Munden Project report on REDD and Forest Carbon: “Forest carbon trading is unworkable as currently constructed”

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Munden Project report on REDD and Forest Carbon: Forest carbon trading is unworkable as currently constructed

In the Road Runner cartoons, the coyote chases the road runner off the cliff and keeps going until he looks down. Once he realises what’s happened, he falls. Proponents of trading the carbon stored in forests are currently running coyote fashion as fast as they can towards the edge of the cliff. A new report from the Munden Project suggests they should stop and take a look where they are heading.

The report can be downloaded here: “REDD and Forest Carbon: Market-Based Critique and Recommendations” (pdf file 993 KB). (The Munden Project is financed by Ford Foundation.) This report is particularly interesting because it is written from the perspective of the market. REDD-Monitor looks forward to a discussion about the problems highlighted in the Munden Report – in particular from proponents of a forest carbon commodity-based model for financing REDD.

The report does not question whether large sums of money are needed to preserve forests. Neither does it question whether carbon markets are the right way to raise this money. (Incidentally, neither does UN-REDD, which explains on its website that “[T]he final phase of REDD involves developed countries paying developing countries carbon offsets for their standing forests.”)

Instead, the report asks whether carbon markets will achieve what REDD sets out to do. UN-REDD explains the goals of REDD as follows:

REDD is a cutting-edge forestry initiative that aims at tipping the economic balance in favour of sustainable management of forests so that their formidable economic, environmental and social goods and services benefit countries, communities, biodiversity and forest users while also contributing to important reductions in greenhouse gas emissions.

The Munden Project report summarises the role of carbon trading in REDD with this equation (click for larger version):

So, will this meet REDD’s expected outcomes? “In a word,” states the Munden Project, “the answer is ‘no’, for four reasons:”

  • Poor Transaction Structure. Transactions in REDD are structured as over-the-counter (OTC) arrangements, a fact that impedes REDD’s developmental goals and leads to a serious misallocation of resources.
  • Commodities and Monopsony Power. Commodities markets are already unfavorable to producers and privilege intermediaries, largely because of the inherent nature of commodities themselves. Moreover, REDD’s global reach and scale suggest that intermediaries will obtain monopsony positions relative to projects. Both would imply that forest carbon will work against, not for, REDD’s stated development objectives.
  • Poorly Defined Assets. From a trading point of view, the process [by] which forest creates carbon is ill defined to the point of being unacceptably risky. It contains a vague, poorly defined and scientifically unreliable process for creating forest carbon.
  • Unsolvable Clearing Problems. As a consequence, pushing these commodities through the derivatives trading framework will prove impossible. This will either cause the trading system to not be created in the first place, or (as seems more likely) will result in the creation of a substandard, risky and ultimately destructive forest carbon market.

The report consists of three parts. The first part, “OTC and Commodities,” deals with the first two points, which are problems for the producers of the REDD commodity: forest carbon. The second part, “Assets and Clearing,” deals with the problems for the markets and traders of forest carbon. The third part, “Conclusions and Recommendations” summarises the problems and suggests some ways forward.

The report details how forest carbon will be traded. While many of those involved in REDD focus on forests, looked at from the market perspective, that is the smallest part of an inverted pyramid:

To anyone who is not an economist (and perhaps even to some economists) this inverted pyramid looks inherently unstable, but the Munden Project is not concerned about this market structure except to ask whether the structure is appropriate for REDD:

We believe that it is not only unsuitable operationally – in that it implies significantly higher costs for projects – but furthermore, that is highly likely to work at cross purposes with REDD’s stated objectives.

The Munden Project notes that there is a huge asymmetry of information between those selling carbon credits (who may only do so once) and those buying them (traders who deal in such trades regularly): “Derivatives contracts are complex legal documents and firms with more experience are also more skillful in structuring them to their advantage.” This is a major disadvantage for REDD projects, “who are forced to either muddle through these issues or engage expensive outside help.”

In an interview in 2007, economist Joseph Stiglitz, who was a joint-winner of the 2001 Nobel Prize in Economics for his work on asymmetric markets, explained that,

The theories that I (and others) helped develop explained why unfettered markets often not only do not lead to social justice, but do not even produce efficient outcomes.

The next problem that the Munden Project report notes is that “the commodity-based approach is at loggerheads with the development benefits REDD is expected to generate.” They use the example of milk as a commodity to show that if REDD follows the same commodity-based approach, the vast majority of the money invested would go on intermediaries and project costs. Governments would receive 5% and project returns (from which any payments to communities would come) would be 3%.

There is a high risk of REDD forest carbon forming a monopsony, or a market with many sellers but few buyers. The report explains that,

Logic dictates that the scale and resources required to source forest carbon credits will be so large that only a very few global intermediaries will be capable of providing it. Furthermore, these very same entities – or their parent companies – might also provide the connection between a project and the market.

The danger is that the buyers end up controlling the price – leaving sellers with no alternative but to accept the price offered. The Munden Project concludes that,

REDD is unlikely to generate expected impact at the producer level. That is, the bulk of benefits from forest carbon will not go to REDD projects, the communities that live within them or the countries where they are located, and those projects that are able to operate will come under intense pressure to cut costs due to monopsony buying power.

The report highlights a series of possible scenarios of “particular concern,” that might result from trading forest carbon under current circumstances:

  • Scenario One. The commodity pricing structure does not create the benefit flows expected by governments, projects and communities, forcing them to abandon the concept. REDD – and more worryingly, the concept of engaging capital in the fight to protect forests – loses major credibility.
  • Scenario Two. Vague, opaque standards for counting carbon lead to significant price shocks as carbon is revalued – or worse, a perpetual cycle of loosening standards as participants learn to game the system. Developing country governments see their economies become linked to the forest carbon market, and in the wake of these shocks, are forced to prop up or bail out those markets in order to preserve stability.
  • Scenario Three. Bad incentives and conflicts of interest in verification and validation create a tragedy of the market’s commons, where carbon price is depressed as issuers overwhelm buying capacity. If linked with existing platforms like EU-ETS, this is a real problem.
  • Scenario Four. The lack of clearing will cause deforestation by creating a bubble, in much the same way as subprime lending’s bubble caused bankruptcies. In this scenario, the popping of the bubble would cause damage to forest countries and communities, forcing them to generate cash flow to compensate by leveraging their most readily available and marketable asset: forest timber.

The Munden Project report takes an extremely critical view of trading forest carbon as a way of achieving REDD’s goals. However, the report does make four recommendations in an attempt to address these problems:

  1. Invest in tenure

    Our first recommendation is the most straightforward. In many cases we analyzed, a very simple question – does the project have the right to do this on this land? – was impossible to answer. If there is any involvement from private capital sources, we cannot envision a scenario where the answer to that question is not important.

  2. Change the definition of forest carbon

    If forest carbon proves to be such an attractive brand, we think the best bet is to move it – and move it dramatically – in the opposite direction from its current trend, away from microanalysis, and towards a broader, clearer definition.

    Agreement should be reached on a much more straightforward measurement of forest carbon, one that can be easily applied by projects with minimal – or ideally, no – reference to outside quantification experts.

  3. Engage community-driven approaches, and do so more effectively

    Extensive evidence shows that giving communities greater rights to forests is effective from an environmental standpoint.

  4. Generalize projects’ operational functions and use technology to enable them

    It makes little sense for REDD to develop into an approach that requires highly trained forestry experts to master accounting software and inflation projections. The key is to keep this dynamic sustainable.

    Given that REDD funding is currently driven by a small number of capital sources, we wonder if they might not be able to coalesce around a simple, web-based solution to this problem. Developing an application that project developers can use to cost out their projects, operate them and report results makes a lot of sense.

Numbers 1 and 3 of these recommendations are similar to demands that NGOs interested in the rights of indigenous peoples and local communities have been making for many years. The third recommendation suggests a process for developing REDD projects with local communities. Number 2 would reduce (or eliminate) the difficulties of measuring how much carbon is stored in forests and the soils beneath forests, which would surely be a huge relief to millions of forest dwelling communities around the tropics. (Although several hundred carbon measuring experts who would be put out of work might be considerably less happy with this suggestion.) And the fourth recommendation looks a little like a variation on the theme of a hammer seeing any problem as a nail – after all the Munden Project consists of builders of software systems. Nevertheless, the recommendations might provide a way of looking at REDD that highlights the fact that the REDD carbon trading coyote is currently running like crazy towards the edge of the cliff.

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15 Comments

  1. Nice story as Cartoons, indeed. Munden jeopardizes though generating capital to save forest and people.
    Cause in the real world the carbon market can really play a good role and a good help to realize REDD+
    Munden, a software developer, discusses a type of REDD trading, that has no relation with how the REDD market will look like. It is just a theoretic trading model they discuss. Recommendations can easily be met.
    REDD mechanism and market will make use of:
    - national approach
    - not selling all avoided emissions (save part for the climate)
    - the 4 price scenario’s don’t make sense: the price will be the CO2 compliance price, that will also give rent for the credits that are not to be sold
    - not messing with forest and rights, but focus on better farming and food security
    - no OTC project trades. Projects always has to be ‘nested’ in a national approach
    - you can have nice debates of what the nature of the commodity is, but key is that the income generates opportunities. Communities and IPs can propose projects and services and tenure they can benefit from, as long as national deforestation reduces. But you need money to do that.
    - all depends on governance; which is key for Readyness

  2. Another commentary on REDD, and a very valid and interesting market take large scale model!
    Land tenue essential.
    Bottom up thinking essential.
    Projects areas where you are likely to create workable solutions essential.
    Create your own specialist market base essential
    Precautionary principle essential.
    Clear policy framework essential.

    This is not a silver bullet to reducing carbon dioxide levels, simply a part of a complex effort to reduce current GHG emission trends and, maybe, with some success, create some organic move towards better land management.The key.. stop thinking big, set the scheme and allow for organic growth!

  3. Concerning the monopsony problem, perhaps the best proof of the inappropriateness of carbon markets as a funding mechanism for REDD would simply be to let the market develop for a few years. It would be interesting to see what happens when the Brazilians are undercut in price by the Indonesians, the Indonesians are undercut by Guyana, Guyana is undercut by the Congolese, and the Congolese are undercut by, say, Equatorial Guinea.

    I for one would like to see what studies UN-REDD and the World Bank – the current lead ‘readiness-runners’ for forest carbon trading – have done to assess the likely market impacts of setting up potential supplies of forest carbon in dozens of countries simultaneously, even though the foreseeable buyers of any scale (as Lou Munden points out) are theoretically and practically very scarce.

  4. @jos cozijnsen (#1) – Thanks for this comment. Your faith in carbon trading markets would be touching, except that you are a consultant who offers “emissions trade related services.”

    I wonder how you know what the REDD carbon market will look like?

    Could you please provide some evidence to back up the following claims that you make:

    - There was no agreement in Cancun that REDD accounting will be at a national level – the Cancun text allows sub-national accounting. How do you intend to ensure that REDD accounting will be national? So far, REDD exists as a series of projects. Munden suggests that in the future REDD will expand but will remain a project based mechanism. Could you please explain how you see the future of REDD?

    - You predict that not all avoided emissions from REDD will be sold. What percentage of emissions do you anticipate will be held back “for the climate”? Will this be over and above so-called buffers to make up for the inaccuracies involved in measuring the amount of carbon stored in forests and forest soils? (Not to mention the impossibility of proving that a REDD project is additional – ) And what happens if the forest burns or dies back during droughts, particular if this happens on a large scale, such as at the scale of the Amazon?

    - What happens when, say, Guyana undercuts the price of REDD credits from Indonesia? As Robin Webster (comment #3) points out this is likely to happen. REDD countries might even set up an equivalent of OPEC to fix REDD credit prices – driving the price up or down regardless of the “CO2 compliance price.” Then what?

    - In your version of reality, the REDD mechanism will include no “messing with forest and rights, but focus on better farming and food security.” As far as I’m aware better farming and food security is not mentioned in the Cancun REDD text. Please explain how a mechanism called Reduced Emissions from Deforestation and forest Degradation (which includes conservation and enhancement of forest carbon stocks and sustainable forest management) can avoid “messing with forest and rights”.

    - How will you prevent OTC project trades? How will you ensure that the nested approach applies in all cases?

    - You write that “you can have nice debates of what the nature of the commodity is, but key is that the income generates opportunities.” Could you give an example of how trade in derivatives of any commodity has benefited small farmers, local communities or indigenous peoples? Perhaps you’d be interested to read this article published in Harpers, by Frederick Kaufman: “The Food Bubble: How Wall Street starved millions and got away with it,” before explaining how the trade in derivatives of food commodities has benefited anyone (apart from a handful of Wall Street bankers).

    If communities and indigenous peoples are to propose REDD projects, where the financial mechanism is carbon trading, how do you anticipate addressing the problem of asymmetry of information? Have you ever tried to explain carbon trading or derivatives to a forest dwelling local community?

    - You end by saying that it “all depends on governance.” Can you give an example of any REDD readiness programme that is adequately addressing the issue of land rights? (I’m assuming you agree with Munden that forest carbon trade will be impossible unless the issue of who owns the forest and who owns the carbon stored in the forest is resolved.)

  5. Hi Chris,
    This is definitely a report that should be reviewed thoroughly and thoughtfully by those interested in REDD+ policy and discourse. The particular configuration of market mechanisms this report describes are apparently problematic for REDD+ at global scale. I would expect many organizations, such as ours, that have a commitment to helping achieve the various goals of REDD+ (and not to specific individual modalities of market financing), will be carefully evaluating this report and the insights it may offer regarding the appropriateness of these and other market mechanisms that may be available.
    Regarding some of the points raised in the ensuing discussion:
    -The future shape of REDD: while most activities that have explicitly targeted reducing emissions from deforestation have to date occurred in the form of individual offset projects, this scale is nowhere near what is considered for globally-significant REDD+ impact. The most recent data we have available from Ecosystem Marketplaces State of the Voluntary Carbon Markets 2010 report indicates a REDD offset market in 2009 of just over $8.25 million (with an “m”). Compare this to the more than $4.5 billion (with a “b”) that have been pledged for REDD from national governments through 2012, and the estimated $20 billion per year Munden and others factor for global REDD+ opportunity costs. I would not get too hung up on the current status of project development and the OTC model to be a clear indicator of what these inter-governmental platforms will ultimately evolve towards.
    -Regarding project vs. jurisdictional accounting, I would call your attention to the COP 16 Decision 1, the “Cancun Agreements” text (PDF link), paragraph 71, and in particular subpart (b) which describes “A national forest reference emission level and/or forest reference level or, if appropriate, as an interim measure, subnational forest reference emission levels and/or forest reference levels.” There is a clear interest among policymakers in international fora to transition to jurisdictional (as opposed to project-level) accounting, and sub-national accounting is considered “if appropriate, as an interim measure.” In addition, the likely first home to international REDD credits through a compliance scheme will be California’s cap-and-trade scheme, which is set to source these credits through agreements by the Governors’ Climate and Forests Taskforce and involves state-level accounting. Most project developers we speak with are closely following discussions of “nesting” because it holds critical sway over the long-term viability of the project model. I am not sure if your characterization of the Munden report’s assumption of the predominance of a project-scale REDD implementation along these lines is actually what they considered, but if so would be an apparent mismatch with the direction we’re seeing international policy take.
    -Regarding what you describe as an OPEC-like REDD+ suppliers’ cartel, keep in mind that REDD+ credits will also have to compete against other offset credits in cap-and-trade programs. At least in terms of upward price pressure, REDD+ offsets will have to be competitive with these other credits.
    -Robin’s point is well-taken regarding the potential creation of a large supply of international REDD+ credits without a clear demand of comparable size beyond California’s compliance scheme (which currently wouldn’t accept them until 2015 and will have a limited capacity based on the size of its cap). I too would be interested to see additional analysis on this topic if it is available, but would also point out Chris that, contrary to your citation, Robin does not characterize the likelihood of this phenomenon, nor do we currently have a clear idea of the scale it might present in terms of tons potentially oversupplied since there are a large array of variables that must first be resolved.

  6. Given that the tropical governments have struggled even to agree with each other in the ‘Interim REDD+ Partnership’, and recalling the dismal history of the International Tropical Timber Organisation (which was potentially a ready-made ‘OPEC for tropical timber’, but has only ever been used as a kind of grubby marketplace for inferior projects by exactly the same venal and short-sighted tropical forest administrations that are now jostling for REDD money) I think it very unlikely that an effective REDD cartel would ever be established.

    As a kind of thought experiment, I just calculated (using the FAO’s figures for the annual rate of change in forest area in 2000-10, and assuming an average of 150 tons of carbon per hectare of forest) that if deforestation were stopped in the 39 countries currently signed up for the World Bank’s FCPF or receiving support for national programmes under UN-REDD, then this would potentially generate roughly 2,300 MT CO2Eq in carbon credits. For comparison, this is somewhat more than the verified emissions of the entire European Union at its peak in 2007, and 30 times the maximum volume of REDD offsets that was proposed to be allowed within the California cap-and-trade scheme.

    I wouldn’t like to ‘characterise the probability’ of such a massive over-supply scenario emerging. Arguably, it is quite unlikely that all the countries above would bring their REDD credits to market at the same time, and probably most of them would not stop deforestation particularly quickly. Perhaps one could calculate the REDD credit supply volume on, say, achievement of only a 50% reduction in deforestation, which of course would reduce the volume of credits potentially on the market by 50%.

    On the other hand, the above figures probably only show a small fraction of the REDD+ credits that could theoretically be generated, because:

    - they only include ‘avoided deforestation’ for a limited number of countries, and exclude the biggest player of all, Brazil.

    - there is only a tiny amount of forest *expansion* in the figures (of the 39 countries, only 3 record expansion of ‘forests’, covering some 285,000 ha, compared to a total of some 4.1 million ha of forest loss). In reality there is almost unlimited potential for ‘REDD+’ credits to be generated through afforestation and reforestation, above and beyond those created through reduced deforestation, and indeed this is likely to be the largest source of REDD+ credits in the short term;

    - In addition, there is nothing in these figures about the volume of credits that could be generated through ‘improved forest management’, ‘SFM’, or other forms of ‘reduction in degradation’. In some major countries (such as DR Congo), the volume of credits generated this way is likely to be larger than for reduced deforestation, if only because it is logging companies that are best placed to benefit from REDD payments;

    - the tendency has already been, in effect, for forest carbon *stocks* to be counted towards REDD ‘credits’ (such as in the case of Guyana) because the only way found so far to bring ‘high-forest, low deforestation’ countries into REDD programmes is to establish artificially high baseline deforestation rates, and allow countries to deforest *up* to that increased level, and still generate ‘credits’. This would also potentially generate a large volume of credits that cannot be calculated from the current deforestation figures.

    So, given that even the California scheme will only have very limited demand for REDD credits after 2015, that the EU ETS (in which there is at the moment virtually no demand for credits of any description because of the economic slump, and a latent surplus of supply that might well feed through into Phase III) will not allow REDD in until at least 2020, and that there are no compliance schemes coming over the horizon, it really does beg the question of where the demand is going to come from for even a tiny fraction of the volume of REDD credits that potentially can be supplied?

    I don’t know whether anyone from the World Bank or UN-REDD reads this website, but if so perhaps they could enlighten tax-payers like me (that pay their wages and fund their REDD-market ‘readiness’ activities), just how they think this is all going to work, and perhaps tell us just what market assumptions they are basing their programmes on?

    RW

  7. The Munden Project offers a useful critique of the current situation with REDD, but the solutions they propose are problematic. For example land tenure is a complex issue, ranging from individual private property rights through to the collective rights of indigenous people who do not consider their territories as property. In western law, understanding and recognition of collective rights are increasingly eroded in favour of individual private rights. Also, unless rights are made inalienable, land can always be bought and sold.

    Investors may want secure property rights, but of a different kind, for different reasons, from those desired by local communities. What kind of contracts would be drawn up between investors and the “service provider”? For example, property – ie the forest – could be required as collateral in the case that the “services” are not delivered according to contract. Contracts are complicated and dangerous documents that are often extremely long and confusing, even designed to deceive, and carbon contracts would be no different.

    Also, there is a serious risk of investors acquiring carbon rights that overlap with land rights, and these could in theory enable them to dictate what happens on the land in terms of carbon and related calculations in order to increase their returns. For example is it possible that a community might be forced to harvest their own forests and then to plant non-native fast growing trees in order to maximise carbon benefits for investors?

    In the same way community-based approaches and giving communities greater rights to forests also sounds positive, but it is important to remember that (as experience with eg: the oil industry in Ecuador shows) communities can be divided by outside pressures, leading to internal power struggles or bitter differences between neighbouring communities about how to respond. Experience from (eg) the Colombian Amazon shows that indigenous communities with sound traditional decision-making processes need real time to decide how to respond, time that is unlikely to be made available to them by markets, which are generally in a hurry. Then of course governments do not always have the same interests as local communities.

    Munden propose using two sets of assumptions to simplify the process: the first about levels of forest carbon and the second about accounting. This again may sound positive – similar points have been made by other market proponents. However, apart from the fact that forests are much more than carbon, there is also the risk that such “simplification” would be manipulated to favour very large-scale, industrial and corporate interests. Where the proposal is to aggregate projects this could again lead to a monopsony – markets where there is only one buyer of carbon but many sellers, who might then be pitted in competition with each other.

    It is very telling, as Munden point out, that under the current system the intermediaries are the main beneficiaries – potentially gaining some 60% – whereas communities are likely to get 3%. No wonder there has been such a multiplication of service providers for such markets! However, trying to reform such a market system (as they propose) is likely to lead to new problems or compound old ones. This is because reducing forests to services and generalising aspects of the transactions are likely to do the very things Munden say they want to avoid: marginalise, exploit and expropriate the people on the ground in those forests: local communities and indigenous peoples. Whether reformed or not, I would suggest that this would always be the outcome of what Munden calls “REDD’s tacit design for forest carbon Markets”.

  8. Dear all,
    While I recognise the need to keep thorough checks on the huge and sprawling issue of forest conservation funded by carbon credits, known as REDD, I question the usefulness of the systematic trashing, which I see so much online and in the media, of this still-developing, incipient infrastructure.
    Let’s look at some of the examples of REDD doing what it says on the tin: preserving primary rainforests while generating income for indigenous peoples, using funds from carbon credits.
    Blue Sky thinking? Just a dream? Here are some examples: in Tanzania (http://www.care.org/careswork/projects/TZA070.asp); the USA (http://www.wmicentral.com/news/latest_news/carbon-credits-create-new-tribal-income/article_7b930658-da93-11e1-ad14-0019bb2963f4.html), where the project is being developed by indigenous leaders (see “asymmetry of information”, above); and I will also cite the Rimba Raya project in Kalimantan, which developed community projects, including schools and hospitals, before its forest stocks were greatly reduced by outside forces.
    Regarding the aforementioned destruction of forest carbon stocks, I would argue that this is a risk inherent in any conservation project, not just REDD. This is why we have the painstaking and process of the “buffer” in REDD project development in the voluntary market. Is REDD re-inventing the wheel?
    What actually IS REDD, sometimes that needs clarification, in this jargon-ridden jungle. @ Robin Webster, regarding the “almost unlimited potential for ‘REDD+’ credits to be generated through afforestation and reforestation”, is actually a misunderstanding. REDD is a CONSERVATION not an afforestation or reforestation project, which constitutes a completely different category.
    @Robin Webster, also, the “biggest player” in terms of forest area, is the Russian Federation, having about 155% more forest area than the next contender, Brazil (FAO (2010), Global Forest Resource Assessment 2010, Main Report).
    I digress, returning to the question of “what is REDD?” Credits from REDD can be transacted either on the voluntary OR the regulated-market (which is currently non-existent but the focus of seemingly ALL current debate). I recognise the importance of David Diaz’s above statement about the much greater value of pledged regulated market transactions in the future, however currently the market has a far different character.
    Let’s remember that REDD discussions were started by a group of five or so countries with high forest-cover. The initial objectives were noble ones, as laid out in “what it says on the tin”, above. It has significant potential for misuse and negative impacts, but so does the aid budget of say the UK or the USA, but the spin on its impact is not generally as negative as that of the REDD market.
    REDD can, when used properly, be a part of a multi-faceted solution to conservation and community benefit as well as empowerment on the “supply” side, and climate risk mitigation on the “demand” side.
    Chris Lang frequently refers to the Cancun agreement and its wording, but what is the up and coming real manifestation of all this debate on the international “compliance” or “regulated” market? It is in fact an agreement between regional governors in various countries, known as the Governors’ Climate and Forests Task Force (http://www.gcftaskforce.org/about) . Now let’s look at the projects that are the fruit of these agreements, let’s see what the human and biodiversity pros and cons of REDD projects in Acre or Chiapas actually are, and compare them to their alternatives in the baseline, bringing this argument back to reality.

  9. @David S (#8) – Thanks for this. You write that we should look at REDD in terms of what it says on the tin, which you explain as, “preserving primary rainforests while generating income for indigenous peoples, using funds from carbon credits.” I’ll skip over the fact that it’s also supposed to be addressing climate change (which it doesn’t as long as it’s a carbon trading mechanism, because while it may reduce emissions in one place, it allows them to continue somewhere else, thus helping lock in polluting technology and putting off the needed structural changes to stop the burning of fossil fuels).

    You mention three projects – it’s worth looking at each of them to see whether in fact funds from carbon credits are benefiting indigenous peoples and local communities as you claim:

    1. CARE’s project in Zanzibar. While the project generates carbon finance, it is funded by the Norwegian government (US$7.2 million). Ingvild Andersen, a Norwegian academic who carried out six months research on the project, questions whether the carbon funding will be enough:

    “This is particularly so because the possible REDD funding for Zanzibar is expected to not be substantial enough for money to be distributed to individuals. Compensation to communities will indeed benefit villagers through community development projects, for instance, but new schools or health clinics can hardly make up for the loss of one’s major income source.”

    2. The White Mountain Apache project in the USA. Strictly speaking this is not a REDD project (it’s not in the Global South). The first carbon payments are anticipated later this year, so it remains to be seen whether the revenue will match predictions.

    3. The Rimba Raya project in Kalimantan, Indonesia. Reuters reported in August 2011 that,

    After three years of work, more than $2 million in development costs, and what seemed like the green light from Jakarta, the project is proof that saving the world’s tropical rainforests will be far more complicated than simply setting up a framework to allow market forces to function.”

    Even Ecosystem Marketplace, which is usually panglossian about the benefits of carbon trading, commented that after the Rimba Raya story, “Many are now left wondering about the future of REDD and its risky business.”

    Gazprom invested more than US$1 million in Rimba Raya and had a deal to market the carbon credits from the project. There’s an interesting interview with Gazprom Marketing and Trading’s Dan Barry from July 2011, here. Barry points out that,

    “But the big elephant in the room is the fact that if you want to use market mechanisms you need the demand. Until the countries pledge to legally binding targets to reduce their emissions, it’s all somewhat of a moot discussion.”

    You also mention the Governors’ Climate Forests Task Force. Earlier this year, REDD-Monitor interviewed Avi Mahaningtyas, the country coordinator for Indonesia in the GCF. She commented that,

    “Nothing is happening in terms of money being moved for buying carbon credits at the moment. There is no money, basically. I’m not sure if carbon trading is the way that the GCF will be enacted, at the moment.”

    And I think you need to look into REDD in Chiapas in a little more detail. In September 2011, local communities in Chiapas put out a statement that described the REDD project in Chiapas as a climate mask “to cover up the dispossession of the biodiversity of the peoples”.

  10. @David S.

    “REDD is a CONSERVATION not an afforestation or reforestation project, which constitutes a completely different category.”

    Sorry, but you seem to be a bit behind the curve of the debate. ‘REDD’ as a means of protecting existing natural forest long ago morphed into ‘REDD+’, which also includes’ reforestation, afforestation and ‘sustainable forest management’, ie industrial logging. It’s disappointing, I know, but true. If you want to know how this critical corruption of the concept of REDD happened, you only have to look as far as the work of the World Bank (underpinned by the ‘rent-a-carbon-cost-curve’ work of McKinseys), who evidently quickly realised that the only way they could use REDD as a Trojan Horse to carry on funding the kinds of things in tropical forests that they like and need to keep on funding (ie logging operations and plantations), was to add the ‘plus’ to the concept. Of course most tropical governments are more than happy with this change too, as it means they can keep on talking the talk about ‘REDD+’, but with little or not intention of actually conserving their forests.

    So, sadly, even accepting the noble original intentions for REDD as you describe, and even if some of benefits you describe do actually arise in a few local applications of ‘real REDD’, the problem is that the concept has now been well and truly captured and manipulated to present merely a cheap mechanism to offset industrial emissions against what will almost certainly turn out to be fraudulent ‘REDD+’ reductions in the tropics, which actually only exist because of carbon accounting fiddles, which the likes of McKinseys seem very adept at.

    And if you think that that is going to do your locally REDD-protected forests any good, just go check out the latest models for the likely impacts of 4 degrees+ global temperature rises…

  11. @ Chris Lang and Robin Webster,

    Chris, yes demand is a problem in the voluntary carbon market at the moment, however there are a good number of voluntary market carbon project developers who are weathering the storm.

    About the Indonesian Government’s comments about cash flow, I believe the California to Acre (Brazil) governors will soon have projects underway.

    I recognize your critique of these projects in terms of biodiversity/ social benefits, and I’m sure that the disputes with indigenous people are genuine. Yes, we need to keep an eye on the biodiversity and the humanitarian benefits of REDD projects, and develop means, most likely giving the indigenous people control, to deliver benefits which the residents actually desire (schooling, heath, etc. I would imagine).

    @ Robin Webster, I am aware of the way that REDD+ is developing, and yes it does include enhancement. However, because a REDD project area ‘shall include only land qualifying as “forest” for a minimum of ten years prior to the project start date’ (source: V-C-S), aforestation and reforestation are not included in REDD+, see definitions below.
    Aforestation: establishment of forest in an area that has not been forest for at least 50 years, or never
    Reforestation: restocking of forests which have been depleted less than 50 years ago) (source: Forest Trends, A/R Guidance (2011)).

    So REDD, or even REDD+, is a fundamentally different type of project to an aforestation and reforestation project. Please correct me if I’m wrong.

  12. @David S (#11) – Thanks for this. I would be interested to know exactly how many REDD voluntary market carbon project developers are generating enough funding through sales of carbon credits. Envirotrade. is one example of a company that is not raising enough money from carbon credit sales to run its project in Mozambique.

    In terms of getting benefits to local communities, I’m really not convinced that creating a new commodity market is the best way. You may have noticed that the price of carbon is, well, kind of low at the moment. Barclays just put out a report titled “CDM RIP”. The Munden Project also has interesting things (other than in this post) to say about trading carbon as a way of benefiting local people.

  13. Chris, yes it would be good to know more about the status voluntary market REDD projects.
    Here’s the link to all the V-C-S validated forestry (not just REDD) projects: https://vcsprojectdatabase2.apx.com/myModule/Interactive.asp?Tab=Projects&a=1&t=1
    Other voluntary market standards eligible for REDD projects include: ACR, CAR, Plan Vivo, ISO 14064 and maybe CarbonFix.

    CDM prices , and other credit types, are currently low. I think of projects had broken even financially before this current fall they would keep generating a (low) income, but those relying on carbon credits to get started might be dead in the water.

    In terms of alternatives to REDD projects, it would be fantastic if more indigenous areas could just be designated, but as much as many people might wish for that, unfortunately I don’t think it is going to happen (enough). In fact, the reverse is true in countries such as Brazil and Venezuela, as evidenced by the infamous Belo Monte project among others. Voluntary carbon market REDD presents present a feasible (yes, they are feasible) and immediate solution to a pressing problem.

  14. @ David S

    I don’t know what definition of ‘forest’ VCS uses, but the official definition, and that which would currently be used for any UN-mandated REDD system, relies on the FAO definition, which includes plantations, including newly planted monocultures, and even bare land which is deemed as ‘temporarily unstocked’, and indeed any number of things which any rational human being would not recognise as ‘forest’ in the normal sense of the word.

    So, outside of the tiny portfolio of voluntary initiatives run by presumably mostly well-intentioned people,’REDD+’ projects could well be monoculture plantations and (for example) heavily logged natural forest, and indeed for various reasons it is likely that this is MOSTLY what they would be.

    But I’m also interested to know what evidence there is that voluntary REDD projects can do much to stop things like the Belo Monte dam, as you seem to imply (#13). With carbon prices as they are, and likely to stay that way for many years to come, I don’t think market-based REDD offers an economically viable alternative to even the lowest-value land-use, such as slash-and-burn subsistence farming, let alone palm oil plantations or large infrastucture projects.

    But as the Brazilians have shown admirably well over the last 5 years or so, governments can regulate and control away huge parts of the deforestation problem, at relatively low cost, and without recourse to hopelessly inefficient mechanisms such as carbon trading.

    It’s time we learned the obvious lessons from this, stop ‘barking up the wrong tree’, as it were, and get on with finding and implementing some real ‘post-REDD’ solutions.

  15. @Robin Webster,

    I agree that this UNFCCC/ FAO definition is extremely problematic, particularly in regard to plantations, which is quite simply wrong-headed.

    However, I must disagree on the relative importance on the regulated vs, you say, “tiny” voluntary forest carbon market. I direct your attention to the “State of the Forest Carbon Markets 2011″ report (http://www.forest-trends.org/documents/files/doc_2963.pdf), which is the go-to annual report for the forest carbon market.

    The amount of forest carbon credits/ US$ transacted up until 2010 (inclusive) is some 5 times bigger on the voluntary markets than the regulated markets: 61.9 MtCO2e, or 256.0 million US$, vs 12.8 MtCO2e against 58.3 million US$.

    And in the voluntary market, the majority standard is the VCS (dominating about 60% of the market), which does not accept these kind of perverse credits.

    This being the case, the V-C-S definition is, currently, the most important thing in forest carbon, but seems to receive no attention.

    The non-profitability of forest carbon projects is part and parcel of their conception: being less profitable than alternative land uses is one way to prove additionality (def.: a project which wouldn’t have occurred without the carbon credit funding).

    Chris asked what mechanism in the voluntary REDD market could be applied, I cited the relevant methodology, I didn’t actually say that it practically could or would happen, as much as that is desirable, but that the methodology is designed for such purposes. In other words, avoided planned deforestation = preserving land which was planned/ licensed to be destroyed in some official context.

    If somebody had the clout, Belo Monte could theoretically be turned into a hugely profitable (100% destruction avoided) REDD project.

    I don’t, however, wish to downplay the importance of future regulated forest carbon markets, as much as they are currently just “hot air” (although I don’t agree with Greenpeace if they trash the whole concept of REDD: the voluntary and regulated market should be treated seperately, to avoid throwing the baby out with the bathwater).

    The most important current manifestation of regulated markets is the GCF (http://www.gcftaskforce.org/about), as far as I know. In fact I don’t know of any regulated market REDD projects currently, but would be very interested to learn. Does their definition of forest include plantation, does it take account of some 10 years prior to project start-date rule? As far as I know, in Acre, there is potential for voluntary market REDD credits to transfer into the regulated market.

    If the market keeps developing in this way, that is, voluntary project activities transferring, which as far as I understand, vastly dominate the forest carbon market, into regulated market projects, then we might as well all forget about ridiculous UNFCCC definitions.

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