Reducing Emissions from Deforestation in Developing Countries

UNFCCC 26th Meeting of the Subsidiary BoardsBonn – 8th May 2007

Bernardo B.N. Strassburg – b.strassburg@uea.ac.ukCentre for Social and Economic Research on the Global EnvironmentSchool of Environmental SciencesUniversity of East Anglia

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

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;

Evidence from case studies

Country / Region Ecosystem Alternative Use Conclusions

Brazil Trop. Forest Agric./Cattle + Timber Ecos. Total Value > $ Alternative

Peru Trop. Forest Agriculture + Timber $ Alternative > Ecos. Nat. Value

Cameroon Trop. Forest Agriculture Ecos. Total Value > $ Alternative > Ecos. Nat. Value

Malaysia Trop. Forest Timber Ecos. Total Value > $ Alternative ≈ Ecos. Nat. Value

Brazil Trop. Forest Cattle Ecos. Total Value > $ Alternative > Ecos. Nat. Value

Brazil Trop. Forest Average Ecos. Total Value > $ Alternative > Ecos. Nat. Value

Madagascar Trop. Forest Timber + Agriculture Ecos. Total Value > $ Alternative > Ecos. Nat. Value

Sri Lanka Trop. Forest Timber + Agriculture $ Alternative > Ecos. Nat. Value

Kenya Savanna Average $ Alternative > Ecos. Nat. Value

Thailand Mangrove Shrimp Farm $ Alternative < Ecos. Nat. Value

United Kingdom Temp. Forest Timber $ Alternative < Ecos. Nat. Value

Australia Mixed (Kakadu)

Mining $ Alternative < Ecos. Nat. Value

Canada Temp. Wetlands

Agriculture $ Alternative < Ecos. Nat. Value

Scandinavia Boreal Forest Agriculture $ Alternative < Ecos. Nat. Value

Evidence from case studiesCountry Ecosystem Conclusions

Brazil Trop. Forest Ecos. Total Value > $ AlternativePeru Trop. Forest $ Alternative > Ecos. Nat. Value

Cameroon Trop. Forest Ecos. Total Value > $ Alternative > Ecos. Nat. ValueMalaysia Trop. Forest Ecos. Total Value > $ Alternative ≈ Ecos. Nat. Value

Brazil Trop. Forest Ecos. Total Value > $ Alternative > Ecos. Nat. ValueBrazil Trop. Forest Ecos. Total Value > $ Alternative > Ecos. Nat. Value

Madagascar Trop. Forest Ecos. Total Value > $ Alternative > Ecos. Nat. ValueSri Lanka Trop. Forest $ Alternative > Ecos. Nat. Value

Kenya Savanna $ Alternative > Ecos. Nat. ValueThailand Mangrove $ Alternative < Ecos. Nat. ValueUnited

KingdomTemp. Forest $ Alternative < Ecos. Nat. Value

Australia Mixed (Kakadu) $ Alternative < Ecos. Nat. ValueCanada Temp. Wetlands $ Alternative < Ecos. Nat. Value

[Scandinavia] Boreal Forest $ Alternative < Ecos. Nat. Value

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);

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)

The Cross-scale Dynamic Approach

Qpv Qnat Qglob

Costs of Conservation

Private Benefits of Conservation

National Benefits of Conservation

Global Benefits of Conservation

Direction of the Conversion process

Area of Forest

MarginalValue (per ha.)

(Strassburg, 2007)Developed Developing

Increasing Forest CoverQpv Qnat

Decreasing Forest CoverQnat Qglob

The Cross-scale Dynamic Approach

Qpv Qnat Qglob

Costs of Conservation

Private Benefits of Conservation

National Benefits of Conservation

Global Benefits of Conservation

Area of Forest

Value (per ha.)

A

(Strassburg, 2007)

B

The World gains A + B

The Country loses A

Win-Win Cooperation

If Country opts for QGlob instead of Qnat

If World pays Country A ≤ $ ≤ A+B

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%

The Cross-scale Dynamic Approach Brazilian Amazon

Current Total Ecosystem Benefits: US$ 80Conservation Costs: US$ 50Current National Benefits: US$ 18.5Compensation Necessary (A): US$ 4,5 billion/yr

US$ 13,4 / ha / yrEmission Reduction Cost = US$ 3 / t CO2Opportunity Costs: US$ 47.5Op. Costs – Current Nat. Benefits: US$ 29

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;

Algelsen, 2007 (II Workshop)

Compensation Mechanism“Building Bridges”

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;

Compensation Mechanism - Our Proposal

Two-step approach

1) 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

Compensation Mechanism - Our Proposal

2)Country Incentive

Key concept: “Expected Emissions” Regardless of its past behaviour, each country is

expected to deforest at the past global average rate

EEt = PGDR x FAt x PEH

WhereEEt = Expected Emissions from deforestation in year t;PGDR = Past Global Deforestation Rate FAt = Country’s forest area in year tPEH = 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

National Incentive

2)Country IncentiveEmission 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 TItWhereFIt = Financial incentive for country in year tECt = Emissions Credit of country in year tΣECt = The sum of all emission credits for that yearTIt = Total Incentive in year t

d e f = (a) x (d) x

(e)

g h (i) = (g) x (h)

j = (f - i) x (c)

k j - k

Country

Forest Area (year t) (103 ha.)

Past Emissions per Def. ha. (t CO2 eq)

Expected Emissions (year t) (103 t CO2 eq)

Deforested Area (year t) (103 ha.)

Emissions per Hectare (year t) (t CO2 eq)

Deforestation Emissions (Year t) (103 t CO2 eq)

Emission Credit /Debit (year t) (103 US$)

Incentive Received (year t) (103 US$)

Outstanding Credit /Debit (for yr t+1) (103 US$)

A 10.000 700 70.000 50 700 35.000 105.000 94.900 10.100

B 5.000 500 25.000 20 400 8.000 51.000 46.100 4.900

C 7.000 500 35.000 80 500 40.000 -15.000 0 -15.000

TIt = (PGAED – GEDt) x $ per t CO2 eq = (130 – 83) x 3 = US$ 141.000.000Country A Incentive FIit = (ECit/ ΣECit) x TIt = (105/156) x 141 = U$$ 94.900.000Country B Incentive FIit = (ECit/ ΣECit) x TIt = (51/156) x 141 = US$ 46.100.000

(a) Long Term Global Deforestation Rate: 1%(b) Past Global Emissions from Deforestation: 130 Mt/year(c) Incentive per t CO2 equivalent: US$ 3

Positive Aspects

1)Connects the incentive paid by the International Community to an actual reduction in Emissions from Deforestation

Every $ 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);

Positive Aspects

2)Leakage-Proof Assessment 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.

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;

Positive Aspects

4) No need for past national baselines– Past national baselines are tricky.

• Absense of information• Unreliable information• Too much inter-annual variability

The global long term baseline is available, credible and more constant;

Positive Aspects

5) Double “carbon-banking”

– Country can have a outstanding debit or credit• Partially address the issue of “permanency”

Positive Aspects

6)Diverse mix of incentives to foster positive behaviour6.1)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), FI • When FAt , FI

Positive Aspects

6)Diverse mix of incentives to foster positive behaviour6.2)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

Positive Aspects

6)Diverse mix of incentives to foster positive behaviour6.3)Incentive partially connected to Emissions

from other Tropical Countries

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)

Positive Aspects

7) Customizable

• Scope: Tropical forests, peatlands, wetlands etc;

• Include or not reforestation

• Biodiversity: Mix with an index for biodiversity (“BioCarbon”);

Also an global benefit provided by ecosystems

Issues to be addressed

1) Short-termSome 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

Issues to be addressed

2) Source of financial IncentivesThe 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

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

Issues to be addressed

4) TechnologyIf 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;

Incentive for reducing emissions per hectare is lost

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

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.

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;

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”.

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)

Reducing Emissions from Deforestation in Developing Countries

UNFCCC 26th Meeting of the Subsidiary BoardsBonn – 8th May 2007

Bernardo B.N. Strassburg – b.strassburg@uea.ac.ukCentre for Social and Economic Research on the Global EnvironmentSchool of Environmental SciencesUniversity of East Anglia

Thank You