The document discusses the costs of Reducing Emissions from Deforestation and Forest Degradation (REDD+). It identifies four main types of costs: opportunity costs, implementation costs, transaction costs, and other hidden costs. Opportunity costs represent the value of alternative land uses forgone, such as agriculture. Implementation and transaction costs include the expenses of carrying out and monitoring REDD+ programs. Considering all costs is important for accurately assessing the financial requirements of REDD+ policies and programs.

1. Costing REDD+
The costs of Reducing Emissions from Deforestation
and Degradation
Rhett Butler, mongabay.com

2. REDD+: History & Ambition
Evolution:
RED => REDD+
But goal remains the same:
Curb carbon emissions from deforestation
and forest degradation by compensating
forest owners

3. Co-Benefits

4. REDD+ Isn’t Free
Opportunity costs
Implementation costs
Transaction costs
Other / “hidden” costs

5. Why the Cost of REDD+ Is Important
Policy makers
- How much would it cost our country
to avoid deforestation?
- How would these costs be
distributed?
- What are the best opportunities for
reducing deforestation?
Landowners/users
- How much should I get paid?

6. Opportunity Costs
Opportunity costs = benefits
forgone
Protecting forests entails a
tradeoff
Opportunity cost analysis seeks
to quantify what is given up by
protecting forests.

7. Why Opportunity Costs Are Important
• Large component of REDD+ costs
• Insight into drivers
• Identify likely impacts of REDD+
across different groups
• Establish fair compensation
• Determine downstream costs

8. Calculating Opportunity Costs
Opportunity costs are affected by value of land use
Value = net income/ha/yr or NPV of land use
activities that would take place were REDD+
not implemented
Factors that influence value:
- soil, topography, climate, water availability
- infrastructure, market access
- zoning, protected areas
Carbon storage of land use activities,
relative to intact forest

9. Calculating Opportunity Costs
World Bank 2010

10. Tradeoff Curve
World Bank 2010

11. Calculating Opportunity Costs
Indonesia: large-scale oil palm
(Butler et al. 2009)
NPV (2008) = $9630/ha
Carbon stock relative to primary forest =
• (Forest carbon) – (Oil palm carbon)
• 225 tC/ha – 35 tC/ha = 190 tC/ha
Opportunity Cost
($9630/ha)/(190 tC/ha) = $50.68/tC or $13.82/tCO2e

12. Abatement Cost Curve

13. McKinsey Cost Curve

14. Calculating Opportunity Costs: Scale
(Boucher 2008)
1. Global economic
2. Regional empirical
3. Area-based
Cost of reducing deforestation ~50%
$11.66
$5.52
$2.51

15. Opportunity Cost Models/Tools
National level analysis: use bottom-up
approach
• Specific to each country
• Works sub-nationally
Other tools
• ORISIS (collaborative effort)
• World Bank’s Estimating the Opportunity
Costs of REDD+: A training manual

16. Where REDD+ Opportunity Costs Fail
Opportunity costs are not enough to
forecast the cost of REDD+
Chief criticisms:
•Non-market activities
•Favors industrial users => BAU
•Implementation and transaction costs can be
substantial
•Does focus on compensating opportunity
costs miss cheaper approaches?

17. Criticism: McKinsey Cost Curve
•Undervalues non-market activities, especially subsistence farming
•Encourages BAU for palm oil, soy, pulp and paper, rubber

18. Opportunity Costs: Criticism
-REDD+ supports intensification
-Intensification often capital intensive
-What about smallholders?
-What about wildlife-friendly farming?
-Will REDD+ subsidize industrial capacity
expansion (e.g. Indonesia)
-Moral hazard
-Lack of governance scenario
-Subsidies now worth penalties in future

19. Cattle Ranching in Brazil
Example opportunity costs
•Low intensity cattle ranching has
negative NPV
•But most deforested land in
Brazilian Amazon becomes pasture
•Opportunity cost modeling may not
capture full value; thus
World Bank 2010
compensating for opportunity cost
would fail
•Conversion for land speculation, not
beef production.

20. Cheaper Options than Compensating OCs?
Good governance
-Law enforcement a lot cheaper (e.g. Brazil,
Indonesia)
Modifying economic policies
-Ending damaging subsidies
-Collecting taxes instead of bribes

21. Implementation and Transaction Costs
Implementation and transactions cost can be substantial

22. Implementation costs
Cost of carrying out actions to reduce
deforestation and degradation
•Land use planning
•Institution-building
•Forest protection
•Improved forest and agricultural
management
•Administration

23. Implementation costs
Usually assumed to be substantially lower than opportunity costs
-Boucher 2008: <$1/tCO2e
- Implementation $0.51 (Nepstad et al 2007) + Transaction $0.38 (Antinori and Sathaye
2007) + Administration $0.04 (Greig-Gran 2006)
-Sohngen 2008: $1/tCO2e based on USDA Conservation Reserve Program
But not a safe assumption:
- Juma’s implementation + transactions costs = 45%

24. REDD+ may be more costly than we think
Institutional costs may be quite high
- DNPI Indonesia: $3.29-$6.00/tCO2e for 4
provinces
- Lack of absorptive capacity
- Entrenched interests
- Land tenure mess
- Danger of getting it wrong
-Indonesia’s reforestation fund: lost $5.2 billion in
5 years; losses continue today

25. How does a country stop deforestation?
No successful models for stopping conversion of
primary forest despite billions of dollars invested
No silver bullets
1. Protected areas: limited effectiveness
2. Payments for ecosystem services: small impact
to date
3. Certification: niche markets, probably not
significant
4. Law enforcement: usually punishes small-scale
forest resource users
5. Intensification: capital intensive, usually limited
benefits for rural poor

26. What works?
• We’re not really sure
• In places where deforestation has
slowed it has usually been the result
of economic factors
• National governments show little
success; but markets and local
initiatives may be the key
• Community forestry
• Ending perverse subsidies

27. Transaction costs
Cost incurred in making an economic
exchange.
Transaction costs do not reduce
deforestation but are necessary for a
successful REDD+ program.
Each REDD project incurs transaction costs.
• Remote ones have higher transactions costs
• No economies of scale

28. Transaction Costs: Examples
•Site search and selection
•Agreement negotiation
•MRV
•Enforcement

29. Transaction Costs: Agreement negotiation
Agreement negotiation
- Establishing land ownership is a complex
process in many countries
- Multiple owners and users who claim
property rights
- State ownership (75%), but local use.
Who gets paid?
- All claimants need to be part of the
process
- Brazil’s Terra Legal Program (2009)
- grant formal legal title to squatters on state
land in the Amazon

30. Transaction Costs: MRV
- Technology improving, but may require
more than just a technical solution
- Additionality remains a problem. How
can it be shown that reductions wouldn’t
have happened without REDD
- e.g. Asia Pulp & Paper project in Kampar
project, Guyana.
- Stabilization in HFLD countries
- $1.8B/yr for 11 most important HFLD
countries (Da Fonseca 2007)
CAO/Asner Lab

31. Transaction Costs: Benefits distribution
- Large number of stakeholders
potentially makes benefit distribution
is a challenge
- Central government bodies in some
countries do not have a good track
record (e.g. Indonesia)
- Lessons from Bolsa Floresta?

32. Transaction costs
Difficult to forecast: $0.38 (Antinori and Sathaye 2007), Juma ~10%;
but may be substantially higher in some cases
Alston and Andersson (2010) propose 2 approaches to reduce
1. Sort out property rights
• NBER authors suggest field-based forest inventories could include
delineation of property rights as part of the process
• E.g. Rapid Land Tenure Assessment (World Agroforestry Centre)
2. Multi-level governance efforts
• Monitoring by local association of forest users and independent research
institutes rather than central govt

33. “Hidden” costs: economic
- Downstream industries and services
- Processing, manufacturing, transport, retail
- Local and regional investment
- Public and private sector; infrastructure
- Job creation
- Sustainable livelihoods?
- Tax revenue
- How much tax revenue does forest carbon
generate? Do smallholder farmers pay taxes?
- Food, fuel, fiber prices
- How are they affected by REDD+?

34. “Hidden” costs: economic
- Policymakers are increasingly aware of these
costs
- Examples:
- Coalition for Rainforest Nations: $ outside
forest sector
- Guyana: $ for infrastructure, roads, health,
entrepreneurship
- Indonesia: $ for industrial development;
healthcare model (?)
- Danger: overloading the REDD+ Donkey
(Nepstad 2010)
- Focus on transition to LCD has expanded scope
considerably
- REDD+ becomes everything to everyone and
disappoints

35. Other costs: social/political/cultural
REDD+ reduces these relative to strict AD/RED model
Social disruption
• Subsistence farmers abandoning traditional practices; loss of knowledge?
• More urban migration? Livelihood shifts?
• Conservation refugees?
Ecosystem disservices
• Human-wildlife conflict (e.g. elephants, tigers)
Option value
• Rising food prices, REDD limits land use options for 30 years
Market risk
• Fate of species to be linked with carbon price swings?
• Magic bullet (CCS, CO2 ejection system)
Politics
• International relations: Trade relationships (e.g. Japan and Philippines)
• Local politics (Indonesia)

36. Cost distribution
• Also important to consider how costs are
distributed
• Different groups will be affected in
different ways
• Budgetary (implementation and
transaction) costs to government; but
smaller opportunity costs (tax revenue,
government run enterprises)
• Individual actors: mostly opportunity
costs. Need to think about compensation

37. Take home points
•REDD+ may be more expensive than we
think, but that doesn’t mean it can’t work
•For REDD+ to be effective, must be realistic
and account for all costs
•Decision-makers should have these costs in
mind
•Comprehensive tradeoff analysis
incorporating an assessment of the less
tangible costs and benefits

38. Rhett A Butler
rhett@mongabay.com
mongabay.com

39. Global economic models
Top-down approach based on dynamic economic models using
aggregate variables (e.g. interest rates, population growth,
consumption of energy or timber)
Examples: Ohio State (US), Lawrence Berkeley Lab (US), IIASA (Austria)
Good: incorporates global supply and demand trends
Bad: imprecise, simplistic, not useful for national projections
Global estimate: $1.70-38.00 for 50% reduction between 2005-2030,
depending on assumptions and region

40. Regional empirical models
Bottom-up approach using specific carbon density and per area
opportunity cost based on actual NPV of land use
Examples: Alternatives to Slash-and-Burn Program
Good: Precise
Bad: Misses global feedback (supply and demand trends)
Global estimate: $2.51 mean (Boucher 2008, n=29)

41. Opportunity Costs: Area-based
Per area approach using synthesis of sub-national and global
analysis to generate global estimates
Example: Greig-Gran 2006/2008: 8 major countries
Good: Can be applied where forest carbon data is lacking
Bad: Lower resolution than empirical, but based on sub-national
opportunity costs; carbon data more generalized over forest areas
Estimate: $2.76-8.58, $5.52 midpoint