What does REDD+ really cost?

BOGOR, Indonesia (20 July, 2011)_What does REDD+ cost? At least since the influential Stern Review was published in 2006, many have argued that REDD+ is one of the cheapest options to mitigate climate change. Others see the REDD+ mechanism as a costly effort with unpredictable results for the climate and forest peoples of the world. Who is right?

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Photo by Jeff Walker/CIFOR

BOGOR, Indonesia (20 July, 2011)_What does REDD+ cost? At least since the influential Stern Review was published in 2006, many have argued that REDD+ (Reducing Emissions from Deforestation and forest Degradation) is one of the cheapest options to mitigate climate change. Others see the REDD+ mechanism as a costly effort with unpredictable results for the climate and forest peoples of the world. Who is right?

Asking the question “what does REDD+ cost?” is about as precise as the question “what do cars cost”? It all depends on the type of car, how many cars, whether “cost” refers to the cost of producing, buying, or operating it, and so on. Most REDD+ cost estimates – including those of the Stern Review – focus on opportunity costs, which refers to the forgone profit from the best alternative land use, i.e. the lost benefits from not conserving forestland.

This includes agricultural profits, but often also foregone benefits from timber, charcoal, and other products harvested in ways that degrade forests. A country implementing REDD+ will also face transaction and implementation costs, e.g., the costs of setting up a REDD+ system and implementing the necessary policies to achieve REDD+.

The sum of opportunity costs, implementation costs (except those directly compensating opportunity costs), and transaction costs (to governments and forest users) are therefore an estimate of the total cost to a country of avoided deforestation and degradation.

But governments of REDD+ countries might be equally interested in a variation on this question: what are the budgetary costs of REDD+? Opportunity costs can be a poor indicator of these, as it all depends on the policies chosen and their effectiveness.

Only in one special case would the budgetary costs be identical to the opportunity costs, namely in a hypothetical “perfect” system of Payment for Environmental Services (PES): zero transaction costs, targeting only those forest users who plan to apply their chainsaws to the forest in coming years, and complete information about these users’ opportunity costs. These assumptions are, of course, quite unrealistic, and in practice the cost of a PES system will be much higher – if land tenure and other preconditions allow for PES at all.

Many other REDD+ policies are available. Governments can stop issuing licenses for forest conversion, establish forest-protected areas, and increase the enforcement of forest laws and regulations, without any compensation to the current or prospective forest users. The budgetary costs then may be lower than the opportunity costs.

A third option is agricultural policies that make cultivation of existing land more attractive compared to forest encroachment. How expensive will such policies be to governments? Research by a team of scientists led by Princeton University’s Brendan Fisher published in Nature Climate Change address this question in the case of Tanzania. They first calculate the opportunity costs of REDD+, measured by the existing benefits of agricultural and charcoal production, and find this to be in the range of USD 3.20 to 5.50 per tCO2, which is well below current carbon prices in the European carbon market.

Next, the research team considers the question of how much it will cost the government or donors to implement a policy to increase agricultural yield and charcoal efficiency, and thereby take the pressure off forests. They estimate the cost to be in the range of USD 4.60 – 9.40 per tCO2, i.e. well above the opportunity costs.

A major advantage of promoting agricultural yield and charcoal efficiency is that multiple objectives for food and energy production can be pursued alongside climate mitigation. The authors also argue convincingly that boosting agricultural production reduces the risk of leakage (more forest clearing in other locations) compared to, say, a pure conservation project that only restricts agricultural encroachment.

Stimulating agricultural yield to contain deforestation (the Borlaug hypothesis) or raising fuel efficiency to reduce forest degradation are REDD+ policy measures getting more and more attention. A warning is, however, in order. Research on the link between agricultural technologies and deforestation, also by CIFOR, has stressed that in many cases, the direct impact of yield increases in particular locations is simply to make agricultural encroachment into the forest more profitable, thus increasing rather than curbing deforestation.

Yield increases are often necessary but not sufficient to get positive forest conservation outcomes. Similarly, 150 years ago it was observed that more efficient use of coal in England did not reduce coal consumption (the Jevons paradox), just as there are contemporary concerns about rebound effects of improved household energy technology (as noted by Fisher and coauthors). The implication is that fuel efficiency policies need to be combined with better control of harvesting.

So, what does REDD+ cost? The boring answer is ‘it depends’, but we are getting better evidence on what it depends on by articles such as the one by Fisher and coauthors. First, it depends on whose costs we look at: the society at large, the government, the local forest users, or commodity traders. Second, it depends a lot on what mix of policy instruments is chosen to implement REDD+. While REDD+ still can make a large contribution to the overall climate mitigation, we agree with the authors that it might not be as cheap as many thought just a few years ago.

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2 responses to “What does REDD+ really cost?”

  1. Basti says:

    Great article. There seems to be a lack of understanding that just looking at opportunity costs is simply not enough. With this in mind, I find it surprising (and disturbing) that a lot of REDD plans and advice only looks at that figure. Greenpeace released a report looking at that problem and pointing out how McKinsey has become very influential in advising developing countries on exactly what you are looking at: the cost of REDD and it’s implementation. You mention implementation and transaction costs as crucial to get an understanding of the total costs of REDD. McKinsey’s advise stops at opportunity costs.
    Since REDD is such a complicated matter and, as you point out, many different aspects determine its costs, transparency seems to be key. As Greenpeace’s director points out in the Guardian (http://www.guardian.co.uk/commentisfree/2011/nov/10/mckinsey-rainforests-nhs-advice), McKinsey’s advice is everything but transparent. So not only do we need to look at what aspects (opportunity, transaction and implementation costs) need to be factored in when talking about the cost of REDD but we also need to understand how those who make estimates about those costs calculate their results.

  2. None says:

    Subsidy of failure …..

    I see REDD Plus is a program to subsidize the failure of another party to manage their natural resources. Then the weaker side as developing countries whose nature is still available, be a victim to bear the problems of this world. Because the government in a country like this is usually easily tricked by offers of developed countries and their promise to weigh the grandiose and with a broad international campaign. When the load is given on the shoulders of a particular country, then this program will be a new business arena, where experts and key workers will come from countries that have money and more advanced knowledge and technology, but was unable to manage the carbon in their own country. Even Americans were not able to answer the challenge of carbon management within their own country. Welcome to the world of carbon trading arena. Obtaining trade starts from the calculation of profit and loss only, not from a sense of humanitarian responsibility to maintain the environment we belong together.

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