REDD Revenues: Learning from Peru

Lessons for REDD Revenues: Peru’s experiences from the Camisea project could prove instructive for REDD as the international community ramps up efforts to provide a financial compensation mechanism for developing country actions to reduce emissions from forest loss. Although funding for REDD will likely take different forms, a frontrunner option is to link it to carbon markets in developed countries. Companies would then meet their emission reduction commitments by channeling funding to REDD projects in forest-rich countries.

Like Camisea, and extractive projects more broadly, carbon markets would generate funding for poor, but natural- resource- rich, nations, at a scale rarely seen before. There is a risk, though. If REDD does not work as intended, its failure could not only undermine climate reduction goals in developed countries but also inflict a new kind of resource curse on developing nations.

Drawing on Peru’s Camisea experience, international financial institutions and others designing REDD should therefore:

Withhold access to carbon markets until in-country governance and capacity is sufficient to manage the scale up of funds. Indicators developed by WRI’s Governance of Forests Initiative (GFI), for example, can be used to assess the strengths and weaknesses of forest governance in a given country.

Support sub-national capacity building for long-term strategic planning and programs that strengthen transparency and accountability mechanisms for tracking revenues and expenditures in areas where REDD funds are channeled.

Draw on and adapt best practices from successful extractive industry projects to avoid known pitfalls.

Above all, careful sequencing of governance and capacity building should be employed before scaling up revenue flows. This will help ensure that urgently needed REDD and extractive industry payments are used in a way that generates long term development benefits, especially for the poor. It will create incentives for strengthening developing country governance and capacity. And it will help architects of REDD avoid inflicting a new “REDD resource curse” on nations whose wealth lies in forests.

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— Reader’s Comments —
I read with attention Janet Ranganathan’s article, and several comments are in order. Her account of the Camisea experience is mostly right, “Power, People, and Pipelines” is a good study. From complementary research, we know that local government transparency and citizen participation decreased in districts that received gas revenues, and were lower than transparency and participation in places without it. “New rich” governments soon became more corrupt and more likely to coopt the civil society.

That said, JR makes a very forced link between the Camisea gas pipeline experience and REDD, if only because in one case environmental risks increase, largely as externalities, and REDD’s objective is to both decrease and internalize environmental risks. (By the way, there was never a “heavy toll on local ecosystems” from “major oil spills” in Camisea. Accidents were rapidly controlled thanks to the indigenous community-based monitoring and early-alert system, a very good thing brought about by civil society pressure and hard bargaining. Also, a gas spill and an “oil spill” are very different).

JR’s recommendation to international financial institutions (IFIs) “withold access to carbon markets until in-country governance and capacity is sufficient to manage the scale up of funds” sounds like “don’t feed the babies until they learn to walk”; it confounds weaknesses with opportunities, growth with development, and it is very patronizing. JR assumes that revenues from REDD will be of a dimension similar to oil exploitation, which is highly unlikely. REDD would arrive more directly to local communities and land stewards, probably in small amounts and in the context of previous arrangements and mutual obligations, while in Camisea money is huge, goes to government, and free-falls like rain, with no strings attached. The “REDD resource course” may be little more than a catchy phrase. The power to take part in C-markets should not be held, as JR suggests, in IFIs, but it should shift downwards: How do you empower if you don’t trust? (And yes, I know: I have two teenagers).

One last, important lesson learned from Camisea and many other cases is that rural people (in fact, all people) like roads a lot. Roads win votes, and no roads make you lose votes. This has nothing to do with governance or planning capacities, it has to do with perceptions of progress and wellbeing, as well as with very practical matters of survival and family economy in remote areas. Roads do improve conditions and open opportunities for rural peoples, like it or not. But this leads to a completely different discussion.