Fighting Deforestation and Climate Change

“REDD was originally premised on the idea that forest conservation could attract significant financial resources by allowing verified reductions in emissions to generate credits that could be used for compliance in cap-and-trade programs in other countries. With the delayed development of these compliance markets in places like the United States, the REDD framework has evolved as a kind of innovative finance development assistance, relying primarily on public sources of funds.” — Georgia Levenson Keohane

This week, our featured book is Capital and the Common Good: How Innovative Finance Is Tackling the World’s Most Urgent Problems, by Georgia Levenson Keohane. Today, we are happy to present part of an excerpt from Capital and the Common Good, originally posted at impactalpha, in which Keohane looks at the way that REDD (Reducing Emissions from Deforestation and Forest Degradation) is attempting to combat deforestation in Brazil through innovative finance.

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Fighting Deforestation and Climate Change: REDD Financing Lessons from Brazil and Indonesia
By Georgia Levenson Keohane

REDD — Reducing Emissions from Deforestation and Forest Degradation — is a pay-for-success program designed to create economic incentives to protect forests and the carbon they contain. First introduced into the UN climate talks in 2005, by scientists and environmental advocates from Brazil and the U.S. using the term “Compensated Reductions,” REDD has evolved to include a range of innovative financing approaches to reduce emissions related to deforestation.

The motivation behind REDD is as much long-term sustainable development as it is forests per se. Among the primary drivers of growth in countries like Brazil have been the development of commodities like palm oil, soy, and beef, often through deforestation—clearing trees to raise crops and cattle. REDD’s pay-for-success design is meant to motivate less carbon-intensive production. That means improving economic output while decreasing emissions.

REDD was originally premised on the idea that forest conservation could attract significant financial resources by allowing verified reductions in emissions to generate credits that could be used for compliance in cap-and-trade programs in other countries.

With the delayed development of these compliance markets in places like the United States, the REDD framework has evolved as a kind of innovative finance development assistance, relying primarily on public sources of funds. The private capital markets have yet to be fully harnessed.

Pay-for-success is indeed an innovation in finance, even if, to date, that finance is in the form of aid.

For example, in 2008, Norway pledged up to $1 billion to Brazil for verifiable proof that deforestation had decreased—that’s the success piece. The payments are intended to make it more economically feasible and attractive for countries and farmers to conserve forests than it is to cut them down.

Payments seek to make emission mitigation cost effective for Brazil and Brazilian producers: leaving forests standing is much cheaper than investing in renewable energy or carbon capture, and cheaper still than adapting to the catastrophic effects of climate change. An ounce of prevention is worth a pound of cure.

Read the excerpt in full at impactalpha.