Setting up Nest: Acre, Brazil, and the Future of REDD

22 July 2010  | In the March edition of SinergiA, a quarterly newsletter on environmental services in Latin America, Jacob Olander, Director of The Katoomba Ecosystem Services Incubator (a project of Ecosystem Marketplace publisher Forest Trends), takes a long, hard look at the future of REDD projects.

He emphasizes a recent trend in finance models for forest preservation and a growing consensus in the international community: local projects linked to regional or national government emissions accounting frameworks limit the risk for leakage and increase the security of reductions.  In particular, Olander notes, “The urgent task at hand is for projects and regional authorities to share the work of developing technical, legal, and financial mechanisms that allow for links between projects, national models, and diverse sources of international financing.”

One regional authority in western Brazil has responded to this urgency. The Government of Acre State, Brazil, has developed an innovative regional REDD model articulated in the state’s draft “Plan for Valuing Forest Assets, Payment for Environmental Services – Carbon Project Guidelines.”  (recently renamed “Program of Incentives to Environmental Services: A REDD+ proposal to Acre State”). This plan, referred to hereafter as the ‘PES-Carbon Program’, is an example of how regional and project-level coordination can look in practice.

What’s at Stake
The state of Acre, Brazil is located on the far west side of the country, entirely situated within the Amazon Basin, and with 88% of its territory covered with tropical forest.  Since 1998, Acre has seen more than a 200% increase in production of native latex and a 400% increase in the net value of forest production.

Acre’s less than 700,000 residents share their territory with 30% of all the species of toads occurring in Brazil, 50% of all birds, 40% of mammals, and 10% of all fish. Seventy percent of the diversity of palm trees of the Amazon can be found here; and government data shows that a new species of plant is discovered almost every month.

In spite of the alarming extent of deforestation in the region, nearly ninety percent of Acre’s territory consists of conserved forest assets. History would argue that this is no accident. In addition to developing successful management protocols for 21 non-timber forest products, Acre has worked for the past three years to define strategies for the provision of incentives and payments for REDD and for environmental services (PES) more generally. How is it that this small and remote Amazonian state has become a regional leader in innovative finance mechanisms for forest and biodiversity protection?

Putting Down Some REDD Ink
In 2007, Acre commissioned an assessment related to climate policy, immediately followed by an analysis of the potential for a state-level REDD program with the support of donor organization GTZ.  Next, partners such as WWF, IUCN, the Federal University of Acre (UFAC), IPAM, The Woods Hole Research Center, Embrapa, and GTZ began working in collaboration with the government; Acre was now poised to move forward.

A task force co-lead by civil society representative Luis Meneses Filho, and government representative Monica Julissa De Los Rios from the Global Climate Change Department of the State Secretary of Environment in Acre worked from March until September of 2009 to outline the necessary elements of a REDD program. The result was a shared vision of integrated forest management in Acre, and the draft guidelines for the PES-Carbon Program.

From October, 2009 until April, 2010 the civil society task force (lead by Luis Meneses Filho) and the Acre government (lead by Monica De Los Rios) ran parallel consultations on the draft guidelines. Feedback was encouraged through a series of meetings and workshops.  

Beto Borges of Forest Trends’ Communities and Markets Program attended one of the workshops, and concluded that Acre is, “The most advanced of all Amazonian states in Brazil to develop and implement PES policy… a state with a proven track record of forest conservation and involvement of traditional communities.”

Amy Rosenthal, former Deputy Director for Projects, Amazon Conservation Association (and a participant in Katoomba Group’s newly launched Rapid Response Team, see related links at right), believes the guidelines show a “strong intellectual understanding of the social, economic, and environmental considerations for REDD internationally and at the local level…The world would do well to use Acre’s plan as a model for other developing states that count on this kind of intellectual prowess and conservation value.”

Moving From Design to Implementation
The draft PES-Carbon Program seeks to affirm the value Acre’s forests and ensure the ongoing provision of environmental services throughout the state.  The Guidelines were created to leverage both public and private financial resources to generate sustainable income for constituents who conserve, preserve, and recover forest assets such as carbon, biodiversity and water. The implementation strategy for the PES-Carbon Guidelines is twofold: defining priority areas and creating structured Incentives for Environmental Services (IES).

Acre identified six areas under the greatest risk of deforestation and degradation to provide a geographic focus for initial investment.  Totaling 5.8 million hectares, the priority areas contain fifty percent of the state’s most threatened forests and nearly twenty percent of the total resource-extraction-based population. The priority areas also contain more than 400,000 hectares of Indigenous Lands.

The Incentives for Environmental Services (IES) will connect the financial flows to the providers of environmental services in these priority areas, and are proposed to cover some or all of the costs to:  (i) increase productivity of degraded areas, (ii) generate income through sustainable forest use, (iii) protect and conserve standing forest, (iv) recuperate degraded areas through reforestation and restoration.

To support successful implementation of this Program, four new institutions must be created to carry out necessary governance.
The Science Committee evaluates performance of the PES Carbon Program, approves operational plans, evaluates implementation reports, verifies and validates carbon emissions.
The State’s Regulation, Control and Registry Office regulates the PES - Carbon Program law, registers carbon projects, verifies reduced emissions, and shares data with the national registry system.
Environmental Services Development Agency: responsible for the execution of the PES Program, raising public and private resources to support projects, and distributing resources to individual service providers and organizations supporting Acre’s goals.
State Commission for Validation:   civil society and government members responsible for overseeing the Regulation, Control and Registry Office.
Hearing Board:    receives suggestions and claims related to the PES Carbon Program; suggests to the Government the adoption of correction measures and mediates conflict among stakeholders.

Pillars for success
What makes the Acre PES-Carbon Program so different from the other regional – level sustainable development plans?

“The government has taken the role of a coordinator, rather than a regulator,” explains Monica De Los Rios, “This is not a law – it is a program designed to generate opportunities for voluntary activity; flexibility is the most important aspect.”

The government plans to rely on the technical capacities and organizing skills of civil society to increase project-level participation, and allow the government time to improve monitoring capacity and establish necessary governance mechanisms. From the point of view of Meneses Filho, lead designer of the draft guidelines, “Counting on the government to implement a new sustainable development paradigm is not effective. It is important to count on the civil society initially, which has more ability and skilled staff.”

The program is embedded within a new local and regional policy matrix for socio-environmental development. So while the Program adds some new institutions, it also embeds them within a coordinated policy framework of Acre, other states in the region, and the federal government including The Sustainable Amazon Plan, the Plan for Prevention and Control of Deforestation in the Amazon, the National Plan of Climate Change, and The Amazon Fund.

De Los Rios elaborates, “The project looks to build the level of impact of the policies that are already developed - it is a project within a political framework of actions of the state for sustainable development.”

Another unique feature is that the government will not be directly compensating forest conservation.

Confronting challenges of evolving offset standards along with the fact that payments from carbon markets have been slow to arrive, Acre will be postponing the discussion of directly buying carbon for a couple of years. The government will instead be providing incentives for reducing deforestation based on costs to keep forest standing. “The use of the word ‘payments’ insinuates that when people are remunerated for leaving their forest standing, they are compensated for the profit they would have made if they did something else,” says Meneses Filho. De Los Rios explains the government’s reasoning: “The project has a vision of producers relating to the forest differently – not as a rent, not as an obstacle – but as part of the system.”

Acre plans to weave REDD+ into a broader land-use context by incentivizing increased production on degraded or altered lands. Meneses Filho continues, “The goal is to bring the landowner to a level of satisfaction that he will not expand his business over the forest.”

How to Pay For it
The new public-private Environmental Services Development Agency combines  the abilities of a private sector entity with the social controls of a government structure and is charged with the task of raising private funds to supplement those of the state.

The Agency is also designed to distribute benefits to relevant stakeholders, build capacity through rural extension services, strengthen community organizations in priority areas, register and certify rural properties in priority areas, license priority activities, and fund better research into carbon stock and emissions.

The total amount of incentives being offered by the government is initially set for $260 million. To produce the up-front money needed for projects, The Environmental Services Development Agency strategy is to solicit private sector buyers in need of emissions reductions to buy carbon credits at approximately $3 per ton. Based on current market estimate these credits will be valued in ten years time at $15 or $20 per ton. The company which finances verified emissions reductions at $3 per ton now might be able to save future expenditures (particularly in the event of a global cap-and-trade system) or turn a 500% profit in a little over a decade. The Agency then collects the investments from interested private sector participants, and distributes them as incentives to local level participants.

For now, the Program’s incentives are slated for 15 years. With expectations for rising carbon prices and market maturity over that same period, the discussion is anticipated to ultimately move from incentives to payments through international REDD or PES markets.  This shift requires government capacity, rural landowner capacity, stable carbon markets, and public/ private financial support.

The Goalposts
The current goal of the PES Carbon Program is to reduce deforestation rates eighty percent in the first decade. This implies: 
reduction of 62.5 million tons of CO2 emissions
conservation of over 5.5 million hectares of forest
-costs of more than US$260 million
Through mobilization and communication to rural populations, strengthening of community organizations (finance/ structure), and capacity building for community leaders, the project seeks to involve a total of 7,500 families, 3,500 families living in settlement projects.

Acre’s initiative integrates project and regional level activity into a national accounting framework. Local, regional, and national level governments and projects are intended to simultaneously and independently account, generate, and market emissions reductions on the international level.

The four main institutions created by Acre’s PES-Carbon Program provide governance controls while allowing transactions to be made without direct government involvement. The combined effect of these institutions is anticipated to create larger overall emissions reductions in the long run.

Next Steps…
The draft PES-Carbon Program guidelines demonstrate the interest and ambitious commitment of the Acre government, but there remains much to be done before the PES-Carbon Program is incorporated into official Acre policy.
 
Since the public consultation period closed in April an extensive revision process has been underway. De Los Rios has been working to articulate the final proposal, and the government is currently working on a bill which will establish the necessary governance structures such as the Environmental Services Development Agency and State Regulation, Control and Registry Office. Ratification and implementation of the final draft of the PES-Carbon Project Guidelines is dependent on government timelines – the original target date was the end of August.

In the meantime, both Meneses Filho and De Los Rios acknowledge the big tasks facing the State Secretary of Environment in Acre, Brazil: building government capacity for MRV, and gaining access to the appropriate public and private funding streams. 

In regards to MRV, Acre working to establish a central geo-processing unit, UCEGEO, responsible for monitoring deforestation and forest degradation, maintaining the database of carbon stock, and monitoring production units at the state level and in priority areas.

Public funding will provide the majority of the initial cash flow to the program’s implementation, yet funds from the private sector must soon follow. Acre intends to seek and implement support from The Amazon Fund, grants, money pledged from national governments after the Copenhagen Accord, the UN-REDD program, and the Forest Carbon Partnership Facility.  Various public and private partnerships are already in discussion. 

The state is not working in a political or market vacuum.  As Meneses Filho describes, the balance between public and private funds “depends on how and when investors want to get into the project… and how REDD is going to be advanced in the UNFCCC.”

Conclusion
Circling back to the question posed by Jacob Olander , are we nearing ‘The End of REDD Projects?’ The answer as indicated by the influx in proposals to the Forest Carbon Partnership Facility and United Nations Framework Convention on Climate Change, and the increased attention to innovative REDD financing models such as the initiative described in Acre, Brazil gives a resounding ‘no’.

Instead of the end of REDD projects, we are entering a new stage where credits are generated both by projects and governments, maximizing the potential of our world’s forests to sequester carbon and provide environmental services.  A first mover in this arena, all eyes will be on the state of Acre, Brazil as it begins to mobilize its PES-Carbon Program.

Tommie Herbert is a Program Associate with the Tropical America Katoomba Group (TAKG) and the Business and Biodiversity Offsets Program (BBOP). She can be reached at therbert (at) forest-trends.org.