REDD+ is a scheme that puts a cash value on forests on the assumption that this will result in their preservation and, in turn, a carbon saving. The acronym stands for Reducing Emissions from Deforestation and forest Degradation. The ‘plus’ symbol refers to the inclusion of additional activities, such as the sustainable management of forests and the enhancement of forest carbon stocks.

REDD+ schemes are proposed under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC), as well as being piloted by national authorities and bilaterally. They are controversial, however, with critics claiming that they would mainly benefit corporate investors, not least because the definition of forests being used includes industrial-scale monoculture tree plantations. In the context of contested land rights between states, corporations and local authorities, some REDD+ pilots have already been shown to dispossess Indigenous Peoples and other forest-dependent communities.

One of the most contentious debates on REDD+ relates to how it will be funded. The debate centers on whether public or private sources will be prevalent, and the extent to which it will generate carbon credits. Although the majority of REDD+ funding to date has been provided by the Norwegian sovereign wealth fund, the jump-starting of a forest carbon market remains an important element in REDD+ ‘readiness’ activities.

The transaction costs associated with generating carbon credits are significant. Initial estimates and comparisons with the CDM would suggest that 30 per cent or less of the cost of a REDD+ credit would find its way to the project itself, while as little as 3 per cent may find its way to the producer. The Munden Project, which offers a market-based critique of REDD+ proposals, has also suggested that REDD+ trading would likely see the emergence of ‘monopsony power’ – an imbalanced market with many sellers but few buyers – strengthening the hand of financial intermediaries, while ensuring that few benefits flow to the producers of ‘REDD projects, the communities that live within them or the countries where they are located.’ Munden also suggests that forest carbon commodities are so poorly and variably defined as to be ‘unacceptably risky’ as a basis for trading.

With carbon markets beset by a massive over-supply, REDD+ is not currently an attractive proposition for the majority of investors, so bilateral and multilateral public funding accounts for most REDD+ finance to date. Aside from the Norwegian contribution, which accounts for two-thirds of all money pledged to REDD-dedicated climate funds, the major donor countries are Australia, the United States and Germany. Most major donors have created bilateral funds, while the World Bank’s ‘Forest Investment Program’ is the largest multilateral fund. A role for the Green Climate Fund is also under discussion. As the market develops, it is likely that public investments in this sphere will follow the broader trends in climate finance towards pooled public-private funds, shielding them from public scrutiny.

The role of capital markets in REDD+ is far from restricted to carbon trading, however. Some investors and conservation NGOs are proposing new financial instruments, notably forest bonds, to diversify the source of revenue beyond carbon or ecosystem services credits.

Further reading

Munden Project, REDD and Forest Carbon

REDD Monitor