Forest Carbon, Markets and Communities (FCMC) Program

Forests are disappearing globally at an alarming rate. Huge amounts of emissions are released into the atmosphere as forests are cleared to make room for other forms of land use. Deforestation and forest degradation are the source of at least 15% to 20% of global greenhouse gas emissions. In response, in October 2010, the United States Government (USG) launched its strategy for REDD+ and increasing carbon sequestration in forests in developing countries. This has been followed by USAID launching its Climate Change and Development strategy in January 2012. Both strategies support REDD+ as a method to combat global climate change because it protects ecosystem biodiversity and helps to preserve livelihoods and welfare of people in developing countries. The USG has pledged US$ 1 billion in “fast start financing” between 2010 and 2012 to support the development of REDD+, including assistance in promoting markets for REDD+.

But meaningfully reducing global deforestation requires far greater investment and necessitates that the bulk of activities be funded with various forms of private capital. Annual investment in the REDD+ sector is currently below US$ 200 million, but the investments needed to reduce deforestation by 50% in 2030 are estimated to between US$ 17 – US$ 28 billion annually. The USAID has contributed significantly to the creation and execution of the US REDD+ Strategy through global, regional and mission-based activities. USAID commissioned this report to identify how USG investments and policies could facilitate and catalyze private sector and public sector investment in the buying and selling of forest carbon credits.

While the role of the USG is not to administer the REDD+ market, it can contribute to an enabling environment that incentivizes private and public investments by promoting REDD+ country national institutional conditions, supporting investment ready mitigation activities, providing primary capital, increasing investment certainty, and mitigating risks. According to a recent United Nations Environment Program study, existing public finance mechanisms and new mechanisms in development can catalyze and leverage private finance for climate solutions and low carbon growth up to a 15:1 ratio. Building upon the UNEP study and the wider evidence base for REDD+ investment, this report assesses where and how USG agencies, can contribute to further finance markets for REDD+ and catalyze private sector investment.