SOLVING THE “REDD” PUZZLE

SOLVING THE “REDD” PUZZLE

Virgilio M. Viana 1

SOLVING THE “REDD” PUZZLE Viana, V.M. Solving the “REDD” Puzzle. Amazonas Sustainable Foundation. Manaus, 2009. www.fas-amazonas.org Translation by Matthew D. Quinlan and Marina T. Campos

Virgilio M. Viana Amazonas Sustainable Foundation Manaus, 2009

Acknowledgements

I would like to thank several of my colleagues at FAS for their collaboration in revising this document, especially André Ballesteros, Gabriel Ribenboim, Luiza Lima and Thais Megid 2

3

Agência Brasil/Valter Campanato

TABLE OF CONTENTS 1 - THE CONTEXT..................................................................................................... 6 2 - PREMISES.......................................................................................................10 3 - SOLUTIONS.....................................................................................................13 3.1 GOVERNMENTAL RESOURCES AND THE NON-COMPENSATORY MARKET.....14 3.2 COMPENSATORY MARKET RESOURCES THROUGH ADDITIONAL TARGETS FOR REDD.........................................................................................17 3.3 THE RELATIONSHIP BETWEEN THE TWO TYPES OF MARKETS.......................21 3.4 SIMPLE, ROBUST AND INCLUSIVE METHODOLOGIES..................................23 3.5 THE DISTRIBUTION OF BENEFITS AND PAYMENT FOR ENVIRONMENTAL SERVICES........................................................................................................27 4 - THE POSTION OF BRAZIL IN THE INTERNATIONAL NEGOTIATION.........................29 5 - CONCLUSIONS................................................................................................32 BIBLIOGRAPHY......................................................................................................36

4

5

1 - THE CONTEXT

6

7

We are facing a global emergency. We need to drastically reduce greenhouse gas emissions to avoid the planet going towards a future that is dangerous for human societies and natural ecosystems. This reduction must be rapid and occur on a large scale. The warning signs in the form of extreme climate events have been occurring with increasing frequency: floods in State of Santa Catarina and in State of Amazonas, typhoons in Asia, droughts in Africa, record high temperatures in Europe, hurricanes in the U.S., melting of high altitude snowpack and the polar icecaps, etc. The worst, unfortunately, has yet to come, if nothing significant is done. There is still time for a revolution towards a low carbon economy. We have some basic principles to guide this challenge. First, the major responsibility should be that of the industrialized countries that have historically polluted the atmosphere most, burning petroleum, coal and natural gas. Second, the responsibility is shared by all because we have only one planet and what is done in one place affects us all independently of where we live. Our future is entwined with that of all the other human societies. It is not enough to blame developed nations. We need developed nations to make most of the investments required to redirect the planet towards a low carbon economy. We also still need developing countries take on the challenge within their possibilities and contexts. The task is to define “how”, “when” and “how much” the involved parties need to agree in terms of commitments to reduce greenhouse gas emissions. This is the central theme to be defined in the future international agreement that will be signed in Copenhagen in December of 2009. Among the various puzzles to be solved in the international agreements, the one that stands out most is the issue of forests and climate change. Forests represent close to 20% of greenhouse gas emissions, more in some years and less in others. The emission reduction targets of wealthy countries are insufficient. It will not be possible to reduce greenhouse gas emissions to 40% below 1990 levels without the inclusion of the forest sector. How can this puzzle be solved when the principals in the negotiations are aiming for a new agreement in Copenhagen in December of 2009? Estimates suggest that for the period of 2000-2100 we have an emissions limit of up to 1,800 billion tons (GT) of CO2e (IPCC, 2007a). This translates to 8

an average rate of 18 GT per year. Annual emissions are currently on the order of 40-45 GT (IPCC, 2007a). A reduction by developed nations on the order of 17 GT per year by 2020 would be necessary (Figure 1) (McKinsey, 2009a). The total capacity of the forest sector to contribute an emissions reduction is close to 7.8 GT per year by 2030, with the major contribution (5.1 GT per year) coming from REDD (McKinsey, 2009b).

2020 targets for developed nations

Reduction for 450 ppm GT CO2e

12% (as established)

5

IPCC 25%

5

IPCC 40%

5

2

10 4

17 8

6

17 6

17 17

Technical potential within developed countries

Compensation paid to developing countries

Additional reductions from developing countries to reach levels approaching 450 ppm

Figure 1. Investment priorities for resources originating from non-compensatory mechanisms. Source: McKinsey, FONTE: Curva de Custo de Abatimento de GEE Global McKinsey v2.0, análise da equipe 2009a

9

2 - PREMISES

10 11

Agência Brasil/Valter Campanato

We should have as a starting point some premises. The first is that it is in Brazil’s interest to reduce deforestation. Forests are essential for the hydrological cycle and this affects rainfall and, as a consequence, farming, hydroelectric energy generation and urban water supply. In addition, forests, if managed, can generate jobs and nurture a forest-based economy. Forests are also important for the livelihoods of traditional and indigenous populations and the continuation of their rich ethno-ecological knowledge. Therefore, the deforestation of the Amazon and the cerrado, caatinga, Pantanal and Atlantic Forest is against the national interest. Another fundamental premise is that the best strategy to reduce deforestation is to make standing forest more valuable than cutting it down. Over the past seven years, the State of Amazonas has demonstrated that this dream is possible by making it come true. Other states have also made great advances. The problem is that increasing the value of standing forests requires financial investments. Deforestation has its economic and social logic. It is the result of a perverse system that financially rewards those who deforest: from land grabbers to illegal loggers. Cattle ranches, for example, are highly profitable enterprises. From 1996 to 2006, the number of cattle in the Brazilian Legal Amazon – located within the Amazon watershed- grew from 37 million to 73 million. Deforestation is not the result of irrationality, ignorance or stupidity: people in fact obtain, or hope to obtain, real benefits from deforestation and the unsustainable use of the forest.

12

3 - SOLUTIONS

13

We have a potential opening for the challenge of saving the Amazon and the planet: include the forests in all of the instruments of the Climate Convention. This requires a bold and intelligent position by Brazil on the international stage. The industrialized countries are reluctant to increase their emissions reduction targets to achieve the levels that climate science deems necessary. The motivation is economic: these countries will suffer from job losses and decreased quality of life. However, there exists the possibility of an “additional” increase in the targets of industrialized countries if there were less onerous mechanisms. The inclusion of forests is the key. If industrialized countries have economic and financial limitations to increasing their reduction targets, we should propose a pragmatic solution. This solution combines the national interest to reduce the deforestation of the Amazon with the global interest to increase the targets of industrialized countries. The solution has five components.

and other internal financial mechanisms by industrialized countries. For Annex I countries, these transfers should not result in the obtaining of carbon credits. They are, however, considered “non-compensatory mechanisms”, as they do not count as carbon credits to compensate emissions reduction by industrialized countries. In Brazil, this could signify an increase in the allocation of resources for the Amazon Fund, which should support programs and actions of the nation, states, municipalities and non governmental organizations. NON-COMPENSATORY MECHANISMS Governmental funds (Annex I)

Kyoto Carbon Market

%GDP

%AAUs

3.1 GOVERNMENTAL RESOURCES AND THE NON-COMPENSATORY MARKET

14

Governments/Funds Non-Annex I

National and subnational governments

NON-REDD ACTIVITIES

QUOTA (%)

Financing for the governments of countries with forests should come for the governments of Annex I countries. There exists two possible sources: (i) the treasuries of Annex I countries and (ii) resources collected from Annex I countries through the auction of AAUs (emissions permits), fees and other mechanisms linked to a carbon market regulated by the Kyoto Protocol. The allocation of these resources to non-Annex I countries should not be used to compensate or diminish the efforts by Annex I countries to reduce their emissions domestically. For this there is the category of “non-compensatory mechanisms”. The industrialized countries (identified as belonging to “Annex I” under the Climate Convention) should designate an adequate amount of governmental resources to assist the governments of countries with tropical forests in the implementation of programs to reduce deforestation (Figure 2). Internationally, this should include allocations of resources additional to those already designed by their respective treasuries for international cooperation. There also should be included predetermined amounts of what is collected through the auction of emissions permits (identified as “AAUs” – Assigned Amount Units)

NAMAs

REDD ACTIVITIES

Figure 2. Non-compensatory mechanisms for developed countries to invest in the NAMAs.

Non-compensatory resources from Annex I countries should be invested in the NAMAs (Nationally Appropriate Mitigation Actions) of non-Annex I countries. These resources should finance federal, state and municipal governmental programs to prevent and control deforestation and the promotion of sustainable development alternatives. A pre-determined amount of these resources should be designated for REDD, especially actions for improving governance, with an 15

emphasis on environmental monitoring and control, as well as support for the conservation and sustainable use of forests. The NAMAs could include partnerships with non-governmental organizations and the private sector. The priorities for the investment of resources from REDD obtained through non-compensatory mechanisms should support State Plans for the Prevention and Combating of Deforestation, Municipal Plans for the Prevention and Combating of Deforestation, Plan for a Sustainable Amazonia, National Climate Change Plan (Brasil, 2007) and Projects of Non-Governmental Organizations (Figure 3). These initiatives would be fundamental ingredients of the “mitigation actions appropriate to the national realities” (identified as NAMAs). Part of these NAMAs will be related and another part will relate to REDD actions. Part of the financing of NAMAs will be originating from national and subnational governments of countries with tropical forests. 1 In this document the term REDD is used to refer to all three modalities discussed under the UNFCCC: (i) RED (Reducing Emissions from Deforestation), (ii) REDD (Reducing Emissions from Deforestation and Degradation), and (iii) REDD+ (Reducing Emissions from Deforestation plus Conservation, Sustainable Forestry Management and Maintenance of Forest Stocks).

NON-COMPENSATORY MECHANISMS STATE PLANS FOR THE PREVENTION AND COMBATING OF DEFORESTATION

MUNICIPAL PLANS FOR THE PREVENTION AND COMBATING OF DEFORESTATION

REDD NAMAs

PLAN FOR A SUSTAINABLE AMAZONIA

NATIONAL CLIMATE CHANGE PLAN

PROJECTS OF NON-GOVERNMENTAL ORGANIZATIONS

Figure 3. Investment priorities for resources originating from non-compensatory mechanisms

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3.2 COMPENSATORY MARKET RESOURCES THROUGH ADDITIONAL TARGETS FOR REDD. The financing of forest projects could be made viable by a new market mechanism exclusively for REDD. This mechanism would be capable of generating carbon credits, which could be used to compensate additional efforts for Annex I countries as part of their obligations to reduce emissions. Similarly, energy, municipal waste and forest projects could have their carbon credits traded on the market for meeting the emission reduction targets of Annex I countries. The inclusion of REDD in the compensatory carbon market is a way of providing value for standing forests. The processes for certifying REDD initiatives should be simple and agile and the projects should be controlled by a national registry system. The registry should be preceded by a process of certification with principles and criteria defined through a participatory development process. The registry could place a strong emphasis on the distribution of benefits to traditional peoples and local communities and the right to access information and prior consent from indigenous populations. Carbon transactions must be regulated by the appropriate legal framework, which should include the collection of fees, contributions or royalties. These resources must be directed towards the implementation of the NAMAs, complementing the transfer payments from Annex I countries and the resources of non-Annex I countries. The resources dedicated to NAMAs should support the implementation of REDD projects, especially those that relate to typical activities of the government, such as environmental monitoring and law enforcement. The industrialized nations should adopt additional targets above those being proposed (Table 1), through the inclusion of forests as part of their international compensations. Internationally, this would involve the creation of a new mechanism within the scope of the United Nations Framework Convention on Climate Change (UNFCCC). This mechanism would be in addition to the Kyoto Protocol and could eventually take the form of a “Forest Protocol”. This mechanism should involve carbon credits that are not fungible with other mechanisms. Thus, the carbon association with a reduction in deforestation and degradation (known as “REDD”) would be traded in the form of a 17

proportional quota to the targets adopted under the Kyoto Protocol. This quota could be established as additional percentages to the targets established for industrialized countries under the Kyoto Protocol.

Table 1. Proposed targets for emissions reduction for the 2013-2017 and 2018-2022 periods. Party Germany Australia Austria Belarusa* Belgium Bulgaria* Canada Croatia* Denmark Spain Estonia* United States of Americab Finland France Greece Holland Hungry* Ireland Iceland Italy Japan Latvia* Lichtenstein Lithuania* Luxemburg Monaco Norway New Zealand Poland* Portugal United Kingdom Czech Republic* Romania Russia* Slovakia* Slovenia* Sweden Switzerland Turkeyc Ukraine European Union

Quantified emission limitation or reduction commitments (2008-2012) (percentage of base year or period)

Quantified emission reduction commitment (2013-2017) (percentage of base year or period)

Quantified emission reduction commitment (2018-2022) (percentage of base year or period)

92 108 92 92 92 92 94 95 92 92 92 93 92 92 92 92 94 92 110 92 94 92 92 92 92 92 101 100 94 92 92 92 92 100 92 92 92 92

60 71 49 95 50 94 65 87 59 58 91 61 67 48 70 62 81 64 61 65 62 88 63 89 55 63 45 73 83 73 44 79 93 93 84 72 42 48 92 98 63

33 51 15 91 17 90 42 78 31 30 84 34 45 14 51 36 69 41 35 42 36 81 38 82 25 38 8 55 72 55 6 65 89 88 74 53 4 14 86 97 38

100 92

An additional quota of 10% could result in levels of financing on an order of magnitude of what is indicated as necessary to reduce deforestation on a global scale (Viana, 2009). Considering that the size of the carbon market in 2008 was on the order of 118 billion U.S. dollars, a 10% quota would represent 11.8 billion U.S. dollars per year. If the Kyoto targets were to be 20%, 30% or 40%, the targets for REDD would be 2%, 3% or 4% respectively (Figure 4). Another way to incorporate REDD would be to include a quota of 10% within the targets of the Annex I countries - this is a matter for negotiation. Another approach would be to create a quota based on the volume of emissions that could be met by REDD. The U.S. regulations forsees something similar to this on the order of 1 to 1.5 billion tons of CO2e per year for international compensation for REDD.

ADDITIONAL TARGETS FOR REDD Emissions (%) 1990

4%

3% 2% 40% 30% 20%

SCENARIOS FOR EMISSION REDUCTION TARGETS FOR ANNEX I COUNTRIES

10% for REDD above the reduction targets of the Annex I countries Figure 4. Additional targets for inclusion of REDD. Inclusion of Annex B by amendment approved in terms of the decisions of 10/CMP. This change still has not been entered into in full effect. b Countries that have not ratified the Kyoto Protocol. c Countries that have joined the Kyoto Protocol on May 28, 2009 (enter into effect on August 26, 2009). The country has special circumstances that places in a different situation than the other parties included in the Annex I of the Convention, as seen in the decision 16/C.P.7. * Countries that are undergoing a process of transition towards a market economy. Source: UNFCCC (2009) a

18

Other similar proposals exist with minor differences. The European Union, for example, committed to increase its targets from 20% to 30% in relation to 1990, but with some conditions. The quota for REDD could involve a variable fraction based on the target of the Annex I countries. The greater the target, the 19

greater would be the percentage included in the compensatory mechanism for REDD would be (Figure 5). Another proposal would involve the establishment of quantitative targets. The U.S., for example, proposes a quota for international compensation for REDD of 1 billion tons per year, with the possibility of reaching 1.5 billion tons. In all of these cases, REDD could be a factor in the search for more ambitious targets for Annex I countries.

% of the emissions reductions compensated by REDD

Figure 5. Possible system for maximum quotas for REDD in function of the emissions reduction targets for Annex I countries.

For accounting the purposes for the two groups of additional efforts by Annex I countries, the reduction targets for non-REDD could be added to the compensation quotas through the compensation mechanism for REDD. REDD financing mechanisms (compensatory and non-compensatory) could function in a parallel and simultaneous manner. There should be no risk of double counting given that there would only be one compensatory mechanism included in the carbon credit transactions (Figure 6).

REDD compensations MARKET FINANCING

Minimum target for the inclusion of REDD

Desired target (40%)

Emissions reduction targets for Annex 1 countries.

With a specific quota, a distinct market for carbon credits from REDD would be created to compensate for a defined quota of emissions from Annex I countries. This compensatory mechanism would not be “fungible”, or interchangeable, with carbon credits from other sources. This would avoid eventual problems with the integrity of the control system for emissions and the risk of influencing the non-REDD carbon market. A specific quota for REDD would assure that a major part of the emission reduction efforts of Annex I countries would be domestic. In other words, the largest part (90%) of the emissions reduction should be made by the industrial countries themselves or through the use of a compensatory mechanism already agreed upon under the Kyoto Protocol. This addresses the legitimate and valid concerns of countries like Brazil and organizations such as Greenpeace, which do not want compensatory mechanisms to permit industrialized countries to maintain their high emissions levels. For the purpose of accounting for additional efforts by Annex I countries, the targets for non-REDD emissions reductions should be added to the compensation quotas through the REDD compensation mechanism. 20

3.3 THE RELATIONSHIP BETWEEN THE TWO TYPES OF MECHANISMS.

$$$

GOVERNMENTAL FINANCING

Fees $$$

INDICATORS

GOVERNMENTS OF ANNEX I COUNTRIES

CARBON MARKET CARBON CREDITS

REDD PROJECTS

SUPPORT

$$$

GOVERNANCE AND ADAPTATION

REDUCTION IN DEFORESTATION, ERADICATION OF POVERTY AND SUSTAINABLE DEVELOPMENT

Figure 6. The double system for financing REDD

From the perspective of timing, resources from the non-compensatory mechanisms could be available in large quantities in the short-term, since there should be political will among Annex I countries. The resources of the REDD market through a compensatory mechanism could start small and grow over the medium term, starting with those countries with the best governance and formally established national targets (Figure 7). 21

NON-COMPENSATORY MECHANISMS

Financing

COMPENSATORY MECHANISMS

GOVERNMENTAL FUNDS (ANNEX I)

KYOTO CARBON MARKET

REDD CARBON MARKET

% GDP

% AAUs

REGISTRY AND CERTIFICATION

Investment gap

FEES

Short term

Medium term

Global cap-and-trade Long term

Figura 7.The long-term transition towards a global carbon market. Source: Eliasch (2008)

Governments/Funds Non-Annex I

National and local governments

FOREST AREAS QUOTA (%)

Financing through partial access to the carbon market

NAMAs

SU

PP

OR T

REDD PROJECTS NON-REDD ACTIVITIES

In the case of countries that do not have good governance and still have not established targets, preparation for REDD (referred to as Readiness for REDD) should be supported by governmental or multi-lateral financing mechanisms. An example of this is the World Bank’s financing of R-Pin (Readiness Plan Idea Note) and R-Plan (Readiness Plan). Other examples include demonstration investments by the United Nations (known as UN-REDD) or by philanthropic foundations such as Moore, Ford and Packard. The compensatory market mechanism for REDD should include the charging of fees that would be directed to governmental funds set aside to finance NAMAs. At the national level, specific legislation should be formulated for this. At the international level, there should be a system of national (and/ or subnational) registries to oversee the accounting for emission reductions from REDD. This registry should include an objective evaluation of REDD projects by a certification process accredited by the operators of the national registry (Figure 8). The creation of a system of registry and certification should incorporate lessons learned and avoid the problems identified by the Clean Development Mechanism (CDM). 22

REDD ACTIVITIES

Figure 8. Compensatory and non-compensatory mechanisms to support REDD activities and projects.

3.4 SIMPLE, ROBUST AND INCLUSIVE METHODOLOGIES. A compensatory market mechanism for REDD should include methodologies that are simple, robust and inclusive and allow for the inclusion of large areas of forests. A solution is to utilize methods that combine carbon stocks and fluxes (Cattaneo, 2008). The measurement of carbon fluxes is relatively simple and well accepted. It can be done in terms of historical emissions (Santilli et al, 2005) or projections of future emissions (Soares-Filho et al 2005, Viana et al, 2008). In a separate mechanism for REDD, the role of forests in climate stability and global sustainability could go beyond carbon fluxes. This would permit an accounting for the role of forests in the hydrological cycle (Salati, 1984, Manzi, 2007, Nobre, 2002). This would permit the inclusion of the role of forests in sustainable development, especially in poverty reduction and the conservation of biodiversity. All of the benefits forests provide could be included through a 23

valuing of carbon stocks. Therefore, the carbon stocks would be a proxy index for the benefits from REDD forseen in the Convention, but not included in the Kyoto Protocol.

At the national level, the use of a mechanism with stocks and fluxes could have an inclusive character as it would contemplate the reality of states with high deforestation rates as well as states with low rates of deforestation (Table 2).

Table 1 – Methodology for historical baseline and average combined1 A historic baseline and average combined could maximize the strong elements, and minimize the weak aspects of a baseline using historical parameters and independent measurements. The follow formula is an example of this combined approach2. The first incentive could be awarded to a country to reduce its emissions relative to the baseline period (e.g., instead of historic emissions):

Table 2. Simulation of the distribution of REDD benefits among the States of the Brazilian Amazon by target, stock and reduction of deforestation. State

Equation (1): I1 = PE-Et Where PE represents past emissions for the country in question during the agreed upon period and where Et represents the emissions in year t. The second incentive would come for the rewarding of the country for maintaining its emissions below the global average rate: Equation (2): I2 = EE-Et Where EE represents expected emissions for the country (a product of its forests/ carbon stocks and global average deforestation/emission rates). Under the combined baseline approach, all of the countries with forest receive both incentives at the same time. The relative weight of each incentive is adjustable. The factor ∂ weighs the incentives between the historic and average/stocks. Thus, the formula for the baseline mechanism would be: Equation (3): CI = [∂ (I1) + (1-∂)(I2)] x ($ per t CO2e) Where ∂ varies from 0 to 1. Countries with high historic deforestation rates receive incentives to reduce emissions from forests from the historic component of the equation. At the same time, countries with standing forests and history of avoided deforestation receive an incentive to maintain low rates of deforestation, zero or negative (e.g., if the rates of A/R are high), rewarding good forest policies and reducing the risk of international leakage of deforestation to these countries. By offering incentives to countries with high as well as low deforestation rates, this approach would be sufficiently wide reaching to minimize international leakage. Another interesting point of this model is that if the weighting factor ∂ is same among all countries, the weighted sum of the baselines of all countries would be equal to the global baseline. As a result, even if the additionality is not identified in a specific country, the additionality on the global level would be assured. In this manner, the mechanism would not generate “hot air” if compared to the deforestation rates at the moment of the agreement. If it was decided that the “business as usual” global deforestation rate should be lowered after a determined period, the terms could be modified proportionally and additionality would be maintained.

Amazonas Mato Grosso Pará

Compensation for REDD (in thousands of U.S. Dollars) by target

by carbon stock

by reduction of deforestation

total

%

73.766

856.088

24.990

954.844

25

249.770

197.762

431.834

879.365

23

0

485.878

81.498

567.376

15

Rondônia

168.475

80.531

121.686

370.692

9,7

Acre

249.770

85.199

34.680

369.649

9,6

Amapá

249.770

48.673

0

298.442

7,8

Tocantins

249.770

6.249

16.456

272.475

7,1

Roraima

0

81.296

340

81.636

2,1

Maranhão

0

20.303

21.080

41.383

1,1

1.241.320

1.861.979

732.564

3.835.863

100

Total

Source: Lima et al, 2009

At the international level, the use of a mechanism with stocks and fluxes could have an inclusive character as it would contemplate the reality of countries with high deforestation rates as well as countries with low rates of deforestation (Table 3).

Eliasch (2008) Strassburg et al (2008)

1 2

24

25

Table 3. Possible prescriptions for generating carbon credits for countries with topical forests.

Forest Carbon

Country

Stock (GtCO2/year)

Current emissions from

REDD PROJECTS

CO2 credits

Revenue of CO2

for each estimate

using each estimate

(GtCO2/year)

(Millions of US$/year)

deforestation (GtCO2/year)

Avoided

Stock

Avoided

Stock

Flux

maintained

Flux

maintained

Brazil

215.774

1.183

591,5

755,2

2.958

3.776

Congo

82.127

246

123,0

287,4

615

1.437

Indonesia

32.296

597

298,5

113,0

1.493

565

Papua New Guinea

17.561

88

44,0

61,5

220

307

347.758

2.114

1.057,0

1.217,5

5.285

6.086

Total

FUEL SUBSTITUTION PROJECTS

REDD CO2 CREDITS 1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19 BAU

20 YEARS

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19 BAU

20 YEARS

Figure 9. Risks of non-permanence of the credits generated by REDD forest projects and fuel substitution projects

Source: Cattaneo (2008)

3.5 THE DISTRIBUTION OF BENEFITS AND PAYMENT FOR ENVIRONMENTAL SERVICES Simple, robust and inclusive methodologies for carbon stocks and fluxes would serve to dispel doubts about “emissions leakage” and “permanence”. By the way, leakage is a more severe problem in the energy sector (especially what is known as “fuel switching”) and industrial sector (international leakage) than in the forest sector. The same can be said for the “permanence of emissions reductions”. Risks to the permanence of emissions reductions associated with deforestation and degradation are also found in the industrial and energy sectors, among others. One hypothetical example is an industry that substitutes diesel for natural gas at the beginning of the third year of a carbon project, the barrels of oil not burned during the 14 years could be used during year 17 if economic conditions change. In this manner, a hectare of forest not burned by the producer that substitutes subsistence food production for forest extraction in the same period could burn the forest 14 years later if economic conditions change (Figure 9).

26

It is essential that resources obtained from compensatory and noncompensatory mechanisms for REDD reach the various different social actors that live from the forest, in the forest and near the forest. The decision when to deforest and when not to is not the result of a mistake, ignorance or stupidity. It is the result of a rational decision motivated principally by an economic logic (Vianna, 2009). In order to change the economic logic, the forest needs to have greater value standing than cut down. For this reason, the instituting of mechanisms for payment for environmental services is fundamental. The “Bolsa Floresta Program” is an example of payment for environmental services scheme. It structure, based on four components, was developed in a participatory manner and looked to incorporate the reality of the best conserved regions of the “Deep Amazon”. The first component of the Bolsa Floresta Program is the Bolsa Floresta Income (averaging 140 thousand reais per project per year), to be used for income generation activities related to the management of the forest, rivers, lakes, streams; systems of permaculture and agroforestry; and tourism. The Bolsa Floresta Social (averaging 140 27

thousand reais per project per month) is dedicated to educational, health, communication and transport activities that complement state and municipal governmental efforts. The Bolsa Floresta Association (averaging a thousand reais per association and a boat, computer and internet access) is dedicated tothe strengthening of social order and organization at the community level. The Bolsa Floresta Family (50 reais per family per month) is meant to reward the women of the families for taking a pact of zero deforestation. In July 2009, the Bolsa Floresta Program already involved more than 6.5 thousand families and an area that exceeded 10 million hectares. It is the largest REDD and payment for environmental services program in the tropical forests of the world is being replicated in various countries in Latin America and Africa. An expansion of the Bolsa Floresta Program in Brazil is being discussed by various states and by the Federal Government. These initiatives could take advantage of the lessons learned in State of Amazonas, avoiding the old, bad habit of reinventing the wheel. The formulation of payment for environmental services systems should consider the different socio-economic and environmental condition in the Amazon and other parts of Brazil and the world.

Table 2. Description and values of the four components of the Bolsa Floresta Program. Starting point for receiving the benefits

Implemtation of BF Income

B.F. Income

Approval of budget plan Monitoring (Follow up)? Workshop Assembly Formalization Counterpart Project elaboration Budget Plan

B.F. Social B.F. Association

Registry Workshop Citizenship Commitment

B.F. Family 1

2 3

4 5

Use

8 9

Who receives

Support for sustainable production: fish, plant oils, honey, etc

R$ 140 thousand per Protected Area

Community

Improvement of education, health and transportation

R$ 140 thousand per Protected Area

Community

Expenses of the participatory budget of the Association

10% of all BF Family/ year

Association

According to families’ decisions 6 7

Value

R$ 50.00/month

Wife

4 - THE POSITION OF BRAZIL IN THE INTERNATIONAL NEGOTIATIONS

10

Phase:

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It is an opportune moment to think about a new position for the government of Brazil in the international negotiations about the climate regime. If it is in the national interest to reduce deforestation and conserve our forests, and this coincides with the interests of the international community, then we have common ground. If the forests can be one of the best alternatives for securing an increase in the commitments in the emissions reduction targets of Annex I countries, we should give priority to the inclusion of forests in the new climate regime. The inclusion of forests must represent additional commitments and the carbon credits from REDD must not be fungible with those of other segments, so as to maintain the integrity of the global emissions reduction system. If simple, robust and agile methodologies exist in the form of accounting for carbon stocks and fluxes, we should look to increase the international agreement, establishing a geopolitical alliance starting with the tropical forest countries. Traditional blocks in the alignment of Brazil, such as the G-77, should be sensitized to the global benefits of including forests. Emphasis must be put on the additional nature and “non fungibility” of the compensatory mechanisms for REDD, as well as the benefits of forests to the stability of the global hydrological cycle and the complementary nature of the non-compensatory mechanisms for REDD. Countries like the Oceanic Islands should be convinced to support the inclusion of forests, especially for the possibility of “buying time” for the global shift towards a low carbon economy. Petroleum producing countries and the European Union should be sensitized to the opportunity of including forests for the same reasons that have been mentioned. The legislation of the U.S., if passed in the form developed by the House of Representatives, offers Brazil an excellent opportunity to establish mechanisms for bilateral cooperation, while the UNFCCC negotiations proceed. There exists a provision for allocating 5% (U.S., 2009) of the auction of emission permits (AAUs) for REDD, which would result in a financial flow of 3 to 5 billion U.S. dollars per year for REDD projects all over the world. With part of these resources Brazil could take the lead in the expansion of its NAMAs. On the other hand, there exists a provision in the U.S. legislation for a quota of 1 to 1.5 billion tons of CO2e for international compensation. This could represent 10 to 30 billion U.S. dollars per year for compensatory mechanisms for REDD worldwide. Brazil could take the lead in promoting 30

green entrepreneurship by private companies as well as rural producers, nongovernmental organizations and traditional and indigenous communities. These resources could result in the development within Brazil of a sector that is on international vanguard in terms of REDD projects. REDD projects could increase the financing of governmental actions, through a collection of taxes or contributions for federal, state and municipal governments. In addition, REDD projects, through use of systems for payments for environmental services, could result in investments in the eradication of poverty and quality of life improvements.

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5 - CONCLUSIONS

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A diversified and integrated approach to compensatory and noncompensatory mechanisms for REDD represents the best opportunity yet for saving the Amazon from a trajectory similar to that of the Atlantic Forest. It also represents the best opportunity for Brazil to contribute to avoiding the scenario of catastrophic global climate change. The puzzle over forests in the international negotiations over forests can be overcome. The double financing mechanism described here, which uses compensatory market mechanisms and non-compensatory mechanisms and the details of their formulation made earlier (Viana, 2009). The concept of a special quota for REDD and the evolution in the relation to the earlier formulation. The concept of additional targets for REDD, varying as a function of the earlier targets adopted by Annex I countries is a new formulation, arising from the discussions of the REDD and Climate Change Task Force. The establishment of an international consensus is something complex and challenging. If this text contributes is some way to solve the puzzle in the negotiations over REDD in the scope of the UNFCCC, then it will have achieved its purpose.

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