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Climate Change: Financing Global Forests

Climate Change: Financing Global Forests

The Eliasch review. Written by Johan Eliasch, commissioned by the British Prime Minister.

The Eliasch Review is an independent report to government. It aims to provide a comprehensive analysis of international financing to reduce forest loss and its associated impacts on climate change. It does so with particular reference to the international debate surrounding the potential for a new global climate change deal in Copenhagen at the end of 2009.

The Review focuses particularly on the scale of finance required and on the mechanisms that can, if designed well, lead to effective reductions in forest carbon emissions to help stabilise greenhouse gases in the atmosphere and avoid the worst effects of climate change.

Headline messages

Urgent action to tackle the loss of global forests needs to be a central part of any future international deal on climate change. A deal that provides international forest financing could not only reduce carbon emissions significantly, but also benefit developing countries, support poverty reduction and help preserve biodiversity and other forest services. Forestry, as defined by the IPCC, produces around 17 per cent of global emissions, making it the third largest source of greenhouse gas emissions – larger than the entire global transport sector. In the tropics, it is estimated that an area of forest the size of England is cleared every year, and current annual emissions from deforestation are comparable to the total annual CO2 emissions of the US or China. If the international community does nothing to reduce deforestation, modelling for the Eliasch Review estimates that the global economic cost of climate change caused by deforestation could reach $1 trillion a year by 2100. This is additional to the impacts of industrial emissions. Moreover, without tackling forest loss, it is highly unlikely that we could achieve stabilisation of greenhouse gas concentrations in the atmosphere at a level that avoids the worst effects of climate change.

This Review believes that an ambitious international climate change deal should aim to halve deforestation emissions by 2020 and make the forest sector carbon neutral by 2030 – with emissions from forest loss balanced by new forest growth. Reducing deforestation rates significantly will require substantial finance. Nonetheless, even taking this into account, the net benefits of halving deforestation could amount to $3.7 trillion over the long term.

In order to achieve this, a global step change is needed in the way land is used and commodities are produced. Success will rest largely on action at the national level. Demand for agricultural commodities and timber will continue to rise as the world population grows and becomes wealthier. National and international policies will need to shift the way demand for commodities is met away from deforestation and towards more efficient and sustainable methods that ensure forest nations and communities grow and prosper. Improvements in agricultural productivity and the sustainable management of forests will play a key role. Consumer countries can also provide incentives for sustainable production through preferential procurement of sustainably-produced products and increased consumer awareness.

A central element in making this shift work will be the inclusion of the forest sector in global carbon markets. In doing so, the costs of reducing global carbon emissions will be reduced substantially, and lower costs will mean that a more ambitious overall emissions target will be possible. The Review’s analysis suggests that including deforestation and degradation (REDD) – and additional action on sustainable management – in a well-designed carbon trading system could provide the finance and incentives to reduce deforestation rates by up to 75 per cent in 2030. With the addition of afforestation, reforestation and restoration (ARR), this would make the forest sector carbon neutral. In addition, the cost of halving global carbon emissions from 1990 levels could be reduced by up to 50% in 2030 and by up to 40% in 2050 if the forest sector is included in a trading system. This is due to the relatively low cost of forest abatement compared to some mitigation in other sectors. These lower costs could also allow the international community to meet a more ambitious global emissions target.

Full global carbon trading will take time to evolve. Any system should meet the needs of countries at different levels of development, particularly the poorest. In the transition period from 2012, the Review recommends that forestry abatement is supported through a combination of finance from carbon markets and other sources from the public and private sectors. For this to be successful, four building blocks will be needed:

  • Effective targets dependent on baselines Emissions reductions should be measured against national baselines that provide incentives for action by countries with high historical deforestation rates as well as continued action by those with an effective track record of avoiding deforestation.
  • Robust monitoring and reporting While advances in measuring techniques mean that forest emissions can now be estimated with similar confidence to emissions estimates in other sectors, this will require substantial capacity building in many forest nations.
  • A well-designed mechanism for linking forest abatement to carbon markets; and additional funding from the private and public sector . Forest abatement in developing countries needs to be matched with more stringent emissions targets for Annex I countries. Getting this balance right could reduce costs, attain a more ambitious global target, and maintain financial incentives for clean technology transfer to developing countries. The Review shows that, if properly designed, inclusion of the forest sector in the EU ETS should have little or no impact on the EU carbon market price. This would maintain incentives for EU investment in new clean technologies. However, a smooth transition that maintains price stability will mean that additional funding from sources outside carbon markets will be needed in the short to medium term. Under one scenario modelled by the Review, $7 billion could be generated by the carbon markets in 2020 which would leave $11-19 billion to be financed from elsewhere if deforestation were to be halved. Much of this may need to come from international public funding.
  • Strong governance and effective mechanisms for the distribution of finance. National governments should take the lead in implementing a successful system to tackle deforestation. Clarifying and securing land tenure user rights, and strengthening institutional capacity at all levels, will be essential. Finance may be directed to national and regional levels, local projects or a combination. The full participation of forest communities will make reforms more likely to succeed and benefit the poor. To help promote transparency, countries may choose to manage carbon revenues through a special fund and should report on the policies and measures they have put in place to reduce the loss of their forests.

In the very short term, developing countries will need substantial support for capacity building to prepare for entry into forest credit schemes. Estimates for this Review suggest that capacity building in 40 forest nations could cost up to $4 billion over five years. This will include three key areas: research, analysis and knowledge sharing; policy and institutional reform; and demonstration activities. If international funding from a combination of carbon markets and other sources is to be effective, the finance will need to be well managed and coordinated. The international community will need to agree on the proportion of finance from different sources. Several funds already exist or are planned, and there is potential for overlap and duplication. The UK should help mobilise international action, working with forest nations, major donors, the UN, World Bank and others to build a coordinated system of multilateral funding. This should build on, and draw together, current multilateral initiatives. Given the risks of climate change, the international community must act swiftly and decisively.

Recommendations

Strong and urgent action to tackle forest loss is key to a comprehensive approach to tackling climate change. This Review recommends the following:

Finance

  • The international community should aim to support forest nations to halve deforestation by 2020 and make the global forest sector carbon neutral by 2030. The international community should provide the necessary finance to meet these goals. A combination of international finance from carbon markets and other sources from the public and private sectors will be needed in the short to medium term.
  • As a leading international donor, the UK should make a significant financial contribution to tackle global forest loss.
  • The forest sector should be fully included in any post-2012 deal at Copenhagen, with market access provided by emissions trading schemes. This should be matched by stringent emissions reductions targets for Annex I countries and appropriate supplementarity limits on international credits. A linking mechanism between forest abatement and global carbon trading should be institutionalised as part of a wider global carbon market framework. The international community should agree on the proportion of finance from different sources.

Sustainable production

  • Forest nations and the international community should undertake research to better quantify land availability at global, national and regional scales and determine the most effective country-specific policies for shifting to more efficient, sustainable production of commodities and timber. Policies could include improvements in agricultural productivity in the context of wider sustainability policies, use of idle land and sustainable forest management.
  • Consumer countries should examine demand-side policies – for example, through preferential procurement of sustainably produced products and increasing consumer awareness, ensuring that this is compatible with WTO rules. This should provide incentives for forest nations to promote sustainable production.

Capacity building

  • The international community should support forest nations in urgent research and analysis to provide more consistent and accurate data on current emissions from the forest sector.
  • Countries with specific expertise in the forest sector should share their knowledge and expertise. In particular, satellite technology and data management should be made available to support poorer forest nations in measuring and monitoring changes in forest emissions. This will build capacity for countries to participate in financing mechanisms and provide transparency in reporting emissions reductions.
  • Many forest nations will want to undertake policy and institutional reforms in order to create a governance environment in which sustainable land and resource management is possible and profitable. Clarifying and securing land tenure and user rights will be an essential part of this. The international community should provide urgent support for capacity building where necessary.
  • Demonstration activities will be needed to test new approaches and demonstrate how credit mechanisms can be used to make land use more efficient and sustainable, promote REDD and ARR and secure wider social and environmental benefits.
  • International public funds should be coordinated effectively, avoiding a proliferation of competing mechanisms. The UK and EU should help mobilise international action. The UK Government should work with forest nations, European leaders, major donors, the UN, World Bank and others to build a coordinated system of multilateral funding. This should build on, and draw together, current multilateral initiatives such as FCPF, UN-REDD and FIP.

The original report can be downloaded from the website of the Office of Climate Change of the British government..

Tags: Finance REDD

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