Generating carbon finance through avoided deforestation and its potential to create climatic, conservation and human development benefits

Recent proposals to compensate developing countries for reducing emissions from deforestation (RED) under forthcoming climate change mitigation regimes are receiving increasing attention. Here we demonstrate that if RED credits were traded on international carbon markets, even moderate decreases in deforestation rates could generate billions of Euros annually for tropical forest conservation. We also discuss the main challenges for a RED mechanism that delivers real climatic benefits. These include providing sufficient incentives while only rewarding deforestation reductions beyond business-as-usual scenarios, addressing risks arising from forest degradation and international leakage, and ensuring permanence of emission reductions. Governance may become a formidable challenge for RED because some countries with the highest RED potentials score poorly on governance indices. In addition to climate mitigation, RED funds could help achieve substantial co-benefits for biodiversity conservation and human development. However, this will probably require targeted additional support because the highest biodiversity threats and human development needs may exist in countries that have limited income potentials from RED. In conclusion, how successfully a market-based RED mechanism can contribute to climate change mitigation, conservation and development will strongly depend on accompanying measures and carefully designed incentive structures involving governments, business, as well as the conservation and development communities.