In rough times, some reasons for optimism: lessons from Latin America on REDD+

The recent US presidential elections have stunned the world, particularly those currently participating in the climate change negotiations in Marrakesh (COP 22). Though the newly elected US president should be received with an open mind, his statements on the environment have already sent shivers across the climate change community.

The arrival of the Trump presidency also provides an opportunity to take stock of the last decade of efforts to decrease emissions, including those from deforestation and forest degradation (REDD+). Have the time and money been well invested? Are there reasons for optimism? This article provides a summary of some important emerging lessons to date on REDD+ from the Latin American region.

REDD+ has already proven to be successful, but under certain conditions
A number of lessons on REDD+ can be learnt from the agreement between Norway and Brazil. First, REDD+ can achieve measurable results. While the deforestation trend in the Latin American country picked up a bit recently, the decrease from historical deforestation trends is clear. Second, a minimum level of readiness is required. Brazil had the in-house capacities on policy design, policy implementation, monitoring, and enforcement. If these capacities are not there, external support is needed. The UN-REDD programme provides this type of support. Third, high-level political backing is key. The president and the minister of environment of Brazil threw their full political support behind REDD+. Fourth, the payments must be worth the effort. Norway shelled out not an insignificant amount (1 billion USD) in results-based payments. The results are there for all to see.

A payment of 5 USD/TnCO2e is below an optimal price; yet, much can still be accomplished
REDD+ payments are at the moment set at 5 USD /TnCO2e. This level of payments dominates the negotiations at the Forest Carbon Partnership Facility (FCPF), the agreements between Norway and countries like Colombia and Peru, and the carbon tax in Chile and Mexico. The figure of 5 USD/TnCO2e is not grounded on forecasts about the price of carbon or estimates of the social cost of emissions. Many practitioners, myself included, hope the price will be revised upwards but it is safe to assume that it will stick at that level in the short and medium run.

How effective these payments can be for transforming landscapes? Based on a series of benefits/costs analyses in Argentina, Paraguay, Ecuador and Panama, the short answer is that REDD+ payments seem capable of promoting transformational change and result in avoided emissions.

A payment of 5 USD/TnCO2e may not be optimal but it does provide sufficient incentives to start addressing some of the most important drivers of deforestation. In Argentina, the expansion of cattle ranching is taking place at the expense of the Chaco ecosystem, the second largest forest type in South America. A payment of 5 USD/TnCO2e is competitive with the returns of the cattle ranching sector and leave a buffer to support implementation costs. A similar result can be observed in Paraguay, a country in which cattle ranching cleans up 300,000 ha of Chaco forest per year. A mechanism that provides payments of USD/TnCO2e would be an effective incentive to address the advance of the biggest driver of deforestation in the Paraguayan Chaco. We observe similar results for tropical forests. In Ecuador, the transformation of forests to cattle ranching (for both meat and milk products) produces benefits below 5 USD/TnCO2e independently of the location of the activity. In Panama, similar levels of payments provide incentives to address more than 40% of emissions from deforestation and forest degradation.

Incentives of 5 USD/TnCO2e leave some drivers off the net
A price of forest carbon set a 5USD/TnCO2e leaves outside land uses like soy cultivation in Brazil, Argentina and Paraguay, palm oil in Ecuador, and intensive agriculture in tropical countries like Panama. The returns from these activities are above 5 USD/TnCO2e. Yet, as mentioned above, the scope for action is nevertheless significant. Under current technology, soy cannot extent to the whole Chaco Ecosystem leaving cattle ranching as the most significant and immediate driver to address. Palm oil is too profitable but its advance can be directed to already deforested or non-forest lands. In the tropics, the transformation of native forests to intensive agriculture and cattle ranching usually passes first through a stage of secondary forest and Panama shows that REDD+ payments provide sufficient incentives to avoid this change.

Avoid the transformation of primary into secondary forests
The economic benefits of this transition are low and have opportunity costs well below 5USD/TnCO2. Once there is a transformation to secondary forest, the opportunity cost of preventing a transition to agriculture or cattle ranching increases significantly. Secondary forests are often in unstable equilibria and generally represent a first step in a transition to other, non-forested land uses.

A landscape approach that combines conservation and agricultural policies can result in negative opportunity costs (i.e., overall positive economic benefits)
Lessons from Panama show that even in the absence of carbon payments, a combined implementation of forest conservation, restoration and increased carbon content in productive systems have substantial positive economic benefits. Provided that implementation and transaction costs are maintained at reasonable levels, the result is positive economic benefits overall.

Speculation on land tenure calls for a mix of enforcement and incentives policies
The decision to convert forest may not only be influenced by the profitability of alternative economic activities but also by expectations of achieving land tenure security. Often, land use transitions that do not seem economically attractive become so when the value of land is taken into account. REDD+ has to combine incentives for conservation with actions that support enforcement of laws, particularly those that prohibit forest conversion without legal permit.

Success on increasing carbon stocks in forest and agricultural lands will depend on policies that diminish the perceived risk of these activities and the influence of high discount rates
Increasing carbon stocks in degraded and agricultural lands is dependent on the participation of the private sector and the economic benefits of these activities are highly sensitive to perceptions of risks and temporal preferences. In Panama, for example, the net present value of a sustainably managed forest or a silvopastoril system can increase by a factor of 2 when the discount rate is 4% instead of 12%. This result pales in comparison with that of a forest plantation, where the NPV can increase by a factor of 10.

The definition of monitoring and governance structures should undergo a rigorous cost-benefit analysis
Countries´ net income from REDD+ will be dependent on implementation and transaction costs. The available experience shows that these cost, if unattended, can be significant and in some contexts can easily surpass opportunity costs. Ignoring these costs can wipe out net national benefits and derail REDD+.

There may be tough times ahead but the potential for change is real
There are fears that Brexit and the results of the US elections are heralding a new era in which a myopic pursuit of national self-interest derails efforts to tackle global problems, like climate change. Time will tell whether these fears proved right. But for the time being, there are reasons to maintain optimism in the field of reducing emissions from deforestation and forest degradation.

The trend is clear. REDD+ may not provide, at the moment, sufficient incentives to address all drivers of deforestation but it does provide enough ammunition to begin implementing transformational change. For several key drivers, the options are no longer restricted to command, control and penalties but include the establishment of potentially attractive incentives schemes for whole sectors. And REDD+ is not alone. Argentina, for example, has an established framework to provide compensation for avoided deforestation. Paraguay has a law on payments for ecosystem services that can complement REDD+. Ecuador and Costa Rica have already established systems of payments for forest conservation. Panama is embarking on a major forest restoration programme paid by the national government and local partners. The region as a whole has committed more than 20 million hectares for restoration programs.

In summary, REDD+ has put in place a system of incentives that aligns the interests of developed and developing countries while at the same time providing enough support to start changing rural development paths. There may be rough times ahead but there are reasons to be optimistic, bold and innovative.