The innovative character of REDD+ payments and their potential for change: trends from Latin America

The arrival of the REDD+ concept, namely payments for reduced emissions from deforestation and forest degradation, brought with it two significant departures from standard overseas development assistance (ODA). The first is the payment schedule. While ODA generally occurs before results are achieved, payments for emission reductions in REDD+ takes place after emission reductions have been confirmed. This is not a minor issue. It is similar as to having a biodiversity conservation project receiving funds only after biodiversity has been effectively confirmed as protected.

The second change is the abandonment of the incremental cost approach, which dominates ODA in the areas of ecosystem conservation and biodiversity. REDD+ payments make no distinction between the costs of achieving a sustainable baseline, which comprise the bulk of costs (covered by the developing country), and the incremental costs of achieving global environmental benefits (paid by the global community). In essence, REDD+ acknowledges that in the short and medium run achieving a sustainable baseline may not be cost-free and that developing countries could be unable to shift development paths solely on their own.

REDD+ payments are bringing some substantial changes to traditional ODA. But how effective can these payments be for transforming landscapes? Based on a series of benefits/costs analyses in UN-REDD partner countries Argentina, Paraguay, Ecuador and Panama, the short answer is that REDD+ payments seem capable of promoting transformational change and result in avoided emissions.

Let us take a look at the payments´ side of the equation. REDD+ payments are at the moment set at 5 US$ /tnCO2e. This level of payments dominates the negotiations at the Forest Carbon Partnership Facility (FCPF), the agreements between Norway and other donors with Colombia and Peru, and the carbon tax in Chile and Mexico. The figure of 5 US$/TnCO2e is however not grounded on forecasts about the price of carbon or estimates of the social cost of emissions. Many practitioner hope the price will be revised upwards but it is safe to assume that it will stick at that level in the short and, probably, medium run.

Now, let us move to the cost side of the equation. A payment of 5 US$/TnCO2e may not be optimal but it does provide sufficient incentives to start addressing some of the most important drivers of deforestation in LAC. In Argentina, REDD+ payments at 5 US$/TnCO2e are competitive with the returns of the cattle ranching sector and leave a buffer to support implementation costs. The expansion of the cattle ranching is taking place at the expense of the Chaco ecosystem, the second largest forest type in South America. A similar result can be observed in Paraguay. REDD+ payments of 5 US$/TnCO2e can be an effective incentive to address the advance of the biggest drive of deforestation of the Paraguayan Chaco, which is the cattle ranching sector. The impact is not minor. The Paraguayan Chaco is being lost at a rate of approximately 300,000 ha/year. In Ecuador, the transformation of forests to cattle ranching (for both meat and milk products) produces benefits below 5 US$/TnCO2e independently of the location of the activity. In Panama, similar levels of payments provide incentives to address more than 40 per cent of emissions from deforestation and forest degradation.

It is true that this level of payments leaves aside land uses like soy cultivation in Argentina and Paraguay, palm oil in Ecuador, and intensive agriculture in Panama. The returns from these activities are above 5 US$/TnCO2e. But the scope for action is nevertheless significant. Under current technology, soy cannot extent to the whole Chaco Ecosystem leaving cattle ranching as the most significant and immediate driver to address. Palm oil is profitable in Ecuador too but its advance into native forest is creating tensions and the activity is finding new areas for expansion onto non-forest lands. In Panama, the transformation of native forests to intensive agriculture and cattle ranching has to pass first through secondary forest and REDD+ payments provide sufficient incentives to avoid this change.

The trend is clear. REDD+ may not have at the moment a level of payments sufficient to address all drivers of deforestation but it provides sufficient ammunition to begin implementing transformational change. For several drivers the options are no longer restricted to command, control and penalties but now include the establishment of potentially attractive incentives for whole sectors. And REDD+ is not alone. Argentina, for example, has an established framework to compensate for avoided deforestation. Paraguay has a law on payments for ecosystem services that can complement REDD+. Ecuador has one of the oldest systems of payments for forest conservation, and Panama is embarking on a major forest restoration programme paid by the national government and local partners.

In summary, we have a system of payments that is aligning better the incentives of developed and developing countries and at the same time providing enough support to start changing rural development paths. There is scope, and reasons, to be optimistic, bold and innovative.

About the Author:

Gabriel Labbate

Senior Programme Officer, UN-REDD Programme

UN Environment

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