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What will REDD cost?

Arild AngelsenProfessor, Dept. of Econ. and Resource Mgt., Norwegian University of Life Sciences (UMB), Ås

& Senior Associate, Center for International

Forestry Research (CIFOR), Indonesia

RFN, 18.6.2009

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Introduction

Title: “What will it cost? Paying for avoided emissions, paying for ecosystem services or paying to pollute? Costs and consequences of alternative models for maintaining forests and forest carbon”

Three types of costs:

1. Landowners costs (opportunity costs)

2. Government costs (budget costs)

3. International payment for REDD (Annex I transfer to non-Annex I)

The costs also depend very much on:

– How much REDD we want

– What type of REDD mechanisms we have in mind

– How rights (and duties) are defined

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The global REDD scheme

International level

National level

Sub-national level

National REDD-PES scheme

InternationalREDD-PES scheme

Aid (ODA)

Aid (ODA)

Compliance (offset) markets

Compliance (offset) markets

Global fund

Global fund

National REDD Fund

National REDD Fund

National REDD ‘DNA’

National REDD ‘DNA’

Other?Other?

Land usersLand users

Local govern-ments

Local govern-ments

Com-munities

Com-munities

Emission reductions

Emission reductions

REDDPayments

REDDPayments

1.

2.

3.

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A. Cost to landowners (opportunity costs)

Change in tC (forest cover)

0BAU defore-station

Agric. rent

Carbon price

Actual defore-station

REDD rent

REDD costs

Ref.level

$/tC

What is the forsaken opportunities?• Agricultural rent (profit) + timber rent • NPV (what would it cost to buy the land?)

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Some costs estimates

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B. Government (budgetary) costs

National reductions done thorugh a PES system:

1. Opportunity costs:– Should everyone be compensated?

• Illegal uses?

• New regulations: compensate all losers?

– Compensating what?

• Emission reductions = actual emissions – BAU (hypothetical)

• Forest conservation: stock based payments

– “Not just compensating the bad guys”

– A practical and cheaper approach

– Additionality issues

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Opp. costs

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Govt. costs (cont.)

2. REDD rent– Paying the triangle (opp. cost) vs. the rectangle

(opp. cost + REDD rent)?

– Typically increase costs 3x

– Who owns the REDD rent (global & national & local)?

• What should be the distribution of costs for slowing global warming?

– Practical ways of organizing a system of differentiated pay

• Brazil example: Differentiate between 3 categories of land users can save some 50 %. (Boerner and Wunder, 2008)

• Is it fair? Pay less because they poor?

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Opp. costs

REDD rent

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Govt. costs (cont.)

3. Targeting of PES payments– How to identify those that plan to

deforest next year, and target them – and only them

– Non-targeting may increase payment 2-100x (McKinsey, 2008)

– Not economic costs, just transfers

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Opp. costs

REDD rent

Non-targettrans-fers

Adm costs

4. Administrative and transaction costs– Start-up costs: MRV for C & $

– Running costs: Typical estimate <USD1 per tCO2e

– Might be underestimated

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Govt. costs: Non-PES policies

5. Costs of policies– Typical policies:

• Tenure & land reforms

• Community forest management

• Agricultural intensification

• Energy efficiency and fuel substitution

• Infrastructure

– Compensation?

• Probably limited

– Some REDD policies have negative costs

• Not building a road

• Removing agric subsidies

– Wide range of estimates; largely unknown

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C. International payment for REDD

Which costs to use as basis:– Only economic costs (opportunity costs + admin &

transaction costs)?

• May then achieve much less in the short run

What share of costs to be born by REDD countries? – What does the principle of “common but

differentiated responsibilities” (CBDR) imply?

Setting reference levels – RL = BAU + CBDR

– Balance: Ensure participation vs. effective use of limited funds (or “tropical hot air”) (Angelsen, 2008)

Payment depends, of course, on the success of REDD

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Summary

International level

National level

Sub-national level

National REDD-PES scheme

InternationalREDD-PES scheme

Aid (ODA)

Aid (ODA)

Compliance (offset) markets

Compliance (offset) markets

Global fund

Global fund

National REDD Fund

National REDD Fund

National REDD ‘DNA’

National REDD ‘DNA’

Other?Other?

Land usersLand users

Local govern-ments

Local govern-ments

Com-munities

Com-munities

Emission reductions

Emission reductions

REDDPayments

REDDPayments

1.

2.

3.

Low, compared to other mitigation options

A political decision

Highly uncertain:0-100x opp. costs

What are the costs?

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Summary

How productive is the REDD numbers game?

Look at FOREST CARBON as a new cash crop:– Assistance to start production

• Define the product = actual emissions (MRV) - reference level

• Producing the product: domestic PES systems and policies

– Pay for results

Get started, and learn– More important than the fine-tuning of mechanism

– There is no better way to learn how to grow coffee than to start growing coffee

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