Can Norway $ave the rainforests of the world?

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1 Can Norway $ave the rainforests of the world? Kan Norge REDDe verdens regnskog? Arild Angelsen Professor, Dept. of Economics & Resource Management (IØR), Norwegian University of Life Sciences (UMB), Ås, Norway & Senior Associate, Center for International Forestry Research (CIFOR), Bogor, Indonesia

2 Reducing Emissions from Deforestation and forest Degradation (REDD) Early 1990s: Deforestation is 15-20% of global GHG emissions 2006: Stern report says REDD is big, cheap and quick December 2007, Bali COP15 (Bali Action Plan) launches REDD: Policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing countries; and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries; Norway: International Forest and Climate Initiative, NOK 15 billion over 5 years 27. May 2010, Oslo The REDD+ Partnership formed 2

3 The core idea of REDD 3

4 REDD+ today National -> projects (-> national?) Markets -> aid/public funds (-> markets?) Funding to be emission based -> some performance (indicators?) based (-> emission based?) Carbon focus > broader focus (multiple goals) > REDD+ has become similar to development aid Limited/no progress in UNFCCC negotiations Mobilizing interim finance (REDD+ partnership) National REDD+ strategies: slow progress REDD+ pilot projects: many (still) in pipeline REDD+ is what we have tried for 30 years, but with more money 4

5 REDD+ Research UMB actively involved in research on REDD+ Use its multi-disciplinary strengths + previous work Part of the largest comparative impact assessment Led by CIFOR; NOK 80 mill. over 4 years Contributed to key publications

6 How can Norwegian kroner make a difference?

7 Why does deforestation take place? 1. The microeconomics of deforestation: farmers and companies convert the forest to other uses to make money agricultural rent > forest rent rents determined by policies and markets externalities means excessive deforestation -> pay for the environmental services 2. The political economy of deforestation State-sponsored deforestation to generate economic development, elite benefits, popular support,... Policies that fail to correct the market failure, and stimulate deforestation further -> pay for policy reforms 7

8 Pay for what? Pros Cons Different types of contracts Norwegian agreements Payment for emission reductions Conditional aid Unconditional aid Emission reductions Policy reforms Build capacity Direct incentives, no cure no pay MRV, reference levels Brazil, Guyana, Indonesia Induce policy & structural changes Credibility Tanzania (?), Indonesia Often a necessary first step No enforcement mechanisms Congo Basin countries (AfDB) 8

9 a. Payments for emissions reductions (PER) ER = actual emissions reference level 1. Actual emissions Measure precisely Measure at disaggregated levels costly 2. Reference levels How to predict business as usual (BAU)? Historical deforestation National (local) circumstances Ensure additionality? Paying the polluter Common but differentiated responsibilities (UNFCCC) 9

10 Forest carbon stock Should all ER be compensated? Past emissions (historical baseline) REDD credits Realized path Crediting baseline BAU baseline Commitment period Time 10

11 Example: deforestation in Brazil 11

12 b. Conditional aid (pay for policy reforms) The donor commits an amount of money (M) and the recipient commits to undertake reforms (R): Donor wants to spend and want reforms Recipient wants to receive and doesn t want reform A simple 3 stage game 1. Negotiate contract 2. The recipient implements (some) reforms 3. The donor decides how much to pay The development aid experience Conditionality does not work Payment does not vary much based on reforms Donor threat has no credibility (since want to spend) 12

13 Application to REDD+ Norway a small country A humanitarian superpower doesn t play games If we are nice, others will be nice Norway has very limited record in being tough on conditionality REDD+ limited to positive incentives (Bali Action Plan) Hard to make enforceable contracts Domestically: performance measured by money spent a very bad strategic position 13

14 Can Norway $ave the rainforests of the world? Several international initiatives and two $1 billion deals Without Norway less would have happened! Will they change the actions on the ground? We haven t played the game very well Too little on result-based payment Potential loopholes in contracts Learning process, and Indonesia contract promising Big money also changes the rules of the game REDD+ is (also) a money game (like aid) Limited responsibilities for developing countries 14

15 Can Norway $ave... (cont.) Many motivations behind Norway s efforts International image; money buys goodwill Politicians wanting to be Santa Claus Many organizations and individuals with self interests > ineffective mechanisms and allocations of money It s worth a try because Climate change is real Cannot reach 2 degree target without REDD Money can is spent wisely make a difference Researchers can contribute to wise spening and mechanism design 15

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