Common Tragedies

Thoughts on Environmental Economics

A tree falls in the forest…and it definitely makes a sound

Posted by Andrew Stevenson on April 1, 2009

Some interesting news on the artist formerly known as REDD (Reducing Emissions from Deforestation and Forest Degradation) the last couple days. First a new report commissioned by Greenpeace claiming that full inclusion of REDD in a global emissions trading scheme will drop the price of credits by 75%. They think this is undesirable, since it will reduce the incentives for developed countries to make the transition to a new, sexy “clean energy economy”. Therefore, Greenpeace is arguing that tropical forest conservation should instead be financed through a separate fund.

However, many developed countries (aka the U.S.) think this may not be so bad after all. Case in point: the Senate just passed an amendment 89-8 stating that cap-and-trade will not increase energy or gas prices (with a clarifying Boxer amendment to the amendment), the highly influential U.S. Climate Action Partnership is all about forests (presumably for similar reasons), and the Waxman-Markey behemoth makes REDD a key piece of its massive offset strategy. Market flooding? Why not! Credit price crashing? No problem! Unsurprisingly, the EU has been taking a more conservative position.

So what’s the right solution? Funds? Markets? Dual markets? Triple markets?!? Given that similar debates about REDD have been going on between countries and within the environmental community for decades, I’m just not sure that there will ever be a one-size fits all solution that everybody can agree on. At least in the short term, in order to get this off the ground (because from a scientific standpoint, it’s vital), I think we’ll have to be satisfied with a disjointed system. Developing countries will have their national baselines and funding for capacity building from developed countries (from foreign aid or through the UNFCCC), Brazil will have its Amazon Fund (which someone besides Norway may eventually give money to), the U.S. will have its offsets (in all honestly I think Waxman-Markey is pretty good on this issue), and the EU will keep trying to find a good solution that doesn’t involve its Emissions Trading Scheme (unless it bumps its target from 20% to 30% by 2020, then they’ll definitely take the offsets). I think this is an outcome we can be satisfied with, and once REDD has been going for a few years and we see how it works in practice, then it’s time to go back to the drawing board for a comprehensive system. Now it’s all about getting it up and…sequestering.

One Response to “A tree falls in the forest…and it definitely makes a sound”

  1. Carlos Ferreira said

    REDD sounds like a good idea, and it helps both internalizing the negative externality from CO2 emissions and financing the global public good. It ends the free-riding (well, sort of), and lowers the cost of permits. I also like the metaphor image of the cycle of money following the cycle of carbon. Brilliant!
    However, there’s a question of political economy here: how long will it take for someone to start rambling against all the money transfers from developed to developing countries? It has the potential to be seen as a way to pay a few millions a year for, well, nothing at all. People can’t “see” the benefits from any of the CDM tools. There are also issues concerning sovereignty of Brazil and Indonesia, to whom the forests have long been a legacy and heritage treated as a common.
    Much as I like REDD, there’s still a lot of issues to it. Let’s hope it works and we can, indeed, go on to develop a comprehensive mechanism sometime down the line.

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