REDDy-Set-Grow Part II: Private sector suggestions for international climate change negotiators

8/3/2019 REDDy-Set-Grow Part II: Private sector suggestions for international climate change negotiators

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REDDy SET

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Part 2

Private sector suggestions for

international climate change negotiatorsDesigning an eective regime or fnancing

orest-based climate change mitigation

A study by UNEP Finance Initiative’s

Biodiversity and Ecosystems Workstream (BEWS) and

Climate Change Working Group (CCWG)

September 2011



Part 2

Private sector suggestions or

international climate change negotiatorsDesigning an eective regime or nancing

orest-based climate change mitigation

A study by UNEP Finance Initiative’s

Biodiversity and Ecosystems Workstream (BEWS) and

Climate Change Working Group (CCWG)

September 2011

REDDy

SETGROW



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Part 2 – Private sector suggestions or international climate change negotiators 3

Foreword rom the United Nations Environment

Programme Finance Initiative (UNEP FI)

Forests are the natural treasure chests o the world, providing a host o ecosystem services that – and thisneeds to be said very clearly and up ront – are paramount to ensuring economic progress and human

well-being, not only locally but globally. What orests give us is undamental in the strictest sense o the word:they stabilise the global climate system, regulate water cycles, provide habitat or ora, auna and people,and host genetic resources o unimaginable potential. Forests and their services remain, however, chronically undervalued by today’s economic and political decision makers, resulting in their rapid destruction. One o the many consequences o current deorestation and orest degradation is their contribution o approximately one fth o global greenhouse gas emissions.

There is hope, though, as consensus at the international level and within the United Nations Framework Convention on Climate Change (UNFCCC) was reached in Cancun in 2010 on the need to include, in a new climate change deal, eorts to reduce deorestation and orest degradation as well as to accelerate reorestationand rehabilitation. Despite considerable progress and the recent achievements in international negotiationson this issue, several critical issues – including the central question o how orest-based mitigation eorts atthe needed scale will be fnanced – have not been resolved, and negotiations are ongoing.

USD 17-40 billion per year is required to halve emissions rom the orest sector by 2030. Given the magnitudeand the absolute urgency o the challenge ahead, there is a clear, yet unaddressed, need to mobilise large

volumes o private sector fnancing and investment in addition to government unds. However, achievingdeorestation-reduction targets does not only depend on moving money rom A to B. What are needed aresystems that eectively address the drivers and causes o current deorestation trends, which most oten areunderpinned by unsustainable behaviour in the private sector itsel. The private sector members o UNEP FI –banks, insurers and investors – see it as their responsibility, and an opportunity, to inorm current negotiations

on the REDD+ fnancing question, not only with broad and undamental views that have been heard many times, but, more importantly, with specifc suggestions on the elements and eatures that need to be in placeunder a uture REDD+ unding mechanism in order to unlock private fnance, investment and engagement

or the protection, rehabilitation and reorestation o natural orests. This is what this report oers to its targetaudience o governments and international climate change negotiators.

This briefng does not mark the end but the beginning o an eort by the United Nations EnvironmentProgramme Finance Initiative (UNEP FI) to work with its members in the fnance community, UN agenciesand other stakeholders to mitigate risks related to REDD+ investments and help build regulatory rameworksand private sector capacity to scale up investment. Part 1 o this study, launched in May 2011, provides a briefng or the fnancial world on current and emerging avenues or business activity in orest carbon and

highlights roles and barriers or fnancial institutions to becoming involved. Part 2 provides inormation or national-policy makers and international negotiators on what the international climate change architectureneeds to deliver to eectively mobilise private fnance and investment or orests at the necessary scale.

We hope this briefng is inormative to you, and we look orward to working with you in the near uture.

Richard Burrett

Chair o UNEP FI’s Biodiversity andEcosystems Workstream

Nick Robins

Co-Chair o UNEP FI’s Climate Change Working Group

Paul Clements-Hunt

Head o UNEP Finance Initiative



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Contents

Abbreviations 5

1 Executive summary 6

2 Introduction 13

3 Private sector involvement in fnancing orest-based climate change mitigation: roles,benefts and challenges 16

3.1 Why is the involvement o private sector fnance in REDD+ imperative? 16 3.2 Risks and challenges o private sector involvement 20

4 From Copenhagen to Cancun to Durban: the state o orest-based mitigation in internationalnegotiations 24

4.1 Background and overview 24 4.2 Agreements under REDD+ and promising outcomes or the private sector 24 4.3 The Cancun Agreements: areas o concern and uncertainty or the private sector 26 4.4 CDM aorestation and reorestation – what is happening, and what are potential lessons

or REDD+?

5 Policy scenarios that best stimulate private sector fnance or REDD+ 30 5.1 Factors that inuence the architecture o a uture REDD+ unding mechanism 30 5.2 Policy scenarios or a uture international REDD+ regime 32

5.3 A nested approach or REDD+: key eatures and advantages o Scenario 3 38 5.4 A nested approach or unding REDD+ implementation under Phase 3: will it do the

job alone? 40

Acknowledgements 41

Appendix 1: Bibliography 43




Abbreviations

AFOLU Agriculture, orestry and other land uses

AWG-KP Ad Hoc Working Group on Further Commitments or Annex I Parties under the KyotoProtocol

CBD Convention on Biological Diversity

CDM Clean Development Mechanism

CDM A/R Aorestation and reorestation under the Clean Development Mechanism

CIFOR Centre or International Forestry Research

COP Conerence o the Parties

EU ETS European Union Emissions Trading Scheme

FCPF Forest Carbon Partnership Facility FIs Financial institutions

JI Joint Implementation

KP Kyoto Protocol

MRV Measuring, reporting and veriying

NAMAs Nationally Appropriate Mitigation Actions

PDD Project design document

RED Reducing emissions rom deorestation

REDD Reducing Emissions rom Deorestation and Forest Degradation

REDD+ Reducing emissions rom deorestation and orest degradation and the role o conservationo orest carbon stocks, sustainable management o orests and enhancement o orestcarbon stocks

TEEB The Economics o Ecosystems and Biodiversity

UNDRIP United Nations Declaration on the Rights o Indigenous Peoples

UNFCCC United Nations Framework Convention on Climate Change

USD United States dollars

VCS Voluntary Carbon Standard



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1. Executive summary

I. Private nance and investment: why?

Forests are chronically undervalued in today’s economies, even though they underpin a wide range o complex and varied ecosystem services that one billion people immediately rely on or their livelihoods

and that are central to economic progress and human welare at a global scale. The nature o the problem iseconomic: the absence o a ‘positive’ price signal to protect and sustainably use orests lies at the heart o thecurrent level o deorestation and makes the clearing o orests fnancially more attractive than preserving them.This notion applies equally to industrial-type deorestation – such as or the Brazilian soy and the Indonesian

palm oil industries – and deorestation or subsistence arming in the Congo Basin and other regions.

Even i only the climate-related services and benefts o orests are considered, the case or systematically addressing, slowing, halting and ultimately reversing deorestation and orest degradation is overwhelming,

or economic reasons alone: on a business-as-usual path, the costs o deorestation-related impacts o climatechange on the world economy could reach USD 1 trillion per year by 2100 (Eliasch, 2008)1. Stopping tropicaldeorestation and orest degradation and planting new orests could provide climate benefts equivalentto doubling current global nuclear energy capacity, or the construction o two million new wind turbines(Socolow and Pacala, 2004). I the other benefts that orests provide, such as water retention, habitat or

wildlie, and regulation o local and regional climates, are considered, the benefts are ar greater.

A 50 per cent reduction in deorestation rates is needed by 2020 i the orestry sector is to support globaleorts aimed at holding global temperature rise to below 2 degrees Celsius, the global climate target that the

world’s governments have set in international climate change agreements. This will require a combinationo: (i) weakening or reversing the current drivers o deorestation, particularly through shits in land use or the production o agricultural commodities, (ii) mobilising investment in the active protection o standing

orests, as well as (iii) mobilising investment in the creation o new, sustainably managed orests. Realising

the climate change mitigation potential o orests will require up-ront investment o approximately USD

17-40 billion per year (Eliasch, 2008) (UNEP, 2011).

Investment at this scale is highly unlikely to come rom governments alone. To put the fgureabove into context, cumulatively available public unds rom donor countries to date stand at approximately USD 7 billion (the annualised fgures are much lower). Hence, investment rom, and engagement o, the

private sector – including fnancial institutions (FIs) and fnancial intermediaries – is essential, particularly or implementation activities.

Aside rom the scale and speed at which investment needs to ow, a critical reason why any utureinternational regime to reduce emissions rom deorestation and orest degradation (REDD+)2 must

mobilise the private sector is that the drivers and roots o deorestation need to be addressed. This includeschanging current behaviour patterns in the private sector itsel which can happen in an eective way only i commercial actors and (subsistence) armers are oered fnancially competitive alternatives to currentland-use and deorestation patterns. In other words, only i investing in orest protection, conservationand enhancement can oer revenue streams competitive with those rom the production o timber andagricultural commodities such as soybeans, palm oil and bee will the private sector truly shit behaviour

patterns and unlock the skills and resources needed to achieve the deorestation targets.

Mobilising the private sector will depend on (i) the international community and governments oeringavenues and ormats or the private sector to invest and engage in the protection, rehabilitation and creationo natural orests as well as on (ii) making such investment opportunities competitive with alternative

land-use options. Failing this, REDD+ and other instruments or orest-based climate change mitigation

1 Please note that this is an estimate o the orestry-related impacts o climate change, additional to the climate change impacts o other industrial emissions o greenhouse gases.

2 REDD+: Reducing deorestation and orest degradation + conservation and enhancement o orest carbon stocks and sustainable management o orests.




and sustainable orest management (SFM) are unlikely to achieve their potential o transorming the way orests are used and perceived. The private sector’s participation in the transormation process is essentialto the success o such initiatives.

II. Private nance and investment: how?

The international community has achieved considerable progress on the issue o REDD+ in recent years,culminating in a set o ar-reaching resolutions at the UN Conerence o the Parties in Cancun in 2010 (COP16)3. However, the critical questions o how the implementation o REDD+ activities will be unded, and

what the role o the private sector and private investment will be, have remained unanswered, and relatednegotiations are ongoing. This report aims to bring to the attention o governments and internationalclimate negotiators (i) the views o fnancial institutions organised under the United Nations EnvironmentProgramme Finance Initiative (UNEP FI), (ii) the imperative o mobilising private investment and

private sector engagement in the implementation o REDD+ activities (Section 3.1), (iii) the risks andchallenges o private sector involvement in REDD+ and approaches to deal with these (Section 3.2) and,most important, (iv) the policy scenarios that are most likely to rapidly mobilise capital rom the privatesector at the required scale while actively addressing the concerns and risks o private sector participation

(Section 5.2). The report highlights – on the basis o scenario analysis – how any uture mechanismshould combine dierent eatures to increase its eectiveness and efciency.

The eectiveness o a uture REDD+ unding mechanism depends on suitable answers to the ollowing questions:

1. Will there be an overall deal? Despite recent progress in the international REDD+ negotiations,it is unlikely that a global REDD+ mechanism will become truly operational unless a broader, globalagreement on climate change under the United Nations Framework Convention on Climate ChangeUNFCCC is reached.

2. Who will make perormance-based payments in Phase 34 o REDD+? Will perormance-based payments come rom (i) credit buyers via a crediting mechanism and international

carbon markets (or eventual REDD+ credits abroad) or (ii) bilateral/multilateral unding vehicles equipped with international climate fnance (ultimately rom taxpayers in donor countries)?

Possible answers:

Carbon credits and decentralised markets

(polluters in developed countries pay)

Centralised public unding vehicle(s)

(taxpayers in developed countries pay)

3. Who can receive perormance-based payments in Phase 3? Can perormance-based payments in Phase 3 be received by (i) national governments only, (ii) by activity implementers at thesubnational level only or (iii) by entities at national and subnational levels, including particularly privatebodies such as agricultural cooperatives, orest concessionaries and project developers?

Possible answers:

National governments only

Subnational implementing

entities only, including

private actors

Both

4. Who can design and implement REDD+ activities on the ground? Are REDD+activities on the ground open to private sector participation, or can such eorts only be initiated andimplemented by public authorities and agencies?

3 http://unccc.int/resource/docs/2010/cop16/eng/07a01.pd#page=2

4 Among other resolutions on REDD+, the Cancun Agreements establish a phased approach to unding REDD+ in developing countries: Phase 1 entails unding or public planning, organization and initial capacity-building; Phase 2 entails unding or the implementation o national REDD+ strategies by governments; and Phase 3 entails‘perormance-based’ unding or the implementation o concrete REDD+ projects and programmes on the ground. While there is agreement that Phases 1 and 2 can only be unded with public fnance (and private sector stakeholders agree with that), there are diverging views on how Phase 3 activities (which will require the bulk o the total,cumulative REDD+ unding) should be fnanced. Thereore, the private sector suggestions in this report ocus exclusively on the unding o Phase 3 activities.



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Table 1: Overview and assessment o REDD+ unding scenarios



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III. The nested approach – key eatures and advantages

The most promising policy option or private sector involvement in REDD+

is the nested approach as described in Scenario 3.

The nested approach is considered by a number o private sector actors and stakeholders to be the most likely as well as eective type o mechanism to develop under current conditions. An important question – and a

core condition o the eectiveness o the nested approach in mobilising private sector skills and investment– is whether private sector entities, such as agricultural cooperatives and orest concessionaries, will also beeligible or REDD+ crediting, in addition to subnational governments. I not, the nested approach could losemuch o its eectiveness given the regulatory and political risk profles o many subnational governmentssimilar to those o governments at the national level. There are a ew critical design eatures o the nestedapproach that make it appealing rom a private sector and investment mobilisation perspective (for more

information, go to Section 5.3):

1. The eect o addressing the drivers o deorestation by changing behaviour

in the private sector itsel. The undamental reason or the unsustainable use o orests and or current trends in deorestation is that orests are worth more cleared than standing: the products derived

rom deorested lands – be they bee, soybeans or palm oil – oer fnancial revenue to landholders andeconomic opportunity to local communities and country governments, while standing orests do not. Systemsare needed that – by opening avenues to generate fnancial revenues rom the protection, rehabilitation or creation o natural orests – oer real and sustainable alternatives to conventional private sector practice.This is the key advantage o a market-based mechanism that ormally coners monetary value on natural

orests based on the real carbon sequestration services they provide (there are also disadvantages and risks, which are highlighted urther below).

2. The possibility o making perormance-based payments directly to the

public and private implementers o REDD+ activities at the activity level.

This would help to mitigate the most signifcant investment risk category in the developing world, country

and regulatory risk. This risk category is one o the main impediments to increased private investment inthe developing world generally. It results rom track records o political instability and corruption as wellas regulatory and legal uncertainty in the countries concerned. This risk is already detrimental to privateinvestment in ordinary market settings, but it would be considerably intensifed, in a REDD+ contextspecifcally, i all uture REDD+ revenue streams, be they rom carbon markets or rom an international

und, were administered and distributed exclusively by public bodies and through government channels.

3. Subnational and regional baselines coexist with an all-encompassing national

baseline; this combines environmental integrity with private investment

mobilisation. Enabling perormance-based payments at the activity level, as described above, requiresthe ability to measure local perormance accurately by making use o reerence levels that are pertinent tothe geographic areas concerned. This is not possible i REDD+ perormance at the subnational or regionallevel is measured against national baselines. Rather, any baseline established at the national level, andcommunicated internationally (in line with the Cancun Agreements), can be disaggregated into a series o subnational baselines, which in turn can be disaggregated into regional baselines at the level o countiesand/or municipalities. All these baselines need to be logically interlinked and, at any given point, sum upto the baseline at the national level. This can ensure the environmental integrity o the scheme and avoidleakage while enabling the set-up o subnational baselines that are required or subnational crediting.

4. A crediting mechanism beats an international und: make carbon emitters,

not taxpayers, pay or REDD+ implementation. The bulk o the USD 17 - 40 billion estimateso needed REDD+ investment per year comprises, in essence, opportunity costs related to the conservation or enhancement, rather than the destruction or degradation, o orests. This is a cost that will have to be assumed by somebody, and there are ultimately only two options or how this might happen: (i)developed-country emitterso greenhouse gases take on the cost, or (ii) developed-country taxpayers do so. Even i an international public

unding vehicle or REDD+ were mandated to mobilise private investment, such as rom institutional investors




like pension unds, a undamental question remains unanswered: how, or rom which underlying revenuestreams, would private investors be repaid their capital (as well as any expected return on investment), in theabsence o a market or REDD+ credits? From which revenue streams would host governments, municipalities,cooperatives and orest concessionaries in developing countries repay debt, service interests and dividends ater the successul implementation o REDD+ activities? The only answer that can be provided at this stage is: romthe generation o carbon credits sold on international carbon markets.

IV. The risks and challenges o private sector

participation in REDD+

While the systematic involvement o the private sector and the mobilisation o private fnance are imperativeboth or the implementation and fnancing o REDD+ activities at scale and speed, as well as in eectively addressing the undamental drivers o deorestation, it is also critical to take note o the resulting risks,disadvantages and potential challenges:

1. Fungibility. A repeated concern with involving the private sector, in this case through a market-basedREDD+ crediting mechanism that is ully integrated with the global carbon markets, is that the large

volume o REDD+ credits potentially available will create downward pressure on prices and destabilisethe markets. This in turn can incentivise industrialised countries with emissions-reduction commitmentsto increasingly meet targets through the import o credits rather than through domestic decarbonisationmeasures. However, the reality o this is contested. Preventive measures and controls are possible, suchas limiting the ungibility o REDD+ credits; this can be supported by simultaneous commitments by countries to more ambitious emissions-reduction targets, which – coupled with exible modalities aroundsupplementarity 5 – can avoid depressing carbon prices while keeping overall mitigation costs down despitemore stringent emissions-reduction commitments. Qualitative restrictions allowing the import only o credits with strong sustainability eatures can also play an important role.

2. Environmental and social saeguards.There is a legitimate concern that by allowing the private

sector and private investors to play a central role in REDD+, projects and activities will be naturally biasedtowards maximising the carbon component o any orest ecosystem, at the possible expense o local communities, orest-dependent indigenous people, biodiversity and non-carbon orest ecosystem services. Environmental andsocial saeguards are, however, included in the latest REDD+ resolutions and are being urther developed andspecifed to counterbalance this potential threat. Moreover, discussions with fnancial institution members o UNEP FI have led to an understanding that strong and clear saeguards can be enablers, rather than deterrents,o private sector involvement in REDD+. Saeguards, and compliance with them, can help avoid reputationaland operational risk, clariy legal requirements that must be ollowed, as well as clearly set out the social andenvironmental requirements in what or many institutions will be a new area o business.

3. Land tenure and ownership rights.Private sector involvement in REDD+ can lead to increasedinsecurity and diminish the prospect o orest-dependent communities having their tenure rights ormalised;by conerring new value on orest lands, government actors and commercial entities can be incentivised to“actively deny or passively ignore” access and control o orest resources by local, orest-dependent communities. 6 This problem can be addressed by establishing clear land tenure and ownership rights up ront. This is notonly important so that local communities can economically beneft rom REDD+ activities but is in act a key enabler, and a undamental condition, o the involvement o the broader private sector and the mobilisation o

private fnance and investment in REDD+ activities: proessional private sector actors such as project developers, orest concessionaries, lenders and investors will, as a core requirement in risk management, object to investingin REDD+ activities unless clear and undisputed ownership systems are in place.

5 The concept o ‘supplementarity’ relates to industrialised countries with emissions-reduction commitments only being able to use oreign carbon credits (such as romthe Clean Development Mechanism or rom a uture REDD+ crediting mechanism) or compliance in a ‘supplemental’ way, thereore achieving the bulk o emissions-

reduction commitments domestically. While the concept is central to the environmental integrity and eectiveness o any global climate regime, it can be argued that, i industrialised countries increased the ambition o their overall emissions-reduction targets, a large raction o resulting cost increases could be compensated or by morerelaxed supplementarity modalities, at least or specifc types o carbon credits, such as REDD+ credits, or instance. This would translate into increased global ambition onclimate change coupled with solid global demand or REDD+ credits, while keeping global mitigation costs down.

6 http://www.orestsclimatechange.org/fleadmin/downloads/movingahead11.pd.



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7 http://www.orestsclimatechange.org/fleadmin/downloads/movingahead5.pd;http://www.orestsclimatechange.org/fleadmin/downloads/movingahead11.pd.

8 For previous work o UNEP FI on the issue o leveraging private climate fnance through public fnance mechanisms and risk-mitigation tools, please reer to the UNEP FIsubmission to the Transitional Committee o the Green Climate Fund (GCF), http://unccc.int/fles/cancun_agreements/green_climate_und/application/pd/unep_f_submission_on_private_sector.pd, as well as to the report at: http://www.unepf.org/fleadmin/documents/catalysing_lowcarbon_growth.pd.

9 Among other resolutions on REDD+, the Cancun Agreements establish a phased approach to unding REDD+ in developing countries: Phase 1 entails unding or public

planning, organization and initial capacity-building; Phase 2 entails unding or the implementation o national REDD+ strategies by governments; and Phase 3 entails‘perormance-based’ unding or the implementation o concrete REDD+ projects and programmes on the ground. While there is agreement that Phases 1 and 2 can only be unded with public fnance (and private sector stakeholders agree with that), there are diverging views on how Phase 3 activities (which will require the bulk o the total,cumulative REDD+ unding) should be fnanced. Thereore, the private sector suggestions in this report ocus exclusively on the unding o Phase 3 activities.





2. Introduction

The lack o a clear price signal to use orests in a more sustainable way is the key reason why deorestation and orest degradation continue unabated. Changes in fnancial incentives are needed

to both tackle commercial activities, taxes and subsidies that lead to orest loss (the ‘downside’) as well asstimulate activities and initiatives that promote the protection and sustainable use o orests (the ‘upside’).Forest carbon markets are one way, but not the only way, to stimulate the upside while counterbalancingthe downside. Markets or orest carbon, however, will not succeed unless the drivers o deorestation areconronted and given greater prominence.

The conservation and sustainable management o orests, especially in the tropics and sub-tropics, areessential parts o the international eort to reduce global greenhouse gas (GHG) emissions and stabilise theglobal climate system. It is necessary to state up ront, though, that orests are not only about greenhouse gas(GHG) emissions and climate change. They provide a host o ecosystem services such as soil stability, water regulation and habitat or biodiversity – services that specifcally underpin the climate, ood, energy, water and health security on which more than a billion people depend on a daily basis. Given the opportunity todevelop a global system to reduce emissions rom deorestation and orest degradation (REDD+) throughthe UNFCCC negotiations, however, this report logically ocuses on the ecosystem service o car sequestrationand in orest biomass and soils.

The protection and enhancement o orests, especially in the tropics and sub-tropics, is an essential part o the international eort to reduce global greenhouse gas (GHG) emissions and stabilise the global climatesystem. Previous research suggests that a 50 per cent reduction in deorestation is needed by 2030 i the

orestry sector is to eectively support global eorts aimed at holding global temperature rise at below 2 degrees Celsius (UNFCCC, 2010). During the past decade, 13 million hectares o tropical orests have

disappeared annually on average (FAO, 2010). This is equivalent to about six billion tonnes o carbondioxide being released into the atmosphere – about 17 per cent o global man-made GHG emissions. The

potential o orests to mitigate climate change is vast: stopping tropical deorestation and orest degradationand planting new orests could represent the equivalent o doubling current global nuclear energy capacity,or the construction o two million new wind turbines (Socolow and Pacala, 2004).

However, considerable investment is needed or this potential to be realised – estimated at a minimum o USD 17-33 billion per year to halve emissions rom the orestry sector by 2030 (Eliasch, 2008). UNEP’sGreen Economy Initiative comes to the conclusion that annual investment in the order o USD 40 billionis needed to both halve global deorestation by 2030 as well as to increase reorestation and aorestationby 140 per cent by 2050 relative to business as usual. Reducing deorestation and orest degradation can

mitigate climate change less expensively than many other technology-based abatement options, and with immense potential co-benefts such as biodiversity conservation and watershed protection – ‘ree’services with an estimated annual value o up to USD 45 billion by 2050 (TEEB, 2010). These services arecentral to human well-being and economic progress in the medium to long term: estimates show thaton a business-as-usual path, the deorestation-related impacts o climate change on the world economy could reach USD 1 trillion per year by 2100 (Eliasch, 2008). 11 UNEP’s Green Economy Report concludesthat, on average, the global climate regulation benefts o reducing deorestation by 50 per cent exceed thecosts by a actor o three (UNEP, 2011).

Investment on the scale o USD 17-40 billion per year is highly unlikely to come rom governments alone,especially in light o current budgetary constraints o most donor countries, and thus active participation o

private sector investors, including fnancial institutions (FIs), will be imperative or the implementation o

11 Please note that this is an estimate o the orestry-related impacts o climate change, additional to the climate change impacts o other industrial emissions o greenhouse gases.



REDDy SET GROW14

orest-based mitigation activities at the needed scale and pace. This in turn depends on making the protectionand enhancement o natural orests, and the planting o new orests, a competitive investment opportunity.

There are many reasons why orest-based mitigation should be interesting to the private sector generally and fnancial institutions specifcally (or more inormation, please reer to REDDy Set Grow - Part 1).However, in order to mobilise this private sector capital at the required scale, it is paramount that policymakers(i) oer avenues and ormats or the private sector to invest and engage in the protection, rehabilitation

and creation o orests; (ii) increase the fnancial competitiveness and attractiveness o orest-based climatemitigation investments and (iii) reduce the investment risks involved. While a global ramework or orest

protection, conservation and enhancement is now a top priority in the international climate changenegotiations, there is no consensus yet that a ramework agreed upon at this political level will (i) aimto involve and (ii) be eective in involving the private sector at scale and unlock the required volumes o investment and fnance.

It is thereore essential that:

(i) Financial institutions ully understand the nature o the commercial opportunities, and potentialinvestment avenues in the area o orest-based climate change mitigation; as well as the public mechanisms

and risk-mitigation instruments available or such investments.(ii) Policymakers, including in particular UNFCCC negotiators, understand the needs,

priorities and views o private sector investors, lenders and insurers in relation to the specifc characteristicso orest-based mitigation opportunities, so as to acilitate their involvement. Without such involvement, itseems likely, or reasons outlined in this report, that the eective implementation o orest-based climatechange mitigation at the needed scale seriously risks remaining an idea rather than becoming a reality.

Improving the understanding, along these lines, o both stakeholder groups is the undamental objectiveo the two parts o these UNEP Finance Initiative publications.12

12 REDDy Set Grow, Parts 1 and 2



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3. Private sector involvement in fnancing orest-

based climate change mitigation: roles, benefts

and challenges

This section explains why the systematic involvement o the private sector and the mobilisation o private investment and fnance at scale are imperative to close the unding gap in REDD+ and

achieve the REDD+ objectives in line with what is needed; it also highlights the challenges o private sector involvement rom a government and public policy perspective and how these can eectively be dealt with.

3.1 Why is the involvement o private sector nance in

REDD+ imperative?

The need or scale and speed

A wide variation exists in estimates o the costs o and investment needs or reducing deorestation and orestdegradation at the required scale and speed. Estimates start at lower ranges o USD 5-15 billion annually (Stern, 2006), or USD 7 billion annually or 30 years (Grieg-Gran, 2008), or a 50 per cent reduction inglobal deorestation. At the higher range, Kindermann et al. (2008) assume investment needs o USD 17-28billion annually or a 50 per cent reduction in deorestation rom 2005 to 2030, while The Eliasch Review estimates the investment required to achieve a 50 per cent cut in deorestation by 2030 at USD 17-33 billion

per year. In act, investment volumes are expected to be even higher in reality, as the estimates used heremainly reer to opportunity costs rom other land-use activities, excluding signifcant cost categories suchas transaction costs, as well as administration and monitoring costs in the implementation o REDD+.

Simula Ardo (2010) estimates the total amount o available public REDD+ unding to currently stand at a total o approximately USD 7.2 billion. Figure 1 shows the gap between annual investment need estimates

or REDD+ and the relevant public unds available to date . Please note that the amount o public undsavailable concerns all cumulated public REDD+ unding pledged since 2008. It is not an annual fgure.Hence, the actual gap is greater than that displayed in Figure 1.

Figure 1:

Annual

investment

estimates

or reducing

deorestation versus estimate

o public unds

available to

date (note

that this is

cumulative

unding pledged

since 2008

and does not

represent

annual unding)




There is an overwhelming unding gap between what is needed to eectively address deorestation and the public unds currently available. Carbon markets are thought to be one o the ways to mobilise privatesector fnance or REDD+. In act, already today private unding or REDD+ activities is being mobilisedthrough the voluntary carbon markets. See REDDy Set Grow – Part 1 or cases in which public and

private fnancial institutions have unded the protection, rehabilitation or creation o orests on the basiso carbon osets generated or the voluntary carbon markets (UNEP FI, 2011). In act, voluntary markets

have arguably been more successul in mobilising fnance or orest-based mitigation than regulatory markets or aorestation and deorestation under the Clean Development Mechanism (CDM). However,the voluntary markets remain ar too small to mobilise the required unding or REDD+ at the scale statedabove (see REDDy Set Grow – Part 1).

Private sector involvement and fnance are not only important to tackle the unding gap itsel; the speedat which the private sector can mobilise fnance at the required scale is important as well. With projectimplementation, development and fnancing, the private sector can oer a varied and substantial amounto expertise, skills and innovation that could greatly add to the efciency and success o REDD+ activities.Roles or investors and asset managers include equity investors or acting as brokers or intermediaries. Debtfnance can take the orm o loans, leveraged unds or individual projects. Insurance and guarantees are

crucial ways to manage both conventional investment risk in the orestry sector as well as risks that aremore specifc to investments in the area o orest-based climate change mitigation (Figure 2).

The need to change private sector behaviour

As much as there is a key role or private actors and investors to play in mobilising investment or the protection and creation o orests, private actors, including investors and fnancial institutions, today continue playing a central role in and contributing to current deorestation and orest degradation trends.

Figure 3 gives an overview, o the areas where the private sector and capital markets today beneft rom

deorestation, particularly in areas such as timber extraction, agricultural commodities (especially soybeans, palm oil and meat) and inrastructure. The fgure urthermore highlights how the economic use o orestscan be shited to a more holistic and sustainable approach and how orests can, in act, become a pillar o

Figure 2:

Overview o

the major

potential roles

or nancial

institutions in

orest-based

mitigation

investments



REDDy SET GROW18

the Green Economy. This can happen through a combination o efciency gains and more undamentalstep changes, particularly by:

(i) Increasing efciency and inducing step changes in the sectors that drive deorestation (higher land efciency in agricultural production, greater exploitation o already deorested land, shits rom conventionalagriculture to agro-orestry and a greater ocus on tree crops);

(ii) Enhancing land efciency in the production o conventional orest products, such as timber, fbre and other non-timber products; and

(iii) Establishing markets or and creating monetary value or orest-based ecosystem services, which, despitetheir tremendous importance to societal and economic well-being, remain ormally undervalued.

Private actors, investors and fnancial institutions have undamental roles to play in rethinking their ownbehaviour patterns and shiting – via all three avenues above – the way today’s orests are exploited. Inorder to be truly eective, a REDD+ unding mechanism, in addition to fnding new sources o investment,should aim to undamentally reshape the way orests are currently exploited, towards more sustainableland-use patterns. This will have to entail concepts that eectively and systematically address the driverso deorestation at their very roots. In simple terms, the main driver o deorestation is that clearing land

and cutting down orests are fnancially more attractive, by ar, than protecting, rehabilitating and creating orests. This means that, at present, private sector actors, ranging rom subsistence armers at the locallevel to international companies active in the production and export o agricultural commodities, lack any reason not to deorest.

The latter is a critical reason o why any uture REDD+ unding mechanism needs to involve the privatesector: so as to change current behaviour patterns in it. This can happen in an eective way only i privatesector actors are oered fnancially competitive alternatives to current land-use and deorestation patterns;only i investing into orest protection, conservation and enhancement can oer potential revenue streamscompetitive with the revenue streams oered by the unsustainable production o timber and agriculturalcommodities such as soy beans, palm oil, and bee, will the private sector truly shit behaviour patterns

and unlock the skills and resources needed to achieve the REDD+ targets described above.

Against this background, the design o a REDD+ unding mechanism can play a crucial role in creatingmonetary value or orest-based ecosystem services (in this case the sequestration and stocking o CO

2) and

that currently remain undervalued. Only i ecosystem services are attributed an appropriate monetary value will the protection, rehabilitation and creation o orests result in revenue streams which are attractive or private sector actors and investors. Only like this will the drivers o deorestation be addressed, and privatesector behaviour which remains at the heart o the deorestation challenge shit towards more sustainable

paths.




Figure 3:

Framework o

links among

orests, orestry

and nancial

institutions

Source: Prabhu

ater Aulisi et al.

(2008), personal

communication



REDDy SET GROW20

3.2 Risks and challenges o private sector involvement

While the above demonstrates that the systematic involvement o the private sector and the mobilisation o private fnance is imperative both or the implementation and fnancing o REDD+ activities at scale and speed,as well as in eectively addressing the undamental drivers o deorestation, it is also critical to take note o theresulting risks, perceived or real, disadvantages and potential challenges. Some o these are highlighted below.

Implications o REDD+ credits ully ungible with other types o

carbon credits

A repeated concern with involving the private sector, in this case through a market-based REDD+ creditingmechanism that is ully integrated with the global carbon markets, is that the large volume o REDD+credits potentially available will create downward pressure on prices and destabilise the market. This inturn can incentivise industrialised countries with emissions-reduction commitments to increasingly meettargets through the purchase o credits rather than through domestic decarbonisation measures. However,the reality o this is contested. Preventive measures and controls are possible, such as limiting the ungibility o REDD+ credits, supported by a simultaneous commitment by countries to more stringent emissions-reduction targets in order not to depress carbon prices. Qualitative restrictions allowing the import only o

credits with strong sustainability eatures, or instance, can also play a role. This comes down to a debateover whether there should be ull ungibility o REDD+ credits with other types o carbon credits, or whether REDD+ credits should be traded on a separate market. This is also explored later in this report.

Non-ungibility o REDD+ credit with other types o carbon credits should not be rejected

up ront, although it does add a layer o complexity to emerging carbon markets. I a path

to ull or partial ungibility is chosen, it is necessary to impose preventive measures to

ensure REDD+ credits do not depress global carbon prices.

Saeguards to ensure positive environmental and social implications

o REDD+

The main perceived risk and objection to having private investments in REDD+ is the explicit orientation tomaximize proft at the expense o the potential o orest-based mitigation activities that generate signifcantenvironmental and social co-benefts (Ebeling and Yasue, 2008). This would, or example, come rom usingcarbon density as the only indicator or locating REDD+ activities in order to maximize carbon savings andthus carbon credit generation, or rom activities that reduced emissions without reducing deorestation or orestdegradation. Comprehensive ramework design and implementation and well-inormed policy approaches arethereore needed to respect the intention o REDD+, stated in the Cancun Agreements and other documents, toalleviate poverty, contribute to social and economic development, conserve biodiversity and protect ecosystems.

The Cancun Agreements 2010, reached at the UNFCCC COP 16, include a range o saeguards and guidance principles or REDD+ activities13, which are intended to prevent negative environmental and social

implications o REDD+ activities. It is explicitly stated that REDD+ activities should:

Be environmentally integrated and also consider the non-carbon unctions o orests; and

Be implemented in the context o sustainable development and aimed at reducing poverty

while responding to climate change.

In addition, all actions should be consistent with conservation o natural orests and biodiversity, andrespect the rights and knowledge o indigenous people as requested by international agreements. However,the language used or the latter saeguards is soter than or the guiding principles: while the ormer statements are required in implementation (activities “should”), the latter are recommendations that

“should be promoted and supported”.13 See ‘Section C, paras 68-79. Policy approaches and positive incentives on issues relating to reducing emissions rom deorestation and orest degradation in developing

countries; and the role o conservation, sustainable management o orests and enhancement o orest carbon stocks in developing countries’, and Annex 1 or guidance andsaeguards. http://unccc.int/fles/meetings/cop_16/application/pd/cop16_lca.pd.




The practicalities o how compliance with the saeguards will be ensured and monitored remain unclear,and they remain vulnerable to dilution and variable to interpretation at the national level. It is likely that an international monitoring system will be relied upon to ensure saeguards are being enorced andthat there is consistency among countries, with it being important that this system is independent andaccountable to a multi-stakeholder body.14

However, it should be noted that encouraging and maintaining eective participation rom the private sector

does not have to oppose a REDD+ regime characterised by strong and clear saeguards or REDD+ activities.Discussions with a number o fnancial institution members o UNEP FI have led to an understandingthat, in act, strong environmental and social saeguards can be enablers, rather than deterrents, o privatesector involvement in REDD+. Saeguards, and compliance with them, can be important conditions or theinvolvement o fnancial institutions in REDD+, as they can help avoid reputational and operational risk,clariy legal requirements that must be ollowed, as well as clearly set out the social and environmentalrequirements in what or many institutions will be a new area o business. While stricter laws and regulationsare oten argued to be overwhelming and discouraging to private sector participation, it could be arguedthat the language o the current REDD+ saeguards needs to be sharpened and clarifed urther.

Clear and sharp environmental and social saeguards and standards can be enablers or,

rather than deterrents o, private sector involvement and investment in REDD+ activities.

Land tenure and ownership rights

The lack o clear land tenure and resource rights is also a concern by private sector actors seekinginvolvement in markets or REDD+ credits. Large segments o the populations that depend on orestlands and resources have little or no secure rights or ormal tenure as protection or their habitats andlivelihoods. The insecurity o property rights o many orest-dependent communities is related to poverty,

orest destruction and degradation, and a key constraint to increasing rural incomes through sustainable orestry.15 It is believed that private sector involvement in REDD+ could urther increase insecurity anddiminish prospects o orest-dependent communities to have their tenure rights ormalised: by conerringnew value on orest lands, government actors and commercial entities could be incentivised to “actively deny or passively ignore” access and control o local, orest-dependent communities to orest resources.16

It is important or all stakeholders to realise that private sector involvement in REDD+ and orest carbon projects does not have to entail eorts to privatise, or change control and access to, orest resources. Theconcept o fnancing orest-based mitigation projects and REDD+ activities by the private sector must bedistinguished rom transerring or changing current ownership o orest lands. Most importantly, clear landtenure and ownership rights are not only important so that local communities can economically beneft

rom REDD+ activities. They are in act a key enabler, and a undamental condition, or the involvemento the broader private sector and the mobilisation o private fnance and investment in REDD+ activities:

proessional private sector actors such as project developers, orest concessionaries, lenders and investors

will object to investing in REDD+ activities unless clear and undisputed ownership systems are in placeas a core requirement in risk management. Private sector actors will hesitate to invest in situations wherelocal rejection or, even social conict, cannot be categorically ruled out.

Analysis has identifed three types o tropical orests: (i) orests beyond the agricultural rontier (49 per cento tropical orests); (ii) orest rontiers and disputed areas (37 per cent); and (iii) orest mosaic lands (14

per cent). It is suggested that these will each have dierent policy and fnance needs, creating both dierentgovernance challenges and dierent market opportunities. Currently, and or the reasons stated above,

private sector fnance can most easily be leveraged, and can currently play a greater role, in orest mosaiclands with stronger land tenure and governance. They do, however, represent the smallest share o tropical

orests. Private fnance is likely in orest rontiers i an enabling environment or REDD+ investments is

14 Forests and climate change ater Cancun, 2011, p. 14.

15 http://www.orestsclimatechange.org/fleadmin/downloads/movingahead11.pd, p. 4.




REDDy SET GROW22

secured – on the back o the REDD+ unding mechanism as suggested in this report – and less likely in orests beyond agricultural rontiers, as clear land tenure will be required or perormance-based REDD+ payments to private sector entities.17

Clear and undisputed land tenure and ownership rights are not only a condition or

equitable participation o local communities and indigenous peoples in REDD+ activities,

but a key condition or the involvement o the broader private sector and the mobilisation

o private nance and investment in REDD+ activities. REDD+ readiness activities shouldinclude eorts to ormalise land tenure and ownership rights o orest lands, particularly

or orest-dependent communities.

Geographic investment distribution, governance and corruption

A REDD+ unding mechanism that relies on private fnance mobilisation needs to recognise that theremay be an uneven distribution o investment and commercial REDD+ activity between more advancedemerging economies and less developed countries, especially in the short to medium term. As has beenobserved with the Clean Development Mechanism (CDM), investment is less likely where there is weak governance, concentrating private investments in emerging economies with stronger legal rameworks andfnancial markets. Greater attention thereore needs to be given, as part o overall REDD+ readiness eorts,

to address the needs o countries that have weaker governance systems, including in the orestry sector, or are slower to establish these.18 Publicly unded risk-mitigation tools and other support mechanisms or

private investment could play an important role in mobilising private REDD+ investment to potentially disadvantaged geographies and countries unattractive to private investors.19

Key to governance and human rights issues or communities aected by REDD+ are procedural rights andstandards or consultation and involvement. The principle o ‘ree, prior and inormed consent’ (FPIC) or communities and indigenous peoples aected by external development interventions is being increasingly recognised by governments and the private sector, and establishing similar standards in the context o REDD+implementation at all stages and levels o design and implementation is being suggested by stakeholders.

There are justifable concerns that the pricing o orests and the large new fnancial ows that this willcreate could uel new conict and result in new opportunities or corruption, at both regional and nationallevels. However, positive improvements and developments or human rights and governance can also beachieved through a well-designed ramework or fnancing REDD+. Robust implementation and monitoringo saeguards and mechanisms or transparent and accountable fnancial transers can be established,supported by enhanced international scrutiny o orest management.20

The potentially uneven geographic distribution o private REDD+ investment needs to

be addressed by the uture unding mechanism. Publicly unded risk-mitigation tools

and other support mechanisms or private investment could play an important role in

mobilising private REDD+ investment to potentially disadvantaged geographies and

countries currently unattractive to private investors.21

Eorts to build REDD+ ‘readiness’ at the country level should contribute to building capacity

among local communities and indigenous peoples to participate in processes towards ‘ree,

prior and inormed consent’ (FPIC) in the context o REDD+ implementation processes.

17 http://www.unccc.int/fles/methods_science/redd/application/pd/fnancing_redd.pd

18 http://www.orestsclimatechange.org/fleadmin/downloads/movingahead5.pd;http://www.orestsclimatechange.org/fleadmin/downloads/movingahead11.pd.

19 For previous work o UNEP FI on the issue o leveraging private climate fnance through public fnance mechanisms and risk mitigation tools, please reer to the UNEPFI submission to the Transitional Committee o Green Climate Fund (GCF): http://unccc.int/fles/cancun_agreements/green_climate_und/application/pd/unep_f_

submission_on_private_sector.pd, as well as to the report under: http://www.unepf.org/fleadmin/documents/catalysing_lowcarbon_growth.pd 20 http://www.orestsclimatechange.org/fleadmin/downloads/movingahead11.pd.

21 For previous work o UNEP FI on the issue o leveraging private climate fnance through public fnance mechanisms and risk mitigation tools, please reer to the UNEPFI submission to the Transitional Committee o Green Climate Fund (GCF): http://unccc.int/fles/cancun_agreements/green_climate_und/application/pd/unep_f_submission_on_private_sector.pd, as well as to the report under: http://www.unepf.org/fleadmin/documents/catalysing_lowcarbon_growth.pd




For any REDD+ agreement to be eectively implemented, legislators must conront the concerns and areaso risk arising rom involving the private sector. What is most important is that these challenges are addressedthrough action at international, national and regional levels, and on an ongoing basis through all three

phases o REDD+. As the discussion above illustrates, it should be realised that many

requirements o the private sector and those o other stakeholders, particularly

local communities, are, however, rarely in confict.



REDDy SET GROW24

4. From Copenhagen to Cancun to Durban: the

state o orest-based mitigation in international

negotiations

Since the climate change negotiations in Bali in December 2007, REDD+ has been ever more prominenton the international agenda. This section provides an overview o the discussions on orest-based

mitigation within the realm o the international climate change negotiations. It also highlights the outstandingissues that continue to lead to areas o uncertainty and risk, and outlines what outcomes, especially with regardsto REDD+, are most and least promising in the context o mobilising private sector investment and fnance.

4.1 Background and overview

REDD+ was included as an important element in the Copenhagen Accord (2009)22 ollowing COP 15 in2009. REDD+ has also been included in US climate legislation that passed the House o Representativesin June 2009, and in drat Senate legislation that was introduced in May 2010 (Cortez et al., 2010). Whilethe Cancun Agreements reached in December 2010 speciy the inclusion o a REDD+ mechanism in a

uture climate change regime, a range o important issues remain unresolved. One o these is the essentialquestion o how REDD+ activities will ultimately be fnanced, and how to close the REDD+ investmentgap o approximately USD 17-40 billion per year (as outlined in Section 3.1 ). A second concern is how toreorm A/R activities under the CDM to accelerate and scale up project development in a way similar tothat observed in the voluntary carbon markets.

4.2 Agreements under REDD+ and promising outcomesor the private sector

A range o ormal agreements have been reached with regards to a uture REDD+ mechanism. A number o these agreements have resulted in promising outcomes or the prospects and the likely eectiveness ininvolving the private sector and unlocking private investment and fnance or REDD+.

Current REDD+ agreements

1. There is consensus that a REDD+ mechanism will be part o a uture climate change

regime. Japan, Norway, the UK and the US have pledged considerable resources – close to USD 4 billion– to help developing countries prepare or the uture mechanism.

2. The term REDD has been extended to REDD+ as o the 2007 Bali Action Plan, which in additionto reducing emissions rom deorestation and degradation now includes the conservation, management andenhancement o orest carbon stocks in developing countries. As agreed upon in Cancun, the fve eligibleactivities under REDD+ are thereore:

n Reducing emissions rom deorestation

n Reducing emissions rom orest degradation

n Conservation o orest carbon stocks

n Sustainable management o orests

n Enhancement o orest carbon stocks

22 http://unccc.int/resource/docs/2009/cop15/eng/l07.pd.




3. The Cancun Agreements ormulate and outline a set o guidelines and saeguards,aimed at ensuring that REDD+ activities are in line with social, environmental and governance principles,such as the consistency o REDD+ activities with the goals o conservation o orests and biological diversity and poverty reduction. Saeguard language also mentions the UN Declaration on the Rights o IndigenousPeoples (UNDRIP) and addresses land tenure and gender considerations.23 Please reer to Section 3.2.2 or anelaboration o why clear and sharp saeguards are important enablers o private sector participation in REDD+.

4. There is agreement on a range o methodological issues , including:

n An approach to estimate emissions rom land-use activities, removals by sinks, orest carbon stocks andchange in orest area

n That reerence levels or deorestation and/or or emissions rom deorestation should ultimately be at thenational level, but that in the interim sub national reerence levels will be accepted as well

n That monitoring and reporting systems or REDD+ activities should ultimately be at the national level,but that in the interim sub national systems will be accepted as well

n That developing countries, in establishing orest reerence emission levels and orest reerence levels, shoulddo so transparently, taking into account historical data, and adjust or national circumstances

23 See Section 3.2 or a detailed description o some o the key challenges raised by the involvement o the private sector relating to these principles.



REDDy SET GROW26

5. The ocial adoption o a phased approach. The REDD+ process is now ormally divided intothree dierent phases

Phase 1: Readiness and capacity-building, accompanied by pilot and demonstration activities

Phase 2: Reorm and implementation o national policies and REDD+ strategies

Phase 3: Perormance-based payments or reductions in deorestation levels

The phased approach is intended to address country-specifc needs or sufcient time and resources to prepare and build capacity or REDD+ implementation. It enables countries with dierent circumstancesto pilot and mainstream REDD+ actions beore a results-based payment system is eventually established.

The Cancun Agreements explicitly mention the eventual evolution o REDD+ into a system o perormance-

based payments under Phase 3 where actions are subject to measuring, reporting and verifcation(MRV). The Cancun Agreements urther request developed countries to support, with public fnance andthrough both multilateral and bilateral channels (see DECC, 2011, or urther details on the current donor landscape), the implementation o Phases 1 and 2 in developing countries. This means that undingrequirements can be better distributed among unding sources (see Table 2). It also implies that private

sector involvement could mainly be concentrated in Phase 3, where payments are intended to take placein a perormance-based manner.

6. Keeping open the option o sub national/project-level accounting and crediting.

While many indications hint at the eventual crediting at the national level, this is not specifcally containedin the Cancun Agreements. This means that Parties to the COP would like to keep open the option o directsub national crediting, even though most other activities (e.g., monitoring, reerence-level setting) arespecifed to happen at national scale. For the private sector, this implies the possibility that project-levelinvestments in REDD+ activities could be issued directly with carbon credits rather than going througha national allocation process that may be associated with uncertainties and regulatory risks. For a ullelaboration on and more comprehensive analysis o dierent design options and uture scenarios or the

REDD+ unding mechanism, please reer to Section 5.

4.3 The Cancun Agreements: areas o concern and

uncertainty or the private sector

A number o issues remain unresolved, some o which cause concern and uncertainty or the privatesector (see Table 3 or agreed and undecided issues). Some o the most relevant outstanding issues under REDD+ include:

1. Will there be an international deal on climate change? While the internationalcommunity has agreed that REDD+ will be a component o a uture international climate change regime,

it remains uncertain whether such a regime will indeed be established in the near uture. This will only happen i the international community achieves consensus on many contested issues both inside butespecially outside o the actual REDD+ negotiations.

Table 2:

Dierent roles

or private and

public unding

sources in the

phased REDD+

process




2. How will the REDD+ investment gap be closed? While it has been agreed that thefnancing or preparedness and capacity-building eorts in Phases 1 and 2 will be realised through publicmeans and disbursed through development banks and similar channels, the undamental question o how the implementation o actual REDD+ investments in Phase 3 will be fnanced has remained unaddressed.

Will results-based REDD+ projects be fnanced through public transactions in a government-to-government ashion? Or will a crediting mechanism be established to translate resulting emissions reductions into

carbon osets that can be traded on international markets? Would such credits be ungible with existingcarbon credits and allowances under the CDM, Joint Implementation (JI), International Emissions Trading(IET) or the dierent regional cap and trade schemes? Or will additional and separate market structuresbe put in place?

3. How will REDD+ activities, in any o the envisaged phases, relate to the

system o Nationally Appropriate Mitigation Actions (NAMAs) currently under

development? Although much has been discussed about establishing an ofcial link between REDD+and NAMAs, the Cancun Agreements say very little on this point. REDD+ is not explicitly mentioned in thetext concerning NAMAs. Assuming there will be a link, it is not yet clarifed whether and how accountingo REDD+ activities could be structured to avoid double counting o REDD+ activities as NAMAs.

4. How – guided by which principles and methods – will reerence baselines be

calculated?The Cancun Agreements require the establishment o a national orest reerence emissionlevel and/or orest reerence level, with sub national levels accepted as an interim solution. This is to bedecided according to the principles determined at COP 15 in Copenhagen (2009) o (i) transparency, (ii) a basis on historical data, and (iii) adjustment or national circumstances, but also be subject to uture

provisions that may be adopted during subsequent COP meetings.

This means that historical emissions and deorestation rates will be the basis or reerence-level setting,and then country-specifc projections will be used to adjust expected uture deorestation levels. Dependingon specifc national circumstances, reerence levels could also be a combination o several sub nationalreerence levels. What these “national circumstances” may be, what they could entail and how they would

be weighted compared to historical data are, however, still open to discussion.

5. How will compliance with saeguards be reported, and who will use the

inormation provided? The success o REDD+ will be determined by how well the mechanismconsiders and addresses the needs and interests o all relevant stakeholders (see Section 3). However, thereare concerns that i REDD+ considers multiple benefts, it may overwhelm the mechanism and reduce itscapacity to carry out its primary aim o carbon storage and enhancement (UN-REDD, 2010). Compliance

with saeguards contained in the Cancun Agreements is not mandatory. The COP 16 decision requires thatthese standards be “promoted and supported”, and it requests the development o a system “or providinginormation on how the saeguards are being addressed and respected […] while respecting sovereignty”(Cancun Agreements, 2010). As or now, this does not entail a strict reporting system o saeguards but

rather leaves it to the discretion o individual REDD+ countries to establish an inormation system rather than a reporting system. It has not been specifed how and to whom this inormation must be madeavailable. However, it is expected that a more strict defnition will be discussed in upcoming negotiations.



REDDy SET GROW28

Table 3 summarises which issues were in principle agreed upon in Cancun and which remain to be resolved.

4.4 CDM aorestation and reorestation – what is

happening, and what are potential lessons or

REDD+?

The modalities and rules governing orest activities under the CDM A/R were negotiated and decided uponduring the early Kyoto negotiations in the years 2000 to 2003. Since the rules were determined in 2003, thetopic has not been the subject o much debate during subsequent climate negotiations. Ater a slow start or

orestry under the CDM, the project cycle has fnally picked up some momentum, with a total o 17 projectsregistered and a urther 32 in earlier stages o the development cycle as o 1 March 2011 (UNEP Risoe, 2010).

While the latest drat negotiation text by the chair o the AWG-KP, released ater the UNFCCC Climate ChangeConerence in Tianjin, China, in October 2010, still included a paragraph about the potential expansiono eligible CDM A/R activities, no text concerning this topic is contained in the Cancun Agreements. Thus,

while the expansion o CDM A/R has been discussed on several levels during the past years, there are noconcrete recent developments on the potential scope or modalities o such expansions. In particular, none

o the much-needed reorms o CDM A/R have been suggested or discussed.

The ollowing points outline areas that currently hamper private sector interest in CDM, and which needto be addressed at the policy level in order to make CDM A/R an interesting investment opportunity:

COSTS o CDM A/R projects

n High up-ront costs or land, seedlings and labour

n Economies o scale – large-scale projects are considered more fnancially viable than small ones

n Complex and cumbersome project development process with stringent project design documents (PDDs)and methodological requirements

n Specialised carbon orestry consultants are usually required to prepare project documentation and carry out associated analyses

Table 3:

Resolved and

open issues

in REDD+

negotiations,

based on

the Cancun

Agreements

rom COP

16 (adapted

rom Bleaney,

Peskett and

Mwayau, 2010)




REVENUES rom CDM A/R projects

n Long time duration or return on investment: frst credits issued only ater several years

n Currently, projects result in temporary carbon credits rather than permanent ones, with the eects o low prices and little demand

n Main demand could have come rom the European Union Emission Trading Scheme (EU ETS), but

temporary credits have been excluded

n Currently not a high-revenue activity with attractive rates o return

There are a range o proposals reerring to a potential amendment to the CDM, including reorming thetemporary crediting o CDM A/R activities to create permanent carbon credits that are more attractive tobuyers. This could be done via several options:

n Host countries taking responsibility or any potential reversals (as is currently the case with the JI approach)

n Establishing insurance schemes or project activities to cover the risk o credit cancellation

n Creating buers o credits rom CDM A/R projects to compensate or reversals, as is currently the case in

the Voluntary Carbon Standard (VCS)

n Exempting low-risk projects rom modalities and procedures or addressing potential non-permanence

n Creating credit reserves rom which any reversals can be compensated at the end o a commitment period

n Simpliying methodologies relating to CDM A/R projects in terms o eligibility requirements and carbonaccounting requirements

n Increasing the limit or small-scale CDM A/R projects, in order to allow a greater number o projects tobeneft rom the simplifed rules and modalities or small-scale projects; doing so would acilitate the ow o a greater number o A/R projects through the CDM pipeline under simplifed conditions



REDDy SET GROW30

5. Policy scenarios that best stimulate private

sector fnance or REDD+

A s discussed previously, a range o policy options and dierent scenarios or a uture REDD+ mechanismare currently under discussion. The we will summarise them in this section

Following the Cancun Agreements, there are a number o dierent scenarios on the table or a utureREDD+ unding mechanism. The dierent scenarios are summarised in this section. We also identiy

which international policy options and resulting scenarios would be most eective in closing the REDD+investment gap by mobilising private fnance at scale.

The current status o CDM A/R was outlined in Section 4.4 , and scenarios concerning long-term policy options or the broader land-use sector are illustrated below. These suggestions could potentially be part o a redesigned CDM or REDD+ mechanism. They could also constitute an independent land-based approachto emissions reductions.

5.1 Factors that infuence the architecture o a uture

REDD+ unding mechanism

As discussed beore, with the Cancun Agreements the international community achieved remarkableconsensus on a number o REDD+ and related issues. However, the important questions o what theinternational unding mechanism or REDD+ should look like and how the needed billions o REDD+investment should be mobilised are not yet resolved. This section describes dierent components o any

uture unding mechanism or REDD+. We also highlight – on the basis o scenario analysis – how any

uture mechanism should combine dierent eatures to most eectively unlock private sector fnance andinvestment at the needed speed and scale. The ollowing questions relate to the eatures or components o any uture unding mechanism.

1. Will there be an overall deal?

A major issue concerns whether any ormal agreement on REDD+ can be reached

at the international level, as part o a broad and global deal on climate change

under the UNFCCC. Considerable progress has been observed in the REDD+-related negotiationsover recent years. Despite this progress, it is unlikely that a global REDD+ mechanism will be establishedunless a broader, global agreement on climate change under the UNFCCC is achieved into which a REDD+mechanism can be embedded.

Possible answers:

Yes No

2. Who will make perormance-based payments in Phase 3?

Will perormance-based payments come (i) rom buyers via a crediting mechanism

and international carbon markets (o eventual REDD+ credits abroad); or (ii) rom

bilateral or multilateral unding vehicles equipped with international climate

nance (ultimately rom taxpayers)? Neither o these two approaches is riendly or unriendly to

the private sector per se. In principle, private sector fnance or REDD+ can be mobilised via internationalcarbon markets through an approach o ‘carbon fnance’ reminiscent o the unding o CDM projects. Itcan also be mobilised through a system o international public unding vehicles. In the case o the latter,




such unding vehicles could, or instance, explicitly aim to raise unding not only rom governments butalso rom private sector institutions such as banks, pension unds and other investors. There are reasons toassume, however, that a decentralised and dispersed approach, such as through carbon markets, is likely to be eective in mobilising private fnance and investment at the required scale and speed. A centralised

unding structure, potentially subject to considerable political risk and bureaucratic delays, will likely enhance regulatory risk and hence market risk or private investors.

Possible answers:

Carbon credits and decentralised markets

(polluters in developed countries pay)

Centralised public unding vehicle(s)

(taxpayers in developed countries pay)

3. Who can receive perormance-based payments?

Can oreign, perormance-based payments under Phase 3 – either rom a centralised

international und or REDD+ or rom buyers on international carbon markets – be

received by national governments, by public authorities at both the national and sub

national levels, or by a wider array o entities at the sub national level? The latter

includes private bodies such as agricultural cooperatives, orest concessionariesand project developers.

Possible answers:

National governments only

Sub national implementing

entities only, including

private actors

Both

4. Who can design and implement REDD+ activities on the ground?

Are REDD+ programmes and projects open to private sector participation, or can

such eorts only be initiated and implemented by public authorities and agencies?

‘Openness towards the private sector’ translates into private sector entities being eligible to participate in processes that lead to the generation o REDD+-based revenue streams, and initiate processes under nationaland sub national REDD+ strategies. The extent to which a national or sub national REDD+ strategy willbe open to private sector participation will essentially depend on national policies and regulation, rather than the design o an international unding mechanism or REDD+. This is why this particular point isnot urther debated as a eature o dierent international policy scenarios in the subsequent parts o thissection. However, it is likely that the design o the international unding mechanism will inuence the‘private sector riendliness’ o any domestic REDD+ strategy and policy. I all perormance-based paymentsare exclusively channelled through public authorities at the national level, or instance, governments might

eel incentivised not to include the private sector in concrete REDD+ eorts. And even i they did, it seems

that in light o the political instability in many o the countries concerned, the private sector would notagree to rely exclusively on domestic government channels or REDD+-related revenue streams. I, on theother hand, governments could tax any credit-based REDD+ revenues o private actors, it would incentivisegovernments to involve the private sector in concrete REDD+ eorts to the extent possible.

Possible answers:

National governments only Public entities only Public and private entities



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5.2 Policy scenarios or a uture international REDD+

regime

Combined, these actors result in fve potential policy scenarios or a uture REDD+ regime, as summarisedin Table 4. The let column o Table 4 answers or each scenario the fve questions posed in Section

5.1 above. The right-hand column o Table 4 indicates whether the proposed scenario is avourable tounlock private sector participation. We characterise fve dierent levels o conditions to mobilise private

sector fnance and investment:

+ + Very avourable conditions

+ Favourable conditions

+ /– Neutral conditions

– Unavourable conditions

– – Very unavourable conditions




Table 4: Main policy scenarios or a uture REDD+ system and implications or

private sector nance



REDDy SET GROW34

24 ‘Enhancement o carbon stocks’ and, under certain circumstances, ‘sustainable orest management’ are two o fve activity categories under REDD+ where the issue o permanence plays a signifcant role, as these two activities address mitigation by increasing GHG removals rom the atmosphere into sinks. On the other hand, all other REDD+ activities address mitigation by decreasing GHG emissions rom sources. In the latter case, the issue o permanence does not play a criti cal role, as reduced emissionsare credited, or rewarded through perormance-based payments, ex post on a yearly basis.



REDDy SET GROW36



REDDy SET GROW38

5.3 A nested approach or REDD+: key eatures and

advantages o Scenario 3

The most promising policy option or private sector involvement in REDD+ seems to be the nested approachas described above in Scenario 3.

The nested approach is considered by a number o private sector actors and stakeholders to be the most

likely scenario to develop under current conditions (Angelsen et al., 2008; Parker et al., 2009; Pedroni etal., 2010; Cortez et al., 2010; O’Sullivan et al., 2010). An important question – and a core condition o the eectiveness o the nested approach in mobilising private sector skills and investment – is whether

private sector entities, such as agricultural cooperatives and orest concessionaries, will also be eligible or REDD+ crediting in addition to sub national governments. I not, the nested approach could lose much o its eectiveness given the regulatory and political risk profles o many sub national governments similar to those o governments at the national level. Another caution o the nested approach is that is it muchmore complex to implement, and would hence require rigorous governance structures. Under the nestedapproach we propose in this report, there is a risk that sub national actors may not receive compensation

or successul activities in the event that the country as a whole ails to perorm. This risk will need to beminimized in order to promote sub national participation and private investment (The Nature Conservancy

and Baker & McKenzie, 2010). Related to the previous issue, another risk or challenge concerns transactioncosts. These may be substantial using a nested approach, since it requires rigorous governance/MRV.

There are a ew critical design eatures o the nested approach as presented in Scenario 3 that make itappealing rom a private sector and investment mobilisation perspective:

The possibility o perormance-based payments at the activity level

to mitigate country and regulatory risk.

This risk category is one o the main impediments to increased private investment in the developing worldgenerally. It results rom track records o political instability and corruption as well as regulatory and legaluncertainty in the countries concerned. This risk is already detrimental to private investment in ordinary market settings. In a REDD+ context, i all uture REDD+ revenue streams – rom carbon markets or roman international und – were administered and distributed exclusively by public bodies and channels, thisrisk would be considerably intensifed.

Potential REDD+ activity implementers rom the private sector (cooperatives, orest concessionaries, armers),as well as their fnancial backers (investors and lenders), who would ultimately carry the ‘perormancerisks’ o REDD+ implementation, are unlikely to accept such an intensifcation o ‘country and regulatory risk’. This is the case especially when the revenue o conventional land-use alternatives, such as the exporto timber or agricultural commodities, is not aected. As such, by not providing a direct incentive to privateactors that is reliable over time, any such REDD+ scheme would likely ail to change market behaviour,address the drivers o deorestation or mobilise private investment or REDD+ implementation.

Intensifed country, legal and regulatory risk can be dealt with by oering to private REDD+ implementersspecial international hedging instruments, such as guarantees that governments will act upon commitments.

A less costly alternative would consist o designing the fnance mechanism or REDD+ in a way that alloweddirect perormance-based payments, such as through international crediting, to take place at the level o implementing entities, including rom the private sector. Such activity-level payment channels could coexist

with parallel channels to ederal governments and sub national authorities or activities implemented by them. As such, having a special ‘crediting window’ or private actors would complement, not compromise, theability o larger-scale activities – implemented by central governments – to generate REDD+ revenue, too.




Sub national and regional baselines coexist with an all-encompassing

national baseline: combining environmental integrity with private

investment mobilisation

Enabling perormance-based payments at the activity level, as described above, logically requires the ability to measure local perormance accurately, making use o reerence levels that geographically coincide, tothe extent possible, with the geographic coverage o the activity concerned. This is not possible i emission

trajectories at the sub national or regional level are measured against national baselines. Rather, any baselineestablished at the national level, and communicated internationally in line with the Cancun Agreements,could be disaggregated into a series o sub national baselines, which in turn could be disaggregated intoregional baselines at the level o counties and/or municipalities. All these baselines would, however, haveto be logically interlinked and, at any given point, sum up to the cumulated baseline at the national levelto ensure environmental integrity. Ultimately, the total sum o credits issued or regional and sub nationalactivities, and credits issued to national governments, would have to add up to the dierence betweenoverall national emissions rom deorestation/orest degradation, and the national baseline, per year and/ or per commitment period.

The unctioning and integrity o such a system o multiple reerence baselines at multiple levels could

only be enabled by a registry system o approved initiatives, reerence emission levels, monitoring reportsand carbon transactions ensuring transparent carbon accounting and avoiding double counting o subnational and national emissions reductions (Pedroni et al., 2010). Furthermore, special buers, reservesand/or insurance solutions would have to be devised to address situations where sub national REDD+activities perorm while the national REDD+ strategy does not.

A crediting mechanism is preerable to an international und: making

emitters, not taxpayers, pay or REDD+ implementation

The bulk o the estimated USD 17-33 billion o REDD+ investment needed per year is, in essence, opportunity costs related to the conservation, rather than the exploitation, o orests. These costs will have to be assumed

by somebody, and ultimately there are two options: (i) developed-country emitters o greenhouse gases,or (ii) developed-country taxpayers. Even i an international public unding vehicle or REDD+ weremandated to mobilise private investment – or example, rom institutional investors such as pension

unds – the undamental question o how, or rom where, investors would be repaid their capital and any expected return on investment, in the absence o a market or REDD+ credits, remains: rom which revenuestreams would host governments, municipalities, cooperatives and orest concessionaries in developingcountries repay debt and service interests and dividends ater the successul implementation o REDD+activities? The only answer that can be provided at this stage is: rom the generation o carbon credits soldon international carbon markets.

The only alternative would be a REDD+ fnancing mechanism entirely built on public grants, fnanced

by developed-country taxpayers. It is known rom previous analysis, however, that it is highly unlikely thatthe amount o Phase 3 REDD+ investment needed could ever come rom taxpayers, especially in light o the signifcant fscal constraints currently experienced by most donor countries.



REDDy SET GROW40

5.4 A nested approach or unding REDD+ implementation

under Phase 3: will it do the job alone?

O all possible generic models or a REDD+ fnancing mechanism, it seems that the nested approach wouldbe best suited to address a number o stakeholder needs while combining promising resource-mobilisation

potential with environmental integrity. The mere establishment o a stand-alone crediting scheme or REDD+ ollowing the nested approach model, however, will by itsel be unlikely to deliver satisactory results.

As detailed above, the eectiveness o any REDD+ fnance mechanism will also depend on the concreteoutcomes o a number o negotiation areas under the UNFCCC. Some o these key links are the ollowing:

n Existing carbon markets and the risk o intensive pressure on carbon prices – links with the project-based exible mechanisms (CDM, JI) and International Emissions Trading (IET): a REDD+crediting mechanism could dramatically increase the supply o carbon credits on the global markets. As it willbe imperative to keep international carbon prices at levels high enough to justiy domestic carbon reductionsin developed countries, as well as continue supporting other emissions-reduction eorts in developingcountries through the CDM, such increased supply will have to be met with an increased level o demand.The ooding o carbon markets with REDD+ credits would not only put intensive pressure on credits romthe CDM and JI as well as the prices o assigned amount units (AAUs), but would concordantly put pressure

on the prices or REDD+ credits themselves – making REDD+ projects increasingly unattractive or privatesector actors and investors. The crediting mechanism, i not implemented with careul consideration o the links REDD+ has with other areas, would counteract its initial goal o mobilising private investment

or REDD+. The level o demand or carbon credits will ultimately be determined by: (i) the level o ambition among developed countries in terms o their short-, medium- and long-term emissions-reductioncommitments, and (ii) how the issue o ‘supplementarity’ is dealt with. A solution in this context couldalso be the set-up o separate international carbon markets that are non-ungible: a market or REDD+credits on the one hand, and a market or other types o carbon credits on the other.

n The emissions-reduction commitments by developed countries, at this stage o thenegotiations, remain weak or many o the largest industrialised countries. The collective level o ambition

will have to increase substantially in order to make a REDD+ crediting mechanism work while keepinginternational carbon prices at sensible levels.

n Supplementarity is the principle that, or their compliance with emissions-reduction commitments,developed countries should only buy carbon credits ‘imported’ rom developing countries in a supplementary

way. The bulk o the compliance eorts should be underpinned by emissions-reduction achievements withina country’s borders. A too-stringent level o supplementarity, while orcing developed countries to reduceemissions themselves, will reduce the demand or carbon credits and vice versa. I a REDD+ creditingmechanism is to properly unction while keeping the carbon price at a sensible level, the handling o supplementarity in the next regime will have to be careully balanced and eventually sotened to allow

or an inux o REDD+ credits into developed countries on top o projected ows o Certifed Emission

Reductions (CERs). A potential compromise, and promising avenue into the uture, could consist o developedcountries dramatically increasing their emissions-reduction targets, particularly in the short term, whilesotening the modalities or supplementarity with regards to the import o REDD+ credits. Higher targets,combined with soter supplementarity conditions, could unlock much o the credit demand needed or a global REDD+ crediting mechanism to mobilise private investment at the needed scale, while reducingglobal greenhouse gas emissions in a cost-eective and politically acceptable way.




Acknowledgements

About the UNEP FI

The United Nations Environment Programme Finance Initiative (UNEP FI) is a global partnership betweenthe United Nations Environment Programme and the private fnancial sector. UNEP FI works closely withthe nearly 200 fnancial institutions that are Signatories to the UNEP FI Statements, and a range o partner organizations, to develop and promote linkages among the environment, sustainability and fnancial

perormance. Through regional activities, a comprehensive work programme, training activities andresearch, UNEP FI carries out its mission to identiy, promote and realise the adoption o best environmentaland sustainability practices at all levels o fnancial institution operations.

About the Biodiversity and Ecosystems Workstream(BEWS)

The Biodiversity and Ecosystems Workstream is based on the need to engage the fnancial services sector in identiying and addressing the challenges arising rom the loss o biodiversity and the degradation o ecosystem services.

About the Climate Change Working Group (CCWG)

The Climate Change Working Group is a global platorm o fnancial institutions – lenders, investors andinsurers – that collaborate to understand the implications o climate change on fnancial perormance

and the roles o the fnance sector in addressing climate change, as well as to advance the integration o climate change actors – both risks and opportunities – into fnancial decision-making.

Project Team at UNEP FI

Head o Unit: Paul Clements-Hunt

Lead Authors and Project Leaders: Remco Fischer and Ivo Mulder

Authors and Project Team: Jessica Boucher and Jenny Lopez

Project Team at EcoSecurities Authors: Marianna Doria and Francisco Ascui

Special Contributors: Jan Fehse and Robert Tippmann

The study was independently reviewed by

EnviroMarket.

Project Manager: Simon Petley



REDDy SET GROW42

UNEP FI would like to thank the ollowing individuals or actively contributing

to the success o this publication:Andreas Dahl-Jørgensen – The Norwegian Climate and ForestInitiative; Abyd Karmali and Matt Hale – Bank o America Merrill Lynch; Christian Delvalle – BNP Paribas;Ravi Prabhu, Thomas Enters and Nicolas Bertrand – UNEP; Steve Cornelius – UK Department o Energy andClimate Change; Andrew Mitchell – Global Canopy Programme; Martin Ewald and Katharina Lati – AllianzClimate Solutions; Daniele Welsh – VicSuper Pty. Ltd.; and Christopher Webb – PricewaterhouseCoopers.

The ollowing nancial institutions are members o UNEP FI’s BEWS: ANZ, ASNBank, BoA Merrill Lynch, Barclays, Bayern LB, Calvert, Citigroup, Connexis, Credit Suisse, DevelopmentBank o Southern Arica (DBSA), Earth Capital Partners (Chair), F&C Asset Management, HypoVereinsbank/ UniCredit Group, ING, JPMorgan Chase & Co., KW Bankengruppe, KPA Pension, Nedbank Ltd., Nikko

Asset Management Co. Ltd., Rabobank Netherlands, Sumitomo Trust, Sustainable Development Capital,LLP, VicSuper Pty. Ltd.

The ollowing nancial institutions are members o UNEP FI’s CCWG: AccessBank, Allianz, Aviva, Axa, BoA Merrill Lynch, CarbonRe, Chartis Insurance, Deutsche Bank (Co-Chair),Development Bank o Southern Arica, Ecobank, HSBC (Co-Chair), IL&FS, ING, JBIC, KW, La CompagnieBenjamin de Rothschild, Munich Re, Pax World, SAM, Societe Generale, Standard Bank, Standard Chartered

Bank, Swiss Re, UBS.




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Cortez et al., “A Nested approach to REDD+. Structuring eective and transparent incentive mechanisms or REDD+ implementationat multiple scales”, 2010. Available at: http://www.nature.org/initiatives/climatechange/fles/nested_paper_fnal_60110.pd.

DECC. (2011). Funding or orests: UK Government support or REDD+. Commissioned to PricewaterhouseCoopers LLP, ClimateFocus, Winrock and IUCN.

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Eliasch, “The Eliasch Review. Climate change: fnancing global orests”, 2008. Available at:http://www.ofcial-documents.gov.uk/document/other/9780108507632/9780108507632.pd.

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Kindermann, G., Obersteiner, M., Sohngen, B., Sathaye, J., Andrasko, K., Rametseiner, E., Schlamadinger, B., Wunder, S., andBeach, R., “Global cost estimates o reducing carbon emissions through avoided deorestation”, Proc Natl Acad Sci USA , 105(30),(2008 July 29), p. 10302-10307.

O’Sullivan, R., Streck, C., Pearson, T., Brown, S., and Gilbert, A., “Engaging the private sector in the potential generation o REDD+carbon credits. An analysis o issues”, 2010. Available at: http://www.climateocus.com/documents/engaging_the_private_sector.

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Pedroni, L., M. Dutschke, C. Streck and Porrúa, M.E., “Creating Incentives or avoiding urther Deorestation: the Nested Approach”,2009. Climate Policy 9 (2): 207-220

Simula Ardo M., “Analysis o REDD+ Financing Gaps and Overlaps. REDD+ Partnership Report”, 2010. Available at: http:// reddpluspartnership.org/25159-09eb378a8444ec149e8ab32e25671b11.pd.

Stern, N., “Stern Review on the Economics o Climate Change”, 2006. Available at: http://webarchive.nationalarchives.gov.uk/+/ http://www.hm-treasury.gov.uk/stern_review_report.htm.

TEEB, The Economics o Ecosystems and Biodiversity Report or Business – Executive Summary, 2010, European Commission: Brussels.

The Nature Conservancy and Baker & McKenzie, “A nested approach to REDD+: Structuring eective and transparent incentive

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UNFCCC (30 March 2010). “Decision 2/CP. 15 Copenhagen Accord. In: Report o the Conerence o the Parties on its fteenthsession, held in Copenhagen rom 7 to 19 December 2009. Addendum. Part Two: Action taken by the Conerence o the Parties atits fteenth session” (PDF). United Nations Ofce at Geneva, Switzerland. p. 5. Retrieved 2010-05-17.



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partnership between the United Nations

Environment Programme and the private fnancial sector. UNEP FI works closely with

the nearly 200 fnancial institutions that are

Signatories to the UNEP FI Statements,

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develop and promote linkages between

the environment, sustainability and fnancial

perormance. Through regional activities, a

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REDDy-Set-Grow Part II: Private sector suggestions for international climate change negotiators

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