REDD+ Finances: Current Issues and Questions
Dr. William Sunderlin
Moderator: Kenichi Abe (RIHN)

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REDD+ Finances: Current Issues and Questions William Sunderlin (Center for International
Forestry Research)
CIFOR as an institution owes part of its strength to an enduring and high quality relationship that we have hadwith Japanese researchers and institutes. That relationship is extremely valuable and will go on. The talk that I
am going to be giving you this morning is somewhat different from what you have heard so far. I will not betouching much on the mechanics of finances and REDD. I will not be talking much about negotiations.
Instead, I am going to try to focus on some rather fundamental, square one issues. What I want to do is
examine what it is that REDD was meant to be, how it is evolving and how that is playing out against therealities on the ground in the context of subnational initiatives or projects, as we call them.

Here is what I intend to cover in my talk. I will talk briefly about the original aim of what REDD was intended
to do. I will touch on some of the current status of financing and the challenges related to that. I will devote a
substantial amount of attention to CIFOR’s global comparative study on REDD and, more specifically, on
research findings that we have produced in the last couple of years and how they relate to the topic of finances
and REDD. I will briefly touch on developments that have happened in the last few months. Then I will
touch on some questions that I believe are unanswered or at least not answered satisfactorily enough about theissue of finances and REDD. I hope to be provocative and engage an intellectual exchange on this. I will closewith some ideas on resources that you might want to consult in relation to this talk.

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1. Original idea of REDD+

Original idea of REDD+• Make forest protection more
profitable than forest
conversion• Pay for the opportunity costof forest conservation ($5‐
12.5 B per year)• Create a performance ‐based
reward system throughwhich funding delivered on
conditional basis• MRV to assure sequestrationachieved in provable way

Source: Wikimedia Commons

As we know, over the centuries in all countries, not just developing countries, there has been a trend towards
the elimination of forest cover, at least initially. The reasons for this are wide ranging, but there tends to be acommon thread through all of the experiences. It has to do with population growth. It has to do with thedevelopment of a consumer culture, increasing demands for natural resources, and getting them from forests.
It has to do with the growth of infrastructure and roads. It is closely tied to the appropriation of the state in all
countries over forest as a resource. Importantly, it has to do with the fact that, generally speaking (from an
economics point of view), converting forest to non-forest uses has tended to be more profitable than keeping
them standing.
REDD surfaced about 10 years ago in the context of decades of efforts to stop tropical deforestation that by
and large failed pretty badly. From the point of view of people who came up with the idea of REDD, since
many of our problems worldwide we try to address financially, so there must be a financial solution to the
problem of deforestation. In the midst of this complexity, the focus of the REDD idea has been to try to makeforest protection more profitable than forest conversion. Lying behind this idea is the notion of opportunity
costs or the idea that there needs to be a substantial reward or payment to those who lose out from theirdecision to protect forests. Sometimes it is called the ‘opportunity cost of foregone deforestation’. The
estimates for this range really wildly from $5 billion per year worldwide to another of $12.5 billion per year by a
CIFOR researcher. However, they go up to as high as $60 billion a year. It is an inexact science. Some people
have called it a useless exercise, but I believe that there is some value to it in coming to an understanding ofwhat it is that we are paying for and on what scale.
The idea was to mobilize a substantial amount of funding and to deliver it to REDD stakeholders through aperformance-based reward system or mechanism through which this funding would be delivered, and to createa system of measuring, reporting, and verification (MRV) to assure that sequestration has actually been attained.
Of course, this is a key part of the financial mechanism. Here I have illustrated the carrot and a stick that wetalked about it yesterday, a conventional notion in economics. This in the REDD context refers to the fact that
there is a positive incentive (namely the reward), the main stick being the threat of withdrawing that stream ofrewards if the target (namely the protection of forests) is not attained.

REDD+ Finances: Current Issues and Questions
Dr. William Sunderlin
Moderator: Kenichi Abe (RIHN)

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2. Current status & challenges

Current status & challenges• Scant international funding($10B) compared toopportunity costs• 90% public sector and only
10% private sector• Decrease in contributions
since 2010 (Norman &Nakhooda 2014)• Weak forest carbon market• “Aidification ” of REDD+(Angelsen & McNeill 2012)

What we find is that, until now, the total amount of international funding mobilized for REDD is somewhat
less than $10 billion, which in absolute terms is a large amount of money. There is no denying that. However,when you measure that up against the annual opportunity costs, it raises some unanswered questions ones
about how much more money needs to be mobilized in order for REDD to function as originally intended.
It is also the case that, until now, 90% of that international funding is in the public sector coming fromgovernments either through bilateral or multilateral arrangements and only 10% through the private sector
through, for example, the sale of forest carbon credits. As documented in a wonderful paper produced last year
by Norman and Nakhooda on REDD and finances, they described how these contributions initially increased
and then decreased beginning with 2010, and only recently has there been the beginnings of an upturn once
again.
In the midst of this, the market for forest carbon credits is relatively weak. As described yesterday, it has
grown very rapidly and attained the level of almost $1 billion, but it is still in various ways weak and does not
yet answer or fulfill the task that was originally set for it.
I mentioned that 90% of the funding is from the public sector. This is important in what is being called the‘aidification’ of REDD. The original idea was for public sector funding to last relatively briefly, for a few years,
to get the readiness process underway and then the private sector would leap into action and occupy adominant role in funding. However, as we know, that has not happened. The public sector dependence
continues. We are almost at the decade long level of REDD’s lifetime, and it is clear that public sector
dependence will continue for some time to come unless things change.

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Why financial difficulties?
•
•
•
•
•
•

Competing priorities
Economic recession (Norman & Nakhooda 2014)
Difficulties of REDD+ delivery => decreased pledges
Slow disbursement of funds to pledged countries
Failure to reach international agreement
Private financing requires conducive

regulatory environment

Why are we having financial difficulties in REDD? I do not pretend that my answers are going to becomprehensive or necessarily well-grounded. I simply want to put forward some ideas from my perspective,
and some of them at a very high level of abstraction. If we were living in a perfect world where policymakers
were answering the call of science and recognizing the high dangers presented by climate change, then climatechange mitigation would, in all countries, be ranked substantially higher in national priorities than they are now.
For understandable reasons, it is the number one priority in small island states, but tends to rank lower in othercountries.
One perspective on this is that climate change mitigation simply is not yet high enough in the aggregation ofnational priorities. Therefore, REDD competes with other priorities. As we have come to recognize at CIFOR,
the conversion of forest to non-forest uses still has a large advantage over forest protection.
Norman and Nakhooda point to the issue of economic recession. Shortly after REDD got
underway, the global recession happened, and this is one of the reasons why national contributions went down.
However, these contributions, according to them also, went down because of the difficulties in having REDD
gain traction, get underway and set in motion at the national level. Some countries decided to decrease theirpledges accordingly. As mentioned yesterday in a couple of presentations, there has been a large amount ofcommitments in absolute terms, but actual disbursement is a small fraction of that, about 11% last year, to beprecise.
Added to this is the failure year-by-year of the UN process to reach an international agreement. Why is thisimportant? It is important because, in the realm of the economics of REDD, it has been supposed that private
financing, in order to be robust and durable, requires a conducive regulatory environment; in other words thesituation such as one where a cap-and-trade system requires polluters and emitters of greenhouse gas to find away to defray or reduce their impact on the environment.

REDD+ Finances: Current Issues and Questions
Dr. William Sunderlin
Moderator: Kenichi Abe (RIHN)

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Among the reasons for the inadequacy up until now of forest carbon markets are the following: as mentioned
yesterday, it is low carbon prices and how this impacts entities, implementers, and proponents of REDD andtheir efforts to try to get underway. It has to do, as pointed out by Phelps and his co-authors in 2011, with theEuropean trading service not recognizing REDD credits. It has to do with the volatility of the carbon market
and the way the price goes up and down leading to unpredictability.

Interestingly, carbon brokers arepotentially quite interested in REDD, but they tend to be heavily focused on the idea of funding mitigation, but
not all of the rest of the things that REDD is beginning to do. One of the ways that REDD has begun tochange over time (parallel to aidification) is the wide diversity of things that it is trying to do beyond simply
climate change mitigation with strong attention, in most cases, to livelihood support, protection of rights andbiodiversity protection. I raise this as a point that we might want to keep in mind. This is possibly a diverging
path that we need to pay attention to between the potential funders and what is actually happening on the
ground.

3. CIFOR’s GCS REDD+
Global Comparative Study on REDD+

I will now turn my attention to CIFOR’s research being done under the heading of our Global Comparative
Study on REDD+. This study has been underway for six years now, funded largely by NORAD1, but also by
five other donor organizations. Ultimately, what we are aiming to do is evaluate the performance of REDD interms of the so-called ‘Three E’s’, those being carbon effectiveness; cost efficiency, is it cost effective for
1 Norwegian Agency for Development Cooperation: http://www.norad.no/en/front-pageDAY2
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REDD to do what it is trying to do; is it equitable, is there equity among the stakeholders involved in REDD;
and is it doing a good job of producing the co-benefits that it is trying to achieve.
The Global Comparative Study (GCS) is divided into four research modules; module one on national policies
and processes; module two on REDD projects, or as we call them at CIFOR, subnational initiatives; module
three on MRV; and module four on carbon management at the landscape scale. The research that I will bereporting has to do with module two, which I am leading.

On this map, you see the locations and the abbreviated names of the 23 subnational initiatives that we aretracking over time. They are in six countries, those being Peru, Brazil, Cameroon, Tanzania, Indonesia, andVietnam. They span a wide range of types of REDD initiatives. Importantly, we are doing this through anapproach called BACI2. These 23 sites include 190 villages where we are doing research and 4600 households.
Half of those villages and half of those households are inside the boundaries of a REDD initiative and half ofthem are outside.

Therefore, we are comparing REDD and non-REDD side-by-side through statisticalmatching. The before and after dimension is as follows: we collected data from 2010 until 2013, our so-calledbaseline data, involving household surveys, remote sensing, gender surveys, etcetera. We collected the so-called
impact data mostly last year (2014). This year we intend to do the full scale analysis to measure the impact of
REDD. What I am reporting on today is largely drawn from our baseline or phase one results.

Main challenges experienced by
REDD+ proponent organizations

2 Before, After, Control, and Intervention

REDD+ Finances: Current Issues and Questions
Dr. William Sunderlin
Moderator: Kenichi Abe (RIHN)

DAY2
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These results that I am reporting on this slide have to do with a survey of proponents that we conducted from
December of 2012 until June of 2013. We focused squarely on posing questions to proponent organizations
about the challenges they are facing in getting REDD underway. What we did is, ahead of time, we composeda list of 62 factors that we imagined conceivably could pose difficulties for REDD proponents. We definedthem and explained them to the respondents before the interview began. We asked them to rank each of thesefactors in terms of the level of difficulty posed on what we call a Likert scale with zero being no difficulty at all,and at the other end of the scale the number five represented an overwhelming difficulty. This chart clusters
the answers into groups.
What we found fascinated us. The number one problem was tenure. Number two, close behind, is what wecall the “disadvantageous economics of REDD.” That clustered the answers having to do with REDD notbeing able to compete with the alternatives: that is, a weak market for REDD, economic policies not being
conducive to making REDD able to move forward, etcetera.
I want to point out right here that, although they may appear to be entirely different, there is a close
relationship between tenure, the economics of REDD, and the financial situation. Secure tenure for local
stakeholders and adequate compensation for foregone deforestation are really two sides of the same coininasmuch as they are both forms of motivation for protecting forest and also for having the ability to exclude
claimants on local forests. Tenure tends to operate in the political sphere and the sphere of governance,
whereas finances operate in the sphere of economics. They are certainly not identical, but they are closely
related.
4. Challenges for REDD+ on the Ground
Challenges for REDD+ on the ground• Only 4 of 23 initiatives are selling forest carbon credits• 14 still hoping to eventually sell credits• Only 10 have piloted conditional incentives• Only 9 view conditional incentives as key intervention• 6 have ceased operating• Same trends at global level (Simonet et al. 2014)• REDD+ on the ground “treading water”• Without adequate REDD+ financing, by default relying
mainly on ICDP approach
Sources: Sunderlin et al. (2014); Sills et al. (2014)

Here I want to turn to the results of our phase one research that pertain to the topic of today’s seminar.
Incidentally, these are reported in great detail in our newest book on REDD called REDD+ on the Ground3,
published last December. It is a book of case studies of the 23 sites. We found that only four of the 23
initiatives up until now are selling forest carbon credits. Fourteen are still hoping to eventually sell credits, butthey are kind of stuck with a mix of optimism and pessimism about their prospects. So far, only 10 havepiloted conditional or results-based incentives. When asked which of a range of interventions are the most3 http://www.cifor.org/redd-case-book/DAY2
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important type for achieving the objectives of REDD, only nine of the 23 said the conditional or results-based
incentives are the key intervention. Six of the 23, for various reasons, have ceased to operate.
These findings that we have are roughly similar to those that were found in a study of all REDD initiatives( the320 plus that currently exist) by Simonet and her colleagues last year.
What we are finding is that REDD on the ground, REDD at the level of projects, is treading water. Imagine
that you are in a swimming pool and you are in motion, there is a sign of a pulse, but you are not moving
forwards or backwards. There is a distinct sense on the ground that REDD is waiting for something to happen
in order for it to be able to move forward.
Importantly, what we are noticing is that, for lack of REDD conditional results-based financing, by default
these organizations really strongly resemble integrated conservation and development projects. Why is thisimportant?

This is important because the ICDP 4 approach is the main approach to slowing tropicaldeforestation that precedesREDD. The literature says that largely it has failed to reach its mark. Therefore,
we need to ask some big questions about what it is that REDD can and cannot achieve if it is currently REDD
in name, but not operating in the way that was intended. Of course, there is room for change and development,but, as I mentioned, treading water is part of the problem.
I just want to take a side route and provide an answer to the question raised by Gabriel yesterday. He posed aquestion of why it is that the private sector is finding it so difficult to gain traction in subnational initiatives.
The reasons are quite complex, but I will state simply that the common thread in the experiences that we foundis that proponents of REDD organizations have found it tremendously important to only act when they feel
confident and when they believe that the enabling conditions for REDD are stable and predictable enough tostep forward and engage with the private market. The low price of carbon and the instability of its price are
currently an important inhibitor of that. Of course, there are other problems that they experience including
difficulties in clarifying tenure, in getting third party certification, in dealing with the government and thebureaucracy, etcetera, that have been tall obstacles. However, this appears to be the essence of what is goingon and the difficulty of moving towards the sale of forest carbon credits.

4 Integrated Conservation and Development Programme:

http://wwf.panda.org/who_we_are/wwf_offices/bhutan/projects/index.cfm?uProjectID=BT0874

REDD+ Finances: Current Issues and Questions
Dr. William Sunderlin
Moderator: Kenichi Abe (RIHN)

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5. Recent Developments
Recent developments• IFF proposes “strategic intervention” to fund REDD+ (IFF 2014)• Pledge of the Governors’ Climate and Forests Task force to reduce
deforestation by 80% by 2020 if adequate funding• COP 20 finance outcomes (CDC Climat 2014):
Green Climate Fund ready to deliver: capitalization; investment
guidelines; financial instruments
GCF capitalization important for developing country confidence
GCF 50‐50% balance between mitigation and adaptation
Long‐term finance (beyond 2020) remains unclear

Recent developments: last year the Interim Forest Finance5 project, which is an association of various
international NGOs and UNEP, produced an interesting publication marking a moment in time when therealization that the absence of financing for REDD is a very tall obstacle and barrier. Their publication places a
big focus on the fact that there is a gap between supply and demand. The supply of potential credits is there interms of what REDD is prepared to achieve, but the demand in the form of financing to actually make it work
is anywhere from three to 39 times lower, according to their numbers.
The Governors’ Climate and Forests Task Force 6 has become a very important organization in REDD.
Essentially, it is an association of about 24 jurisdictions in more than 16 countries that are implementing
REDD. If you look at the map of tropical forests that they occupy, it is really quite impressive. In their Rio
Branco Declaration7 last year, they said that they intend to reduce deforestation in their areas by 80% by 2020 if
there is adequate funding.
I also mentioned that, with the failure of the COP in Copenhagen to produce an agreement, this gave stimulus
and impetus for the Governors’ Climate and Forests Task Force to form and to mobilize and to set themselvesin motion. Essentially, they said, “Well, if there cannot be decisive action at the international level, then at least
there can be decisive action at the level of jurisdiction and subnational governments, and we will take charge ofthe situation.” This is what has been described by Elinor Ostrom as an example of polycentric governance, inother words governance happening in many centers. She proposed that this is possibly the answer to the failure
to achieve an agreement at the international level.
Other recent developments have to do with what happened at COP20 in Lima. The Green Climate Fund has
been capitalized at the level of more than $10.2 billion. It is producing investment guidelines and financial
instruments. The fact that it is capitalized is a very important signal to developing countries that there is now
an entity that can deliver a stream of funding that has been hoped for for a long time. There is 50-50 balance

5 http://globalcanopy.org/projects/interim-forest-finance
6 http://www.gcftaskforce.org/
7

http://www.gcftaskforce.org/documents/2014_annual_meeting/GCF_RioBrancoDeclaration_August_5_2014_EN.pdf

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between the use of the fund for mitigation and adaptation. Crucially, so far, a long-term finance agreement
beyond 2020 remains unclear.

6. Open Questions

Open questions
To what extent is a large amount of financing necessary to decrease tropical deforestation?
Brazil has achieved a huge success in decreasing deforestation (Nepstad et al.
2014) but it is not driven by REDD+ financing
Rights and Resources Initiative: “Rights are key to reducing deforestation”(Stevens et al. 2014)

What are the opportunity costs of REDD+ that should be compensated?

Now I will turn to the open questions. My overarching question is to what extent is a large amount offinancing necessary to decrease tropical deforestation? I do not question that there is a need for substantial
funding, but exactly what is it that it should be paying for? Is financing the key answer? Is it the key
instrument through which we are going to reduce tropical deforestation? I would say that these are importantquestions that are unanswered. There are several components to why I pose these questions.
One is that Brazil has achieved a remarkable decrease in tropical deforestation between 2005 until recently. At
one point it reached almost an 80% decrease from the annual rate in 2005. As such Brazil has made the largest
national contribution to greenhouse gas reduction of any country inside the forest sector or out. There isrecently an upswing in the rate of deforestation, but the point I am making here is that a lot of the success got
underway before REDD got underway. I would make a case that lot of this had very little to do with REDD in
spite of the fact that the Amazon Fund, which is essentially a REDD fund, did have a role in this, but I would
not say a dominant role. The issue I am putting forward is that this raises a question about the centrality of
REDD financing in Brazil’s success. We need to know why that is.
Last year, the Rights and Resources Initiative8 together with the World Resources Institute9
produced a very interesting publication where essentially they are saying rights are key to reducing deforestation.
They do not claim that this is true everywhere, but in a significant enough number of places that we need to ask
where are those places, and is it possible that, in a wider number of places than we know, that the key toreducing deforestation involves a provision of secure tenure at the local level rather than mainly or exclusively
focusing on compensated opportunity cost.
Third, I do not believe that there has been enough discussion of this crucial question: what are the opportunity
costs of REDD that should be compensated? Undoubtedly, it should be compensating the opportunity costsof local stakeholders, villagers who simply have no option but to deforest. This has become very evident in our
8 http://www.rightsandresources.org/
9 http://www.wri.org/

REDD+ Finances: Current Issues and Questions
Dr. William Sunderlin
Moderator: Kenichi Abe (RIHN)

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study at our 23 sites. But what about the well-off players, the corporate players? This has been very vague and I
think we need to give additional attention to this. Why? It is because, in part, that some of these calculationsof opportunity costs assume all of the foregone opportunities of all players across all scales. That number
could be considerably lower if we take out of the picture those who simply should be obeying the law rather
than being compensated.

More questions

Source: Chrismadden• Can the Green Climate Fundgrow sufficiently and (partly)
substitute for the private
sector?
• Are we reaching the limits ofpolycentric governance in
REDD+?
• Is a binding international
agreements an absolutenecessity for durable
progress?

A couple more questions: can the Green Climate Fund grow sufficiently and partly substitute for the private
sector? We see some impressive numbers of how much funding has been mobilized in the course of the lastyear. The aim ultimately is to reach $100 billion a year. Can it reach there? Does it need to? I think we needto give some attention to them. To what extent can it substitute for the rather weak performance of the private
sector? A linked question: will the private sector kick in in a conceivable arrangement of circumstances?
Are we reaching the limits of polycentric governance in REDD? My own perspective is that I believe we are.
The Governors’ Task Force and its constituent organizations have innovated and adapted themselves
impressively under limiting circumstances. However, as they themselves are pointing out, without sufficientfunding they are stuck.
Lastly, is it possible that a binding international agreement is a necessity for durable progress? I say thisbecause some economists point out that, in order for the compliance market in forest credits to emerge and for
it to be durable, there needs to be a regulatory environment that could conceivably be produced very soon after
a binding international agreement is reached.

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7. Further reading
Further reading
Angelsen Arild & Desmond McNeill. 2012. The evolution of REDD+. Chapter 3 in Arild Angelsen, Maria
Brockhaus, William D. Sunderlin, & Louis Verchot (eds.) Analysing REDD+: Challenges and choices. Bogor, Indonesia:
Center for International Forestry Research.
CDC Climat. 2014. COP 20 in Lima: a tense rehearsal dinner where everyone ended up eating at the same table. Climate
Brief No. 37. CDC Climat.
IFF. 2014. Stimulating Interim Demand for REDD+ Emission Reductions: The Need for a Strategic Intervention from2015 to 2020. Oxford, UK: International Forest Finance Project.
Nepstad, Daniel, David McGrath, Claudia Stickler, Ane Alencar, Andrea Azevedo, Briana Swette, Tathiana
Bezerra, Maria DiGiano, João Shimada, Ronaldo Seroa da Motta, Eric Armijo, Leandro Castello, Paulo
Brando, Matt C. Hansen, Max McGrath‐Horn, Oswaldo Carvalho, and Laura Hess. 2014. Slowing Amazon
deforestation through public policy and interventions in beef and soy supply chains. Science344(6188):1118‐1123.
Norman, Marigold and Smita Nakhooda. 2014. The State of REDD+ Finance. CGD Working Paper 378 . Washington,
DC: Center for Global Development.
Phelps, Jacob, Edward L. Webb, and Lian P. Koh.

2010.

Further reading
Sills, Erin O., Stibniati S. Atmadja, Claudio de Sassi, Amy E. Duchelle, Demetrius L. Kweka, Ida Aju Pradjna Resosudarmo,
and William D. Sunderlin (eds.). 2014. REDD+ on the ground: A case book of subnational initiatives across theglobe. Bogor, Indonesia: Center for International Forestry Research.
Simonet, Gabriela, Alain Karsenty, Christian de Perthuis, Pete Newton, Brian Schaap. 2014. REDD+ projects in 2014:
an overview based on a new database and typology. Information and Debate Series No. 32. Paris, France:
Paris‐Dauphine University, Climate Economics Chair.
Stevens, Caleb, Robert Winterbottom, Jenny Springer, and Katie Reytar. 2014. Securing Rights, Combating
Climate Change: How Strengthening Community Forest Rights Mitigates Climate Change. Washington
DC: World Resources Institute and Rights and Resources Initiative.
Sunderlin William D., Andini Desita Ekaputri, Erin O. Sills, Amy E. Duchelle, Demetrius Kweka , Rachael Diprose, Nike
Doggart, Steve Ball, Rebeca Lima, Adrian Enright, JorgeTorres, Herlina Hartanto, andAngélicaToniolo. 2014. The challenge of establishing REDD+ on the ground: Insights from 23 subnational
initiatives in six countries. Occasional Paper 104. Bogor, Indonesia: Center for International Forestry Research.

Risky business: an uncertain future for biodiversity

conservation finance through REDD+. Conservation Letters.

This presentation will be available on the internet, so here is a list of some of the readings I suggest you giveattention to.

Analysing REDD+

www.cifor.org/redd-case-book

Analyzing REDD+10, the book on REDD the CIFOR produced in 2012, is translated into Japanese and isavailable on the internet.
Our newest book on REDD called REDD on the Ground is available on the internet. It is not translated into
Japanese, unfortunately.

10 http://www.cifor.org/library/3805/analysing-redd-challenges-and-choices/REDD+ Finances: Current Issues and Questions
Dr. William Sunderlin
Moderator: Kenichi Abe (RIHN)
With that I will close my presentation. Thanks to the donors who have supported this research.

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