Deforestation and Climate Change

Deforestation and Climate Change

Reducing Carbon Emissions from Deforestation and Forest Degradation

The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development

Edited by Valentina Bosetti and Ruben Lubowski

Deforestation and forest degradation have long been recognized as environmental problems, with concerns over conservation of natural habitats and biological diversity capturing both scientific and public attention. More recently, the debate over tropical forest conservation has radically shifted to the approximately fifteen percent of global greenhouse gas emissions that are caused by deforestation and forest degradation, and to the potential synergies from integrating forest management with climate change policies.

Chapter 9: REDD and the Global Carbon Market: The Role of Banking

Pedro Piris-Cabezas

Subjects: economics and finance, environmental economics, environment, climate change, environmental economics


Pedro Piris-Cabezas 9.1 INTRODUCTION Since December 2007 at the UN climate conference in Bali, when Parties to the Convention affirmed the urgent need to reduce emissions from deforestation and forest degradation (REDD) and agreed to take action, a central point of debate has been how to finance REDD efforts at national, regional, and global levels. Governments and non-government organizations have proposed numerous financing approaches.1 Direct market mechanisms involve making credits for REDD activities (resulting from reductions in deforestation below a national baseline, for example) directly tradable with emissions allowances in a GHG compliance market. This approach is a central feature of the most recent and prominent US climate bills. On the other hand, mechanisms not directly linked to the market include voluntary allocations by governments or dedicated taxes, and more importantly, proceeds from the auctioning of GHG emissions allowances. Non-market or indirect market-based mechanisms have received endorsements from the EU and are also contemplated in some degree in the key US climate bills. There is growing consensus that a combination of market and fund-based approaches is needed to finance different REDD activities. The advantage of indirect over direct market-funding mechanisms is often argued on grounds that introducing REDD credits into the carbon market would potentially flood the market and drive down the allowance price, reducing incentives for investments and innovations in clean energy and other low-carbon technologies. Early on in the debate, such concerns were motivated with comparisons of the size of the potential supply of credits for reducing deforestation...

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