International Workshop“REDD after Copenhagen – The Way Forward”Nairobi, Kenya1-3 March, 2010

Luis Salgado Econ. Jorge TorresProject Manager Technical Unit HeadÉcoRessources Carbone SFM BAM SAC

Peru supports the implementation of “nested approach” and a combination of markets and funds mechanisms for REDD financing.

This has stimulated private and public organizations to promote REDD initiatives in different types of land tenures (forest concessionaries, protected areas, indigenous lands, conservation concessions, etc.).

Most of the initiatives are located in Madre de Dios region (south east of Peru) where a major road, that will join Brazil with Asian markets, is being built.

Up to now, only a forest concession has got CCB Gold and is planning to sell offsets in CCX market.

Brazil nut tree grows naturally in tropical rainforests of Madre de Dios.

Peru represents around 10% of total market, after Brazil and Bolivia. The activity is seasonal (Jan-Mar).

BN production areas are conceded for 40 years periods, with areas of 1000 hectares in average. There are around 1000 concessions (1 million of hectares), what makes this activity very important for the local economy.

Families dedicated to this activity are mostly poor rural that every year in rainy season go into the forest to collect the pods, after being funded by exporting companies or intermediaries, in an agreement that implies a commitment for their product.

As a consequence of the construction of the Inter-oceanic road, internal migration has grown significantly, increasing the threat of deforestation on the concessions, mainly for agricultural or cattle ranching purposes.

Slash-and-burn practices are common in Peruvian Amazon as a cheaper way to clear the forest land.

In that context, SFM-BAM has achieved an agreement with BN harvesters federation to develop a REDD project.

The agreement establishes that the company will invest at least 1 million dollars in the first 18 months and an amount to be defined for the following 30 years.

The strategy is based in:

(i)the improvement of incomes perceived by BN harvesters from their main activity and (ii)The improvement of their capacity to protect their concessions from external risks.

A BN processing and exporting facility will be implemented for harvesters associated to the project (owners of 70% of shares). Allowing them to receive a higher prices and participate in profit distribution.

BN harvesters will own 30% of net incomes from CO2 sales.

Other components are organizational strengthening, technical & legal advisory, forest enrichment, training and a plan to prevent fires and invasions, among others.

ELIGIBILITY:In Peru, there is scarce information about deforestation rates and trends and what exists comes from different sources, done with different methodologies, not compatible.

It implies that for a same region and year, there are differences in deforested area. For this reason, SFM-BAM has promoted a consortium with participation of main institutions (including government at its different levels) that is developing an agreed meth to generate land use maps, with the highest technical standards.

The meth should be in accordance with national definition of forest and the results for most recent year will be confirmed with field assessment.

PROJECT ACTIVITYThe strategy of the project is based on the principle that deforestation is caused by agricultural expansion of small producers and limited capacity of BN harvesters to protect their area. BN harvesters will increase the profitability of their activities from the following sources:

• Export price against local market price• Participation in profits of processing plant• Participation in net incomes from carbon sales• Incomes from reforestation component

Permanence will be guaranteed from:

• Other forest resources exploited• Control and vigilance plan

ADDITIONALITYBased on a combination of barrier and financial analysis, we need to demonstrate that BN activity does not generate enough conditions to avoid the expansion of agriculture and cattle ranching activities without the inclusion of carbon incomes.

We will calculate incomes of concessionaries in with / without project scenarios.

We will demonstrate that BN harvesters by their own wouldn’t have been able to implement this level of investment, necessary to break the circle of subsistence-low added value. And, complementarily, that this investment is not enough profitable for any private company without the carbon incomes.

BASELINE SCENARIOSince its creation, MDD has been an isolated region (before road paving). For this reason, historical deforestation rate cannot be considered reliable for future trend.

A modeling baseline scenario is being developed based on maps produced under the consortium umbrella and results of this work also will be validated with local actors (including governmental agencies) and expert review in order to produce a unique agreed baseline scenario.

As required by methodologies, results will be validated with a recent year map and input variables will be monitored in order to analyze, in the future, if predictions are within an acceptable margin of error.

Preliminary results show that deforestation is best explained with a cost-benefit approach than with a demographic growth approach.

LEAKAGEAs many REDD initiatives are in progress in this region, we are planning to work with regional government and project developers to design and implement a REDD regional program, in accordance with standards’ technical requirements.

CARBON STOCKSField forest inventory will be carried out and databases will be used as input for biomass equations to estimate carbon stocks in project area.

Satellital images and field assessment will be combined to monitor, using the methodology officially agreed, the annual deforested area in order to compare it with baseline forecast.

LEGAL ISSUESA long term agreement has been agreed between BN harvesters federation and SFM-BAM were SFM-BAM commit an investment in exchange of a participation in BN processing company and the carbon trading rights.

Complementarily, the Federation has signed another contract with each concessionaire where he transfers its rights over the carbon stock from his concession.

MARKETSProject is planning to be validated under VCS and CCBA standards.

Tambopata National Reserve and Bahuaja Sonene National Park are two natural protected areas, that are part of biological corridor Vilcabamba-Amboro.

The areas cover a surface of 1.366.106 hectares, from which 540.244 ha where offered for private administration using an international call for proposals.

Traditionally, Peruvian State has been responsible of the administration of their protected areas, usually by implementing an office with forest guards patrolling the boundaries (normally with limited resources).

The private administration is a new mechanism designed by the Peruvian Government where non-profit organizations can sign contracts with the Government and administrate the protected area using the incomes generated by different environmental services.

There is an implicit acknowledge that private actors can play a role, as they have experience in accessing to extra funds and/or they can achieve a higher performance.

In this case, a local NGO obtained the highest score, thanks to this innovative financial mechanism, and has signed a contract with SFM-BAM for 7 years with option to increase to 20 years.

The proposal includes a US$ 5.2 millions support to finance the project activities during the first 7 years and around US$ 0.5 millions per year (to be agreed with the Government) for the next 13 years in exchange of carbon trading rights.

PROJECT ACTIVITYAs many of the protected areas, they are inhabited. Pre- existing activities as logging were suspended when the area was given. Only a few BN concessions (very controlled) and an ecotourism lodge are allowed. Indigenous groups are also allowed to hunt and harvest forest products for non- commercial purposes.

Nevertheless external pressure is higher over time. Illegal gold mining, illegal logging and agricultural expansion from migrants are the main threats.

In that sense, the project strategy is focused on finding and promoting, between families who live in buffer zone, economic activities based on sustainable use of natural resources.

It is complemented with extra resources to install control points and rivers and road patrols .

ADDITIONALITYEven though, there are voices who claim that legally protected areas should not be eligible for REDD, it’s clear in most of our developing countries, that laws are not enough to keep them free from deforestation.

A weak enforcement and subsistence needs of neighbor population make unlikely that scenario.

Modeling analysis show that protected areas slow but don’t stop deforestation.

Specifically, mining activity is already occurring in Malinowsky River, a natural frontier of Tambopata Reserve.

LEGAL ISSUESA contract has been signed between the Peruvian Government and SFM-BAM, where trading rights of carbon offsets will be transferred for a 20 years period, as soon as a legal framework allows the State to do that.

This agreement will continue even if the administration contract between the Government and the local NGO is not renewed.

In the agreement, there is a pre-condition that the legal framework will be in place during first year and that the taxes associated to this activity will not put in risk the feasibility of the activity.

• In a sub-national approach, it is key the coordination between private and public players to create consensus on methodological issues. Multiple results will affect negatively the credibility of the system.

• REDD eligibility criteria should include the creation of alternative sources of incomes for deforestation agents and not strictly protection actions. Even more, this should be part of costs and not part of profit shares.

• Stopping deforestation is an ethical issue and all players should be allowed to participate and conditions must be created to allow it. Historically, governments have been unable to design effective tools.

• Probably, the main advantage of market approach is that it forces project developers to design effective strategies; otherwise, they will fall in an unwanted bankruptcy. This is probably to best incentive to do their best effort to stop deforestation.

• The role of the Government should be focused on creating the conditions to allow small landowners to access REDD opportunities, to monitor that leakage and baseline scenarios are adequately measured and land cover maps are well generated.