Tropical forests, with their vast stores of carbon, are vital to a stable climate, providing crucial biodiversity and sources of livelihood to indigenous peoples and other forest-dependent communities. Yet, tropical forests are being decimated at a rate that makes the annual global greenhouse gas emissions from such devastation equal to the emissions of the entire global transportation sector. Without solving this deforestation crisis, we cannot solve the climate crisis. 

 The root causes of tropical deforestation and degradation are many, but a key factor is the absence of economic incentives to protect and restore forests and the carbon they contain. Currently, national and subnational governments in tropical countries that reduce deforestation are unable capture the benefits of the resulting emissions reductions. Agricultural producers who invest to enhance the productivity of already-cleared lands—rather than clearing new forests—do not recoup any of the value of the forest carbon that is saved. Indigenous people and local communities whose livelihoods depend on the forests they inhabit are not compensated for the carbon stocks they help preserve. To stop tropical deforestation and combat climate change, forests must be worth more alive than dead.

High-quality carbon credits from Reducing Emissions from Deforestation and forest Degradation (REDD+) can play a central role in incentivizing governments, investors, and communities to reduce tropical deforestation by creating durable, large-scale economic incentives for forest protection. The critical components of a forest carbon market are already coming into place.

On the supply side, donor countries have made significant investments of public capital to prepare tropical forest nations to reduce deforestation and deliver verified emissions reductions at large scales and have begun to pilot “payment for performance” approaches.  An early mover is the Brazilian state of Acre which is already generating verified reductions in emissions from REDD+ and, at the end of 2012, completed the first jurisdiction-scale REDD+ transaction with KfW– the German development bank. Other Amazon states and more than ten countries in the World Bank-administered Forest Carbon Partnership Facility’s (FCPF)  pipeline appear ready to follow suit.

On the demand side, the Paris Agreement explicitly recognized the role of REDD+ as a mitigation tool and countries’ ability to use international markets to achieve emissions reductions. California, an early mover, has recently initiated the first steps of a regulatory process to accept REDD+ credits into its existing carbon market, a move strongly supported by the California Air Resources Board (ARB) and its chairwoman, Mary Nichols. Meanwhile, the International Civil Aviation Organization (ICAO) is developing a global market-based measure to cap emissions at 2020 levels, which would allow air carriers to use credits for verified reductions from other sectors, possibly including REDD+, to offset their emissions.

The outcomes of these regulatory processes are far from assured, however. In California, there is opposition from those who would prefer to see emissions reductions happen exclusively inside the state. In the ICAO context, there is broader uncertainty over the success of the market-based measure. There is also opposition to forest carbon markets on ideological grounds, as well as from vested interests in competing offset categories. Despite Amazon states’ eagerness to access private investment for forest protection, there is some political opposition at the federal level from Brazil’s Foreign Affairs and Environment ministries to allowing international compliance market transactions.

Private sector demand for emissions reductions to meet compliance obligations—i.e., carbon markets—will be essential to address climate change over the medium to long term, and those markets are beginning to take shape. Action is required in the near-term, however, and we must work to bridge the financing gap in order to limit deforestation and enable other cost-effective emissions reductions to gain traction.

Combining public, private, mission-driven, and philanthropic capital in an innovative finance vehicle, the RAF will kick-start a virtuous cycle of finance and policy development by catalyzing both private investment in forest protection and the adoption of REDD+ protocols in key compliance markets.