Financing the World's Forests: integrating markets and stakeholders

Climate Change: Financing Global Forests Graham Floater www.occ.gov.uk

The Eliasch Review ,[object Object],[object Object],[object Object],[object Object]

Emissions from forests are significant... Global GHG emissions by sector Sources: IPCC Fourth Assessment Report (2007), IPCC GHG inventory (2007) and IEA World Energy Outlook (2007)

The main economic drivers of deforestation stem from agricultural and timber production ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Sources (all commissioned for Eliasch Review): Obersteiner 2008, Sathaye 2008, Grieg-Grann 2008, GLOCAF 2008 Drivers Models commissioned for the Eliasch Review estimated the opportunity cost at $17-33bn per year. Costs

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A step change in how land is used and commodities produced Forests more valuable standing than cut The vision: what needs to be done...

Getting there will involve overcoming some challenging obstacles... ,[object Object],[object Object],[object Object],Price of products from deforested land

Delivering the vision... How do we deliver this? The benefits A step change in how land is used and commodities produced Forests more valuable standing than cut Carbon finance Consumer awareness & regulation Policy incentives in forest nations Poverty reduction Protection of biodiversity & water systems Substantial emissions reductions Lower costs of tackling climate change

How much could it cost? ,[object Object],[object Object],Sources: Grieg-Gran (2008); Sathaye et al (2008); Gusti et al (2008); and Kindermann et al (2008) Marginal abatement cost curve

However the benefits of taking action far outweigh the costs... Effects of deforestation on climate change could lead to additional global damages of $1 trillion a year by 2100 Sources: Hope (2008); Hope and Castilla-Rubio (2008) ,[object Object],[object Object],[object Object]

In the long term, the forest sector should form part of a global cap and trade system ,[object Object],[object Object],[object Object],Sources: Modelling for the Eliasch Review

In the transition, four building blocks will be essential to access carbon finance... 1. Effective targets National baselines, inclusive of all countries 2. Robust measuring Forest credits based on real reductions in forest emissions 3. Linking to carbon finance Carbon markets and other funding initiatives 4. Good governance International standards and full participation of forest communities

1. Effective targets should minimise leakage and maximise additionality National level Inclusive Additional ,[object Object],[object Object],[object Object],To reduce international leakage, targets should incentivise both high and low deforesting nations Should also be simple & transparent ,[object Object],[object Object],[object Object]

2. Robust measuring and monitoring can be achieved with capacity building Measurement of forest emissions has been more variable than fossil fuel emissions in the past ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Increasing accuracy Sources: Monni et al, 2007; 3 Brown et al 2000, Chave et al 2005, Brown et al 2008; work commissioned for the Eliasch Review from Hardcastle et al, 2008. Images: ESA and Forestry Commission (2008)

3. Linking to carbon markets can leverage substantial funds... Cap and trade systems Forestry recognised Rules for trading EU ETS Not yet Domestic and international forestry credits also excluded – current EU proposal ambivalent. US – Waxman Markey Yes Domestic forestry included in trading. International forest credits included. New Zealand Yes Domestic forest sector fully included in trading. Anticipates access for international forest credits. Australia (New South Wales) Yes Includes domestic sequestration credits. Anticipates access for international forest credits.

...however, carbon market finance alone will not be sufficient in the medium term Global cap and trade 2030 target: carbon market finance could make the sector carbon neutral Funds from partial access to carbon markets Funding gap: $11-19 billion per year in 2020 2020 projection: carbon market finance could be $7 billion per year and fund a 22% cut in deforestation emissions Source: Modelling for the Eliasch Review Short term Medium term Long term Funding 2012

4. Good governance will be needed if reduced deforestation is to succeed Risks ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Success is achievable with the right political will and resources Good Governance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Immediate action: mobilising international funds for capacity building Investment in early action Policy reforms Research & analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Capacity-building costs estimated at up to $4 billion over 5 years Source: Hoare et al (2008) for the Eliasch Review UNREDD FIP FCPF carbon fund Mechanisms proposed

International coordination will be needed if support is to be efficient and effective...

Key recommendations of the Review ,[object Object],[object Object],[object Object],[object Object],[object Object]

Supplementary analysis – impact of forest credits on the carbon price ,[object Object],[object Object],[object Object],The stringency of emissions targets Supplementarity limits ...and the relative cost of supplying other credits The cost of supplying forest credits... Source: Modelling for the Eliasch Review

Supplementary analysis – distribution of finance within forest nations regions/ provinces National registry International forestry credits All units registered nationally to avoid ‘double counting’ State can opt to invest directly and keep the credits centrally... …or devolve credits to regional level …or allow investors and communities to certify projects and receive credits in return national fund

Financing the World's Forests: integrating markets and stakeholders

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