A REDD and green paradox
A commentary in the VoxEU Debate: Macroeconomics
In a previous blog (Can’t Pay? Won’t Pay!) I posed the question: What do the worldwide debt crisis and global warming have in common?
They both represent economies drawing down assets faster than they can replenish them.
In the case of the debt crisis, economies are spending more wealth than they are accumulating. In the case of global warming, we are using up nature’s capital and its vital services at an alarming rate. Rather than adding to wealth – both financial and natural – economies are squandering it. This problem has occurred throughout history, although the tendency to waste economic and natural wealth has accelerated in recent times.
Which leads me to the climate change talks in Durban, South Africa, and especially the efforts to establish a financial mechanism to reduce emissions from deforestation and forest degradation (REDD+) in developing countries.
Although expectations have been low for a successful outcome of the UN climate change talks in Durban, there has been cautious optimism about the potential for further agreements at Durban concerning REDD+.
The overall aim of REDD+ is to reduce global deforestation as a source of carbon emissions. Proponents hope that saving tropical forests will also conserve biodiversity and other important ecosystem services worldwide. Thus, REDD+ has the potential to be the first truly global environmental payment scheme, and to overcome the chronic problem of inadequate forest conservation in developing countries. It would also represent the first concerted global effort to reverse the decline in a major natural asset – tropical forests.
However, several concerns have arisen with respect to achieving these goals. REDD+ is primarily focused on one global ecosystem service, the protection of forests for carbon sequestration. Yet, even attaining this objective faces obstacles. Monitoring and verifying changes in deforestation rates in developing countries and their impacts on carbon emissions could increase substantially the transaction costs of implementing a REDD+ scheme on a global scale. In addition, a carbon market for avoided deforestation may not necessarily be the best way of protecting forests that yield other global ecosystem services. There is also concern over the high opportunity costs faced by many developing countries from losses in foregone agricultural and timber benefits. These issues need to be resolved if there is to be a successful REDD+ financial mechanism implemented on a global scale. As a consequence, REDD+ projects currently face uncertainty over future demand for carbon credits, the feasibility of long-term donor financial assistance and the possibility of a short-lived REDD+ mechanism.
In addition, REDD+ is likely to rely on two sources of funding: through carbon market offsets, where polluters in rich countries purchase carbon credits from local communities and developing nations that maintain their forests, or through bilateral deals, such as the Norwegian government’s International Forests and Climate Initiative. The talks at Durban have not changed this funding dynamic for REDD+, nor will any subsequent climate change negotiations in the near future.
However, both approaches have been criticized. Fist, carbon trading is treated with suspicion, as it seen as a way for rich country polluters to shift the full costs of their carbon emissions to developing countries. Second, bilateral REDD+ deals, such as those instigated by Norway, are criticized for transferring large sums of money to developing countries that simply perpetuate corruption, fraud and poor governance.
Both of these concerns are legitimate. But they are also symptomatic of a major "green paradox" concerning REDD+. On the one hand, the major obstacle remains the funding challenge of implementing REDD+ on a sufficiently global scale to reduce worldwide tropical deforestation and its greenhouse gas contributions, yet any financial mechanism that is capable of generating such large-scale sums and transferring them to developing countries are considered "unacceptable" by REDD+ critics.
Certainly, without careful monitoring, enforceable safeguards, and strict controls and regulation, REDD+ may worsen deforestation, corruption and governance in developing countries. In addition, we need to fund and protect forests that provide global ecosystem services other than carbon sequestration. However, to combat the chronic under-valuing and under-funding of valuable global assets, such as tropical forests, we still need to create global markets that place a price on their beneficial ecosystem services as well as to find mechanisms for paying developing countries and local communities to maintain such assets. By all means, reduce the scale of such markets and transfer mechanisms, if that helps in overcoming incentive, monitoring and enforcement problems. But if we fail to create markets and transfers for ecosystem services, then we are perpetuating a world in which ecological scarcity is the norm.
Ultimately, this REDD+ and green paradox could undermine the overall goal: proving that the world economy is willing and able to invest in, rather than squander, a valuable natural asset such as global tropical forests.
Edward B. Barbier is the John S. Bugas Professor of Economics at the University of Wyoming. His latest books, both published by Cambridge University Press, are Capitalizing on Nature: Ecosystems as Natural Assets and Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Scarcity