charlie parker, climate focus

Overview of REDD+ Financing Landscape, Sources and Types of Funds

Charlie Parker

Presentation overview

• What are the main sources of REDD+ finance?

• What is the magnitude of REDD+ finance?

• What is the role of the public finance?

• What is the role of the private finance?

• Conclusions

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What is REDD+?

• Distinguish between REDD+ as an outcome versus

REDD+ as an international mechanism

• There are multiple ways to achieve REDD+ as an outcome

• Very few activities receive finance from one source

• A broad definition of REDD+ helps us to understand the

range of activities that can achieve REDD+ outcomes and

address the drivers of forest loss.

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Main sources of REDD+ finance

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Private sector

Direct markets

•Voluntary and compliance carbon markets

•Payments for watershed services

•Biodiversity offsets

Other markets

•Green commodities

•Certified timber

•Clean Cookstoves

Public sector

Earmarked budget

•PES mechanisms

•Carbon taxes and fees

Other Budgetary

•International climate finance allocations

•Domestic budgetary allocations

Current scale of REDD+ finance

• Domestic budgetary finance is

the main source of finance for

REDD+

• Combined, public finance

constitutes over 90% of REDD+

finance

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5

US$15

billion

1%

7%

64%

28%

Voluntary markets Sustainable supply chains

Domestic ODA

1. Public Finance

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Budgetary finance: domestic and international

• Made up of domestic and

international ODA

• Donors and domestic

governments have different

(competing) priorities

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US$ 14

billion

Private sector

Direct

• Voluntary and compliance carbon markets

• Payments for watershed services

• Biodiversity offsets

Indirect

• Green commodities

• Certified timber

Public sector

Earmarked

• Auctioning of allowances

• Financial transaction tax

• Carbon taxes and fees

Budgetary

• ODA and international climate finance allocations

• Domestic budgetary allocations

Domestic REDD+ finance

• Data on domestic REDD+

finance is lacking

• Does not include Brazil’s ABC

programme, PA management,

etc.

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US$ 10

billion

Brazil Mexico

Indonesia China

Brazil’s Low Carbon Agriculture (ABC) Programme

• Federal credit and capacity building program founded in 2010 and coordinated

by the Agriculture Ministry (MAPA) and the Ministry of Agrarian Development

(MDA)

• Sustainable intensification / land reclamation, especially in the context of

freeing up land through productivity increase and recovery of degraded pasture

• Initial on-set was slow, with zero disbursement during the first year

• Strict environmental provisions, when compared to abundant sources of

finance for traditional agriculture, and to uncertainties associated with the

Forest Code revision.

• To increase funding uptake, the government increased their marketing efforts

and broadened eligibility by including additional activities

• A recent government press release reported disbursements of $2.3 billion by

April 2013, equivalent to 80% of total funding and 15,000 concluded contracts

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International REDD+ finance

• LAC is the largest recipient of

international REDD+ finance

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US$ 6.5

billion

pledged

Source: ODI (forthcoming) The State of REDD+ Finance

2

2.2

1

0.8

0.5

Asia and Pacific LAC

Africa Global

Other

International REDD+ finance

0

500

1000

1500

2000

AmazonFund

FCPFCarbonFund

FCPFReadiness

fund

FIP NICFI UN-REDD IFCI CBFF

Pledged

Deposited

Disbursed

• Disbursements are still very slow.

• Just US$ 485.85 has been disbursed from 2007-2012 (equivalent to <10% of total pledges) and < US$ 100 million per year.

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Source: ODI (2012) Climate Finance Thematic Briefing: REDD+ Finance

Bilateral REDD+ Finance

Major bilateral initiatives include:

• Norway’ s Amazon Fund contributions: USD 402 million to date

• Japan’s Grant aid for forest preservation programmes: USD 159 million to date

• Norway’s GRIF contributions: USD 67 million to date

• Germany’s Forestry Programme in Indonesia: USD 32 million to date

• UK’s Forests, Governance, Markets and Climate initiative: USD 25 million to date

• US’ Tropical Forest Conservation Act (TFCA): USD 32 million to date

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Norway Germany Japan

International REDD+ finance: other sources

• Many non-REDD+ funds finance

REDD+ activities

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US$ 130+

million

Source: ODI (forthcoming) The State of REDD+ Finance

58

56

30

40

PPCR LDCF

Adaptation Fund SREP

PPCR: Lurio Sustainable Forestry Project. Mozambique

• The PPCR will provide USD 11 million

concessional loan from its private sector

set-aside, in addition to an equity

contribution and loans from the AfDB and

EIB.

• Species from the genera Eucalyptus,

Acacia and Melina are being tested to

determine the best fit between commercial

viability and environmental and social

sustainability.

• The Lurio trial plantation will identifying

species with higher potential and more

resilience to droughts

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Scaling Up Renewable Energy (SREP): Nepal biogas investments

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• Nepal is seeking USD 40M in grant funds

from SREP to scale up renewable energy

in the country.

• SREP investments will support on-grid

Small Hydro Power, and off-grid Mini and

Micro Energy Initiatives.

• Nepal is targeted to install 160,000 biogas

plants (mostly domestic) under the

investment plan.

• Biogas uses a readily available waste

product as feedstock, and therefore does

not depend on firewood that may be

sourced indiscriminately which leads to

deforestation and related environmental

damage.

Earmarked REDD+ finance

• Mexico’s PES (>USD 100 million)

• Vietnam’s PES (USD 58 million)

• Costa Rica’s PES (>USD 12 million)

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US$ 170+

million

Private sector

Direct




Indirect



Public sector

Earmarked




Non-market



Costa Rica’s PSA program

• Fuel tax is fixed according to the 2001 Law of Tax Simplificatio and Efficiency

and adjusted four times a year for inflation

• 3.5% allocated to FONAFIFO

• 66.4% to Ministry of Finance

• 29% to National Road Council

• Equivalent to ~ $11,300,000/yr in 2007

• FONAFIFO disburses to small and medium forest producers

• Every year, both FONAFIFO and MINAE (Ministry of Environment and Energy)

publish a PES budget, procedures and criteria for selection of priority areas.

• FONAFIFO allocates PES funds to landowners through forest conservation

contracts, sustainable management contracts, and reforestation contracts.

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2. Private Finance

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Magnitude of REDD+ financeDirect market mechanisms

• Currently through voluntary markets

• Potential to scale up under a future

compliance market

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US$ 140+

million

Private sector

Direct




Indirect



Public sector

Market-linked




Non-market



REDD+ carbon markets

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

VCS FCPF AustraliaETS

NZ ETS California Japan GermanREM

UNFCCC

Low

Mid

High

• Under High Scenario, REDD+ demand could reach 2.5 Gt over 7 years.

• Equivalent to 350 Mt / year or 7% of emissions from tropical deforestation

• Under a Mid Scenario this would be just 1% of emissions

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Source: FCMC (2012) Emerging compliance markets for REDD+: an assessment of supply and demand

Magnitude of REDD+ financeOther market mechanisms

• US$ 1 billion through FSC and other

certification systems

• Cookstoves for REDD+ could be

applicable in some countries

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US$ 1+

billion

Private sector

Direct




Other markets



• Clean cookstoves

Public sector

Market-linked




Non-market



SOY

USA - China: $11.9bn

Brazil - China: $8.2bn

Brazil – EU: $5.2bn

MAIZE

USA – Japan: $3.0bn

USA - Mexico: $1.6bn

USA – China: $0.9bn

BEEF

Aus – Japan: $3.0bn

Canada - USA: $1.6bn

Brazil – Russia: $1.0bn

DAIRY

NZ – China: $1.5bn

Belarus - Russia: $1.2bn

EU– Russia: $1.1bn

RICE

Vietnam - Phil: $0.9bn

India – S. Arabia: $0.7bn

India – UAE: $0.6bn

USA - China: $11.9bn

USA – Japan: $3.0bn

Au

str

alia

–Ja

pa

n: $

3.0

bn

NZ

–C

hin

a: $

1.5

bn

International Trade Flows in Agriculture

Source: authors caculations using FAOStat

Cookstoves and REDD+

• Cookstove finance offers a way to

achieve REDD+ outcomes in some

countries with high emissions from

cookstoves compared to REDD+

• Dominican Republic: 109%

• Honduras,53%

• El Salvador,36%

• Guatemala,28%

• Chile:18%

• Mexico,11%

• GACC have raised USD 38 million,

and leveraged over USD 200 million

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Source: authors caculations

Reframing REDD+ finance

MITIGATION ADAPTATION / RESILIENCE

ENHANCING CARBON

STOCKS

CONSERVING CARBON

STOCKS

REDUCING EMISSIONS

SUSTAINABLE

WOODFUEL LOTS

SOIL CARBON

PROTECTED AREAS

BIODIVERSITY

CONSERVATION

SFM

AGROFORESTRY

SOIL CONSERVATION

PEAT LAND

REHABILITATION

CONTROLLING

FOREST FIRES

CLEAN COOKSTOVES

AGRICULTURAL

PRODUCTIVITY

ECOSYSTEM BASED

ADAPTATION

COASTAL

MANGROVE

CONSERVATION

EXPANSION OF

RESISTANT CROP

VARIETIES

• We are too narrowly focused on finance that is labeled as "REDD+”. Instead we should

focus on Climate Smart Land Use Finance

• When we talk about the landscape of CSLU finance, we need to include activities like

agroforestry, cookstoves, commodity certification etc.

• We should align adaptation / mitigation and energy / land use policies

• Our understanding of this landscape is limited

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Conclusions

• Short term finance is available but disbursements are slow, at the

same time there are no adequate long term strategies to meet the

financial needs of REDD+

• In the absence of ambitious climate change mitigation goals, for the

foreseeable future most REDD+ finance will be mobilised through

public finance

• It will be important during this phase to test a variety of financing

options that leverage private sector finance and directly address the

drivers of deforestation

• Wealthier REDD+ countries may opt to self-finance a significant part

of REDD+, for which they may receive results-based finance

• The more fragile states are likely to rely on official development

assistance (ODA)-type finance

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Thank you

Climate Focus Netherlands

Sarphatikade 13,

1017 WV Amsterdam,

The Netherlands

Climate Focus US

1730 Rhode Island

Avenue NW,

Suite 601,

Washington, DC 20036

USA

Climate Focus Colombia

Calle 95 #l 0-50,

Bogota, Cundinamarca,

Colombia

LEAF Project Office

Liberty Square, Suite 2002,

287 Silom Road, Bang Rak,

Bangkok 10500,

Thailand

Charlie Parker

[email protected]

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charlie parker, climate focus

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