Thursday, February 21, 2013

REDD+ and People

by Duncan Gromko

The head of the World Bank's forest carbon division, Benoit Bosquet, recently wrote about the organization's efforts to include indigenous people in REDD+. REDD+ has gotten a lot of criticism for favoring governments and big corporations at the expense of local, forest-dependent people. To their credit, the World Bank has made a concerted effort to include these people in the decision-making process. According to Bosquet: "Indigenous Peoples have turned from critics of REDD+ to critical actors for REDD+."
Source: Σ64

REDD+ is an environmental economist's dream. The idea is to pay people for protecting forests and the ecosystem services they provide. Deforestation represents around 12% of global greenhouse gas emissions, so avoiding that deforestation provides a climate regulatory service. If trees are not cut down, climate change will be less severe. The original idea was that REDD+ would fit into a global climate change agreement, where rich countries with high emissions could pay developing countries to help reduce their emissions. Buying forest carbon credits was meant to generate an annual $40 billion for forest protection.

Hearing about this policy idea was one of the reasons that I chose to study environmental economics. It's a market solution to the environmental externalities that I wrote about in an earlier post. It solves a bunch of problems at once. Developing countries receive cash transfers. Local people can afford to protect their forests. And the whole world gets climate benefits at a price cheaper than other greenhouse gas reduction strategies. Win-win-win! In a time where there has been a lot of pessimism about climate change negotiations, this was one bright spot.

Unfortunately, there are several potential problems with REDD+ implementation:

1)The biggest problem is that land tenure is much less secure in developing countries; in some countries, such as the Democratic Republic of the Congo (DRC), the state technically owns 100 percent of the forests. And now that the international community is putting a price on forests, there is an incentive for the state to take away land from people that don't have a legal document.

A story from Uganda offers a troubling example of the problems with a forest carbon price. More than 20,000 farmers from the Mubende and Kiboga districts of central Uganda were violently evicted from their land in 2010 by the Ugandan government. The land is now being leased to New Forests Company, a UK-based company that plants and harvests timber. The Ugandan government will profit from both the carbon credits generated by the timber plantations and from the sale of timber from the land. Ironically, REDD+ could create a policy environment where land occupied by local people is sold or leased to large corporations just as it was once granted to large timber corporations.

2) Even if land tenure wasn't a problem, the Munden Project points out another problem. The complex financial instruments involved in forest carbon trading would be difficult for the small land owners selling forest carbon credits to understand. On the other hand, finance institutions have significant experience in derivative trading. This information asymmetry will enable the buyers of carbon assets to capture most of the revenues from carbon trading.

3) There will be many sellers of forest carbon and fewer buyers – the market is a monopsony. Since there are fewer buyers of carbon credits, they might be able to collude and will likely have a stronger bargaining position. As REDD+ is meant to mobilize capital for forest investment (the sellers of carbon credits), this is potentially disastrous.

4) Paying for carbon means that other important forest benefits will be undervalued - not all forests are created equal. A eucalyptus plantation, for instance, sequesters a lot of carbon and provides the owner with revenue from sale of the wood. However, the plantation will require lots of fertilizer, thus it may be a negative for water supply. And a monoculture provides no habitat for species. If the profits generated from carbon credits and timber sale are the only incentives for land owners, we might end up with more forest monocultures because the other benefits of forests are not monetized.

5) It's really hard to measure and predict forest cover change. REDD+ is mostly paying people NOT to deforest. For instance, you make a deal with a country to reduce its deforestation by 50% by 2020. But how do you know what its deforestation rate would have been in 2020 without the payments? Using historical deforestation rates provides some clue, but data are unreliable and deforestation rates vary year to year. Should your estimate be based on 10 years of deforestation data or 5 years? The answer changes your prediction about 2020...and thus the amount of money being transferred to countries. There is also a perverse incentive at work here, where countries might want to have a higher deforestation rate before REDD+ is implemented in order to be able to sell more carbon credits.

6) Leakage. If some countries are covered by REDD+, but not all, maybe the deforestation and pressure on forests will just shift. If, for instance, Indonesian and Malaysian forests are protected under REDD+, what will this mean for Burmese forests?

So getting back to Mr. Bosquet's blog, I'm really glad that the World Bank and the rest of REDD+ community is engaging indigenous people and other vulnerable groups. I don't think the World Bank deserves all the criticism it has gotten; the people working there genuinely want to make a positive difference. But they're working in a tremendously difficult environment that is complicated by many factors, the least of which is some corrupt partner governments. Can REDD+ succeed in protecting forests and the people who depend on them? Everyone at the World Bank and other organizations working on REDD+ are well aware of these problems, but I'm not confident that some of them have been addressed.

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