Blog Post

REDD Financing Doesn’t Grow On Trees

Jul 12, 2011 | Lynann Butkiewicz

As governments tighten their budgets, finance toward development and climate change will be hit. When it comes to funding the Green Climate Fund and Reducing Emissions from Deforestation and Degradation (REDD) schemes, the private sector will presumably fill in the gap.

In a recent report by IDEAcarbon, analysts concluded that of the $200 million pledged for the Forest Carbon Partnership Facility Readiness Fund, only $86 million has been committed and roughly $10 million has been spent, about 11.5 percent of the fund’s total available balance in the first two fiscal years of operation.

According to the report, Assessing the Financial Flows for REDD+: the Pledge-Implementation Gap, analysts note that “the lack of public funding going towards laying the institutional, regulatory and technical groundwork only compounds the private sector’s trepidation when considering investing in REDD.”

There are several problems with relying on the private sector to take over financing to reduce deforestation.

First, it lowers overall funding. A balanced approach of public and private sector REDD financing would be ideal, but with one of the two out of the picture and carbon markets faltering on an international scale (the international carbon market only traded $1.5 billion of credits last year), financing large-scale REDD+ schemes will be difficult. Carbon markets are not the strongest right now, so relying solely on them for funding will not produce much to help curb deforestation.

The markets are also unpredictable. When governments pledge funds, there are expectations on the types of programs that can be established in developing countries. When relying more on the market for funding, it is unclear how much can and will be generated. That said, the market might be able to generate far more than governments. However, government commitments strengthen certainty in the market. The lack of government funding can negatively affect private sector funding as well.

According to the report, “using public money to ensure that private money can be used to properly implement REDD+ is perquisite to an inflow of capital from the private sector, which is a fundamental purpose of REDD+ Readiness programs. This means that the inflow of private sector money is unlikely to happen any time soon.”

RFF researchers have recently addressed public funding obstacles in a report, A Whole-of-Government Approach to Reducing Tropical Deforestation.

They discuss how the United States can use a bilateral approach to stop tropical deforestation by existing funding and programs.

One option is to address deforestation in trade agreements. When negotiating with tropical forest countries, the U.S. can enable sustainable trade of commodities that are drivers of deforestation and mitigate drivers of forest loss. The U.S. can also “link tariffs for agriculture and forest products more clearly to the success of source nations in demonstrably preventing forest loss.”

The next step involves consolidating funding to cover deforestation in foreign aid. The U.S. Agency for International Development can “undertake enhanced efforts to investigate and pilot new ways to provide incentives and remove disincentives for staff in the field to achieve multiple objectives in an integrated program.”

Achieving multiple objectives can span government departments. There are several key links between deforestation and agriculture, conversation, food security and climate change. Addressing deforestation while addressing these other issues will help to consolidate costs.