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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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????????
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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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