ii Contents !"#$%&(#)*%++,-. /0#)*&1-.)12)3!445) 6 !7&#-)8$97*#.)) : ;0,&)*)8$97*#.),7<)=01)<1#*)&)=1->)21-?) @ 3!445A)8$97*#.B*)72C%#7$#)7)>#.)$1%7&-#*)) D Democratic Republic of the Congo (DRC) 6 Guyana 6 Papua New Guinea (PNG) 7 Indonesia 7 E721F-,G0$A)8$97*#.)H)3!445) McKinsey’s bad inﬂuence on national plans to reduce forest emissions from deforestation and degradation I /0#)8$97*#.)8JK)$%-(#A),7)1G&$,C)CC%*17?)) LL E721F-,G0$A)8$97*#.B*)) +,-F7,C),M,&#+#7&)$1*&)$%-(#)) L6 ;0,&B*)=-17F)=&0)8$97*#.B*)+#&01<?) LN LO)P1-#*&)$,-M17A)7,-&$%C,&#)1-)7#G&?) LN a. Carbon stocks and ﬂows in plantations 15 b. Unrealistic precision 15 6O)4,&,)<#2$#7$#*A)7,<#Q%,&#)1-),M*#7&?) LD Plantations: root and branch confusion 16 :O)R,*#C7#)$,C$%C,&17*A)+,7G%C,&7F),**%+G&17*) LS @O)P,(1%-7F)7<%*&-,C)7&#-#*&*A)*>#=#<)G#-*G#$&(#*) LI Can McKinsey add up? 19 NO)817&1-7F),7<)$,G,$&.A)%7=,--,7&#<)1G&+*+) LT /0#)+G,$&)12)8$97*#.B*),<($#) 6U LO)P,C7F)&1),<<-#**)&0#)-#,C)<-(#-*)12)<#21-#*&,&17)) 6U 6O)V,.7F)&0#)G1CC%&#-) 6U :O)E+G,$&7F)17)7,&%-,C)21-#*&*)) 6L P1-#*&*A)+1-#)&0,7)W%*&)$,-M17) 66 LO)/0-#,MF)7,&%-,C)0,M&,&*),7<)=C<C2#)) 6:) 6O)X1$,C)+G,$&*) 6N 8$97*#.),<($#A)%72&)21-)G%-G1*#)) 6D 3#$1++#7<,&17*)21-)8$97*#.Y)-,721-#*&) 7,&17*Y),7<)<171-)$1%7&-#*),7<)7*&&%&17*) 6I !7<71&#*) :U
vExecutivesummary Rainforest degradation is a major contributor to climate change, being responsible for up to one ﬁfth of global emissions. If climate change is to be tackled, the urgent prevention of deforestation is essential.Reducing Emissions from Deforestation and Degradation or REDD McKinsey’s advice does not, in any example studied byschemes are intended to provide tropical forest nations with Greenpeace, lead to a cessation of deforestation or forestﬁnancial incentives not to destroy or degrade their forests. The degradation. Often it defends destruction by industrial interestsconcept of REDD has subsequently been expanded to also include on the erroneous grounds that it contributes to economic growth.ﬁnancial support for restoration, reforestation and afforestation, In DRC, for example, McKinsey legitimises a signiﬁcant increasemaking for an expanded mechanism widely known as REDD+. in industrial logging, with an increase of at least an additional 10 million hectares given as logging concessions.Despite the world’s general failure to agree a deal on climatechange at the 15th Conference of Parties to the United Nations While McKinsey’s cost curve has been extremely inﬂuential inFramework Convention on Climate Change at Copenhagen in government policy decisions, it has a number of fundamental2009, donor countries nevertheless did pledge about $3.5 billion ﬂaws. These include data deﬁciencies and dubious baselineto kickstart REDD+. One year later more progress was made calculations, as well as basic mathematical errors and distortionswith an agreement to establish REDD+ at COP16 in Cancun (‘the within McKinsey’s carbon accounting method. Furthermore,Cancun Agreement’). Meanwhile, around the world, rainforest McKinsey’s intellectual property rights on some of the datanations have been endeavoring to become ready for REDD+ by underpinning its cost curve prevent proper scrutiny of its rationale.engaging in national planning around how the scheme would bedomestically implemented. McKinsey’s approach provides an incentive to over-estimate projected future levels of deforestation, allowing forest nationsMcKinsey & Company is a giant, well-connected global consultancy to claim REDD+ funding for preventing destruction which wasﬁrm which has been working to position itself as the market leader unlikely ever to have happened.in REDD+ advice. According to McKinsey: McKinsey co-authored studies barely acknowledge governance‘Our clients … look to us for honest, objective, thoughtful, and issues within rainforest nations, such as the sheer scale ofexperienced advice.’1 monitoring, reporting and veriﬁcation, capacity-building and governance challenges . This casts further doubt on the value ofThe McKinsey ‘Climate Desk’ has been very successful in becoming McKinsey advice.known as a leading provider of these services. It has attractedcommissions to advise many forest nations on how to draw up national McKinsey-inspired plans not only consistently fail to addressplans for applying for REDD+ funding. It appears most probable that the major drivers of deforestation, such as mining andthe rainforest nations featured in this report are generally following logging, they actually reward the industries and interestsand implementing the advice provided by McKinsey. that cause it. For example, in the DRC study, the palm oil industry stands to gain as much as 1bn for the ‘relocation’ of concessionsHowever, when rainforest countries employ McKinsey to apply its that have not even been awarded.trademarked cost curve to their REDD+ prospects, few if any of theresulting plans meet basic standards of accuracy, rigour, utility or ethical McKinsey promotes a methodology that effectively encouragesacceptability. If implemented in their current form, these plans could its client governments to pursue an industry-orientatedactually result in an increase of deforestation and carbon emissions. development path at whatever cost to wildlife. In Indonesia for example, the forecast of continuing expansion of pulp and oil palmThis Greenpeace report presents case studies on McKinsey’s inﬂuence plantations is a major threat to biodiversity. McKinsey accepts thaton REDD+ plans for four forest nations – Papua New Guinea (PNG), the deforestation will shift to other, still largely forested, islands such asDemocratic Republic of Congo (DRC), Indonesia and Guyana. Our key parts of Kalimantan and especially Papua. Kalimantan is home to theﬁndings include that: endangered Bornean orangutan.
vi If followed, McKinsey’s advice will lead to an expansion of monoculture plantations into farmland and ecologically important non-forest lands. McKinsey misleadingly classiﬁes these lands as ‘marginal’ to justify their conversion to plantations. This could have devastating impacts on local ecosystems and wildlife. McKinsey – and its cost curve – systematically play down the environmental impact of industrial logging and deforestation for plantations. At the same time, it routinely exaggerates the destructive impact of smallholders and farmers. This leads to plans that advocate large-scale acquisition of local people’s lands or settling of subsistence farmers without sufﬁcient attention to their land rights, prior informed consent and compensation. McKinsey’s advice has produced plans which have been criticised by funding institutions and are unﬁt for purpose. When rainforest countries employ McKinsey to apply its cost curve to their REDD+ prospects they are at risk of wasting money on advice that may be in violation of safeguards in the Cancun agreement on REDD+ and other decisions of the UNFCC, UN CBD and other international and regional institutions. As a matter of urgency: McKinsey must publish all the data, assumptions and analysis underlying its cost curve, and not hide behind intellectual property rights to avoid proper scrutiny. It should revise its methodology to include: associated with abatement options, Cancun agreement: protecting forest ecosystems from conversion and degradation, and recognising and implementing indigenous peoples and local communities’ rights. Rainforest nations should not commission further work from McKinsey until the above conditions have been met. Those which have worked with McKinsey should revise the resulting plans to address concerns outlined in this report, and make public all advice received so far from the company. Donor countries and institutions should not provide further funding for McKinsey until the above conditions have been met. They should only agree to fund the provision of REDD+ advice where all parties agree to a fully open and transparent tendering process and there is full public disclosure of advice and full participation of local communities They should focus their attention and incentives on REDD through natural forest protection, rather than any ‘+’ activities. REDD proper provides the greatest mitigation and adaptation beneﬁts. Policies should prioritise ending deforestation where it currently occurs and preventing it from increasing in areas at risk .
2 The story of REDD+ Tropical forests are home to a staggering array of plant, animal and Two years of intense negotiations between 2007 and 2009 saw human communities. While covering only about 10% of the total rainforest nations and potential donors ﬁght to see their particular terrestrial surface, they are home to considerably more than 60% of preferred blueprint for REDD adopted. As a result, there was a all terrestrial and freshwater biodiversity.2 1.6 billion people depend signiﬁcant expansion of the ground to be covered by REDD, as it upon forests for their survival.3 They also play a vital role in stabilising moved from being a mechanism for forest protection to a tool for global weather patterns and their degradation is a major contributor also promoting restoration, reforestation and afforestation, under to climate change, being responsible for up to one ﬁfth of global the new acronym of REDD+. emissions.4 If climate change is to be tackled, therefore, the urgent prevention of further deforestation is essential. In parallel, the World Bank continued to play a central role in the development of REDD policy making and implementation For this reason, and in the absence of an effective global treaty to through the Forest Carbon Partnership Facility (FCPF) and Forest ﬁght deforestation, many people began to see it as imperative that Investment Programme (FIP). The FCPF aims to prepare forest reduction of emissions from deforestation and degradation of forests countries for participation in international carbon markets by was included within the aims of the United Nations Framework supporting REDD readiness activities. It became operational in June Convention on Climate Change (UNFCCC). In essence, REDD 2008. Thirteen countries (Argentina, Costa Rica, the Democratic (Reducing Emissions from Deforestation and Degradation schemes) Republic of Congo, Ghana, Guyana, Indonesia, Kenya, Lao PDR, contemplates that funding be made available for the developing Mexico, Nepal, Panama, the Republic of Congo and Tanzania) have world to reduce emissions from deforestation and degradation so far submitted Readiness Preparation Proposals (R-PPs) for the of forests. Later REDD+ emerged as a variant, with the plus sign FCPF, setting out potential REDD+ policies and activities, which signifying the potential for funding ﬂows for active enhancement of have been reviewed by ad hoc Technical Advisory Panels and carbon stocks through programmes of reforestation or afforestation. the Participants Committee. The World Bank is conducting due The publication of a joint proposal by Papua New Guinea and Costa diligence on these proposals with a view to entering into readiness Rica at COP11 of the UNFCCC in 2005 proved to be the turning grant agreements of up to $3.6 million to assist these countries in point for international interest in establishing a REDD scheme and a conducting the preparatory work they have proposed.7 The Forest two year review into the practicalities was initiated. REDD was then Investment Program (FIP) is a targeted programme of the Strategic formally incorporated within the climate Road Map agreed at COP13 Climate Fund (SCF), which is one of two funds within the framework of the UNFCCC in Bali in 2007.6 of the Climate Investment Funds (CIF). The FIP supports developing countries’ efforts to reduce deforestation and forest degradation Complex political and methodological challenges meant that the (REDD). The following have been selected to be pilot countries for issue had still not been resolved as countries began to negotiate the FIP: Brazil, Burkina Faso, Democratic Republic of Congo, Ghana, the shape of a new global climate deal in the run up to the ill-fated Indonesia, Laos, Mexico and Peru.8 Copenhagen Conference of 2009. As negotiations moved forward, pledges of funding from donor Nonetheless, momentum for REDD was growing: reducing emissions countries grew in size, with $3.5 billion9 agreed at the UNFCCC COP15 from deforestation and degradation of forests was commonly at Copenhagen in 2009. In many cases it was unclear how much of this described as the low hanging fruit of the UNFCCC negotiations. REDD money was additional and whether it would be disbursed bilaterally or would aim to provide tropical forest nations with a ﬁnancial incentive through multilateral institutions and processes. While less than the $25 not to destroy or degrade their forests. Rainforest countries saw billion which some estimated was required up to 201510 (or a minimum REDD as a means of accessing some global ﬁnancial value for their commitment of $10 billion over the next three years that some NGOs standing forests, whilst rich countries saw it as a relatively cheap were calling for11), this was still a considerable amount of money, and politically acceptable measure to address climate change. As the particularly for rainforest countries struggling with poverty alleviation ﬁnancial crisis hit and then deepened in 2008/9, it became a mantra and development needs. It was certainly enough money to attract the that REDD offered supposed win/wins all round. attention of at least one international consultancy ﬁrm.
5McKinsey has attained the position of market the world that will result in further business goingleader in REDD+ advice and forcefully advocates in the direction of The Firm.its approach in the countries where it works.According to journalist Clayton Hirst, McKinsey is: In the Democratic Republic of Congo (DRC) McKinsey itself proposed as part of its output‘…the ultimate old boys’ network. Its tentacles reach the inclusion of a list of key REDD+ measuresinto the boardrooms of Britain’s biggest companies to be adopted.25 This element did not feature inand snake through Westminster’s corridors of the terms of reference for the contract, but thepower…. The McKinsey mob just keeps growing. The resultant 14 programmes now form a key part of theﬁrm, of course, doesn’t use such crude terminology country’s Readiness Preparation Plan for REDD+.26for its former partners; the “alumni network” is its In Indonesia, McKinsey advocated afforestationpreferred phrase. One source close to McKinsey right from its ﬁrst presentation,27 and saw thesays: “The alumni are seen as ambassadors to the policy adopted by the National Council for ClimateMcKinsey brand. The network isn’t openly exploited, Change.28 In the conﬁdential proposal, ‘Institutionalbut the ﬁrm maintains a database of members and capability building for low carbon growth’, preparedholds an annual reception for the alumni.’22 by McKinsey for the Indonesian government there is ‘a heavy emphasis on coaching of local governmentAs one might expect, there is evidence of these ofﬁcials, DNPI [Indonesian National Climate Changebusiness practices being applied in McKinsey’s Council] secondees and institutional partners’.29work on REDD+. One individual involved in anofﬁcial capacity with a rainforest nation’s REDD+ According to one observer, McKinsey remained ‘highlyprocess has told Greenpeace on condition of inﬂuential’ within Papua New Guinea’s (PNG) Ofﬁceanonymity that McKinsey uses contacts in of Climate Change and Development (OCCD) asone country as sales reps to help it get work in recently as November 2010, with questions raisedanother, while boasting to potential developing at Technical Working Group meetings being ‘mostlycountry clients of its capacity to connect them answered … by McKinsey representatives’.30 There iswith donors and taking full credit for funding even evidence that McKinsey may be responsible fordeals concluded (Guyana) or international mentoring staff in the recently established OCCD.31inﬂuence attained (PNG) by its existing clients.23 The same observer notes that Sebastian Schienle, aOnce its foot is in the door, the company works McKinsey representative stationed permanently into maximise its inﬂuence. PNG, was even part of the PNG delegation in Cancun.McKinsey states: ‘We take an overall, Yet at the same time, McKinsey plays downindependent, and fact-based view of a client’s responsibility for most of the documents on whichperformance. We rely on facts because they it works. Despite extensive evidence for its havingprovide clarity and align people. Facts are the played a major part in the studies considered inglobal management language. We work with this brieﬁng, it is invariably credited merely withfacts to provide credible recommendations.’24 providing data, analysis or technical support. ThatThe claim to strict objectivity is not reﬂected this is McKinsey’s decision is suggested by thein McKinsey’s advice on REDD+ which is heavily comment in its DRC project proposal that it will notreliant on a set of distinctly subjective policy publish a report under its own name, so as to ensurepreferences. Put simply, with McKinsey national ownership of the results.32 The exceptionadvice you don’t get dispassionate analysis of is the ‘Pathways to a low carbon economy’ reporttransparent data so much as the advocacy of a for Brazil, notably less controversial than the otherparticular – and literally patented – policy view of studies discussed here.33
6 REDD+: McKinsey’s inﬂuence in key countries 34 Democratic One of the major problems with logging rates. The business as in December 2008. McKinsey Republic of the the DRC study is that it clearly attempts to both obscure the role usual scenario for industrial logging forecasts an increase was credited with ‘independent fact based assessment’ for this Congo (DRC) of industrial logging in destroying in logging yield from 3-5m3/ document, but circumstantial rainforests and to ensure a future hectares to 15m3/hectares evidence suggests it was largely McKinsey was commissioned for the logging industry at the by 2030,42 then suggests that McKinsey’s work.48 McKinsey to produce a study of DRC’s expense of small-scale farming. restricting the increase in received £313,000 from the UK REDD+ potential in late 2009. Far from reducing and eventually yield to 10m3/hectares is an Department for International It produced its report after just eliminating deforestation, it emissions reduction; 43 Development for REDD+ work ﬁve weeks, and although it is proposes a signiﬁcant increase in done on behalf of the Guyanese credited only with technical concessions. A billion euros in subsidies44 Government supposedly between collaboration on the study, there to the intensive farming June 2008 and March 2009.49 are grounds to believe that the The McKinsey co-authored industry (mostly palm oil for published document is mainly DRC study underplays the role export) to divert plantation In addition to the FCPF, a number McKinsey’s work.35 Early in 2010, of logging in deforestation, and establishment outside of of donors have been, or are to be, the DRC released its Readiness simultaneously overestimates existing dense rainforest;45 approached for assistance with Preparation Proposal for REDD, the likely expansion of the logging Guyana’s REDD+ preparation which provisionally adopted all of sector in the future, allowing and implementation, but apart McKinsey’s proposals. companies to misleadingly claim farmers without from small contributions from that they have reduced their consideration for community Conservation International and The DRC is one of the nine efforts when compared to what lifestyle and traditions the German Development Bank, initial UN-REDD Programme would have happened without and without reference to the only funding agreed has pilot countries, and has been REDD+ intervention.39 The overall indigenous peoples.46 been from Norway, which has given direct funding to help effect is to support business as committed support of up to $250 launch its REDD+ process. In usual for logging companies – On 29th January 2011, the million by 2015. The funding addition to REDD+ readiness whilst efforts to reduce emissions DRC’s Environment, Nature is supposed to be conditional funding received from the are directed at subsistence Conservation and Tourism on ‘Guyana’s success in limiting World Bank’s Forest Carbon farmers because their activity Minister, José Endundo, greenhouse gas emissions Partnership Facility (FCPF) does not contribute to GDP announced that he would from deforestation and forest and the UN, in 2010 support growth – regardless of its social legalise logging titles in 15 degradation’50 but the basis for of up to $20 million for pilot and cultural value. million hectares of rainforest deﬁning this process has projects was being considered and proposed that the been controversial.51 by the Congo Basin Forest Fund, !"#$%&"$() government lift the country’s funded by Norway and the UK.36 *+"!,-()$". moratorium on new logging Guyana’s approach involves the No information is available on concessions,47 which would country being paid to retain its funding promised for the actual ,/0#%*+/&"1234 open up an additional 10 standing forests on the basis implementation of the strategy. $*%1.(),5%1"6 million hectares of forest to of their ‘economic value to the exploitation. McKinsey’s nation’ were they cleared almost McKinsey received $300,000 A signiﬁcant increase in advice has legitimised entirely for timber, agriculture and for its work, paid for by a industrial logging, with government policy. development at a hypothetical rate, Multi-Donor Trust Fund (now an increase of at least an which is actually far above that ever closed) overseen by the World additional 10 million hectares Guyana seen in the country. This rate (4.3% Bank and funded by the UK, given as logging concessions;40 deforestation per year) would be France, Belgium, Germany, Guyana is a UN-REDD partner around 20 times the government’s Luxembourg and the EU.37 An argument that effectively country but receives no estimated current deforestation McKinsey appears to have been states that companies should funding for its national REDD+ rate of 0.1-0.3%.52 The approach appointed by direct agreement be paid (at a rate of $2 to programme. It published its is explained as appropriate to rather than through an open 2.5 per tonne of CO2e)41 for approach to pursuing external Guyana’s status as a high forest tendering process.38 doubling or trebling existing funding to avoid deforestation cover, low deforestation country.53
7!"#$%&"$()7%.#)#8$ the actual implementation of of deforestation and ‘facilitate The effect is to make it seem 3095#)(),5%1"6 PNG’s REDD+ programme. progress towards performance- times cheaper to displace a small A ﬁnancial plan for interim based payments for emissions farmer than to challenge the Almost no measures to funding requirements is being reduction’.70 Other funding for incursion of new plantations into address the existing drivers developed.62 that period included $64.4 million natural forests. of deforestation in Guyana. In from Australia and $30 million fact logging would be allowed We have no information on from Germany for ‘Measures on Meanwhile, the logging industry to increase by 20 times its who has paid for McKinsey’s Reporting and Veriﬁcation’, work is declared off-limits. Discussing current rate;54 work in PNG. towards a reference emission what it calls ‘sustainable level and other preparation forest management’, the cost Use of REDD+ funding :+"1/,%;")*$/) work.71 According to a 2009 curve report claims that: ‘The to facilitate ‘higher value <+(,+!,-()$". source, the UK, Japan and Norway alternative – stopping logging agricultural development’, have also promised funding for altogether – would have including biofuel production in </&="1#1>/,#*" capacity building of Measurement the same effect on emission ‘unique and fragile’ Savannah 9/5(,("$(),5%1()?6 Reporting and Veriﬁcation reductions [as sustainable ecosystems and wildlife rich (MRV)72, REDD+ markets and forest management], but has wetlands;55 Continuation of large-scale fund distribution.73 a much higher opportunity commercial logging under a cost and would not allow Use of REDD+ funding to so-called reduced impact The Norwegian money was Indonesia to further develop construct the Amaila Falls regime,63 yet a moratorium on paid direct to McKinsey and was its forest products industry.’81 Hydro-Electricity Project. new logging concessions not subject to a competitive McKinsey does not explain A recent study suggests is explicitly rejected;64 tendering process as McKinsey the assumptions behind this considerable impact on was already active in Indonesia statement, but its implication – forests from clearance No measures to address in September 2009 when the that logging must continue and through to building the plant mining, despite its role as a funding was agreed.74 that this will not compromise and its access road: 750,000 major driver of deforestation; emission reductions – is central tonnes(t) of biomass are to be Greenpeace has also seen to the proposals in the plan. cleared from the dam site56 Major agricultural two McKinsey reports for and the access route will intensiﬁcation affecting the Indonesian government: !"#$%&"$9&/9/$"1() include 110km of a minimum subsistence farmers;65 Detailed project overview (Phase @)1/)"$(#(),5%1"6 8m wide road cut through 3): Implementation support primary forest.57 750,000t Afforestation and plantation for Central Kalimantan, from An additional 10 million biomass is equivalent to 1.3Mt on pasture and other non- February 2010 and Detailed hectares of afforestation and CO2 emissions.58 forest land, likely to impact on project overview (Phase 3): reforestation via plantations areas with very high value to Institutional capacity building for with a lack of clarity as toPapua New wildlife.66 low carbon growth. McKinsey whether industrial plantationsGuinea (PNG) Indonesia charges approximately $3.6 million75 and $6.1 million76 are to replace natural forests;82In 2010 Papua New Guinea respectively for capacity building. The payment of large sumspublished three documents Indonesia is one of the initial of money, effectivelyrelating to its national climate UN-REDD Programme The cost curve for Indonesia compensation,83 to divertchange REDD+. Though McKinsey pilot countries and receives contains ﬂawed assumptions, establishment of pulp and palmis credited only with data direct support for its national which signiﬁcantly bias the oil plantations from forestedand analysis for the ﬁrst two programme.67 Indonesia has ﬁnal outcome to protect the land when improvements todocuments, and not at all for the also been selected as a World interests of industrial forestry productivity could mean onlythird, there is strong evidence Bank Forest Investment and agri-business. The cost of a marginal increase of newfor McKinsey being largely Programme (FIP) pilot country. reducing emission from limiting land area would be needed toresponsible for all three.59 At the Copenhagen conference plantation expansion into natural meet government targets for in December 2009, President forests is set as high as possible, production expansion;84PNG is one of the nine UN-REDD Yudhoyono pledged Indonesia to by assuming that there are noProgramme pilot countries reduce overall emissions by 26% alternative locations possibleand receives direct support by 2020 using domestic funding – nearly $30/tonne CO2e or increased greenhouse gasfor its national programme, only, while aiming to increase $20,000/ha.77,78 In contrast, emissions by proposing thatwhich ‘aims at initiating the that ﬁgure to 41% with help of the forecast costs of reducing the deﬁnition of ‘forest’ willquick start phase of readiness international funding.68 emissions from smallholder be more than 30% canopysupport for REDD+’.60 In agriculture are minimised to cover. According to theaddition to funding of $6.4 As of May 2010 (the most recent include only the monetised joint Indonesia Nationalmillion from UN agencies, PNG ﬁgures available), Indonesia had value for production79 – a ﬁgure Development Planninghas received or been promised received or been pledged FCPF of $1/tonne CO2e80– which Agency–UN-REDD draftfunding from Australia (up to $3 and UN-REDD funding totalling clearly recognises neither the National REDD+ Strategy85,million), Japan (¥700 million) $9.2 million (the UN-REDD transaction costs nor, more 10% canopy cover (the FAOand the EU (unspeciﬁed).61 contribution of $5.6 million being importantly, the wider social, threshold for deﬁnition ofNo information is available on funded by Norway69), and $80 environmental and cultural forests) would be classiﬁed asany donor commitments for million from FIP to address drivers impacts of such an intervention. ‘high carbon’.
11The McKinseyMAC curve: anoptical illusionMcKinsey has risen to prominence within the assumptions relied upon in its calculations.86 Due toclimate change and REDD+ spheres through its the company’s stringent application of intellectualglobal greenhouse gas abatement cost curve, property rights on its data, the outside world haswhich the company conceived in 2007 and no way of knowing how McKinsey arrives at theupdated in 2009. The so-called ‘McKinsey curve’ different cost estimates attributed to varioushas been extremely inﬂuential in setting the terms abatement measures.87 The potential victims ofof the debate for international carbon reduction a REDD+ policy which displaces local farming willregimes and other marginal abatement cost (MAC) thus never have access to the reasoning behindcurves inspired by the McKinsey model have since why this policy was deemed cheap in the ﬁrst place,become hugely inﬂuential in carbon abatement let alone considered acceptable.policy. They are a simple way of ordering andpresenting different options for reducing emissions The use of projected emissions raises another set ofand typically look like a succession of rising steps, thorny issues. McKinsey cost curves typically workeach one a different potential measure, its height on assumptions about what a country’s emissionsrepresenting its cost, and its width representing will be in 2020 or 2030, so it is necessary tothe amount of carbon abatement it could deliver. calculate, based on current trends, what emissions are likely to be at that date before the abatementThe cost curve approach to carbon reduction potential and the associated compensation forhas many immediate attractions, not least that it REDD+ action can be calculated. This introducesallows policymakers to focus on the least expensive a clear incentive to inﬂate projections in order tomeasures ﬁrst and to get an idea of the total cost be paid more for not actually producing emissions.of a given level of emission reduction. But as with The dangers of this approach are clearly illustratedmany simple presentations of a complex reality, in the case studies in this report, in particular theMAC curves can disguise signiﬁcant dangers; in projections for logging yield in the DRC and PNG,particular, where there are ﬂaws in underlying which result directly from McKinsey advice.assumptions about comparative costs. Cost curves for REDD+ are not able, and doThis is especially true when it comes to costing not seek, to integrate the web of social andthe measures in REDD+. For example, if the true environmental values associated with tropicalcosts of displacing local subsistence farming are forests beyond their carbon sequestration andunderestimated – as this report argues they are storage potential. MAC curves treat tropical– by ignoring transaction costs and wider social forests like a carbon abatement technology, ratherand environmental impacts, whilst the costs of than recognising them as some of the world’s mostaddressing industrial logging are overestimated (for complex living systems, supporting a staggeringexample by exaggerating the economic value of variety of biodiversity, as well as being of greatlogging to the economy), and these assumptions are economic and cultural importance to humans.built-into the cost curve, then every policy decisionﬂowing from the use of the curve will tend to favour It is this basic lack of understanding – along withlogging interests over those of small-scale farmers. some rather fundamental mistakes in biologicalThe result will not just be socially destructive, but carbon accounting – which too often seducemay prove impossible to implement, economically policymakers away from measures to protect naturalirrational, and ineffective in reducing emissions. forests in favour of plantations and industrial scale logging, for example. Until these ﬂaws areMcKinsey claims to ‘rely on facts because they addressed, the use of the MAC curve in forestprovide clarity and align people’, but it is entirely policy making will remain at best misleading,unwilling to transparently disclose the data and and at worst dangerous.
12 UN B E L I E VA B L E CO V E R T Global consultancy firm, McKinsey advises rainforest McKinsey’s, cost curve has nation governments on reducing been extremely influential in emissions from deforestation. Yet setting the terms of the debate it keeps most of its assumptions for international carbon commercially confidential. Since reduction regimes. these flawed cost curves are at the heart of its advice, HOW CAN C S THE REDD+ PLANS McKINSEY AL C U L AT I O N INSPIRES BE TRUSTED? McKinsey’s FA L S E E CO N O MY MARGINAL The height of each bar shows how much uch ABATEMENT COST CO2e abatement measures cost. Butut these costs are misleading because only t the missed opportunity costs get CURVE included, and McKINSEY EXCLUDES CERTAIN SIGNIFICANT COSTS FOR REDD+ such as transaction, ES R a agri re for an rn bsisten bsiste ers’ gal. implementation, monitoring and legal. Abatement cost ive i ood are ened, bar doesn’ in ba fi ¤ per tCO2e ost, no e st of tt 60 2nd generation biofuels 40 Reduced pastureland Organic conversion soil restoration 20 Reduce slash and Geothermal burn agriculture conversion Grassland management 0 5 10 15 Building efficiency new build -20 Waste recycling Degraded land reforestation -40 Cars full hybrid Insulation retrofit (residential) n I N T E R AC T I O N S -60 Tillage and residue management due McKinsey puts each CO2e abatement VAC Retrofit residential HVAC measure in a bar to show its clients which -80 are the mo cost effective. But the bars most Appliances residential are not fle flexible enough to allow for even th simplest the simple of interactions. In reality, if -100 Residential electronics one one measure on measu is increased or lowered, then another m an h another measure can change in response. Sin e it energ Lighting – switch incandescent eff ie effi ess of an on to LED (residential) red s, bars s M in Since McKinsey’s assumptions are not available for public scrutiny, th cost this curve has been redrawn for illustrative purposes without using origin data. strative original
INC R E DIBL E SNAPSHOT 13 McKinsey’s secrecy means that McKinsey’s cost curves only t scientific community and the focus on one year, usually policymakers can’t see or 2030. But even where it’s challenge the assumptions c possible to predict costs, the behind how McKinsey arrives curve doesn’t show the trends a different cost estimates or at over a period of time. emission savings. McKINSEY’S e McKINSEY’S CURVE IGNORES WORK IS NOT OPEN TO W DEVELOPMENTS BEFORE PUBLIC SCRUTINY. AND AFTER 2030 THAT MIGHT BE IMPORTANT. LO S T E M I S S I O N S McKinsey cost curves predicts CO2e saving potential for each abatementnt measure in 2030, shown by the width of h each bar. But McKinsey doesn’t showow the emissions that accumulate over ar Gas plant CCS retrofit period of time or their contribution to Coal CCS retrofit global warming, which could be much ch more significant than presented. ba s, Iron and steel CCS new build an afforestatio save CO2e, it ignore Coal CCS new build it save it as it Power plant rainforest or even degraded rest biomass co-firing Cars plug-in hybrid Degraded forest reforestation Solar PV Solar CSP Nuclear20 25 30 35 40 40 Pastureland afforestation Abatement potential ential Low penetration wind High penetration wind GtCO2e per year r Reduced intensive agriculture conversion MISSING BENEFITS The x axis shows the potential CO2e savings via the width of ea measure, each FALSE SENSE OF CERTAINTY ’s no of e but doesn’t factor in any additional st in benefits or costs. Thes missing These ’s st rv does no beyo benefits and costs, beyond carbon McKinsey presents forest-related future re ref rang of r rtaint abatement costs as certainties. But sincece emissions, ought to be iinfluencing margins of error ca be greater than cost can ost REDD+ plans, and also have implications hav betw ot differentials between measures, it’s not a for other policy areas. realistic to predict which will be cheaper. er. fo Costs may vary for REDD+ abatement t measures due to location, land use change, policy and market forces. Ra Rainforest o er ive fo ere; t e intensiv agri t nversion be va e doesn’ t differen do doesn’t o rt nit st e ed differen of in in differen
15What’s wrongwith McKinsey’smethod?AB /&"$*,#&D/)6 C It is not made clear anywhere whether the ()#&*(,%5#*"/&()"9*E existing carbon stock of land targeted for plantations has been taken into account.Measuring carbon accurately, with clear and For example, the DRC study recommendsveriﬁable methodology, is critical to the success afforestation on ‘shrubby savannahs or forest-of REDD+ programmes. However, forest carbon savannah mosaic’89 – but without data onaccounting systems are complex, controversial and the carbon which is already stored in thesestill a matter for debate. This makes it particularly ecosystems, it is impossible to calculate whetherimportant that REDD+ plans show exactly how they putting plantations on them will actually reducehave calculated any emissions savings, so that they emissions – or by how much. Yet the samecan be assessed independently and veriﬁed. report gives emissions from logging as net ﬁgures – that is, assuming regrowth of treesYet McKinsey keeps most of the workings of its cost which will in turn reduce the overall impact oncurve commercially conﬁdential, this means that its emissions. The result of these two approachescalculations of forest carbon savings are hidden and taken together, is likely to exaggerate thetherefore can’t be veriﬁed. Each potential action, emission reduction potential of plantations,such as preventing logging, or planting trees, is and minimise the negative impacts of logginggiven a cost per tonne of carbon saved and assessed – resulting in an inevitable bias in the kinds offor its total abatement potential – but there is solutions proposed in the plan.almost no indication of how these results werereached. Many of the assumptions and calculations The same DRC study shows similar distortions.underpinning the results of the cost curve are Its agroforestry case study shows carbonconcealed as if in the workings of a black box. sequestration by a plantation equivalent to around 150 tonnes of carbon stored per hectare.90 ThisThere is evidence of major problems with the ﬁgure is around the same amount of carboncost curve carbon accounting methodology: sequestered by untouched primary forests in the region 91 despite the fact that the plantations area. Carbon stocks and ﬂows described as being harvested for fuelwood and in plantations construction. This is grossly unrealistic.McKinsey co-authored studies focus almost b. Unrealistic precisionexclusively on carbon ﬂows (emissions andabsorption), usually given at two static points in The McKinsey cost curve generates predictionstime – today’s current emissions and net ﬂows with unrealistic precision. For example, ain 2030.88 They do not describe how this carbon fact sheet on the Indonesia cost curve givesstock – ie carbon stored in forests and soils – might emissions reduction estimates in 2030 to twochange over time. This makes interpreting the decimal places. This level of precision obviouslyﬁgures given for ‘reforestation and afforestation’ gives an exaggerated picture of the reliability of(ie plantations) particularly difﬁcult. the estimates.92The numerous errors and biases suggest that McKinsey lack an understandingof the fundamentals of carbon accounting. The confusion of net and grossemissions, the neglect of effects on carbon stocks and, most importantly,the persistent failure to display a robust and transparent carbon accountingmethodology seriously undermine the documents’ credibility.
16 PLANTATIONS: FB #*#1"G(,("),("$6 2 ROOT AND BRANCH ()#1"H%#*"/&#D$")*E CONFUSION It is not only McKinsey’s secrecy that is troubling: in some instances the so-called data that McKinsey has used to produce Indonesian Government recommendations may simply not exist. documents confuse different plantation types and consider In the DRC study, for example, a table is given commercial plantations as showing conﬁdence in individual emissions factors.99 The table reveals that illegal logging ‘carbon sequestration’ and and fuelwood factors have been reached ‘sink enhancement’. despite there being ‘no exact data available’. It is unclear what assumptions have been made or analysis done in the absence of this data. The conclusions on industrial logging are also highly suspect, due to the lack of governance, control and law enforcement, and the level of corruption in the DRC logging sector. The DRC, PNG and Indonesia studies rely heavily on plantations, usually referred to in In the development scenario set out for the reports based on McKinsey’s advice as Guyana, meanwhile, evidence-based planning ‘afforestation and reforestation’. Although is largely abandoned in favour of speculation. these plans do not explicitly advocate The Low Carbon Development Strategy replacing natural forest with plantations, using suggests extensive agricultural and forestry plantations in the emissions abatement ﬁgures development, including on large areas of land acts to mask ongoing deforestation. which are almost certainly unsuitable for such activity. A Guyanese forest expert, Janette Each of the cost curve reports bases its Bulkan, has commented on the ‘extreme predictions on what it calls ‘conservation’93 infertility of most of [Guyana’s] forest- plantations or ‘afforestation aiming to sequester covered hinterland soils’100 which makes carbon’,94 that is, plantations not intended for them ‘much less likely to be convertible to harvest. Such plantations have no economic use ﬁnancially-proﬁtable, ecologically-sustainable other than to attract REDD+ credits. These plans agriculture than in neighbouring Brazil’. would pay developing countries to hand over large areas of what may be biodiverse and useful With a similar disregard for basic data land to ineffective plantations, while continuing to or evidence to support its assumptions cut down natural forest. and proposals, PNG’s Interim Action Plan proposes that measures to increase yields There is also the possibility that the McKinsey- and market access in subsistence and inspired plans could lead to REDD+ funding smallholder agriculture would save 9-15 supporting pulpwood and oil palm plantations, megatonnes of CO2e per year by 2030,101 which do not sequester signiﬁcant amounts but admits that ‘the abatement effect of of carbon.95 Greenpeace has previously noted these measures is unproven’. that Indonesian government documents confuse different plantation types and consider Elsewhere, data from countries in different commercial plantations as ‘carbon sequestration’ continents is used to attempt to construct and ‘sink enhancement’.96 This possibility is arguments in support of McKinsey’s favoured admitted in the Indonesia and PNG cost curve REDD+ interventions. The PNG report, the reports. For example, it is suggested for PNG that Climate Compatible Development Strategy, if reforestation included forestry plantations, cites evidence from African countries in support this would require ‘further research/analysis of proposals for ‘agricultural extension’, ignoring … to calculate the abatement potential’.97 The the different ecological and cultural conditions possibility of REDD+ funding going to commercial affecting PNG farmers.102 The document plantations is not ruled out. claims that ‘Technical appendices containing this data and analysis are available on request Although not one of the principal case studies from the Department of Environment and considered in this report, McKinsey’s advice Conservation’103 but Greenpeace requests for to the government of Brazil is illustrative these appendices have been unsuccessful. here. McKinsey’s report suggests that both ‘commercial forestry operations’ such as ‘pulp These examples suggest these reports are production’ and ‘reforestation using native not based on hard evidence. They present species...not for commercial use’98 could form possibilities as if they were ﬁrm policy plans, part of REDD+ plantation programmes. backed by inadequate, if not absent, data.
18 KB #>/%&()?()1%$*&(#5()*"&"$*$6 C reduction potential, and add to the time it takes $="<"19"&$9",*(>"$ to implement a REDD+ strategy.’ 118 McKinsey co-authored studies repeatedly use tricks This is particularly important for programmes of data presentation to protect or promote industrial relating to smallholder or subsistence agriculture and logging and large-scale agricultural interests at the fuelwood collection, where implementation costs expense of subsistence farming. The methodology are likely to be very high. The failure to include the of the cost curve contains implicit assumptions on costs and difﬁculties of communication with large the relative value of different activities, particularly numbers of people in remote areas, added to the logging, industrial agriculture and subsistence or failure to account for the value of non-monetised smallholder agriculture. The overall effect is that the land uses, means that the ﬁnancial and social cost of potential emissions savings from targeting small- programmes tends to be underestimated and their scale agriculture are repeatedly overestimated, and potential effectiveness overestimated. their costs underestimated, in comparison to tackling the commercial drivers of deforestation. In contrast, forecast emissions reductions from reduced plantation expansion are costed at the The country reports for Indonesia, the DRC and theoretical opportunity cost based on the value of lost PNG, for example, base their calculations of the cost production. In this instance the maximum opportunity of emissions reduction from avoiding deforestation cost – nearly $30/tonne CO2e or $20,000/ha119 – is and degradation on a theoretical ‘opportunity based on an assumption that plantations will not be cost to the nation’ which excludes ‘transaction, established at all if they are not on forested land,120 communication and information costs,’ 116 that is, despite admitting that much expansion could be the cost of implementing an emissions reduction relocated to non-forest land much more cheaply.121 programme. This tends to misrepresent the costs In effect, the cost of reducing plantation expansion and desirability of different emissions reduction is inﬂated while the cost of reducing smallholder options. In DRC, McKinsey is actually very explicit expansion is minimised until it is virtually meaningless. in equating the abatement cost to ‘the reduction of proﬁt margin incurred by the company’.117 As The partial use of the concept of opportunity cost the World Bank review of the DRC’s R-PP argues, also skews the cost curve’s priorities. While the ‘[Transaction and implementation costs] can REDD levers (smallholder agriculture and plantation signiﬁcantly increase costs, reduce the emissions development) are based on opportunity cost – deﬁned