I begin with the proverbial WTF? The title of this post sounds a little like the legalese accompanying a witchcraft trial, but it’s jargon that’s all the rage in the ‘trading-carbon-for-biodiversity’ circles.
I’m sure that most of my readers will have come across the term ‘REDD‘ (Reduced Emissions from Deforestation and forest Degradation), which is the clever idea of trading carbon credits to keep forests intact. As we know, living forests can suck up a lot of carbon from the atmosphere (remember your high school biology lesson on photosynthesis? Carbon dioxide in. Oxygen out), even though climate change is threatening this invaluable ecosystem service. So the idea of paying a nation (usual a developing country) to protect its forests in exchange for carbon pollution offsets can potentially save two birds with one feeder – reducing overall emissions by keeping the trees alive, and ensuring a lot of associated biodiversity gets caught up in the conservation process.
The problem with REDD though is that it’s a helluva thing to bank on given a few niggly problems essentially revolving around trust. Ah yes, the bugbear of any business transaction. As the carbon credit ‘buyer’ (the company/nation/individual who wishes to offset its carbon output by ‘buying’ the carbon uptake services provided by the intact forest), you’d want to make damn sure that all the money you spend to offset your carbon actually does just that, and that it doesn’t just end up in the hands of some corrupt official, or even worse, used to generate industry that results in even higher emissions! As the buyer, of course you want to entice investors to give you lots of money, and if you bugger up the transaction (by losing the resource you are providing), you’re not likely to have any more investors coming knocking on your door.
Enter the unholy trinity of leakage, permanence and additionality.
This horrible jargon essentially describes the REDD investment problem:
- LEAKAGE is the unanticipated increase in emissions outside an avoided-deforestation (REDD) project’s accounting boundary. In other words, the original forest area that was targeted for protection under the agreement remains intact, but the deforestation that would have otherwise occurred merely gets shifted to an adjacent forest, so the net effect is the same (i.e., no emissions reduction).
- PERMANENCE is ensuring that your investment (i.e., the forest) remains intact for a sufficient period into the future to account for the carbon being offset by the buyer.
- ADDITIONALITY is a more esoteric concept which is basically an opaque way of describing ‘what would have happened anyway’. In other words, if a particular area of forest was never targeted for deforestation, then being paid to maintain it is a false investment because the service was never in any real danger.
Ok. Imagine you’re a legislator and you have to ensure that both buyer and seller don’t do something dodgy and fall into one or all of the leakage, permanence or additionality pitfalls. Sounds like a terrible, and possibly impossible, job. How do you police it? How long is ‘permanent’? How do you prove ‘what would have happened anyway’?
So you can imagine this unholy trinity has crashed rather a lot of proposed REDD projects, and even killed off ones that had been underway for some time. Like communism, it’s a great idea, but REDD is nearly impossible to make work in the real world for many of the same reasons communism fails – human greed and short-sightedness.
Enter one biodiversity-carbon trader (Penny van Ooosterzee), one ecological economist (James Blignaut) and one conservation ecologist (me) to fix the problem. I am proud to introduce the very fresh, new paper called ‘iREDD hedges against avoided deforestation’s unholy trinity of leakage, permanence and additionality’ soon to appear as an accepted article on the Conservation Letters website. I am particularly proud of this paper because it provides some tangible, real-world and economic ways forward for solving another problem in the biodiversity-conservation sphere. It’s also my first real delve into ecological economics (thanks, James).
So, Penny really came up with the idea of exposing the sometimes ridiculous restraints imposed by the unholy trinity, suggesting that in many places, leakage at least can work in the opposite direction – that is, protection becomes contagious and instead of just shifting the deforestation activity elsewhere, more people want more forest protected after a successful REDD programme is implemented. Our point here is that imposing such pie-in-the-sky constraints to avoid leakage and ensure permanence and additionality is actually doing more harm than good because so many programmes fail even to get started.
The second half of the paper though is really the crux of this post, and the most elegant (he states humbly) part of the proposed system. ‘iREDD’ essentially stands for ‘insurance-based’ REDD. James and I came up with the idea while sharing a berth in a Yangtze River cruise ship during a rather novel World Health Organization workshop.
iREDD basically works like this. Prior to any money changing hands, the buyer and seller enlist the services of an insurance broker to set a premium based on an a priori assessment of any problems that might be associated with leakage, permanence and additionality. Here, a Likert scale is used to assess the proposal based on five criteria:
- governance structures – Are the institutions of good repute? Do they have a good business history?
- management plans – Are the plans to manage the REDD forest of sufficient detail to account for unforeseen events?
- project liquidity – Do the institutions involved have enough cash flow to make sure they can meet the objectives of the management plan?
- acceptance – Is the project acceptable to the communities in the region? Do other groups endorse it?
- political buy-in – Does the project fall within the long-term plan of the relevant government agencies? Does it conflict with any?
Once the ranking has been made, then a certain component of the invested cash is used to purchase an insurance policy that scales to the identified (and agreed-upon) risk. If the seller (i.e., the recipients of the funds and managers of the forest) fail to keep the forest intact, or are hit by devastating forest fires or political unrest, then the buyer receives at least part of the premium as an insurance pay-out. If, however, the sellers are true to their word (contractual obligations), the premium and its interest are paid to them in addition to the monies originally invested.
In other words, everyone wins. If the sellers fail, then the buyer is compensated and can invest elsewhere. If the sellers do well, they get more money. Most importantly, it increases the probability that atmospheric carbon will be reduced (or at least, the rate of emissions slowed) and the forest’s associated biodiversity will remain.
iREDD – remember that name. If you desire a pre-print copy of paper before it comes out online, please use the form here (bottom of page) to request one.