The REDD Market Should Not End Up a Subprime House of Cards: Introducing a New REDD Architecture for Environmental Integrity

Carbon leakages can wipe away mitigation benefits under REDD achieved in a country. So far no REDD mechanism has been proposed that can separate good credits of true mitigation value from those that could possibly be stained by leakages. The greatest concern of investors in such a market would be the fear of buying goods whose real worth is far less than that paid for, much like the subprime housing crisis of 2008 when good financial products of low risks were bundled with those with high risks and sold as composite products for leveraging, a financial innovation that brought doom to the participating banks.

This paper proposes a new REDD Plus architecture that would ensure that instead of every REDD credit becoming suspect the market would discount only those credits that have a higher probability of leakages unless the monitoring system is considered robust enough to allay the fears and would thus be able to ensure environmental integrity by punishing lapses in specific cases. This will also permit simultaneous operation of Fund based mechanism within same national boundaries in distinct geographical areas and enable incorporation of forestry projects under the CDM within the REDD framework.