  local communities.  It  warned  that  market-based approaches  cannot  address  this  type  of  drivers  of deforestation.

India said conservation of forest carbon stocks need to  be  incentivised  through  non-market  based mechanisms  and  not  through  market-based
mechanisms  and  that  there  should  be  a  proportional distribution  among  the  activities  between  (a)  to (e) (referring  to  paragraph 70 of  Decision  1/CP.16  on the five specific activities of REDD-plus).

Papua New Guinea said most of what is needed to start  REDD-plus  activities  in  developing  countries has  been  achieved  since  Bali  (in  2007).  It  said  it  is determined to finish work since Durban (referring to COP  17  at  the  end  of  2011)  and  the  key  missing element  is  the  implementation  of  financing  REDD-plus activities.   It  asked  for  a  dedicated  window  for  REDD-plus financing in the Green Climate Fund (GCF) and new market  mechanism  for  results-based  actions  in  phase three  of  implementation  with  a  measuring,  reporting and verifying (MRV) process at national level. It  believed  it  will  be  most  useful  to  coordinate  the current  session  with  synergy  with  the  GCF  and  non-market mechanism. It  also  suggested  that  the  existing  financing
mechanism  under  the  various  processes  like  the World Bank’s Forest Carbon Partnership Facility, the UN-REDD,  and  the  REDD-plus  Partnership be
replaced  as  soon  as  possible  by  the  GCF  and  the REDD-plus mechanism (under the Convention).

Guyana  said  any  vision  for  a  2°C  goal  can  only  be achieved if REDD-plus is part of the solution. It said that many rainforest countries depend on their forests as  a  source  of  finance  for  growth  and  development, and  to  ensure  that  we  need  to  incentivise  the sustainable management of forest. And because of the scale  of  finance,  no  single  source  can  do  the  job hence the logic of the Durban decision that says both public and private.
It  suggested  that  public  financing  should  be channeled  to  the  GCF  and  believed  that  private sources  can  be  utilised  for  both  market-based  and
non-market  approaches.  For  market-based  approach, financing  can  be  generated  through  auctioning  of assigned  amount  units  (AAUs)  and  it  would  prefer a new  market  mechanism  under  the  guidance  and authority of the COP. It would also support REDD-plus bonds and advance market  commitments.    It  believed  that  payment  for results-based  actions  should  be  subjected  to  a  robust accounting  system  and  it  saw  merits  in  linking  the discussion  on  finance  with  existing  finance discussions elsewhere (referring to the GCF).

Norway agreed that REDD-plus is an important part of  the  solution  to  combat  climate  change  and  that lack of finance for it will threaten its implementation. It  said  at  Durban,  Parties  agreed  that  results-based finance  for  REDD-plus  must  come  from  a  wide variety  of  sources  including  from  market-based mechanism  with  environmental  integrity  preserved, safeguards  addressed  and  respected,  and  a  robust MRV system.
It  said  at  Doha  (venue  of  COP18  at  the  end  of  this year),  a  national,  results-based  financing  mechanism for  REDD-plus  must  be  established,  adding  that increasing  finance  in  Doha  will  increase  momentum of countries to take action. It  also  suggested  a  REDD-plus  window  in  the  GCF
for  payments  for  emission  reductions,  rewarding countries for taking action.
Norway  added  that  Parties  must  also  make  progress on  the  architecture  for  REDD-plus  to  provide  rules and  regulations  in  ensuring  environmental  and  social integrity,  and  that  guidance  from  SBSTA  (Subsidiary Body  on  Scientific  and  Technological  Advice  of  the Convention)  on  technical  issues  such  as  forest reference  level  and  MRV  of  results  and  how safeguards are addressed and respected is important. It  said  there  must  be  clear  signal  that  significant finance  will  be  available  for  the  period  2016  to  2020 and  REDD-plus  must  become  part  of  the  global agreement after 2020.  

Mexico  said  any  Party  should  be  able  to  access  a combination  of  market  and  non-market  based incentives.   It  said  before  participating  in  REDD-plus,  Parties should  establish  a  national  REDD-plus  registry  to verify  carbon  stock  enhancement  and  emission reductions. The registry can be used to ensure that the REDD-plus  emission  units  have  not  been  used  for compliance  purposes  elsewhere  and  that  this information can be transferred to the UNFCCC.   It  said  the  GCF  should  finance  results-based  actions and that Parties should receive monetary incentive for REDD-plus  units,  adding  that  adequate  and predictable funding is critical.  
Mexico  also  said  that  public  funding  alone  is insufficient,  therefore,  REDD-plus  units  outside of the  GCF  can  be  used  for  compliance  from  2013,
adding  that  any  transactions  outside  the  GCF  should be  reported  to  the  registry  to  reduce  the  risk  for private investment. Increased  direct  funding  for  results-based  action should  be  provided  by  the  GCF  as  well  as  other bilateral and multilateral funds, it added.

Indonesia  said  many  developing  countries  have started  REDD-plus  activities  both  with  international funding as well as domestic support. It acknowledgedthat  success  of  REDD-plus  implementation  also depends  on  success  in  addressing  drivers  of deforestation. It  felt  that  public  fund  itself  cannot  support  all  the actions  needed  by  developing  countries,  and  that funding  from  the  GCF  should  be  made  available  for all phases of REDD-plus activities implementation. It also said that a new mechanism should be used for results-based  actions.  MRV  and  a  safeguards information  system  should  be  in  place.  As  long  as  MRV  of  SIS  (safeguards  information  system)  and other  systems  for  reference  emission  level  are  in
place,  it  should  satisfy  the  requirements  for  results-based payment.

The  European  Union  said  it  is  here  to  develop financial  mechanisms  to  support  full  implementation of  results-based  actions.  Halting  forest  cover  and carbon loss by 2030 at the latest would require broad participation  of  countries  and  it  would  also  support bio-diversity protection and other benefits.
The  results,  it  said,  will  have  to  be  assessed  against independently  reviewed  and  UNFCCC  approved national  reference  level  and  Parties  will  have  to develop some sort of baseline for provision of results-based  actions,  taking  into  account  national circumstances. It  pointed  out  that  the  discussion  is  related  to  other negotiation  groups  including  finance,  Nationally Appropriate  Mitigation  Actions  and  new  market mechanisms,  adding  that  the  concept  of  baseline differs from the concept of reference levels. It said there is the need to encourage financial entities and  other  public  and  private  entities  to  apply  these results-based procedures when financing REDD-plus. It  also  invited  the  private  sector  to  work  on addressing the drivers of deforestation.

Switzerland  agreed  that  a  variety  of  sources  is needed.  It  said  funding needs  to  be  harmonise  with other  mechanisms  of  the  Convention  such  as
NAMAs  and  Parties  need  to  define  modalities  for governance  before  they  get  to  market-base  sources. National  governments  need  to  build  the  enabling environments  for  REDD-plus  implementation including  safeguards  being  addressed,  capacity-building  is  provided  and  working  with  private  sector to generate and secure finance. It said that further negotiation is needed on how each of the sources of finance identified at Durban is to be
mobilised in Phase 3 of REDD-plus.

Brazil  said  Parties  had  identified  a  broad  range  of sources  to  be  mobilised  and  therefore  should  focus on  operationalising  these  at  a  scale  and  speed  to unlock  the  significant  contribution  of  REDD-plus. Parties need to use this moment to think strategically about  the  coming  years  especially  in  relation  to operationalisation  of  support  for  results-based actions. With  regards  to  appropriate  market-based  and  non-market-based  approaches,  it  said  discussion  this  year should  enhance  understanding  of  Parties  before engaging  in  the  consideration  of  financing  options, adding  that  appropriate  market-based  approaches should exclude the use of offsets. It  hoped  a  technical  paper  and  a  workshop  would help deliver on what has been mandated.

Ghana  said  there  is  need  to  obtain  adequate  and predictable  finance  for  full  implementation.  National REDD-plus  activities,  demonstration  projects  and scaling  up  of  activities  will  have  to  be  financed  for effective  implementation.  Crucial  systems  such  as national  forest  monitoring  system,  MRV,  forest reference  level,  development  of  safeguards information system as well as identification of drivers of deforestation will all require financial support.
It  further  said  a  flexible  combination  such  as  a dedicated  window  for  REDD-plus  through  GCF, market  based  and  non-market  based  approaches  are needed for sustainable support for REDD-plus.

China  emphasised  two  main  aspects  of  REDD-plus: the  source  of  finance  and  secondly,  modalities  and procedures.  It  stressed  that  finance  for  results-based action should mainly come from public sources but is open to exploring the other sources. It  said  all  actions  and  activities  defined  should  be provided  with  equal  opportunities  to  access  the finance.

The Philippines supported the call for a REDD-plus window  in  the  GCF  and  that  the  finances  should include all phases of REDD-plus and not just the last phase.  It  said  all  processes  of  developing  REDD-plus activities from the development of the national forest monitoring  system,  MRV  system,  safeguards information  system  as  well  as  addressing  drivers  of deforestation have to be supported financially as most tropical  forests  are  found  in  countries  with  low income.

Reacting to Papua New Guinea for the termination of existing  REDD-plus  activities,  it  said  at  this  point  in time  it  is  hard  for  the  Philippines  to  support  the proposal  as  it  has  only  started  its  activities  and furthermore  it  will  take  a  while  for  the  GCF  to support  REDD-plus  activities  as  it  is  not  in  full
operation  yet.  It  pointed  out  that  the  uneven development  of  REDD-readiness  projects  and  many countries  are  only  at  the  initial  stage  of implementation should be recognised. The  Philippines  said  it  will  support  the  participation of civil society and indigenous peoples as observers in the GCF.

The United States said it is premature to decide on a REDD-plus  window  in  the  GCF  as  the  decision  has to be made at the GCF although it supports the idea. It  also  said  a  broader  market  structure  should  be developed  and  new  market  mechanisms  should  be discussed further this year.

Australia was  of  the  view  that  public  finance  in  this trying  global  financial  time  will  be  insufficient,  hence it is advocating market as part of the solution.  It felt that private finance is one of the key factors that has to  be  brought  in,  particularly  for  Phase  three.  On tapping  into  GCF,  it  said  it  would  be  good  to  revisit the option after the GCF is operational.

Japan  said  experiences  gained  from  demonstration activities should be used to guide the development of MRV  and  the  safeguards  information  system,  adding that various financial options will be effective to cater to  the  diversity  of  national  circumstances.  It  also called  for  a  technical  paper  to  be  prepared  by  the Secretariat.  For  better  understanding  of  REDD-plus, lessons  learnt  including  sustainable  forest management in REDD-plus countries will be helpful.

Thailand  also  would  like  a  technical  paper  and  said that there should be equal access to financial sources. Civic  Watch,  Ghana  said  forests  are  more  than carbon,  and  are  home  to  forest  peoples  and biodiversity  and  play  a  key  role  in  adaptation. Modalities  and  procedures  for  results-based  actionsfor  REDD-plus  must  therefore  include  financing actions, which preserve and enhance all of these other benefits  of  forests.  Results  are  more  than  carbon, including in phase 3 when offsets should not be used to finance REDD-plus activities.

Kate Dooley of FERN said she was pleased to hear many Parties referring to the 2°C goal and the need to maintain  environmental  integrity.  She  pointed out that,  from  a  carbon  cycle  perspective,  reductions  in emissions  from  the  terrestrial  carbon  pool  can  never offset  or  compensate  for  increased  emissions  from fossil  fuel  reserves.  To  meet  the  2°C  goal,  reduction in  emissions  from  deforestation  and  forest degradation must be additional to steep reductions in industrial  emissions  from  developed  countries. Therefore  “appropriate”  market  mechanisms  for forests must exclude offsets and focus on the range of market-linked  and  innovative  finance,  which can be used to supplement public funding.  

Chair Yaw Bediako Osafo of Ghana said he would report to the AWG-LCA Chair Aysar Tayeb but he was unsure if there would be another meeting of the
spin-off group.