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Conservation International’s desperate SOS call to bail out REDD

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A new report by Conservation International warns that, “The future of a mechanism for REDD+ is currently under threat.” The problem? Too many REDD credits, too few buyers.

The short report is titled, “REDD+ Market: Sending Out an SOS”, and can be downloaded here (pdf file, 1.7 MB).

CI estimates that existing REDD projects certified under the Verified Carbon Standard (VCS) could generate a total of 22 million REDD credits. Meanwhile, according to CI, the current demand for REDD credits is only 6.8 million (that figure would be ever lower if forward transactions were excluded).

CI comments that,

Early actions on REDD+ at the site level to reduce emissions from deforestation have not been met by similar progress at the international level in generating demand for forest carbon credits. The result is a near-term oversupply of verified emission reductions from REDD+ projects that has the potential to expand over the coming five years to over 20 times the current market demand.

And,

As 2015 approaches, this mismatch has the potential to reach catastrophic proportions as REDD+ projects reaching verification flood a voluntary market, which is already struggling to maintain demand.

REDD project developers can only sell their carbon credits on the voluntary market, because there is no international agreement on REDD at the UN Framework Convention on Climate Change (UNFCCC). Last year, the average price for REDD credits fell to US$6-7, down from US$12 in 2011. Since 2010, demand for REDD credits has fallen by 65%.

Wil Burns, Associate Director of the Master in Energy Policy and Climate program at Johns Hopkins University, writes about the CI report on his blog, under the headline, “Warning Bells for the REDD+ Market”. In response, Mark Trexler, who worked on the world’s first forest carbon offset project, commented (on LinkedIn):

Having done the first REDD project in 1989, and worked on quite a few others, I’ve been perplexed by much of the recent discussion around REDD.
Specifically:
 
1. Without functioning carbon markets how can there be a functioning REDD market, and we don’t have functioning carbon markets.
 
2. A single project developer like Wildlife Works can supply global REDD demand, and yet there are supposedly numerous REDD project developers.
 
This is not to say that REDD isn’t important. It absolutely is. Indeed, the Kyoto Protocol got it completely backward in excluding REDD and including other forestry approaches. But at this point that’s neither here nor there . . .

CI criticises mechanisms such as the World Bank’s Forest Carbon Partnership Facility, Germany’s REDD+ Early Movers Fund, and the Green Climate Fund as “limited in the level of available finance, geographical scope, and speed of implementation”.

CI proposes two solutions to the problem of over-supply and lack of demand. First, is that governments and companies should make “a strong commitment to purchase credits of suitable standard”. CI suggests,

creating new dedicated REDD+ credit purchasing windows within existing climate funds, the expansion of current voluntary offsetting programs by companies, the creation of Advanced Market Commitments by REDD+ donor countries, and the expansion of existing risk guarantee products to cover market price risk.

In other words, a bail out for the moribund REDD carbon market.

CI’s second suggestion is a public relations exercise, aiming to “cement linkages between multiple benefits and emission reductions” by promoting the “multiple benefits that REDD+ projects deliver”, and “moving away from ‘offsetting’ and towards ‘paying for impact'”.

But in a footnote later in the report, CI acknowledges that in reality little information is available about the economic benefits of REDD projects for communities:

Current information on economic benefits from projects remains limited as only a few have yet sold credits and fully established their benefit sharing mechanisms.

As an example of how REDD can support communities’ land tenure security, CI gives the example of the Oddar Meanchey Project in Cambodia. This is perhaps a surprising choice, given the problems that the project faces. In June 2013, the Cambodia Daily reported that two potential buyers of carbon credits walked away after the Cambodian government missed a deadline to sign off on the carbon credit deal.

In addition to difficulties selling carbon credits, the project faces the problem of on-going deforestation, both around and inside the project area. To protect their forests, villagers have to compete with armed soldiers, land pressure from plantation concessionaires and a corrupt, incompetent government.

CI’s report also refers to the Alto Mayo Protected Forest, a CI REDD project in Peru. Pedro Gamboa, the head of Peru’s National Protected Areas Service describes the project as “a successful conservation intitiative”. But to generate carbon credits from that project, CI cooked the books, dramatically increasing the deforestation rate that they anticipated would take place without their project.

In another footnote, CI points out an important difference between offset projects in general and REDD projects. If the price of carbon falls, REDD projects may become unviable:

Many offset projects developed with a view to sales within the carbon markets have a primary income that is not carbon related, such as sale of electricity from wind farms, which makes a fall in the carbon price less catastrophic to their business model as they have the potential to sustain operating costs while waiting for the price to rebound. Most REDD+ projects do not have this opportunity.

The desperation in CI’s report is all-pervasive. Given the title of CI’s report, it would perhaps be unfair to point out that one of the most famous SOS calls came from the Titanic.
 

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  1. Ha ha ha, so the brilliant conservation financiers at CI finally realised that REDD is going to lead to a massive oversupply of carbon credits. What a surprise. But now, with astonishing hypocrisy, the advocates of this patently dumb market mechanism want governments to bail them out with ‘advanced market commitments’. Fortunately, most governments are too poor to fall for this ruse, even if they wanted to, and know full well that throwing government money at Southsea-bubble-like collapsing markets, in an imaginary commodity, at a time of austerity, is hardly going to be a vote-winner.

    If CI would just stop bleating about how badly their self-interested and crackpot idea has gone, they would realise that the only real long-term solution is to demand that industrialised countries legislate to reduce their emissions. It’s a bit tougher than taking huge donations from big polluting industries and cozying-up with dodgy bankers, but it’s the only thing that is going to save the planet and its precious forests.

  2. An article in yesterday’s Cambodia Daily confirms the difficulties that the Oddar Meanchey project is facing: “Cambodia’s Carbon Credit Scheme Still Not Making Gains”. The project has been running since 2007, but still hasn’t sold any carbon credits. Meanwhile illegal logging is ongoing:

    But communities living in Oddar Meanchey province’s protected forests say that illegal logging is still ongoing in the area and that the patrol units that are supposed to monitor illegal logging no longer have funds.

    “Logging and forest clearance for land encroachment within the community forests is dramatically increased,” said Sa Thlai, head of the Oddar Meanchey Community Forest Network.

  3. @Treefellas, how is legislating to reduce emissions in “industrialized” countries going to save trees in rainforest countries if not through some mechanism like REDD? The funds, the trees or the “karma” will just magically jump from one place to the other? How?
    If you look at REDD through fresh eyes, it seems like a robin hood type initiative to transfer money from financially rich countries to countries rich in natural resources. Now there are working REDD projects out there, I’ve developed one of them, we need more buyers. A stronger demand would result in stronger supply of REDD projects, in native forest areas of Brazil, for example. That is a fact. The strongest manifestation of that to date is the GCF: http://www.gcftaskforce.org/
    As a side issue, I always found the term “industrialized nations” bizarre, look at the rampant spread of industry like petroleum and hydroelectrics in Brazil, for example. Are you counting them in your term?
    Often REDD monitor seems out to tarnish all REDD projects with the same brush. And I very rarely see a measured distinction between the supply side (the forest conservation side) and the demand side (the “pay to pollute” issue). Meanwhile while some criticize from their armchairs, deforestation continues apace.

  4. @David Swallow

    I refer you to the comment given by on another recent posting on this site – here http://www.redd-monitor.org/2013/10/16/carbon-markets-are-not-providing-long-term-scaled-up-predictable-new-and-additional-finance/#more-14436

    But the reason that any successful market-based REDD would have to be preceded by legislation in industrialised countries is that unless this happens there will never be sufficient demand for credits to meet the potential supply of credits generated from REDD – hence the price will stay low, and REDD projects will go unfunded. From the very get-go, there was obviously a massive potential over-supply of carbon credits from REDD beyond what even the biggest markets (such as the EU TS) could absorb, even if this were permitted. And it was clear before REDD appeared that even small excesses of credits could cause major price depressions in the existing markets.

    Trying to insert REDD into the climate negotiations and the carbon markets before there has been global agreement to reduce emissions from fossil fuel sources was thus a major strategic mistake by CI and others of the big so-called conservation organisations – a mistake made presumably because they failed to see beyond the money they themselves could potentially make from REDD projects.