REDD financing and benefit distribution

A successful REDD+ program could attract significant new investment by creating a financial value for the carbon stored in forest. This in turn could support new, pro-poor development, help conserve biodiversity, secure vital ecosystem services and make a significant contribution to the mitigation of climate change.

REDD+ is still subject to negotiations under UNFCCC and details are yet to be determined, but in general, foreign entities will pay developing countries for carbon capture and emission reductions, either through a market based mechanism or a fund. This payment is conditional and will only be carried out if the developing country (the seller) can successfully deliver the agreed carbon emission reduction. On the local level, forest communities will be paid for the successful delivery of clearly defined activities, such as forest protection, enhancement or reforestation, which will then be translated into its equivalent in carbon credits. Basically, a form of payment for ecosystem services will be used as an incentive to change destructive land use practices, instead making it more valuable to protect the forest and giving the possibility to invest in new forms of income sources.

Principles of a REDD+ BDS

REDD+ monetizes the carbon sorted in forests, and creates incentives for conservation. To be effective, benefits need to be channeled to forest-dependent communities through a system that embraces the following principles:

Equity: refers to fairness in the REDD+ system, both in terms of costs and benefits. A frequent phenomenon in past forest governance has been the tendency for poor rural (and indigenous) stakeholders to receive disproportionately low benefits and to carry high costs.

Transparency: refers to the capacity for all stakeholders to see and to comprehend the mechanisms by which benefits are transferred. Transparency is a fundamental safeguard against the risk of corruption.

Additionality: captures the idea that stakeholders should be rewarded only for the actions that they would not otherwise have taken. Application of the principle of additionality ensures the efficiency of the system, in that the total cost of the system is not inflated.

Performance-relatedness: is required to ensure that action to reduce emissions actually occurs. This represents a departure from traditional development aid, under which payments were made ahead of action.

While preparing for REDD+, the Government of Viet Nam (GoV) identified the design of a transparent and equitable benefit distribution system (BDS) as a priority for UN-REDD support. This is innovative because so few countries have looked at how benefits should be distributed. It is also courageous because, unlike carbon monitoring and other technical challenges, it raises potentially sensitive governance issues. Payments for REDD+ will pass different administration levels. From the national to sub-national level, they will finally reach communities and households. A series of policy decisions have been identified in a recent report to be of special importance for an efficient BDS, and for some of them recommendations have been made. The most important issues are summarized here.

  1. A comprehensive legal framework for REDD+ is needed to ensure equity, efficiency and effectiveness in order to meet international expectations. This will likely mean that a legal reform has to be undertaken to address all aspects of REDD+ governance and administration of REDD+ revenues.
  2. The creation of a fund to manage REDD+ revenues and prevent co-mingling with other sources of funding is important to meet the goals of transparency, equity and performance-linkage.
  3. It has to be decided which sub-national levels will be involved in the disbursement of REDD+ revenues. While in the beginning this may only be the provinces, it has been recommended to include the district levels as well after an initial period.
  4. Monitoring is crucial for REDD+ to be successful, therefore the establishment of a comprehensive monitoring process at all levels will be necessary.
  5. A specified amount of revenue retention for management costs by the GoV has to be set. It has been recommended that this amount should rather be performance-based than a flat fee.
  6. Decisions on local payment levels and payment structuring have to be made. This has to take into account opportunity costs incurred and provide clear incentives to land and resources users. Payments options include cash and non-monetary benefits.
  7. To prevent elite capture and ensure a pro-poor outcome, the most appropriate types of forest owners eligible to receive REDD+ benefits have to be identified. Of special concern here is the legal status of communities. Currently they face constraints to enter into contracts, as communities are not legally recognized as an entity under the Civil Code.
  8. As forest law enforcement continues to be weak in Viet Nam, operational structures offering effective law enforcement to households and communities have to be developed. This may include a hotline for reports of illegal operations and complaints.
  9. A mechanism for participatory monitoring should be established, as it builds confidence among the local people and creates a culture of questioning.
  10. An appropriate recourse mechanism that includes civil society participation has to be identified to deal with complaints by those who think that they have not been rewarded appropriately and/or are losing out to free-riders. 

Relevant downloads:   
  1. Executive summary of Benefit Distribution System
  2. Design of a REDD-Compliant Benefit Distribution System for Viet Nam

                                         Shifting land use                   Photo by: Pham Tien Anh