The Business Case for REDD

December 2010

What is REDD?
Deforestation and Degradation
Around the world, forests are being destroyed at a rate of about thirteen million hectares a year and deforestation accounts for an estimated 17 20% of all global emissions. In addition, forests and other terrestrial carbon sinks play a vital role in preventing runaway climate change, soaking up a full 2.6 Gt of atmospheric carbon every year. The destruction of forests, therefore, not only emits carbon a staggering 1.6 Gt a year, which severely impairs forests capacity to absorb emissions from other sources but also drastically reduces the amount of forested land available to act as a carbon sink in the future. However, the effects of deforestation extend beyond carbon. Rainforests provide a wide variety of ecosystems services, from regulating rainfall to purifying groundwater and keeping fertile soil from eroding; deforestation in one area can seriously damage food production and access to clean water for an entire region. The value of global ecosystem services has been estimated at 33 trillion USD each year (almost half of global GDP), but these services have been taken for granted without a mechanism to make the market reect their value1. Rainforests are also a home and source of income for a huge number of people in Africa, Asia, and South America. Despite this, economic pressures frequently drive both local communities and national governments in the developing world to exploit these forests in ways that are unsustainable, clear-cutting vast areas for fuel, timber, mining, or agricultural land.

REDD and REDD+

Reduced Emissions from Deforestation and Degradation (REDD) is an emerging system for bringing rainforest conservation within the carbon market. Under this system, companies can offset their carbon emissions by buying credits from programmes that work with local communities to protect sections of rainforest. REDD+, the system currently under discussion through global climate negotiations, broadens the scope of REDD by incorporating conservation, sustainable forest management, and the enhancement of forest carbon stock. The UN created a collaborative initiative in 2008 to help developing countries create national REDD+ regimes. The UN-REDD programme, funded by donors such as Norway, Denmark, and Spain, has three phases: the development of a national strategy for REDD+; the implementation of that strategy using UN-REDD funds; and the sale of veried REDD+ credits. The countries piloting the UN-REDD programme are the Democratic Republic of Congo, Tanzania, Zambia, Indonesia, Papua New Guinea, Vietnam, Bolivia, Panama, and Paraguay. Most of the national programmes in these countries have now reached the second phase implantation using UN-REDD funds.2

R. Costanza et al. The Value of the Worlds Ecosystem Services and Natural Capital. Nature Vol. 387, 1997. UN-REDD Programme. FAQs. Available online at: http://www.un-redd.org/AboutUNREDDProgramme/FAQs/tabid/586/Default.aspx; last accessed 5 December 2010.

How Businesses Can Benet from REDD

As with all climate change activities, action and results will not solely be delivered through global negotiations and national legislation. Businesses, must, and in many cases already are, leading the way in development and investments that will make a signicant difference. REDD offers particular benets to business that make investment particularly attractive.

Reducing the cost of mitigating climate change

REDD projects are able to deliver a substantial, reliable supply of credits for a relatively low price. REDD credits developed for the voluntary market have so far proven to cost less than carbon credits from technology projects, given the relatively low cost of protecting forests, and it is expected that REDD credits used to meet the requirements of cap-and-trade schemes will match or beat the price of the credits currently sold in the compliance market. Prices will depend heavily on local conditions.

Biofuels for the future

Biofuels grown sustainably, in combination with a forest management programme, can provide a constant source of low-carbon fuel without attracting the criticisms that have been levelled at biofuels that compete with forests or food crops. Dr. Tim Killeen, Senior Research Fellow at Conservation International, suggests that as much as one-fth of a protected area of rainforest could be devoted to the sustainable production of biofuels, using native species such as oil palm, eucalyptus, or jatropha.3 This would give local communities an additional source of income, but the cultivation of biofuel crops would remain at a manageable level, restricted enough to prevent the clear-cutting of rainforest for biofuel production and to preserve the forests biodiversity.

Supply chain security

One crucial business benet of REDD is that it goes above and beyond reducing carbon emissions in preserving ecosystems and creating economically and environmentally sustainable livelihoods for local rainforest communities in areas such as Indonesia, southern Africa, and South America. This is especially true of REDD+, with its focus on sustainable forest management and on enhancing forest carbon stock for the future. These benets can be specically targeted towards areas where the company works or sources its materials. For some companies, the connection between preserving rainforests and protecting supply chains is obvious: for example, Starbucks invests in rainforest conservation largely to ensure that these regions can continue to produce coffee sustainably in the future.4 However, even for companies that dont directly use rainforest products, the destruction of forests poses a serious risk to the supply of materials from rainforest countries, and to the companies ability to work and sell their products in those countries. Environmental degradation devastates local economies and frequently triggers violent conict, as competition for dwindling natural resources increases. Armed conict has the potential to cripple a companys supply chain. Companies can invest in REDD projects to help sustain the economic and political stability of the countries where they source materials, preventing damaging disruptions.

Killeen, Tim, et al. Stabilizing the Agricultural Frontier: Leveraging REDD with Biofuels for Sustainable Development (presentation). Helsinki: Conservation International, 2009. Available online at: http://www.ieabioenergy-task38.org/workshops/helsink09/Killeen.pdf

Starbucks Coffee. Tackling Climate Change. Available online at: http://www.starbucks.com/responsibility/environment/climate-change; last accessed 5 December 2010.

Engaging with stakeholders

Rainforests are a potent symbol of the environment and the battle against climate change as a whole, and the idea of rainforest conservation immediately resonates with customers and with the public, while more complicated environmental initiatives can be harder to communicate. In addition to reducing carbon emissions and safeguarding vital ecosystem services, REDD+ projects have a compelling human element, as they generate a range of social and economic benets for communities in the developing world. These benets can be particularly important ways for industries publicly criticised for their impact on the environment to demonstrate their commitment to protecting ecosystems and the people who rely on them. Unsurprisingly, media groups and customer service companies, whose expertise lies in communicating with the public, are among the earliest investors in REDD and forestry projects. The Walt Disney Corporation is currently funding several REDD demonstration projects, and Sky Broadcasting uses its support for rainforest conservation in South America to engage with its viewers and other stakeholders by creating programming about the rainforests and offering viewers the chance to contribute to the conservation work. The Marriott Hotel Group has received an overwhelming public response to its own initiative, which allows guests to offset their stay in a Marriott hotel by adding their own contributions (at a rate of 1 USD per night) to Marriotts 2 million USD investment in the Juma Sustainable Development Reserve Project, the rst veried REDD project in Brazil.5

Getting Involved in REDD

There are three paths open for companies interested in taking the lead and becoming involved in REDD. The rst option is to invest in REDD projects in the early stages, and to work alongside project developers and local communities to guide the projects, with the aim that these projects will generate credits for sale to the voluntary carbon market in the future. The Walt Disney Corporations recent investment of 4 million USD in REDD demonstration projects follows this model. Disney is providing the funding to develop three projects the Tayna and Kisimba-Ikobo Community Reserves in the Democratic Republic of Congo and the Alto Mayo conservation area in Peru to the point where they can generate voluntary carbon credits. It is expected that between them, these three projects will prevent 900,000 tons of carbon emissions over the next ve years. The Voluntary Carbon Standard and the Climate, Community, and Biodiversity Alliance will independently verify the projects activities. While its investment will eventually help Disney source the high-quality carbon credits it needs to meet its target of becoming carbon neutral, these projects also represent signicant progress towards Disneys other environmental goals, including reducing the companys impact on ecosystems and water.6

Marriott Hotel Group. The Centrepiece of Marriotts Five-Point Environmental Strategy. Available online at: http://www.marriott.com/marriott.mi?pag e=green_protecting, last accessed 5 December 2010. Wolfson, Andrea. Disneys Commitment to REDD. Conservation International. 3 November 2009; last accessed at http://www.conservation.org/sites/celb/fmg/articles/Pages/110309_disney_redd.aspx on 4 December 2010.

The second option for businesses looking to invest in REDD is to nance a REDD project, with the option to buy carbon credits in the future to meet compliance requirements. This is particularly relevant to companies working in areas where current or emerging cap-and-trade schemes are likely to allow the use of REDD credits at some point soon. In the US, Californias state-wide cap-and-trade scheme includes REDD credits, and it is expected that any national scheme will eventually follow suit. Australias proposed carbon reduction scheme would allow for the use of REDD+ credits, and Japan has announced that it will incorporate REDD+ into its strategy to meet its carbon reduction targets for 2020. A number of emerging national cap-and-trade schemes in Asia may allow REDD credits, and there is speculation that if the EU moves to a higher carbon reduction target for 2020, REDD credits may be admitted into the EU-ETS as well. Ultimately, the compliance market is expected to supply the bulk of the demand for REDD credits. Finally, companies can choose to work with long-term investors to fund the development of REDD projects. This path allows companies to help shape the future of the REDD market; to address a number of environmental impacts of their business, from the degradation of ecosystems to water use; to communicate their environmental commitment to their stakeholders; and to demonstrate compellingly that there is a business case for investing in REDD, which will help show governments the value of allowing REDD credits to be used in compliance schemes.

REDD Today
After Cancn
At the UN Framework Convention on Climate Changes 2010 Conference of the Parties (COP) in Cancn, the assembled governments conrmed their commitment to REDD+ (specically citing the need to enhance and sustainably manage forest carbon stocks, as well as reduce emissions), and explicitly tied REDD+ to the overall goal of keeping global warming below 2C. The Cancn Agreement sends a strong signal to prospective investors and project developers that REDD+ will be central to international efforts to combat climate change. The next stage of REDD+ is taking denite shape. The Cancn Agreement gives national governments in the developing world a fair amount of control over the implementation of REDD+, but also includes broad provisions for international oversight, with the understanding that the details of these arrangements will be revisited at the Durban COP in 2011. Developing countries are to create their own national strategies for carrying out REDD+ activities. These strategies are supposed to address the specic drivers of deforestation in each country; land rights; forest governance; and gender issues (a critical part of managing forests: in most cultures, women are much more likely than men to be involved in certain aspects of forestry, such as collecting wood for fuel, but are far less likely to own the land they work). According to the Cancn Agreement, those with a stake in the REDD+ process including local communities and indigenous peoples should be allowed to participate fully and effectively in developing their countrys strategy.7 The Agreement also asks the governments of developing countries to set up robust and transparent monitoring systems, which should also provide information to the international community on how the national governments are dealing with key safeguards. These safeguards include protections for biodiversity, ecosystems services, and the rights of indigenous peoples, as well as measures to ensure that REDD+ programmes help countries develop sustainably and adapt to the effects of climate change. Crucially, the safeguards also include ensuring that REDD+ programmes protect against reversal and leakage (displacing deforestation to another, unprotected part of the countrys forests).8 However, the next round of climate negotiations will need to agree on the details of these safeguards, and on how governments will be held accountable for putting them in place, to ensure that REDD+ programmes are effective and fair.

United Nations Framework Convention on Climate Change. Outcome of the Work of the Ad Hoc Working Group on Long-Term Cooperative Action Under the Convention. Available online at: http://unfccc.int/les/meetings/cop_16/application/pdf/cop16_lca.pdf; last accessed 21 January 2011. Ibid.

The negotiations made some progress on the technical issues surrounding REDD+, such as whether offsets should be calculated at the national or local level (the Agreement asks developing countries to establish a national baseline to measure deforestation against, although it allows local baselines as an interim measure).9 However, many methodological issues have been deferred until the Durban COP. As expected, the critical question of funding for REDD+ remains open.10 The Cancn negotiations did not decide whether there should be a dedicated fund to nance REDD+ projects, or whether the funding should come from the carbon market; the UNFCCC will spend 2011 researching these options further. Meanwhile, in the absence of a decision on global nance for REDD+, the UN-REDD Programme continues to rely on donations from individual governments in the developed world. Current donations amount almost ve billion USD; the Norwegian government still leads the way, having committed 31 million USD the programme in 2010 alone. The UN-REDD Programme expects that the progress made on REDD+ at Cancn will encourage further government investment. UN representatives are enthusiastic about the results of the Cancn negotiations on REDD+. Achim Steiner, Executive Director of the UN Environment Programme, called the new provisions on REDD+ an important building block towards a successful, comprehensive global climate agreement in South Africa in 2011. He added, REDD+ could mark a decisive new chapter in humanitys sustainable management of its nature-based resources, while opening up Green Economy opportunities. Helen Clark, Administrator of the UN Development Programme, said that the Cancn Agreement recognizes the critical role of forests in the global effort to tackle climate change, as well as the centrality of of good governance and the role of women, , Indigenous Peoples, and local communities in the success of REDD+.11

Methodologies
The Climate Action Reserve (CAR), the Voluntary Carbon Standard (VCS), Plan Vivo, and the American Carbon Registry have all developed standards and methodologies for REDD and avoided deforestation projects. Of these, only CARs standard is currently accepted by an existing compliance scheme, but the VCS standard has been proposed for use in emerging cap-and-trade schemes, and is the most well-developed and viable standard in the voluntary carbon market. (Between them, CAR and VCS account for a full two-thirds of the voluntary market.) Two standards also exist for measuring the co-benets of REDD projects: the Social Carbon standard assesses projects against a set of sustainable development indicators, while the Climate, Community, and Biodiversity Alliance veries the community and biodiversity benets of the project.

9 10

Ibid. Daviet, Florence. From Copenhagen to Cancn: Forests and REDD. World Resources Institute, 17 May 2010. Available online at http://www.wri.org/stories/2010/05/copenhagen-cancun-forests-and-redd; last accessed 5 December 2010. UN-REDD Programme Applauds the COP16 Agreement on REDD Reached in Cancn. UN-REDD Programme, 11 December 2010. Available online at: http://www.un-redd.org/NewsCentre/COP16_Press_Release_en/tabid/6595/Default.aspx; last accessed 21 January 2011.

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Sample project: REDD in the Amazon

One of the most compelling and useful examples of current REDD projects is the project in which the Marriott Hotel Group has chosen to invest: the Juma Sustainable Development Reserve. The reserve covers almost 600,000 hectares of rainforest in the state of Amazonas, Brazil an area that is coming under severe pressure to cut down its rainforests. The project is expected to avert roughly 3.6 million tonnes of greenhouse gas emissions by 2016. The Juma Sustainable Development Reserve is the rst REDD project in Brazil to be validated by the Climate, Community, and Biodiversity Alliance, and the rst in the world to earn the highest possible score in the CCBAs Gold category, signifying exceptional environmental and social benets; in the case of the Juma project, these benets include promoting sustainable local businesses, community development, and education, and strengthening environmental monitoring and control. Most signicantly, the Juma project was among the rst to demonstrate that REDD credits can compete with other carbon credits on price, and has helped rene existing methodologies for monitoring and community involvement.12

Conclusions
Whether its compliance, pre-compliance, reputation or supply chain protection, REDD and REDD+ offer a compelling combination of carbon, community and biodiversity benets. Businesses looking to optimise their compliance activities, develop investments for the future, proactively build reputation, or ensure supply chain security do not need to wait for an air-tight global structure to take advantage of these opportunities now.

About The CarbonNeutral Company

The CarbonNeutral Company is a world-leading provider of carbon reduction solutions. We work with more than 500 businesses in 32 countries to develop offset inclusive carbon reduction programmes which enable companies to increase revenue, manage costs and engage stakeholders. Since 1997, we have purchased carbon credits from more than 200 projects in 24 countries. CarbonNeutral is the registered trademark of The CarbonNeutral Company and is a global standard to certify that businesses have measured and reduced their CO2 emissions to net zero for their company, products, operations or services in accordance with The CarbonNeutral Protocol. We have ofces in London, New York and Singapore and are a founding member of The International Carbon Reduction and Offset Alliance (ICROA), which provides leadership and a unied voice in advocating for rigorous offset industry standards. To nd out more about how an offset inclusive carbon management programme can benet your business, please email us or call: EU +44 (0) 207 833 6000, US +1-646-367-5800 or Singapore +65 688 44465.

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Viana, Virgilio M, et al. The Costs of REDD: Lessons from Amazonas. International Institute for Environment and Development, 2009. Available online at: http://unfccc.int/les/methods_science/redd/application/pdf/costs_of_redd_lesson_from_amazonas.pdf; last accessed 6 December 2010.