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The future of REDD+ and the carbon market

Within the MAPS programme, countries are considering the potential role of forests in their overall climate change mitigation action plans. A recent MAPS workshop held in Iquitos (Peru), LulucF Lab, addressed this subject in depth. The rate of deforestation in many of the MAPS countries calls for strategies that could rapidly and effectively put an end to this process. Other countries in the region, however, have been less affected by the deforestation trend and some have even exhibited increases in forest cover and total carbon stock (e.g. Chile).

REDD+ is one of the principal internationally driven tools for promoting both forest preservation as well as increases in forest cover. Therefore REDD+ is of interest to many countries in the region. REDD+ aims to provide new incentives to avoid deforestation, mitigate forest degradation and increase re-forestation and afforestation. However, problems with funding the mechanism are slowing its progress. According to the 2012 Ecosystems Marketplace Report on the State of Voluntary Carbon Markets, the market for REDD projects contracted by 59% in 2011 compared to the previous year. The previous year, 2010, saw record setting growth in the REDD market.

Thus, the big question that should be on everyone’s mind is what is driving this decline in the REDD market and will the mechanism be able to, in future, provide a meaningful source of funding for projects promoting forest preservation and renovation?

The answer to this question is not clear. Certainly the failure to conclude a successful and legally binding greenhouse gas emission reduction agreement at the last three UNFCCC Conference of the Party (COP) meetings in Copenhagen, Cancun and Durban signals few incentives for countries throughout the world to engage in the carbon trading markets and to invest in programs such as REDD+. Furthermore several important countries (e.g. Canada, Japan and Russia) have dropped out of a follow up to the Kyoto Protocol and the US never succeeded in ratifying its original Kyoto Protocol commitment made in 1998. More countries have considered joining the list of dropouts (e.g. New Zealand) while some countries have also recently considered getting back in (e.g. Japan).

Likewise, the framework for incorporating land use, land use change and forestry (LULUCF) into the international carbon trading framework remains highly underdeveloped. To-date, only the voluntary forest-based carbon market and the California Forest Protocol provide meaningful frameworks for promoting and funding REDD+ opportunities. On the European side, forest-based carbon offsetting is discouraged by the fact that the European Union’s (EU) emission trading scheme (EU ETS) does not permit the use of forest-based Clean Development Mechanism (CDM) credits.

Commitment to incentivizing the world’s forests in the context of a carbon trading framework likewise remains weak. Ellison et al. (forthcoming 2012) demonstrate that the vast majority of the world’s forests remain outside the carbon accounting framework. Therefore, at best, these forests are only very weakly incentivized to engage in the carbon accounting and carbon trading framework. The EU is currently taking small steps to improve at least part of this situation. A proposal for the future harmonization of LULUCF carbon accounting across the EU Member states has been introduced to the Council and European Parliament for consideration. But the next step in this process—the integration of LULUCF into the EU climate change policy framework—is still many years away and no timetable has yet been set. Moreover, future modifications to the EU forest-based CDM framework are not part of these discussions.

Finally, the global economic recession has had a significant impact on REDD+ funding. Moreover, the global recession has influenced the carbon offsetting and trading market in ways that have yet to be fully comprehended. Most of the advanced economies have witnessed significant drops in their annual emissions as their economies have declined. In Europe, this drop has been significant enough to bring the EU quite close to its 2020 Kyoto Protocol goal of reducing emissions by 20% compared to those of 1990. This “success” certainly will not last. Despite the bumpy road, one can hopefully expect the economies to return to more stable economic growth in the next year or two. However global economic decline and falling emissions has resulted in a glut in the market for carbon credits thereby reducing prices and incentives for many countries to invest in alternative carbon offsetting mechanisms such as the CDM market.

Thus uncertainty shrouds the future of the Kyoto Protocol process and the likelihood that Parties to the agreement will even have an interest in trading forest-based carbon credits. Despite ongoing efforts to link carbon trading regimes across the EU, Australia and possibly also the US (see e.g. Zetterberg, 2012; and the European Commission’s DG Climate website), the fragile state of international cooperation highlights an ever present risk of disintegration. In this sense, future prospects for the development of REDD+, the provision of adequate funding and the struggle against deforestation are not bright. This potentially leaves much of the developing world to their own devices. The most optimistic scenario is that more progress will be made at the upcoming COP meetings in Doha, Qatar. But this too is certainly not guaranteed, leaving one to wonder when the big emitter countries will finally step up to the plate and play their role as exemplary leaders toward the low carbon future?

The blog was written by David Ellison, Senior Researcher and LULUCF Specialist at the Institute for World Economics, Hungarian Academy of Sciences.

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