SAO PAULO, Brazil - Donor nations, rainforest-rich countries and multilateral institutions will have to spend tens of billions of dollars in the next few years to ensure that nations undergoing deforestation will have incentives to halt the practice, a report released on Monday said.
Without the money to buy forest-based emissions reductions, the mechanism known as REDD+ (Reducing Emissions from Deforestation and Degradation) will be largely undermined, restricting incentives to keep trees standing, it said.
Deforestation is a major producer of heat-trapping gases in the world, accounting for around 15 per cent of global emissions.
Brazil, Indonesia and Nigeria are among the largest emitters of carbon dioxide from deforestation.
REDD is the main programme to combat forest destruction. It is being evaluated at the United Nations convention on climate change and will be part of the next global deal on climate, due to be signed next year.
But since that agreement take effect only in 2020, demand for forest-based emissions reductions would for a while be limited to companies looking to neutralize their emissions and a few carbon funds.
Compliance markets, such as the EU's Emissions Trading System, do not accept forest-based offsets.
"There is currently no source of demand that will pay for medium to long-term emission reductions from REDD+ in the period between 2015 and 2020," says the report produced by the Global Canopy Programme, the Amazon Environmental Research Institute, Fauna & Flora International, and the United Nations Environment Program.
"This problem seriously threatens the successful implementation of REDD+, because without interim demand there will be little or no incentive for forest countries to participate and redirect resources towards REDD+, or for the private sector to invest," it said.
The authors of the study ran some calculations using a European Union proposal for a 50 per cent cut in global deforestation by 2020.
Hypothetically, if that target were to be achieved, the market for emissions reductions from avoided deforestation would become heavily oversupplied.
The report estimates, assuming acceptance of the 50 per cent target, that supply of forest-based emissions reductions could be up to 39 times greater than demand in the 2015-2020 period.
That would be equivalent to a shortfall of up to 48 billion in transaction volumes, assuming a carbon price of $5 per tonne of CO2.
The report says the intervention would use donor country government capital to purchase REDD emissions reductions.
It would also set a floor price for REDD credits to reduce market uncertainty and help lure the private sector to invest in the mechanism.
It cites initiatives in other sectors that were successful, such as policies to stimulate renewable energy when a price for the energy was guaranteed by a government at a certain level, providing predictability for investment.