Financing the World's Forests: integrating markets and stakeholders

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Fourth keynote speaker presentation by Jessica Brown (Overseas Development Institute)

3rd August 2009 - Imperial College (CEP)

Published in: Economy & Finance, Business
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Financing the World's Forests: integrating markets and stakeholders

  1. 1. Options for REDD and for reducing the financial gap <ul><ul><li>Presentation by Jessica Brown (ODI) </li></ul></ul><ul><ul><li>Imperial College conference: Financing the World’s Forests </li></ul></ul><ul><ul><li>3 August 2009 </li></ul></ul>
  2. 2. Presentation overview <ul><li>Setting the context for REDD finance </li></ul><ul><li>Phased approach for REDD </li></ul><ul><li>Matching the phases with finance options </li></ul><ul><li>Filling the financing gap for REDD </li></ul><ul><li>New and innovative revenue raising mechanisms for REDD </li></ul><ul><li>Challenges ahead </li></ul>
  3. 3. Setting the context <ul><li>A financing mechanism for REDD is under negotiation, to take effect after 2012. </li></ul><ul><li>Mechanism will draw on public and private financing sources to respond to diverse needs of different developing countries. </li></ul><ul><li>Examples of financing needs include: </li></ul><ul><ul><ul><li>capacity building </li></ul></ul></ul><ul><ul><ul><li>monitoring system </li></ul></ul></ul><ul><ul><ul><li>forest inventories </li></ul></ul></ul><ul><ul><ul><li>land tenure reform </li></ul></ul></ul><ul><ul><ul><li>policies and measures (e.g., incentives to encourage forestry, regulated infrastructure expansion) </li></ul></ul></ul><ul><ul><ul><li>ongoing emission reductions </li></ul></ul></ul><ul><li>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 </li></ul>
  4. 4. 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)
  5. 5. 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 . <ul><li>Phase 1: National REDD strategy development, demo activities </li></ul><ul><li>Phase 2: Implementation of PAMs proposed in national REDD strategies. </li></ul><ul><li>Phase 3: Payment for emissions reduction performance </li></ul>Matching the phases with finance
  6. 6. An initial support instrument that allows countries to access immediate international funding . <ul><li>Phase 1: National REDD strategy development, demo activities </li></ul>Matching Phase 1 with finance <ul><li>Activities should continue to be supported by voluntary contributions that are immediately available </li></ul><ul><ul><li>Ex: World Bank’s FCPF, UN REDD, bilateral arrangements. </li></ul></ul><ul><li>Eligibility for access to funds should be based on a demonstrated national commitment to REDD strategy development. </li></ul>
  7. 7. A fund-based instrument that allows countries to access predictable REDD finance . <ul><li>Phase 2: Implementation of PAMs proposed in national REDD strategies. </li></ul>Matching Phase 2 with finance <ul><li>Activities should be supported by predictable funding from a global facility supported by an internationally binding finance instrument with enforceable commitments </li></ul><ul><li>Eligibility based on demonstration of cross-sectoral commitment to REDD strategy implementation within national government </li></ul><ul><li>Continued access to funding based upon performance </li></ul>
  8. 8. Matching Phase 3 with finance A GHG-based instrument that rewards performance on the basis of emissions reductions . <ul><li>Phase 3: Payment for emissions reduction performance </li></ul><ul><li>Could be financed on large scale </li></ul><ul><li>Transition from global funding facility to integration with compliance markets (or non-market compliance mechanism) </li></ul><ul><li>Eligibility contingent on compliance-grade monitoring, reporting and verification (MRV) and accounting of emissions. </li></ul>
  9. 9. 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.
  10. 10. Innovative financing options for REDD <ul><li>Revenue raising options </li></ul><ul><li>Auctioning of emission allowances; </li></ul><ul><li>A uniform global levy/tax on CO 2 emissions; </li></ul><ul><li>Levies/taxes on emissions from international maritime and air transport; </li></ul><ul><li>A levy on market-based mechanisms under the Kyoto Protocol; </li></ul><ul><li>Bonds </li></ul><ul><li>Currency transaction tax </li></ul><ul><li>Hybrids </li></ul>
  11. 11. 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
  12. 12. 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
  13. 13. Other considerations for REDD finance <ul><li>Funding integrated into the overall financing architecture developed under UNFCCC </li></ul><ul><li>International REDD financing should be predictable, verifiable, with firm funding commitments </li></ul><ul><li>International finance should complement domestic funding </li></ul><ul><li>Disbursement based on five-year national REDD implementation plans, or left to the responsibility of national decision-making processes </li></ul>
  14. 14. Challenges ahead <ul><li>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) </li></ul><ul><li>Challenges depending on the structure of the international financing facility </li></ul><ul><li>Challenge of vertical funds – </li></ul><ul><ul><li>Difficult to maintain national ownership </li></ul></ul><ul><ul><li>Difficult to align international fund support with national strategies and institutions. </li></ul></ul>
  15. 15. Thank you Contact: Jessica Brown [email_address] Visit: www.climatefundsupdate.org www.odi.org.uk/climatechange

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