Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN)

Potential and challenges of forest carbon finance
January 2008
Commonwealth Consultative Group on Environment

Acknowledgements: FANRPAN acknowledges the Commonwealth Secretariat website as the source of this report:

Executive summary

  1. It is thought that deforestation currently contributes about a fifth of all human-made CO2 emissions, the principal greenhouse gas that leads to global warming and climate change. With this in mind, there have been strong moves recently to include action to reduce emissions from deforestation and forest degradation within international frameworks for action on climate change. By-and-large, deforestation and degradation are the result of a combination of market, policy and government failures, which make it more profitable to fell trees rather than to keep them. This paper provides an overview of these issues and discusses a range of carbon finance issues that are being considered to address the problem of deforestation and forest degradation. In particular, the paper considers the role of forests in climate change mitigation and adaptation, and how ‘forest carbon finance’ can contribute to sustainable forest management (SFM). The paper also considers the state of Commonwealth forests; and identifies some key questions for Ministers to consider when drawing up national programmes.

  2. A high proportion of Commonwealth countries are highly vulnerable to climate change, and forests are very important in many of them; however Commonwealth forests overall have a deforestation rate well above the global average, with some African and South Asian countries recording alarmingly high rates.

  3. As regards climate change mitigation, forestry has been rather marginalised to date. But with the 2006 Stern Review, the focus shifted to Reduced Emissions from Deforestation and forest Degradation (REDD). While action on REDD was supported at the Conference of the Parties to the UN Framework Convention on Climate Change, which took place in Bali, in December 2007, there is still great uncertainty with various proposals on the table, each with their strengths and weaknesses, and winners and losers. A major sticking point is between countries with low deforestation rates who want a fund-based system that rewards forest conservation, and countries with high deforestation rates who favour a market-based system in which REDD payments would depend on a country’s success in reducing their deforestation rates against a historical baseline. Over the next five years, the emphasis will be on ‘Readiness’ activities and pilot REDD projects.

  4. Whether REDD programmes are effective and contribute to SFM depends on whether countries undertake the necessary legal, policy and institutional reforms to tackle the policy and governance failures driving deforestation, and thereby lower the opportunity costs of SFM. Countries should also consider very carefully whether and how to pursue pro-poor REDD strategies, since anti-poor strategies may appear economically more attractive. From an equity perspective, priorities are clarification of property rights over carbon in a range of tenure situations, better governance and measures to reduce transaction costs for community forest managers.

  5. Climate change adaptation has received less attention since it may be seen as less in the self-interest of wealthy countries. While there have are many studies and toolboxes, there has been little funding (compared to the tens of billions of dollars per annum needed) and few practical adaptation projects. Funding will improve with the ratification in Bali of the Adaptation Fund, based on a 2% levy on the Clean Development Mechanism, and it is hoped that real on the ground action will pick up quickly. Priorities include mainstreaming adaptation in national development plans; developing a coherent institutional basis for adaptation efforts; increasing co-operation between those working on adaptation and mitigation forestry; promoting ‘integrative’ or multiple benefit carbon projects; local collaborative research to improve the resilience of farm-forest production systems; and empowering local government and civil society in adaptation efforts. It should be noted that the type of forestry needed for adaptation is in fact very close to SFM.

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