BIODIVERSITY CONSERVATION THROUGH REDD+ - WordPress.com

2 downloads 0 Views 3MB Size Report
2.2 World Greenhouse Gas Emissions Flow Chart… ... http://www.forestcarbonindex.org/RFF-Rpt-FCI_small.pdf (accessed February, 2011). 3 UNFCCC, Report ...
BIODIVERSITY CONSERVATION THROUGH REDD+: MODELING COSTS OF ALTERNATIVE REDD+ SCENARIOS IN THE TROPICAL REGION

A THESIS Presented to The Faculty of the Department of Economics and Business The Colorado College

In Partial Fulfillment of the Requirements for the Degree Bachelor of Arts

By Emil Dimantchev May 2011

BIODIVERSITY CONSERVATION THROUGH REDD+: MODELING COSTS OF ALTERNATIVE REDD+ SCENARIOS IN THE TROPICAL REGION Emil Dimantchev May 2011 Mathematical Economics Abstract The United Nations negotiations on climate change have focused their attention on a set of policies for Reducing Emissions from Deforestation and Degradation (REDD+). This paper explores the potential of REDD+ to reduce CO2 emissions and protect tropical biodiversity. The study uses ArcGIS to model forest areas under threat of deforestation in 59 tropical developing countries. A constrained linear optimization model, implemented with linear optimization software, is used to construct a Conservation Possibilities Frontier (CPF). The CPF shows the potential of REDD+ to achieve emission reductions and species conservation under limited budgets. I use linear optimization to construct marginal abatement cost curves under various policy scenarios and estimate the costs of generating biodiversity co-benefits from REDD+. An international mechanism mainly designed to reduce emissions at least cost will provide low conservation benefits. Incorporating provisions for biodiversity co-benefits in the REDD+ framework can protect a high number of rare and threatened forest species at a relatively low cost. KEYWORDS: Biodiversity, climate change, deforestation, conservation, REDD, ArcGIS, constrained optimization, marginal abatement cost curve.

TABLE OF CONTENTS ABSTRACT ACKNOWLEDGEMENTS 1

2

3

INTRODUCTION

1

1.1 Questions Addressed………………………………………………………..

4

1.2 Methods……………………………………………………………………..

5

1.3 Data Overview………………………………………………………………

7

BACKGROUND

9

2.1 Tropical Deforestation………………………………………………………

9

2.2 Deforestation and Climate Change…………………………………………

11

2.3 REDD+ History……………………………………………………………..

14

2.4 REDD+ Main Principles……………………………………………………

16

2.5 REDD+ Implementation……………………………………………………

21

2.6 Biodiversity in REDD+ Design……………………………………………..

24

2.7 REDD+ Summary…………………………………………………………..

25

THEORY

27

3.1 Ecosystem Services…………………………………………………………

28

3.2 Public Goods………………………………………………………………..

30

3.3 Literature Review…………………………………………………………...

34

3.3.1 REDD+ Potential for Biodiversity Co-benefits……………………..

35

3.3.2 Spatial Overlap between Carbon and Biodiversity………………….

35

3.3.3 REDD+ at the National Level……………………………………….

37

3.3.4 REDD+ at the Project Level…………………………………………

39

3.3.5 Costs of REDD+……………………………………………………..

41

3.3.6 Marginal Abatement Cost Curves…………………………………...

43

3.3.7 Accounting for Readiness…………………………………………...

47

3.3.8 Biodiversity Conservation…………………………………………...

48

4

5

3.3.9 Defining Biodiversity for REDD+…………………………………..

50

3.3.10 Constrained Linear Optimization…………………………………..

51

ANALYSIS

53

4.1 Description of Method……………………………………………………...

53

4.1.1 Generating a Conservation Possibilities Frontier……………………

53

4.1.2 Generating Marginal Abatement Cost Curves………………………

54

4.1.3 Modeling REDD+ Implementation…………………………………..

56

4.2 Data Used…………………………………………………………………...

61

4.3 Application of Method……………………………………………………...

68

4.3.1 Conservation Possibilities Frontier………………………………….

71

4.3.2 Scenario 1 – Baseline………………………………………………..

72

4.3.3 Scenario 2 – Critical Eco-regions……………………………………

73

4.3.4 Scenario 3 – Compromise…………………………………………...

74

4.3.5 Mapping Biodiversity Co-benefits…………………………………..

75

4.4 Results………………………………………………………………………

75

4.4.1 Conservation Possibilities........................................................... .......

77

4.4.2 Costs of Alternative REDD+ Scenarios..............................................

80

4.4.3 The Impact of Readiness Levels.........................................................

83

4.4.4 Spatial Distribution of Biodiversity Co-benefits.................................

84

CONCLUSION

87

5.1 Summary........................................................................................................

87

5.2 Conclusions............................. ............................. ............................. ..........

89

5.3 Limitations of Study............................. ............................. ...........................

90

WORKS CONSULTED……………………………………………………………...

93

LIST OF TABLES

2.1

REDD+ Projects, Past Deforestation and Forest Carbon Stocks in REDD+

Eligible Countries……………………………………………………...…………...

22

LIST OF FIGURES

2.1 Deforestation Areas (2000-2005) in Main Tropical Regions………………….

10

2.2 World Greenhouse Gas Emissions Flow Chart………………………………..

12

2.3 Country Readiness for REDD+………………………......................................

19

3.1 Failure of Markets to Provide Public Goods……….…………………………..

31

3.2 Spatial Congruence between Carbon and Biodiversity………………………..

36

3.3 Tradeoff between Emission Reductions and Biodiversity Conservation through REDD+……………………………………………………………………

38

3.4 The McKinsey Abatement Cost Curve……………...………………………...

45

4.1 World Above-Ground Carbon Content………………………………………..

62

4.2 World Annual Agricultural Revenues…………………………………………

63

4.3 Critically Endangered Forest Areas…………………………………………...

65

4.4 World’s Least Accessible Areas………...…………………………………….

69

4.5 Net Present Value Equation…………………………………………………...

70

4.6 Optimization Problem: Conservation Possibilities Frontier…………………...

71

4.7 Optimization Problem: REDD+ Scenario 1…………………………………...

73

4.8 Optimization Problem: REDD+ Scenario 2……………………………………

74

4.9 Optimization Problem: REDD+ Scenario 3……………………………………

75

4.10 Projection of Future Deforestation Areas……………………………………..

76

4.11 Conservation Possibilities Frontier for REDD+………………………………

78

4.12 Marginal Abatement Cost Curves for REDD+……………………………….

80

4.13 Achieving REDD+ Goals Under Different Scenarios………………………...

82

4.14 Accounting for Readiness in REDD+ Scenarios……………………………...

83

4.15 Country Biodiversity Co-benefits from REDD+……………………………..

85

ACKNOWLEDGEMENTS

I would like to extend my sincere gratitude to: My advisor, Mark Smith, Professor of Economics, for his guidance and encouragement The Colorado College Economics and Business Department for financial support Matt Gottfried, Colorado College GIS Technical Director, for help with ArcGIS Dan Hammer, Resources for the Future, for data support

CHAPTER I INTRODUCTION The United Nations climate negotiations are devoting increasing attention to tropical forests and the need to reduce the rate of deforestation. Forests provide abundant opportunities for mitigating climate change, as deforestation accounts for approximately 17% of global greenhouse gas emissions. Deforestation, thus, comes second only to combustion of fossil fuels as the largest source of greenhouse gases. 1 In addition, international consensus exists on the cost-effectiveness of avoiding deforestation compared to other strategies to mitigate climate change. 2 In response to wide-spread concern for the world’s forests and the existing opportunities for climate change mitigation, the Bali Action Plan at the thirteenth session of the Conference of the Parties (COP13) in 2007 agreed that any approach to climate change should include “policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing countries”.3 Reducing Emissions from Deforestation and Degradation (REDD) emerged out of COP13 as an international effort to provide financial incentives for developing countries to reduce

1

IPCC, Climate Change 2007: Synthesis Report. Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, (Geneva: IPCC, 2007),36. 2

Adrian Deveny, Janet Nackoney, Nigel Purvis, “Forest Carbon Index: The geography of Forests in Climate Solutions,” 2009, Joint report by Resources for the Future and Climate Advisers, http://www.forestcarbonindex.org/RFF-Rpt-FCI_small.pdf (accessed February, 2011). 3

UNFCCC, Report of the Conference of the Parties on its Thirteenth Session, Held in Bali from 3 to 15 December 2007, FCCC/CP/2007/6, 2008.

1

2 greenhouse gas emissions from forested lands. REDD provides opportunities to reduce the rate of global deforestation, but also to protect biological diversity within forest areas. Forests contain more than half of all terrestrial species, the great majority of them in the tropics. 4 Thus, in addition to climate change mitigation, a mechanism such as REDD has the potential to provide benefits such as biodiversity conservation. The possibility of lowering species extinction rates through REDD has become an important topic during international negotiations as the future of the world’s biodiversity has come to the forefront of global environmental challenges. In 2010, the International Year of Biodiversity, no significant reductions had been achieved in the rate of biodiversity loss, despite global concerns and calls for action.5 Various indicators point to the continuing world-wide decline in biological diversity. Conservation International estimates that one species is now going extinct every twenty minutes, a rate which is a thousand times faster than historical extinction rates.6 The average population size of wild vertebrate species, as measured by the Living Planet Index, fell by 31% globally between 1970 and 2006. 7 Furthermore, the Red List Index, which tracks the average extinction risk of vertebrates, invertebrates and plants over time, shows that all groups of species assessed are facing increasingly higher risks

4

Secretariat of the Convention on Biological Diversity, Global Biodiversity Outlook 3, (Montréal: Secretariat of the Convention on Biological Diversity, 2010), page 32. 5

Ibid. 5.

6

Thomas Friedman, Hot Flat and Crowded (New York, NY: Penguin Books, 2009), 181.

7

Secretariat of the Convention on Biological Diversity, 24.

3 of extinction. 8 Finally, between 2000 and 2010 the global extent of primary forest, undisturbed areas likely to hold higher biodiversity values, declined by more than 400,000 square kilometers9, an area slightly larger than Japan. Biodiversity contributes to the health and resiliency of an ecosystem. It supports and enhances the ecosystem services which humans derive from natural areas. Healthy ecosystems provide humans with food items, medicinal plants and opportunities for research and innovation, as well as with regulating services, such as carbon sequestration, rainfall regulation, water purification, and erosion control. The value of these services has been estimated to be around $43 trillion (in 2010 U.S. dollars) per year. 10 Biodiversity also improves the adaptability and resiliency of natural areas on which human well-being depends. Addressing biodiversity protection through a carbon credit scheme is, thus, critical to the success of climate change mitigation and to protecting a global economic and natural resource. Investors in forest carbon projects, buyers of carbon credits, and international leaders recognize the need for biodiversity conservation through REDD. Investors in pilot REDD+ projects cite biodiversity as the most important criteria for selecting project areas.11 According to the 2009 forest carbon offsetting survey, 37% of potential buyers of forest carbon credits indicated that biodiversity co-benefits was a “highly

8

Ibid. 26.

9

Ibid. 32.

10

Robert Costanza, Ralph d’Arge, Rudolf de Groot, Stephen Farberk, Monica Grasso, Bruce Hannon, Karin Limburg, Shahid Naeem, Robert V. O’Neill, Jose Paruelo, Robert G. Raskin, Paul Suttonkk and Marjan van den Belt, “The Value of the World's Ecosystem Services and Natural Capital,” Nature 387 (1997): 253. 11

Gillian Cerbu, Peter Minang, Brent Swallow and Vanessa Meadu, “Global Survey of REDD Projects: What implications for Global Climate Objectives?,” ASB PolicyBrief 12 (2009): 3.

4 important” factor in purchasing considerations. 12 Thirty percent of responders indicated that they would be willing to pay a premium of $4 or more for forestry projects with biodiversity co-benefits. International negotiations also agree on the need to incorporate co-benefits in the current REDD framework. The Copenhagen Accord reached a consensus in December 2009 to expand the mechanism to REDD+, a set of policies for reducing emissions from deforestation and degradation as well as “conservation, sustainable management of forests, and enhancement of forest carbon stocks in developing countries.” The Copenhagen Accord, however, remained undecided about whether to include specific rules to protect biodiversity in REDD+ design, or to assume that biodiversity conservation is an automatic result from efforts to protect the world’s forests.13 REDD+ is currently designed to encourage reductions of CO2 emissions at least cost. The mechanism lacks guidelines or requirements for biodiversity conservation. Questions about the costs and viability of incorporating biodiversity in REDD+ have, thus, become increasingly important. Questions Addressed While REDD+ provides opportunities for conservation of tropical forests and biodiversity, the extent of these co-benefits will depend on where REDD+ projects are likely to be located, given the current design of REDD+, and whether these areas are rich in biodiversity, endangered species, or are otherwise priorities for conservation efforts. The purpose of this paper is to assess the possibilities of REDD+ to achieve 12

EcoSecurities, “The forest carbon offsetting survey 2009,” 2009, EcoSecurities, Conservation International, the Climate, Community & Biodiversity Alliance and ClimateBiz, http://www.ecosecurities.com/Registered/ECOForestrySurvey2009.pdf (accessed January, 2011). 13

Alan Grainger, Douglas H. Boucher, Peter C. Frumhoff, William F. Laurance, Thomas Lovejoy, Jeffrey McNeely, Manfred Niekisch, Peter Raven, Navjot S. Sodhi, Oscar Venter and Stuart L. Pimm, “Biodiversity and REDD at Copenhagen,” Current Biology 19, no. 21 (November 2009): R974-R976.

5 biodiversity co-benefits. I address four main questions pertaining to the future of REDD+ and its potential conservation benefits: 1) Is there a tradeoff between reducing emissions and protecting species given limited budgets for REDD+ implementation? 2) Will the current REDD+ mechanism achieve biodiversity co-benefits? 3) What are the price differences between least cost REDD+ projects and projects which ensure biodiversity conservation? 4) Where will REDD+ investments generate higher biodiversity co-benefits? To address these questions I have integrated the use of ArcGIS software with linear optimization techniques to map and find REDD+ project areas in 59 tropical developing countries and estimate their potential for reducing emissions and protecting biodiversity. Methods First, I construct a Conservation Possibilities Frontier (CPF) curve. Similar to a production possibilities frontier (PPF), a CPF shows every possible combination of two objectives given limited resources. Here, I construct a CPF to evaluate the potential of REDD+ to reduce emissions or protect species, important for biodiversity conservation, given limited REDD+ budgets. The World Bank has collected roughly $560 million from donor countries for the implementation of REDD+ verified projects in tropical developing countries.14 Through the CPF curve, I illustrate what such a budget for REDD+ can achieve and what tradeoffs there are between reducing emissions and 14

Carbon Finance Unit, World Bank Group, Forest Carbon Partnership Facility: FY2010 Annual Report, 2010, http://www.forestcarbonpartnership.org/fcp/sites/forestcarbonpartnership.org/files/Documents/PDF/Nov2 010/2010FCPF-annual%2007.pdf, (accessed February, 2011).

6 protecting species. To develop the curve, I used linear programming, implemented with Premium Solver Platform to solve the associated constrained optimization problem. Second, to estimate the costs of generating biodiversity co-benefits through REDD+, I construct marginal abatement cost curves under three different policy scenarios. A marginal abatement cost curve represents a supply curve for emission reduction credits: it shows the possible emission reductions for a given price per ton of CO2 abated. The three policy scenarios describe different ways in which biodiversity is incorporated in the REDD+ mechanism. First, I model a scenario in which REDD+ projects are developed in least cost areas, and no consideration is taken of forest biodiversity values. Second, I model an approach in which REDD+ is implemented only in eco-regions which are critically endangered. The third scenario represents a compromise approach in which REDD+ is targeted towards forest areas which are rich in both carbon and species. I used a linear programming approach to generate each of the cost curves. To study how a country’s readiness to implement REDD+ affects biodiversity co-benefits, I repeat scenarios 1 and 2 only for countries which score above average on an index for REDD+ readiness. This step shows the possibilities for reducing emissions and generating co-benefits in a more real-world scenario in which countries’ capacity to participate in a global climate regime vary. Finally, I used ArcGIS to construct the model of this study and the dataset needed to run the constrained optimizations from above. I used ArcGIS to illustrate the geographic distribution of cost effective REDD+ projects with biodiversity co-benefits.

7 Data Overview To carry out the analysis, I used spatial GIS data for geographically explicit grid cells of 0.5o (about 50x50 kilometers). Data on agricultural revenues is provided by Naidoo and Iwamura (2007).15 The distribution of above-ground carbon content was estimated by Kindermann et al (2008).16 The World Wildlife Fund, an international non-governmental organization, provided data on forest biodiversity. 17 18 Countries’ forest areas were identified using a global land-cover map that classifies over 20 land types with a spatial resolution of 1km at the equator.19 I also used a map of the least accessible areas in the world developed by Joint Research Center of the European Commission.20 Deforestation rates for each country were taken from the latest estimates of the main resource for global deforestation data to date: the UN Food and Agricultural Organization’s Global Forest Resource Assessment (FRA 2010).21 Countries’ readiness levels were provided by the Forest Carbon Index REDD+ model. The authors estimated

15

Robin Naidoo and Takuya Iwamura, "Global-scale mapping of economic benefits from agricultural lands: Implications for conservation priorities," Biological Conservation 140, no. 1-2 (2007): 40-49. 16

Georg E. Kindermann, Ian McCallum, Steffen Fritz and Michael Obersteiner, “A Global Forest Growing Stock, Biomass and Carbon Map Based on FAO Statistics,” Silva Fennica 42 (2008). 17

David Olson, E. Dinerstein, E.D. Wikramanayake, N.D. Burgess, G.V.N. Powell, E.C. Underwood, J.A. D'amico, I. Itoua, H.E. Strand, J.C. Morrison, C.J. Loucks, T.F. Allnutt, T.H. Ricketts, Y. Kura, J.F. Lamoreux, W.W.Wettengel, P. Hedao, & K.R. Kassem, “Terrestrial Ecoregions of the World: A New Map of Life on Earth,” BioScience 51 (2001): 933-938. 18

World Wildlife Fund, “WildFinder: Online Database of Species Distributions, ver. 01.06,” gis.wwfus.org/wildfinder (accessed February, 2011). 19

European Commission, Joint Research Centre, Global Land Cover 2000 Database, 2003, http://wwwgem.jrc.it/glc2000, (accessed February, 2010). 20

A. Nelson, Estimated Travel Time to the Nearest City of 50,000 or More People in Year 2000, Global Environment Monitoring Unit - Joint Research Centre of the European Commission, (Ispra, Italy. 2008), http://bioval.jrc.ec.europa.eu/products/gam/, (accessed January 2011). 21

FAO, Global Forest Resources Assessment 2010: Progress towards Sustainable Forest Management, (Rome Food and Agriculture Organization of the United Nations, 2010).

8 the readiness levels based on countries’ previous experience with carbon markets and capacity to use remote-sensing technology.22 This paper addresses a gap in the current literature by analyzing the potential of REDD+ to reduce emissions and protect biodiversity on a global scale and on a local level within each of 59 tropical developing countries. The CPF curve, inspired by the PPF, a popular economic tool, clearly illustrates the potential of REDD+ to achieve its two main goals and the tradeoffs involved. Estimates of how much it would cost to generate biodiversity co-benefits from REDD+ will inform policy discussions about whether and how to include biodiversity in the mechanism’s framework. The distribution of the biodiversity co-benefits from REDD+ projects will also provide insight into future possibilities for investors.

22

Deveny, Nackoney and Purvis.

CHAPTER II BACKGROUND Tropical Deforestation Global deforestation, which occurs mainly in the tropical region 1, continues at alarming rates. Each year between 2005 and 2010, around 13 million hectares of primary forest2, an area the size of Greece or Nicaragua, was lost. The underlying causes of deforestation vary by country and continent. The primary reason for deforestation in Latin America is the conversion of forests to large scale permanent agriculture3, largely cattle ranching and soy production. 4 In Africa, forests are mainly converted to small scale agriculture. And in Asia, a mix of large and small scale agriculture are the main drivers. 5 Palm oil plantations, in particular, account for most of

1

FAO, Global Forest Resources Assessment 2010: Progress towards Sustainable Forest Management, (Rome: Food and Agriculture Organization of the United Nations, 2010). 2

Ibid.

3

FAO, UNDP, UNEP, UN Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD): Framework Document, 2008, http://www.unredd.net/index.php?option=com_docman&task=doc_download&gid=4&Itemid=53, (accessed January, 2011), 3. 4

Doug Boucher, Estrellita Fitzhugh, Sarah Roquemore, Patricia Elias and Katherine Lininger, “Deforestation Today: It’s Just Business,” 2010, Union of Concerned Scientists, http://www.ucsusa.org/assets/documents/global_warming/Deforestation-Today-It-s-Just-Business.pdf (accessed January, 2011). 5

FAO, UNDP, UNEP, 3.

9

10 the deforestation in Indonesia and Malaysia. 6 Tropical deforestation is concentrated in three main tropical areas (figure 2.1). FIGURE 2.1 DEFORESTATION AREAS (2000-2005) IN MAIN TROPICAL REGIONS

* Forest types include: broadleaved evergreen, closed broadleaved deciduous, open broadleaved, deciduous, needle-leaved evergreen, needle-leaved deciduous, mixed leaf type, regularly flooded tree cover with fresh water, regularly tree cover flooded with saline water, and mosaic tree cover with other natural vegetation DATA SOURCES: European Commission, Joint Research Centre, Global Land Cover 2000 Database, 2003, http://www-gem.jrc.it/glc2000 (accessed February, 2010). Matthew Hansen, Stephen V. Stehman, Peter V. Potapov, Thomas R. Loveland, John R. G. Townshend, Ruth S. DeFries, Kyle W. Pittman, Belinda Arunarwati, Fred Stolle, Marc K. Steininger, Mark Carroll, and Charlene DiMiceli, “Humid Tropical Forest Clearing from 2000 to 2005 Quantified Using Multitemporal and Multi-resolution Remotely Sensed Data,” Proceedings of the National Academy of Sciences 105 (2008): 9439-9444.

6

Boucher, D. et al.

11 On the South-American continent, conversion of forests occurs mainly in the southern Brazilian Amazon and the Alta Paraná Atlantic forests in the South-east. In South-East Asia, deforestation activity is concentrated in the Malaysian and Indonesian rainforests and the forests of Indo-China. On the African continent, the western coast and the inland forests of the Democratic Republic of Congo suffer the most. An effective international effort to combat climate change in the forestry sector will have to take into consideration this diversity of countries, governance structures, and the related costs of implementation. Deforestation and Climate Change Deforestation not only results in species habitat loss but also in emissions of carbon dioxide (CO2). Emissions from deforestation amount to roughly 5.8 billion tons of CO2 (tCO2) per year 7, or around 17% of global GHG emissions. This makes forest related emissions the second largest contributor to greenhouse gas emissions worldwide after electricity production.8 Figure 2.2 illustrates the ways different sources of GHG’s contribute to atmospheric GHG concentrations and the role that deforestation plays in global climate change. Deforestation is one of the main contributors of CO2 emissions, the most prevalent of all GHG’s. CO2 accounts for 77% of world atmospheric GHG’s.

7

IPCC, Forestry in Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate, (Cambridge: IPCC), 2007. 8

IPCC, Climate Change 2007: Synthesis Report. Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (Geneva: IPCC, 2007), 36.

SOURCE: World Resources Institute, “World GHG Greenhouse Gas Emissions Flow Chart”, WRI, http://cait.wri.org/figures/World-FlowChart.jpg (accessed April, 2011).

WORLD GREENHOUSE GAS EMISSIONS FLOW CHART

FIGURE 2.2

12

13 CO2 is continuously cycled between the terrestrial biosphere, oceans and atmosphere.9 The world’s forests participate in the global carbon cycle in two main ways: they serve as stocks, storing carbon in their biomass, and drive flows, able to absorb and release CO2. The world’s tropical, temperate and boreal forests collectively store 359 billion tCO2, approximately equal to 46% of the CO2 in the atmosphere. 10 Through photosynthesis and respiration, standing trees can absorb carbon dioxide, a process also referred to as carbon sequestration. Thus, trees can serve as “carbon sinks” by reducing the amount of CO2 in the atmosphere. On the other hand, deforestation can lead to the release of the large amounts of carbon stored in the forests’ biomass. Reducing atmospheric concentrations of GHG to mitigate climate change requires that actions be taken to decrease the out-flows of CO2 from forests and increase the inflows. Carbon sinks include the processes of afforestation, reforestation11, and avoiding deforestation12. These activities can serve as effective ways to reduce CO2 emissions from the forestry sector. This paper only explores deforestation, the largest source of emissions from forestry. Concerns for the likely negative effects of climate change on human health and livelihood call for strong actions on climate change. Addressing emissions from deforestation can be a crucial part of the global climate change solution. It also 9

IPCC, Special Report on Land Use, Land-Use Change, and Forestry, (Cambridge: IPCC), 2000.

10

Ibid.

11

Afforestation is defined as the planting of new forests on lands that historically have not contained forests. Reforestation is the planting of forests on lands that have previously contained forests but that have been converted to some other use. IPCC, Special Report on Land Use, Land-Use Change, and Forestry, (Cambridge: IPCC), 2000 12

Deforestation is the direct human-induced conversion of forested land to non-forested land. Charlie Parker, Andrew Mitchell, Mandar Trivedi and Niki Mardas, “The Little REDD+ Book,” 2009, The Global Canopy Foundation, http://www.globalcanopy.org/materials/little-redd-book (accessed February, 2011).

14 provides an opportunity for synergies between climate change initiatives and conservation efforts aimed at preserving rare and vulnerable species’ habitat. REDD+ History International efforts to mitigate climate change have recognized the importance of reducing deforestation. Policy makers have become aware of the value of forest ecosystems and their ability to absorb CO2 and store it for as long as they remain intact. Most deforestation, however, occurs in tropical developing countries, with little capacity or willingness to address the issue. This has led to international discussions of an incentive-based system for developing countries to ensure the protection of forests. In 2007, talks of such a global initiative gathered pace at the United Nations Climate Change Conference (UNFCCC) in Bali (COP13). One of the decisions of the convention was to put forward a new mechanism for Reducing Emissions from Deforestation and Degradation13 (REDD).14 The purpose of REDD was to financially reward developing countries for reducing emissions by avoiding deforestation or forest degradation.15 Following COP13, international consensus emerged that the scope of REDD should be widened to a broader set of policies that also achieve biodiversity 13

Degradation is defined as changes in the forest that negatively affect the structure or function of the forest stand or site, and thereby lower the capacity of the forest to supply products and/or services. With respect to REDD/REDD+, degradation refers specifically to a reduction in carbon density. Charlotte Streck, Luis Gomez-Echeverri, Pablo Gutman, Cyril Loisel and Jacob Werksman, “REDD+ Institutional Options Assessment,” 2009, Facilitated by the Meridian Institute, http://www.redd-oar.org/ (accessed March 2011), 29. 14 15

FAO, UNDP, UNEP, 2.

Sheila Wertz-Kanounnikoff and Metta Kongphan-apira, “Emerging REDD+ A preliminary survey of demonstration and readiness activities,” 2009, Center for International Forestry Research, http://www.cifor.cgiar.org/publications/pdf_files/WPapers/WP46Wertz-Kanounnikoff.pdf (accessed January, 2011).

15 conservation in addition to CO2 emission reductions. The UN negotiations during COP15 expanded the mechanism to REDD+: “Reducing Emissions from Deforestation and Degradation and conservation, sustainable management of forests, and enhancement of forest carbon stocks in developing countries.”16 The UNFCCC, however, did not formally define the terms “conservation”, “sustainable management of forests”, or “enhancement of carbon stocks”.17 After COP15, REDD+ replaced REDD as the official term used in UNFCCC negotiations. 18 19 REDD+ has gained wide support in international climate change talks. The latest meeting of the UNFCCC in Cancun (COP16) resulted in the first official international agreement on REDD+ which outlines a phased approach for the implementation of the mechanism. COP16 calls for strengthening national REDD+ efforts and “starting with the development of national strategies and evolving into results-based actions”20.

16

Louis Verchot and Elena Petkova, “The state of REDD negotiations,” 2009, Center for International Forestry Research, Bogor, Indonesia, http://www.cifor.cgiar.org/publications/pdf_files/Papers/PVerchot0901.pdf, (accessed January 2011). 17

Conservation International, “REDD+ Scope/Participation,” 2010, http://www.conservation.org/Documents/Joint_Climate_Policy_Positions/ScopeParticipation_of_REDDp lus_English.pdf (accessed March, 2011). 18

T. Pistorius, C.B. Schmitt, D. Benick, S. Entenmann, “Greening REDD+: Challenges and opportunities for forest biodiversity conservation,” 2010, Policy Paper, University of Freiburg, Germany, http://www.forestcarbonportal.com/sites/default/files/GreeningREDD+_FreiburgUniversity_2010_0.pdf (accessed March, 2011). 19

Throughout this paper, I refer to the mechanism as REDD+, although some of the literature uses the term REDD. 20

Pew Center on Global Climate Change, “Summary of COP 16 and CMP 6,” 2010, http://www.pewclimate.org/docUploads/cancun-climate-conference-cop16-summary.pdf (accessed January, 2011).

16 REDD+ Main Principles REDD+ is an effort to create a financial value for the carbon stored in forests. The goal is to provide incentives for developing countries to reduce emissions from forested lands. Through the mechanism, a one-time payment is given to a project developer for the estimated amount of emission reductions that occur as a result of a REDD+ project. The rapid movement of international policy makers on REDD+ can be explained by the fact that REDD+ is a cost-effective way to reduce large amounts of carbon emissions. 21 Once tropical countries have well established governance systems and expertise to implement REDD+, avoiding deforestation is a cost effective way to reduce global emissions.22 The effectiveness of the REDD+ mechanism, however, relies on three important principles of additionality, verification, and permanence for eligible projects. Under the principle of additionality, forests areas that would have been protected under business-as-usual scenario23 are not eligible to receive REDD+ financing. Funding is only available for areas where deforestation is expected to take place. Each country’s past annual deforestation rate determines its reference baseline level. Only reductions of deforestation below this level are thus considered additional. This has 21

Adrian Deveny, Janet Nackoney, Nigel Purvis, “Forest Carbon Index: The geography of Forests in Climate Solutions,” 2009, Joint report by Resources for the Future and Climate Advisers, http://www.forestcarbonindex.org/RFF-Rpt-FCI_small.pdf (accessed February, 2011). 22

Doug Boucher, Diana Movius and Carolyn Davidson, “Estimating the Cost and Potential of Reducing Emissions from Deforestation,” 2008, Union of Concerned Scientists, http://www.ucsusa.org/assets/documents/clean_energy/Briefing-1-REDD-costs-w-endnotes.pdf (accessed January, 2011). 23

Business-as-usual (BAU) here reflects what would happen in the absence of REDD+. BAU is popular concept in climate change modeling used to denote a scenario in which the world takes no action on climate change and world processes continue unchanged. This provides a benchmark reference against which alternative scenarios are tested.

17 raised concerns for speculation and over-inflation of self-reported deforestation data. In addition, concerns have emerged that REDD+ activities in countries with high deforestation rates could result in the relocation of agricultural activities, or leakage, to countries with low deforestation rates. Studies suggest that countries with high deforestation rates have their reference levels adjusted downward, while countries with low deforestation rates have their reference levels adjusted upward. 24 This approach will arguably encourage wide distribution of REDD+ projects and minimize leakage. Although it is likely that baseline levels will be closely related to a country’s past deforestation rates, it is unclear whether the REDD+ mechanism will make any adjustments to combat leakage and speculation. The latest UNFCCC conference in Cancun (COP16) left the issue of what reference levels are most appropriate to future negotiations. 25 The second principle of REDD+ is verification. The credibility and success of a REDD+ project has to be certified by a third party to attract investment. 26 Project verification requires frequent and reliable monitoring and reporting by national entities on the project’s progress. The process of monitoring, reporting and verification (MRV) is thus needed to ensure the quality of carbon credits. Monitoring involves collection of

24

Jonah Busch, Bernardo Strassburg, Andrea Cattaneo, Ruben Lubowski, Aaron Bruner, Richard Rice, Anna Creed, Ralph Ashton and Frederick Boltz, “Comparing climate and cost impacts of reference levels for reducing emissions from deforestation,” Environmental Research Letters 4 (2009). 25

Kemen Austin, Florence Daviet and Fred Stolle, “The REDD+ Decision in Cancun,” December 2010, World Resources Institute, http://www.wri.org/stories/2010/12/redd-decision-cancun (accessed February 2011). 26

ICF International, “Fostering Carbon Markets Investment in REDD Forest Carbon Markets,” 2009, http://www.redd-oar.org/links/ICF%20final%20report%20to%20Meridiancarbon%20markets%20for%20REDD.pdf (accessed January, 2011).

18 data and calculating changes in forest cover and GHG emissions. 27 This requires access to remote-sensing technologies which are not readily available. Proper reporting of GHG data also requires the accumulation of knowledge and expertise by project developers from the host country. Due to these requirements, significant efforts towards capacity building have been implemented by the UN-REDD Programme and the World Bank’s Forest Carbon Partnership Facility (FCPF).28 Efforts aiming to improve a country’s ability for monitoring and reporting are essential to achieve country “readiness” for REDD+ implementation. One study estimated the readiness of each of the world’s countries for REDD+ based on their previous experience with carbon markets and capacity to use remote-sensing technology (figure 2.3).29 It is important to keep in mind however that REDD+ eligibility only extends to developing countries. 30

27

Arild Angelsen, Sandra Brown, Cyril Loisel, Leo Peskett, Charlotte Streck and Daniel Zarin, “Reducing Emissions from Deforestation and Forest Degradation (REDD): An Options Assessment Report,” 2009, Facilitated by Meridian Institute, http://www.redd-oar.org/links/REDD-OAR_en.pdf (accessed January, 2011). 28

Carbon Finance Unit, World Bank Group, Forest Carbon Partnership Facility: FY2010 Annual Report, 2010, http://www.forestcarbonpartnership.org/fcp/sites/forestcarbonpartnership.org/files/Documents/PDF/Nov2 010/2010FCPF-annual%2007.pdf, (accessed February, 2011). 29

Deveny, Nackoney and Purvis.

30

FAO, UNDP, UNEP.

19 FIGURE 2.3 COUNTRY READINESS FOR REDD+

DATA SOURCE: Adrian Deveny, Janet Nackoney, Nigel Purvis, “Forest Carbon Index: The geography of Forests in Climate Solutions,” 2009, Joint report by Resources for the Future and Climate Advisers, http://www.forestcarbonindex.org/RFF-Rpt-FCI_small.pdf (accessed February, 2011).

International consensus on a standardized system for MRV for REDD+ is currently absent.31 However, a variety of independent standards have been developed to verify REDD+ projects. Existing REDD+ initiatives can apply for verification through

31

Marie Calmel, Anne Martinet, Nicholas Grondard, Thomas Dufour, MAxence Rageade and Anouk Ferté-Devin, “REDD+ at Project Scale: an Evaluation and Development Guide,” 2010, ONF International, http://www.onfinternational.org/images/stories/information/publications/guide_redd_eng.pdf (accessed (January, 2011), 21.

20 the Verified Carbon Standard, the Climate Community and Biodiversity Standard (CCB), “Plan Vivo”, and “Social Carbon”.32 As of November 2010, various REDD+ projects have been certified by the Climate Community and Biodiversity and Plan Vivo standards.33 The standards ensure independent verification of REDD+ projects’ quality. It is likely that an internationally recognized standard for certifying REDD+ projects will resemble existing standards. Finally, the third main principle of effective REDD+ implementation is demonstrating permanence. Investors in potential REDD+ initiatives need to have certainty that the forest area is protected indefinitely. Weak governance structures, unclear land tenure systems34 and lack of law enforcement in many tropical countries constitute threats for protected forest areas, making permanence challenging. Countries with stronger institutions are thus likely to be favored by international investors. The current approach used to account for such risks in REDD+ implementation by the Verified Carbon Standard is to set aside a portion of the project’s carbon credits as a buffer pool of forest carbon credits. 35 Investors can regain these credits in five year increments following the project’s completion, if the project’s area is still intact. This approach is also used in studies used to model future scenarios for REDD+.36

32

Each verification standard provides a common framework of methodologies for developing REDD+ projects, monitoring progress and reporting results. A project developer willing to be verified under a standard will hire a third party verifier who will ensure that the project meets all of the standard’s requirements. 33

Calmel et al., 21.

34

Ronald Coase, “Problem of Social Cost,” The Journal of Law and Economics 3 (October 1960): 1-44.

35

Deveny, Nackoney and Purvis.

36

Ibid.

21 REDD+ Implementation The REDD+ mechanism is currently being developed in many tropical and subtropical countries. In 2010, international leaders at COP16 agreed on a phased approach for implementing REDD+ to guide this development process.37 Phase 1 includes the development of national strategies to put REDD+ into action. This incorporates transfer of funding from the developed world for capacity building and institutional strengthening in tropical developing countries. This initial stage also includes the assessment of MRV systems in place and dialogue with indigenous people and local communities. Phase 2 focuses on implementation of National REDD+ strategies and improvement of MRV’s, while Phase 3 is reached when quantified reductions of CO2 from REDD+ projects have been verified through certification standards. The participation of tropical countries in Phase 1 is supported by the UN-REDD program and by the World Bank’s FCPF. Currently, 27 countries in the tropics and subtropics are receiving support by the UN to implement national REDD+ strategies. The World Bank’s Forest Carbon Partnership Facility (FCPF) is helping countries develop Readiness Preparation Plans (R-PPs). Eight tropical countries have submitted formal R-PPs and are receiving funding from the FCPF program to improve national readiness. The FCPF is supporting capacity building in 37 tropical and subtropical countries and as of June 2010 has disbursed roughly $68 million. 38 Tropical nations have also put forward demonstration projects, as part of Phase 2 of the implementation

37

UNFCCC, The Cancun Agreements: Outcome of the work of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention, FCCC/CP/2010/7/Add.1, 2011. 38

Carbon Finance Unit, World Bank Group, 29.

22 process. An inventory of REDD+ projects as of October 2009 identified 93 projects in 19 different countries (table 2.1).39 TABLE 2.1 REDD+ PROJECTS, PAST DEFORESTATION AND FOREST CARBON STOCKS IN REDD+ ELIGIBLE COUNTRIES

Country* Brazil Ecuador Peru Colombia Mexico Bolivia Costa Rica Panama Madagascar Democratic Republic of the Congo United Republic of Tanzania Liberia Indonesia Cambodia Cameroon Viet Nam Guyana Papua New Guinea Nepal

Number of REDD+ Projects 13 7 5 4 4 3 2 1 3 3 3 1 34 3 2 2 1 1 1

Country Annual Deforestation Rate 2005-2010 (ha/yr) -2,194,000 -198,000 -150,000 -101,000 -155,000 -308,000 23,000 -12,000 -57,000 -311,000 -403,000 -30,000 -685,000 -127,000 -220,000 144,000 0 -142,000 0

Forest Carbon Stock (ton C) 89,650,286,831 1,798,673,876 12,341,446,487 11,489,136,393 8,078,477,735 9,358,919,671 417,759,848 770,067,281 1,879,438,010 25,246,733,160 4,183,791,367 650,983,676 19,384,892,581 1,164,397,338 3,711,013,502 1,548,241,393 2,778,305,431 6,121,639,629 374,531,198

* Countries in green are located in North, Central, and South America; yellow denotes African countries; and purple is used to indicate Asian countries. SOURCES: Gillian Cerbu, Peter Minang, Brent Swallow and Vanessa Meadu, “Global Survey of REDD Projects: What implications for Global Climate Objectives?,” ASB PolicyBrief 12 (2009). Food and Agriculture Organization of the United Nations, Global Forest Resources Assessment 2010: Progress towards Sustainable Forest Management, (Rome: Food and Agriculture Organization of the United Nations, 2010). Jonah Busch, B. Strassburg, A. Cattaneo, R. Lubowski, F. Boltz, R. Ashton, A. Bruner, R. Rice and Anna Creed, “Open Source Impacts of REDD Incentives Spreadsheet (OSIRIS v3.4),” 2010, http://www.conservation.org/osiris/Pages/overview.aspx (accessed November, 2010). 39

Gillian Cerbu, Peter Minang, Brent Swallow and Vanessa Meadu, “Global Survey of REDD Projects: What implications for Global Climate Objectives?,” ASB PolicyBrief 12 (2009).

23 The distribution of demonstration activities is concentrated in East Asia and the Pacific region, and seems to be lacking in Africa. On a national level, Indonesia and Brazil emerge as leaders in the development of REDD+ projects. Brazil and Indonesia also rank as the first and second highest sources of tropical deforestation. The two countries’ vast forest resources, rich in carbon content, make them suitable for REDD+ implementation. The relative lack of projects in other countries with abundant carbon supplies and high deforestation rates such as Tanzania and Congo can be explained by weak government structures and low readiness capacity. The current distribution of REDD+ projects sheds light on what criteria REDD+ investors use to decide where to locate a project. A review of projects’ documents revealed that investors cite biodiversity as the most important criteria for selecting project areas.40 Other important criteria are “community benefits” and “threat of deforestation”. Project investors have also stated a variety of unofficial reasons for investing in a particular area. Criteria of high priority for them were “prior relations with government or stakeholders”, followed by “other parties also interested”, and “good governance and institutions”.41 Many REDD+ investors have already been involved in existing conservation projects and are using REDD+ to extend conservation in areas where they have existing relationships. 42

40

Cerbu et al.

41

Ibid.

42

Ibid.

24 Biodiversity in REDD+ Design Biodiversity conservation entered the UN discussions on REDD during COP13 in 2007. The parties to the convention agreed that REDD “can promote co-benefits and may complement the aims and objectives of other relevant international conventions and agreements” such as the aims of the Convention on Biological Diversity. 43 At COP15, parties named the mechanism REDD+ and discussed possible ways it could achieve biodiversity co-benefits. Reducing emissions from deforestation and degradation, for instance, can reduce habitat loss and fragmentation. Forest conservation activities can focus efforts on protecting intact forest habitats and enhancing landscape integrity. A report presented at COP15 gives several recommendations on how REDD+ can ensure such conservation benefits: prioritizing REDD+ actions in areas of high forest biodiversity, developing premium incentives to enhance additional biodiversity benefits, improving forest governance, maintain landscape connectivity, and others.44 International negotiations have not incorporated these recommendations in the current design of REDD+ however. Parties to COP16 in 2010 did not address the ways in which climate change strategies such as REDD+ can integrate the goals of the Convention on Biological Diversity. 45

43

T. Pistorius, C.B. Schmitt, D. Benick, S. Entenmann, “Greening REDD+: Challenges and opportunities for forest biodiversity conservation,” 2010, Policy Paper, University of Freiburg, Germany, http://www.forestcarbonportal.com/sites/default/files/GreeningREDD+_FreiburgUniversity_2010_0.pdf (accessed March, 2011). 44

Secretariat of the Convention on Biological Diversity, Connecting Biodiversity and Climate Change Mitigation and Adaptation: Report of the Second Ad Hoc Technical Expert Group on Biodiversity and Climate Change, (Montreal: SCBD, 2009), 126. 45

Global Canopy Programme, “The Outcome for Forests Emerging from Cancun,” 2011, http://www.theredddesk.org/sites/default/files/resources/pdf/2011/Policy_Brief_1.pdf, (accessed February, 2011).

25 Despite uncertainties on the international level, REDD+ strategies on the national and project levels have attempted to incorporate biodiversity conservation in existing projects. For REDD+ projects, the CCB standard provides the most clearly defined requirements for environmental benefits. 46 The standard determines that a REDD+ activity has “exceptional biodiversity benefits” if the project area is of high biodiversity conservation priority. Priority for conservation is given to areas that are determined to be either vulnerable: the site is regularly visited by at least 1 endangered or critically endangered species or 30 vulnerable species (endangered or vulnerable species are defined by the UN Red list); or irreplaceable: the project site contains a given proportion of a species’ global population. 47 Developers of REDD+ pilot projects have also defined biodiversity co-benefits themselves. A review of REDD+ proposal documents found that projects mainly used the presence of endemic and threatened species to identify areas of high conservation priority. According to project developers, the higher the degree of endemism and vulnerability, the higher the biodiversity benefit created by the project.48 REDD+ Summary REDD+ is a global initiative designed as a solution to tropical deforestation and deforestation related GHG emissions. The mechanism’s complexity reflects the multiplicity of the underlying causes for deforestation. In an early document outlining

46

Pistorius et al.

47

Climate Community and Biodiversity Alliance, “Climate, Community and Biodiversity Project Design Standards Second Edition,” 2008, CCBA Arlington, VA. www.climate-standards.org. (accessed February, 2011), 35. 48

Pistorius et al.

26 the REDD program, the UN stated that “complex causes require complex solutions”. 49 To ensure multilateral collaboration between countries and capacity building in nations which lack the resources to manage and protect forests, the UN and the World Bank have been facilitating transfer of technology and expertise to tropical developing nations. Demonstration projects have mushroomed in countries where governance, land ownership and business practices are well established. Efforts to improve readiness in other countries is needed for wide spread implementation of the REDD+ mechanism. Currently, there exists a loose framework for defining and ensuring biodiversity co-benefits in REDD+. The strong concern for biodiversity in existing projects is an important implication for future developments of REDD+. It will be valuable to know how much REDD+ will cost if projects were specifically targeted towards biodiversity rich areas. Such analyses will provide an estimate of REDD+ costs assuming that investors continue to be concerned with biodiversity. This paper models REDD+ implementation with biodiversity co-benefits to contribute to the current literature and understanding of forest conservation through REDD+.

49

FAO, UNDP, UNEP, 2.

CHAPTER III THEORY Tropical forests and the biodiversity they support are valuable global resources which are continuously being threatened by human interference. Market forces fail to allocate these scarce resources effectively, accounting for much of the pressure human activities place on them. Environmental economists propose that creating market incentives for the protection of such resources can solve resource allocation problems. These proposals are increasingly gaining traction in international efforts to decrease the rate of deforestation, protect species habitat, and reduce greenhouse gas emissions. This chapter begins with a review of the relevant economic theory. First, the term “ecosystem services” is defined to emphasize the importance of natural ecosystems to human livelihoods. Next, relevant theory from natural resource economics explains how market failure to provide public goods, such as ecosystem services, results in the problems of global deforestation and biodiversity loss. This chapter then provides a review of the literature on the emerging global system for payments for ecosystem services: REDD+. The literature review begins with the potential of REDD+ to protect forest biodiversity. Next, it discusses the costs of implementing REDD+, the readiness of developing countries to participate in the mechanism, and the use of marginal abatement cost curves in the environmental economics literature. Following, a review of conservation literature is presented to inform ways in which conservation goals can be integrated in REDD+. Finally, I 27

28 introduce constrained linear optimization as a popular analytic tool in the environmental economics literature. Ecosystem Services The economic value of standing trees and healthy biota has increasingly been addressed by the economic literature. Ecosystem services represent the benefits human populations derive, directly or indirectly, from the habitat, biological, or system processes of ecosystems.1 These monetary benefits have been increasingly used in addition to ethic and moral arguments for the protection of ecosystems. Ecosystem Services are divided into four categories: 1) Provisioning services are the material outputs of ecosystems, including food, raw materials, water, and medicinal materials; 2) Regulating services are the ability of an ecosystem to regulate the quality of air and soil to the benefit of human beings, including carbon sequestration, water filtration, erosion prevention, pollination; 3) Habitat supporting services are the way in which ecosystems provide habitat for plants and animals, contributing to the general health of the ecosystem and its ability to provide all other ecosystem services; 4) Cultural services include aesthetic, spiritual and psychological benefits to humans.2

1

Robert Costanza, Ralph d’Arge, Rudolf de Groot, Stephen Farberk, Monica Grasso, Bruce Hannon, Karin Limburg, Shahid Naeem, Robert V. O’Neill, Jose Paruelo, Robert G. Raskin, Paul Suttonkk and Marjan van den Belt, “The Value of the World's Ecosystem Services and Natural Capital,” Nature 387 (1997): 253. 2

TEEB, “The Economics of Ecosystems and Biodiversity: Mainstreaming the Economics of Nature: A synthesis of the approach, conclusions and recommendations of TEEB,” 2010, http://www.teebweb.org/TEEBSynthesisReport/tabid/29410/Default.aspx (accessed November, 2010), 7.

29 The planetary biosphere has been estimated to be worth around $33 trillion per year (equal to roughly $43 trillion in 2010 U.S. dollars3), most of the value representing non-market services.4 Forests account for a significant proportion of these benefits, with an average annual value of $4.7 trillion5 (equal to around $6.2 trillion in 2010 U.S. dollars). In comparison, world GDP in 2009 stood at roughly $59 trillion in 2010 U.S. dollars. 6 Thus, global ecosystem services, although most of them are not accounted in GDP calculations, are around 73% of world GDP. This indicates that ecosystem services are an important contribution to global human welfare. Biodiversity underpins the functions of an ecosystem and enhances its ecosystem services. There exists a significant spatial concordance of global biodiversity and global ecosystem values, mostly concentrated in the tropical region. 7 In addition, the literature provides evidence that biodiversity increases the resiliency of ecosystems in the face of change. 8 Thus, biodiversity and healthy ecosystems provide intrinsic as well as monetary benefits to humankind. The need for their preservation, however, stems from market failures associated with the provision of such economic goods.

3

Bureau of Economic Analysis, U.S. Department of Commerce, Selected National Income and Product Accounts Tables: Table 1.1.9. Implicit Price Deflators for Gross Domestic Product, http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=Y (accessed March, 2011). 4

Costanza et al.

5

Ibid. 266.

6

The World Bank, “Data, Indicators, GDP Current US$,” The World Bank, http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries/1W?display=graph (accessed April, 2011). 7

Will R. Turner, Katrina Brandon, Thomas M. Brooks, Robert Costanza, Gustavo A. B. da Fonseca and Rosimeiry Portela, “Global Conservation of Biodiversity and Ecosystem Services,” BioScience 57, no. 10 (2007): 872. 8

David Tilman, Peter B. Reich and Johannes M. H. Knops, “Biodiversity and ecosystem stability in a decade-long grassland experiment,” Nature 441 (2006): 629–632.

30 Public Goods Forests, particularly those rich in biodiversity, and the ecosystem services they provide represent public goods with two distinguishing characteristics: non-rivalry and non-excludability. 9 The principle of non-excludability refers to the inability to restrict anyone from enjoying a good. In the case of deforestation and climate change, standing trees and other plants that are sustained in a healthy forest sequester carbon dioxide. The benefits, in terms of alleviated climate change, are accrued to all people on the planet due to the global nature of climate change. Consider figure 3.1, which represents the marginal benefit curves and marginal cost curves of person A and person B for consuming or supplying a good, such as carbon sequestration. A will have an incentive to provide as much of the good as quantity Q A. Because A cannot restrict B from enjoying the good, at QA, B will be able to consume without paying, resulting in the problem of free-riding. Economic theory assumes that the aggregate demand curve of society is derived by horizontally summing up individual demand curves. This, however, is not the case for public goods. Person B does not have to provide any of the good as long as A maximizes his/her utility by supplying QA of the good. As a result, the market tends to under provide the public good.

9

Paul Samuelson, “The Pure Theory of Public Expenditures,” Review of Economics and Statistics 36 (1954): 350-356.

31 FIGURE 3.1 FAILURE OF MARKETS TO PROVIDE PUBLIC GOODS

SOURCE: Nathaniel O. Keohane, Sheila M. Olmstead, Markets and the Environment, (Washington, DC: Island Press, 2007), 75.

The principle of non-rivalry states that one person’s enjoyment of a good does not diminish others’ use of the same good. For instance, carbon sequestration contributes to reducing atmospheric concentrations of CO2; the benefit is shared spatially across the globe as well as among people in the same geographic location. Due to this characteristic of public goods, the total social benefit derived from them, and consequently the aggregate demand curve, is a derived by vertically summing individual marginal benefit curves. This implies that the value of ecosystem services is

32 greater than the amount each individual is willing to pay for them. The optimal quantity of the good will be derived from where the marginal cost curve intersects the social marginal benefit, at Q*. To supply this quantity, the market requires each consumer to pay an amount equal to MC(Q*). However, each person’s willingness to pay is lower. Hence, at QA society as a whole will benefit if more of the good is provided. If each person acts in their self-interest, however, only Q A of the good will be provided. The failure of markets to provide public goods is compounded by other problems of public goods associated tragedy of the commons and the generation of externalities. In “Tragedy of the Commons”, Garret Hardin proposes the notion that a group of people sharing common access to a resource will tend to overexploit it, unless they can develop effective ways to regulate its use. 10 Hardin illustrated his theory using as an example an English pasture of a limited size, which is used by a certain number of sheep herders. Each herder faces a choice of whether to increase the herd or maintain its size. By grazing an additional sheep a herder gains from higher production. The more sheep there are, however, the less food is available for each sheep in the pasture. These costs are spread across all herders. Thus, the herder who decides to graze an additional sheep incurs only a proportion of the costs and all the benefits from a bigger herd. In other words, the herder has internalized the gains and externalized the costs, as a large portion of the costs are born by others. The tragedy is that every herder following the same logic will result in overexploitation and destruction of the pasture, in which case, everyone loses. An externality occurs from the choice to increase the herd as the decision has negative consequences for the common resource. An externality results when the action 10

Garret Hardin, “The Tragedy of the Commons,” Science 162, no. 3859 (1968): 1243-1248.

33 of one individual have direct, unintentional, and uncompensated effect on the wellbeing of other individuals. 11 In the case of deforestation, there are a number of negative environmental consequences which result in externalities. Deforestation causes the release of carbon dioxide stored in the ecosystem’s biomass and exacerbates the problem of global warming. It also destroys species habitat and disables others from enjoying these species through recreation. In cases of especially biodiversity rich forests, opportunities for pharmaceutical research are lost.12 Many other ecosystem services are also lost such as rainfall, water purification, climate regulation, etc. These consequences incur losses on the local and global communities. These losses are shared between members of these communities and the costs are widely spread. More importantly, the full costs are not born by the actor who causes deforestation. The result is that the private costs of the deforester are lower than the social costs. The equilibrium in the market, dictated by the convergence of private costs and global demand, is not optimal as a result. Market-based solutions to these problems have been recognized in the economics literature.13 Creating property rights can solve the open access problems discussed above. The right of ownership to a certain resource will provide incentives for the owner to maintain it because in this case the owner will be the full bearer of negative consequences. Furthermore, property rights can turn a non-excludable into an excludable one, eliminating the problem of free-riding. After the property rights are

11

Keohane and Olmstead, 66.

12

Robert Mendelsohn and Michael Ballick, “The Value of Undiscovered Pharmaceuticals in Tropical Forests,” Economic Botany 49, no. 2 (1995): 223-228. 13

Keohane and Olmstead.

34 defined, markets are said to be able to efficiently allocate resources and provide the needed amount of a public good. Literature Review REDD+ is a global mechanism designed primarily to reduce emissions from deforestation and degradation by creating a financial value for the carbon stored in forests. There is increasing interest by parties to the United Nations Framework Convention on Climate Change, scientists and conservation groups in the extent to which REDD+ can benefit global biodiversity. 14 The potential of REDD+ to achieve the multiple goals of emission reduction and conservation in a cost effective manner are however unknown. The Copenhagen Accord remained uncertain as to whether to include specific rules to protect biodiversity in REDD+ design, or to assume that biodiversity protection will happen automatically. 15 Exploring the potential for REDD+ to protect biodiversity is, thus, critically important to a future REDD+ mechanism. The international scientific community has expressed concerns that the costs of protecting biodiversity from REDD+ might be too high and cost effective REDD+ projects might not help protect biodiversity. 16 The Association for Tropical Biology and Conservation and the Society for Tropical Ecology jointly recommend that “costbenefit analyses be urgently conducted to help develop optimal strategies to

14

Charlie Parker, Andrew Mitchell, Mandar Trivedi and Niki Mardas, “The Little REDD+ Book,” 2009, The Global Canopy Foundation, http://www.globalcanopy.org/materials/little-redd-book (accessed February, 2011). 15

Alan Grainger, Douglas H. Boucher, Peter C. Frumhoff, William F. Laurance, Thomas Lovejoy, Jeffrey McNeely, Manfred Niekisch, Peter Raven, Navjot S. Sodhi, Oscar Venter and Stuart L. Pimm, “Biodiversity and REDD at Copenhagen,” Current Biology 19, no. 21 (November 2009): R974-R976. 16

Association for Tropical Biology and Conservation and the Society for Tropical Ecology, The Marburg Declaration, (Marburg, Germany: ATBC, 2009).

35 simultaneously maximize the benefits of REDD+ for both reducing carbon emissions and protecting endangered biodiversity.” REDD+ Potential for Biodiversity Co-benefits The potential of the mechanism to achieve biodiversity co-benefits depends on whether REDD+ projects will be located in biodiversity rich areas. As it is currently designed, REDD+ encourages investments in areas where CO2 emissions can be abated at least cost. Thus, Miles and Kapos suggest that carbon content of forest areas and the costs of protecting them are two important factors which will affect the potential of REDD+ to protect biodiversity. 17 The authors recommend that REDD+ projects be prioritized in areas of high biodiversity value, high carbon content, and low cost. The possibilities for such projects however depend on the spatial overlap between biodiversity, carbon, and cost. They also depend on the way REDD+ is implemented on the national and project level. Spatial Overlap between Carbon and Biodiversity Forest carbon content correlates well with biodiversity values. Studies find that forest areas rich in carbon are also rich in species18 and are priorities for conservation19 Strassburg et al. (2010) studies the global distribution of mammal, amphibian and bird

17

Lera Miles and Valerie Kapos, “Reducing Greenhouse Gas Emissions from Deforestation and Forest Degradation: Global Land-Use Implications,” Science 320 (2008). 18

Bernardo B.N. Strassburg, Annabel Kelly, Andrew Balmford, Richard G. Davies, Holly K. Gibbs, Andrew Lovett, Lera Miles, C. David L. Orme, Jeff Price, R. Kerry Turner and Ana S.L. Rodrigues, “Global Congruence of Carbon Storage and Biodiversity in Terrestrial Ecosystems,” Conservation Letters 3 (2010). 19

UNEP World Conservation Monitoring Center, Carbon and Biodiversity: a Demonstration Atlas, (Cambridge, UK: UNEP-WCMC, 2008).

36 species. The authors find significant correlation between richness of these species and biomass carbon across the terrestrial surface of the Earth (figure 3.2). FIGURE 3.2 SPATIAL CONGRUENCE BETWEEN BIODIVERSITY AND CARBON

SOURCE: Bernardo B.N. Strassburg, Annabel Kelly, Andrew Balmford, Richard G. Davies, Holly K. Gibbs, Andrew Lovett, Lera Miles, C. David L. Orme, Jeff Price, R. Kerry Turner and Ana S.L. Rodrigues, “Global Congruence of Carbon Storage and Biodiversity in Terrestrial Ecosystems,” Conservation Letters 3 (2010).

The tropical region, in particular, contains high numbers of species and high concentrations of biomass carbon. The amount of threat these species face and their rarity are also moderately congruent with high carbon content. This suggests that a REDD+ mechanism could benefit the conservation of threatened and rare forest species. Similarly, the study by the United Nations Environment Programme (2008) illustrates the geographic overlap between forest carbon density and priority areas for global conservation. It finds significant congruence, especially in the tropics. These

37 results indicate that efforts to mitigate carbon emissions have the potential to help global conservation efforts. REDD+ at the National Level Additional factors regarding the implementation of REDD+ on the national level will determine the potential for biodiversity co-benefits. The range of countries that will participate in REDD+, based on their reference levels, and the different costs of REDD+ projects in these countries will affect the potential of REDD+ to conserve biodiversity rich forests. Making projections about future REDD+ implementation provides challenges and, expectedly, uncertainty in the literature. There exist debates as to whether cost effective REDD+ projects will achieve biodiversity co-benefits. Venter et al. (2009) suggest that cost effective REDD+ projects will not target high biodiversity areas. This global study of REDD+ implementation finds that cost effective emission reductions have low benefits for biodiversity. 20 Assuming a world target of 20% reduction in emissions from deforestation, most REDD+ projects will be located in South America and protect around 9 species. 21 The authors also find that there is a non-linear tradeoff between reducing emissions and protecting biodiversity through REDD+ (figure 3.3). Thus, there are opportunities for improving biodiversity co-benefits with small reductions in carbon benefits. For instance, the number of species protected can be doubled if REDD+ investors are willing to give up 4 to 8% of

20

Oscar Venter, William F. Laurance, Takuya Iwamura, Kerrie A. Wilson, Richard A. Fuller, and Hugh P. Possingham, "Harnessing Carbon Payments to Protect Biodiversity," Science 326, no. 5958 (2009): 1368. 21

Ibid.

38 potential reductions in emissions. Without such a “compromise approach”, the authors warn that REDD+ will achieve little biodiversity co-benefits. FIGURE 3.3 TRADEOFF BETWEEN EMISSION REDUCTIONS AND BIODIVERSITY CONSERVATION THROUGH REDD+

The upper curve shows the relationship expected when REDD funds are used to reduce deforestation by 40%, and the lower curve for an expected 20% reduction in deforestation. SOURCE: Oscar Venter, William F. Laurance, Takuya Iwamura, Kerrie A. Wilson, Richard A. Fuller, and Hugh P. Possingham, "Harnessing Carbon Payments to Protect Biodiversity," Science 326, no. 5958 (2009).

Ebeling and Mai (2008) find evidence to support the previous study. The authors project a possible implementation of REDD+ based on countries’ potential to reduce deforestation and a range of likely carbon prices. 22 The results indicate that

22

Johannes Ebeling and Yasué Maï, "Generating Carbon Finance Through Avoided Deforestation and its Potential to Create Climatic, Conservation and Human Development Benefits," Philosophical Transactions of the Royal Society B: Biological Sciences 363, no. 1498 (2008).

39 countries with high REDD+ income potential tend to be less rich in biodiversity. The biodiversity index used combines the proportion of threatened species, proportion of countries’ eco-regions under threat and overall levels of endemism. Contrary to previous literature, Busch et al. (2010) find that REDD+ can have significant biodiversity co-benefits when it is implemented least cost and with no specific rules for biodiversity protection.23 A fully funded REDD+ mechanism, where all emission reductions costing $5/tCO2 are purchased, reduces extinction rates of 2472 forest species by 78 to 82%. A minimally funded mechanism, where emission reductions are only purchased below $1.5/tCO2, reduces extinction rates by 43–49%. These studies of REDD+ implementation on the national level provide a valuable perspective. It is the national level where governments make decisions whether to participate in REDD+ or not. However, REDD+ projects are most likely to be implemented on a local level. Thus, the geographic distributions of costs and biodiversity rich forest areas within each country will influence the potential of REDD+ for cost effective biodiversity co-benefits. REDD+ at the Project Level Studies of REDD+ implementation on the local level indicate that the mechanism might have negative outcomes for biodiversity. In Indonesia, REDD+ is likely to target forests situated on peat soils, which are both rich in carbon and have a

23

Jonah Busch, Fabiano Godoy, Will Turner and Celia Harvey, “Biodiversity Co-benefits of Reducing Emissions from Deforestation under Alternative Reference Levels,” Conservation Letters 00 (2010).

40 low opportunity cost of forgone agriculture and development. 24 Peat lands, however, have substantially lower levels of biodiversity than forests on lowland mineral soils. Due to their high suitability for agriculture, and lower carbon content, mineral soil areas are unlikely to benefit from REDD+. There is a risk that REDD+ projects on peat land will result in leakage and intensify deforestation pressures on forested mineral soil areas that offer lower emission reduction potential but support richer biodiversity. Similarly in Brazil, REDD+ could intensify pressure on relatively low-carbon, but species- rich native ecosystems, such as the cerrado woodlands and savannas.25 These sub-national analyses of REDD+ implementation suggest that cost effective projects will not be located in areas that maximize species conservation. In addition, REDD+ activities can relocate deforestation activities to less cost effective areas and increase pressure on the most valuable regions for biodiversity conservation. Paoli et al. (2010) state that national-level studies on REDD+ need to be complemented by further analyses of how REDD+ will be implemented on a sub-national level. The authors call for further research into how the distribution of REDD+ costs at the subnational level will impact potential biodiversity co-benefits. In this paper, I address this gap in current literature. Using local-level data I model the implementation of REDD+ in 59 tropical developing countries. I estimate REDD+ costs and their distribution across forest areas within each country.

24

Gary D Paoli, Philip L. Wells, Erik Meijaard, Matthew J. Struebig, Andrew J. Marshall, Krystof Obidzinski, Aseng Tan, Andjar Rafiastanto, Betsy Yaap, J.W. Ferry Slik, Alexandra Morel, Balu Perumal, Niels Wielaard, Simon Husson, Laura D’Arcy, “Biodiversity Conservation in the REDD,” Carbon Balance and Management 5 (2010). 25

Claudia Stickler, Daniel Nepstad, Michael Coe, David McGrath, Hermann Rodrigues, Wayne Walker, Britaldo Soares-Filho and Eric Davidson, “The Potential Ecological Costs and Cobenefits of REDD: a Critical Review and Case Study from the Amazon Region,” Global Change Biology 15 (2009).

41 Costs of REDD+ Estimation of the costs of REDD+ on a global scale indicates that avoiding deforestation is a relatively cost-effective option to mitigate global climate change. 26 The costs of REDD+, however, are dependent on the geographical distribution of the projects. To avoid deforestation the forest land must be either purchased or rented to ensure that it remains protected. The cost of the land will depend on its opportunity cost, the value of the second-best alternative. The main cost of REDD+ represents the opportunity cost of forgone agricultural and timber revenues. 27 These will vary country by country as well as within countries based on the suitability of land and the value of agricultural and timber products. Thus, identification of least-cost options for REDD+ will require identification of geographic locations where the opportunity cost of avoiding deforestation is relatively low. Previous studies modeling the opportunity costs of REDD+ on a local level suggest that there exist ample opportunities for cost effective projects. Deveny et al. (2009) estimate the opportunity costs of REDD+ based on forgone agriculture and timber revenues. The authors assume that REDD+ projects will develop in forest areas which are currently facing deforestation. It is further assumed that countries will continue to convert forests at historical rates and that deforestation will occur in the areas where REDD+ opportunity costs are highest. Results show that forest areas in the Congo Basin, Amazon-Andes region, and the Southeast Asian Islands have the least cost forest carbon opportunities. 26

Adrian Deveny, Janet Nackoney, Nigel Purvis, “Forest Carbon Index: The geography of Forests in Climate Solutions,” 2009, Joint report by Resources for the Future and Climate Advisers, http://www.forestcarbonindex.org/RFF-Rpt-FCI_small.pdf (accessed February, 2011). 27

Ibid. 22.

42 Kindermann et al. (2009) show the results of three global models based on opportunity costs. They illustrate that investing in REDD+ projects with low opportunity costs can achieve significant reductions in deforestation. Their results show that a 10% reduction in deforestation rates between 2005 and 2030 would cost $2– 5/tCO2. A 50% reduction in deforestation rates would cost $10–21/tCO2.28 Additional costs of developing REDD+ projects include implementation, administration, transaction, and stabilization costs.29 Implementation costs refer to the increased planning and land management expenses a government needs to put REDD+ into practice. Administrative costs are the operational expenses of administering REDD+ programs. Transaction costs include the cost of searching for projects and partners, negotiating with partners, as well as monitoring and regulatory approval of projects. Stabilization expenditure seeks to prevent leakage of emissions or the relocation of deforestation activities to areas not covered by REDD+. Antinori and Sathaye (2007) estimate transaction costs based on a survey of 11 offset forestry projects.30 They find that average transaction costs for forestry carbon projects amount to $0.38/tCO2e; transaction costs range from $0.03/tCO2 for large projects to $1.23/tCO2 for small projects. Transaction costs are estimated to be lower for large projects than for small projects, indicating economies of scale. The costs 28

Georg Kindermann, Michael Obersteiner, Brent Sohngen, Jayant Sathaye, Kenneth Andrasko, Ewald Rametsteiner, Bernhard Schlamadinger, Sven Wunder, and Robert Beach, “Global Cost Estimates of Reducing Carbon Emissions through Avoided Deforestation,” Proceedings of the National Academy of Sciences 105, no. 30 (2009): 10302–10307. 29

Doug Boucher, Diana Movius and Carolyn Davidson, “Estimating the Cost and Potential of Reducing Emissions from Deforestation,” 2008, Union of Concerned Scientists, http://www.ucsusa.org/assets/documents/clean_energy/Briefing-1-REDD-costs-w-endnotes.pdf (accessed January, 2011). 30

Camille Antinori and Jayant Sathay, “Assessing transaction costs of project-based GHG emission trading,” 2007. Lawrence Berkeley National Laboratory, Berkeley, CA, http://are.berkeley.edu/~antinori/LBNL-57315.pdf (accessed February, 2011).

43 include the expenses incurred for searching, assessing project feasibility, negotiating, monitoring and verifying project success, and receiving regulatory approval. Administration costs of REDD+ projects have been estimated based on national level payments for environmental services schemes (PES) in Costa Rica, Mexico and Ecuador.31 Grieg-Gran (2008) finds that these costs range between $4 and $15 per hectare ($0.01–$0.04/tCO2). Costs include administration costs of those administering the schemes and costs incurred by PES recipients in the application process. The literature provides ample examples of estimating REDD+ costs. To analyze how costs will affect biodiversity co-benefits of REDD+, I developed a dataset of forest areas, their costs of implementing REDD+, and their biodiversity value. To do this, I estimated REDD+ costs based on opportunity costs of agricultural profits and average transaction and administrative costs. Using this dataset, I constructed marginal abatement cost curves to represent the costs of reducing emissions and achieving biodiversity co-benefits. Marginal Abatement Cost Curves As consensus on the need to reduce the effects of global climate change has been reached, economic research has addressed the questions of where and how emission reductions can be best achieved and at what costs. Given the numerous sources of greenhouse gases, including combustion of fossil fuels, deforestation, agriculture, landfills, chemical refineries, etc, there exist a wide variety of opportunities to decrease emissions. Costs of emission abatement thus vary spatially by country and within countries as well as depending on the approach and technology used. Decreasing 31

Maryanne Grieg-Gran, The Cost of Avoiding Deforestation: Update of the Report Prepared for the Stern Review of the Economics of Climate Change, (London, UK: Office of Climate Change, 2008).

44 emissions from an economic activity could be achieved through a decline in economic production or through the adoption of an emission reducing technology, such as scrubbers on coal plants. In the former case, the costs will depend on the value of the production. In the latter, they will vary according to the cost of the technology and the ability of the production plant to adopt it. In the case of REDD+, costs will largely vary by location. Marginal abatement cost curves are popular economic tools used in the literature to estimate the cost needed to achieve various levels of abatement. They are also a tool for comparison as they show which approaches, technologies, or locations will be most cost effective. In one example, McKinsey & Co. generate a marginal abatement cost curves to analyze the costs of reducing global GHG emissions. The curve is now popularly known as the McKinsey curve (Figure 3.4). This tool is effective at showing costs of emission reductions as it represents the results in a way that is concise to the expert and intuitive to policy makers. The McKinsey curve indicates that achieving energy efficiency in the residential sector and commercial sector as well as improving efficiency in the industrial processes will have negative costs, as these approaches generate net savings. In comparison, generating cleaner energy by constructing nuclear plants, on-shore wind, and various technologies of solar power require higher and higher investments to abate a ton of carbon. Marginal abatement cost curves have emerged as a key tool in climate change policy. Following the publication of the McKinsey curve in 2007, more than 25 countries including Indonesia have developed

45 national abatement cost curves.32 The McKinsey curve has been widely used in policy discussions including reports by the IPCC and the Stern Review. FIGURE 3.4 THE MCKINSEY ABATEMENT COST CURVE

SOURCE: McKinsey & Company, “Pathways to a Low Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement Cost Curve,” 2009, McKinsey & Company, http://www.mckinsey.com/clientservice/sustainability/pathways_low_carbon_economy.asp (accessed March, 2011).

Other studies in the area of climate change and biodiversity conservation have constructed cost curves to demonstrate marginal costs of reducing deforestation and

32

McKinsey & Company, “McKinsey’s Greenhouse Gas Abatement Cost Curve – Setting The Record Straight,” 2011, Mckinsey & Company, http://www.mckinsey.com/locations/southeastasia/knowledge/Abatement_Cost_Curve_setting_the_recor d_straight.pdf (accessed March, 2011).

46 protecting valuable species. Naidoo and Iwamura use economic rents from agriculture to represent the opportunity costs of conserving land to protect biodiversity. 33 The study provides valuable information on the distribution of costs and biodiversity conservation possibilities. The authors construct a cost curve and find that opportunities for biodiversity conservation with low marginal cost can yield significant conservation benefits. In this paper, I develop marginal abatement cost curves for biodiversity conservation in the context of REDD+. A paper by Benitez et al. (2007) studies the global potential for carbon sequestration by constructing an abatement cost curve for afforestation projects on a global scale. 34 Other examples of the use of cost curves in the climate change literature include: estimating costs for abating emissions in the Eastern European power sector;35 estimating costs of reducing emissions in different sectors in China; 36 finding optimal technologies for reducing emissions of coal-fired utility boilers. 37 In summary, marginal abatement cost curves are a useful tool for estimating costs of various levels of emission reductions. In this paper, I generate marginal abatement cost curves for three different REDD+ scenarios. The scenarios describe 33

Robin Naidoo and Takuya Iwamura, "Global-scale mapping of economic benefits from agricultural lands: Implications for conservation priorities," Biological Conservation 140, no. 1-2 (2007): 40-49 34

Pablo C Benítez, Ian McCallum, Michael Obersteiner and Yoshiki Yamagata, "Global potential for carbon sequestration: Geographical Distribution, Country Risk and Policy Implications," Ecological Economics 60, no. 3 (2007). 35

Fredrik Pettersson, "Carbon Pricing and the Diffusion of Renewable Power Generation in Eastern Europe: A linear Programming Approach," Energy Policy 35, no. 4 (2007). 36

Wenying Chen, "The Costs of Mitigating Carbon Emissions in China: Findings from China MARKALMACRO modeling," Energy Policy 33, no. 7 (2005). 37

Samudra Vijay, Joseph F. DeCarolis, and Ravi K. Srivastava, "A Bottom-up Method to Develop Pollution Abatement Cost Curves for Coal-fired Utility Boilers," Energy Policy 38, no. 5 (2010): 22552261.

47 various ways biodiversity conservation is integrated into the REDD+ framework. The cost curves show the price differences between least cost projects and projects with biodiversity co-benefits. Accounting for Readiness In addition to costs, REDD+ project developers must consider a country’s capacity to implement this complex mechanism. Taking country “readiness” into consideration will help reflect real-world conditions and investment decisions. Deveny et al. (2009) address this through their Readiness Index for REDD+38. The authors score each country between 0 and 1, based on their capacity to monitor changes in forest cover and their experience with environmental markets. Remote sensing, through the use of a country’s own satellites or those of another, allows national stakeholders to assess changes in forest cover as well as third party verification of REDD projects. The authors estimate the remote-sensing capacity of each country based on whether the country 1) owns and operates a remote-sensing system able to observe terrestrial land use, including forests; 2) collaborates in such a remote-sensing system by co-owning co-operating or contributing part of the system; 3) is a member in the Group of Earth Observation, a voluntary consortium of governments and international organizations. Experience with environmental markets reflects the openness of a country to marketbased incentives for ecosystem services. Currently, carbon mitigation projects are being developed globally through the Clean Development Mechanism (CDM). This mechanism provides the opportunity to develop carbon reducing projects in a developing country in exchange for carbon credits which can be used to comply with a 38

Ibid.

48 developed country’s own cap on GHGs. The environmental market experience indicator scored each country based on the number of Clean Development Mechanism projects. The Readiness Index was derived by taking the average score between a country’s remote-sensing capacity and experience with environmental markets. In this paper, I use the country readiness index to reflect more real-world conditions for REDD+ implementation. I construct cost curves for countries which have high readiness index scores, assuming that only they have the capacity to implement the mechanism. Biodiversity Conservation Identifying low-cost REDD+ projects with biodiversity co-benefits will contribute to the REDD+ literature as well as to the biodiversity conservation literature. Cost-efficiency has only recently been integrated into global conservation planning. 39 Traditional frameworks for prioritizing conservation areas are based on information on relative biodiversity values, past or present threats to these values, and current levels of protection.40 However, if the objective is to maximize the number of species protected, it is unlikely to be met if costs of conservation are not considered in prioritizing conservation efforts.41 Naidoo and Iwamura address threes concerns by evaluating different scenarios of conservation.42 The authors model global conservation efforts and

39

Kerrie A. Wilson, Marissa F. McBride, Michael Bode and Hugh P. Possingham, “Prioritizing global conservation efforts,” Nature 440, no. 7082 (2006): 337-340. 40

Kerrie A. Wilson, Robert L. Pressey, Adrian Newton, Mark Burgman, Hugh Possingham and Chris Weston, “Measuring and Incorporating Vulnerability into Conservation Planning,” Environmental Management 35 (2005): 527–-543. 41

Wilson, McBride, Bode and Possingham, 337.

42

Naidoo and Iwamura.

49 compare two scenarios for conservation: one that maximizes the number of endemic species protected subject to opportunity costs of conservation and another scenario that maximizes number of species protected without taking into consideration cost limitations. The authors find that taking costs into consideration allows conservation planners to save more species by targeting areas of high conservation values and low opportunity cost. Similarly, identifying the cost-effective locations for carbon mitigation and biodiversity conservation could contribute to a higher conservation potential of REDD+. Studies which focus on the costs of including biodiversity conservation in REDD+ will address existing concerns for the cost of conserving global biodiversity. A study which analyzes the costs of maintaining current protected areas and the costs for protecting areas currently unprotected and threatened by agriculture and forestry, concludes that the overall costs of conserving global biodiversity are high. 43 The authors’ results indicate that $21.5 billion annually is needed to maintain current protected areas. The authors acknowledge that the costs of conserving biodiversity outside of these areas are uncertain, but they estimate that the amount needed might be 10 times higher than the costs of maintaining current protected areas. Implementation of REDD+ could lead to increased financing for tropical forest conservation.

43

Alexander James, Kevin J. Gaston and Andrew Balmford, “Can We Afford to Conserve Biodiversity?,” BioScience 51, no. 1 (2001): 43-52.

50

Defining Biodiversity for REDD+ The way biodiversity conservation will be integrated into current REDD+ design remains unclear. Despite the existing discussions on REDD+ and biodiversity cobenefits, there is no internationally recognized standard to ensure and quantify these cobenefits. Standards used for verifying existing projects such as the Climate, Community and Biodiversity Alliance (CCBA) standard provide some guidance on how to ensure biodiversity co-benefits of REDD+ projects.44 In addition, existing REDD+ projects have used the number of threatened or endemic species in the project area as a proxy for the project’s biodiversity co-benefits. 45 In this study, I use existing global conservation priority schemes developed by the World Wildlife Fund to define possible biodiversity co-benefits of REDD+. To assist global conservation efforts, WWF has defined 825 eco-regions on the terrestrial surface of the Earth.46 These eco-regions share a large majority of their species and ecological dynamics, share similar environmental conditions, and interact ecologically in ways that are critical for their long-term persistence. The WWF provides information on the existing species found within these eco-regions and whether they are endemic or strictly endemic to that region. Many of these species are

44

Climate Community and Biodiversity Alliance, “Climate, Community and Biodiversity Project Design Standards Second Edition,” 2008, CCBA Arlington, VA. www.climate-standards.org. (accessed February, 2011), 35. 45

T. Pistorius, C.B. Schmitt, D. Benick, S. Entenmann, “Greening REDD+: Challenges and opportunities for forest biodiversity conservation,” 2010, Policy Paper, University of Freiburg, Germany, http://www.forestcarbonportal.com/sites/default/files/GreeningREDD+_FreiburgUniversity_2010_0.pdf (accessed March, 2011). 46

World Wildlife Fund, “Ecoregions,” World Wildlife Fund, Science, http://www.worldwildlife.org/science/ecoregions/item1847.html (accessed March, 2011).

51 classified in the UN Red List based on how vulnerable or endangered they are. In addition, the conservation status of each eco-region has been evaluated.47 Regions are classified as critically endangered, vulnerable, or relatively stable, based on their ability to maintain viable species populations, to sustain ecological processes, and to be responsive to short- and long-term environmental changes. In this paper, I determine the biodiversity value of potential REDD+ project areas in a way similar to traditional conservation frameworks. I take into account both the species’ irreplaceability, based on their endemism, and the species’ vulnerability to existing threats. Constrained Linear Optimization Finally, I use a linear programming method to develop the CPF curve and the marginal abatement cost curves. Linear Programming is an economic optimization tool used in the literature to develop abatement cost curves.48 49 50 Among other functions, the method can be used for finding the minimum-cost method of producing required outputs.51 The method can also incorporate constraints, which can take the form of equalities or inequalities.52 The use of linear programming assumes proportional

47

David Olson, E. Dinerstein, E.D. Wikramanayake, N.D. Burgess, G.V.N. Powell, E.C. Underwood, J.A. D'amico, I. Itoua, H.E. Strand, J.C. Morrison, C.J. Loucks, T.F. Allnutt, T.H. Ricketts, Y. Kura, J.F. Lamoreux, W.W.Wettengel, P. Hedao, & K.R. Kassem, “Terrestrial Ecoregions of the World: A New Map of Life on Earth,” BioScience 51 (2001): 933-938. 48

Naidoo and Iwamura.

49

Pettersson.

50

Vijay, DeCarolis and Srivastava.

51

Edith Stokey and Richard Zeckhauser, A Primer for Policy Analysis, (Toronto: Norton & Company, 1978), 177. 52

Ibid. 178.

52 relations between variables (doubling if an input is required to double output or constant returns to scale). The model also assumes that all variable inputs and outputs are infinitely divisible, meaning that the model can use fractions. In this case, the required output is a certain level of emissions abatement and/or a certain number of species protected. The purpose is to find the most cost-effective areas where REDD+ will take place. The constraints associated with developing REDD+ projects are costs and country readiness.

CHAPTER IV ANALYSIS Description of Method The purpose of this paper is to assess the potential of REDD+ to generate biodiversity co-benefits. To explicitly show the possibilities for both carbon abatement and protection of species given a limited budget for REDD+, I develop a Conservation Possibilities Frontier (CPF). Similar to a Production Possibilities Frontier, the curve shows all possible combinations of two objectives, carbon abatement and species protection, given limited resources. The CPF curve compares the possibilities for REDD+ to reduce emissions and protect species which are strictly endemic to the ecoregion, or listed on the UN Red List of Species as vulnerable, endangered, or critically endangered. I assume that if a REDD+ project is located in an eco-region containing more of these species, it will generate higher biodiversity co-benefits. To construct the curve, I use a linear programming approach, implemented on Premium Solver Platform, to solve the associated optimization problem. Generating a CPF Curve To construct the curve, I developed an optimization problem which maximizes the weighted sum of the percentage of species and percentage of carbon emissions saved through REDD+ given a budget constraint. Optimizations were repeated for a range of weights to arrive at the possible combinations of carbon abatement and species

53

54 protected. Two curves were generated for two available budgets: $560 million, the size of the World Bank’s Carbon Fund for verified REDD+ emission credits1, and a smaller budget of $100 million. Generating Marginal Abatement Cost Curves I also model the costs of generating REDD+ carbon credits with biodiversity cobenefits and compare them to the costs of conventional least cost REDD+ projects. To show the tradeoffs and price differences between these two types of REDD+ strategies, I develop marginal abatement cost curves under three policy scenarios. These scenarios describe the degree to which REDD+ projects prioritize biodiversity co-benefits. To construct each of the cost curves, I used a linear programming approach to solve the associated optimization problems. The first scenario assumes that REDD+ projects take no consideration of biodiversity values. The main purpose of this strategy is to reduce CO2 emissions by targeting emission reductions first. This scenario is also referred to as the “baseline scenario”. It models REDD+ as it is currently designed: to encourage least cost emission reductions. Projects are developed in forest areas with the lowest cost per ton of carbon. To model this, I developed an optimization problem to maximize the amount of carbon sequestered in forest areas given a certain budget constraint. Optimizations were repeated for a range of budgets to arrive at the cost curve data points. The second scenario models REDD+ activities which achieve multiple benefits, by reducing emissions and conserving important biodiversity areas. In this case, 1

Carbon Finance Unit, World Bank Group, Forest Carbon Partnership Facility: FY2010 Annual Report, 2010, http://www.forestcarbonpartnership.org/fcp/sites/forestcarbonpartnership.org/files/Documents/PDF/Nov2 010/2010FCPF-annual%2007.pdf, (accessed February, 2011).

55 projects are only developed in areas of high conservation priority. This approach also considers costs of reducing emissions, as REDD+ strategies are first developed in the least cost areas within these conservation regions. The optimization goal here is the same as in scenario one, but only applies to areas of high conservation value. These areas are forest eco-regions which are critically endangered by a range of present and future threats. Optimizations were repeated for a range of budgets to construct the cost curve. In the third scenario, REDD+ strives to achieve a compromise, reducing carbon emissions and protecting high numbers of strictly endemic, vulnerable, endangered or critically endangered species. The optimization problem maximizes a weighted sum of the percentage of species and percentage of carbon emissions found in REDD+ project areas. The weight used was derived from the CPF curve above. The optimization was repeated for a range of budgets to generate the marginal abatement cost curve. The successful implementation of REDD+ activities also depends on a country’s capacity to develop projects, provide monitoring and reporting of a project’s progress. To account for variation of countries’ readiness to implement REDD+, I repeat scenarios 1 and 2 for countries which have above average readiness levels. The scope of this study is global, covering 59 tropical developing countries on four continents. To arrive at this selection of countries, I followed the Open Source Impacts of REDD+ Incentives Spreadsheet (OSIRIS) model, used for country-level analyses of REDD+ policy scenarios on a global scale. 2 OSIRIS includes 85 tropical developing countries thought to be suitable for REDD+. For the purposes of this study, 2

Jonah Busch, Bernardo Strassburg, Andrea Cattaneo, Ruben Lubowski, Aaron Bruner, Richard Rice, Anna Creed, Ralph Ashton and Frederick Boltz, “Comparing climate and cost impacts of reference levels for reducing emissions from deforestation,” Environmental Research Letters 4 (2009).

56 I narrowed the number of countries down to 64 nations which suffered net forest loss between 2005 and 2010.3 The number of countries in this study was later reduced to a final list of 59 due to the lack of data in some countries. To model the above scenarios, I used local level data of REDD+ costs, forest carbon content, and forest biodiversity values within each of these countries. These spatially explicit data are associated with geographic locations on the Earth’s surface. Thus, they describe the spatial distribution of costs, carbon and biodiversity within each country. This approach helps describe REDD+ activities on the sub-national level, which is where projects are developed. Modeling REDD+ Implementation To run the above optimizations, I first modeled REDD+ suitable areas within each country and the costs, carbon content, and biodiversity value associated with each of these areas. ArcGIS was used to manage the data, and construct this model. I also used ArcGIS to produce maps to illustrate where REDD+ investments will generate the highest biodiversity co-benefits. To model REDD+ activities, I took the following steps. The costs of REDD+ is estimated by calculating the net present value of profits from agricultural operations which are on the frontier of the countries’ forests, i.e. the opportunity cost of forgoing agricultural production on these lands. To do this, I use a global dataset which contains agricultural revenues for each 5’ grid cell on the Earth’s surface4 and a spatial dataset of the world’s forests.5 The net present value was

3

FAO, Global Forest Resources Assessment 2010: Progress towards Sustainable Forest Management, (Rome: Food and Agriculture Organization of the United Nations, 2010). 4

Robin Naidoo and Takuya Iwamura, "Global-scale mapping of economic benefits from agricultural lands: Implications for conservation priorities," Biological Conservation 140, no. 1-2 (2007): 40-49.

57 estimated for a 30 year period, following the example of other studies. 6 Discount rates varied for different countries to capture variations in investment preferences and risk of doing business in different parts of the world. Following the model of the Forest Carbon Index, I applied a 20 percent discount rate to all Least Developed countries and 15 percent discount rate for all others. Out of the 59 countries in this study, 29 were classified as least developed. A uniform profit margin of 15 percent was applied to all agricultural land. This profit projection has been used previously in the literature.7 While opportunity costs represent the largest portion of REDD+ costs,8 they give a limited perspective on the true costs of developing REDD+ projects. Thus, I add $0.04/tCO2 for administrative costs9 and $0.38/tCO2 for transaction costs10, to the opportunity cost of each area. These additional costs account for a small portion of the total price of current carbon credits. At the current price of carbon credits generated from Clean Development Mechanism projects of $17/tCO211, these additional costs amount to 2.5% of the price. Agricultural rents have also been used before in the 5

European Commission, Joint Research Centre, Global Land Cover 2000 Database, 2003, http://wwwgem.jrc.it/glc2000, (accessed February, 2010). 6

Busch et al.

7

Ibid.

8

Doug Boucher, Diana Movius and Carolyn Davidson, Estimating the Cost and Potential of Reducing Emissions from Deforestation, Union of Concerned Scientists, 2008, http://www.ucsusa.org/assets/documents/clean_energy/Briefing-1-REDD-costs-w-endnotes.pdf, (accessed January 2011). 9

Maryanne Grieg-Gran, The Cost of Avoiding Deforestation: Update of the Report Prepared for the Stern Review of the Economics of Climate Change, (London, UK: Office of Climate Change, 2008). 10

Camille Antinori and Jayant Sathay, “Assessing transaction costs of project-based GHG emission trading,” 2007. Lawrence Berkeley National Laboratory, Berkeley, CA, http://are.berkeley.edu/~antinori/LBNL-57315.pdf (accessed February, 2011). 11

Ecosystem Marketplace, “Market Watch,” Forest Trends, http://www.ecosystemmarketplace.com/pages/dynamic/marketwatch.landing_page.php (accessed March, 2011).

58 literature for conservation planning.12 13 In addition, agriculture is, although not the only one, the main cause of global deforestation. 14 Profits of frontier agriculture show the geographic distribution of opportunity costs for avoiding deforestation, but they do not show the costs of REDD+ in particular. Because REDD+ has to be additional, projects will only occur in areas which are under threat of future deforestation. Thus, to describe REDD+ activities I first model future tropical deforestation and estimate which forest areas within each country are most likely to be deforested in the next year. To do this, I first exclude the 10% least accessible areas in the world, following the example of another study on REDD+.15 Accessibility is measured by the distance to each area in the world from the nearest town. I make the assumption that the 10% least accessible areas in the world are protected from deforestation in the near future. Next, I assume that countries will experience the same annual deforestation rates as in the past. Thus, my model captures the scenario in which countries’ REDD+ reference levels are equal to their past deforestation rates. I also assume that future deforestation will occur in the most profitable areas, or where the net present value from agriculture is the highest. In each country I rank all areas of frontier agriculture from most to least profitable and select down the list all locations whose total area is equal to the country’s past annual 12

Naidoo and Iwamura.

13

Stephen Polasky, Jeffrey D. Camm, and Brian Garber-Yonts, “Selecting Biological Reserves CostEffectively: An Application to Terrestrial Vertebrate Conservation in Oregon,” Land Economics 77 (2001): 68–78. 14

UNEP, FAO, UNFF, Vital Forest Graphics, 2009, http://www.grida.no/publications/vg/forest/, (accessed February 2011), 11. 15

Adrian Deveny, Janet Nackoney, Nigel Purvis, “Forest Carbon Index: The geography of Forests in Climate Solutions,” 2009, Joint report by Resources for the Future and Climate Advisers, http://www.forestcarbonindex.org/RFF-Rpt-FCI_small.pdf (accessed February, 2011).

59 deforestation rate. I arrive at 5549 polygon areas of various sizes, with a mean area of 1552 hectares. These areas represent potential project sites for REDD+ in the next year. For each of these areas, I calculate the forest carbon content using a global dataset of above-ground carbon estimates. This calculation does not represent all carbon stored in forest ecosystems. Carbon is also stored in below-ground forest biomass and soils. Deforestation, thus, leads to the release of carbon from these sources as well as from above-ground forest biomass. The conversion of forest areas also leaves behind forest litter which decays over time and emits additional CO2. 16 In my model, I only account for CO2 emissions which are released from the above-ground forest biomass as a result of deforestation. This approach is consistent with a previous study on REDD+17 and with methods for calculating forest carbon content recognized by the Verified Carbon Standard.18 The approach, however, results in the underestimation of the amount of emissions which result from deforestation and, consequently, the emissions which the implementation of REDD+ will prevent. The carbon stored in the forests biomass is not fully representative of the amount of emission reductions that result from avoiding deforestation through REDD+. Even if protected under REDD+, forest areas face continuous risks and could be partially deforested or damaged and consequently release CO2. Natural disasters such as forest fires as well as unclear land tenure systems and weak law enforcement in many REDD+ eligible countries can result in the non-permanence of REDD+ projects. 16

IPCC, IPCC Guidelines for National Greenhouse Gas Inventories vol 4 Agriculture, Forestry and Other Land Use, (Geneva: IPCC, 2006). 17 18

Deveny, Nackoney and Purvis.

Verified Carbon Standard, “Agriculture, Forestry and Other Land Use (AFOLU) Requirements,” March 2011, VCS Version 3, http://www.v-c-s.org/docs/AFOLU%20Requirements%20-%20v3.0.pdf (accessed March, 2011). 24.

60 Because of these future risks, the actual emission reductions can be lower than the amount of emissions avoided by preventing deforestation initially. To make a more accurate estimate of emission reductions from avoiding deforestation, the Verified Carbon Standard discounts the carbon stored in forest areas by a certain percentage.19 Deveny et al. (2009) follow this example by discounting all forest carbon values by 20%.20 In this paper, I adopt the same approach and discount the forest carbon values by 20% to account for the risk of non-permanence. To account for biodiversity values in each of these areas, I use data on the 825 terrestrial eco regions of the world. Currently, the REDD+ mechanism does not specify a way to define biodiversity. However, the Carbon Community and Biodiversity (CCB) standard gives guidelines to project developers on how to assess forest biodiversity values. To receive a gold certificate from the CCB standard, a project has to occur in an area which hosts at least one critically endangered or endangered species, at least 30 vulnerable species, or host species which are endemic to the region. In this paper, I use data on the abundance of species in each of 825 terrestrial eco-regions. I define species important for biodiversity as species which are strictly endemic to the eco-region, or species which are listed in the UN Red List as vulnerable, endangered, or critically endangered. I assume that the number of these species found in each eco-region is equal to the number of these species found in the smaller REDD+ areas within the ecoregion. The average area of an eco-region equals 1,216,368 hectares while the average area of REDD+ sites is 1552 hectares. Thus, it is an oversimplification to assume that a 19

Verified Carbon Standard, “AFOLU Non-Permanence Risk Tool,” March 2011, VCS Version 3, http://www.v-c-s.org/docs/AFOLU%20Non-Permanence%20Risk%20Tool%20-%20v3.0.pdf (accessed March, 2011). 20

Deveny, Nackoney and Purvis.

61 species which occurs in the larger eco-region will also be found in the small REDD+ area. Absolute values of the number of species protected in REDD+ areas, thus, should be taken with caution. I also define biodiversity value according to the conservation status of the eco-region. A study by the World Wildlife Fund categorized each ecoregion according to the present and future threats that the region faces. 21 Eco-regions were defined as relatively stable or intact, vulnerable or critically endangered. In this paper, I use critically endangered regions to define areas of high conservation priority. In these regions, REDD+ projects will achieve significant biodiversity co-benefits. Data Used I used the following data to construct this study’s model. Data included both raster and vector datasets, which were managed using ArcGIS, as well as tabular data, which were managed using both Excel and ArcGIS. The first three datasets were carbon content of forests, agricultural revenues, and biodiversity values. The aboveground carbon content was estimated by Kindermann et al. (2008) and provided as a raster dataset with a resolution of 50km (figure 4.1). The data was derived using variations of plant growth and human influence within each country. 22 Each grid cell in the raster data set contains the amount of carbon per hectare. To convert that to CO2 per hectare, I multiplied by a common conversion rate of 3.66. 23 As illustrated, the tropical region contains vast amounts of carbon. Many of the study’s countries exhibit a high potential for reducing emissions by avoiding deforestation. 21

David M. Olson and Eric Dinerstein, “The Global 200: Priority Ecoregions for Global Conservation,” Annals of the Missouri Botanical Garden 89 (2002): 199-224. 22

Georg E. Kindermann, Ian McCallum, Steffen Fritz and Michael Obersteiner, “A Global Forest Growing Stock, Biomass and Carbon Map Based on FAO Statistics,” Silva Fennica 42 (2008). 23

Deveny, Nackoney and Purvis.

62 FIGURE 4.1 WORLD ABOVE-GROUND CARBON CONTENT

DATA SOURCE: Georg E. Kindermann, Ian McCallum, Steffen Fritz and Michael Obersteiner, “A Global Forest Growing Stock, Biomass and Carbon Map Based on FAO Statistics,” Silva Fennica 42 (2008).

The annual average agricultural rents, used to derive opportunity costs, were provided as a raster dataset in a study by Naidoo and Iwamura (figure 4.2). The authors estimated the gross revenues, in 2007 dollars, per hectare for each 0.5’ grid cell on the surface of the earth based on the productivity and global prices of 42 crops and 6 livestock types. Agricultural revenues range from $0 to $6500/ha./year. In the region of this study, areas of high revenues include regions in Brazil, Argentina, and Uruguay,

63 where livestock production prevails, and south-east Asia, where a combination of rice and livestock is more dominant.24 FIGURE 4.2 WORLD ANNUAL AGRICULTURAL REVENUES

DATA SOURCE: Robin Naidoo and Takuya Iwamura, "Global-scale mapping of economic benefits from agricultural lands: Implications for conservation priorities," Biological Conservation 140, no. 1-2 (2007).

Data on biodiversity was derived from the World Wildlife Fund, an international non-governmental organization. A vector dataset of the 825 terrestrial eco-regions of the world25 provided the spatially explicit boundaries of each eco-region and the

24

Naidoo and Iwamura, 42.

64 conservation status of each. This dataset was used to identify the critically endangered terrestrial eco-regions. There are multiple areas of concern (figure 4.3) which include: areas in Brazil, threatened by expanding cattle ranches; montane forests in Colombia threatened by farmland and cattle ranching; various forest types in Central America, threatened by agriculture, both crop and livestock Africa’s Ivory Coast, due to agricultural plantations or logging; Madagascar, due to agriculture; Indonesia’s lowland rain forests because of expansion of palm oil plantations or logging, and logging areas in Viet Nam and Thailand.26 Additional information on each eco-region, including the number of species classified as endemic was also provided by WWF. 27 The WildFinder database by WWF28 was also used. It provided a data table of all known species found in each ecoregion and their category according to the Red List of Species. This dataset was used to calculate the number of vulnerable, endangered or critically endangered species in each eco-region.

25

David Olson, E. Dinerstein, E.D. Wikramanayake, N.D. Burgess, G.V.N. Powell, E.C. Underwood, J.A. D'amico, I. Itoua, H.E. Strand, J.C. Morrison, C.J. Loucks, T.F. Allnutt, T.H. Ricketts, Y. Kura, J.F. Lamoreux, W.W.Wettengel, P. Hedao, & K.R. Kassem, “Terrestrial Ecoregions of the World: A New Map of Life on Earth,” BioScience 51 (2001): 933-938. 26

National Geographic, “Wild World,” NG, http://www.nationalgeographic.com/wildworld/ (accessed February, 2010). 27 28

Olson et al.

World Wildlife Fund, “WildFinder: Online Database of Species Distributions, ver. 01.06,” gis.wwfus.org/wildfinder (accessed February, 2011).

65 FIGURE 4.3 CRITICALLY ENDANGERED FOREST AREAS

DATA SOURCE: David Olson, E. Dinerstein, E.D. Wikramanayake, N.D. Burgess, G.V.N. Powell, E.C. Underwood, J.A. D'amico, I. Itoua, H.E. Strand, J.C. Morrison, C.J. Loucks, T.F. Allnutt, T.H. Ricketts, Y. Kura, J.F. Lamoreux, W.W.Wettengel, P. Hedao, & K.R. Kassem, “Terrestrial Ecoregions of the World: A New Map of Life on Earth,” BioScience 51 (2001): 933-938.

The spatial distribution of carbon content, agricultural revenues and conservation priority areas will ultimately determine the potential of the REDD+ mechanism to reduce emissions cost effectively and to achieve conservation benefits. To model future deforestation and make a projection about which areas will likely be eligible for REDD+ projects, I use the following datasets.

66 Countries’ forest areas were identified using a global land-cover map that classifies over 20 land types with a spatial resolution of 1km at the equator. 29 Because REDD+ negotiations have not yet reached a conclusion on the appropriate definition of forest30, I included all forest types present in the global data set. The same approach has been taken in other studies modeling REDD+ activities. 31 The types of forests included were: broadleaved evergreen, closed broadleaved deciduous, open broadleaved, deciduous, needle-leaved evergreen, needle-leaved deciduous, mixed leaf type, regularly flooded tree cover with fresh water, regularly tree cover flooded with saline water, and mosaic tree cover with other natural vegetation. To find the 10% least accessible areas in the world, I use a global raster dataset developed by the Joint Research Center of the European Commission 32. Nelson et al. (2008) estimate the travel time it takes to get to a place from the nearest city with a population of at least 50,000. The authors used a cost-distance algorithm to determine travel time to a location of interest using land (road and off-road) or water (navigable river, lake, and ocean) based travel. Travel time is influenced by the geographic location of transportation networks, including roads, rail networks, navigable rivers, and shipping lanes, as well as environmental and political factors. Environmental factors include land cover and slope. Political ones include national borders which could act as 29

European Commission, Joint Research Centre.

30

T. Pistorius, C.B. Schmitt, D. Benick, S. Entenmann, “Greening REDD+: Challenges and opportunities for forest biodiversity conservation,” 2010, Policy Paper, University of Freiburg, Germany, http://www.forestcarbonportal.com/sites/default/files/GreeningREDD+_FreiburgUniversity_2010_0.pdf (accessed March, 2011), 4. 31 32

Deveny, Nackoney and Purvis.

A. Nelson, Estimated Travel Time to the Nearest City of 50,000 or More People in Year 2000, Global Environment Monitoring Unit - Joint Research Centre of the European Commission, (Ispra, Italy. 2008), http://bioval.jrc.ec.europa.eu/products/gam/, (accessed January 2011).

67 travel barriers. The values varied between 75 days to get to the most remote place to 0 hours in urban areas, with a mean of 10.9 days. Deforestation rates for each country were taken from the latest estimates of the main resource for global deforestation data to date: the UN Food and Agricultural Organization’s Global Forest Resource Assessment (FRA 2010). 33 The study collected self-reported data from 233 countries. FAO officials work across countries to ensure the consistency of self reported data by facilitating forest data collection, training national authorities and holding workshops. However, the literature agrees that the statistics are not a completely accurate measurement of deforestation statistics.34 Thus, results derived from modeling deforestation must be taken with caution. Countries’ readiness levels were provided by the Forest Carbon Index (FCI) REDD+ model. The authors estimated the readiness levels based on countries’ previous experience with carbon markets and capacity to use remote-sensing technology.35 Finally, I used a vector dataset containing the boundaries of all countries to develop this study’s model. These data were developed by the Environmental Systems Research Institute, Inc.36 Once I identified which areas are going to be deforested, I developed the final dataset containing all 5549 potential REDD+ project areas, their area in hectares, 33

FAO, Global Forest Resources Assessment 2010: Progress towards Sustainable Forest Management, (Rome: Food and Agriculture Organization of the United Nations, 2010). 34

Alan Grainger, “Difficulties in Tracking the Long-term Global Trend in Tropical Forest Area,” Proceedings of the National Academy of Sciences USA 105 (2008): 818. 35

36

Deveny, Nackoney and Purvis.

Environmental Systems Research Institute, Inc, ESRI Data and Maps, [DVD-ROM] (Redlands, CA: ESRI, 2005).

68 amount of carbon per hectare, cost per hectare, and biodiversity data. I used this dataset to run the three optimization problems described earlier. Application of Method I applied the approach of this study using both Excel and ArcGIS to model future deforestation areas and thus estimate areas where REDD+ projects will likely occur. ArcGIS was used to manage the datasets described above as data layers, which were used to construct the final dataset, used for running the optimization problems and constructing the abatement cost curves. All raster datasets were converted to vector polygons, to manage the data and perform spatial analyses. Using the accessibility data set, I used ArcGIS to select the 10% of all terrestrial area that was least accessible to human encroachment (figure 4.4). Several forest areas were excluded from the countries included in this study. Within the study’s countries, 12% of forest areas were excluded in this step. Most notably, areas in the heart of the Amazon came up as inaccessible, as well as parts of Indonesia and Malaysia.

69 FIGURE 4.4 WORLD’S LEAST ACCESSIBLE AREAS

DATA SOURCE: A. Nelson, Estimated Travel Time to the Nearest City of 50,000 or More People in Year 2000, Global Environment Monitoring Unit - Joint Research Centre of the European Commission, (Ispra, Italy. 2008), http://bioval.jrc.ec.europa.eu/products/gam/, (accessed January 2011).

Working within the boundaries of the countries in this study, I use the agricultural revenue dataset as a starting point to model opportunity costs of frontier agriculture. I first use overlay analysis in ArcGIS to exclude all least accessible regions from the opportunity cost dataset. Then, I construct a dataset containing all locations of frontier agriculture, by including all areas from the cost dataset which fall into forestcovered areas. This results in 321,507 frontier agricultural areas. Agricultural revenues vary from $3,831/ha/year to $1/ha/year across these places. Next I calculate the net present value of frontier agricultural profit using the equation in figure 4.5.

70

FIGURE 4.5 NET PRESENT VALUE EQUATION

Where: : Opportunity cost of area j ($/ha) : Annual average agricultural revenue in area j ($/ha) : Profit margin (equal to 0.15) r: Discount rate (equal to 0.20 for areas in least developed countries and 0.15 for areas in all other countries).

After calculating the net present value for each frontier agricultural area, I use Excel to select the number of areas in each country with the highest opportunity costs whose total area equals the average annual deforestation area in each country. This results in a selection of 5549 forest areas which are facing deforestation due to expansion of frontier agriculture. Based on spatial location, I joined the resulting dataset with the carbon content dataset to estimate the amount of tCO2 per hectare for each potential REDD+ area. I also joined the dataset of the world’s terrestrial ecoregions to find which REDD+ project areas fall into a critically endangered eco-region, as well as, what the average number of strictly endemic, vulnerable, endangered, and critically endangered species in each area is. To calculate REDD+ costs of each forest area in this dataset, I added $0.04/tCO2 for administrative costs37 and $0.38/tCO2 for

37

Grieg-Gran.

71 transaction costs38, to the opportunity cost of each area. This final dataset was used to run optimization problems to construct the conservation possibilities frontier curve and the abatement cost curves. Conservation Possibilities Frontier To construct the CPF, I used Premium Solver Platform, to solve the following optimization problem (figure 4.6). FIGURE 4.6 OPTIMIZATION PROBLEM: CONSERVATION POSSIBILITIES FRONTIER

Objective function:

Max

Constraints:

0

Where: The weight applied to carbon and number of species. Optimizations were repeated for a range of weights to produce the CPF curve. These

values

reflect the different relative preferences of REDD+ investors for protecting species or reducing emissions. A higher number of species protected, while a lower are more important for REDD+ investors. 38

Antinori, C. and Sathay, J.

value places more weight on the implies that emission reductions

72 : The number of strictly endemic, vulnerable, endangered, or critically endangered species found in the eco-region where the REDD+ project site . : This term normalizes the number of species found in each forest area . The term gives the percentage of all species which are found in area . Xi: = a variable which describes whether forest area was selected by the optimization or not. Each area could only be selected once. N: 5549, the number of all REDD+ suitable areas.

: The cost of REDD+ in area ; includes opportunity, administrative, and transaction costs B: a specified budget constraint. : The total CO2 content of area (tCO2). : This term normalizes the amount of carbon in each forest area . The term gives the percentage of all carbon which is found in area .

Scenario 1 - “Baseline” Under Scenario 1, REDD+ projects are developed to reduce the highest possible amount of emissions at least cost. Figure 4.7 describes the optimization problem solved to construct the marginal abatement cost curve.

73 FIGURE 4.7 OPTIMIZATION PROBLEM: REDD+ SCENARIO 1 Objective function:

Max

Constraints:

0

Where: : The total CO2 content of area i (tCO2) Xi: a variable which describes whether the forest area was selected by the optimization or not. Each area could only be selected once. : The cost of REDD+ in area ; includes opportunity, administrative, and transaction costs B: a specified budget constraint. The optimization was repeated for a range of budgets. N: 5549, the number of all REDD+ suitable areas

Scenario 2 - “Critical Eco-regions” Scenario 2 models the costs of REDD+ in critically endangered eco-regions. Investors in REDD+ projects strive to reduce the largest amount of emissions at least cost within critically endangered forest eco-regions (Figure 4.8).

74 FIGURE 4.8 OPTIMIZATION PROBLEM: REDD+ SCENARIO 2 Objective function:

Max

Constraints: 0

Where: Type of eco-region that area falls into; 1 = critically endangered eco-region; 0 = all other eco-regions

Scenario 3 - “Compromise” This scenario achieves a compromise goal between saving the highest number of strictly endemic, vulnerable, endangered or critically endangered species and reducing carbon emissions. The objective is to maximize a weighted sum, given below. The weight 0.33 was chosen from the CPF curve above. This value weighs the goal of reducing emissions twice as much as the goal of protecting species. A

value of 0.33

was chosen to explore how low sacrifices in emission reductions will impact the number of species protected and the costs of REDD+. After I generated the CPF curve, I noticed that the curve had a relatively flat response: small sacrifices in emission reductions could lead to large increases in the number of species protected with the same budget. This implies that a “compromise” could be achieved if the

is slightly

weighted towards species’ protection. A value of 0.33 weighted species protection enough to take advantage of this flat response.

75

FIGURE 4.9 OPTIMIZATION PROBLEM: REDD+ SCENARIO 3 Objective function: Max Constraints:

0

Mapping Biodiversity Co-benefits Finally, I use ArcGIS to illustrate which countries from the ones included in this study are most likely to generate biodiversity co-benefits from REDD+ projects. For each REDD+ project area, I calculate the number of species protected for each dollar invested in REDD+ to reduce one ton of CO2 emissions. I do this by dividing the number of species found in each REDD+ project site by the cost of REDD+ and dividing this by the amount of CO2 stored in that forest area. I average this number across all REDD+ sites in each country to obtain the average value for each country. Results This paper projects the location of future deforestation activities driven by expanding agricultural land. Forest areas threatened by conversion represent potential sites for the location of REDD+ projects. They are additional according to REDD+ requirements and the assumptions made in this study. The areas which are projected to be deforested are presented in figure 4.10.

76 FIGURE 4.10 PROJECTION OF FUTURE DEFORESTATION AREAS

Major areas of future deforestation appear to be the Amazon frontier and southern Brazil, where livestock agriculture is most profitable, Indonesia’s Sumatra Island, where palm oil plantations are cropping up, and expanding agricultural areas in Myanmar. In total, these areas store 205.8 million tCO2. By avoiding future deforestation, the implementation of REDD+ can prevent these emissions from entering the atmosphere. Protecting these areas will prevent the deforestation of 8,769,940 hectares

77 of forest and reduce the current annual rate of deforestation, at 13 million hectares 39, by 67%. These forest areas also harbor a total of 170,117 species determined to be strictly endemic, vulnerable, endangered or critically endangered. Thus, implementing REDD+ can potentially benefit global biodiversity conservation. The total cost of protecting these areas through REDD+ projects is $2.9 billion. This cost includes the opportunity cost of forgone agricultural profits, as well as administrative and transaction costs incurred by REDD+ project developers. The marginal costs for mitigating each ton of carbon vary between $0.72/tCO2 to $985/tCO2. The average cost of carbon credits across all areas is $55/tCO2. Conservation Possibilities The results presented here demonstrate the potential of REDD+ to achieve its multiple goals under limited budgets. The possibilities of REDD+ to reduce emissions and protect biodiversity are illustrated by the CPF curves (figure 4.11).

39

FAO.

78 FIGURE 4.11 CONSERVATION POSSIBILITIES FRONTIER FOR REDD+

* Includes species strictly endemic to the eco-region, or species classified under the UN Red List as vulnerable, endangered, or critically endangered.

As shown, there is a non-linear tradeoff between reducing emissions and protecting species which are strictly endemic to the project’s eco-region, or are determined to be vulnerable, endangered or critically endangered. In addition, this trade-off exists regardless of the available budget. The non-linearity of the CPF reflects increasing opportunity costs of protecting species under REDD+, where the opportunity cost is the amount of possible CO2 emission reductions. Both budget scenarios reflect low initial opportunity costs of species protection. Thus, there is a high potential for

79 increasing the number of species protected with small sacrifices in potential emission reductions. It should be noted that the CPF does not converge to the axes, like a PPF would. This is because all tropical forest areas suitable for REDD+ contain some number of endemic, vulnerable, endangered or critically endangered species and all forest areas contain some amount of carbon in their biomass. As currently designed, REDD+ encourages investment in areas where carbon emission can be reduced at least cost. Given a budget of $560 million, roughly the amount of the World Bank’s Carbon fund for REDD+ projects, REDD+ can reduce 120 million tCO2. This will result in the protection of roughly 18,000 species. This could also lead to the leakage of deforestation activities to areas of much higher biodiversity values. In an alternative scenario, much greater biodiversity co-benefits can be achieved if REDD+ projects were implemented in slightly more costly areas which store a greater number of species. As illustrated, under a budget of $560 million, REDD+ could increase the number of species protected fivefold by forgoing 15% of potential emission reductions (moving from A to B). The results presented here suggest that REDD+ can benefit biodiversity conservation through a small compromise in the original goal of REDD+ of reducing CO2 emissions. Such a compromise approach would require international leaders to agree on specific requirements and standards for REDD+ to encourage the implementation of projects in areas of greater biodiversity. This paper models the costs of a compromise approach, presented as scenario 3 below.

80 Costs of Alternative REDD+ Scenarios Marginal abatement cost curves were derived from the optimization problems developed above. The cost curves for REDD+ under different scenarios are shown in figure 4.12. FIGURE 4.12 MARGINAL ABATEMENT COST CURVES FOR REDD+

Scenario 1, which represents implementation of REDD+ in least cost forest areas, shows that REDD+ can be a cost-effective way to reduce CO2 emissions. . Implementing REDD+ in all areas where emission reductions cost less than $13/tCO2,

81 the average price paid for voluntary carbon credits from pilot REDD+ projects,40 will reduce roughly 140 million tCO2. This will reduce emissions from deforestation in all 59 countries in this study by 69%. The cost is lower than the prices currently paid for the right to emit one ton of CO2. The current price of emission allowances in the European Emission Trading Scheme is $17/tCO2. 41 Scenario 2 shows that there is a limited opportunity to develop cost effective REDD+ projects in critically endangered forest eco-regions. REDD+ projects for under $13/tCO2 can reduce roughly 40 million tCO2. This will also protect a total of 825,061 hectares of critically endangered habitat in southern Brazil, Indonesia’s island of Sumatra, Ecuador and Colombia. This area amounts to 28% of the total area of critically endangered habitat that is under threat from deforestation within the next year. The compromise approach, scenario 3, illustrates that biodiversity co-benefits from REDD+ can come at a relatively low cost. For reducing up to 150 million tons of CO2 emissions, a maximum “biodiversity premium” of $1/tCO2 on average has to be added to the price of REDD+. Such a premium would generate the needed funding to direct REDD+ projects to biodiversity rich forest areas. A compromise approach will achieve significantly greater conservation benefits (figure 4.13).

40

Katherine Hamilton, Unna Chokkalingam, and Maria Bendana, “State of the Forest Carbon Markets 2009: Taking Roots and Branching Out,” 2009, Forest Trends, http://moderncms.ecosystemmarketplace.com/repository/moderncms_documents/SFCM_2009_smaller.p df (accessed February 2011). 41

Point Carbon, “Point Carbon’s OTC Price Assessment,” http://www.pointcarbon.com/ (accessed March, 2011).

82 FIGURE 4.13 ACHIEVING REDD+ GOALS UNDER DIFFERENT SCENARIOS

* Includes species strictly endemic to the eco-region, or species classified under the UN Red List as vulnerable, endangered, or critically endangered.

The co-benefits of a least cost scenario such as scenario 1 are low at low levels of abatement. Figure 4.8 illustrates the fact that forest areas with high numbers of species do not occur in the most cost effective areas for REDD+. Thus, low levels of funding for REDD+ could focus efforts in biodiversity poor areas. This could potentially increase pressure on forests with more biodiversity. A compromise approach, however, can lead to high biodiversity co-benefits at both low and high levels of abatement.

83 The Impact of Readiness Levels Optimizations for scenario 1 and 2 were run only for countries which have a readiness level above the average for all countries in the study. This step excluded 40 countries from the 59 originally included in this study. Implementing REDD+ exclusively in countries considered to be “ready” reduces the potential of the mechanism (figure 4.14). FIGURE 4.14 ACCOUNTING FOR READINESS IN REDD+ SCENARIOS

For REDD+ projects which are exclusively focused in critically endangered ecoregions (scenario 2) the exclusion of less “ready” countries from the model had a significant impact on the total costs of abatement. For scenario 1, the exclusion of non-

84 ready countries led to reductions in the potential of REDD+ for emission abatement. For a price of $20/tCO2, REDD+ projects in countries which are ready to implement the mechanism will reduce around 90 million tCO2, compared to 170 million across all countries. These results indicate that improving readiness levels will have high benefits for both low-cost emission reductions and biodiversity co-benefits. Spatial Distribution of Biodiversity Co-benefits Biodiversity conservation is not an automatic result of implementing REDD+ in the most cost effective forest areas. Investors have to target funding specifically towards areas and countries where REDD+ projects can protect high numbers of species. Figure 4.15 illustrates the differences between countries and the places where REDD+ investment might bring about the highest benefits for biodiversity.

85 FIGURE 4.15 COUNTRY BIODIVERSITY CO-BENEFITS FROM REDD+

* Includes species strictly endemic to the eco-region, or species classified under the UN Red List as vulnerable, endangered, or critically endangered.

REDD+ investments are represented as each dollar invested to reduce one ton of CO2 emissions. Funding for REDD+ protects the highest numbers of species if directed towards Peru, 8 species on average, Equatorial Guinea, 8 species, and Malaysia, an average of 7 species. Other countries with a high potential for biodiversity co-benefits include Papa New Guinea, Madagascar, Central African Republic, Nigeria, Togo, Mali, and Ecuador. REDD+ investments in Indonesia and Brazil, the countries ranking first

86 and second respectively in terms of current REDD+ pilot projects, 42 will protect relatively low numbers of species. Projections of REDD+ implementation show that 74% of future projects will be developed in Brazil. 43 Under these trends, REDD+ will have low benefits for global biodiversity.

42

Gillian Cerbu, Peter Minang, Brent Swallow and Vanessa Meadu, “Global Survey of REDD Projects: What implications for Global Climate Objectives?,” ASB PolicyBrief 12 (2009). 43

Oscar Venter, William F. Laurance, Takuya Iwamura, Kerrie A. Wilson, Richard A. Fuller, and Hugh P. Possingham, "Harnessing Carbon Payments to Protect Biodiversity," Science 326, no. 5958 (2009): 1368.

CHAPTER V CONCLUSION Country leaders, international investors, and buyers of forest carbon credits see the REDD+ mechanism as a way to achieve the multiple goals of reducing emissions from deforestation and conserving forest biodiversity. In the current state of climate negotiations, the REDD+ framework does not include provisions for the protection of biodiversity. Discussions during COP15 in 2009 remained uncertain as to whether to include specific rules to protect biodiversity in REDD+ design, or to assume that biodiversity protection will happen automatically. 1 Summary The literature has not reached a consensus on whether REDD+ can protect biological diversity while reducing emissions cost effectively. Busch et al. (2010) find that least cost REDD+ projects can decrease species extinction rates significantly. A sub-national study of REDD+ effects in Indonesia, however, finds that there are large trade-offs between reducing emissions cost effectively and saving the greatest number of species.2 Paoli et al. (2010) call for further research into the implementation of 1

Alan Grainger, Douglas H. Boucher, Peter C. Frumhoff, William F. Laurance, Thomas Lovejoy, Jeffrey McNeely, Manfred Niekisch, Peter Raven, Navjot S. Sodhi, Oscar Venter and Stuart L. Pimm, “Biodiversity and REDD at Copenhagen,” Current Biology 19, no. 21 (November 2009): R974-R976.. 2

Gary D Paoli, Philip L. Wells, Erik Meijaard, Matthew J. Struebig, Andrew J. Marshall, Krystof Obidzinski, Aseng Tan, Andjar Rafiastanto, Betsy Yaap, J.W. Ferry Slik, Alexandra Morel, Balu Perumal, Niels Wielaard, Simon Husson, Laura D’Arcy, “Biodiversity Conservation in the REDD,” Carbon Balance and Management 5 (2010).

87

88 REDD+ on the sub-national level.3 In this paper, I address this gap in the literature and study the potential of REDD+ to achieve biodiversity co-benefits on the project level. I developed a sub-national model for REDD+ projects in 59 tropical developing countries which are eligible for REDD+. The Conservation Possibilities Frontier (CPF) constructed illustrates the possibilities for REDD+ to achieve emission reductions and protection of species. I also constructed Marginal Abatement Cost Curves of REDD+ based on three policy scenarios. Scenario 1 models REDD+ as it is currently designed: to encourage least cost emission reductions. Scenario 2 and scenario 3 model REDD+ with biodiversity co-benefits. Scenario 2 assumes that REDD+ will benefit biodiversity if it protects forests in critically endangered eco-regions. Scenario 3 attempts to model a realistic approach by REDD+ investors who seek a compromise between protecting the greatest number of species and reducing the most CO2 emissions. The results are congruent with Venter et al. (2009) who find non-linear tradeoffs between emission reductions and species protection.4 Finally, I used ArcGIS to illustrate where REDD+ investments might generate the highest biodiversity co-benefits. I find that, on average, REDD+ funding protects the highest number of species if directed towards Peru, Equatorial Guinea and Malaysia.

3 4

Ibid.

Oscar Venter, William F. Laurance, Takuya Iwamura, Kerrie A. Wilson, Richard A. Fuller, and Hugh P. Possingham, "Harnessing Carbon Payments to Protect Biodiversity," Science 326, no. 5958 (2009): 1368.

89 Conclusions Due to the existing tradeoff between reducing emissions and protecting species, least cost REDD+ projects will not result in high benefits for biodiversity. Cost effective projects can reduce a relatively low amount of emissions from critically endangered eco-regions. Significant biodiversity co-benefits can be achieved if REDD+ investment are carefully targeted towards forest areas rich in both species and carbon. Through such a compromise approach, biodiversity co-benefits will cost an average premium of $1/tCO2. Thus, REDD+ can protect large numbers of rare and threatened forest species while remaining a cost effective way to reduce CO2 emissions. An opportunity exists for drastically increasing biodiversity co-benefits from REDD+ projects. This requires that international leaders incorporate explicit requirements and guidelines for biodiversity conservation in the REDD+ framework. Provisions for conservation co-benefits can adopt or build upon existing certification standards such as the Community Carbon and Biodiversity (CCB) standard. The CCB currently certifies pilot REDD+ projects for achieving biodiversity co-benefits.5 The cost premium for biodiversity co-benefits can be charged to all buyers of REDD+ credits or be funded separately by conservation organizations. Implementing REDD+ in low cost areas with low numbers of species could result in the leakage of deforestation activities to biodiversity rich forests. It is important that policy makers minimize any potential harm on biodiversity. The CCB standard’s

5

Climate Community and Biodiversity Alliance, “Climate, Community and Biodiversity Project Design Standards Second Edition,” 2008, CCBA Arlington, VA. www.climate-standards.org. (accessed February, 2011), 35.

90 requirements for mitigating deforestation leakage provide a useful example for the implementation of REDD+.6 The potential of REDD+ to protect species and critically endangered eco-regions also depends on country readiness to implement REDD+. Readiness activities are thus beneficial to biodiversity co-benefits, as they prepare countries with critically endangered habitats to participate in the mechanism. Limitations of the Study The results of this study are dependent on the simplifying assumptions made and the limitations of the approaches taken. First, the deforestation dataset used, country self-reported deforestation rates provided by the UN Food and Agricultural Organization, is widely recognized in the literature for its potential inaccuracies 7. Thus, the projections of future deforestation made in this study should be taken with caution. The development of remote-sensing technologies to monitor precise changes in forest cover can benefit future studies on REDD+ and facilitate monitoring and reporting of REDD+ projects. My model assumes that agriculture is the only driver of deforestation. I use agricultural revenues to determine the opportunity cost of reducing deforestation. In reality, timber profits, oil extraction profits, and unclear land tenure systems which lead to illegal activities might be other important causes of deforestation. In addition, I do not account for variation in profits from agriculture. To model future deforestation, I

6 7

Climate Community and Biodiversity Alliance, 23.

Adrian Deveny, Janet Nackoney, Nigel Purvis, “Forest Carbon Index: The geography of Forests in Climate Solutions,” 2009, Joint report by Resources for the Future and Climate Advisers, http://www.forestcarbonindex.org/RFF-Rpt-FCI_small.pdf, (accessed February, 2011).

91 assume that forests will be converted where frontier agriculture is most profitable. In reality, additional factors such as domestic policy within each country can influence the location of deforestation activities. I also assume that transaction and administrative costs for REDD+ projects are the same across all countries. Future studies which account for variations in these values might provide a more accurate picture of opportunity costs. There is much uncertainty over the appropriate level of country readiness for implementing REDD+. I assume that “ready” countries are these which have an above average readiness level, according to the readiness index developed by Deveny et al. (2009).8 The literature will benefit from future studies which estimate the exact capacity gaps of countries to implement REDD+. Furthermore, I derive forest carbon content from estimates of above-ground carbon estimates. This approach underestimates the total amount of carbon stored in forest ecosystems, which also hold carbon in their below-ground biomass and in the soil. Potential emission reductions from REDD+, thus, are also underestimated by this model. Finally, I use eco-region level species data to estimate the number of species protected in smaller REDD+ project areas. Due to these limitations, this study’s deforestation projections and absolute values of the cost, carbon content, and number of species should be taken with caution. The development of REDD+ should ultimately be studied on a country-bycountry basis. 9 Using the best available country data and local expertise will provide

8 9

Ibid.

UN-REDD, 2009 Year in Review, 2010. http://www.unredd.net/index.php?option=com_docman&task=doc_download&gid=1692&Itemid=53 (accessed April, 2011), 13.

92 the accuracy that REDD+ project developers need to cost effectively protect forest areas, reduce emissions and protect rare and threatened species.

WORKS CONSULTED

Angelsen, Arild, Sandra Brown, Cyril Loisel, Leo Peskett, Charlotte Streck and Daniel Zarin. “Reducing Emissions from Deforestation and Forest Degradation (REDD): An Options Assessment Report.” 2009. Facilitated by Meridian Institute. http://www.reddoar.org/links/REDD-OAR_en.pdf (accessed January, 2011). Antinori, Camille and Jayant Sathay. “Assessing transaction costs of project-based GHG emission trading.” 2007. Lawrence Berkeley National Laboratory, Berkeley, CA, http://are.berkeley.edu/~antinori/LBNL-57315.pdf (accessed February, 2011). Association for Tropical Biology and Conservation and the Society for Tropical Ecology. The Marburg Declaration. Marburg, Germany: ATBC, 2009. Austin, Kemen, Florence Daviet and Fred Stolle. “The REDD+ Decision in Cancun.” World Resources Institute. http://www.wri.org/stories/2010/12/redd-decision-cancun (accessed February 2011). Benítez, Pablo, Ian McCallum, Michael Obersteiner and Yoshiki Yamagata. "Global potential for carbon sequestration: Geographical Distribution, Country Risk and Policy Implications." Ecological Economics 60, no. 3 (2007): 572-583. Boucher, Doug, Diana Movius and Carolyn Davidson. “Estimating the Cost and Potential of Reducing Emissions from Deforestation.” 2008. Union of Concerned Scientists. http://www.ucsusa.org/assets/documents/clean_energy/Briefing-1-REDDcosts-w-endnotes.pdf (accessed January, 2011). Boucher, Doug, Estrellita Fitzhugh, Sarah Roquemore, Patricia Elias and Katherine Lininger. “Deforestation Today: It’s Just Business.” 2010. Union of Concerned Scientists. http://www.ucsusa.org/assets/documents/global_warming/DeforestationToday-It-s-Just-Business.pdf (accessed January, 2011). Bureau of Economic Analysis, U.S. Department of Commerce. Selected National Income and Product Accounts Tables: Table 1.1.9. Implicit Price Deflators for Gross Domestic Product. http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=Y (accessed March, 2011).

93

94 Busch, Jonah, Bernardo Strassburg, Andrea Cattaneo, Ruben Lubowski, Aaron Bruner, Richard Rice, Anna Creed, Ralph Ashton and Frederick Boltz. “Comparing climate and cost impacts of reference levels for reducing emissions from deforestation.” Environmental Research Letters 4 (2009). Busch, Jonah, B. Strassburg, A. Cattaneo, R. Lubowski, F. Boltz, R. Ashton, A. Bruner, R. Rice and Anna Creed. “Open Source Impacts of REDD Incentives Spreadsheet (OSIRIS v3.4).” 2010. http://www.conservation.org/osiris/Pages/overview.aspx (accessed November, 2010). Busch, Jonah, Fabiano Godoy, Will Turner and Celia Harvey. “Biodiversity Co-benefits of Reducing Emissions from Deforestation under Alternative Reference Levels.” Conservation Letters 00 (2010). Calmel, Marie, Anne Martinet, Nicholas Grondard, Thomas Dufour, MAxence Rageade and Anouk Ferté-Devin. “REDD+ at Project Scale: an Evaluation and Development Guide.” 2010. ONF International. http://www.onfinternational.org/images/stories/information/publications/guide_redd_en g.pdf (accessed (January, 2011). Carbon Finance Unit, World Bank Group. Forest Carbon Partnership Facility: FY2010 Annual Report. 2010. http://www.forestcarbonpartnership.org/fcp/sites/forestcarbonpartnership.org/files/Docu ments/PDF/Nov2010/2010FCPF-annual%2007.pdf. (accessed February, 2011). Carbon Positive. “Analysis and reaction: REDD deal hailed for forests.” 2010. http://www.carbonpositive.net/viewarticle.aspx?articleID=2214 (accessed January 2011). Cerbu, Gillian, Peter Minang, Brent Swallow and Vanessa Meadu. “Global Survey of REDD Projects: What implications for Global Climate Objectives?” ASB PolicyBrief 12 (2009). Chen, Wenying. "The Costs of Mitigating Carbon Emissions in China: Findings from China MARKAL-MACRO modeling." Energy Policy 33, no. 7 (2005): 885-896. Climate Community and Biodiversity Alliance. “Climate, Community and Biodiversity Project Design Standards Second Edition.” 2008. CCBA Arlington. VA. www.climatestandards.org (accessed February, 2011). Coase, Ronald. “The Problem of Social Cost.” The Journal of Law and Economics 3 (October 1960): 1-44.

95 Conservation International. “REDD+ Scope/Participation.” 2010. http://www.conservation.org/Documents/Joint_Climate_Policy_Positions/ScopeParticip ation_of_REDDplus_English.pdf (accessed March, 2011). Costanza, Robert, Ralph d’Arge, Rudolf de Groot, Stephen Farberk, Monica Grasso, Bruce Hannon, Karin Limburg, Shahid Naeem, Robert V. O’Neill, Jose Paruelo, Robert G. Raskin, Paul Suttonkk and Marjan van den Belt. “The Value of the World's Ecosystem Services and Natural Capital.” Nature 387 (1997): 253. Deveny, Adrian, Janet Nackoney and Nigel Purvis. “Forest Carbon Index: The Geography of Forests in Climate Solutions.” 2009. Joint report by Resources for the Future and Climate Advisers, http://www.forestcarbonindex.org/RFF-RptFCI_small.pdf (accessed February, 2011). Ebeling, Johannes and Yasué Maï. "Generating Carbon Finance Through Avoided Deforestation and its Potential to Create Climatic, Conservation and Human Development Benefits." Philosophical Transactions of the Royal Society B: Biological Sciences 363, no. 1498 (2008): 1917-1924. EcoSecurities. “The forest carbon offsetting survey 2009.” 2009. EcoSecurities, Conservation International, the Climate, Community & Biodiversity Alliance and ClimateBiz. http://www.ecosecurities.com/Registered/ECOForestrySurvey2009.pdf (accessed January, 2011). Environmental Systems Research Institute, Inc. ESRI Data and Maps. [DVD-ROM] Redlands, CA: ESRI, 2005. European Commission, Joint Research Centre. Global Land Cover 2000 Database. 2003. http://www-gem.jrc.it/glc2000. (accessed February, 2010). FAO, UNDP, UNEP. UN Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD): Framework Document. 2008. http://www.unredd.net/index.php?option=com_docman&task=doc_download&gid=4&I temid=53. (accessed January, 2011). FAO. Global Forest Resources Assessment 2010: Progress towards Sustainable Forest Management. Rome: Food and Agriculture Organization of the United Nations, 2010. Friedman, Thomas. Hot Flat and Crowded. New York, NY: Penguin Books, 2009.

96 Global Canopy Programme. “The Outcome for Forests Emerging from Cancun.” 2011. http://www.theredddesk.org/sites/default/files/resources/pdf/2011/Policy_Brief_1.pdf, (accessed February, 2011). Grainger, Alan. “Difficulties in Tracking the Long-term Global Trend in Tropical Forest Area.” Proceedings of the National Academy of Sciences USA 105 (2008): 818823. Grainger, Alan, Douglas H. Boucher, Peter C. Frumhoff, William F. Laurance, Thomas Lovejoy, Jeffrey McNeely, Manfred Niekisch, Peter Raven, Navjot S. Sodhi, Oscar Venter and Stuart L. Pimm, “Biodiversity and REDD at Copenhagen,” Current Biology 19, no. 21 (November 2009): R974-R976 Grieg-Gran, Maryanne. The Cost of Avoiding Deforestation: Update of the Report Prepared for the Stern Review of the Economics of Climate Change. London, UK: Office of Climate Change, 2008. Hamilton, Katherine, Unna Chokkalingam, and Maria Bendana. “State of the Forest Carbon Markets 2009: Taking Roots and Branching Out.” 2009. Forest Trends. http://moderncms.ecosystemmarketplace.com/repository/moderncms_documents/SFCM _2009_smaller.pdf (accessed February 2011). Hansen, Matthew, Stephen V. Stehman, Peter V. Potapov, Thomas R. Loveland, John R. G. Townshend, Ruth S. DeFries, Kyle W. Pittman, Belinda Arunarwati, Fred Stolle, Marc K. Steininger, Mark Carroll, and Charlene DiMiceli. “Humid Tropical Forest Clearing from 2000 to 2005 Quantified Using Multi-temporal and Multi-resolution Remotely Sensed Data.” Proceedings of the National Academy of Sciences 105 (2008): 9439-9444. Hardin, Garret. “The Tragedy of the Commons.” Science 162, no. 3859 (1968): 12431248. Harvey, C. A., B. Dickson, and C. Kormos. "Opportunities for Achieving Biodiversity Conservation Through REDD." Conservation Letters 3, no. 1 (2010): 53-61. ICF International. “Fostering Carbon Markets Investment in REDD Forest Carbon Markets.” 2009. http://www.reddoar.org/links/ICF%20final%20report%20to%20Meridiancarbon%20markets%20for%20REDD.pdf (accessed January, 2011). IPCC. Special Report on Land Use, Land-Use Change, and Forestry. Cambridge: IPCC. 2000.

97 IPCC. IPCC Guidelines for National Greenhouse Gas Inventories vol 4 Agriculture, Forestry and Other Land Use. (Geneva: IPCC, 2006). IPCC. Forestry in Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate. .Cambridge: IPCC. 2007. IPCC. Climate Change 2007: Synthesis Report. Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Geneva: IPCC, 2007. James, Alexander, Kevin J. Gaston and Andrew Balmford. “Can We Afford to Conserve Biodiversity?” BioScience 51, no. 1 (2001): 43-52. Keohane, Nathaniel O. and Sheila M. Olmstead. Markets and the Environment. Washington, DC: Island Press, 2007. Kindermann, Georg, Ian McCallum, Steffen Fritz and Michael Obersteiner. “A Global Forest Growing Stock, Biomass and Carbon Map Based on FAO Statistics.” Silva Fennica 42 (2008): 387–396. Kindermann, Georg, Michael Obersteiner, Brent Sohngen, Jayant Sathaye, Kenneth Andrasko, Ewald Rametsteiner, Bernhard Schlamadinger, Sven Wunder, and Robert Beach. “Global Cost Estimates of Reducing Carbon Emissions through Avoided Deforestation.” Proceedings of the National Academy of Sciences 105, no. 30 (2009): 10302–10307. McKinsey & Company. “Pathways to a Low Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement Cost Curve.” 2009. McKinsey & Company. http://www.mckinsey.com/clientservice/sustainability/pathways_low_carbon_economy. asp (accessed March, 2011). McKinsey & Company. “McKinsey’s Greenhouse Gas Abatement Cost Curve – Setting The Record Straight,” 2011,. Mckinsey & Company, http://www.mckinsey.com/locations/southeastasia/knowledge/Abatement_Cost_Curve_ setting_the_record_straight.pdf (accessed March, 2011). Mendelsohn, Robert and Michael Ballick. “The Value of Undiscovered Pharmaceuticals in Tropical Forests.” Economic Botany 49, no. 2 (1995): 223-228. Miles, Lera and Valerie Kapos. “Reducing Greenhouse Gas Emissions from Deforestation and Forest Degradation: Global Land-Use Implications.” Science 320 (2008): 1454-1455.

98 Naidoo, Robin and Takuya Iwamura. "Global-scale mapping of economic benefits from agricultural lands: Implications for conservation priorities." Biological Conservation 140, no. 1-2 (2007): 40-49. National Geographic. “Wild World.” NG. http://www.nationalgeographic.com/wildworld/ (accessed February, 2010). Nelson, A. Estimated Travel Time to the Nearest City of 50,000 or More People in Year 2000. Global Environment Monitoring Unit - Joint Research Centre of the European Commission. (Ispra, Italy. 2008). http://bioval.jrc.ec.europa.eu/products/gam/. (accessed January 2011). Olson, David M. and Eric Dinerstein. “The Global 200: Priority Ecoregions for Global Conservation.” Annals of the Missouri Botanical Garden 89 (2002): 199-224. Olson, David, E. Dinerstein, E.D. Wikramanayake, N.D. Burgess, G.V.N. Powell, E.C. Underwood, J.A. D'amico, I. Itoua, H.E. Strand, J.C. Morrison, C.J. Loucks, T.F. Allnutt, T.H. Ricketts, Y. Kura, J.F. Lamoreux, W.W.Wettengel, P. Hedao, & K.R. Kassem. “Terrestrial Ecoregions of the World: A New Map of Life on Earth.” BioScience 51 (2001): 933-938. Paoli, Gary D., Philip L. Wells, Erik Meijaard, Matthew J. Struebig, Andrew J. Marshall, Krystof Obidzinski, Aseng Tan, Andjar Rafiastanto, Betsy Yaap, J.W. Ferry Slik, Alexandra Morel, Balu Perumal, Niels Wielaard, Simon Husson, Laura D’Arcy. “Biodiversity Conservation in the REDD.” Carbon Balance and Management 5 (2010). Parker, Charlie, Andrew Mitchell, Mandar Trivedi and Niki Mardas. “The Little REDD+ Book.” 2009. The Global Canopy Foundation. http://www.globalcanopy.org/materials/little-redd-book (accessed February, 2011). Pettersson, Fredrik. "Carbon Pricing and the Diffusion of Renewable Power Generation in Eastern Europe: A linear Programming Approach." Energy Policy 35, no. 4 (2007): 2412-2425. Pew Center on Global Climate Change. “Summary of COP 16 and CMP 6.” 2010. http://www.pewclimate.org/docUploads/cancun-climate-conference-cop16summary.pdf (accessed January, 2011).

99 Pistorius, T. C.B. Schmitt, D. Benick, S. Entenmann. “Greening REDD+: Challenges and opportunities for forest biodiversity conservation.” 2010. Policy Paper, University of Freiburg, Germany. http://www.forestcarbonportal.com/sites/default/files/GreeningREDD+_FreiburgUniver sity_2010_0.pdf (accessed March, 2011). Point Carbon, “Point Carbon’s OTC Price Assessment,” http://www.pointcarbon.com/ (accessed March, 2011). Polasky, Stephen, Jeffrey D. Camm, and Brian Garber-Yonts. “Selecting Biological Reserves Cost-Effectively: An Application to Terrestrial Vertebrate Conservation in Oregon.” Land Economics 77 (2001): 68–78. Samuelson, Paul. “The Pure Theory of Public Expenditures.” Review of Economics and Statistics 36 (1954): 350-356. Secretariat of the Convention on Biological Diversity. Connecting Biodiversity and Climate Change Mitigation and Adaptation: Report of the Second Ad Hoc Technical Expert Group on Biodiversity and Climate Change. Montreal: SCBD, 2009. Secretariat of the Convention on Biological Diversity. Global Biodiversity Outlook 3. Montréal: Secretariat of the Convention on Biological Diversity. 2010. Stickler, Claudia, Daniel Nepstad, Michael Coe, David McGrath, Hermann Rodrigues, Wayne Walker, Britaldo Soares-Filho and Eric Davidson. “The Potential Ecological Costs and Cobenefits of REDD: a Critical Review and Case Study from the Amazon Region.” Global Change Biology 15 (2009): 2803–2824. Stokey, Edith and Richard Zeckhauser. A Primer for Policy Analysis. Toronto: Norton & Company, 1978. Strassburg, Bernardo B.N., Annabel Kelly, Andrew Balmford, Richard G. Davies, Holly K. Gibbs, Andrew Lovett, Lera Miles, C. David L. Orme, Jeff Price, R. Kerry Turner and Ana S.L. Rodrigues. “Global Congruence of Carbon Storage and Biodiversity in Terrestrial Ecosystems.” Conservation Letters 3 (2010): 98–105. Streck, Charlotte, Luis Gomez-Echeverri, Pablo Gutman, Cyril Loisel and Jacob Werksman. “REDD+ Institutional Options Assessment.” 2009. Facilitated by the Meridian Institute. http://www.redd-oar.org/ (accessed March 2011).

100 TEEB. “The Economics of Ecosystems and Biodiversity: Mainstreaming the Economics of Nature: A synthesis of the approach, conclusions and recommendations of TEEB.” 2010. http://www.teebweb.org/TEEBSynthesisReport/tabid/29410/Default.aspx (accessed November, 2010). The World Bank. “Data, Indicators, GDP Current US$.” The World Bank. http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries/1W?display=graph (accessed April, 2011). Tilman, David, Peter B. Reich and Johannes M. H. Knops. “Biodiversity and ecosystem stability in a decade-long grassland experiment.” Nature 441 (2006): 629–632. Turner, Will R., Katrina Brandon, Thomas M. Brooks, Robert Costanza, Gustavo A. B. da Fonseca and Rosimeiry Portela. “Global Conservation of Biodiversity and Ecosystem Services.” BioScience 57, no. 10 (2007). UNEP World Conservation Monitoring Center. Carbon and Biodiversity: a Demonstration Atlas. Cambridge, UK: UNEP-WCMC, 2008. UNEP, FAO, UNFF. Vital Forest Graphics. 2009. http://www.grida.no/publications/vg/forest/. (accessed February 2011). UNFCCC. Report of the Conference of the Parties on its Thirteenth Session, Held in Bali from 3 to 15 December 2007. FCCC/CP/2007/6. 2008. UNFCCC. The Cancun Agreements: Outcome of the work of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention. FCCC/CP/2010/7/Add.1. 2011. UN-REDD. 2009 Year in Review. 2010. http://www.unredd.net/index.php?option=com_docman&task=doc_download&gid=169 2&Itemid=53 (accessed April, 2011). Venter, Oscar, William F. Laurance, Takuya Iwamura, Kerrie A. Wilson, Richard A. Fuller, and Hugh P. Possingham. "Harnessing Carbon Payments to Protect Biodiversity." Science 326, no. 5958 (2009). Verchot, Louis and Elena Petkova. “The state of REDD negotiations.” 2009. Center for International Forestry Research, Bogor, Indonesia, http://www.cifor.cgiar.org/publications/pdf_files/Papers/PVerchot0901.pdf, (accessed January 2011).

101 Verified Carbon Standard,.“Agriculture, Forestry and Other Land Use (AFOLU) Requirements.” March 2011. VCS Version 3. http://www.v-cs.org/docs/AFOLU%20Requirements%20-%20v3.0.pdf (accessed March, 2011). Verified Carbon Standard. “AFOLU Non-Permanence Risk Tool.” March 2011. VCS Version 3. http://www.v-c-s.org/docs/AFOLU%20NonPermanence%20Risk%20Tool%20-%20v3.0.pdf (accessed March, 2011). Vijay, Samudra, Joseph F. DeCarolis, and Ravi K. Srivastava. "A Bottom-up Method to Develop Pollution Abatement Cost Curves for Coal-fired Utility Boilers." Energy Policy 38, no. 5 (2010): 2255-2261. Wertz-Kanounnikoff, Sheila and Metta Kongphan-apira. “Emerging REDD+ A Preliminary Survey of Demonstration and Readiness Activities.” 2009. Center for International Forestry Research. http://www.cifor.cgiar.org/publications/pdf_files/WPapers/WP46WertzKanounnikoff.pdf (accessed January, 2011). Wilson, Kerrie A., Marissa F. McBride, Michael Bode and Hugh P. Possingham. “Prioritizing global conservation efforts.” Nature 440, no. 7082 (2006): 337-340. Wilson, Kerrie A., Robert L Pressey, Adrian Newton, Mark Burgman, Hugh Possingham and Chris Weston. “Measuring and Incorporating Vulnerability into Conservation Planning.” Environmental Management 35 (2005): 527–-543. World Wildlife Fund. “WildFinder: Online Database of Species Distributions, ver. 01.06.” gis.wwfus.org/wildfinder (accessed February, 2011). World Wildlife Fund. “Ecoregions.” World Wildlife Fund, Science, http://www.worldwildlife.org/science/ecoregions/item1847.html (accessed March, 2011).