Carbon Issues 06 09

NICHOLAS INSTITUTE REPORT
International Forest Carbon and the Climate Change Challenge: Issues and Options
Lydia P. Olander1 William Boyd2 Kathleen Lawlor3 Erin Myers Madeira4 John O. Niles5
Nicholas Institute for Environmental Policy Solutions, Duke University (Olander is coordinating author; others listed alphabetically) 2 University of Colorado Law School 3 Nicholas Institute for Environmental Policy Solutions, Duke University 4 Resources for the Future; Center for International Forestry Research 5 Tropical Forest Group
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June 2009
www.nicholas.duke.edu/institute
NI R 09-04
Lydia P. Olander1 William Boyd2 Kathleen Lawlor3 Erin Myers Madeira4 John O. Niles5
Nicholas Institute for Environmental Policy Solutions, Duke University (coordinating lead author; others listed alphabetically) 2 University of Colorado Law School 3 Nicholas Institute for Environmental Policy Solutions, Duke University 4 Resources for the Future; Center for International Forestry Research 5 Tropical Forest Group
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The authors acknowledge the support of the David & Lucile Packard Foundation and the helpful comments of Dan Zarin at Packard. We are also grateful to Evan Notman, Lou Verchot, Christine Johnson, and Phil Ovitt for their review and to Subhrendu Pattanayak, Nicholas School of the Environment, Duke University, for his input. We would also like to thank Brian Murray and Paul Brantley of the Nicholas Institute for their assistance. The online version of this report is available at http://www.nicholas.duke.edu/institute. Cover photo: Rainforest on the Indonesian island of Lombok, courtesy of Andrey Narkevich
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Contents
Executive Summary Chapter 1 The Crucial Role of Forest Carbon in Combating Climate Change Chapter 2 Current Policy Proposals How is international forest carbon treated in the international climate regime? How is international forest carbon treated in the EU ETS? How is international forest carbon treated in emerging compliance regimes in the United States? Chapter 3 Responding to Concerns and Questions 1. Flooding the market 2. Sending U.S. dollars abroad 3. Increased food prices 4. Reduced deforestation and biofuels policies are at cross purposes 5. Rewarding bad actors 6. Penalizing countries for factors beyond their control 7. Restricts economic development inequitably 8. Restricts community access to forests 9. The governance challenge 10. Forests also important for adapting to climate change Chapter 4 Fundamentals for an International Forest Climate Policy Environmental integrity: How do we ensure that forest emissions reductions are real? Financing: What needs funding and how could it be funded? Scope: Should policies focus only on avoiding emissions? Scale: How do national, subnational, and project-scale activities fit together? Equity, co-benefits, and safeguards: How do we maximize benefits and avoid harm? Chapter 5 Addressing the Causes of Tropical Deforestation: Lessons Learned and Implications for International Forest Carbon Policy What causes tropical deforestation? Previous efforts to reduce tropical deforestation Implications for a U.S. approach to international forest carbon Chapter 6 Experience on the Ground, in the Forests A proliferation of forest carbon projects Common features of forest carbon projects What lessons have been learned from early forest carbon activities? Appendix Nhambita Pilot Project (Mozambique) Miombo Community Land Use and Carbon Management Core Activities Description Key Challenges Key Successes 5 8 13 13 16 16 22 22 23 23 24 24 25 25 26 27 28 32 32 36 38 39 40 43 43 46 49 54 54 55 57 61 61 61 62 62
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Executive Summary
Using carbon finance to conserve and restore tropical forests has emerged as one of the most important topics in global environmental policy. As the international community and the United States embark on efforts to develop new climate policy frameworks, there is a growing recognition that solving the conservation challenge of tropical deforestation can also help solve the problem of climate mitigation. This report highlights the most promising opportunities and the most pressing challenges associated with the effort to bring deforestation into climate policy. From a scientific perspective, forests must be part of any effective effort to address global climate change. Stabilizing atmospheric greenhouse gas concentrations at a reasonable level is simply not possible without a concerted effort to control tropical deforestation and encourage sustainable land-use practices. Forests provide numerous environmental and social co-benefits as well as natural insurance against climate change and other environmental challenges. Incorporating tropical forests into climate change policies is increasingly doable from a scientific and technical standpoint. Existing scientific tools and methodologies can measure, monitor, and verify changes in rates of deforestation and carbon emissions. Integrating tropical forests into climate change policy provides the most meaningful path for many developing countries to engage in global greenhouse gas mitigation efforts. And for developed countries, forests can provide an additional mitigation option, reducing overall costs of achieving reduction targets and ultimately of stabilizing greenhouse gas concentrations. Managing international forest carbon for climate mitigation is gaining traction at multiple levels of governance. Internationally, the policy debate has recognized the urgency of the problem as well as the growing technical capabilities and accounting frameworks that are needed to make this work. In spite of this, international negotiations are at risk of getting bogged down in a stalemate in which lack of policy guidance is cited as a reason for not moving forward on methodologies, while inadequate methodological development is seen as a barrier to further policy elaboration. Hopefully new and substantial political will in both developed and developing countries will help bring tropical forests into climate change policy. Major U.S. corporations and conservation organizations are aligning on this issue,1 and this alignment is reflected in promising new U.S. climate change legislation moving through the House of Representatives.2 Numerous questions and concerns have been raised about international forest carbon policy, such as whether forest carbon will flood the market, dampening investment in clean energy; whether forest policies would restrict community access to forests and harm forest-dependent communities; whether expecting developing countries to offset the damages caused by developed countries emissions is fair; and whether policies should reward bad actors. Some of these are superficial concerns that can be easily clarified, while others are valid questions that require appropriate and careful policy solutions. Luckily many of these issues are under consideration, with legislative language proposed or policy discussions already under way. None of these issues yet appears to be an insurmountable barrier. Careful design of forest carbon policy is essential to the quality and integrity of forest carbon mitigation opportunities. Both market- and fund-based approaches are needed. In the next few years funds, capacity-bulding programs, and pilot projects will likely be the dominant approaches to financing forest conservation. Over the longer term, market-based solutions (e.g., international forest carbon credits) have the greatest likelihood of generating and sustaining sufficient funding to help stem emissions from deforestation. Forest carbon programs in the United States and those developing abroad will likely require a national baseline against which a countrys success in reducing emissions from deforestation will be credited. This will help address a number of concerns about the integrity of forest carbon. Setting this baseline is a critical challenge with significant financial and environmental implications. These domestic and international dialogues also raise the question of whether policies should focus on deforestation alone or expand to include reforestation, forest management, and perhaps
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other land uses. Given the urgency of stopping forest loss, it makes sense to start with what we know how to do welldeforestationwhile leaving the door open to phasing in other land-use activities. Policies will need to be flexible and adapt as we learn from experience. Given the time lines of the U.S. and international processes, it is unclear whether the United States will move forward first and possibly influence the design of an international agreement, or if the international agreements will come together first. By and large, past forest conservation efforts failed to address core economic and human pressures on tropical forests and have had limited success. Many efforts have often not achieved sufficient financing or scale, nor have they provided clear and compelling economic values for developing countries to forgo forest clearing. Independently verified performance-based approaches to forest conservation that leverage carbon finance to fund forest protection at scale (tens of billions of dollars per year) are a significantly different approach with the potential to address some reasons for past failures. Investment in building governance and capacity to effectively manage new programs is essential. For long-term success, financial revenues from forest carbon programs must compete effectively with local drivers of deforestatione.g., agriculture, timber, infrastructure developmentand be coupled with programs to increase efficiency of land use and develop alternative livelihoods which will reach the people on the ground. To further promote success, developed countries, such as the U.S., should continue to push for strict controls on the illegal timber trade and review the impact of biofuels policies and agricultural subsidies on tropical deforestation. In the past few years there has been an explosion of new projects, funds, and concepts seeking to use carbon finance in innovative ways to protect tropical forests. There is tremendous interest from governments and investors. While a lot of the early work has focused on voluntary carbon credits, only a handful of these initiatives have been operating for significant amounts of time, and fewer have good publicly available information from which to infer policy lessons. One major area that needs sustained attention in many countries is the question of carbon rights and legal and institutional frameworks for assigning benefits and responsibilities associated with forest carbon credits in developing countries. Significant progress in capacity building is being made courtesy of new global funds, but financing for specific project activities has been slow to come. New financing to spur these pilot projects is essential for their success, whether it comes from private investment (which is more likely if political and methodological uncertainties are addressed) or through public or private aid. With an abundance and variety of projects ready to go and a sustained effort on capacity building under way, many international forest carbon projects are poised to move forward quickly.
Opportunities for U.S. Leadership

Internationally, REDD policies are likely to emerge as part of a new global framework to update the UNFCCC and replace the Kyoto Protocol. To achieve significant climate change mitigation and forest conservation, actors at various levels of governance must move beyond theoretical enthusiasm for REDD and begin implementing policies to buoy emerging programs and projects. A promising sign is the proliferation of efforts by developed countries to provide substantial new resources to build international forest carbon programs, institutions, policies, and on-the-ground conservation programs in developing countries. The United States has a strong record of tropical forest conservation and has long favored including emissions from tropical deforestation in global climate change policy. The U.S. could play a catalytic role by passing national cap-and-trade legislation that recognizes international forest carbon for compliance purposes. This would likely require taking deeper emissions cuts in return for efforts by developing countries to reduce their emissions from deforestation. The relatively low cost of forest carbon provides an opportunity for achieving greater reductions at little or no additional cost. In light of the growing U.S. interest in international forest carbon, the government is already considering how to leverage existing programs to move forest carbon forward (e.g., working on land tenure, landscape-level planning, new conservation areas,) and how to position programs to fill in gaps where forest carbon will not be effective for conservation. It should move beyond consideration and begin implementing complementary
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activities where it can. For instance, the Tropical Forest Conservation Act (TFCA), the largest single dedicated source of U.S. government funds to conserve tropical forests, could estimate the amount of avoided or sequestered carbon tons from its project. This could be done without any new legislation or regulations. USAID and other federal projects could develop international forest carbon methodologies. Such efforts will provide real lessons to U.S. and UN policymakers as they develop rules, and at the same time demonstrate a strong U.S. commitment to REDD and international forest carbon. Another way the U.S. could provide leadership would be to build a new public-private partnership program to coordinate and pioneer conservation and climate change mitigation in the context of new forest carbon markets.3 Such a public-private partnership could develop institutions, protocols, and examples for mobilizing private and public capital to conserve forests to mitigate climate change. While there will be plenty of debate to come, there has been substantial progress in policy design and momentum continues to grow for including international forest carbon in both U.S. climate legislation and in any post-2012 international agreement.
References
1 http://adpartners.org/news_unity.html. 2 H.R. 2454, Waxman-Markey American Clean Energy and Security Act of 2009. 3 The public private partnership might follow the model of the World Bank Prototype Carbon Fund (http://wbcarbonfinance.org/Router. cfm?Page=PCF).
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Chapter 1 The Crucial Role of Forest Carbon in Combating Climate Change

Erin Myers Madeira, Lydia Olander, William Boyd, Kathleen Lawlor, and John O. Niles
Tropical forests are disappearing rapidly a process that accounts for some 17% of global greenhouse gas emissions. Saving tropical forests thus represents a significant, cost-effective, timely, and multiple-benefit opportunity for the United States and the international community in the fight against climate change. Seizing this opportunity will require leadership by the United States working in concert with tropical forest countries and the international community. Disappearing Tropical forests are disappearing at a rate of 5% each decadethe equivalent of two football fields per secondas a result of agricultural, timber and road expansion.1 By 2050, 40% of the Amazon will be gone if current deforestation trends continue.2 When these forests are cleared, most of the carbon is released into the atmosphere either through burning or decay of organic matter.3 Once cleared, the opportunity to avoid emissions is permanently lost, making future mitigation targets more difficult to achieve. Significant Land-use change in the tropics accounts for roughly 17% of greenhouse gas emissions, more than the global transportation sector (see Figure 1.1).4 The vast majority of these emissions come from deforestation.5 Forests must be included in climate mitigation strategies to avoid dangerous levels of climate change; focusing exclusively on fossil fuel emissions will not be sufficient.6
How do forests affect climate change? Forests are the most significant terrestrial carbon reservoir, containing 77% of all carbon stored in vegetation and storing roughly twice as much carbon as the atmosphere.7 Forests also constantly cycle carbon: photosynthesis turns atmospheric carbon into biomass and sugars, while respiration burns up some of these sugars, returning carbon back to the atmosphere. Globally, forests are a net sink, meaning that they absorb more carbon out of the atmosphere than they emit. However, of the 2.6 billion tons of carbon that forests annually absorb, 60% (or 1.6 billion tons) is emitted back into the atmosphere by deforestation.8 Deforestation leads directly to carbon emissions in the same manner as a coal-fired power plant or any other emissions source. Further, if forests are converted to nonforest land uses, the new land cover will absorb less carbon from the atmosphere. Even if forests are allowed to regenerate after clearing occurs, it will take decades to rebuild the carbon once stored in the original forest, and the loss of biodiversity and indigenous forest cultures is irreversible.9
Cost-effective Including forests will lower the costs of climate change mitigation. Initial emission reductions from forest and land-use activities are expected to cost substantially less than reductions in other sectors, such as decarbonizing the electric power or transportation sectors. Thus forest carbon activities can reduce the costs and increase the flexibility associated with emissions reduction efforts in the U.S. and globally. One recent estimate indicates that including international forest carbon in global climate policy could save US$2 trillion over the century.10 If this $2 trillion were reinvested in climate mitigation activities, it could finance a 10% deeper cut in carbon emissions, which corresponds to a reduction in expected warming of 0.25C over the 21st century.11 Economic models suggest that over the next 20 years, carbon prices of $10$30 per ton CO2 could reduce deforestation by up to 50% in the tropics, with central estimates of about 23 billion tons of CO2 reductions per yearroughly equivalent to annual U.S. emissions in the electricity and heating sector. The models suggest that emissions reductions could be roughly doubled if other options such as afforestation and forest management were credited.12 Initial reductions can be quite inexpensive, perhaps as low as US$25 per tCO2 to reduce deforestation 10% below baseline levels.13 Additional reductions, however, become progressively more expensive. Because programmatic costs are not yet known, existing models do not fully account for capacity-building, administration, monitoring, contracting between buyers and sellers, enforcement, and other costs associated with putting in place an effective forest carbon program. These costs will vary depending on the country, the
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nature of the forest carbon activity, the scale of the intervention, and existing capacity. Many of these are programmatic startup costs and could be addressed by the various capacity-building initiatives (e.g., World Bank Forest Carbon Partnership Facility). Where forest carbon activities involve reforming the institutions that govern land use, the reforms can be difficult and relatively costly. There will also be initial costs and ongoing transaction costs borne by the market participants themselves (e.g., project startup costs). These project-level transaction costs can be large for small projects, but tend to diminish in significance as project size grows (e.g., less than $1 per ton, CO214). Taking all this together, there is a certain amount of friction associated with delivering forest carbon reductions to the market and thus the idea of very large volumes available at very low prices needs to be viewed a bit more critically. The analysis presented in the companion report on economics addresses some of these supply constraints and how they might affect market outcomes.15
Figure 1.1. Global greenhouse gas emissions by sector.

Waste & Wastewater 3%
Forestry 17%
Energy Supply 26%
Agriculture 14% Transport 13% Industry 19%
Residential & Commercial Timely Emission reductions from the forest buildings sector can begin immediately. No technological 8% breakthroughs, new physical infrastructure, or facility construction is needed to keep forest carbon out of Note: Reproduced from the IPCC Climate Change 2007: Synthesis Report Summary for Policy Makers (Fourth Assessment Report). the atmosphere and enhance forests natural carbon Total anthropogenic greenhouse gas emissions in 2004 in terms of capture and storage services. As with emission reducCO2 eq. Forestry data include CO2 emissions from deforestation, CO2 tions strategies in other sectors, new administrative emissions from decay (decomposition) of above-ground biomass that remains after logging and deforestation and CO2 from peat fires infrastructure will be needed. Reforming forest and and decay of drained peat soils. Data does not include emissions land-use policies will require new governance institufrom forest degradation, which would increase forestry emissions tions, greater administrative capacity, and addressing significantly. conflicts over land tenure. Policy reforms can result in substantial, long-term emissions reductions; meanwhile, complementary actionssuch as strengthening enforcement of existing forest reserves or retiring logging concessionscan be taken immediately to begin curbing deforestation.
Multiple-Benefit In addition to regulating climate, forests provide a number of important local services that can reduce communities vulnerabilities to climate change. Forests are rich in biodiversity: they are home to the majority of terrestrial species.16 They regulate water flow; reduce runoff, erosion, siltation, and flooding; and provide food, medicine, building materials, fuelwood, and income for local communities. These ecosystem services are critical to many rural and urban economies, provide environmental security, and can be thought of as natural insurance that helps buffer vulnerable communities against the negative impacts of climate change. Developing countries are projected to encounter some of the most severe impacts of climate change, and are the countries least able to cope.17 In regions that already struggle to supply adequate food, water, shelter, and security resources, climate change will act as a threat multiplier, exacerbating environmental and resource crises while adding to problems of governance.18 As environmental conditions deteriorate, disease will increase, and populations will likely be forced to migrate. Losing forests could further destabilize societies that are most vulnerable to climate change and lead to political upheaval, migration, and conflict.19
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Opportunity At a time when the world is seeking to broaden international participation in the global effort to reduce emissions, addressing deforestation is the most meaningful way for many developing countries to participate (see Figure 1.2). Although developing countries may not be prepared to make economy-wide emissions commitments at this time, some are considering taking on emissions targets in their forest sectors given the right incentives. For example in December 2008, Brazil announced that it would reduce its emissions from deforestation by 70% within ten years, and Norway pledged $1 billion to support the effort. Forest carbon can play a crucial role in facilitating an international climate agreement, and provides a key opportunity for the U.S. and the international community to foster active collaboration with developing countries in abating climate change.
Figure 1.2. Forestry and land-use change emissions as a portion of total emissions for top 10 emitters in 2000.
7000 7,000 6000 6,000 5000 5,000 4000 4,000 3000 3,000 2,000 1,000 0 1,000 Forestry and land landuse change CO2 CO2 emissions
Notes: Emissions from deforestation are not spread evenly around the world, but are concentrated in a few forest-rich developing countries. For some of these countries, emissions from deforestation account for the vast majority of total domestic emissions. Brazil, Indonesia, and Malaysia are among the top ten CO2-emitting countries in the world because of their emissions from deforestation.23 Since 2000, China surpassed the United States in total emissions; however, the most recent global data on forestry and land-use change emissions comes from 2000.
Leadership The United States has an opportunity to be a leader in the international community by addressing tropical deforestation through the incorporation of forest carbon activities in domestic climate change legislation and involvement in the international climate negotiations. U.S. leadership on forest carbon is likely critical for broad international acceptance and sufficient global funding. A number of developed countries are currently funding capacity building for forest carbon activities, and some are considering setting aside a portion of proceeds from their national climate programs for forestry. However, the U.S. is leading the way in actively exploring ways to allow international forest carbon credits to trade (like allowances) in a national emissions trading system (see Chapter 2).20 Such leadership would build on the United States governments historic interest in tropical forest conservation demonstrated by the long-term efforts by USAID, the U.S. Forest Service, the State Department, and the Department of Treasury to conserve tropical forests (see Chapter 5). Furthermore, California, Illinois, and Wisconsin are already leading Terminology the way on forests and climate change by working with Policy discussions about forest carbon principally refer to deforgovernors from Brazil and Indonesia to develop rules and estation and degradation, the two processes under which forest incentives for generating compliance-grade international carbon stocks can be emitted to the atmosphere. The other main forest carbon.21
components are conservationwhich maintains forest carbon stocksand afforestation, reforestation, and forest managementwhich can build carbon stocks by removing CO2 from the atmosphere. The international community is actively working to develop policy mechanisms that will incorporate tropical forests into a post-2012 climate regime. The current terminology in that process uses the phrase reduced emissions from deforestation and forest degradation or REDD. Negotiations are under way regarding whether REDD will include other forest sector and landuse activities such as those mentioned above. When not referring specifically to the international negotiations, we will use the broader terms international forest carbon and forest carbon in this report.
What might the U.S. do?

The U.S. will be one of the largest buyers of all types of carbon credits if it moves forward with an economy-wide cap-and-trade policy. If the U.S. decides to include international forest carbon in its cap-and-trade policy, there are several options for how to do so. The U.S. can allow capped entities to use international forest carbon allowances to meet compliance obligations as offsets. It can also use revenue generated from auctioning of
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allowances to support forest carbon as an independent program. Whichever policy approach is ultimately used, the U.S. could generate substantial demand and financing for reducing deforestation, having a major impact on the market globally. The U.S. is currently considering a policy which would begin funding international forest carbon activities and allow trading of international forest offsets as early as 2012 if they meet stringent standards (see Chapter 2). If this legislation fails to move forward, it may be 2011 before the U.S. tries again.
What would international forest carbon credits look like?

International forest carbon credits could be generated by a range of activities and approaches suited to the diversity in national circumstances and drivers of deforestation and forest degradation. For example, sitespecific approaches could create and support forest reserves that protect threatened forests, implement sustainable forestry practices, or buy out palm oil concessions for forests that have not yet been converted. National- or regional-scale approaches could change land-use and infrastructure policies, improve forest governance, reform agricultural subsidies, and inject sustainability into development policy. Whether activities are at a project or national scale, they will generate credits based on their performance compared against an agreed-upon reference level like in other sectors. Reference scenarios are the benchmark against which emissions reductions are measured, and pose technical and political challenges for all sectors. In the forestry sector, there is confidence in the ability to use existing remote sensing imagery to establish reference scenarios.22 Advances in remote sensing and continuing work on forest carbon measurement have greatly enhanced the ability to measure and monitor changes in forest carbon (see Chapter 4).
The devil is in the details

This book discusses why tropical forests are a critical part of climate change policy discussions and provides policymakers, interested stakeholders, and international negotiators with an overview of the main issues associated with international forest carbon. The following chapters will provide details about the outstanding questions regarding forest carbon policy design, the status and next steps for U.S. and international policy efforts, and ongoing endeavors to reduce deforestation and associated carbon emissions in developing countries. International forest carbon is critical to the success of international climate policy. It represents a significant mitigation opportunity that must be seized if we wish to avert dangerous levels of climate change. And it provides the only meaningful avenue for bringing many developing nations into international climate policy.
References
1 Chomitz, K. 2007. At Loggerheads? Agricultural Expansion, Poverty Reduction, and Environment in the Tropical Forests. Washington, D.C.: World Bank. H.J. Geist and E.F. Lambin. 2002. Proximate causes and underlying driving forces of tropical deforestation. BioScience 52 (2): 143150. 2 B.S. Soares-Filho et al. 2006. Modeling conservation in the Amazon basin. Nature 440: 520523 (predicting that by 2050, under business as usual, projected deforestation trends will eliminate 40% of the current 540 million ha of Amazon forests, releasing approximately 117 30 GtCO2 to the atmosphere). 3 Houghton, R. A. 2005. Tropical deforestation as a source of greenhouse gas emissions. In Tropical Deforestation and Climate Change. ds. P. Moutinho and S. Schwartzman. Washington, D.C.: Environmental Defense Fund and Instituto de Pesquisa Ambiental da Amaznia (IPAM), 1322. 4 Estimates of emissions from forests and land use vary due to differences in the methods used to calculate emissions. For example, some estimates calculate emissions from deforestation only while others include decay of above ground biomass and emissions from peatlands. Further, calculations use different data sets for deforestation. Widely cited estimates of deforestation emissions range from 10% to 25%; we use a midpoint estimate of about 17%, which corresponds with the calculations used by the Intergovernmental Panel on Climate Change (IPCC) in Climate Change 2007: Synthesis Report; Contribution of Working Groups I, II, and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, S. Solomon et al., eds. (Cambridge, UK and New York, NY, USA: Cambridge University Press, 2007), shown in Figure 1.1. 5 Baumert, K. A. et al. 2005. Navigating the numbers: Greenhouse gas data and international climate policy. Washington, D.C.: World Resources Institute. 6 Eliasch, J. 2008. Climate Change: Financing Global Forests. Norwich, UK: The Stationery Office Limited. Dangerous levels of climate change is defined by warming greater than 2C by the end of the century in order to stabilize levels of atmospheric CO2e at 445490 parts per million (ppm). Ruben N. Lubowski, The role of REDD in stabilizing greenhouse gas concentrations: Lessons from economic models, CIFOR InfoBrief No.18, (Bogor, Indonesia: Center for International Forestry Research [CIFOR], November 2008), and IPCC 2007 Synthesis Report. 7 Eliasch 2008. 8 Forests and other terrestrial sinks annually absorb 2.6 GtC from the atmosphere; however, deforestation and other land-use activities annually emit 1.6 GtC into the atmosphere. As a result, net carbon absorption rates are only 1.0 GtC, 40% of what they could be in the absence of emissions from deforestation and land-use change. From: K.L. Denman et al. Couplings between changes in the climate system and biogeochemistry. In Climate Change 2007: The Physical Science Basis; Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, S. Solomon et al., eds. (Cambridge, UK and New York, NY, USA: Cambridge University Press, 2007). 9 Hirsch, A.I. et al. 2004. The net carbon ux due to deforestation and forest re-growth in the Brazilian Amazon: Analysis using a process-based model.
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Global Change Biology 10: 908924. M.K. Steininger. 2004. Net carbon uxes from forest clearance and regrowth in the Amazon. Ecological Applications 14: S313S322. 10 Eliasch 2008. M. Tavoni et al. 2007. Forestry and the Carbon Market Response to Stabilize Climate. Climate Change Modeling and Policy Working Paper. Milan, Italy: Fondazione Eni Enrico Mattei (FEEM). http://www.feem.it/NR/rdonlyres/28255EA2-AE2B-4B0B-BF15-BA00D6B5C9EC/2245/1507. pdf. R.N. Lubowski. 2008. What are the costs and potentials of REDD? In Moving Ahead with REDD: Issues, Options, and Implications, ed. A. Angelsen. Bogor, Indonesia: CIFOR. 11 Tavoni et al. 2007. Lubowski 2008. 12 Murray, B., R. Lubowski, and B. Sohngen. 2009. Including Reduced Emissions from International Forest Carbon in Climate Policy: Understanding the Economics. Nicholas Institute Policy Brief NI PB 09-02. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University. Different studies use different economic modeling approaches to estimate costs. In this and similar reports that discuss the potential for forest carbon, the economic models are driven largely by opportunity costs of forest carbon activities. Models can be characterized as top-down or bottom-up. This paper references top-down models, which are aggregated (e.g., national or regional level) and capture market feedback. In top-down models, carbon price is an input variable meaning that all activities face the same carbon price; the model output is the volume of carbon reductions at that carbon price (subject to other constraints). Bottom-up models employ local information on opportunity costs and emission factors to estimate costs per ton under different conditions. By design, bottom-up models assume the costs of reducing emissions will differ from place to place. Bottom-up studies often produce lower cost estimates than top-down studies. 13 Kindermann, G., et al. Global cost estimates of reducing carbon emissions through avoided deforestation, Proceedings of the National Academy of Sciences 105 no. 30 (2008): 1030210307. 14 Antinori, C. and J. Sathaye. 2007. Assessing Transaction Costs of Project-based Greenhouse Gas Emissions Trading. Formal Report LBNL57315. Berkeley, CA: Lawrence Berkeley National Lab. 15 Murray, Lubowski, and Sohngen 2009. 16 World Resources Institute (WRI), The World Conservation Union (IUCN), and United Nations Environmental Programme (UNEP). 1992. Global Biodiversity Strategy: Guidelines for action to Save, Study, and Use Earths Biotic Wealth Sustainably and Equitably. WRI, IUCN, UNEP: 244 pp. http:// archive.wri.org/publication_detail.cfm?pubid=2550. 17 IPCC. 2007. Climate Change 2007: Change Impacts, Adaptation, and Vulnerability; Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. The CNA Corporation. 2007. National Security and the Threat of Climate Change. Alexandria, Virginia: The CNA Corporation. 18 CNA 2007 (see note 17). 19 Ibid. 20 H.R. 2454, Clean Energy and Security Act of 2009 (ACESA, aka Waxman-Markey Discussion Draft) allows 1 billion tons of emissions reductions obligations to be met by international offsets of which international forest carbon is specifically mentioned; it also sets aside 5% of allowances for forest carbonrelated activities in the range of US$39 billion/year depending on C price. The EUs set-aside is 5% in the range of US$2.02.7 billion/year. 21 The governors from California, Wisconsin, and Illinois and six governors from Brazil and Indonesia signed a Memorandum of Understanding to reduce forestry-related greenhouse gas emission by collaborating to develop rules, incentives, and tools to ensure reduced emissions from deforestation and land degradation. 22 DeFries, R., et al. 2006. Reducing Greenhouse Gas Emissions from Deforestation in Developing Countries: Considerations for Monitoring and Measuring. Rome: Global Terrestrial Observing System (GOTS). D. Mollicone et al. 2007. An incentive mechanism for reducing emissions from conversion of intact and non-intact forests. Climate Change 83: 17. 23 WRI CAIT (World Resources Institute Climate Analysis Indicators Tool). 2008. Washington, D.C.: World Resources Institute.
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Chapter 2 Current Policy Proposals

William Boyd
Efforts to include emissions from deforestation and forest degradation in climate policy have gained considerable traction in recent years at multiple levels of governance. With mounting evidence that atmospheric CO2 concentrations cannot be stabilized at a prudent level without addressing emissions from the forest sector, policymakers are actively seeking ways to integrate international forest carbon into existing and emerging greenhouse gas compliance regimes. Since 2005, for example, there has been a concerted effort in the United Nations Framework Convention on Climate Change (UNFCCC) process to integrate Reduced Emissions from Deforestation and Forest Degradation (REDD) into a post-2012 climate treaty.1 In the United States, the inclusion of international forest carbon is also gaining traction in debates regarding the design of national and subnational compliance regimes. Indeed, leading legislative proposals for a federal cap-and-trade system introduced in the U.S. Congress over the last several years have included robust provisions for international forest carbon. Likewise, California and other States are actively exploring ways to include international forest carbon in their own greenhouse gas (GHG) compliance regimes. To be sure, there is still much work to be done to integrate international forest carbon into climate change policy. Key issues in need of resolution include the coverage of forest carbon activities (i.e., deforestation only versus the full range of forest carbon); the appropriate policy mechanism(s) for recognizing and crediting forest carbon (fund and/or market) and the sequencing of such approaches; quantitative and qualitative limits for forest carbon; methodologies for measuring, monitoring, and verifying avoided emissions; accounting frameworks; and participation by key stakeholders, such as forest-dependent local communities and indigenous peoples (see Chapters 4 and 5). Of course, there is no one right way of bringing international forest carbon into climate policy. Nor does the ability to do so depend upon a fully-formed international climate treaty for the post-2012 period. Indeed, irrespective of how forest carbon is included in a post-2012 climate treaty (as seems likely), it could also be incorporated directly into national and subnational compliance regimes, such as a U.S. federal or state (e.g., California) system, prior to the entry into force of a new international treaty (which may not have universal membership in any event). Thus, by creating robust provisions that recognize international forest carbon in U.S. compliance regimes (federal and state), the U.S. has an important opportunity to lead on this issue regardless of the outcome of the post-2012 negotiations.
How is international forest carbon treated in the international climate regime?

Background: Deforestation in the UNFCCC/Kyoto Protocol Although both the UNFCCC and the Kyoto Protocol recognize the importance of including forests as part of an international climate protection effort, the politics associated with forests during and after the negotiation of the Kyoto Protocol resulted in a complex and highly restrictive set of rules regarding how forests and land use would be treated. Known as the Marrakesh Accords (by virtue of their adoption at the Marrakesh COP in 2001), these rules provided for expansive treatment of land use and forestry in the Annex I Parties (under Article 3) while limiting Land Use, Land-Use Change, and Forestry (LULUCF) activities under the Clean Development Mechanism (CDM) (Article 12) to afforestation and reforestation. Importantly, the LULUCF rules under the CDM meant that avoided deforestation and other land-use projects would not be eligible for crediting under the Kyoto Protocol.2 Thus, on the one hand, Marrakesh established a fairly liberal regime for the treatment of forest carbon activities in the Annex I countries, reflecting the demands of Canada, Japan, Russia, and the U.S. (before it withdrew from the process)each of which stood to gain, relative to the EU member states, from a regime that included generous provisions for forest sinks. On the other hand, and partially
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as a response to concerns raised by the EU and some environmental NGOs at the time (notably WWF and Greenpeace), the Marrakesh Accords severely restricted forest carbon activities in developing countries and completely excluded activities aimed at reducing emissions from tropical deforestation. In effect, the Marrakesh Accords reflected a quid pro quoexpansive treatment of forests in Annex I countries in return for restricted treatment of forests in developing countries. This had the perverse effect of excluding one of the largest sources of global emissions (tropical deforestation) from the climate regime.3 During the discussions leading up to the Marrakesh Accords, the main technical objections to allowing avoided deforestation projects under the CDM included the potential for leakage and impermanence, the challenges of ensuring additionality, and the difficulties associated with measurement and monitoring (see Chapter 4). Of these, leakage was considered to be one of the more difficult problems to solve, given the challenges of ensuring that the CDMs project-based approach would not simply displace deforestation (and the associated emissions) from inside a project area to areas outside the project boundaries. Impermanence was also considered problematic as there appeared to be no easy way to guarantee that particular areas of protected forest would not be deforested in future years given the lack of basic forest governance and enforcement capabilities in many tropical forest countries. Finally, the challenge of measuring accurately the amount of CO2 emissions avoided from a particular project and demonstrating additionality relative to business-as-usual (BAU) was seen as fraught with difficulties. These concerns were further compounded by the fact that the emissions reduction commitments for the Annex I countries were negotiated and agreed to in 1997, four years before the treatment of forests was resolved at Marrakesh in 2001. Thus, opponents of an expansive approach to forest carbon argued that an influx of relatively cheap avoided deforestation credits of dubious environmental integrity would undermine the incentives for technological change in the energy sector that would come with higher carbon prices. Forest credits, in other words, were seen as a loophole for Annex I countries to avoid the already modest emissions reductions that they had agreed to at Kyoto. A short history of REDD and the post-2012 Negotiations For several years after the Marrakesh decision to prohibit forest protection from crediting under the CDM, the issue of tropical deforestation was largely ignored within the UNFCCC. In 2005, however, Papua New Guinea and Costa Rica put the issue back on the international climate policy agenda with a proposal to use carbon finance to pay countries that reduced their national rates of deforestation. Their proposal,4 which launched an advocacy campaign by a group of tropical forest countries known as the Coalition for Rainforest Nations (CfRN),5 introduced the concept of REDD (known at the time as Reducing Emissions from Deforestation in Developing countries6) and emphasized both the global significance of emissions from tropical deforestation and the serious gap left open by the lack of any recognition of this problem in the Kyoto Protocol. Most importantly, the proposal stated that Papua New Guinea and Costa Rica, along with other supporting countries, were prepared to stand accountable for [their] contributions to global climate stability, provided [that] international frameworks are appropriately modified, namely through fair and equitable access to carbon emissions markets.7 The proposal suggested two possible avenues for deliberations: 1) modifying the current Kyoto Protocol, or 2) devising a new optional protocol to include so-called REDD credits in the post-2012 period.8 Under either approach, countries that reduced their deforestation rates would be able to sell carbon credits equal to the amount of avoided emissions. To the surprise of many observers, the UNFCCC parties endorsed the main components of the proposal and launched a two-year process in the Subsidiary Body for Science and Technical Advice (SBSTA) to explore options for structuring REDD policy mechanisms in a post-2012 agreement. These meetings covered a range of topics, including measuring, monitoring, and verification; leakage; treatment of forest degradation; treatment of countries with largely intact native forest and low rates of deforestation; and the appropriate policy instrument(s) for channeling carbon finance to REDD activities.
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Based on the progress made during this two-year process, the UNFCCC parties decided to incorporate an expanded concept of REDD in the Bali Action Plan (also known as the Bali Roadmap), which established the framework for negotiating a new post-2012 climate change treaty.9 Since the Bali Action Plan, REDD has continued to gain traction in the UNFCCC process and in the broader international climate policy community, reflecting general support, both scientific and political, for including new incentives to reduce emissions from tropical deforestation in some form in a post-2012 treaty. Accordingly, at their December 2008 meeting in Poland, the UNFCCC parties put the technical discussions regarding REDD on an accelerated track and established a process to negotiate REDD as part of a new climate treaty.10 The recently released negotiating text for a new international climate change agreement confirms the overall trend by including a range of options for a REDD mechanism as part of any such agreement.11 How does the current effort differ from Kyoto? Several factors account for the growing recognition that REDD can and should be part of a post-2012 climate agreement. First, and most important, there is an increased sense of urgency regarding the problem. Simply put, it has become clear that any realistic effort to stabilize the composition of the atmosphere at a level that will avoid dangerous interference with the climate must address tropical deforestation. Second, proposed new accounting frameworks that would measure emissions from deforestation on the basis of national and subnational jurisdictions (as opposed to the pure project-based accounting under the CDM) combined with the treatment of the forest sector as a source of emissions rather than as a sink allows for better integration with the existing regulatory architecture of mitigation policy and its emphasis on baselines, caps, emissions, and credits for reductions. These proposed new accounting frameworks allay several key environmental integrity concerns that plagued efforts to include avoided deforestation under Kyoto. Under a national accounting framework, intra-country leakage is no longer an issue.12 Likewise, there is no need to prove additionality under such a framework, as any reduction would be measured relative to a national baseline or specific reference scenario. Third, rather than follow the failed Kyoto sequence, which sought to bring deforestation (and forest carbon in general) into the climate regime after commitments had been negotiated and agreed upon, efforts to include REDD in the post-2012 framework are proceeding as part and parcel of the overall effort to agree on reduction targets. Thus, the potential supply of REDD credits is being considered on the front end of the overall framework rather on the back end after reduction targets have been negotiated. This approach provides an opportunity to adjust reduction targets to accommodate the expected supply of forest credits in a manner that preserves the overall integrity of the system. Fourth, capabilities for measuring, monitoring, and verifying reduced emissions from deforestation and forest degradation have improved significantly since Kyoto was negotiated. Although there is still work to be done in refining methodologies to create compliance-grade forest carbon assets, technical advances and the refinement of carbon registries have provided confidence that REDD credits can be designed carefully and with improved environmental integrity. Fifth, it has become increasingly clear that REDD could be a crucial component of any overall political deal on a post-2012 agreement by breaking the Kyoto logjam and providing an avenue for developing countries to move toward meaningful emissions reductions commitments, perhaps as part of Nationally Appropriate Mitigation Actions (NAMAs). Brazils announcement at the UNFCCC meeting in Poznan that it would reduce national emissions from deforestation by 70% within ten years on the condition that leading emitters such as the United States and China agree to meaningful targets, exemplifies the critical importance of REDD in the politics of international climate policy.13
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Ongoing debates, unresolved issues Although much has changed since Kyoto, there are still a number of unresolved issues regarding whether and how REDD will be included in post-2012 climate policy. Debates are ongoing in the UNFCCC process, for example, regarding the appropriate policy mechanism(s) for including REDD in a future climate regime, and the ways in which different policy mechanisms could be deployed as part of a phased approach.14 Some countries, such as Brazil, are on record as supporting a fund-based approach,15 while others, notably the CfRN countries, support market-based approaches contingent upon deeper emissions cuts by the industrialized countries.16 Work is also ongoing regarding a number of methodological and accounting issues, including how to accommodate high-forest, low-deforestation countries in a REDD mechanism.17 Participation by forestdependent peoples and protections for the rights of indigenous peoples and local communities have also been raised as issues needing resolution.18 Likewise, weak institutional capacity and forest governance have been identified as possible roadblocks to any effective REDD regime.19 Finally, there are potential issues regarding the impacts of a possible REDD regime on other policies and practices affecting land use, including biofuels and food production.
How is international forest carbon treated in the EU ETS?

The European Union (EU) has long been skeptical of efforts to bring forests into climate policy. Indeed, even though Kyoto allows for afforestation and reforestation projects under the CDM, the EU expressly excluded any CDM credits for these activities from trading in its chief Kyoto compliance mechanismthe EU Emissions Trading Scheme (EU ETS).20 With REDD, however, the EU is taking a somewhat more flexible approach in recognition of the growing international prominence of the issue and mounting evidence that a prudent approach to climate stabilization cannot be achieved without dealing with deforestation. Thus, the European Commission released a policy statement in October 2008 urging the international community to reduce tropical deforestation by 50% by 2020, with support in the short term coming from a global forest carbon mechanism, to be financed with auction revenues from cap-and-trade systems such as the EU ETS. The statement also noted the longer-term possibility of transitioning to direct inclusion of REDD in the carbon markets.21 Similarly, the climate change package of legislation amending the EU ETS for the post-2012 period, which was adopted by the European Parliament in December 2008, commits the EU to work toward establishing an internationally recognized system for reducing deforestation (and promoting other international forest carbon activities such as afforestation and reforestation) within the context of a post-2012 climate agreement. The new legislation also identifies efforts to reduce emissions from deforestation as eligible for EU ETS auction revenues, and specifies that trading of credits for REDD and other international forest carbon activities in the EU ETS is contingent upon conclusion of an international treaty that includes such activities.22 In sum, the EU recognizes the importance of REDD and is willing to work toward improved financing for REDD activities, but will not embrace a full-blown market approach to REDD unless and until there is a post-2012 international climate agreement that expressly does so.
How is international forest carbon treated in emerging compliance regimes in the United States?
In contrast to the EUs general skepticism regarding forest carbon and its tentative approach to REDD, efforts to design GHG compliance regimes in the United States (at state, regional, and federal levels) appear far more open to creating robust provisions for international forest carbon. This reflects a deep U.S. historical interest in and leadership on international forest conservation issues, a pragmatic approach to the design of regulation, and perhaps most significantly, an emphasis on the importance of REDD and international forest carbon in dealing with climate change.
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International forest carbon and federal cap-and-trade proposals Since 2007, several leading legislative proposals for a federal cap-and-trade system have included provisions recognizing REDD and other international forest carbon activities. Most recently, the American Clean Energy and Security Act of 2009 (H.R. 2454), introduced by Congressmen Henry Waxman (D-California) and Edward Markey (D-Massachusetts) and passed by the full House Energy and Commerce Committee on May 19, 2009, contains extensive provisions for reduced emissions from deforestation.23 Specifically, the proposed legislation allocates 5% of annual U.S. emissions allowances from the start of the program through 2025 for REDD capacity building and improved forest governance in developing countries and to achieve supplemental emissions reductions from reduced deforestation of 720 million tons in 2020 (equivalent to 10% of U.S. emissions in 2005) and cumulative reductions of 6 billion tons by 2025.24 This supplemental reduction concept is novel and appears to be driven in part by a desire to gain credibility in the international negotiations on the theory that even if the U.S. cannot agree to the 2020 targets being advanced by the EU (20% below 1990 levels by 2020), it will use some of its allowances to purchase supplemental reductions in the forest sector that would move the U.S. somewhat closer to the EU targets. Of course, even if such provisions survive to enactment, it remains to be seen whether and how tropical countries would participate in such a program given the various requirements attending such participation. The proposed legislation also provides for international offset credits for reduced deforestation (as part of a substantial pool of international offsets) from three types of activities: (1) national-level activities in countries that have adopted national deforestation baselines that are based on annual historical rates of deforestation and that establish a trajectory resulting in zero net deforestation within 20 years; (2) state- or province-level activities in developing countries that are responsible for more than 1% of global GHG emissions; and (3) project- or program-level activities in countries responsible for less than 1% of global GHG emissions.25 The latter two categories of eligible activities are subject to a phase out after five years from the date that the U.S. compliance system begins, with the possibility for an additional eight-year extension for project- or program-level activities in least developed countries.26 Thus, although these provisions do allow for subnational REDD activities, the phase-outs and other substantive requirements illustrate the strong preference in the U.S. for national-level REDD activities. Finally, the proposed legislation also provides for a strategic reserve of allowances as part of a general cost-control mechanism that would be refilled with international offset credits from reduced deforestation.27 In contrast to previous U.S. legislative proposals, the Waxman-Markey Discussion Draft requires developing countries that wish to participate in either the set-aside or the offsets program be party to a bilateral or multilateral agreement with the United States governing the relevant activities.28 Other details regarding eligibility and quality criteria for international offset credits are delegated to future rulemakings.29 The proposed legislation, however, does mandate that the Administrator seek to ensure the establishment and enforcement by [participating countries] of legal regimes, standards, and safeguards that give due regard to the rights and interests of local communities and indigenous peoples, promotes consultation and participation by such stakeholders in reduced deforestation activities, and encourages profit sharing with such groups.30 Although there are a number of serious questions regarding how the EPA would carry out such responsibilities (and whether EPA is the appropriate entity for doing so), the fact that such provisions are included in the draft legislation reflects the growing importance of this issue and the increased ability of those representing these groups to leverage climate policy (at multiple levels) as a way of enhancing the overall accountability and transparency of the emerging REDD regime. At this point, it is impossible to determine whether the Waxman-Markey provisions will survive to enactment. Nonetheless, it is important to recognize the considerable progress that their bill represents regarding REDD and international forest carbon. In the previous Congress, the two climate bills introduced by Congressmen Waxman and Markey respectively contained no significant provisions on REDD or international forest carbon, reflecting a lack of attention to the issue and a general skepticism of forest carbon. There were, however, a number of other legislative proposals introduced in the previous Congress that did include significant provisions on
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REDD and international forest carbon. In the Senate, for example, Americas Climate Security Act of 2007 (S. 2191), introduced by Senators Lieberman and Warner, provided an explicit set-aside of emissions allowances for international forest carbon activities in developing countries.31 More importantly, the substitute amendment (S. 3036) offered by Senator Boxer, the Chairman of the Senate Environment and Public Works Committee, and debated on the Senate floor in June 2008, contained expansive provisions for international forest carbon, including a set-aside provision like that proposed in the Lieberman-Warner bill and a provision that provided a pool of offset allowances (up to an amount equal to 10% of the total amount of allowances allocated under the cap) for international forest carbon activities undertaken in countries that have adopted national accounting frameworks.32 The major differences between these legislative proposals and the current Waxman-Markey legislation include 1) the scope of eligible activities, with Waxman-Markey covering only reduced deforestation and the Boxer-Lieberman-Warner bill covering the full range of international forest carbon activities (REDD, afforestation, reforestation, and improved forest management); 2) the allowance for subnational activities (for a limited time) under Waxman-Markey; 3) the ex ante requirement of an agreement or arrangement with the national government before any REDD activities (at whatever level) can be eligible to generate international offsets; and 4) the size and mandated use of the allowance set-aside under Waxman-Markey for significant supplemental reductions. In many ways, the momentum behind REDD and international forest carbon in the United States reflects the emergence of a broad-based consensus among leading environmental NGOs and prominent U.S. companies that this should be included in U.S. climate policy. This emerging consensus is manifest most prominently in the work of a number of climate-related coalitions of NGOs and the business community, including the Forest Carbon Dialogue, Avoided Deforestation Partners, and the U.S. Climate Action Partnership (USCAP),33 which has endorsed the development of measures and incentives, through both U.S. legislation and within a multilateral framework, that aim to reduce emissions from deforestation and land-use change34 and the role of international forest carbon as important components of cost-control efforts in a federal cap-and-trade system.35 Of course, there are still a number of unresolved issues regarding how REDD and/or international forest carbon should fit within U.S. climate legislation. Specifically, questions remain regarding the proper scope of eligible activities (i.e., REDD only or the full suite of international forest carbon activities). There are also significant questions regarding the inclusion of subnational level activities and projects (in addition to national-level activities) in international forest offset provisions. At a more general level, there is ongoing debate regarding quantitative limits attending the use of offsets, with opponents of offsets raising concerns about market flooding and the potential dilution of incentives to make reductions in core domestic sectors such as electric power, and supporters pointing out that expansive provisions are needed to send a sufficiently strong signal to the market in order to promote investment in such activities. As in the international discussions, there are also lingering questions in the U.S. context regarding measurement, monitoring, and verification capabilities for REDD and/or international forest carbon as well as questions whether sufficiently rigorous quality criteria can be established to ensure the environmental integrity of any offset allowances from such activities and that local communities share in the benefits. Questions have also been raised about potential competition with domestic offset providers. Finally, objections have been raised that these sorts of provisions will operate as wealth transfers to developing countries (shipping U.S. dollars abroad), including countries with poor performance in forest governance and an overall lack of transparency. In sum, the effort to bring REDD and international forest carbon into U.S. climate legislation is an ongoing process, but one that appears to be proceeding on a track that is independent of (though largely consistent with) the international negotiations. Although there are still a number of unresolved issues on the implementation side, there is growing recognition within the U.S. climate policy community that the U.S. has an important opportunity to lead on this issue by creating provisions in its own GHG compliance regime that will recognize and support REDD and international forest carbon activities in a manner that ensures environmental integrity and facilitates similar efforts in other fora.
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International forest carbon and emerging GHG compliance regimes at state and regional levels In addition to ongoing progress in the federal legislative arena, international forest carbon is also gaining traction among efforts to construct subnational GHG compliance regimes in the United States. California, for example, is actively exploring provisions that will recognize efforts to reduce emissions from deforestation and enhance sequestration through other forest carbon activities in developing countries. The recently approved Air Resources Board (ARB) Scoping Plan which provides the framework for implementing Californias climate change legislation36 recognizes the importance of establishing mechanisms that will facilitate global partnerships and sustainable financing mechanisms to support eligible forest carbon activities in the developing world and specifically identifies the possibility of accepting offsets from those jurisdictions that demonstrate performance . . . in reducing emissions or enhancing sequestration through eligible forest carbon activities in accordance with appropriate national or subnational accounting frameworks.37 In an effort to further this goal, California, along with Wisconsin and Illinois, recently signed Memoranda of Understanding (MOUs) with four Brazilian states (Amap, Amazonas, Mato Grosso, and Par) and two Indonesian provinces (Aceh and Papua) at the Governors Climate Change Summit on November 18, 2008.38 Although the MOUs provide a foundation for future cooperation on a number of climate policy, financing, technology exchange and research issues, the parties expressly recognize the importance of the forest sector,39 and have committed to developing rules to ensure that forest-sector emissions reductions and sequestrations, from activities undertaken at the subnational level, will be real, measurable, verifiable and permanent, and capable of being recognized in compliance mechanisms.40 The MOU states are currently engaged in an effort to develop these rules and build a regulatory architecture that allows interoperability between their systems. This represents the first effort (at any level of governance) to move into what might be called the proof of concept stage in the ongoing effort to bring international forest carbon activities into existing and emerging GHG compliance regimes. As such, the effort carries global significance as a signal to other governmental entities and to the broader climate policy community that this is achievable and that there will be a meaningful process of transnational cooperation among the MOU states to develop workable frameworks and mechanisms for generating compliance-grade assets from international forest carbon activities in Brazil and Indonesia and bringing such assets into existing and emerging compliance regimes in the United States. This is particularly relevant to the ongoing discussions in Congress regarding international forest carbon provisions in a federal cap-and-trade system because much of the regulatory cooperation that is being done through the MOU process could provide significant content and important lessons for future federal efforts to develop the necessary rules and regulations for bringing international forest carbon into a federal GHG compliance market. It also illustrates the diverse, pluralistic nature of global climate policy, and the very important role of subnational entities as early drivers.
Conclusion
There are a variety of policy options and legal frameworks for bringing international forest carbon into GHG compliance marketsfrom full-scale incorporation in a post-2012 international regime to partial recognition in emerging regional, national, or subnational regimes. Although considerable progress has been made over the last several years in resolving some of the challenges and moving toward the design of viable policy mechanisms, there is much work to be done. Further policy development in both the international and domestic (U.S.) contexts will require firm and effective leadership and coordination across multiple jurisdictions to ensure that environmentally robust forest carbon becomes a part of climate governance.
References
cop_13/application/pdf/cp_bali_action.pdf.
1 The so-called Bali Action Plan, which was put forth by the UNFCCC Parties at COP 13 in Bali Indonesia in 2007 as a road map for the post-2012 negotiations, expressly directs that REDD be included in the negotiations. See Bali Action Plan, Decision _-/CP.13. http://unfccc.int/files/meetings/ 2 The UNFCCC provides, inter alia, that policies and measures to address climate change should be comprehensive and cover all relevant sources, sinks, and reservoirs of greenhouse gases. UNFCCC Article 3(3). The Convention further directs the Parties to promote sustainable development, and promote
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and cooperate in the conservation and enhancement . . . of sinks and reservoirs of all greenhouse gases not controlled by the Montreal Protocol, including biomass, forests, . . . as well as other terrestrial . . . ecosystems. UNFCCC Article 4(d)(1). Building on this, the Kyoto Protocol contains several open-ended provisions intended to accommodate forests and land usealso known as Land Use, Land-Use Change, and Forestry (LULUCF). Article 3(3), for example, provides that removals by sinks resulting from human-induced land-use change and forestry activities, limited to afforestation, reforestation, and deforestation since 1990, measured as verifiable changes in carbon stocks in each commitment period, shall be used to meet the commitments for the Annex I Parties. Kyoto Protocol 3(3).Decision 11/CP.7, Annex, Definitions, Modalities, and Guidelines Relating to Land Use, Land-Use Change, and Forestry Activities under the Kyoto Protocol, FCCC/CP/2001/13/Add.1 (2002). 23, 13 and Annex 14. The Marrakesh Accords also imposed substantial quantitative restrictions on eligible forestry credits, limiting the use of such credits to 1% of any Annex I Partys overall commitments, and called for the development of definitions and modalities for including afforestation and reforestation project activities under the CDM in the first commitment period, taking account of issues such as impermanence, additionality, and leakage. The Marrakesh Accords also expressly required that the treatment of LULUCF activities in future commitment periods would be decided as part of the negotiations on the second commitment period. Ibid. at 15. 3 Eric C. Bettelheim and Gilonne dOrigny. 2004. Carbon sinks and emissions trading under the Kyoto Protocol. In Capturing Carbon and Conserving Biodiversity: The Market Approach, ed. Ian R. Swingland. 285 (emphasizing the inconsistency between the rules excluding avoided deforestation and restricting afforestation and reforestation in developing countries and those that allow Annex I countries to account for all forest activities in their own national accounting). 4 Reducing Emissions from Deforestation in Developing Countries: Approaches to Simulate Action, FCCC/CP/2005/MISC.1. (2005), available at http:// unfccc.int/resource/docs/2005/cop11/eng/misc01.pdf. The substance of the proposal drew directly on a proposal first articulated at COP 9 in 2003 by a group of Brazilian and American researchers. See Marcio Santilli et al, Tropical Deforestation and the Kyoto Protocol: A New Proposal (2003) at 3 (proposing approach known as compensated reduction in which developing countries would be compensated for reducing their national rate of deforestation during the first Kyoto commitment period relative to a national historical baseline rate). 5 The original group of countries that supported the proposal by Papua New Guinea and Costa Rica included Bolivia, Central African Republic, Chile, Congo, Democratic Republic of Congo, Dominican Republic, and Nicaragua. Since 2005, countries participating within the various activities of the Coalition for Rainforest Nations include: Bangladesh, Belize, Central African Republic, Cameroon, Congo, Colombia, Costa Rica, DR Congo, Dominican Republic, Ecuador, Equatorial Guinea, El Salvador, Fiji, Gabon, Ghana, Guatemala, Guyana, Honduras, Indonesia, Kenya, Lesotho, Liberia, Madagascar, Malaysia, Nicaragua, Nigeria, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Samoa, Sierra Leone, Solomon Islands, Suriname, Thailand, Uruguay, Uganda, Vanuatu and Viet Nam. See http://www.rainforestcoalition.org/eng/. 6 Originally REDD did not include forest degradation, but later documents and decisions included this concept. 7 Reducing Emissions from Deforestation in Developing Countries: Approaches to Simulate Action, FCCC/CP/2005/MISC.1. (2005). Can we include the list of countries that were part of this proposal 8 Reducing Emissions from Deforestation in Developing Countries: Approaches to Simulate Action, FCCC/CP/2005/MISC.1. (2005), available at http:// unfccc.int/resource/docs/2005/cop11/eng/misc01.pdf. 9 Bali Action Plan, Decision __/CP.13. The Bali meeting also took a separate, more detailed REDD decision, encouraging further work on policy approaches and methodological issues as well as the initiation of pilot projects in key countries. See Reducing Emissions from Deforestation in Developing Countries: Approaches to Stimulate Action, Decision -/CP.13. 10 Since Poznan, the debate about the appropriate legal structure for a REDD mechanism has intensified, with increased attention to the question of how Nationally Appropriate Mitigation Activities (NAMAs) and REDD might work together. The topic of NAMAs has emerged as a key focus of efforts to facilitate developing country involvement, beyond project-based CDM, in a post-2012 agreement. There are many operational questions unanswered about how NAMAs would work, but there is a general recognition that some new registration system would be required whereby countries that develop national plans to mitigate greenhouse gases could recruit contributions from developed countries to assist in implementation and register the reductions from such activities. An important and unresolved question regarding NAMAs is whether the registration, funding and verification of such reduction activities done under a NAMA mechanism would generate fungible carbon credits. See http://unfccc.int/resource/docs/2009/awglca5/eng/04p01.pdf. Part 1, paragraphs 26 and 28. 11 Negotiating Text, Ad Hoc Working Group on Long-term Cooperative Action Under the Convention, FCCC/AWGLCA/2009/9 (19 May 2009), paragraphs 106128. 12 Although international leakage is an issue, this is no different than for other sectors. 13 Joshua Partlow. 2008. Brazils deforestation decision draws praise. Washington Post, December 6. 14 For an overview of different options for including REDD in a post-2012 climate agreement, with specific endorsement of a phased approach that utilizes different instruments depending on national circumstances, see A. Angelsen, S. Brown, C. Loisel, L. Peskett, C. Streck, and D. Zarin. 2009. Reducing Emissions from Deforestation and Forest Degradation (REDD): An Options Assessment Report. http://www.REDD-OAR.org. 15 The Brazilian government has advocated a fund-based approach that would operate outside of the GHG compliance markets and would channel money to national governments based on demonstrated reductions in emissions from deforestation on a national scale. See Brazilian Perspective on Reducing Emissions from Deforestation, Paper No. 4, Views on Issues Related to Further Steps under the Convention to Reducing Emissions from Deforestation in Developing Countries, FCC/SBSTA/2007/MISC.2. 16 The Coalition for Rainforest Nations has endorsed full-scale integration with the carbon markets, as part of a larger basket of approaches, that would allow demonstrated national-level reductions in deforestation to qualify for emissions reductions credits (or offsets) that could be traded in one or more compliance regimes. See Joint Submission of Bolivia, Central African Republic, Costa Rica, Democratic Republic of Congo, Dominican Republic, Fiji, Ghana, Guatemala, Honduras, Kenya, Madagascar, Nicaragua, Panama, Papua New Guinea, Samoa, Solomon Islands, and Vanuatu, Paper No. 3, Views on Issues Related to Further Steps under the Convention to Reducing Emissions from Deforestation in Developing Countries, FCC/SBSTA/2007/MISC.2; Joint Submission of Belize, Bolivia, Cameroon, Central African Republic, Congo, Costa Rica, Democratic Republic of Congo, Dominican Republic, Equatorial Guinea, Gabon, Ghana, Guatemala, Guyana, Honduras, Kenya, Lesotho, Liberia, Madagascar, Panama, Papua New Guinea, Singapore, Solomon Islands, Thailand, Uganda, and Vanuatu, Submission of Views: Reducing Emissions from Deforestation in Developing Countries: Approaches to Stimulate Action, FCCC/SBSTA/2008/MISC.4. 17 See, e.g., Information on Experiences and Views on Needs for Technical and Institutional Capacity-Building and Cooperation: Submissions from Parties, Reducing Emissions from Deforestation in Developing Countries: Approaches to Stimulate Action, FCCC/SBSTA/2009/MISC.2. 18 This issue was taken up by SBSTA at its 30th session in 2009. See Issues Relating to Indigenous Peoples and Local Communities for the Development and Application of Methodologies: Submissions from Parties, Reducing Emissions from Deforestation in Developing Countries: Approaches to Stimulate Action, FCCC/SBSTA/2009/MISC.1. For critical reviews of the issue, see Tom Griffiths, Seeing REDD: Forests, Climate Change, and the Rights of Indigenous Peoples and Local Communities, Forest Peoples Program (2008). 19 Saunders et al. 2008. Forest Governance and Reduced Emissions from Deforestation and Degradation. Chatham House. 20 Directive 2004/101/EC of the European Parliament and of the Council of 27 October 2004 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocols project mechanisms (2004) (The Linking Directive)
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http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:338:0018:0023:EN:PDF. 21 European Commission. 2008. Addressing the Challenges of Deforestation and Forest Degradation to Tackle Climate Change and Biodiversity Loss, COM 645/3. The Commission proposed to dedicate up to 5% of the auction revenues from the EU ETS as a source of financing for the Global Forest Carbon Mechanism. 22 European Parliament. 2008. Resolution and amendments to Commission Proposal to improve and extend the greenhouse gas emission allowance trading system of the Community (Dec. 17). http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P6-TA-20080610+0+DOC+XML+V0//EN&language=EN. 23 American Clean Energy & Security Act of 2009 (ACESA) (H.R. 2454). 24 Ibid. The side-aside percentage declines to 3% for the years 2026 through 2030 and 2% for the years 2031 through 2050. The discussion draft provides further that if the Administrator of EPA is unable to achieve the required supplemental reductions, it must take additional allowances from the cap in order to do so. 25 Ibid. The total amount of offsets (international and domestic) available under the program is determined by a formula: 2 billion divided by the sum of 2 billion plus the cap for any particular year to get the portion of offsets that a regulated entity can use to satisfy its compliance obligations (half of which can come from domestic offsets and half of which can come from international offsets). Thus, in the initial years when the cap is approximately 5 billion tons, each regulated entity can satisfy roughly 28% (2/7) of its compliance obligations with offsets, half of which can come from international offsets. 26 Ibid (Part D, Section 743e). 27 Ibid. The strategic reserve provides for quarterly auctions of allowances at a minimum strategic reserve price. Revenues from these auctions can then be used to purchase international offset credits from reduced deforestation, which are then retired in lieu of new strategic reserve allowances after taking a 20% discount. 28 Ibid. 29 Ibid. 30 Ibid. 31 See Americas Climate Security Act of 2007 (S. 2191) Title III, Subtitle H International Forest Protection, 38013806. As amended in subcommittee, the provision sets aside 2.5% of the total allowances available under the cap for eligible international forest protection activities. 32 The total amount of the set-aside was reduced from 2.5% of allowances to 1%. S. 3036. Although no amendments were debated during the Senate floor discussion of the bill, several important amendments were filed that contained extensive provisions for international forest carbon, including most prominently a cost-control amendment sponsored by Senator Stabenow (D-Michigan) that had a bipartisan group of co-sponsors and significant support from a number of regulated entities and prominent trade associations representing the U.S. agricultural community. 33 U.S. Climate Action Partnership (USCAP). 2009. A Blueprint for Legislative Action. http://www.us-cap.org/pdf/USCAP_Blueprint.pdf. The Blueprint presents recommendations for federal climate legislation from thirty major corporations and environmental NGOs. 34 USCAP Blueprint at 5. 35 Ibid. at 910. 36 The California Global Warming Solutions Act of 2006 (AB 32). 37 California Air Resources Board (CARB). 2008. Climate Change Proposed Scoping Plan: A Framework for Change. (October 2008; approved December 2008), 38 and 115. http://www.arb.ca.gov/cc/scopingplan/document/psp.pdf. Memorandum of Understanding (MOU) Article 2(b). http://gov.ca.gov/ press-release/11101. 38 http://site.governorsglobalclimatesummit.org/News.html. 39 As contemplated in Article 2(a) of the MOUs, the parties intend to cooperate on a range of forest sector activities, including reducing greenhouse gas emissions from deforestation and land degradationotherwise known as REDDand sequestration of additional carbon through the restoration and reforestation of degraded lands and forests, and through improved forest management practices. 40 MOU Article 2(b).
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Chapter 3 Responding to Concerns and Questions

Lydia Olander, William Boyd, Kathleen Lawlor, John O. Niles, and Erin Myers Madeira
This chapter is an attempt to individually address common criticisms and outstanding questions regarding the inclusion of forest carbon in climate policy.
1. Flooding the market

The Concern: Forest carbon could flood the carbon market, dampening the price signal to develop and deploy clean energy technologies in other sectors. The Response: This concern is consistent with the use of markets which are intended to increase flexibility for compliance thus reducing overall costs of compliance. However, inclusion of forest carbon need not cause flooding or diversion of effort from other sectors. Instead it can be used to achieve a higher level of climate protection (increasing demand) for the same cost as a policy without forest carbon (by using the supply of lowcost forest carbon). Models show that we can move from climate stabilization at 550 parts per million (ppm) carbon dioxide equivalent (CO2e) to stabilization at a lower target of 520 ppm CO2e without increasing costs if forest carbon is included (see companion report by Murray et al.).1 Flooding occurs if the supply of inexpensive forest carbon credits is too high relative to the total demand for credits, and is dependent upon several factors: How many emissions from avoided deforestation can actually be achieved and credited (the supply) depends on the total costs of achieving the reductions (opportunity, transaction, and institutional costs) and which countries participate and under what crediting conditions. Current policy discussions indicate requirements for national-level accounting of forest carbon to help address concerns over additionality and national-level leakage. This will require new national capacity to measure, monitor, and manage forest carbon. It will take some time for many countries to develop national programs and begin producing large supplies of forest carbon credits. Given that Brazil and Indonesia dominate forest emissions, their ability and desire to produce credits will be critical to determining early supply. Many expect a stepwise growth in supply as forest carbon moves from early phases as a project-based approach to a national approach that can implement and credit impacts of new national policies.2 There are institutional and cultural barriers that are likely to slow the development of forest carbon supply in many tropical forest countries. How how many credits will be needed by capped countries (the demand) depends on how tight the caps are in these countries, how many countries allow forest credits as part of their compliance strategy, and the costs of other mitigation alternatives. Under stricter targets, there will be greater demand for forest carbon credits and for more reductions from other sectors. The U.S. is currently negotiating its national targets, the EU is slowly increasing its targets, and the new United Nations Framework Convention on Climate Change (UNFCCC) agreements are likely to push new more stringent targets for all signatories, but the details are still up in the air. The ability of countries to meet strict targets called for by the science have been somewhat softened by the economic downturn. It is also unclear what countries are willing to trade forest carbon in a market. The U.S. is considering doing so while other countries are waiting on the outcome of UNFCCC negotiations. Demand is likely to increase over time as countries join the market and country targets increase in stringency. Rules that discount forest credits and other international offsets would lower the price of credits received by the sellers. Policy under consideration in the U.S. would discount the use of international offsets including forest carbon 20% after 5 years, which means buyers are willing to pay less for each credit generated.3
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Rules that restrict the use of forest credits and other mitigation options would reduce demand, potentially reducing the price of credits if there is abundant supply (if the restriction is binding). Policy under consideration in the U.S. would limit the use of international and domestic offsets including forest carbon in the compliance market.4 The availability of an option for banking excess emission reductions to use for future obligations can raise current demand for credits lowering the potential for flooding driven by price reductions. Banking is part of current U.S. policy discussions and is likely to remain.
2. Sending U.S. dollars abroad

The Concern: International forest carbon provisions in U.S. legislation will result in wealth transfers to foreign governments with little or poor track records in spending money wisely. The Response: The United States and the UNFCCC are both considering a system that provides payment after performance is demonstrated and is based on appropriate quality criteria and standards. This will significantly reduce the risk of sending money to governments with little or no guarantee of success. International forest carbon policy is designed for developed countries such as the U.S. to pay for reduced emissions or increased sequestration in developing countries, thus a transfer of funds is the intent. However, such a system can also generate low-cost mitigation opportunities for U.S. entities, thereby reducing the overall cost of compliance in the U.S., which ultimately benefits U.S. consumers. The recent EPA analysis of the Waxman cap-and-trade policy found that eliminating the use of international offsets (of which forests are a significant part) would nearly double the price of allowances and energy price impacts.5
3. Increased food prices

The Concern: If programs to reduce deforestation take land out of food production or increase the price of expanding production into new lands, food prices will rise, burdening the poor in both developing and developed countries.6 The Response: The objective of international forest carbon programs is to reduce deforestation by reducing the pressure to clear forests for activities such as agriculture. If successful, forest carbon policies and programs could reduce agricultural expansion, lowering food production and supply which could result in higher prices. But these policies could also lead to greater efficiency in agriculture production, which might lower prices. Intensification of agriculture in developed countries over the last few decades has allowed higher productivity on less land area.7 While non-CO2 GHGs can increase under intensive production,8 this rarely exceeds the carbon emissions from the clearing of land. It is possible for rural farmers to both produce food and reduce carbon emissions/increase carbon sequestration. For example, sustainable agroforestry practices (where agricultural systems are incorporated into existing forests or enhanced by planting native trees) store significant amounts of carbon.9 Both consumers and producers of food could feel the impacts of higher food prices. Imported foods account for much of the food consumed in the U.S. and other developed countries and may account for a substantial proportion of healthy produce consumed by urban communities globally. U.S. legislative climate proposals have addressed these likely increases in energy and food prices by providing financial assistance to low-income households.10 Agricultural producers in both developed and developing countries could see higher profits, although smallscale producers in developing countries may have difficulty moving to more intensive agricultural techniques without assistance. It can be expensive to set up, requiring new infrastructure and inputs like fertilizer that are not easily accessible.11 Thus complementary policies may be helpful. If the U.S. allows domestic offsets from the agriculture and forestry sectors, it may also increase land and food prices.12 Thus policies to address the costs of food are important in both developed and developing countries.
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4. Reduced deforestation and biofuels policies are at cross purposes

The Concern: Reduced deforestation efforts and policies promoting biofuels may function at cross purposes. Biofuelsthose produced from oil palm, soybeans, sugar cane, corn, and other cropshave been proposed as a low-carbon alternative to conventional fossil fuels. While some promote biofuels as a clean-energy alternative and a source of revenue for tropical countries, others argue that they do more harm than good because carbon-rich tropical forests are cleared in order to produce biofuel crops. The Response: Biofuels do have potential as an alternative to fossil fuels, but they also require significant amounts of land for crop production. Between 1980 and 2000, more than half of the land that was cleared for biofuel crops came from intact tropical forest.13 In Indonesia, global demand for biofuels is contributing to the explosion of oil palm plantations on peat and forest lands; in Brazil, biofuel demand is leading to increased soy production in savannas and forests.14 There is some evidence that U.S. corn subsidies are leading to increased soy production and forest clearing in the Amazon.15 Given global subsidies for biofuels around $15 billion per year and evidence that biofuel demand is inducing tropical deforestation, such subsidies could be at cross purposes with new international forest carbon programs designed to generate billions of dollars per year to reduce deforestation.16 The extent to which biofuels offer a clean alternative to fossil fuels depends on where they are grown and how much carbon was stored in the landscape before it was converted to biofuel crops. In the tropics, forests are the most carbon-rich land use. As a result, clearing forests to cultivate biofuel crops leads to net carbon emissions, worsening the climate crisis.17 Even when you account for the carbon that the biofuel crop absorbs from the atmosphere, it will take decades to centuries to re-absorb all of the carbon that was released by the initial pulse of emissions into the atmosphere caused by the forest conversion. A recent study found that if peat forests in Southeast Asia are converted to oil palm plantations, it will take more than 900 years for the plantation forest to reabsorb the carbon released when the peat forest was cleared.18 Biofuels need not result in net carbon emissions, however. First-generation biofuels are produced from such food crops as soy, corn, and oil palm that have fertility requirements, which lead to their establishment on recently-cleared forest lands. Second-generation biofuels, such as switchgrass, can be grown on marginal lands and thus may not create as many incentives for forest clearing as first-generation biofuels.19 When biofuel crops are grown on already degraded land, they can almost immediately begin to increase the carbon stored in the landscape. International forest carbon policies can create incentives to establish biofuel crops on degraded lands instead of forests, and thus can help ensure that biofuel is produced in a manner that benefits the climate. While marginal lands are estimated to cover an area greater than the size of India, more than half of which is in the tropics, the expectation that marginal lands can meet our biofuel needs may need to be tempered by an understanding of the multiple roles these lands are expected to play (sequestration, pasture) and their ecological limits (often lower productivity sites).20
5. Rewarding bad actors

The Concern: International forest carbon policies reward countries that are losing forests, not those that have been good stewards. Policies that focus exclusively on reducing deforestation rates do little to help developing countries with low rates of deforestation that would also likely be subject to increasing pressures from logging and agriculture as these sectors are turned away from other countries. The Response: This is generally considered a fair critique. At their core, the UNFCCC, the Kyoto Protocol, and the cap-and-trade policies proposed for the U.S. are based on changing behavior to reduce emissions and increase sequestration. This inherently means incentivizing changes in heavy-emitting countries or economic sectors. In practice this means rewarding countries or sectors that successfully reduce emissions. For many tropical forest countries (Brazil, Indonesia, and others), most of their emissions come from deforestation. Focusing on changing behavior (from heavy-emitting to lower-emitting) is an essential element of a market-
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based approach. Several countries are proposing compensation for simply maintaining forest cover. These proposals would essentially provide financial help to countries that maintain low (or no) rates of deforestation. Diplomatically, these concepts have some traction, but not as much as focusing on emission reductions. One way to combine incentives for both high-deforesting and low-deforesting countries is to look beyond historic rates of deforestation at projected deforestation rates. Such an approach introduces potentially more subjectivity into baselines but would provide some incentives for high-forest-cover countries to remain that way (see Chapter 4).
6. Penalizing countries for factors beyond their control

The Concern: REDD could unfairly penalize countries that experience degradation or deforestation due to factors beyond their control (e.g., increased pest outbreaks and fire incidence due to climate change or other factors). The Response: This concern ultimately is one of permanence and liability in the event that forest carbon is conserved using carbon finance and later emitted. For instance, say a country voluntarily agrees to reduce its deforestation and associated emissions to receive forest carbon financing. What happens if in the future, factors cause those forests to die off or degrade? Future stresses on forests in developed and developing countries include many uncertainties (e.g., fire, climate change-induced diebacks, pest outbreaks). Would the developing country be responsible for replacing the potentially costly forest carbon credit? Policymakers have a variety of market-tested financial tools for addressing permanence and liability for forest carbon. These tools, many which are in use in the voluntary carbon sector, include insurance, pooling credits, and buffering systems (see Chapter 4). These policy options usually add some upfront costs (or lower income from credits) but provide ways to effectively deal with liability and permanence in the event of future deforestation. It is worth noting that preventing deforestation, like preventing fossil fuel emissions, immediately helps to lower future climate-change-induced stresses on forests.
7. Restricts economic development inequitably

The Concern: International forest carbon policies ask developing countries to constrict their development in order to offset the consequences of developed countries emissions. International forest carbon policies and programs may be at odds with economic development (agriculture and timber production or major infrastructure) and constrain the sovereignty of tropical forest nations to make domestic land-use decisions. Developing countries want to maintain flexibility in land-use strategies and priorities to take advantage of changing markets just as developed countries did in the past.21 The Response: This concern is addressed in both the international agreements and U.S. policy proposals. The framework for the roles of developed and developing countries traces back to the 1992 Earth Summit and the concept of common but differentiated responsibility. In practice, this has meant wealthy countries were supposed to take the lead in emission reductions while offering incentives to developing countries to also reduce emissions. Developing countries thus are not committing to a restricted development in any way; they will only participate and agree to stem deforestation voluntarily. Developing countries will choose for themselves whether the incentives from developed countries through a forest carbon mechanism outweigh the costs of reigning in deforestation. It is important to recognize that almost every price signal in developing countries is in favor of cutting trees and doing something else with land. Thus, efforts to value the forest carbon in developing countries are in fact another development alternative. Developing counties already weigh various and often competing price signals, for example, by making long-term land-use commitments for timber concessions and oil palm permitscommitments that often have decades-long ramifications.
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8. Restricts community access to forests

The Concern: International forest carbon activities could negatively impact indigenous and other forest-dependent people by restricting their access to forests and associated benefits. Forest communities often lack clear rights to the forests in which they live and upon which they depend. If forest carbon policies result in significant value for governments or private developers to control forest management, forest-dependent people could suffer. Government or private entities could claim the forest and carbon rights and receive all of the benefits. New laws or projects put in place to conserve forests could limit local community use of forests. Rules could stop small-scale agriculture, the gathering of fuelwood or nontimber forest products, and perhaps even force resettlement of some communities. Exploitative carbon contracts that lead forest communities and people to unknowingly accept terms that sign away land-use rights, assume liability, or undervalue opportunity costs has also been cited as a risk.22 The Response: An estimated 1.6 billion people depend on forests for various aspects of their livelihoods. Three hundred fifty million of these people, including 60 million indigenous peoples, live in or adjacent to forests and are almost wholly dependent on forests for their subsistence and income needs, collecting food, medicine, and fuelwood from the forest.23 The risks to these communities are real due to the insecurity of property rights in many settings: even though millions of people live in tropical forests, the majority of forest area in most tropical countries is technically owned by the state, with communities typically possessing only customary land rights not codified in law (see Chapter 5). The lack of legal rights to forest resources, access to fair and transparent judicial systems, and sufficient information to make informed decisions makes many of these communities vulnerable. In addition, loss of forest access can amplify the negative impacts of climate change, as the forestdependent poor tend to increase their reliance on forest products during economic shocks, such as failed harvests or family illness (see concern #10 below). Yet there is also great opportunity: if reduced deforestation mechanisms generate substantial revenue, these funds could be directed towards building schools, health centers, and new water systems in rural areas. This revenue could also flow directly to those living in forests if national policies permit forest people to be carbon sellers or if governments institute programs that transfer benefits to forest communities. For this to occur, clarification of property rights (to the land and/or forest carbon) will likely be critical. Already, there are concerns about how countries are clarifying rights to forests and forest carbon. A proposed reduced deforestation regulation in Indonesia appears to be at odds with indigenous peoples rights to own, control, and consent to activities on their traditional lands.24 Statements by the government of Papua New Guinea indicating that only the state will have the right to own forest carbon and enter into carbon market contracts have worried landowners.25 Indigenous peoples and other communities own almost all of the land in Papua New Guinea.26
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Human rights dimensions of international forest carbon activities30 A body of instruments (declarations, principles, conventions, covenants, and operational protocols) forms the basis of international human rights law and norms. Two instruments establish the special rights of indigenous peoples regarding activity on their customary lands: the 1989 International Labor Organizations (ILO) Indigenous and Tribal Peoples Convention No. 169 and the 2007 UN Declaration on the Rights of Indigenous Peoples (UN DRIP).31 UN DRIP outlines the human rights of indigenous peoples to include the right to free, prior, and informed consent (FPIC) for activity on or resettlement from their lands. The question of whether companies and governments must obtain FPIC from indigenous and other affected communities often comes up during mining, hydrocarbon, dam, and logging projects.32 It also arises when new protected areas are created. The UN DRIP also obliges parties to the Declaration to legally recognize indigenous peoples customary lands. Concerns that governments could seek to reduce deforestation by locking up forest areas for conservation or not share forest carbon revenues with communities now make FPIC and human rights relevant to international climate change policy. Covenants or treaties, such as ILO Convention 169, are legally binding for those states that ratify them; this is not the case, however, for UN declarations, such as the UN DRIP. In recent years, some indigenous peoples who have felt that States did not respect their land rights or obtain their FPIC for activity on their lands have taken their cases to external bodies, such as the Inter-American Court on Human Rights, which has ruled extensively on this issue.33 The ambiguity of property rights in many tropical countries (see Chapter 5) makes for a complicated situation: while some indigenous communities possess legal title to their customary lands, many do not; the absence of such legal title can hinder communities ability to assert their right to FPIC.34 While special protections for indigenous peoples are important, it should be noted that new forest carbon programs also present risks to many other forest communities who are not technically indigenous. Therefore, references to just the human rights of indigenous peoples may not adequately guard against the full range of risks. Other human rights instruments may also be relevant. For example, the UN Declaration on the Right to Development speaks to the rights of people to participate in the development decisions that affect their lives.35 It could be argued that this points to the need for people to participate in land-use zoning, property rights clarifications, and decisions regarding the management of forest carbon revenues. Some also highlight the relevance of Article 1 of the International Convention on Economic, Social, and Cultural Rights, which specifies that people not be denied means of subsistence. This could be interpreted to mean that forest communities not be denied access to food, medicine, and fuelwood in forests.36
If countries do not address the rights of forest communities, they face risks that these communities will undermine efforts to reduce deforestation. Communities who feel unfairly treated can work to reduce national support for forest carbon programs and policies and present a reputational risk for entities paying for forest credits. In the voluntary market the majority of forest carbon projects have pursued certification under the Climate, Community, and Biodiversity Alliance standard, which requires demonstration of positive impacts on local communities and biodiversity.27 Many investors believe forest carbon projects with positive impacts on local communities will be more efficient and effective in delivering climate benefits over the long term, given communities proximity to the resource and their interest and ability for long-term monitoring and sustainable management.28 International forest carbon programs outlined in previous versions of U.S. legislation have included varied provisions to avoid negative impacts on local communitiesreference to human rights, requesting consultation and profit-sharing, and requiring the free, prior, and informed consent (FPIC) of affected communities. In addition policies could include criteria for transparency, participation in decision making, and dispute resolution mechanisms.29
9. The governance challenge

The Concern: Weak institutional and governance capacities in tropical forest countries have been identified as obstacles to efforts to bring international forest carbon into climate policy and to use carbon finance to promote forest protection in developing countries.37 Because tropical forest governments will play a critical role in implementing any successful system, concerns have been raised about the poor track records of some of these governments with regards to reforming existing practices and developing the institutional capacity to ensure transparency, accountability, and participation by stakeholders.38 Specifically, critics argue that channeling large sums of carbon finance to national governments could simply reinforce and exacerbate problems of corruption, rent-seeking, and overall lack of transparency, with few benefits making it to local forest-dependent communities who must play a vital role in making such a system work. In the U.S. debates, such concerns have sometimes led to criticism that international forest carbon provisions in U.S. legislation will essentially send U.S. dollars abroad to governments with little or no track record in making sure that the money is spent wisely (see concern #2 above). The Response: Governance is a critical part of the effort to bring international forest carbon into climate policy, and there is little question that some tropical forest nations have poor track records in the area of forest governance. A well-structured international forest carbon policy, however, could operate as an incentive for
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improved forest governance, transparency, and accountability. First, and perhaps most important, the basic idea of performance-based payments for forest protection means that the money will not flow unless and until performance has been demonstrated, which puts an added premium on getting effective governance in place to take advantage of these market opportunities while allowing different countries to move into an international forest carbon system at different rates depending on their internal capacities. Second, the substantial and ongoing efforts to channel multilateral and bilateral financial assistance to capacity building and market readiness in tropical forest countries can be used to promote institutions and practices that will enhance governance. Third, as is already the case in some of the proposed U.S. legislation, international forest carbon provisions in a U.S. cap-and-trade system could mandate prior informed consent and respect for rights of local communities and indigenous peoples in determining the eligibility of particular activities for crediting in a U.S. system. Additional requirements could address national-level governance issues to promote transparency and citizen participation in revenue management, tenure, and land-use reforms, and the design of new forest carbon programs.39 Fourth, third-party monitoring and certification schemes, which have been applied to industrial timber harvesting and forest carbon projects in the voluntary market, could play an important role by providing another accountability check on national and subnational efforts and a means of ensuring that international forest carbon activities are generating benefits for forest stewards at the local level.40
10. Forests also important for adapting to climate change

The Question: Can saving forests for mitigating climate change also help countries adapt to climate change? The Response: Forests provide not only fuelwood, medicine, and food, but also important ecosystem services such as clean water, flood control, and disease prevention. The importance of these services for local populations may be enhanced in the context of climate change because forests provide natural insurance that buffer communities against some of the risks of climate change (e.g., increased flooding and disease; failed harvests). Developing countries are projected to encounter some of the most severe impacts of climate change and are least able to cope.41 In regions that already struggle to supply adequate food, water, shelter and security resources, climate change will act as a threat multiplier, exacerbating environmental and resource crises while adding to problems of global governance.42 As environmental conditions deteriorate, disease will increase, and populations will be forced to migrate.43 Losing forests could further destabilize societies that climate change may make vulnerable to political upheaval, migration, and conflict.44 Table 3.1 lists some of the ways in which forests could facilitate adaptation to climate change in developing countries. Reducing emissions from deforestation will complement efforts to adapt to climate change by helping to maintain critical services. International forest carbon policies should consider the essential services and adaptation benefits forests provide to local communities. Limiting community forest access without providing alternative livelihoods and services that are buffered against climate change variability may lead to programmatic failures, harm to local communities, and societal instability.
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Table 3.1. Types of natural insurance forests provide that could facilitate adaptation to climate change.
Predicted Impacts of Climate Change Reduced agricultural yields in seasonally dry and tropical regions. Rain-dependent crops or crops near the warm end of their suitable growth range will face challenges. Ex: Rain-fed agriculture in Africa could be reduced by 50% by 2020.45 Natural Insurance provided by Forests Food and economic security for the rural poor Hundreds of millions of people depend on forests for subsistence and income needs, collecting food, medicine, and fuelwood from the forest.46 Numerous studies find that the rural poor increase their collection of wild foods and other products from the forest in response to reduced agricultural yields and other economic shocks.47 Disruption of rainfall patterns is predicted to cause more extreme rain Regulation of water flow and water quality Forest ecosystems events making water management more difficult.48 store water; regulate base flows; mitigate floods; and reduce runoff, erosion, and sedimentation. Forests can reduce landslide risk, improve local and downstream water quality, maintain aquatic health and fisheries, and maintain coastal water quality and clarity.49 Increase in extreme weather events is predictedspecifically an Protection of coastal areas Mangrove and coastal forests provide increase in the intensity of tropical cyclones and hurricanes.50 protection from flooding and erosion, and buffer coastal areas from storms.51 Increased prevalence of vector-borne diseases is predicted as the range and breeding habit of disease-carrying agents such as mosquitoes expand. As a result, malaria, dengue, and other vectorborne diseases are projected to spread and increase. In addition, parts of Asia are expected to experience an increase in diarrhoeal disease and related death associated with increased floods and droughts caused by changes in the hydrological cycle.52 Increase risk of fire is predicted as the frequency of heat waves increases and the areas affected by drought expand.55 Forests may reduce spread of these diseases Deforestation is linked to the spread of malaria, dengue, and other vector-borne diseases.53 A recent study considered the projected increases in vector-borne diseases in the Brazilian Amazon due to climate change and found that if forests are conserved, disease prevalence in local populations will be lower than what it will be if forests are cleared.54 Protection from forest fires It is harder for fires to penetrate moist, intact forests. Deforestation and degradation open up the forest lowering shade and humidity, exacerbating local climate variation, and increasing drought, desertification, and susceptibility to fires.56
References
1 Murray, B.C., R. Lubowski, and B. Sohngen. 2009. Including International Forest Carbon Incentives in Climate Policy: Understanding the Economics. Nicholas Institute Report NI R 09-03. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University. http://www. nicholas.duke.edu. 2 Angelsen, A., et al. 2009. Reducing emissions from deforestation and forest degradation (REDD): An options assessment report. Prepared for the Government of Norway. http://www.REDD-OAR.org. 3 H.R. 2454, American Clean Energy and Security Act of 2009. 4 Many U.S. legislative proposals have included limits on offsets, including The Waxman-Markey American Clean Energy and Security Act of 2009 (ACESA) (H.R. 2454); Lieberman-Warner Climate Security Act of 2008 (S. 3036); and others. 5 EPA Economic Analysis of The Waxman-Markey Discussion Draft (ACESA). http://www.epa.gov/climatechange/economics/economicanalyses.html. 6 These concerns and possible impacts of reduced deforestation policies on the poor have been noted by various organizations tracking the development of these policies. They are analyzed in Peskett, L., D. Huberman, E. Bowen-Jones, G. Edwards, and J. Brown, Making REDD Work for the Poor, A Poverty Environment Partnership Report, September 2008. http://www.energyandenvironment.undp.org/undp/indexAction.cfm?module=Library&action=GetFile &DocumentAttachmentID=2493. 7. Pretty, J. 2007, ed. Sustainable Agriculture and Food. London: Earthscan, Ltd. 8 P.J. Gregory et al. 2002. Environmental consequences of alternative practices for intensifying crop production. Agriculture, Ecosystems & Environment, Vol. 88, no. 3 (March): 279290. http://www.gcte.org/Gregoryeal.EnvCons.pdf. 9 B. Swallow et al. 2007. Opportunities for Avoided Deforestation with Sustainable Benefits. An Interim Report by the ASB Partnership for the Tropical Forest Margins. Nairobi, Kenya: ASB Partnership for the Tropical Forest Margins. 10 S. 2191 Americas Climate Security Act; Dingell-Boucher Discussion Draft Bill. 11 FAO. 2003. World Agriculture: Towards 2015/2030. Summary Report. 2003. Section 5.4. http://www.fao.org/docrep/004/Y3557E/Y3557E00.HTM. 12 U.S. Environmental Protection Agency (EPA). 2005. Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture. EPA 430R-05-006 (November). Available at http://www.epa.gov/sequestration/pdf/greenhousegas2005.pdf. Making REDD Work for the Poor. Leo Peskett, David Huberman, Evan Bowen-Jones, Guy Edwards and Jessica Brown. Prepared on behalf of the Poverty Environment Partnership (PEP) September 2008. http:// www.energyandenvironment.undp.org/undp/indexAction.cfm?module=Library&action=GetFile&DocumentAttachmentID=2493 Jindal, Rohit and John Kerr. 2007. Valuing Environmental Services, in USAID PES Sourcebook: Lessons and Best Practices for Pro-Poor Payment for Ecosystem Services, pages 4042 (http://www.oired.vt.edu/sanremcrsp/documents/ PES.Sourcebook.PDF.pdf); http://www.ers.usda.gov/publications/err46/err46e.pdf. Global Growth, Macroeconomic Change, and U.S. Agricultural Trade / ERR-46; FAO ESA Working Paper No. 04-22. Investing in Agriculture for Growth and Food Security in the ACP Countries Jakob Skoet, Kostas Stamoulis and Annelies Deuss December 2004. ftp://ftp.fao.org/docrep/fao/007/ae404e/ae404e00.pdf; From page 6: In time, the combination of economic development and urbanization in developing countries will reduce the percentage of the population living in rural areas and employed in agriculture. 13 Gibbs H., M. Johnston, J. Foley, T. Holloway, C. Monfreda. N. Ramankutty, and D. Zaks. 2008. Carbon payback times for crop-based biofuel expansion in the tropics: The effects of changing yield and technology. Environmental Research Letters 3. 14 Ogg, C. (2007) Environmental Challenges Associated with Corn Ethanol Production. Presented at the Farm Foundation conference on Biofuels, Food & Feed Tradeoffs in St. Louis, Missouri, on April 12, 2007; Laurance, W. F. 2007. Switch to corn promotes Amazon deforestation. Science 318:1721.
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15 Laurance, W. F. 2007. Switch to corn promotes Amazon deforestation. Science 318: 1721. 16 Policy Edge. 2008. Root of the Matter: Carbon sequestration in forests and peatlands. 17 Gibbs et al. 2008 (see note 13). Fargione, J., J. Hill, D. Tilman, S. Polasky, and P. and Hawthorne. 2008. Land clearing and the biofuel carbon debt. Science 319: 12358. 18 Gibbs et al. 2008 19 Gallagher, E. 2008. The Gallagher Review of the Indirect Effects of Biofuels. East Sussex, UK: Renewable Fuel Agency. 20 Globally marginal lands are estimated to cover 400600 million hectares which is larger than India. More than half of this land is in the tropics. Cotula, L., N. Dyer, and S. Vermeulen. 2008. Fuelling Exclusion? The Biofuels Boom and Poor Peoples Access to Land. London: International Institute for Environment and Development (IIED). http://www.iied.org/pubs/pdfs/12551IIED.pdf. 21 Chomitz, K. 1999. Evaluating Carbon Offsets from Forestry and Energy Projects: How Do They Compare? Policy Research Working Paper. Washington, D.C.: World Bank. 22 Peskett, L., D. Huberman, E. Bowen-Jones, G. Edwards, and J. Brown. 2008. Making REDD Work for the Poor. Poverty Environment Workshop. http:// www.povertyenvironment.net. 23 World Bank. 2004. Sustaining Forests: A Development Strategy, World Bank, Washington, D.C. 24 UN Committee for the Elimination of Racial Discrimination. 2009. Early Warning Measures and Urgent Procedures. Letter to the Government of Indonesia, March 13, 2009. http://www2.ohchr.org/English/bodies/cerd/docs/early_warning/Indonesia130309.pdf 25 Butler, R. 2008. Conflict in PNG between government and landowners over REDD carbon trading. November 17. http://news.mongabay. com/2008/1117-png.html. 26 Sunderlin, W.D., J. Hatcher, and M. Liddle. 2008. From Exclusion to Ownership? Challenges and Opportunities in Advancing Forest Tenure Reform. Washington, D.C.: Rights and Resources Initiative. 27 For more info on the Climate, Community, and Biodiversity Alliance Standard, see http://www.climate-standards.org. 28 Durbin, Joanna. 2007. Voluntary Markets: How to Achieve Co-benefits for Climate, Biodiversity, and People. Presentation to Poverty and Environment Partnership Meeting, November 20, Washington, D.C. 29 Lawlor, K., L. Olander, and E. Weinthal. 2009. Sustaining Livelihoods While Reducing Deforestation: Options for Policymakers. Nicholas Institute Working Paper. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University. Options include requiring citizen participation in property rights reforms and land-use zoning exercises; public disclosure of forest carbon revenues so that citizens can hold their governments accountable; establishment of grievance mechanisms where those affected by reforms and activities related to new forest carbon programs can seek redress; and ongoing evaluations of the impact of international forest carbon programs on human welfare. 30 This section draws on Lawlor, K. and D. Huberman. 2009. REDD and Rights. In Rights-Based Approaches to Conservation, ed. J. Campese. Geneva: International Union for Conservation of Natue (IUCN). 31 143 nations voted in favor of the UN DRIP. The U.S. was one of four nations that voted against its passage; Canada, New Zealand, and Australia also voted no. However, in 2009, Australia reversed course and adopted the UN DRIP. 32 Extending FPIC to non-indigenous communities as well is considered best practice by many in the conservation and development fields. For example, the 7th Conference of the Parties to the Convention on Biological Diversity agreed that obtaining the FPIC of affected communities is best practice for cases where protected areas cause resettlement. The World Bank Group also applies a variation of FPIC (Free, Prior, and Informed Consultation leading to Broad Community Support) to projects that may have significant negative impacts on affected communities. 33 Finer, M., C.N. Jenkins, S.L. Pimm, B. Keane, C. Ross. 2008. Oil and Gas Projects in the Western Amazon: Threats to Wilderness, Biodiversity, and Indigenous Peoples. PLoS ONE 3(8): e2932. doi:10.1371/journal.pone.0002932. 34 Ibid. See also Anaya, S.J. and C. Grossman. 2002. The Case of Awas Tingni v. Nicaragua: A new step in the international law of indigenous peoples. Arizona Journal of International and Comparative Law 19(1). http://www.law.arizona.edu/journals/ajicl/AJICL2002/vol191.htm (accessed March 3, 2009). Harrison, J. 2008. International Law Significant Environmental Cases 20072008. Journal of Environmental Law 20(3): 475481. 35 Article 2 of the UN Declaration on the Right to Development (adopted by the UN General Assembly in 1986) states that states have the right and the duty to formulate appropriate national development policies that aim at the constant improvement of the well-being of the entire population and of all individuals, on the basis of their active, free and meaningful participation in development and in the fair distribution of the benefits resulting therefrom. 36 Brown, D., F. Seymour, L. Peskett. 2008. How do we achieve REDD co-benefits and avoid doing harm? Chapter 11 in Moving Ahead with REDD: Issues, Options and Implication, ed. A. Angelsen. Bogor, Indonesia: Center for International Forestry Research (CIFOR). 37 Peskett, L. et al., Making REDD work for the Poor (see note 22). 38 Ebeling, J. and M. Yasue. 2008. Generating carbon finance through avoided deforestation and its potential to create climatic, conservation, and human development benefits. Philosophical Transactions of the Royal Society B 363, 19171924. 39 Lawlor, K., L. Olander, and E. Weinthal. 2009. Sustaining Livelihoods While Reducing Deforestation: Options for Policymakers. Nicholas Institute Working Paper. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University (see note 29 above). 40 World Resources Institutes Global Forest Watch Program is an example of how third-party monitoring is used in the timber sector (http://www. globalforestwatch.org/english/index.htm). Examples of certification schemes for the timber sector include the Forest Stewardship Councils standard (http:// www.fscus.org/); for the forest carbon sector, the Climate, Community, and Biodiversity Alliance standard (www.climate-standards.org), currently being applied to forest carbon projects in the voluntary market, will be most relevant. 41 IPCC. 2007. Climate Change 2007: Change Impacts, Adaptation, and Vulnerability; Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. The CNA Corporation. 2007. National Security and the Threat of Climate Change. Alexandria, Virginia: The CNA Corporation. 42 CNA 2007 (see note 41). 43 Ibid. 44 Ibid. 45 IPCC Fourth Assessment Report, 2007, Climate Change 2007: Change Impacts, Adaptation, and Vulnerability; Summary for Policymakers (SPM). 46 World Bank. 2004. Sustaining Forests: A Development Strategy, World Bank, Washington, D.C. 47 Godoy, R., N. Brokaw, and D. Wilkie. 1995. The effect of income on the extraction of non-timber tropical forest products: Model, hypotheses, and preliminary findings from the Sumu Indians of Nicaragua. Human Ecology 23(1). Godoy, R., M. Jacobson, and D. Wilkie. 1998. Strategies of rain-forest dwellers against misfortunes: The Tsimane Indians of Bolivia. Ethnology 37(1): 5570. Cavendish, W. 2000. Empirical regularities in the poverty-environment relationship of rural households: Evidence from Zimbabwe. World Development 28(11): 19792000. Pattanayak, S.K. and E. Sills. 2001. Do tropical forests provide natural insurance? The microeconomics of non-timber forest product collection in the Brazilian Amazon. Land Economics 77(4): 595612. Shackleton, C. and S. Shackleton. 2004. The importance of non-timber forest products in rural livelihood security and as safety nets: a review of evidence from South Africa. South African Journal of Science (100): 659664. Lawlor. K. 2006. The role of non-timber forest products and traditional medicine in HIV/AIDS mitigation: A case study from northern Cameroon. Masters project, Duke University. Angelsen, A. and Wunder, S. 2003. Exploring the forestpoverty link: Key concepts, issues and research implications. Center for International Forestry Research Occasional Paper No. 40. Bogor, Indonesia:
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CIFOR. Odebode, S.O. 2003: Contribution of selected non-timber forest products to household food security in Osun State, Nigeria. Proceedings of 12th World Forestry Congress, Quebec, Canada, September 21 to 28, Volume A, Forest for People, 55. Siwatibau, S. 2003. Forests, trees and human needs in Pacic communities. Proceedings of the 12th World Forestry Congress, Volume A, Quebec, Canada. 2936. Shvidenko, A., C.V. Barber, and R. Persson. 2005. Forest and woodland systems. In Ecosystems and Human Well-Being, Volume 1: Current State and Trends, 585621. Millennium Ecosystem Assessment Series. Island Press, Washington, D.C. Millennium Ecosystem Assessment 2003 People and ecosystems: A framework for assessment and action. Island Press, Washington, D.C. Colfer, C.J.P., Sheil, D., Kaimowitz, D. and Kishi, M. 2006 Forests and human health in the tropics: some important connections. Unasylva 57(224): 310. 48 IPCC Synthesis Report, 2007, SPM (see note 45). 49 Hamilton, L. S., and P. N. King, 1983: Tropical Forested Watersheds. Hydrologic and Soils Response to Major Uses or Conversion. Westview Press, Boulder, Colorado, USA, 168 pp.; Wiersum, K. F., 1984: Surface erosion under various tropical agroforestry systems. In: OLoughlin, C. L., Pearce, A. J. (eds.) Effects of Forest Land Use on Erosion and Slope Stability. IUFRO, Vienna, pp. 231230. Dhawan, B. D., 1993: Coping with oods in Himalayan rivers. Economic and Political weekly, May 1, 1993, pp. 849 853. Dickinson, A., M. B. Amphlett, and P. Bolton, 1990: Sediment discharge measurements Magat catchment. Summary Report 1986 1988. Report No OD 1222. Hydraulics Research, Wallingford, UK, 97 pp. Baharuddin, K., and N. Abdul Rahim, 1994: Suspended sediment yield resulting from selective logging practices in a small watershed in Peninsular Malaysia. J. Tropical Forest Science 7, 286 295; Chomitz, K. and Kumari, K. 1996 The domestic benefits of tropical forests: A critical review. The World Bank Research Observer, 13(1): 13 35. Daily, G.C. (ed.) 1997 Natures services: societal dependence on natural ecosystems. Island Press, Washington, D.C. Calder, I.R. 2002 Forests and hydrological services: reconciling public and science perceptions. Land Use and Water Resources Research 2: 112. Food and Agriculture Organization of the United Nations (FAO), 2003: State of the Worlds Forests 2003. Food and Agriculture Organization of the United Nations, Rome, 151 pp. Kaimowitz, D., 2003: From Rio to Johannesburg and beyond: Forest conservation and rural livelihoods in the global South. In Congress Proceedings, Volume A. Proceedings of the 12th World Forestry Congress, Quebec, Canada, September 21 to 28, 2003 Quebec, Canada, pp. 10 15. Bonell, M. and Bruijnzeel, L.A. 2005 Forests, water and people in the humid tropics: past, present and future hydrological research for integrated land and water management. International Hydrology Series. Cambridge University Press, Cambridge, UK. Bruijnzeel, L.A. 2004 Hydrological functions of tropical forests: not seeing the soil for the trees? Agriculture, Ecosystems and the Environment 104: 185228. Pielke, R. A., R. Avissar, M. Raupach, A. J. Dolman, X. Zeng, and S. Denning, 1998: Interactions between the atmosphere and terrestrial ecosystems: Inuence on weather and climate. Global Change Biology 4, 461 475. Cossalter, C. and C. Pye-Smith, 2003: Fast-Wood Forestry. Myths and Realities. Center for International Forestry Research, Bogor, Indonesia, 50 pp. London, UK and Telapak Indonesia, Bogor, Indonesia, 36 pp. Food and Agriculture Organization of the United Nations (FAO) and Center for International Forestry Research (CIFOR) 2005 Forests and floods: drowning in fiction or thriving on facts? Forest Perspectives Series no. 2. CIFOR, Bogor, Indonesia. 40 p. Nabuurs, G.J., O. Masera, K. Andrasko, P. Benitez-Ponce, R. Boer, M. Dutschke, E. Elsiddig, J. Ford-Robertson, P. Frumhoff, T. Karjalainen, O. Krankina, W.A. Kurz, M. Matsumoto, W. Oyhantcabal, N.H. Ravindranath, M.J. Sanz Sanchez, X. Zhang, 2007: Forestry. In Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer (eds)], Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. Locatelli et al. 2008. 50 IPCC Synthesis Report 2007 SPM (see note 45). 51 Mangroves A Natural Defense against Cyclones: An Investigation from Orissa, India. 2007. South Asian Network for Development and Environmental Economics. Policy Brief Number 24-07, September. 52 CNA 2007 (see note 41). IPCC Synthesis Report 2007 SPM and last sentence (IPCC Fourth Assessment Report Working Group II Report Impacts, Adaptation and Vulnerability, Summary for Policymakers [SPM] 2007). 53 Millenium Ecosystem Assessment. 2005. Ecosystems and Human Well-Being: Health Synthesis; A Report of the Millenium Ecosystem Assessment. Geneva: World Health Organization; Pattanayak, S.K. and J. Yasuoka. 2008. Deforestation and malaria: Revisiting the human ecology perspective. In Human Health and Forests: A Global Overview of Issues, Practice and Policy, ed. by C.J.P. Colfer. London: Earthscan; Wilcox, B. A., Ellis, B. 2006 Forests and emerging infectious diseases of humans. Unasylva 57(224): 1118. 54 Pattanayak, S.K., M.T. Ross, B.M. Depro, S.C. Bauch, C. Timmins, K.J. Wendland, K. Alger. Evaluating the Health Impacts of Climate Change and Conservation Policies Using Applied CGE. In press. 55 Rosenzweig, C., G. Casassa, D.J. Karoly, A. Imeson, C. Liu, A. Menzel, S. Rawlins, T.L. Root, B. Seguin, P. Tryjanowski. 2007. Assessment of observed changes and responses in natural and managed systems. In Climate Change 2007: Impacts, Adaptation and Vulnerability; Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 79131. 56 Cochrane, M.A. 2003: Fire science for rainforests. Nature 421: 913 919. Cochrane, M.A., A. Alencar, M.D. Schulze, C.M. Souza, Jr., D.C. Nepstad, et al. 1999. Positive feedbacks in the re dynamic of closed canopy tropical forests. Science 284: 18321835. Shvidenko et al. 2005. Laurance, W.F. and B. Williamson. 2001: Positive feedbacks among forest fragmentation, drought, and climate change in the Amazon. Conservation Biology 15, 1529 1535, Gonzalez, P. 2001. Desertication and a Shift of forest species in the West African Sahel. Climate Research 17: 217228.
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Chapter 4 Fundamentals for an International Forest Climate Policy

Lydia Olander
Tropical forests have moved to the forefront of recent international climate policy discussions and have been included in a number of recent U.S. legislative proposals (see Chapter 2).1 Given the need to move quickly before more forests disappear, these policy efforts are moving toward a phased approach in which a range of financing sources initiate forest conservation and build in-country capacity and institutions as quickly as possible. These would then lead to a program in which payments are conditional upon demonstrated reductions in emissions from deforestation and forest degradation by tropical forest countries (Box 4.3).2 An emissions-based approach can link payments for forest conservation to a global carbon market and bring in significant and sustained financing, which is essential because forest loss will need to be reduced on a large scale (on the order of 50% by 20203). Reductions in deforestation can be local (e.g., new parks) or span an entire country (e.g., incentives for sustainable forestry and greater enforcement of illegal logging). A range of different approaches will be needed. This chapter describes the critical issues and choices for designing international forest carbon policy.
Environmental integrity: How do we ensure that forest emissions reductions are real?
A number of features in the design and implementation of a forest carbon policy are critical for ensuring that the policy contributes effectively to climate change mitigation. These features are not unique to forest carbon and apply to emissions reduction strategies for any sector. Given that forest carbon programs will likely move forward in phases, progress towards addressing the following issues is expected to move forward in tandem, with the possibility of linking to the global carbon market achieved once these pieces are in place. Robust Measurement, Monitoring, and Verification (MMV) Remote sensing can measure and monitor deforestation with confidence.4 It can provide easily accessible data at a lower cost, and this data can be shared on websites (such as Google Earth) to provide a transparent measure of reduced deforestation over time. Linking area of forest loss to total emissions is a bit more difficult as different types of forests store (and emit when deforested) different amounts of carbon. Ground measurements are needed to complement and calibrate data from remote sensing, and emerging protocols are being developed to ensure that field measurements will harmonize with remote sensing applications. In the short term, scientists have pulled together data from research and forestry around the world to develop look-up tables that do a pretty good job of estimating carbon storage in different forest types. These methods provide sufficient information for measuring, monitoring, and verifying deforestation5the largest source of land-use-based emissions. Measuring and monitoring carbon fluxes from forest management, forest degradation, and other land-use changes is more challenging, but techniques are being developed. As new remote sensing technologies are developed to improve our capabilities to measure greenhouse gas impacts from these other land-use changes, standardized measurement approaches agreed upon by the Intergovernmental Panel on Climate Change (IPCC) and accepted by UNFCCC negotiators can be used.6 Addressing leakage Leakage is the phenomenon in which efforts targeted at reducing emissions in one place simply shift them to another location or sector where they remain uncontrolled or uncounted. Although leakage is caused by demand for commodities (food, wood), it is essentially an accounting problem. Continued or increased demand for a product causes production and the emissions associated with it to shift, but it is only when it shifts into territories where it is unaccounted for that it becomes leakage. The potential for leakage arises when rules,
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regulations, and incentives affect only part of the potential participants or emissions sources. Thus, leakage has and will continue to be a challenge for various types of policies. Any near-term forest carbon policy is likely to be voluntary and thus will only include some countries. As a result, leakage can occur across countries. International leakage is an issue for all climate policy, but those reducing emissions in other sectors have not been required to pay for potentially leaked emissions overseas. With emissions from deforestation highly concentrated in two or three countries, participation of just these few countries would likely reduce international leakage from forests significantly. The main concern about international leakage is that only countries with high deforestation rates will participate in a forest carbon program, causing drivers of deforestation to shift to countries that currently have low rates of forest loss. The design of the program can help address this concern (see more in section on baselines below). Leakage can also occur within a country (subnational leakage) when local projects are developed in a country without any national measurement to account for shifting or leakage. A forest emission reduction project (e.g., a new park) can displace emissions to another forest area. Alternatively, emissions may be displaced from one land type (e.g., clearing forests for agriculture) to another (e.g., clearing grassland for agriculture). Studies of leakage suggest a wide range for potential carbon leakage, with the results largely depending on the coverage of the policy. These studies suggest leakage can be quite large if left unaddressed.7 Thus where possible, policies should be designed to address leakage, by expanding policy coverage so there are fewer places to leak to, adjusting projects or programs for leakage by discounting, or replacing the supply of commodities at a level comparable to those eliminated elsewhere on the landscape. Expanding policy coverage is the most effective of these approaches and is being considered in U.S. and international policy proposals. These proposals trend toward requiring national accounting of forest emissions which will account for all subnational leakage. Projects or programs that occur before national accounting is in place can use discounting. The number of credits generated can be discounted based on the expected leakage from a particular program (e.g., if a program reduced 100 tons of CO2, but expected leakage was 20%, it would be credited for only 80 tons of CO2).8 Alternatively, if the forest-based emission reductions are not being used to offset fossil fuel emissions elsewhere and non-marketbased financing is used for early stage projects, it may be best to ignore leakage to ease the development of a fully effective program over time, especially when the total emissions under consideration are small. Baseline/reference level The notion of reduced emissions from deforestation and forest degradation raises the question, reduction compared to what? The term baseline refers to a level of emissions that would occur in the absence of a forest carbon policy and is used as a reference case for quantifying mitigation performance. Baselines are used to assess how a particular project or policy enhances emission reductions.9 Baselines, or reference levels, can also be used at the national level for national-level accountability. How baselines are set affects how much compensation is received and is thus a critical issue for projects and for countries. When considering national targets, baselines will impact overall environmental effectiveness, cost efficiency, political viability, country participation, and the distribution of funding among countries. Baselines need to balance achieving real reductions with incentives for broad participation so that leakage is low and significant global reductions in deforestation result. When establishing national-level baselines, it is important to consider that if a historical rate of deforestation is the primary basis for compensation, those countries with the highest deforestation rates can reduce emissions most, and thus profit most. In contrast, countries with significant forest remaining but lower current rates of deforestation may not have sufficient incentives to reduce forest loss. If historic baselines are used, these highly forested countries may not participate unless they are compensated for potential future deforestation and sequestration activities. And if they dont participate, they could become a haven for leakage. A variety of approaches for setting baselines are under discussion, and many of them address this special challenge posed by countries with low historic rates of deforestation (see Box 4.1).
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Ultimately, reference levels will be a political decision negotiated between countries. Given that two countries, Brazil and Indonesia, are by far the greatest sources of forest emissions, they will likely hold significant leverage in negotiations. Historic rates and knowledge about the drivers of deforestation and their impact on deforestation rates will help inform the setting of reference levels. Trends in deforestation rates and how they change as countries develop may also help predict risks (see Figure 5.1 in Chapter 5). A number of approaches for setting national emission reference levels are described in Table 4.1. Many of them may be used in combination.
Box 4.1. Setting national-level baselines. While there has been significant experience with project-level baselines for forest based activities, approaches for national-level baselines or reference-levels for reduced deforestation and associated emissions are a relatively new part of policy discussions. Ideally, national reference levels will reflect real risks to forests and thus provide incentives for countries with high deforestation rates to reduce these rates and for those with low deforestation rates to maintain or conserve existing forest carbon. If baselines do not reflect the real risks of deforestation, countries will either not be sufficiently compensated to avoid real risks, or they will obtain credits for carbon stocks not in danger of deforestation. This is known as hot airit occurs when baselines are set too high and carbon credits are awarded to a country or entity without a corresponding reduction in emissions. Table 4.1. Alternative approaches for setting national emission reference levels for forest carbon.10
Approach 1. Historical reference period for example, emissions from deforestation from 1995200511 2. Projected business-as-usual (BAU) models likely emissions from deforestation based on historic rates, development trends, and likely demand for timber and agriculture 3. Add credit for forest stock values standing forest stock, like a rental payment, in addition to emission reductions12 4. Adjust credit for forest stock values standing forest stock by shifting financing from payments for emission reductions in other countries13 Advantages Transparent, simple May be better aligned with future risks and rates of forest emissions; can be more inclusive of low-deforestation countries that will be at risk of greater loss and leakage from other countries Inclusive of low-deforestation countries Concerns Historic rates may not predict future rates well Requires more data; more subjective; not well-tested; high-deforestation countries will prefer an approach based only on historic rates Can result in hot air if value for standing forest does not reflect risk of deforestation or degradation High-deforestation countries will prefer an approach based on historic rates alone giving them a greater share of compensation
5. Tie to global average deforestation if below global average, country receives extra credit for remaining below14
Inclusive of low-deforestation countries; reduces risk of hot air by reducing compensation to high-deforestation countries to balance compensation to low-deforestation countries (approach #2 above would have a similar outcome) Transparent, simple, inclusive of lowdeforestation countries
Will likely result in some hot air
6. Adjust for national circumstances negotiated Inclusive of low-deforestation countries; baselines that ratchet down; low-deforestation reduces risk of hot air by compensating countries can have inflated baselines that are low-risk countries outside the market credited through a fund rather than the market15 7. Favor least developed countries greater credits to least developed countries (LDCs) to increase their participation Addresses equity issues Will result in hot air; may be politically difficult as other countries will have less to gain
Additionality If credits from forest carbon projects and programs are used by developed countries to meet their compliance targets, it is essential that emission reductions generated by the forest projects be additionalthat is, they would not have occurred without the new forest carbon financing. For reduced emissions from deforestation, additionality requires a forest area would have been lost if not for the new carbon-oriented project or program. As a result, local trends in deforestation and assessments of drivers of deforestation (e.g., a planned road or logging concession) are often used to establish additionality for projects. National-level accounting helps address additionality, since reductions are only credited if they are below a national reference emissions level. If non-additional projects are occurring the national system will not be fully efficient and it will cost more to achieve the expected emissions reductions at a national level (see Box 4.2).
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Box 4.2. Impact of non-additional projects under national accounting. Suppose Country X has 20 projects and each is expected to reduce 100 tons of emissions, but only 10 of the projects are additional. The country expected to see 2,000 tons of reduction, but only finds 1,000 when it reconciles its national account. Therefore it will end up paying projects half of what they expected or paying them the full amount and having to take the difference out of the national budget or some type of reserve it created to address such risks.
Non-permanence/reversal risk Since carbon stored in saved forests or by improved management can later be lost through intentional acts (logging) or unintentional events (drought, pests), the mitigation achieved may not be permanent. Non-permanence is not only a feature of land-use-based activities but also applies to fossil fuels (coal not burned today may be burned tomorrow). While it is prudent to try to reduce reversals and account for non-permanence, it is also important to recognize that forest carbon can provide substantial short-term benefits even if storage of the carbon is not ensured forever. First, maintaining forest carbon may be the only way to produce large emissions reduction rapidly to buy time for technological development in other sectors. Second, some activities initiated by forest carbon finance may result in permanent reductions. Reducing deforestation will require investments in new governance institutions and forestry management systems that once in place could result in long-term and permanent reductions in deforestation rates.16 For example, improved road and infrastructure planning that avoids opening new forest areas could have long-lasting benefits for forest conservation in these areas. Policies can encourage management that minimizes the risks of reversal. For example the risks of deforestation in a new protected area may be reduced by engaging and addressing the needs of nearby communities.17 For participation in a compliance market, forest programs and projects can address risks of non-permanence by using one or a combination of the approaches described below (Table 4.2). Accounting for reversals requires that someone be liable for losses, paying for or replacing carbon that was released after being credited as a reduced emission. There are a number of viable alternatives, so concerns about permanence need not be a barrier to forest carbon.
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Table 4.2. Options for addressing permanence in terrestrial carbon management.

Option 1. Temporary crediting credits valid for limited period; need to be recertified for additional time periods; if carbon lost it must be replaced Effectiveness LOW Startup option for small overall carbon volumes and isolated activities Efficiency LOW Complex accounting, high transaction costs and low-value credits result in minimal use (has been a problem for forestry in the CDM19) LOW Leads to heavy discounts in credits, which causes cash flow problems LOW High unaccounted share of credits, late cash-flow Equity LOW High transaction costs benefit large projects
2. Ton-year accounting assumes a limited residence time of CO2 in the atmosphere; after set period (e.g.,100 yrs), carbon is permanently removed 3. Project credit buffers a share of credits sold, rest held in escrow for predetermined period
LOW Low upfront pay and low net present value (which depends on discount rate); limited incentives MEDIUM Effectiveness depends on project credibility and maintenance of buffer MEDIUMHIGH Effective instrument, depending on pools size and distribution
LOW High financing costs exclude poorer participants
HIGH Easy and transparent implementation
4. Risk pooling a portion of credits from projects are set aside and pooled (from several projects up to a whole country) to create a risk buffer 5. Commercial insurance a third party holds the pooled credits and manages replacement; hedged by financial instruments and reinsurers 6. Shared liability a partnership between buyer and seller countries where buyer takes on some of liability in return for preferential access to credits; motivates buyers to invest in good governance and management
MEDIUMHIGH Smaller relative buffer size per project because sharing risk
MEDIUM Organizational capacities required; risk of free-riding, but fairly equitable MEDIUM May be equitable if socially desirable bad risks are subsidized
HIGH Outsourced liability, instrument for mature markets; low hurdles if commercial companies willing to take on these risks which is still not certain HIGH Will give additional incentives to support readiness and capacity building, thus preparing the ground for effective REDD
MEDIUMHIGH Low transaction costs through outsourced risk assessment and management; will require some regulation/oversight HIGH Will make REDD insurable, as country risk is minimized
HIGH Depending on the motivation of Annex I parties involved, may contribute to fostering investment in high-risk countries
Source: Adapted from Dutschke and Angelsen 2008.18
Financing: What needs funding and how could it be funded?

Recent international climate agreements (e.g., UNFCCC Bali Action Plan) suggest that developed nations should finance developing nations efforts to reduce emissions from deforestation and forest degradation. Both groups have much to gain from this arrangement. If it works well, the developed nations have lower costs for achieving mitigation targets, and the developing nations receive a substantial new source of revenue for sustainable development. Financing is needed for (1) upfront capacity building; (2) management, monitoring, and transaction costs; and (3) compensating for forgone profits of alternative land use, i.e., opportunity costs (see Table 4.3).
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Table 4.3. Financing needs for an international forest carbon policy.

Capacity building Train personnel and build institutional, governance and systems infrastructure necessary to develop and manage a forest carbon program; Develop carbon stock and flux estimates. Examples Monitoring network; new national land-use plan and infrastructure plans; initial forest carbon inventory and establishment of baseline deforestation rate; government agency or body to oversee programs; Documented Set up monitoring system in India and Brazil examples (US$0.52 million) Set up forest inventory for 25 nations (US$50 million) Land tenure reform for one country (US$420 million based on estimates from Rwanda, Ghana, and Solomon Islands) Capacity building for 40 nations over 5 years (US$4 billion) Source: Based on figure in Dutschke and Angelsen 2008. Description Management Recurrent costs for new national land management, monitoring, and enforcement programs; Initial contract design or certification to set up qualified program or project Annual forest inventories; tracking compliance (registry); salaries for additional program managers and enforcement officers Forest inventories for 25 countries (US$717 million per year) Opportunity Costs Compensation for the forgone profits of an alternative use of land.
Profits from logging and agricultural production (e.g., oil palm, soybean, beef )
Forgone profits for reducing deforestation by half over 30 years for 8 countries (US$7 billion annually)
Financing could come through traditional overseas development assistant approaches such as investments in the World Bank or multilateral negotiations. This funding has always been limited in quantity and may not be sustained over the long term. Given past experience, this approach to and level of funding seems unlikely on its own to result in a significant decline in forest loss. Financing can also be generated in a binding commitment tied to a cap-and-trade proposal either through some fee or fine associated with trading, or by allocating some portion of allowances to a forest fund. The committee-passed version of the Waxman-Markey bill sets aside 5% of allowances to fund capacity building and supplemental reductions associated with efforts to reduce deforestation in developing countries.20 This could provide sustained and substantial funding ($US billions per year). But there are lingering concerns that any allocation of U.S. emissions allowances is politically vulnerable given that this is a zero-sum game (there are a finite number of allowances available) and the funding could just as easily go to other activities depending on political priorities. Thus, it is possible that the set-aside for forest protection activities will be cut or diminished as the U.S. legislation works its way through the political process. At the same time, however, a powerful coalition of U.S. businesses and NGOs have mobilized in support of these provisions.21 Financing for forest protection activities could also be linked directly to compliance under a cap-and-trade program if avoided forest emissions are recognized as eligible offsets for use by regulated entities. The WaxmanMarkey bill contains robust provisions along these lines (see Chapter 2). The quantity of financing available through an offsets market will be tied to the level of greenhouse gas commitments set by the developed country (the U.S. in our case). While this could generate substantial revenues ($US tens of billions per year; the same magnitude of funding needed to see large-scale reductions in deforestation22), it also increases the demand for high-quality forest credits given that the integrity of the compliance system (and the overall effect on the atmosphere) would be negatively impacted if low-quality credits were allowed into the system. Of course, an offsets mechanism is a politically popular approach with capped sectors since it provides additional compliance options and lowers the overall cost of achieving mitigation targets. Consensus is growing that a climate policy approach to international forest carbon should be implemented through a phased approach.23 This might align with shifting sources of financing over timefrom voluntary development assistance, to binding financial commitments, to compliance-linked markets or funds (see Box 4.3).
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Box 4.3. A characterization of the phases for implementing forest carbon policy and programs24 Phase 1. Development of a national forest carbon strategy which includes national dialogue, strengthening of institutions, and demonstration activities mostly funded by voluntary contributions through such mechanisms as the World Banks Forest Carbon Partnership Facility (FCPF),25 UN REDD,26 and other bilateral arrangements. Phase 2. Implementing policies and measures proposed in the national strategies using sustained funding from a global facility supported by binding financial commitments from developed countries. These binding commitments may be tied to allowance allocations from a national cap-and-trade policy. Developing country use of these funds would be based on demonstrated commitment and continued performance assessed using indicators of emission reductions. Phase 3. Paying for performance on the basis of forest emission reductions relative to an agreed-upon national reference level. Financing can come through global compliance markets tied to national cap-and-trade policies or through other compliance-linked mechanisms. Countries would move through these phases at different speeds.
U.S. leadership on climate commitments and forest carbon is likely to be critical for broad international acceptance and sufficient global funding. A number of developed countries are currently funding capacity-building and demonstration activities in developing countries, and some are considering setting aside a small proportion of annual emissions allowance auction proceeds, but none except the U.S. have yet indicated a willingness to allow forest carbon credits to trade (like allowances) in their national emissions markets in the near term (see Chapter 2).27 Launching an international forest carbon program heightens the need for capacity building because the scale of the undertaking and the potential outcome are so much greater. U.S. government agencies have historically been involved in capacity building for sustainable forest management and could engage actively in this new effort. The U.S. is well positioned to expand its leadership by enhancing existing programs.
Scope: Should policies focus only on avoiding emissions?

Initially, the UNFCCC REDD proposals focused only on reduction of emissions from deforestation and degradation.28 Subsequent agreements (the Bali Action Plan29), however, encouraged broadening the framework to include enhancing sequestration (afforestation, reforestation, and forest management) and maintaining carbon stocks (preservation of low-risk forests). Expanding policy to include these other activities would greatly broaden mitigation opportunities and potential participation. The U.S. and a few other countries have raised the idea of broadening the framework even more, to cover all land-use change (e.g., conversion of shrublands, grasslands, wetlands, and management of agriculture).30 Expanding scope may expand political support by bringing in the interests of additional countries. It can increase total mitigation by bringing in new activities, which also helps to reduce leakage. Including all land-use change can help balance the greenhouse gas tradeoffs of competing demands for land such as agriculture and biofuel production. On the other hand, it adds complexity. For example, measurement may be more difficult and less transparent, and baselines for various land uses would have to be integrated or complimentary. It also raises concerns that native vegetation landscapes lower in carbon but higher in other environmental service value (e.g., clean water, abundant wildlife) may be replaced with high-density, fast-growing tree plantations with high carbon sequestration potential but lower value in other aspects. Given the undeniable complexities expanding scope brings, there is a strong preference among critical players like the internationally influential Coalition of Rainforest Nations31 to focus first on deforestation and degradation. They would prefer that a UNFCCC-based REDD mechanism and a U.S. forest carbon policy focus on reduced emissions from forests alone and that separate mechanisms be used for sequestration and other land uses. Given the urgency to slow tropical forest loss and associated emissions, and the greater confidence in measurement and monitoring of deforestation, it makes sense to start with forests. But because of the significant potential benefits of an inclusive policy, it is important to leave the door open to other land uses in the future. The U.S. was the first industrialized country to ratify the UN Framework Convention on Climate Change and gained experience conducting full land-use accounting of greenhouse gases as part of its national accounting and reporting requirements.32 During negotiations, the U.S. has consistently supported maximum use of
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forestry and land-use measures as part of global climate change policy. The committee passed Waxman-Markey bill has a program focused on reduced emissions from deforestation, and appears to leave the inclusion of other land uses over time up to the development of international programs through the UNFCCC or other agreements.33
Scale: How do national, subnational, and project-scale activities fit together?

A successful forest carbon policy should promote a range of actions in tropical forest countriesfrom changes in national and regional policies (e.g., clarification of property rights; agricultural subsidies; logging concessions; infrastructure planning; enforcement of logging laws) to development of place-specific projects (e.g., improved or new protected areas). This will likely be achieved through a variety of institutions and buyer-seller arrangements, some exclusive country-to-country transactions and others that actively involve the private market.34 How institutional arrangements are structured will largely be up to the tropical forest nations who decide to participate. As indicated below, private transactions (projects) are structured by investors with government consent. A centralized national-level forest carbon mechanism would entail payments to national governments or a nationally designated authority for the successful reduction of emissions from land use. National governments would receive credits and credit revenues, likely keeping revenue for lands held by the government, and, ideally, distributing the rest appropriately to states, regions, municipalities, communities or individual landowners based on how effectively these areas control emissions from deforestation. At this time many investors and donors may be reluctant to invest directly in tropical forest governments given concerns about governance and related risks for their investments. The introduction of an official intermediarya sanctioned, nationally designated authority with sufficient governance and transparency in place or an international bodythat can link donor/buyer governments or private investors to national, subnational, or local projects may address some of the uncertainties and risks leading to more investment (see Figure 4.1).
Figure 4.1. Possible institutional arrangements for forest carbon transactions.
Developed Nation Nation Developed Nation Nation Tropical Tropical Forest Forest Nation Nation
Sub national Subnational activities Activities Designated Designated National National Authority Authority Projects Developed Developed Designated Designated Authority Authority Subnational Subnational activities Activities
Tropical Forest Nation
Private Market
Projects
This designated authority can play a number of different roles. It can (1) measure and monitor emissions from deforestation at a national level, (2) accredit project verifiers, (3) reconcile national and project accounts against a national baseline or reference emissions level, (4) oversee risk management mechanisms such as risk buffers, and/or (5) oversee various standards and safeguards for local participation, fair compensation, and biodiversity protection that are required by the seller nation, the buyer nations, or any international agreements. National-level accounting for carbon emissions will likely be required for forest carbon crediting tied to a compliance market because it addresses concerns about within-country leakage; any shifting of emissions from one location to another within a country is counted. National accounting also addresses additionality of projects within countries. However, from a project standpoint a national accounting framework can create additional risks. Even if a project is successful and achieves its goals, payments are contingent on future reconciliation with
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a national baseline and thus could be undermined by leakage or inconsistent performance of other projects and land uses outside of projects that occur across a country. Countries may need to establish risk management mechanisms, like setting aside credits in a buffer to help address these concerns. Any successful approach to create forest carbon credits at scale will require (1) agreed-upon rules for monitoring, measurement, accounting, and verification; (2) agreed-upon reference levels (baselines for determining performance); (3) a system for ensuring that payment flows to the proper parties; and (4) institutions at the national and international level for tracking and supervising the process.
Box 4.4. A brief description of the basic components of a market-based financing structure and some of the key issues to resolve. Commodity definition: To ensure fungibility with the broader carbon market, the traded commodity should be greenhouse gas emission reduction units, denominated in metric tons (t) of CO2 equivalent at a given point in time. Buyers: Buyers will be capped entities in countries with emission reduction commitments and perhaps entities not subject to a cap who decide to offset emissions voluntarily. The Kyoto Protocol provides the most extensive international driver of mandatory greenhouse gas reduction demands and allows international trading of emissions to meet commitments. The United States currently has a voluntary approach to greenhouse gas reductions, but now seems more likely to adopt a mandatory program, which would greatly expand the emissions market if it is based on a cap-and-trade system, as most of the current proposals are. Sellers: International forest carbon compensation would be received at the national level or at a subnational level but with national-level accounting. Countries must decide how to achieve national reductions using the mix of policies deemed most appropriate to national circumstances (internal compensation schemes, enforcement of laws, integrating in subnational privately brokered projects, etc.). As intermediary, the national government could verify the reductions and provide performance guarantees to the international market. Market-clearing platform: Some means will be necessary to bring buyers and sellers together at an agreed-upon price. Right now the European Unions Emissions Trading Scheme (EU ETS) performs this market-clearing function for mandatory UNFCCC commitments of the EU countries. Currently, the UNFCCC is considering a registry for Nationally Appropriate Mitigation Actions, and depending on negotiations, this could serve as such a market-clearing platform for REDD credits. Ideally, these platforms can link with other countries and other emission sources and offset institutions. It could at least, in principle, be extended to markets for voluntary reductions from unregulated sources (e.g., the Chicago Climate Exchange in the U.S.). But whether or how these markets and others that develop will link together and whether the new markets will also be buyers of forest carbon credits is uncertain at this time. Oversight: Some international body must be responsible for ensuring the integrity of the trades and enforcing the legal framework that connects them to the regulatory or voluntary frameworks driving the market. The emerging global carbon market has created the impetus for financial innovations to make these markets work more efficiently, such as electronic trading, brokering, derivatives, and other financial instruments. As trading volumes increase, this can bring down transaction costs and ensure that more of the value goes to sellers and buyers. (Edited excerpt from Olander and Murray 200735)
Equity, co-benefits, and safeguards: How do we maximize benefits and avoid harm?
Conflict with local and community land tenure, restricted access to forest resources, and unfair distribution of carbon revenues have all been identified as possible outcomes if forest carbon programs are poorly designed. Other concerns include the displacement of native forests with plantations of nonnative species and negative impacts on water and other natural resources upon which people depend. International agreements may have little ability to influence how sovereign nations deal with these issues. While incorporating guidance or safeguards in international agreements may be worth pursuing, another, perhaps more immediate tool exists. Developed countries that are donating financing or allowing tropical forest carbon into their compliance markets could develop their own requirements or standards. In the voluntary market the Climate Community and Biodiversity (CCB) standards36 address issues for local communities and biodiversity. The recently introduced Waxman-Markey bill in the U.S., has detailed requirements for local participation and the use of native species. If countries that dominate demand for forest carbon (the U.S., Canada, Japan) all had similar requirements, these requirements would likely become the global market standard. One concern about this approach is that the standards could be so strict as to make certifying forest credits too expensive,37 potentially reducing the use of forest carbon as a tool to reduce emissions. To date, the CCB standards have been applied to most existing pilot and voluntary carbon market projects. At the moment this approach appears advantageous in helping to
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identify projects with lower risks or recognizing attributes for which there is additional value or willingness to pay.38
Conclusion
If the U.S. moves first in creating a market for international forest carbon, it may influence how other developed nations create forest carbon programs and how an international program develops. U.S. policymakers may want to include enough flexibility to link to the international agreements as they develop. An effective international forest carbon policy must account for different tropical forest country circumstances and consider the roles that both nation-to-nation transactions and the private market can play, while building a structure that can generate forest carbon in which we have sufficient confidence to integrate it into a compliance market.
References
1 Examples include S. 3036 Boxer-Lieberman-Warner Climate Security Act of 2008 (May 20, 2008) and Dingell-Boucher Discussion Draft Bill, House Energy and Commerce Committee (7 October 2008). 2 Angelsen, A., S. Brown, C. Loisel, L. Peskett, C. Streck, and D. Zarin. 2009. Reducing emissions from deforestation and forest degradation (REDD): An options assessment report. http://www.redd-oar.org. 3 Eliasch, J. 2008. Climate Change: Financing Global Forests. Norwich, UK: The Stationery Office Limited. 4 For example: DeFries, R. G. Asner, F. Achard, C. Justice, N. Laporte, K. Price, C. Small, J. Townshend. 2005. Monitoring tropical deforestation for emerging carbon markets. In Reduction of Tropical Deforestation and Climate Change Mitigation, ds P. Mountinho and S. Schwartzman. Gibbs, H.K., S. Brown, J.O. Niles, and J. A. Foley. 2007. Monitoring and estimate tropical forest carbon stocks: Making REDD a reality. Environmental Research Letters. GOFC-GOLD (Global Observation of Forest and Land Cover Dynamics). 2008. Reducing greenhouse gas emissions from deforestation and degradation in developing countries: A sourcebook of methods and procedures for monitoring, measuring and reporting. GOFC-GOLD Report version COP13-2, (GOFC-GOLD Project Office, Natural Resources Canada, Alberta, Canada); and Reducing emissions from deforestation and forest degradation in developing countries at SBSTA29 (FCCC/SBSTA/2008/L.23). http://unfccc.int/methods_and_science/lulucf/items/4123.php. 5 Ibid. 6 Intergovernmental Panel on Climate National Greenhouse Gas Inventories Programme (IPCC-NGGIP). 2003. Good Practice Guidance for Land Use, Land-Use Change and Forestry: Definitons and Methodological Options to Inventory Emissions from Degradation Of Forests and Devegetation of Other Vegetation Types. http://www.ipcc-nggip.iges.or.jp/public/gpglulucf/gpglulucf.html. 7 Murray, B.C., R. Lubowski, and B. Sohngen. 2009. Including International Forest Carbon Incentives in Climate Policy: Understanding the Economics. Nicholas Institute Report NI R 09-03. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University. http://www.nicholas.duke.edu. 8 If levels of leakage are unacceptable and discounting is not sufficient, compensation can be decoupled from the compliance market, using a fund rather than a market, or perhaps having a separate market for forest carbon (Center for Clean Air Policy Dual markets approach). 9 For more on project-level baselines see WRI greenhouse gas protocols at http://www.ghgprotocol.org/standards/project-protocol and CDM methodologies at http://www.cd4cdm.org/Publications/UNEP_CDM%20Baseline%20Meth%20Guidebook.pdf. 10 B. Griscom, D. Shoch, B. Stanley, R. Cortez, and N. Virgilio. Implications of REDD baseline methods for different country circumstances during an initial performance period. The Nature Conservancy. http://unfccc.int/files/methods_science/redd/application/pdf/redd_baselines_03_06_09.pdf. 11 Olander, L.P., B.C. Murray, M. Steininger, and H. Gibbs. 2007. Establishing credible baselines for quantifying avoided carbon emissions from reduced deforestation and forest degradation. Nicholas Institute Working Paper WP 07-05. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University. http://www.env.duke.edu/institute/wp-deforestation.pdf. 12 Terrestrial Carbon Group. 2008. How to Include Terrestrial Carbon in Developing Nations in the Overall Climate Change Solution. http://terrestrialcarbon.org. 13 Cattaneo, A. 2008. How to distribute REDD funds across countries? A stock-flow mechanism. Woods Hole Research Center Report. http://www.whrc. org/policy/PoznanReports/assets/Stock%20Flow%20Mechanism.pdf. Strassburg, B., R.K. Turner, B. Fisher, R. Scheffer, and A. Lovett. In Press. Reducing emissions from deforestation The combined incentives mechanism and empirical simulations. Global Environmental Change. 14 Mollicone, D., Frederic Achard, Sandro Federici, et al. 2007. An incentive mechanism for reducing emissions from conversion of intact and non-intact forests. Climatic Change 83: 477493. 15 Santilli, M., P. Moutinho, S. Schwartzman, D. Nepstad, L. Curran, and C. Nobre. 2005. Tropical deforestation and the Kyoto Protocol: An editorial essay. Climatic Change 71: 267276. Environmental Defense Fund (EDF) Compensated Reductions Memo. http://www.edf.org/documents/4875_CompensatedReduction_Overview.pdf. 16 Madeira, E.M. 2008. Policies to reduce emissions from deforestation and degradation (REDD) in developing countries: An examination of the issues facing the incorporation of REDD into market-based climate policies. Resources for the Future Report. http://www.rff.org/Documents/Publications/08_12_REDD_Report.pdf. 17 Durbin, J. 2007. Voluntary Markets: How to Achieve Co-benefits for Climate, Biodiversity, and People. Presentation to Poverty and Environment Partnership Meeting, November 20, Washington, D.C. 18 Dutschke and Angelsen 2008. How do we ensure permanence and assign liability? In Moving Ahead with REDD: Issues, Options and Implications, ed. A. Angelsen. CIFOR. http://www.cifor.cgiar.org. 19 Temporary crediting has been used for forestry projects in the CDM and has been barrier difficult for projects to overcome. 20 Waxman Markey American Clean Energy and Security Act of 2009 (H.R. 2454). 21 Avoided Deforestation Partners agreement between corporations and conservation organization in the U.S. http://adpartners.org/news_unity.html. 22 M. Grieg-Gran. 2006. The cost of avoiding deforestation. Report prepared for the Stern Review of the Economics of Climate Change. International Institute for Environmental Development. London. Eliasch 2008. Olander, L.P, and B.C. Murray. 2007. A new opportunity to help mitigation climate change, save forests, and reach development goals. Nicholas Institute Working Paper NI WP 07-03. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University. http://www.env.duke.edu/institute/unopportunity.pdf. 23 Exactly what those phases will look like is still under discussion, but a recent report lays out the latest vision for how this will work. Angelsen, A., S.
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Brown, C.Loisel, L. Peskett, C. Streck, and D. Zarin. 2009. Reducing emissions from deforestation and forest degradation (REDD): An options assessment report. http://www.redd-oar.org. 24 Ibid. 25 http://go.worldbank.org/57X9QKTON0. 26 http://www.undp.org/mdtf/UN-REDD. 27 Lieberman-Warner (S. 2191) and the Waxman-Markey Discussion Draft (H.R. 2454), which passed by subcommittee in the U.S. House of Representatives in May 2009, both set aside 5% of allowances for forest carbonrelated activities in the range of US$39 billion/year depending on C price. The EUs set-aside is 5% in the range of US$2.02.7 billion/year. 28 Coalition for Rainforest Nations (CfRN). 2005. Submission to UNFCCC COP11. Reducing Emissions from Deforestation in Developing Countries: Approaches to Stimulate Action. http://www.rainforestcoalition.org/documents/COP-11AgendaItem6-Misc.Doc.FINAL.pdf. 29 Bali Action Plan, Decision -/CP.13. http://unfccc.int/files/meetings/cop_13/application/pdf/cp_bali_action.pdf. 30 UNFCCC Official Document. Views on outstanding methodological issues related to policy approaches and positive incentives to reduce emissions from deforestation and forest degradation in developing countries. Submissions from Parties. FCCC/SBSTA/2008/MISC.4 GE.08-60858. http://unfccc.int/ resource/docs/2008/sbsta/eng/misc04.pdf; and Addendum. FCCC/SBSTA/2008/MISC.4/Add.2 GE.08-70452 (June 2 2008). http://www.forestsnow.org/ proposals/misc04a02.pdf. Those who suggest incorporating full land-use accounting suggest following the same approach used by developed (Annex 1) countries for including land use under the existing climate convention, which use the LULUCF good practices guidelines. http://www.ipcc-nggip.iges.or.jp/ public/gpglulucf/gpglulucf_files/0_Task1_Cover/Cover_TOC.pdf. 31 CfRN 2005. http://www.rainforestcoalition.org/documents/COP-11AgendaItem6-Misc.Doc.FINAL.pdf (see note 27). 32 http://www.epa.gov/climatechange/emissions/index.html. 33 Waxman Markey American Clean Energy and Security Act of 2009 (H.R. 2454). 34 Pedroni, L., Streck, C., Estrada, M. and Dutschke, M. 2007 The Nested Approach: A flexible mechanism to reduce emissions from deforestation. CATIE, Turrialba, Costa Rica. Arild Angelsen et al. 2008. What is the right scale for REDD? In Moving Ahead with REDD: Issues, Options and Implications, ed. A Angelsen. http://www.cifor.cgiar.org/publications/pdf_files/Infobrief/015-infobrief.pdf. 35 Olander et al. 2007 (see note 11). 36 Climate, Community and & Biodiversity Alliance (CCBA). http://www.climate-standards.org. 37 Cost of using a standards like CCBA includes auditing costs of $15,00030,000 every 5 years; monitoring and evaluation for attributes beyond carbon (cost variable); and project add-ons associated with enhancing the social and biodiversity benefits. 38 Personal communication with Joanna Durban, Jan. 12, 2009.
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Chapter 5 Addressing the Causes of Tropical Deforestation: Lessons Learned and Implications for International Forest Carbon Policy
Kathleen Lawlor
As U.S. policymakers consider inclusion of a mechanism for reducing tropical deforestation in U.S. climate change policy, it is important to review the insights and lessons learned from previous efforts to reduce tropical deforestation. The crisis of deforestation is not new: the international community has been attempting to reduce deforestation rates for decades. But because these efforts have not adequately addressed some of the principal causes of deforestationthe main one being commercial agriculturethey have seen limited success. We must review what we know about the complicated forces driving land-use change in the tropics in order to design a new mechanism and supporting policies that will be effective.
What causes tropical deforestation?

Much of what fuels deforestation comes down to economics. While forests provide many important environmental services to society (e.g., carbon storage, clean water, flood control), these services are not valued in the marketplace. In contrast, timber harvesting and production of agricultural goods on forested lands are highly valued, making forests worth more cut down than standing. In addition to these direct economic incentives, a host of other factors indirectly lead to tropical deforestation: road expansion, insecure property rights, and weak governance, to name a few.1 The interventions required to address direct and underlying causes of forest clearing will differ, but both must be addressed in order to reduce deforestation. Global demand for food, wood, and fuel Commercial agriculture, industrial timber harvesting, fuelwood collection, and small scale agriculture are the primary drivers of tropical deforestation and forest degradation (see Table 5.1).2 While small-scale agriculture and wood harvesting do result in deforestation and degradation, in those regions with the highest deforestation rates, the dominant factor causing deforestation is commercial agriculture.3 Industrial timber harvesting is also significant, but because logging in tropical forests is often selective, its direct effects are best described as degradation, or a reduction in forest cover. This degradation, however, can eventually lead to deforestation. Degraded forests are also more vulnerable to further exploitation and to fire.4 Estimates of deforestation rates vary (see Table 5.1). While the most recent comprehensive study of rainforest loss in the tropics using remotely-sensed data finds that Africa accounts for a small percentage of total rainforest clearing, FAO finds that Africa accounts for a high percentage of total forest loss (rainforest + other forests and woodlands). This may indicate that large areas of Africas forests and woodlands not technically considered rainforests are being cleared, though methodological differences in the two studies likely also contribute to the discrepancy in deforestation rates.
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Table 5.1. Regional variation in deforestation rates and drivers.

Region % of total tropical deforestation (rainforests only)* 60.4% % of total deforestation in the 3 regions (rainforests + other forests and woodlands)# 39.7% Principal direct causes of deforestation Hotspots*
Brazil accounts for an estimated 48% of total tropical rainforest loss South and 34.3% 24.9% Oil palm plantations and Indonesia accounts for an Southeast Asia industrial logging estimated 13% of total tropical rainforest loss Africa 5.4% 35.4% Small-scale agriculture and DRC is attracting more interest fuelwood harvesting from industrial agriculture and logging operations * Regional and national estimates from the most recent comprehensive study of pan-tropical deforestation rates using remotely-sensed data: Hansen et al. 2008. Humid tropical forest clearing from 20002005 quantified by using multitemporal and multiresolution remotely sensed data.5 # Regional estimates derived from FAOs 2005 Global Forest Resources Assessment Report, using hectares of forest cleared annually from 20002005.6
Latin America
Industrial cattle ranching and soy plantations
Pressure on the worlds forests will continue to grow. The worlds population is expected to increase about 50% to nearly 9 billion by 2050, and most of this growth will be in developing countries.7 Around the world, per capita meat consumption has doubled since 1950, and diets rich in meat and dairy require significantly more land than vegetable-based diets.8 China is now the worlds largest importer of industrial roundlogs, much of it from Papua New Guinea and West and Central Africa.9 U.S. demand for tropical wood contributes as well, as the U.S. is the worlds largest consumer of wood products. Much the wood fueling this trade is illegally harvested or of dubious legality.10 And on top of all of this is a growing demand for biofuels (currently from corn, soy, and palm oil) which may already be increasing pressure on tropical forests.11 The future impact of biofuels will likely depend on what extent second-generation biofuels (e.g., switchgrass grown on marginal lands, crop residues) are pursued (see Chapter 3, concern #4).12 In addition to global commodity demand, a suite of additional factors contribute to expansion of agriculture and logging into tropical forests: new roads open remote areas to exploitation and reduce transportation costs, low exchange rates and foreign debt encourage commodity exports, and subsidies lower production costs.13 New roads are created not only by planned transportation initiatives, but also by mining projects and oil and natural gas pipelines.14 A countrys level of economic development affects deforestation rates. There is some evidence that deforestation increases as per capita income increases, before stabilizing and then decreasing, with countries increasing their forest stocks as their citizens grow wealthier (Figure 5.1).15 While this pattern may vary, it provides a useful framework for understanding deforestation.16 Ambiguous property rights Forests in developing countries are primarily owned by the state. While many of the communities who reside in these forests claim customary rights or have some access rights to the resource,17 these rights are often not codified in law. There is significant variation in land rights distribution across countries (Figure 5.2). Uncertainty around property rights makes ownership
Figure 5.1. Forest transitions over time.
100%
High forest cover, low rate of forest loss
High rate of forest loss
Forest cover
Low rate of forest loss or net gain
Time
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of carbon even more uncertain. Peruvian law, for example, permits the state to grant rights to private entities and communities to sustainably manage and conserve forests, but not to own forests. It is thus unclear whether those that have been granted these use rights by the state also posses the right to enter into contracts and benefit from possible new international forest carbon policies.18 Because people living in forests often lack clear rights,19 they lack the authority to stop new settlers or commercial interests from deforesting. In addition, when longterm rights to the forest are not guaranteed, land users have an incentive for rapid and destructive exploitation rather than sustainable management. In some cases, deforestation is actually a means of establishing land rights.20 All these factors combine to make some areas of tropical forests de facto commons, where deforestation and conflict over contested resources can occur. Secure property rights alone will not reduce deforestation but can be a crucial part of the solution.
Figure 5.2. Forest ownership distribution in selected tropical countries in 2008.
Indonesia
Cameroon DRC
Administered by the government Designated for use by communities and indigenous peoples Owned by communities and indigenous peoples Owned by individuals and rms
Brazil
Source: Data from Sunderlin et al. 2008. From Exclusion to Ownership? Challenges and Opportunities in Advancing Forest Tenure Reform. Rights and Resources Intitiative Report. http://www.rightsandresources. org/documents/files/doc_736.pdf. Notes: Pie charts scaled to size of forest area, relative to other countries shown. A small amount of forest area is designated for use by communities and indigenous peoples in Indonesia (0.23 million hectares less than 1% of the countrys total forest area), which does not show up on this chart.
Weak governance Many tropical forest countries have relatively weak governance and government institutions.21 The agencies or departments in charge of resource management often have little or conflicted authority, little funding, and little or no transparency in decision-making and revenue flow. Unclear property and access rights, an absence of oversight and accountability, little or no opportunity for recourse or participation in decision-making for local communities (little role for civil society), and corruption are common characteristics of weak governance. Weak governance often leads to short-sighted actions and policies. Governments (or in cases of corruption, individuals within the government) earn significant revenue from commercial exploitation through taxes and fees. Large swaths of tropical forests are zoned for agricultural production, timber and mineral extraction, and hydrocarbon development.22 Even if governments attempt to address issues such as sustainable forestry requirements or illegal logging, agencies often lack the finances to monitor and enforce laws in these vast and remote landscapes. By some estimates, over half of the timber harvested in tropical forests is done so illegally.23 In some cases government actors play an active role in illegal deforestation. In the Democratic Republic of Congo, for example, weak government capacity, a lack of transparency, armed conflict, and a lack of energy sources for cooking within refugee camps combines to create a situation in which military elites vie for control of a lucrative charcoal trade that clears forests within a national park.24 It is important to note that focusing on legality and enforcement could harm forest-dependent people, since many lack legal title to the lands they have custom-
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arily occupied, putting them in a situation of de-facto illegality.25 Helping countries address weak governance is a critical part of any successful effort at sustainable development or reduced emissions from deforestation.
Previous efforts to reduce tropical deforestation

The U.S. has worked to conserve tropical forests for over two decades through a number of bilateral, multilateral, subnational, and national efforts using various conservation approaches. However, many of these programs have failed to address the leading direct cause of tropical deforestation, global commodity demand. Furthermore, these programs have had difficulty maintaining focus on reducing deforestation rates. Table 5.2 looks at the limitations and successes of some of the major bilateral and multilateral tropical forest conservation policy initiatives, and Table 5.3 examines the various conservation approaches used over the years. Assessing the separate impacts of conservation programs is complicated by the lack of rigorous empirical evaluations.26 Traditionally, many conservation programs have reported their impacts in terms of outputs (e.g., the number of people trained) rather than outcomes (e.g., number of hectares of deforestation avoided). But there is growing awareness of the need for rigorous evidence-based evaluations. While the persistence of high tropical deforestation rates could be viewed as evidence that few of these efforts have worked, it is possible that deforestation rates could have been even higher without these initiatives. Without a counterfactual, or estimation of what would have happened in the absence of the intervention, it is difficult to say conclusively.
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Table 5.2. Impacts of major multilateral and bilateral tropical forest conservation policy initiatives.
Initiative and Status Description Deforestation causes addressed
Timber production and various indirect causes
Contributions
Limitations
Tropical Forestry Action Plan (TFAP) Launched in 1985; ended early 1990s
Sought to reduce deforestation and promote sustainable development by formulating national action plans and increasing donor funding.
Doubled the amount of Implementation delayed by a top-down structure funding for forests and that did not allow for interventions initiated increased donor coordination.27 at project and subnational levels and slowed disbursement of donor funds. It was not clear whether the goal was sustainable development through timber management or reducing deforestation.28 Deforestation rates increased 40% during the TFAPs first 5 years.29 Battles over national sovereignty and the participation of forest people and civil society in the design of national plans further weakened political support for the TFAP.30 Has developed criteria, indicators, and guidelines for sustainable forest management. Reached an agreement in 2007 to establish a new program for sustainable forest management through 2015 and to move toward a voluntary financing mechanism for forests. Fosters regional and international cooperation. Addressing illegal logging has been contentious: explicit mention of illegal logging not made in an ITTO agreement until 2006.31
Multilateral
International Tropical Timber Organization (ITTO) Founded in 1985; ongoing United Nations Forum on Forests (UNFF) Began in 2001, with precursors at the UN dating back to 1992 Forest Law Enforcement and Governance (FLEG) Initiatives Launched 2001; ongoing
Seeks consensus between supplier and buyer countries of tropical wood on topics related to sustainable forest management. Seeks to negotiate an international agreement on forests.
Timber production
General
Negotiations stymied by disputes between developing and developed countries, including whether developed countries would pay for forest conservation.32 The 2007 agreement is not legally-binding and does not contain quantitative deforestation reduction targets. Principally addresses the supply and less so the demand for illegal wood. While the EU has a FLEG process to address illegality of their imports, it is through voluntary agreements with individual countries and therefore illegal wood can still enter from or through a country without a voluntary agreement.33 There are concerns that focus on legality and enforcement could harm forestdependent people, since many lack legal title to the lands they have customarily occupied, putting them in a situation of de-facto illegality.34 Contribution to countries overall debt loads may be minimal in some cases and therefore does not adequately address the deforestation cause targeted by program.37 Funding has declined in recent years.38 National conservation programs are often slow to become operational and there is little scientific understanding of on-the-ground conservation impacts. Supplier country laws may not always be adequate for addressing impacts of logging.
Regional roundtables that foster Timber production and ministerial declarations and processes weak governance to cooperatively address illegal logging.
Tropical Forest Conservation Act (TFCA) Passed by Congress in 1998; reauthorized in 2009
Restructures and reduces debt tropical countries owe to U.S. to generate funds in local currency for conservation. Funds managed by national boards, which extend grants to local conservation organizations.
Debt and various indirect Has generated substantial causes funds for local conservation efforts: 13 agreements projected to generate $162.5 million.35 Because funds are received over at least a 10 year period, it is a reliable, long-term source.36 A major regulatory initiative by the largest importer of tropical wood products is significant, but it is too early to evaluate its impact.
Bilateral
Lacey Act Passed by Congress in 1900; amended in May 2008 to expand scope to plant and wood products
Statute originally only addressed Illegal logging and U.S. wood and wood product illegal wildlife trade. Now it also makes it illegal to import into the U.S. demand plants that were harvested or traded in violation of the supplier countrys laws. This ban applies not only to timber but also to goods containing wood products, such as furniture. Importers are now required to declare the country of origin, quantity, and the plant species of their products.
Key lessons learned from the major multilateral and bilateral policy initiatives Failing to address global commodity demand greatly limits success. Existing policies and programs can help address underlying causesreducing debt and imports of illegal wood, and building countries governance capacity, but are not sufficient to reduce deforestation on their own. Failure to engage indigenous and other forest-dependent people has hampered success. A lack of clear program objectives and evaluation requirements makes it difficult to assess the impacts of conservation efforts on deforestation, biodiversity, and human welfare.
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The U.S. is also involved in tropical forest conservation through traditional overseas development assistance. In 1986, the U.S. Congress amended the Foreign Assistance Act to include Section 118 on tropical forests, recognizing the threat posed to societies from tropical deforestation and directing USAID to support conservation and sustainable forest management activities in the tropics. In fiscal year 2007, USAID funding for tropical forestry programs was $89.9 million and funding for the U.S. Forest Service Office of International Programs (USFS IP) was $6.88 million.39 These agencies work in numerous tropical countries to build the capacity of governments and communities to sustainably manage and conserve their forests. These efforts seek to address indirect causes of deforestation, such as weak government capacity, uncertainty over land ownership, and land-use and forestry policy. These programs use a vast array of conservation approaches (see Table 5.3). Until recently programs to reduce tropical deforestation primarily used protected areas and enforcement, sustainableuse programs, and governance reforms. More recently a Payments for Ecosystem Services (PES) approach has also been tried. Tropical countries will likely employ a combination of these approaches.
Table 5.3. Strengths and weakness of various conservation approaches.
Approach Protected Areas and Enforcement Description Parks, forest reserves, and reducing illegal logging Deforestation Causes Addressed Focused on timber and clearing for agricultural production Strengths Clear objectives; able to conserve significant amounts of forest when boundaries and rules enforced40 Weaknesses
Integrated Conservation and Development Programs
Improving alternative Small-scale and livelihoods and subsistence agriculture supporting and wood extraction sustainable uses for forest people and communities.
Governance Reforms:
Decentralization of ownership and/or forest management responsibilities to local communities (e.g., community forestry)
Ambiguous land tenure; short-sighted resource use decisions
Payments for Payments to Ecosystem Services individuals or communities for provisioning of erosion control, carbon sequestration, reduced emissions from deforestation, wildlife habitat, water filtration, etc.
Has potential to address timber harvest and clearing for agriculture by making standing forests more competitive with commodities
As site-specific interventions, parks may induce deforestation to simply shift to other areas. They can be located in areas of low threat,41 and be hampered by weak enforcement capacity.42 Parks sometimes disallow presence of people and force the resettlement of locals.43 Potential to improve Subsistence agriculture and wood livelihoods. Could help harvesting may be important conserve forests in those deforestation causes in some areas where small-scale landscapes, but minor in others activities are important (compared to their commercial causes of deforestation. counterparts).44 Participants may use new income streams to expand unsustainable practices.45 Not successful without local participation in program design.46 Provides foundation for Without financial incentives for sustainable management. conservation, communities sometimes There is some evidence choose to convert forests to agriculture that it can be more or engage in unsustainable logging.49 effective47 and costWithout democratic and transparent institutions governing management, efficient48 than state management. elite capture can occur at the local level, encouraging unsustainable practices that yield quick profits.50 Can be effective when There is a risk of non-additionality payments targeted to (payments for conservation that would those at risk of clearing.51 have happened anyway).53 While Can be more costpayments are usually conditional on efficient than indirect demonstrated results, this conditionality approaches.52 is monitored and enforced less when payments are made by governments instead of the users of the environmental service.54 Lack of secure tenure limits the participation of many forest communities.
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Lessons from the principal conservation approaches Failing to address global commodity demand limits success. Site-specific approachesprotected areas, integrated conservationcan have limited impact if deforestation shifts elsewhere. Broader efforts to address economic drivers like PES or national and regional land-use and road planning, removing agricultural subsidies, or clarifying land tenure are likely to have a greater and more cost-effective impact. Conservation tools protected areas, enforcement, and PESshould target areas at highest risk. Conservation can be hampered by ambiguous property rights that limit the participation of local people.
Implications for a U.S. approach to international forest carbon

The objective of international forest carbon policy is to reduce global GHG emissions by helping developing countries realize a development path where economic growth proceeds in tandem with conservation (for those countries with forests left to lose) or with accelerated regrowth and improved forest management (for those countries that have already lost much of their forest). An understanding of the forces driving tropical deforestation and the lessons learned from previous conservation efforts can offer important insight into how the U.S. might design an effective program to reduce deforestation. Performance-based programs could yield better results A consensus has emergeddomestically and internationallyaround a results-based approach using carbon finance to reduce deforestation. While early capacity building activities may be more loosely tied to results, the objective is to develop a program where tropical countries demonstrate a reduction in emissions from deforestation below an agreed upon national target or baseline before any payment changes hands. While traditional overseas development assistance (ODA) has not used results-based approaches, it could certainly establish performance criteria and make continued funding conditional on results. A results-based approach establishes clear goals, creates positive incentives for success, and fosters accountability. Further, a results-based approach would allow us to learn what works and what does not. Addressing the direct drivers of deforestation is essential The general idea behind emerging reduced deforestation and forest carbon programs is to change the costbenefit calculations landowners, companies, and governments make so that standing forests can economically compete with the commodities that drive forest clearing. Given what we know about leakage (see Chapter 4) and the global nature of demand and supply, it is worth noting that if carbon financing successfully outcompetes agriculture and timber in one location, demand could shift elsewherefor example to forested countries not participating in the program. The United States can help in a number of ways. Given that the U.S. is a major buyer of commodities it can have a significant impact by adjusting its contribution to demand (e.g., import controls, biofuels mandate, agricultural subsidies). While the U.S. is beginning to take strong regulatory actions to reduce illegally-harvested wood imports through the Lacey Act, it may be contributing to forest loss through other policies. Recent research suggests that U.S. biofuel policies may be leading to increased forest clearing for soy production in the Amazon.55 In addition, the United States can work to coordinate its development assistance across sectors to identify where aid to agricultural and infrastructure sectors are at cross purposes with reduced deforestation programs. And finally, the U.S. can reduce countries bilateral debts through TFCA and address multilateral debts by paying arrears to the World Bank to fully fund debt relief of countries under the Highly Indebted Poor Countries (HIPC) initiative.56
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The underlying drivers of deforestation must also be addressed through supporting policies and programs. Complementary efforts to address insecure property rights and governance and institutional reform (for legal, tax, judicial, and natural resource management institutions) will be essential in many countries and will help enhance the efficiency and effectiveness of reduced deforestation programs. New financing beyond the ODA currently directed toward conservation globally will be needed. The U.S. could target existing programs to underlying drivers, but will also likely need supplemental revenues from a climate policy. Importantly, recent bills in the U.S. congress provide additional support through an allowance set-aside provision. Allowing early action generates momentum and learning Previous multilateral efforts show that the international community may take years to reach consensus and implement global policy. The U.S. can act more quickly if it enacts domestic climate legislation that includes international forest carbon, perhaps like that currently under consideration by Congress (see Chapter 2). The U.S. can even initiate action prior to the enactment of a U.S. program through existing agencies and programs (e.g., assessing existing subsidies and ODA programs, redirecting ODA to best align with forest carbon policies, bringing performance-based measures to the TFCA). To avoid one of the pitfalls of the Tropical Forestry Action Plan (slow startup time due to top-down structure), the U.S. could allow for subnational projects to participate in an international forest carbon program while national capacities and monitoring systems are being built. Such early actions would generate significant learning that could be used to improve future efforts once systems are up and running. Significant and reliable sources of financing are required Previous efforts have been unable to generate the levels of funding needed to slow and stop deforestation. It is unclear how much it will actually cost. Estimates based on just the opportunity costs of the alternative land use (i.e., the profits that could be generated from an alternate land use, such as agriculture) indicate a range in the tens of billions of dollars. One recent estimate puts the cost of a 50% reduction in tropical deforestation rates at $17.2 to $28.0 billion per year.57 And this is likely an underestimate because it does not include transaction or implementation costs. These models also do not adequately capture the feedbacks that might occur between commodity prices and the opportunity costs of taking land out of production.58 Traditional ODA flows have been unable to come close to this level. The World Bank reports total international ODA contributions to the forestry sector were roughly $2 billion per year between 2005 and 2007, $700 million of which was for forest conservation.59 U.S. bilateral ODA (through USAID, USFS IP, TFCA, and the State Department) for tropical forest conservation was just under $120 million in 2007.60 Linking tropical forest conservation to carbon markets, however, could generate unprecedented levels of funding: an estimated $18$85 billion dollars per year61getting closer to the potential cost. New and alternative supplies of energy, wood, and food are needed to satisfy rising demand To successfully achieve and sustain reductions in deforestation new approaches for meeting rising global and local demand for food, timber and energy will be needed. This will require production systems that use less land by increasing productivity, for example, improved timber and agricultural management. It may also involve the use of high productivity cultivars appropriate to tropical environments. Sustainable agroforestry practices (the incorporation of native trees and forests with agricultural systems) can also conserve high amounts of carbon (and biodiversity).62 In addition, marginal lands could be used for carbon sequestration, fuel production and other commodities where the land can sustain such use. Developing more efficient commodity production will be an essential part of national planning for countries that want to engage in forest carbon programs. It is critically important to engage the producers (e.g., timber and agricultural suppliers and buyers). Finding ways to incentivize increased productivity of land use through forest carbon financing and complementary ODA is a critical part of the solution.
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Engaging forest communities could enhance program effectiveness Engaging rather than excluding indigenous and other forest-dependent communities at the outset could avoid costly political battles down the road, which have marred previous forest conservation initiatives. Given their proximity to the resource, forest communities can be effective agents of conservation or of deforestation depending what incentives they are provided. Forest communities could help with enforcement in remote areas by blocking illegal extraction and stopping fires; they could also help provide oversight, improving transparency of financial flows. To achieve cooperation and participation from communities and individuals, programs will need to address property rights and extend sustainable management incentives to forest users. Given that the land where the forest-dependent poor reside will be more valuable than ever in the context of forest carbon programs, countries may resist sharing property rights with forest people. To address these risks, the U.S. could adopt specific policies that uphold internationally-recognized human rights and promote transparency and citizen participation in revenue management, tenure and forest zoning reforms, and national program design and implementation.63 The recent Waxman-Markey bill (HR 2454) includes language regarding protecting and engaging local people and communities.
Conclusion
Deforestation is the product of many complex forces, some of which are very difficult for national governments to control. The results of previous tropical forest conservation efforts indicate that it is hard to stop deforestation. While it is hoped that valuing forests for their avoided carbon emissions will send a sufficient price signal to tropical governments to reduce emissions from deforestation, there is no magic switch governments can flip to stop drivers of deforestation. Forest carbon programs need to provide and sustain significant financing and assistance for the design and implementation of alternative development pathways for tropical forest countries. Population and demand for food, wood, and energy will continue to grow. Where possible these forces must be countered by local economic development that involves alternative livelihoods and enhances the efficiency of commodity production.
References
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Us for Effectively Reducing Emissions from Deforestation and Forest Degradation? http://www.eia-international.org/files/reports175-1.pdf. 11 Laurance, W. F. 2007. Switch to corn promotes Amazon deforestation. Science 318: 1721. There is some evidence that U.S. biofuel policies subsidizing domestic corn production are causing U.S. farmers to switch from producing soy to corn, leading to increased soy production in the savannas and forests of Brazil. 12 Gallagher, E., 2008. The Gallagher Review of the Indirect Effects of Biofuels. East Sussex, UK: Renewable Fuel Agency. 13 Pfaff, A.P., 1999. What Drives Deforestation in the Brazilian Amazon? Evidence from Satellite and Socioeconomic Data. Journal of Environmental Economics and Management 37: 2643. Chomitz 2007. Kaimowitz et al. 1998 and B. Mertens, W.D. Sunderlin, and O. Ndoye. 2000. Impact of Macroeconomic Change on Deforestation in South Cameroon: Integration of Household Survey and Remotely-Sensed Data. 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Inhibition of Amazon deforestation and fire by parks and indigenous lands. Conservation Biology 20(1): 6573; Adeney, J.M., N.L. Christensen, and S.L. Pimm. Reserves protect against deforestation fires in the Amazon. (in press); Agrawal, Arun. 2002. The regulatory community: Decentralization and the environment in the van panchayats (forest councils) of Kumaon, India. Mountain Research and Development 21(3); Somanthan, E., R. Prabhakar, B.S. Mehta. 2005. Does decentralization work? Forest conservation in the Himalayas. BREAD Working Paper No. 096; Alix-Garcia, A. De Janvry, E. Sadoulet. 2004. A Tale of two communities: Explaining deforestation in Mexico. World Development 33(2): 219235; Stocks, A., B. McMahan, P. Taber. 2007. Indigenous, colonist, and government impacts on Nicaraguas Bosawas Reserve. Conservation Biology 21(6): 14951505. 48 Somanthan, E., R. Prabhakar, B.S. Mehta. 2005. Does decentralization work? Forest conservation in the Himalayas. BREAD Working Paper No. 096. 49 As observed in Mato Grosso, Brazil: Fearnside, P.M. 2005. Indigenous peoples as providers of environmental services in Amaznia: Warning signs from Mato Grosso. 187198. In Global Impact, Local Action: New Environmental Policy in Latin America, ed. A. Hall. University of London, School of Advanced Studies, Institute for the Study of the Americas, London, UK 321 pp. As observed in East Province of Cameroon (Oyono, P.R. 2005. Profiling Local-Level Outcomes of Environmental Decentralizations: The Case of Cameroons Forests in the Congo Basin. The Journal of Environment & Development 14(3): 317337; Indonesia (see Ribot 2002 for source); and Papua New Guinea (source). 50 Ribot, J. 2002. Democratic Decentralization of Natural Resources: Institutionalizing Popular Participation. Washington, D.C.: World Resources Institute. 51 Studies have found that the U.S. Conservation Reserve program has conserved lands that would otherwise not have been conserved, though others note that more research on the additionality of the program is needed. See Classen, R., R. Cattaneo, R. Johansson. 2008. Cost-effective design of agrienvironmental payment programs: U.S. experience in theory and practice. Ecological Economics 65: 738753. 52 Ferraro, P.J. and R.D Simpson. 2005. Protecting Forests and Biodiversity: Are investments in eco-friendly production activities the best way to protect endangered ecosystems and enhance rural livelihoods. Forests, Trees and Livelihoods 15: 167181 53 Sanchez-Azofeifa, G.A., A. Pfaff, J. A. Robalino, J.P. Boomhower. 2007. Costa Ricas Payment for Environmental Services Program: Intention, Implementation, and Impact. Conservation Biology. 54 Wunder, S., S. Engel, S. Pagiola. 2008. Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries. Ecological Economics 65: 834852. 55 There is some evidence that U.S. corn subsidies cause U.S. farmers to decrease their production of soy in order to increase their production of corn; this causes global soy prices to increase, resulting in increased production of soy in the Amazon to meet continued demand. See: Laurance, W. F. 2007. Switch to corn promotes Amazon deforestation. Science 318: 1721; Laurance, W. 2008. New Scientist. 56 U.S. is in arrears on IDA replenishment. This translates to U.S. not fully funding its share of debt relief under the HIPC initiative, according to recent GAO report: U.S. Government Accountability Office. 2009. The United States Has Not Fully Funded Its Share of Debt Relief, and the Impact of Debt Relief on Countries Poverty-Reducing Spending is Unknown. Washington, D.C.: U.S. GAO. 57 Kindermann, G., M. Obersteiner, B. Sohngen, J. Sathaye, K. Andrasko, E. Rametsteiner, B. Schlamadinger, S. Wunder, and R. Beach. 2008. Global cost estimates of reducing carbon emissions through avoided deforestation. PNAS 105(30): 1030210307. 58 Murray, B.C., R. Lubowski, and B. Sohngen. 2009. Including International Forest Carbon Incentives in Climate Policy: Understanding the Economics. Nicholas Institute Report NI R 09-03. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University. http://www. nicholas.duke.edu. 59 World Bank. 2008. Climate investment funds: mapping of existing and emerging sources of forest financing. First Design Meeting on the Forest Investment Program, Washington, D.C., October 1617. http://siteresources.worldbank.org/INTCC/Resources/Mapping_study_Final_for_FIP_Design_Meeting_Oct_16-17_08.pdf. 60 USAID. 2008. USAIDs Biodiversity Conservation and Forestry Programs, FY 2007. 61 Murray et al. 2009 (see note 68). 62 Vandermeer and Perfecto 1995; B. Swallow et al. 2007. Opportunities for Avoided Deforestation with Sustainable Benefits: An Interim Report by the ASB Partnership for the Tropical Forest Margins. Nairobi, Kenya: ASB Partnership for Tropical Forest Margins. 63 Lawlor, K., L. Olander, and E. Weinthal. 2009. Sustaining Livelihoods While Reducing Deforestation: Options for Policymakers. Nicholas Institute Working Paper. Durham, North Carolina: Nicholas Institute for Environmental Policy Solutions, Duke University.
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Chapter 6 Experience on the Ground, in the Forests

John O. Niles
Since 2005 efforts to include tropical forests in climate policy have gained surprising momentum. These policy developments have been accompanied by a proliferation of new forest carbon project proposals worldwide. International forest carbon projects in developing countries are highly diverse in terms of location, scale, and approach. Some of these conservation efforts are oriented to conserve specific forest blocks; these are often referred to as projects. Other efforts are wider in scope and involve more state, provincial, and regional policies and measures. An example of a site-specific project is the Maya Selva project in Calakmul, Mexico. This project has been raising funds and paying specific local communities to not deforest certain areas for several years. Other efforts involve regional or state plans and policies to lower deforestation for vast areas. Examples of this include the Governors of Cross River State (Nigeria), Aceh Province (Indonesia), and Amazonas (Brazil) who have begun taking steps to curtail regional rates of deforestation and raise forest carbon funds. These regional initiatives cover hundreds of thousands of hectares of threatened forests. Even more sweeping plans are being pursued by some national governments in the developing world: the governments of Guyana, Brazil, and Peru have announced they will lower national deforestation rates if developed countries provide adequate financing. Two new funds run by the World Bank and the United Nations have raised tens of millions of dollars to help developing countries reduce national rates of deforestation.
A proliferation of forest carbon projects

Hundreds of new international forest carbon projects in various stages of development have sprung up in the past few years. Although there is no central database, several resources have catalogued this growth in forest carbon projects.
Table 6.1. Developing country forest carbon initiatives.
Number of listed Description projects (planned) Forest Carbon Partnership Facility national 25 Countries submit initial plans and are in various stages of receiving capacity funds UN-REDD national 9 (potentially 12 Early stages of implementation total) Climate, Community & Biodiversity project 20 (at least 12 more Early-stage projects CCBA validated for various projected Alliance (CCBA) planned) impacts Forest Portal project 20+ A new web-based resource listing projects Plan Vivo project 3 Projects meet technical specifications and can issue Plan Vivo certificates Carbon Fix project 1 (8 more planned) Projects accredited to Carbon Fix Certificates Voluntary Carbon Standard project none (dozens Projects registered, validated, and verified to issue VCS offsets planned) Notes: 1) National forest carbon initiatives are not in any sense owned or managed by the World Banks FCPF. However, the FCPF website is an authoritative resource for up-to-date information on national forest carbon strategies. 2) Some projects are on multiple sites. 3) This is not an exhaustive list of all databases. 4) Many projects, especially ones in early stages and those championed by private parties, do not make their proposals publicly available. Other projects and government efforts have simply begun enforcing illegal logging laws and taking other measures to reduce deforestation; many of these do not even have concept papers or formal proposals. 5) It is widely assumed that in 2009 several forestry projects will apply to be registered by the Voluntary Carbon Standard. System/database Scale
In addition to these databases of projects, many unlisted projects are in various stages of development. According to the World Bank, Indonesia has at least 20 subnational forest carbon projects, many of them championed by private nonprofit or for-profit partners.1 Brazil, Madagascar, and Mexico are other countries with multiple subnational forest carbon projects within their jurisdictions.
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Nongovernmental groups have also been active. Conservation International (a U.S. nonprofit) has several dozen forest carbon projects underway worldwide.2 Other large NGOs such as The Nature Conservancy (TNC) and Fauna and Flora International (FFI) have multiple projects they are developing or operating with local partners and private companies. TNC has forest carbon projects in Bolivia, Belize, Brazil, Indonesia, and China (as well as projects in the United States). FFI has created a special task force with Macquarie Bank of Australia to develop six initial forest carbon projects worldwide. Importantly, the vast majority of forest carbon initiatives (national or subnational) are still in the development phase. Only a handful of these subnational forest carbon projects have been operating more than a few years. These older projects include the Noel Kempff project (Bolivia),3 the Mantadia project (Madagascar),4 the Scolel Te (Mexico),5 the Mbaracayu project (Paraguay),6 the Selva Maya Carbon Offset project (Mexico),7 the Nhambita project (Mozambique),8 and a few others. To some extent, all of these projects make payments to communities for not deforesting. Of the projects that have been operating, there is no central depository for project information such as audits, reports, or carbon credits registered or sold. Only the Nhambita project in Mozambique has a comprehensive public library of information on the project (see Appendix for details on this project). Thus, despite the growing enthusiasm for forest carbon policies and projects, there is little quantitative information to evaluate successes or failures of forest carbon projects. This is likely to change in the coming year for several reasons. First, several new voluntary carbon standards are maturing, notably the Voluntary Carbon Standard (VCS)9 and the Climate, Community, and Biodiversity Alliance (CCBA).10 Other tools are emerging, such as the recent Forest Carbon Portal from Ecosystem Marketplace which tracks forest carbon projects.11 These systems, although unregulated, will begin to aggregate useful information over the next few years. Additionally, as negotiations accelerate toward a UN or U.S. policy on international forest carbon, developing countries may begin to require subnational projects to register domestically. Finally, many projects will begin to move beyond the startup phase and begin operations and external auditing. Even with these limitations, there are common attributes and conclusions that might help inform policy development.
Common features of forest carbon projects

Although every forest carbon project is unique, most have common elements, including: Performance-based forest conservation One novel aspect of forest carbon projects is that project finance and payments are directly linked to the amount of prevented deforestation or achieved reforestation. This is arguably the most exciting and controversial dimension to forest carbon projects. It is exciting because performance-based payments transform the donor-based approach to conservation (see Chapter 5) to one in which developing countries are paid for performing a service. In the case of REDD, the service is reducing deforestation and the payments reflect the perceived value of greenhouse gas emissions reductions. This evolution from environmental charity to ecosystem trade has captured the imaginations of many, as evidenced by the number of new projects, regional and state proposals, and national funds contingent on more aggressive forest protection and conservation. The concept has led to a renaissance in tropical forest conservation. The intellectual and financial capital currently being invested in forest carbon has led to new means for involving communities in sustainable forest management, new funds from developed nations and private foundations, and technical innovations that improve ways to assess forest carbon across large areas of land. The performance-based approach is not without controversy, however (see Chapter 3). Some fear a marketbased conservation system will just be one more way for foreign companies, federal governments, or elites in an area to take rights away from forest-dependent communities. There are concerns that ecosystem markets will replace traditional forms of conservation finance (such as charities and overseas development assistance) and that this approach will only benefit stable countries. What most people can agree on, however, is that linking
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forest carbon projects to markets fundamentally changes the nature of conservation. This approach requires new sets of scientific tools (known as methodologies) that quantify what carbon emissions have been avoided. But as we discuss below, agreed-upon methodologies have yet to be developed. Projects usually start as an idea and then progress to a project Simple as it may sound, most forest carbon projects start when someone or some group decides to save a threatened tropical forest. Forest carbon projects can be ephemeral in their earliest stage. Many initiatives begin with proclamations about how an NGO, municipality, or government would use carbon finance to slow deforestation. For instance at the United Nations Framework Convention on Climate Change (UNFCCC) COP 13 in 2007, three governors that hold vast tropical forests announced they would severely curtail deforestation if developed countries came forward with adequate financing. The governors from Papua and Aceh Provinces in Indonesia and Amazonas State in Brazil all gave impressive speeches.12 But these speeches did not rest on newly promulgated laws or regulations. The governors did not have comprehensive plans to stop deforestation in their proverbial back pockets. Instead, these governors sought to attract interest, finance, and partners. In the case of these three governors, their voices were heard. At the same UNFCCC meeting in 2007, billions of new dollars in funding were announced by developed countries. The government of Norway alone committed several billion dollars over the next few years to help confront tropical deforestation.13 Since late 2007, all three governors noted above have gone on to develop impressive forest carbon concepts. All three initiatives really started, at some basic level, with an idea. In the case of Aceh, Indonesia, Governor Irwandi Yusuf is a champion of forest conservation and his personal history and commitment to forest conservation are inextricably linked. Irwandi was a captured Aceh separatist rebel when the devastating 2004 tsunami struck, and he was literally able to break out of prison. After a subsequent peace accord, Irwandi was democratically elected the governor of Aceh. In May 2007, soon after being elected, Governor Irwandi declared a temporary logging moratorium and personally drove his Land Rover to arrest illegal loggers. Governor Irwandi put together a credible forest carbon partnership that turned his vision into a serious proposal. Less than a year after his initial logging moratorium, the Ulu Masen avoided deforestation project, covering 750,000 hectares, had become the first major REDD project independently validated against the CCB Standards (February 2008). A few months later in April 2008, Merrill Lynch announced it would invest a minimum of $9 million (and possibly as much as hundreds of millions of dollars) into Governor Irwandis vision for conserving the last large unprotected forest in Sumatra.14 Although the story in Aceh is unique, the majority of forest carbon projects start, simply enough, with someone who needs money to curtail deforestation. Unlike before 2005 (and the current enthusiasm for international forest carbon and REDD), these days if some group or government has a credible plan to stop imminent deforestation, governments and donors are more keen to listen and become involved. Three key attributes of forest carbon projects Although every project is different, forest carbon proposals all have three key attributes: a threat (deforestation), solutions, and someone empowered to implement the solutions. Threat All forest carbon projects begin with the premise that unless compensation is provided, deforestation in a given area will occur. Identifying the threat is essential to demonstrating the additionality of the project (see Chapter 4). Most projects prove their additionality by demonstrating that current financial incentives in the area (logging, subsistence farming, plantations, ranching) have and will continue to cause deforestation. The threat is often backed up with remote sensing work, economic arguments, or facts about nearby deforestation rates.
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Solutions Forest carbon projects also provide a general sense of what will be done to abate the deforestation threat, be it increased enforcement, alternative livelihoods for local communities, or other conservation tools. While a forest carbon project could involve just one action (e.g., canceling an active logging concession), all known projects use combinations of tools to prevent deforestation. Many forest carbon projects pursue positive social and environmental activities (such as tree nurseries or payments to communities) to complement regulatory measures (such as increased enforcement, canceled logging rights, or new land-use restrictions). This reflects the growing consensus that alternative livelihoods are critical to stop deforestation for long periods (see Chapter 5). This new consensus believes such complementary measures must make conservation financially more attractive and enduring to stakeholders than deforestation. Many forest carbon proponents also view economic development as critical to alleviating local leakage and building sustained community support, and thus helping ensure longevity of carbon abatement. Someone in charge To succeed, forest carbon proposals also need a central authority. This varies depending on the scale of the project. Obviously, national avoided deforestation initiatives, like those listed at the World Bank and UN, have federal governments in charge. Subnational projects are often championed by private groups (profit or nonprofit) and usually engage local or regional governments. Many subnational projects have engaged private companies that help develop and pre-finance projects (and expect to make a profit). One critical reason it is important for projects to state who is in charge is because often there is disagreement about who owns forest carbon in developing countries (see Chapter 5). Commitment to measurement and independent review At the national level, developing countries are just beginning to think about how they will measure carbon stocks, rates of deforestation and other variables for entire countries over time. The national REDD plans published at the World Banks Forest Carbon Partnership Facility15 describe various governments plans to confront deforestation and measure progress. Most developing countries are actively deciding how to combine remote sensing information on land cover change with field measurements on carbon stocks.16 Some countries are already doing elaborate national monitoring and peer review of forest carbon stocks (Mexico17) and forest cover change (India and Brazil). Most governments already report national-level statistics on forest cover change and carbon stocks to various international bodies that involve modest levels of review.18 Most subnational projects have plans to measure, report, and verify reductions in deforestation and associated carbon emissions. In the voluntary space, the CCBA has thus far only validated subnational forest carbon projects and all projects undergo external review. The pending Voluntary Carbon Standard also requires multiple layers of external review of monitoring plans and other aspects. During these reviews (and depending on the system), auditors might evaluate forest carbon stock estimates, business-as-usual land-use change scenarios, estimates of leakage, and other variables required for emission reductions to be quantified. Auditors also are involved with assessing how baselines are calculated and how carbon credits are generated and monitored. Third party audits help lend legitimacy to projects and have been useful to projects for identifying interested potential buyers or project partners.
What lessons have been learned from early forest carbon activities?
Sustainable forest management in developing countries is difficult. Decades of well-intentioned efforts, agreements, meetings, reports, and funding have made some strides in slowing deforestation, but have not been widely successful (see Chapter 5). Most real on-the-ground challenges to forest carbon projects in developing countries are the same challenges facing any conservation programs (or any development programs for that matter). These challenges are basic and rudimentary: poverty, poor infrastructure, lack of funding, underdevelopment, poor capacity and educa-
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tion, weak institutions, corrupt governance. Forest carbon finance may help provide a new set of incentives to save and restore forests and to address these challenges across political scales, but arresting forest declines and transitioning to sustainable forestry is not something for which there is an easy solution or playbook. So while the new focus on performance-based payments for international forest carbon has created a resurgence in solutions to saving and restoring tropical forests, serious challenges remain ahead. What lessons have been learned from the past few years of enthusiasm for new forest carbon projects and policies? Lesson 1: Science can support forest carbon markets There have been substantial developments in the technical and scientific underpinnings of forest carbon credits. The past few years have seen a steady rise in innovation on how to create consistent and reliable metrics for a credible, additional forest carbon credits. These developments include refined scientific applications for estimating baselines of deforestation, new methods for estimating land cover changes, and a growing set of tools to understand the carbon content of forest and of avoided emissions. These new tools are being demonstrated at the UN website for REDD19 and through the work of forest carbon projects and methodologies in the voluntary markets and in multilateral funds. Lesson 2: There is massive interest in using carbon finance to stem deforestation Given Lesson 1, donors and developing countries alike want to use carbon finance and performance-based payments to make positive impacts on forest use worldwide. This interest is clear at the policy level (for compliance credits or units within the UNFCCC and in U.S. legislation) and also in voluntary carbon markets. Philanthropic giving in the area has also grown. All of this suggests that if clear rules and methodologies can be developed, substantial conservation innovation can occur rapidly. Lesson 3: Capacity is rapidly growing The generosity of donors and the eagerness of subnational and national constituents to use carbon finance have spawned a new corps of experts in international forest carbon. A few years ago, there were probably a few dozen experts in the field. Today, there are hundreds of new projects, funds, and initiatives to train and educate developing country forest carbon practitioners. The World Bank, the government of Norway, and numerous private initiatives have begun to fund training for countries and projects. Governance capacity is also growing. Many countries are developing national strategies to address deforestation through new policies and programs. These national innovations are being informed and abetted by many subnational forest carbon projects. Although there is always room for capacity growth, the trend is clearly positive in this regard. Lesson 4: Political uncertainties slow investment in projects Many projects making clear strides to reduce deforestation and emissions are having a hard time financially. There are hundreds of initiatives that involve clear deforestation threats, clear solutions, and clear leadership ready to roll up their sleeves and work. Most of the new funds released by donor governments (Norway, the UK, and others) are oriented toward enhancing capabilities in developing countries, collecting baseline information, and other technical work. Only one forest carbon fund, the Congo Basin Forest Fund, has made a strong commitment to get money rapidly to real forest carbon projects on the ground. And even this effort, which received 188 proposals in its first round (94 which met the Funds stated criteria), was only able to fund a handful of projects with clear conservation benchmarks. Private investment focused on future compliance markets will be slow to materialize until there is greater political certainty. Lesson 5: Who owns forest carbon rights is still a vexing issue There has been considerable progress and experience in understanding how to involve local forest communities and people in forest carbon projects.20 This includes both legal deliberations in many countries (e.g., who owns forest carbon and what rights they have) as well as practical considerations such as how to deliver funds to local
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people and how to guarantee financial transparency. Still, many countries have yet to meaningfully grapple with the concept of who really owns forest carbon. This will be particularly difficult given that ownership of forests and land in many developing counties is often uncertain and sometimes faces conflicting jurisdiction (see Chapter 5). The question of carbon ownership and rights will have no easy answer, even in those few developing counties where forest ownership is more certain. Countries will need to decide how local forest guardians and tenants will be engaged. This question remains a contentious topic for many forest communities, for multilateral funders, for many nongovernmental organizations involved in brokering and fostering projects, and for the U.S. and international communities negotiating forest carbon policies. Many concerns about communities and carbon credits are being raised in part simply because someone is finally listening to community concerns. Lesson 6: Its hard to move from inception to implementation Probably the most important lesson of the past few years is that forest carbon projects in developing countries are easy to imagine, but hard to make a reality. Currently there are hundreds or even possibly thousands of new forest carbon project concepts and proposals. Only a handful have gone from project inception and design to acquiring funding and implementing real forest conservation and restoration activities to verifying carbon credits against specified methodologies. This, despite growing financial support for capacity development in REDD and international forest carbon. This suggests short-term funding should target both broad capacity outreach as well as specific support to help projects advance. It also suggests that donors, investors, and the public at large should be patient, as these projects take time. One NGO (Conservation International) estimates it takes around 29 months to go from project inception to implementation.21 Part of the reason for the abundance or project proposals and the lack of forest carbon credits is the relative novelty of using carbon finance for sustainable forestry. Before 2005, the concept of carbon-based payments for avoided deforestation or forest restoration was still highly questionable. Since then, there has been significant political momentum and interest by projects and countries to implement forest carbon projects. But the lack of methodologies and uncertain policy environment has made real progresson the ground, in the forestslow. The momentum behind REDD and international forest carbon, however, is picking up. There are many technical and institutional studies under way to help projects begin more rapidly and successfully, once policy decisions are made and international forest carbon funding is clarified.
Conclusion
Forest conservation in any country, developed or developing, is a massive challenge. Success is never certain, and even when achieved, it is never guaranteed. Conservation must succeed year after year, hectare by hectare, often in the face of growing resource and economic demands. Forests in many developing countries face overwhelming pressures to be cut, cleared, and burned (see Chapter 5). Reducing rates of tropical deforestation has been an elusive goal for many countries and donors alike. The concept of performance-based payments for sustainable tropical forest carbon management has raised the hopes of many. Tying finance to actual achieved and measured conservation is likely to introduce new ways for reducing deforestation and increasing sustainable forest management. Even with policy and methodological uncertainty and other challenges, new conservation policies are being explored, new partnerships formed, and new approaches to conservation vetted. Decision makers should monitor and consult with real forest carbon projects to ensure that any new forest carbon policies are practical and effective at making conservation succeed on the ground.
References
1 Fogarty, D. 2009. Indonesia forest CO2 rules need finance clarity: Experts. Reuters UK. http://uk.reuters.com/article/behindTheScenes/idUKTRE5471I620090508. 2 http://conservation.org/learn/forests/Pages/overview.aspx.Viewed February 12, 2009. 3 http://www.noelkempff.com. 4 http://wbcarbonfinance.org/docs/Day_4a_BioCF_-_CI_Madagascar_Andr%C3%A9_Aquino_BioCF_Training_Jan08.ppt#633,11,Emissions Reductions & financing.
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5 http://www.planvivo.org/fx.planvivo/scheme/mexico.aspx. 6 http://www.ecosystemmarketplace.com/pages/article.news.php?component_id=5493&component_version_id=&language_id=12. 7 http://www.rainforest2reef.org/donate_carbon.html. Viewed January 12, 2009. 8 http://www.planvivo.org/fx.planvivo/scheme/mozambique.aspx. 9 http://www.v-c-s.org. 10 http://www.climate-standards.org. 11 http://www.forestcarbonportal.com. 12 http://tropicalforestgroup.org/news/7_dec_cop.html. 13 http://www.regjeringen.no/en/dep/md/Selected-topics/klima/why-a-climate-and-forest-initiative.html?id=526489. 14 http://www.ml.com/index.asp?id=7695_7696_8149_88278_95339_96307. 15 http://go.worldbank.org/57X9QKTON0. Viewed January 12, 2009. 16 Davis, Crystal et al. A Review of 25 Readiness Plan Idea Notes from the World Bank Forest Carbon Partnership Facility. WRI Working Paper. World Resources Institute, Washington, D.C. February 2009. http://www.wri.org/gfi. 17 http://unfccc.int/files/methods_and_science/lulucf/application/pdf/080625_mexico.pdf. 18 Most developing countries are doing this in at least two ways: 1) via national communications from countries to the UNFCCC secretariat, and 2) via the Food and Agricultural Organization (FAO). These two channels do not use compatible standards and often yield different results. The level of review is generally cursory. 19 UNFCCC REDD platform: Methods and Tools. http://unfccc.int/methods_science/redd/methodologies/items/4538.php. 20 Although some would say still woefully inadequate discussions and deliberations. 21 Personal communication with S. Pandya.
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Appendix Nhambita Pilot Project (Mozambique) Miombo Community Land Use and Carbon Management
Location: Central Mozambique, East Africa
Mato
EN1
H a ra re
EN1
Quelimane Matondo
Zamb z i a
Zam be zi Riv er
102 EN1
215 (Casa Banana Road)
Inhaminga
102 EN1
215 (Casa Banana Road)
Inhaminga
M anic a
Pung
Vila Gorongosa
ue Riv er
S ofala
213
M u t a re
Chitengo
EN6
Muanza
Pu n
Vila Gorongosa
gue Riv er
Gorongosa National Park Chitengo
So
213
Chimoio
EN1
ZIMBABWE
Manica
Inchop e Nhamatanda
EN1
D ondo
EN6
M anic a
M u t a re
Muanza
B e i ra
Buzi River
EN6
Mozambique
Chimoio
EN1
Inchop e Nhamatanda
EN1
Nhambita Pilot Project

Save River
M a n i ca
Buzi Riv er
EN1
D ondo
EN6
V ilank ulo
B e i ra
Inhambane G aza
EN1
INDIAN OCEAN
Quick Facts Operating since 2003 as a pilot project with public funding and 2008 with private funding
Lim popo River
Approximate number of full-time employees: Around 150 Estimated tCO2e produced so far: 280,000 VERs between 2002 and 2008 covering an area of 12,000 hectares (approximately 21,500 football fields) Scientific standards/methods used: 1) using Plan Vivo; 2) applying to Climate, Community & Biodiversity Standards; and 3) considering application to Voluntary Carbon Standard.
SOUTH AFRIC A
M axixe Inhambane
Maputo
Xai-Xai
EN1
Legend
National Road Secondary Road Dirt Road Provincial Boundary
Johann
esburg
4 4 251
EN1
M a p u to
2
Capital City Town Small Town Airport
Approximately 70% of farmers in the community (out of almost 2,000) are involved with the project.
SWAZIL AND
Gas Station Gorongosa National Park River
Core Activities
Fire prevention and management (including early season burns) Community-based forest conservation and enforcement Reforestation and sustainable forestry, including orchids, fruit trees, woodlots, shade trees, etc.
Description
The Nhambita project is a community-based forest carbon project operating in a former conflict zone of Mozambiques civil war, in the buffer zone of Gorongosa National Park. The project, managed by EnviroTrade Lda (Mozambican nonprofit), uses a combination of stopping deforestation and tree planting of mostly indigenous trees. The project pays farmers and communities directly for each year they fulfill contracts to either prevention deforestation or plant trees.
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Key Challenges
Mozambique is a very poor country and demands for wood are intense in the region. Charcoal production has decimated many surrounding forests. The project has received some criticism for its reporting systems and methodologies, especially for avoided deforestation credits (a major percent of projected credits). Like most projects, short-term financing is challenging.
Nhambita community members are paid to prevent, report, and fight fires in the project area. While the equipment they use is somewhat crude (a small truck with a tank mounted on the top and some hoses), the project has helped drive down rates of deforestation significantly.
Key Successes
The project has fundamentally improved many peoples livelihoods and is a key source of income for community members who plant and conserve trees. Several associated sustainable industries have been spun off and clinics and schools have been funded. The project has helped start up four nurseries growing a total of approximately 200,000 seedlings per year. Within the areas of forest management within the community, deforestation has been significantly curtailed. Outside project boundaries, deforestation continues at a conservative rate of -2.4% a year. Several recent external audits have praised the project for its on-the-ground work. This project has abundant public information available and extremely high transparency. For more information, visit http://www.miombo.org.uk.
Photo: P. Powell
Nhambita Regulado
Land use classification: 30-12-2000 Derived from Landsat ETM+ data: tasseled cap transformation and textural (fractal dimension). Cartography: Luke Spadavecchia
Open Canopy Forest Moist Forest Closed Canopy Miombo Palm Woodland/Tall Grasses Sands/Riverine Bare Earth/Defoliated Rivers Combretum/Seasonally Waterlogged
Obs. Position: x 629310.18, y 2126000.68, z 3442.63
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the Nicholas Institute

The Nicholas Institute for Environmental Policy Solutions at Duke University is a nonpartisan institute founded in 2005 to engage with decision makers in government, the private sector, and the nonprofit community to develop innovative proposals that address critical environmental challenges. The Institute seeks to act as an honest broker in policy debates by fostering open, ongoing dialogue between stakeholders on all sides of the issues and by providing decision makers with timely and trustworthy policy-relevant analysis based on academic research. The Institute, working in conjunction with the Nicholas School of the Environment, leverages the broad expertise of Duke University as well as public and private partners nationwide.
for more information please contact: Nicholas Institute for Environmental Policy Solutions Duke University Box 90328 Durham, North Carolina 27708 919.613.8709 919.613.8712 fax nicholasinstitute@nicholas.duke.edu
copyright 2009 Nicholas Institute for Environmental Policy Solutions
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Carbon Issues 06 09

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NICHOLAS INSTITUTE REPORT

Opportunities for U.S. Leadership

Chapter 1 The Crucial Role of Forest Carbon in Combating Climate Change

Figure 1.1. Global greenhouse gas emissions by sector.

Energy Supply 26%

Agriculture 14% Transport 13% Industry 19%

What might the U.S. do?

What would international forest carbon credits look like?

The devil is in the details

Chapter 2 Current Policy Proposals

How is international forest carbon treated in the international climate regime?

How is international forest carbon treated in the EU ETS?

Chapter 3 Responding to Concerns and Questions

1. Flooding the market

2. Sending U.S. dollars abroad

3. Increased food prices

4. Reduced deforestation and biofuels policies are at cross purposes

5. Rewarding bad actors

6. Penalizing countries for factors beyond their control

7. Restricts economic development inequitably

8. Restricts community access to forests

9. The governance challenge

10. Forests also important for adapting to climate change

Chapter 4 Fundamentals for an International Forest Climate Policy

Will likely result in some hot air

Table 4.2. Options for addressing permanence in terrestrial carbon management.

LOW High financing costs exclude poorer participants

HIGH Easy and transparent implementation

Source: Adapted from Dutschke and Angelsen 2008.18

Financing: What needs funding and how could it be funded?

Table 4.3. Financing needs for an international forest carbon policy.

Scope: Should policies focus only on avoiding emissions?

Scale: How do national, subnational, and project-scale activities fit together?

Tropical Forest Nation

What causes tropical deforestation?

Table 5.1. Regional variation in deforestation rates and drivers.

Industrial cattle ranching and soy plantations

Figure 5.1. Forest transitions over time.

High rate of forest loss

Low rate of forest loss or net gain

Previous efforts to reduce tropical deforestation

Integrated Conservation and Development Programs

Ambiguous land tenure; short-sighted resource use decisions

Implications for a U.S. approach to international forest carbon

Chapter 6 Experience on the Ground, in the Forests

A proliferation of forest carbon projects

Common features of forest carbon projects

215 (Casa Banana Road)

215 (Casa Banana Road)

Gorongosa National Park Chitengo

Nhambita Pilot Project

Lim popo River

Capital City Town Small Town Airport

Gas Station Gorongosa National Park River

Obs. Position: x 629310.18, y 2126000.68, z 3442.63

the Nicholas Institute

copyright 2009 Nicholas Institute for Environmental Policy Solutions

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