Green Economy and Climate Mitigation: Topics of Relevance to Africa

Chapter 8 - Financing REDD in Africa

Green Economy and Climate Mitigation 161 8 Introduction Reducing emissions from deforestation and forest degradation plus (REDD+) makes developmental, political, social, environmental and economic sense. To this end, the global governance system, national entities and the non-governmental sector (NGOs) have been advocating the institution of a system that will quicken the implementation of REDD+ projects in developing and emerging economies, particularly in Africa. The key issue, however, remains finance. REDD+ projects require significant, non-project-based capacity building, or what is commonly referred to in REDD+ terminology as ‘readiness’ finance.1 Much of this readiness funding should be raised from public funds and administered through relevant national forestry ministries, departments or agencies. Financing for greenhouse gas (GHG) emission reduction is being mobilised from carbon funds and/or carbon markets, which include both voluntary and compliance markets. The compliance market operates under the Kyoto Protocol2 (see also Chapter 5). Among other factors, REDD+ financing is affected by the taxonomy of forests – this taxonomy includes three broad categories related to the forest transition curve: forest frontiers and disputed areas (marked by heavy deforestation), forest beyond agricultural frontiers (little disturbed ) and forest mosaic lands.3 Private REDD+ finance is likely to be secured for forest frontiers and forest mosaic lands. There is a definite Financing REDD+ in Africa Cecilia van Zyl and Godwell Nhamo 162 Green Economy and Climate Mitigation Financing REDD+ in Africa Table 8.1 REDD+ fi nancing requirements Item Upfront capacity-building (readiness) costs Ongoing emission-reduction costs Forest protection costs Opportunity costs Objectives„ Upfront investments in REDD+ infrastructure (monitoring systems, forest and carbon density data), stakeholder participation„ Implementation of policies and measures that enable and promote REDD+ investments„ Compensating for lost profi ts as a result of reducing forest emissions Features„ Upfront fi nancing„ Little direct effect on land use emissions„ Upfront transaction costs„ Upfront fi nancing„ Costs and benefi ts depend on policy„ Recurrent transaction costs„ Upfront fi nancing„ Continuous fi nancing„ Costs vary across space and time Financing needs (examples)„ Setting up monitoring system ($ 0,5–2 million in India and Brazil)„ Setting up forest inventories ($ 50 million for 25 nations„ Capacity-building ($ 4 billion for 40 nations over fi ve years)„ Land tenure reform (size-dependent: $4– 20 million over fi ve years for one country based on estimates from Rwanda, Ghana and Solomon Islands)„ Recurrent costs of forest inventories ($ 7–17 million per year for 25 countries)„ Monitoring legal compliance„ Opportunity costs of halving deforestation ($7 billion annually over 30 years for eight countries) Source: Dutschke, M. & Wertz-Kanounnikoff, S., 2009. Financing REDD: Linking country needs and fi nancing sources. Bogor: Center for International Forest Research, p.2 Green Economy and Climate Mitigation 163 Cecilia van Zyl and Godwell Nhamo need for public finance from both international and domestic sources for forests beyond agricultural frontiers. Before any REDD+ project can be considered for implementation, there are costs associated with preparing a country to accommodate such projects. REDD+ financing mechanisms can be divided into two principal forms, firstly, capacitybuilding (readiness) costs and, secondly, ongoing emission-reduction costs (subdivided into forest protection costs and opportunity costs).4 A summary of the REDD+ financing requirements is given in Table 8.1. The main purpose of this chapter is to discuss multilateral REDD+ financing mechanisms available for African projects, bearing in mind that the REDD+ mechanism is regarded as a vehicle with which African governments could significantly contribute to climate change mitigation . Associated with this, the chapter has twin objectives: to determine and profile major multilateral REDD+ financing mechanisms applicable to Africa, and to present the opportunities and risks associated with REDD+ financing mechanisms for Africa and how the continent should engage with REDD+ financing in the future. The data sources used are mainly literature, with online resources, such as the Climate Fund Update, providing the figures used in the tables and graphs. The chapter is divided into five main sections. The next section addresses the commodification of carbon. This is followed by a section that focuses on REDD+ and global climate negotiation, after which a global overview on climate and REDD+ financing is provided. Finally, REDD+ financing in Africa and the future of REDD+ financing in Africa are discussed. The Commodification of Carbon Several carbon markets already exist, such as the European Union’s Emissions Trading Scheme (EU-ETS). However, these markets are still somewhat controversial, and many poorer countries complain that their natural resources have been...