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Policy Paper: Assessing prerequisites for market-based REDD+ activities 26 3.3.5 LEEE implications Policy readiness of REDD+ countries has important implications for all four LEEE elements. The identification of drivers of deforestation is not only a prerequisite for an effective and efficient tackling of forest destruction but has also serious repercussions on legitimacy and equity. Overestimating particular drivers while neglecting others will not only result in misallocation of funds but may also undermine overall legitimacy of the policies. Furthermore, REDD+ can only be implemented in an equitable way if the policies also address the underlying causes of deforestation and not just its agents. This is particularly relevant when dealing with subsistence farmers practicing shifting cultivation and other forest-dependent peoples, who need viable alternatives to the extensive exploitation of forest resources. The choice of the right forestry policy approach also has different repercussion on the efficiency, effectiveness, equity and legitimacy of the national REDD+ structure. While a national PES system is often expected to deliver the most effective results due to its market-based approach, the diversity of individual opportunity costs may lead to over- and underpayments of participants, drastically reducing its effectiveness. Geographical differentiation of payments and the combination with community forest management may mitigate these risks. Due to their limited size, forest concessions will generally have only a reduced carbon impact, particularly in the long run. Such an approach may further be problematic with regards to equity in cases where the activities affect forest dependent communities living in the area, making safeguarding principles particularly relevant. In the short run, however, conservation projects can lead to more efficient results provided that land ownership of the respective area is clarified and undisputed (Costenbader 2011). Systems based on community forest management can be expected to deliver efficient results, especially if combined with community forest monitoring. The legitimacy of such an approach may also be larger since acceptance of activities among individuals may be higher if promoted with the assistance of the local authorities. With any of these three approaches discussed the government will have to ensure that the system is designed in such a way that participation of those who need the revenues most urgently is safeguarded. Furthermore, aligning the REDD+ strategy with other low carbon development plans can further increase effectiveness of the activities. The question on the appropriate forestry policy approach is strongly linked to the choice of a system for channelling the international funds. As this brief overview showed, every single financial design option has its advantages and shortcomings with regard to effectiveness, efficiency, equity and legitimacy. These shortcomings should be carefully assessed taking into consideration the national circumstances. Furthermore, it should be noted that options are not mutually exclusive and a combination of systems might represent the best solution. In any case, REDD+ countries will need to identify the architecture best suiting its national conditions. It has to be further kept in mind that developments at the international level will influence and potentially limit the options countries have when designing their national funding system. Nicolas Kreibich, Christof Arens and Wolfgang Sterk Wuppertal Institute
Policy Paper: Assessing prerequisites for market-based REDD+ activities 27 4 The integration of REDD+ in Emission Trading Systems If REDD+ activities are to generate credits, markets for such credits are needed. While the UN is still discussing whether REDD+ activities will be financed via carbon markets or through an international fund, individual schemes have already adopted individual positions towards the inclusion of REDD+ credits. In the following, we will briefly analyse the different REDD+ positions with particular attention to the readiness elements these schemes require REDD+ countries to fulfil for market participation. 4.1 California’s Cap and Trade Programme With its Global Warming Solutions Act of 2006 (AB 32) the State of California established a programme to reduce California’s greenhouse gas emissions to 1990 levels by 2020. One central tool to reach this target is a cap and trade scheme, which will cover about 85% of the states greenhouse gas emissions. The scheme will extensively rely on offsetting allowing covered entities to fulfil up to 8% of their obligations through offsets, including internal offsets from Californian entities not covered by the scheme. In the first commitment period, entities will be allowed to fulfil up to 2% of their emission obligation with credits stemming from sector-wide emission reductions in developing countries. This limit will be lifted to 4% in the subsequent commitment periods. While this regulation can be expected to produce a large demand for sector-based offset credits, no sector has yet been approved for inclusion (Climate Action Reserve 2012). Art § 95994 of the cap and trade system`s final regulation order includes six general requirements for sectorbased crediting programmes, which can be ordered along the three readiness building blocks discussed above. Regarding technical readiness countries willing to participate need to have a transparent MRV system in place and have developed an emission reference level against which performance can be measured. There are also some requirements associated with institutional readiness of the host countries. Hence, eligible programmes need to have established requirements that ensure credits are real, additional, quantifiable, permanent, verifiable and enforceable, as well as a mechanism to ensure public participation and consultation. With regard to policy readiness, the regulatory order requires the host jurisdiction to develop a plan for reducing the emissions from the respective sector. One additional requirement that may not always be applicable takes into account the fact that emission reductions achieved through project activities might have to be reconciled with the overall sector-level accounting from the jurisdiction (CARB 2011). While these requirements do already provide general orientation, the regulation does neither specify how these requirements can be met nor which sector-specific requirements will further be relevant. The same holds true for the forestry sector, which will be the first sector to be included in the scheme. While REDD-specific regulations are still being developed, California signed Memoranda of Understanding with the states of Acre (Brazil) and Chiapas (Mexico) in November 2010. In February 2011, the REDD Offsetting Group (ROW) was established to develop recommendations on REDD regulations. On the one hand, the working group is examining the legal and institutional elements needed for California to recognize REDDbased emission credits. On the other hand, the technical experts are examining the legal, policy and technical elements (including social and environmental standards) sectoral REDD programmes should achieve in order to be recognized in California`s cap and trade scheme. ROW is expected to present its final recommendations in summer 2012 (ROW n.d.). Nicolas Kreibich, Christof Arens and Wolfgang Sterk Wuppertal Institute
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