Financing the World's Forests: integrating markets and stakeholders

Options for REDD and for reducing the financial gap

Presentation by Jessica Brown (ODI)

Imperial College conference: Financing the World’s Forests

3 August 2009

Presentation overview

Setting the context for REDD finance

Phased approach for REDD

Matching the phases with finance options

Filling the financing gap for REDD

New and innovative revenue raising mechanisms for REDD

Challenges ahead

Setting the context

A financing mechanism for REDD is under negotiation, to take effect after 2012.

Mechanism will draw on public and private financing sources to respond to diverse needs of different developing countries.

Examples of financing needs include:

capacity building

monitoring system

forest inventories

land tenure reform

policies and measures (e.g., incentives to encourage forestry, regulated infrastructure expansion)

ongoing emission reductions

Financing for upfront capacity building (‘readiness’) is likely to rely on public funds; financing ongoing emission reductions is likely to come from funds and/or carbon markets

Phased approach to implementation Phase 1: National REDD strategy development, including national dialogue, institutional strengthening, and demonstration activities. Phase 2: Implementation of policies and measures (PAMs) proposed in those national REDD strategies. Phase 3: Payment for performance on the basis of quantified forest emissions and removals against agreed reference levels. Recommendations from the Norwegian government’s REDD Options Assessment Report (REDD-OAR)

An initial support instrument that allows countries to access immediate international funding . A fund-based instrument that allows countries to access predictable REDD finance . Continued funding under would be results-based, but performance would not necessarily be monitored only on basis of emission reductions. A GHG-based instrument that rewards performance on the basis of emissions reductions .

Phase 1: National REDD strategy development, demo activities

Phase 2: Implementation of PAMs proposed in national REDD strategies.

Phase 3: Payment for emissions reduction performance

Matching the phases with finance

An initial support instrument that allows countries to access immediate international funding .

Phase 1: National REDD strategy development, demo activities

Matching Phase 1 with finance

Activities should continue to be supported by voluntary contributions that are immediately available

Ex: World Bank’s FCPF, UN REDD, bilateral arrangements.

Eligibility for access to funds should be based on a demonstrated national commitment to REDD strategy development.

A fund-based instrument that allows countries to access predictable REDD finance .

Phase 2: Implementation of PAMs proposed in national REDD strategies.

Matching Phase 2 with finance

Activities should be supported by predictable funding from a global facility supported by an internationally binding finance instrument with enforceable commitments

Eligibility based on demonstration of cross-sectoral commitment to REDD strategy implementation within national government

Continued access to funding based upon performance

Matching Phase 3 with finance A GHG-based instrument that rewards performance on the basis of emissions reductions .

Phase 3: Payment for emissions reduction performance

Could be financed on large scale

Transition from global funding facility to integration with compliance markets (or non-market compliance mechanism)

Eligibility contingent on compliance-grade monitoring, reporting and verification (MRV) and accounting of emissions.

How do we fill the financing gaps? Most promising avenues for meeting financing shortfalls in post-2012 context is from ‘new and innovative’ forms of finance.

Innovative financing options for REDD

Revenue raising options

Auctioning of emission allowances;

A uniform global levy/tax on CO 2 emissions;

Levies/taxes on emissions from international maritime and air transport;

A levy on market-based mechanisms under the Kyoto Protocol;

Bonds

Currency transaction tax

Hybrids

Proposals on the table Proposal Source of funds Amount of funds generated AUCTIONS OF EMISSIONS ALLOWANCES Norway’s auctioning of AAUs Annex I allowances withheld, auctioned internationally $20-30 Bn annually A UNIFORM GLOBAL TAX ON CO2 EMISSIONS Swiss Global Carbon Tax Tax ($2/t CO 2 ) on emissions; ≤1.5/t CO 2 per capita exempt $30-40 Bn annually LEVIES ON EMISSIONS FROM INTERNATIONAL MARITIME AND AVIATION International Air Passenger Levy, International Maritime Emission Reductions Scheme, Tuvalu’s Burden Sharing Mechanism, Oxfam International, etc $6 per ticket fee (economy class), $62 per ticket fee (business/first class); or a straight charge on emissions (not based on ticket); or levy on international airfares, maritime transport charges $8-10 Bn annually, for first five years of operation

Proposals on the table (cont’d) Proposal Source of funds Amount of funds generated CARBON MARKET-BASED LEVIES Extending the levy to JI and/or IET Levy on JI and/or IET 2008–2012: $5.5–8.5 Bn p.a. 2013–2020: $3.5–7.0 Bn p.a. Pakistan’s CDM levy 3-5% levy on CDM $0.2–0.5 Bn p.a. at levy of 5% BONDS EC GCFM High rated bonds $1.3 Bn annually for next five years CURRENCY TRANSACTION TAX Currency transaction tax small levy (0.005%) on foreign currency exchange transaction $15-20 Bn annually HYBRIDS Mexico’s World Climate Change Fund Multiple sources Initially $10, scaling up to $95 in 2030

Other considerations for REDD finance

Funding integrated into the overall financing architecture developed under UNFCCC

International REDD financing should be predictable, verifiable, with firm funding commitments

International finance should complement domestic funding

Disbursement based on five-year national REDD implementation plans, or left to the responsibility of national decision-making processes

Challenges ahead

Uncertainty over how much of the new finance sources would be channelled to REDD – many competing priorities for other sectors and mechanisms (adaptation, technology transfer, etc)