Reducing Emissions from Deforestation in Developing Countries

1. Reducing Emissions from Deforestation in Developing Countries UNFCCC 26th Meeting of the Subsidiary Boards Bonn – 8th May 2007 Bernardo B.N. Strassburg – b.strassburg@uea.ac.uk Centre for Social and Economic Research on the Global Environment School of Environmental Sciences University of East Anglia

2. Overview • Section A – The logic behind the Mechanism • Cross-scale analysis of deforestation incentives • Insights from a dynamic approach • Section B – The Mechanism • The mechanism • Positive aspects • Issues to be addressed

3. Cross-scale Analysis of Deforestation Incentives • The Evidence from case-studies: • 14 Case-studies that compared ecosystem benefits with benefits from alternative activities; • Further investigation classified these ecosystem benefits into national (local/regional) and global scales;

4. Evidence from case studies

5. Evidence from case studies

6. Evidence from case studies • Developed Countries • Conservation provides superior benefits even when only national ecosystem benefits are considered (4 out of 4); • Developing Countries • National ecosystem benefits still inferior to those from alternative uses (7 out of 9); • When Global benefits are considered, the balance tilts towards conservation (6 out of 6);

7. Evidence from case studies “Scale mismatch” between natural and human systems International Externality If Nat.Ecos Ben > Alternative Not a problem (Developed Countries) If Global Ecos Ben. > Alternative > National Ecos. Benefits A Problem (Developing Countries)

8. The Cross-scale Dynamic Approach Direction of the Conversion process Marginal Value (per ha.) Costs of Conservation Global Benefits of Conservation National Benefits of Conservation Private Benefits of Conservation Increasing Forest Cover Qpv èQnat Qpv Qnat Qglob Area of Forest Decreasing Forest Cover Qnat çQglob (Strassburg, 2007) Developed Developing

9. The Cross-scale Dynamic Approach If Country opts for QGlob instead of Qnat The Country loses A Value (per ha.) The World gains A + B Win-Win Cooperation If World pays Country A ≤ $ ≤ A+B B Costs of Conservation A Global Benefits of Conservation National Benefits of Conservation Private Benefits of Conservation Qpv Qnat Qglob Area of Forest (Strassburg, 2007)

10. The Cross-scale Dynamic Approach Brazilian Amazon National Equilibrium = 123 million ha. (30% orig. area) Private Equilibrium = 60 million ha. (15% orig. area) MEA projections for 7 of 10 most prod. Ecos. Types by 2050 (30-40% orig. area) Current Forest Cover (as % of the original): Europe (excl. RUS) =33% (21%) Continental Asia (excl. RUS)= 21.5% N. Africa =8.4%

11. The Cross-scale Dynamic Approach Brazilian Amazon Current Total Ecosystem Benefits: US$ 80 Conservation Costs: US$ 50 Current National Benefits: US$ 18.5 Compensation Necessary (A): US$ 4,5 billion/yr US$ 13,4 / ha / yr Emission Reduction Cost = US$ 3 / t CO2 Opportunity Costs: US$ 47.5 Op. Costs – Current Nat. Benefits: US$ 29

12. Compensation Mechanism - Objective Fix the Scale-mismatch between Natural and Human Systems By internalizing part of the Global Benefits provided by the Ecosystem Key point: A mechanism that offers developing countries a sustained incentive to change long-term development strategies;

13. Algelsen, 2007 (II Workshop)

14. Compensation Mechanism“Building Bridges”

15. Some thoughts • Key point: A mechanism that offers developing countries a sustained incentive to change long-term development strategies; • Not a 10-20% reduction in deforestation due to increased repression, but a 80-90% reduction due to a sustainable development strategy;

16. Compensation Mechanism - Our Proposal Two-step approach • Total Incentive the International Community pays Tropical Countries in a given year t: TIt = (PGED – GEDt) x $ per t CO2 eq Where: • TIt = Total Incentive in year t • PGED = Past Global Emissions from Deforestation • GEDt= Global Emissions from Deforestation in year t Ex: [ 8GtCO2 – 6 GtCO2] x US$ 3/ t CO2 = US$ 6 bi

17. Compensation Mechanism - Our Proposal 2)Country Incentive Key concept: “Expected Emissions” Ê Regardless of its past behaviour, each country is expected to deforest at the past global average rate EEt = PGDR x FAt x PEH Where EEt = Expected Emissions from deforestation in year t; PGDR = Past Global Deforestation Rate FAt = Country’s forest area in year t PEH = Past emissions per deforested hectare on that country. Ex: 0.01 x 10.000.000 ha x 500 t CO2/ha = 50 million t CO2

18. National Incentive 2)Country Incentive Emission Credit: ECt = (EEt – Et) x $ per t CO2 eq Emission Debit: EDt = (Et – EEt) x $ per t CO2 eq Financial Incentive (Country i; yr t) FIt = (ECt/ ΣECt) x TIt Where FIt = Financial incentive for country in year t ECt = Emissions Credit of country in year t ΣECt = The sum of all emission credits for that year TIt = Total Incentive in year t

19. (a) Long Term Global Deforestation Rate: 1% (b) Past Global Emissions from Deforestation: 130 Mt/year (c) Incentive per t CO2 equivalent: US$ 3 TIt = (PGAED – GEDt) x $ per t CO2 eq = (130 – 83) x 3 = US$ 141.000.000 Country A Incentive FIit = (ECit/ ΣECit) x TIt = (105/156) x 141 = U$$ 94.900.000 Country B Incentive FIit = (ECit/ ΣECit) x TIt = (51/156) x 141 = US$ 46.100.000

20. Positive Aspects 1)Connects the incentive paid by the International Community to an actual reduction in Emissions from Deforestation • ÊEvery $ will have been paid for a real and fixed (e.g. 1/3 t CO2 eq) reduction in GHG emission. • A strong incentive to attract the necessary funding (either public or market);

21. Positive Aspects 2)Leakage-Proof • ÊAssessment at the global level garantees that a reduction in one place will not be compensated by an increase in emissions at another (either inside a country or across national boundaries). • Turns one of the most leakage prone sectors into the first leakage proof sector under the UNFCCC.

22. Positive Aspects 3)Is Fair • As a “new game” is starting now, it doesn’t connect incentives to the past behaviour of each country. “Bad behaviour” in the past does not impact future rewards, neither in a negative or positive way;

23. Positive Aspects 4) No need for past national baselines • Past national baselines are tricky. • Absense of information • Unreliable information • Too much inter-annual variability • Ê The global long term baseline • is available, credible and more constant;

24. Positive Aspects 5) Double “carbon-banking” • Country can have a outstanding debit or credit • Partially address the issue of “permanency”

25. Positive Aspects 6)Diverse mix of incentives to foster positive behaviour 6.1)Incentive Connected to Ecosystem Area • Core of the problem (Part A) • Threat of future Emissions If reforestation is included, double-incentive: • When Et<0 (due to reforestation), FIá • When FAt á , FIá

26. Positive Aspects 6)Diverse mix of incentives to foster positive behaviour 6.2)Incentive Connected to Emission from Deforestation • Incentive to curb deforestation rates • Incentive to minimize GHG emissions per def. ha. • Incentive to prioritize (original) carbon rich vegetations

27. Positive Aspects 6)Diverse mix of incentives to foster positive behaviour 6.3)Incentive partially connected to Emissions from other Tropical Countries Ê Strong and potentially very effective incentive for inter-tropical cooperation • Knownledge sharing (learning-by-doing) • “Peer pressure” (e.g. easier to accept / self-impose market regulations that limit demand for unsustainable tropical products)

28. Positive Aspects 7) Customizable • Scope: Tropical forests, peatlands, wetlands etc; • Include or not reforestation • Biodiversity: Mix with an index for biodiversity (“BioCarbon”); Ê Also an global benefit provided by ecosystems

29. Issues to be addressed • Short-term Some sort of adaptation period should be included, so that countries with high-deforestation rates have enough incentive to cooperate; • A debit-free period • Alternative distribution of TI in the adaptation period

30. Issues to be addressed 2) Source of financial Incentives The mechanism can be financed by • Public funding (e.g. Tax 0,04% global income to finance 100% deforestation reduction); • Market • Two step approach connects $ to a real reduction in global emission; • ex-post payment increases value (“Get what it pays for) • Necessity of minimum price to garantee long term incentive to developing countries

31. Issues to be addressed 3) Destination of Financial Incentives • Small portion to forest managment (~15%) • 85% of the forests are public owned (FAO) • Incentive will not cover private opportunity costs (does not include national externalities); • Should finance sustainable development • e.g Education, Science & Technology, Ecotourism etc

32. Issues to be addressed 4) Technology If current technology precludes the use of “Emissions per hectare” as an endogenous parameter, all formulas can be revised so that it becomes a constant and “Deforestation Rate” becomes the main endogenous parameter; Ê Incentive for reducing emissions per hectare is lost

33. Issues to be addressed 5) Biodiversity • Can not allow original biodiversity rich/carbon poor vegetation to be converted into homogenous carbon rich vegetations; • Should not encorage conversion of biodiversity rich ecosystems outside the scope; • Etc

34. Mollicone et al. (2007) • Intact Forests, non-Intact Forests, non-Forest (each with a CPreservingFactor); • Global Accounted Preserved Carbon • High rates > GCB/2 > Low rates • High rates Incentive: Past Def – Current Def. • Low ratesIncentive : GCB/2 – Current Def.

35. Mollicone et al. (2007) • Total Incentive connected with global reduction • Incentive related to the area • Improves accuracy with current technology • Higher reward to past “bad-behaviour”; • Low incentive for intertropical cooperation;

36. Mollicone et al. (2007) • Perfect for “Phase 1” • Maintain Total Incentive connected with global reduction; • Offers greater rewards to countries that have to make larger reductions in deforestation rates; • Improved accuracy with existing technology (before “Emissions per hectare” can be inserted) • The existence of “Phase 2” inserts the incentive for inter-tropical cooperation already on “Phase 1”; • The higher incentive to past “bad-behaviour” for a short time may not be a big issue, if countries know that it will dissapear on “Phase 2”.

37. Our proposal - Summing up • Garantees fixed emission reduction for each $ • Double “Carbon Banking” • Leakage Proof (National and International) • No need for past national baselines • Is fair • Mix of incentives – connects incentive to • Remaining forest area [Core (Section A)] • Emissions • Reduce Deforestation • Reduce Emission per deforested hectare • Prioritize Carbon Rich Vegetations • Total reduction in Tropical Countries (strong incentive for intertropical cooperation) • Is Customizable (Scope, Reforestation, Biodiversity) (Strassburg et al., 2007)

38. Reducing Emissions from Deforestation in Developing Countries Thank You UNFCCC 26th Meeting of the Subsidiary Boards Bonn – 8th May 2007 Bernardo B.N. Strassburg – b.strassburg@uea.ac.uk Centre for Social and Economic Research on the Global Environment School of Environmental Sciences University of East Anglia