Options for REDD and for reducing the financial gap

Presentation by Jessica Brown (ODI)Imperial College conference: Financing the World’s Forests

3 August 2009

Presentation overview

1. Setting the context for REDD finance2. Phased approach for REDD3. Matching the phases with finance options4. Filling the financing gap for REDD5. New and innovative revenue raising

mechanisms for REDD6. Challenges ahead

Setting the context• A financing mechanism for REDD is under negotiation, to take

effect after 2012. • Mechanism will draw on public and private financing sources

to respond to diverse needs of different developing countries.• Examples of financing needs include:

• capacity building• monitoring system• forest inventories• land tenure reform• policies and measures (e.g., incentives to encourage

forestry, regulated infrastructure expansion)• ongoing emission reductions

• Financing for upfront capacity building (‘readiness’) is likely to rely on public funds; financing ongoing emission reductions is likely to come from funds and/or carbon markets

Phased approach to implementation

Phase 1: National REDD strategy development, including national dialogue, institutional strengthening, and demonstration activities.

Phase 2: Implementation of policies and measures (PAMs) proposed in those national REDD strategies.

Phase 3: Payment for performance on the basis of quantified forest emissions and removals against agreed reference levels.

Recommendations from the Norwegian government’s REDD Options Assessment Report (REDD-OAR)

An initial support instrument that allows countries to access immediate international funding.

A fund-based instrument that allows countries to access predictable REDD finance. Continued funding under would be results-based, but performance would not necessarily be monitored only on basis of emission reductions.

A GHG-based instrument that rewards performance on the basis of emissions reductions.

• Phase 1: National REDD strategy development, demo activities

• Phase 2: Implementation of PAMs proposed in national REDD strategies.

• Phase 3: Payment for emissions reduction performance

Matching the phases with finance

An initial support instrument that allows countries to access immediate international funding.

• Phase 1: National REDD strategy development, demo activities

Matching Phase 1 with finance

• Activities should continue to be supported by voluntary contributions that are immediately availableo Ex: World Bank’s FCPF, UN REDD, bilateral arrangements.

• Eligibility for access to funds should be based on a demonstrated national commitment to REDD strategy development.

A fund-based instrument that allows countries to access predictable REDD finance.

• Phase 2: Implementation of PAMs proposed in national REDD strategies.

Matching Phase 2 with finance

• Activities should be supported by predictable funding from a global facility supported by an internationally binding finance instrument with enforceable commitments

• Eligibility based on demonstration of cross-sectoral commitment to REDD strategy implementation within national government

• Continued access to funding based upon performance

Matching Phase 3 with finance

A GHG-based instrument that rewards performance on the basis of emissions reductions.

• Phase 3: Payment for emissions reduction performance

• Could be financed on large scale

• Transition from global funding facility to integration with compliance markets (or non-market compliance mechanism)

• Eligibility contingent on compliance-grade monitoring, reporting and verification (MRV) and accounting of emissions.

How do we fill the financing gaps?

Most promising avenues for meeting financing shortfalls in post-2012 context is from ‘new and innovative’ forms of finance.

Innovative financing options for REDD

Revenue raising options1.Auctioning of emission allowances; 2.A uniform global levy/tax on CO2 emissions;

3.Levies/taxes on emissions from international maritime and air transport;4.A levy on market-based mechanisms under the Kyoto Protocol;5.Bonds6.Currency transaction tax7.Hybrids

Proposals on the table

Proposal Source of funds Amount of funds generated

AUCTIONS OF EMISSIONS ALLOWANCES

Norway’s auctioning of AAUs Annex I allowances withheld, auctioned internationally

$20-30 Bn annually

A UNIFORM GLOBAL TAX ON CO2 EMISSIONS

Swiss Global Carbon Tax Tax ($2/t CO2) on emissions; ≤1.5/t CO2 per capita exempt

$30-40 Bn annually

LEVIES ON EMISSIONS FROM INTERNATIONAL MARITIME AND AVIATION

International Air Passenger Levy, International Maritime Emission Reductions Scheme, Tuvalu’s Burden Sharing Mechanism, Oxfam International, etc

$6 per ticket fee (economy class), $62 per ticket fee (business/first class); or a straight charge on emissions (not based on ticket); or levy on international airfares, maritime transport charges

$8-10 Bn annually, for first five years of operation

Proposals on the table (cont’d)

Proposal Source of funds Amount of funds generated

CARBON MARKET-BASED LEVIES

Extending the levy to JI and/or IET

Levy on JI and/or IET 2008–2012: $5.5–8.5 Bn p.a.2013–2020: $3.5–7.0 Bn p.a.

Pakistan’s CDM levy 3-5% levy on CDM $0.2–0.5 Bn p.a. at levy of 5%

BONDS

EC GCFM High rated bonds $1.3 Bn annually for next five years

CURRENCY TRANSACTION TAX

Currency transaction tax small levy (0.005%) on foreign currency exchange transaction

$15-20 Bn annually

HYBRIDS

Mexico’s World Climate Change Fund

Multiple sources Initially $10, scaling up to $95 in 2030

Other considerations for REDD finance

• Funding integrated into the overall financing architecture developed under UNFCCC

• International REDD financing should be predictable, verifiable, with firm funding commitments

• International finance should complement domestic funding

• Disbursement based on five-year national REDD implementation plans, or left to the responsibility of national decision-making processes

Challenges ahead

• Uncertainty over how much of the new finance sources would be channelled to REDD – many competing priorities for other sectors and mechanisms (adaptation, technology transfer, etc)

• Challenges depending on the structure of the international financing facility

• Challenge of vertical funds – • Difficult to maintain national ownership• Difficult to align international fund support with national

strategies and institutions.

Thank you

Contact: Jessica Brownj.brown@odi.org.uk

Visit: www.climatefundsupdate.orgwww.odi.org.uk/climatechange