1. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning
What will REDD cost?
RFN, 18.6.2009
Arild Angelsen
Professor, Dept. of Econ. and Resource Mgt.,
Norwegian University of Life Sciences (UMB), Ås
&
Senior Associate, Center for International
Forestry Research (CIFOR), Indonesia
www.umb.no 1

2. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning
Introduction
 Title: “What will it cost? Paying for avoided emissions,
paying for ecosystem services or paying to pollute? Costs
and consequences of alternative models for maintaining
forests and forest carbon”
 Three types of costs:
1. Landowners costs (opportunity costs)
2. Government costs (budget costs)
3. International payment for REDD (Annex I transfer to
non-Annex I)
 The costs also depend very much on:
– How much REDD we want
– What type of REDD mechanisms we have in mind
– How rights (and duties) are defined
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3. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning The global REDD scheme
International
3. level Compliance
Aid Global
(offset)
(ODA) markets fund
International
REDD Emission
Payments reductions REDD-PES
scheme
2. National level
National
National REDD
REDD Fund
‘DNA’
Other?
National
REDD Emission REDD-PES
Payments reductions scheme
Sub-national
1. level Land
Local
Com- govern-
users
munities ments
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4. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
A. Cost to landowners (opportunity costs)
What is the forsaken opportunities?
• Agricultural rent (profit) + timber rent
• NPV (what would it cost to buy the land?)
$/tC
Agric. rent
Carbon price
REDD rent
REDD
costs
BAU Ref. Actual 0 Change
defore- level defore- in tC
station station (forest cover)
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5. 5
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Some costs estimates
Institutt for økonomi og ressursforvaltning
UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP

6. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning
B. Government (budgetary) costs
National reductions done thorugh a PES system:
1. Opportunity costs:
– Should everyone be compensated?
• Illegal uses?
• New regulations: compensate all losers?
– Compensating what?
• Emission reductions
= actual emissions – BAU (hypothetical)
• Forest conservation: stock based payments
– “Not just compensating the bad guys”
– A practical and cheaper approach
– Additionality issues Opp.
costs
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7. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning
Govt. costs (cont.)
2. REDD rent
– Paying the triangle (opp. cost) vs. the rectangle (opp.
cost + REDD rent)?
– Typically increase costs 3x
– Who owns the REDD rent (global & national & local)?
• What should be the distribution of costs for
slowing global warming?
– Practical ways of organizing a system of differentiated
pay
REDD
• Brazil example: Differentiate between 3 rent
categories of land users can save some 50 %.
(Boerner and Wunder, 2008)
• Is it fair? Pay less because they poor? Opp.
costs
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8. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning
Govt. costs (cont.)
3. Targeting of PES payments
– How to identify those that plan to deforest
Adm
next year, and target them – and only them costs
– Non-targeting may increase payment 2-100x
(McKinsey, 2008)
Non-
– Not economic costs, just transfers target
trans-
4. Administrative and transaction costs fers
– Start-up costs: MRV for C & $
– Running costs: Typical estimate <USD1 per REDD
tCO2e rent
– Might be underestimated
Opp.
costs
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9. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning
Govt. costs: Non-PES policies
5. Costs of policies
– Typical policies:
• Tenure & land reforms
• Community forest management
• Agricultural intensification
• Energy efficiency and fuel substitution
?
• Infrastructure
?
– Compensation? ?
• Probably limited ?
– Some REDD policies have negative costs ?
• Not building a road ?
• Removing agric subsidies ?
– Wide range of estimates; largely unknown ?
www.umb.no 9

10. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning
C. International payment for REDD
 Which costs to use as basis:
– Only economic costs (opportunity costs + admin &
transaction costs)?
• May then achieve much less in the short run
 What share of costs to be born by REDD countries?
– What does the principle of “common but differentiated
responsibilities” (CBDR) imply?
 Setting reference levels
– RL = BAU + CBDR
– Balance: Ensure participation vs. effective use of limited
funds (or “tropical hot air”) (Angelsen, 2008)
 Payment depends, of course, on the success of REDD
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11. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning Summary What are
the costs?
International
3. level
Aid
Compliance
Global
A political decision
(offset)
(ODA) markets fund
International
REDD Emission
Payments reductions REDD-PES
scheme
National level
2. National
National Highly uncertain:
REDD
REDD Fund
‘DNA’
0-100x opp. costs
Other?
National
REDD Emission REDD-PES
Payments reductions scheme
Sub-national
1. level Land
Local
govern-
Low, compared
Com-
users
munities ments to other mitigation
options
www.umb.no 11

12. UNIVERSITETET FOR MILJØ- OG BIOVITENSKAP
Institutt for økonomi og ressursforvaltning
Summary
 How productive is the REDD numbers game?
 Look at FOREST CARBON as a new cash crop:
– Assistance to start production
• Define the product = actual emissions (MRV) -
reference level
• Producing the product: domestic PES systems and
policies
– Pay for results
 Get started, and learn
– More important than the fine-tuning of mechanism
– There is no better way to learn how to grow coffee than
to start growing coffee
www.umb.no 12