Climate Finance: Regulatory and Funding Strategies for Climate Change and Global Development

Chapter 10 Stock-and-Flow Mechanisms to Reduce Land Use, Land Use Change, and Forestry Emissions: A Proposal from Brazil

96 Climate Finance Chapter 10 Stock-and-Flow Mechanisms to Reduce Land Use, Land Use Change, and Forestry Emissions A Proposal from Brazil Israel Klabin President, Brazilian Foundation for Sustainable Development Key Points • The vast majority of Brazil’s emissions are generated by deforestation and other changes in land use—problems that were not well addressed by Kyoto generally or the CDM mechanism specifically. • The global climate governance regime should use a stock-andflow mechanism to reduce land use, land use change, and forestry (LULUCF) emissions, by providing heavily forested countries with REDD funding (through credits or loans and grants) tied to specific emissions reductions based on historical deforestation rates, and a dividend based on the total amount of forest stock remaining in that country as a proportion of global tropical forest cover. • This mechanism provides value not just for avoiding emissions through REDD but also for maintaining and reinforcing forest stocks. • If this mechanism is combined with targets and incentives to reduce deforestation rates rather than just stabilizing them, significant levels of efficient abatement can be achieved. One major limitation of the 1997 Kyoto Protocol is that it does not do enough to reduce greenhouse gas (GHG) emissions from developing nations . In particular, it does not do enough to create incentives for countries Stock-and-Flow Mechanisms 97 to reduce emissions caused by agriculture, land use, and deforestation. Recognizing this, there is strong support for emissions targets for the major emerging economies, significant finance and technology transfer from Annex I nations, and a stock-and-flow mechanism to create incentives to reduce land use, agriculture, and deforestation emissions. CO2 Emissions from Brazil Roughly 75% of Brazil’s CO2 emissions arise from changes in land use, in particular the conversion of forests to agriculture and cattle ranching. The portion of CO2 emissions from the use of fossil fuels is relatively low in the country due to the high proportion of renewable energy use (46.4% in 2007). There is an urgent need for a drastic reduction of the deforestation rate in the Amazon region, requiring the control of several variables such as the demand for products in forested areas. The wood produced by the forest fluctuates over time, thus making monitoring figures unstable and difficult to obtain, but the Brazilian government intends to reduce deforestation in the Amazon region to 5,740 km2 per year by 2017. This would be an important step forward to control the current disordered occupation of the forest. The Failure of Kyoto and the CDM Mechanism to Adequately Address Deforestation The finance mechanisms established by the Kyoto Protocol were unable to reduce or halt the expansion of GHG emissions in Brazil. Financing for land use, land use change, and forestry (LULUCF) projects was practically nonexistent. Within this broad category of projects, the Clean Development Mechanism (CDM) only allows reforestation projects in areas deforested before 1990 and forestation where there had been no previous forest vegetation for at least 50 years. Such restrictions, considered a serious mistake, were discussed extensively at the Bali Conference of the Parties (COP 13), and reconsideration of these issues will be a major component of any future climate change regime. Brazilian carbon projects for Kyoto, based on energy efficiency and alternative sources of energy, were clearly at a disadvantage, in comparison to the ones from countries with higher emissions, due to Brazil’s starting 98 Israel Klabin point of a cleaner energy mix and thus the lower emissions baseline of its power system. Many biofuels, reforestation, and power generation projects could not be considered for accreditation due to pre-existing domestic regulation mandating their implementation. Therefore, there is a need to rethink new options for scaling up the financial resources necessary for forest protection. Any new financial mechanism should be effective, sustainable, predictable, performancebased , and supported by diversified sources. Many recognize a need to combine non-market financial resources and market-based mechanisms to ensure sustainability of actions. Creating Incentives to Slow Deforestation The recent United Nation’s report on financial flows and investment estimates that an additional annual investment of USD 200–210 billion will be required by 2030 to reduce carbon dioxide equivalent (CO2e) 25% below 1990 levels. However, the recent economic turmoil will require some downward revision of this amount due to the emissions avoided by reduced industrial production. The estimated realistic mitigation potential in developing countries is approximately 7,000 Mt CO2e in 2020. Most...