Stimulating Demand for REDD+Additional Mitigation Targets and EU Effort SharingCharlotte Streck and Paul Keenlysidewith contributions from Moritz Von UngerCharlotte Streck and Paul Keenlysidewith contributions from Moritz Von Unger

OPTIONS FOR THE EU TO GENERATE ADEQUATE, PREDICTABLE, SUSTAINABLE LONG-TERM FINANCING FOR REDD+PAYMENTS FOR VERIFIED EMISSION REDUCTIONS

Charlotte Streck and Andreas Dahl-Jørgensen, with contributions by Paul Bodnar Charlotte Streck and Andreas Dahl-Jørgensen, with contributions by Paul Bodnar

Date of Publication July 2015

Disclaimer: Any views expressed in this paper are those of the authors. They do not necessarily represent the views of the authors’ institutions, Meridian Institute, or the financial sponsors of the paper.

Contents

Abstract i

1. Introduction: Mobilizing Additional Climate Change Action ii

2. International Mitigation Targets 1

3. Linking REDD+ Credits to the EU Effort Sharing Decision 3

4. Supporting International Mitigation and REDD+ before 2020 5

5. Sourcing REDD+ Emission Reductions 6

6. Conclusions and Roadmap 8

Abstract

This paper evaluates options for the European Union (EU) and its Member States to support the December 2015 Paris climate negotiations through commitments for international mitigation. It takes the EU pledge to reduce domestic emissions by 40 percent by 2030 as a starting point, noting that additional efforts are needed to achieve the 2°C climate stabilization goal. Since additional domestic mitigation may be difficult to negotiate before the December climate conference, this paper recommends that the EU assume additional international mitigation commitments. REDD+ offers a unique opportunity for such additional action, considering that the UN Framework Convention on Climate Change (UNFCCC) negotiations defining REDD+ are comparatively advanced and REDD+ is already supported by implementation partnerships between developed countries and tropical forest countries.

The EU could facilitate international mitigation actions by defining a more ambitious mitigation target and opening the target to international offsets, including REDD+. It could also formulate separate international mitigation targets under which the EU or its Member Countries would commit to achieve a certain percentage or an absolute number of emissions reductions in developing countries. Such an international mitigation target could include a quota for REDD+ credits or a separate REDD+ target. International mitigation targets could be formulated at the EU or the Member State level. They could be announced as political pledges before or at the Paris conference and integrated into the 2030 EU Climate and Energy Framework in the context of the deliberations for a new Effort Sharing Decision (ESD) covering 2021–30 to be negotiated in 2016.

The ESD defines climate targets of EU Member States for sectors not covered by the EU Emission Trading System. The ESD could also serve as a legislative and political tool to recognize and distribute additional emission reduction targets among EU Member States. Such additional mitigation targets could come in the form of a general increase in ambition or as separate International Mitigation Targets. If the EU goes beyond its current target of 40 percent of domestic emissions reductions, the new ESD could either allow Member States to meet part of this additional obligation with REDD+ credits, or it could distribute international mitigation targets among Member States. Either way, these additional targets could be implemented in a collaborative effort between the EU and tropical forest countries.

In the absence of EU action, more ambitious Member States that decide to make international mitigation pledges could meet their obligations through bilateral or multilateral REDD+ agreements with partner countries. These Member States could have their efforts formalized and push for greater ambition with the new ESD.

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Financing additional emission reductions internationally is likely politically and economically more feasible than making further domestic commitments. The opportunity costs for domestic emission reductions beyond 40 percent in the EU are considerably higher (on average) than reductions in developing countries. The mitigation potential in fast growing emerging economies is also higher and more cost-efficient than in many developed countries.

Supporting emission reductions from forestry and land use in developing countries can help close the gap in ambition for EU countries. A goal of zero net deforestation by 2020 would eliminate the 5 gigatonnes of CO2 equivalent (GtCO2e) per year from the destruction of tropical forests.6 The need for action is particularly urgent in developing countries where a large proportion of emissions are from land-use changes. Reducing emissions from forests through REDD+ (reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks), as well as low-carbon strategies for agriculture, not only reduce emissions but have significant adaptation, livelihood, and biodiversity benefits. They are also comparatively cost-effective.

The EU has already committed to significant emission reductions from REDD+. Echoing an earlier (informal) commitment,7 the EU endorsed the 2014 New York Declaration on Forests that pledges to halve tropical deforestation by 2020, eliminate it by 2030, and reforest and restore 150,000 hectares of degraded landscapes.8 The EU has been a vocal supporter of REDD+ for some years, supporting it politically, financially, and through implementation partnerships with tropical forest countries. REDD+ support is also strong among Member States, some of which coordinate their policies. For example, at the 2014 New York summit, Germany, Norway, and the United Kingdom (UK) released a joint statement indicating they “stand ready to scale up results-based finance for large-scale, REDD+ emission

6 Marion G. Bastos Lima, Josefina Braña-Varela, Hermine Kleymann, Sarah Carter, (2014), “The Contribution of Forests and Land Use to Closing the Gigatone Gap by 2020,” WWF, University of Wageningen, Policy Brief 2, September. Dough Boucher, Kalifi Ferretti-Gallon, (2015), “Halfway There? What the Land Sector Can Contribute to Closing the Emissions Gap,” Union of Concerned Scientists.

7 European Commission, “Addressing the challenges of deforestation and forest degradation to tackle climate change and biodiversity loss,” Communication COM(2008) 645 final, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0645:FIN:EN:PDF.

8 UN Climate Summit, (2014), “New York Declaration on Forests,” http://www.un-redd.org/portals/15/documents/ForestsDeclarationText.pdf.

1. Introduction: Mobilizing Additional Climate Change ActionIn October 2014, leaders of the European Union (EU) agreed to reduce domestic greenhouse gas (GHG) emissions by at least 40 percent over 1990 levels by 2030.1 This target is the EU’s intended nationally determined contribution (INDC) to the UN Framework Convention on Climate Change (UNFCCC) announced ahead of the December 2015 Paris climate conference.2 It was the result of a political compromise reached at times when many EU states faced significant economic challenges. A 40 percent reduction represents what was politically feasible. It does not represent what is scientifically necessary.

To limit climate change to 2°C above industrial levels, the EU needs to do more. Given the EU’s current emissions trajectory, available resources, and historic responsibilities, the 40 percent domestic mitigation target is at the lower end of ambition. It is below the reductions proposed by some Member States,3 and it will result in a significant mitigation gap – the difference between the aggregate of global mitigation commitments and what is required to avoid more than 2°C of warming.4 In short, the EU can and should do more to ensure that its target is both “fair and ambitious” as called for in the Lima Call for Climate Action adopted at the 2014 UNFCCC Conference of the Parties.5

1 European Commission, “2030 Framework for Climate and Energy Policies,” available at http://ec.europa.eu/clima/policies/2030/index_en.htm.

2 Latvia and the European Commission on behalf of the European Union and its Member States, “Intended Nationally Determined Contribution of the EU and its Member States,” available at http://ec.europa.eu/clima/news/docs/2015030601_eu_indc_en.pdf.

3 Some Member States such as Germany, the UK, and Sweden, have targeted higher mitigation goals. Germany aims for 40 percent GHG emissions reductions by 2020, 55 percent by 2030 and 80-95 percent by 2050, compared to 1990 levels, see http://www.bmub.bund.de/en/topics/climate-energy/climate-initiative/general-information/; UK aims at carbon emission reduction by at least 80% by 2050 compared to 1990, see http://www.legislation.gov.uk/ukpga/2008/27/pdfs/ukpga_20080027_en.pdf; Sweden aims at emission reductions of 75-90 percent by 2050 compared to 1990 and close to zero GHG emissions by the end of the century, see http://www.regeringen.se/contentassets/b7ad2a706ce140c8b606407d34095a7c/svensk-klimatpolitik-hela-dokumentet-sou-200824.

4 For emissions gap analysis see M. Woolsin, and M. Belenky, “Gap Analysis with Paris Pledges,” available at http://www.climateadvisers.com/wp-content/uploads/2015/06/Climate-Advisers-Paris-Analysis-May-2015.pdf.

5 COP 20, “ Lima Call for Climate Action,” para. 14, available at http://unfccc.int/resource/docs/2014/cop20/eng/10a01.pdf.

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reduction programmes,” if countries put forward robust proposals.  The three countries said they “will also consider payments for results […] responding to the level of ambition and results by REDD+ countries.”9

This paper describes how the EU could increase its contribution to climate mitigation by adding international mitigation targets and shows the role REDD+ could play in meeting such targets. Combining additional targets with a certain flexibility to achieve them, including through REDD+, holds significant political and economic gains. It is however unlikely that the EU will raise its emissions reduction target before the December 2015 Paris conference. Our analysis therefore includes recommendations for actions that Member States (or groups of Member States) can take by Paris.

Member States who act now can formalize additional targets at the EU level later through the 2016 EU Effort Sharing Decision. EU climate policy is summarized in the 2030 EU Climate and Energy Framework10 which relies on the EU Emission Trading Scheme (EU ETS) and the Effort Sharing Decision (ESD) for its implementation. The Effort Sharing Decisions determines the allocation of emissions targets among EU Member States. The politically agreed11 2030 targets for the private-sector dominated EU ETS are unlikely to change. The ESD,12 however, can define additional Member State targets and allow flexibility to meet such targets. Such flexibility may allow the use of REDD+ credits under the ESD. This paper includes a brief analysis of how REDD+ credits could be sourced and recognized within the ESD system.

Note that this paper does not discuss the relative merits of REDD+ compared with other mitigation options, nor does it suggest any reduction of domestic EU emission reduction efforts.

9 See https://www.gov.uk/government/news/joint-statement-on-redd.

10 See http://ec.europa.eu/clima/policies/2030/index_en.htm.

11 European Commission, “2030 Framework for Climate and Energy Policies.” .

12 Official Journal (EU), L 140/136 of 5 June 2009; Decision No. 406/2009/EC on the effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments up to 2020.

2. International Mitigation Targets

International mitigation targets could bridge the gap in EU ambition between politically feasible domestic mitigation commitments and the need to keep warming below 2°C.

With political will, the EU or its Member States could commit by the 2015 Paris climate conference to implementing additional emission reductions outside of the EU. These additional commitments could be pledged either at the EU or the national level. They could be divided among the most ambitious Member States, for example, those in the Green Growth Coalition (GGC).13 The 14 European governments that support GGC have expressed their willingness to “consider raising the ambition of the GHG reduction target at the level of EU action, including through the use of international carbon market mechanisms.”14 Although increasing the ambition of the current climate commitment among all EU Member States would be challenging, an additional commitment by a few Member States should be possible without prejudging the discussion of future effort sharing, given that an international pledge would be separate from an addition to the domestic EU mitigation pledge.

Ambitious Member States could make unilateral pledges toward international mitigation targets in Paris. Additional targets—even political pledges by Member States— made before the Paris climate conference would send a powerful political signal. The legal recognition of such additional efforts under the EU 2030 Climate and Energy Framework would require the agreement of all Member States,15 which could be done later in the 2016 EU Effort Sharing Decision.

These actions would be additional to the EU’s 40 percent domestic mitigation target; they could take three forms. To enhance incentives for REDD+, the targets could include commitments to acquire a certain number of REDD+ credits or could earmark additional international finance for REDD+. Supplemental action could

13 Ibid.

14 Green Growth Group Ministers’ –“ Next Steps on the EU 2030 Climate and Energy Policy Framework,” statement, available at https://www.gov.uk/government/news/green-growth-group-ministers-statement-on-2030-energy-climate-policy-framework.

15 The Effort Sharing Decision 2030 will probably be adopted under Article 192 (1) of the Treaty on the Functioning of the European Union, which foresees a qualified majority vote by the European Council. In practice, however, the Council is likely to seek agreement from all Member States. See also the European Council Conclusions of October 2015,”… The European Council will keep all elements of the framework under review and will continue to give strategic orientations as appropriate, notably with respect to consensus on ETS, non-ETS, interconnections and energy efficiency…” (fn 1, para. 1).

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be supported through a mix of private and public financing instruments. Three ways to formulate these international commitments are described below.

• Increase the overall mitigation target (general mitigation target). The EU could increase its mitigation ambition, for example, to a 50 percent reduction compared with 1990 levels, and provide Member States with the flexibility to meet the additional 10 percent effort through international emission reductions, including verified emission reductions from REDD+ (REDD+ credits). These international “offset” credits would be limited to the additional 10 percent of the target, and would not affect the EU’s original 40 percent target for domestic action.

• Establish a separate international mitigation target (dual target). The international mitigation target could complement the domestic mitigation target, resulting in dual targets. No domestic emission reductions would be offset. The international target could be expressed in emission reductions (as tCO2e) or additional financial commitments. It could be met with REDD+ credits, among other methods.

• Set specific REDD+ targets (REDD+ target). Part – or all – of a dual target could be earmarked for REDD+. There could be a REDD+ quota as part of the international mitigation target or a separate REDD+ mitigation target.

These three options on how additional international action could be formulated are shown in Table 1.

Table 1: Three Options for International Mitigation Action

Nature of Commitment EU or Member State Commitment

General Mitigation Target

Additional EU emission reduction target (-40% + x%) that may be partially supported by international mitigation action, including REDD+ credits.

The increase of overall ambition cannot lead to a reduction of the -40% mitigation goal. The use of international credits / offsets would be limited to the increase in overall ambition.

A general mitigation target would be formulated at the EU level. The additional mitigation effort could be distributed among ambitious Member States. Such additional mitigation commitment can formally be recognized in the next Effort Sharing Decision (ESD) in 2016 (2021–30).

International Mitigation Target (as part of a Dual Target)

Target for international mitigation, separate and in addition to the -40% target. The international mitigation may include a quota for REDD+.

It may be combined with a financial ceiling (fixing a maximum price to be paid per emission reduction). It could also be expressed in tCO2e.

The International Mitigation Target could be formulated at the EU level, by a group of Member States, or by individual Member States. They could decide to dedicate a specific quota to REDD+.

If there is no agreement at the EU level, Member States could announce additional commitments as political pledges in Paris.

These pledges can later be recognized in the next ESD.

REDD+ Target (Dual Target limited to REDD+)

Pledge is specific to international mitigation (REDD+ or multi-sectoral) without additional EU-level reductions.

It is unlikely that the EU will formulate a separate target for REDD+. However, individual Member States can pledge to meet parts or all of an International Mitigation Target with REDD+ credits.

International Mitigation Targets differ from traditional flexibility mechanisms that rely on the transfer of emission offsets in that they do not count third-country reductions toward EU or Member State domestic targets. Adding international mitigation targets may be more feasible politically than increasing general mitigation targets. A Dual Target, limited to REDD+ or not, would not include any offsetting. Instead it would commit the EU (or the pledging Member States) to providing the finance and technical assistance required to make reductions politically, economically, and technically feasible in developing countries. This would most likely require partnerships between the EU and third countries, in which the third countries would adopt more ambitious mitigation goals conditional on EU financial and technical support.

An international mitigation target constitutes a dedicated effort to support mitigation actions in developing countries. By adopting international mitigation targets, the EU would send a strong signal to developing countries that their mitigation efforts would be supported. A dedicated target makes financial flows more predictable for partner countries, and creates a race to the top among countries eligible to supply emission reductions to the EU. The EU – or individual Member States – could decide to acquire certain categories of credits (e.g., REDD+, Clean Development Mechanism in least developed countries, credits under new market mechanisms) or credits from designated partner countries. Depending on the funds’ operational modalities, the EU could also source credits via the Green Climate Fund.

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Coordinated international mitigation targets could be embedded in a strategic partnership that includes finance, technology transfer, and public-private partnerships. Partnerships could also include the collaborative design of financing tools (e.g. green bonds or investment guarantees).16 There are indications that developing countries may be willing to consider such mutually beneficial partnerships. Of the few developing countries to have submitted INDCs to date, both Mexico and Morocco proposed unconditional and conditional emission reduction targets.17 The latter specify increased levels of ambition linked partly to the provision of financial support within a new international agreement.

Going even further, international mitigation targets could be formulated as joint-responsibility targets. The Kyoto Protocol allows Annex I Parties to meet their emissions targets “individually or jointly.”18 There is no reason why, in principle, a future agreement could not allow developed and developing countries to form joint targets. As with the Kyoto Protocol, in case these Parties fail to achieve their total combined emission reductions jointly, each would remain responsible for its own targets.19 This arrangement would create a formal incentive for developed and developing countries to cooperate on emissions reductions, and enable both to commit to more ambitious targets. Joint targeting by developed countries and tropical forest countries could create a powerful new basis on which to finance forest conservation.

The international mitigation target could be met with REDD+ credits, among others. Such targets could be expressed as emission reductions (tCO2e) or as financial pledges. However, expressing a minimum target in both tCO2e and financially (e.g., requiring at least 1 billion tons and at least US$5 billion) would ensure a minimum financial commitment in the event that international credits are traded below USD 5tCO2e,20 and a minimum mitigation commitment in the event that credits are priced above USD 5tCO2.

16 See also the G7 Leaders Declaration from Elmau (8, 9 June 2015) and the commitments to work on innovative financing instruments for climate change, available at http://www.bundesregierung.de/Content/DE/_Anlagen/G8_G20/2015-06-08-g7-abschluss-eng.pdf?__blob=publicationFile&v=5.

17 See submissions of INDCs at http://www4.unfccc.int/submissions/indc.

18 Kyoto Protocol to the United Nations Framework Convention on Climate Change, 10 December 1997, U.N. Doc FCCC/CP/1997/7/Add.1, 37 I.L.M. 22 (1998) Article 3.1.

19 Ibid, Article 4.5.

20 Or some other agreed sum. USD 5 tCO2 is the amount currently offered by Norway through its bilateral REDD+ deals, and the maximum amount the FCPF Carbon Fund has agreed to offer.

3. Linking REDD+ Credits to the EU Effort Sharing Decision

International mitigation targets could be recognized in the new EU Effort Sharing Decision covering the period 2021–30.

Integrating additional mitigation targets in the next Effort Sharing Decision (ESD) would anchor those targets in the EU Climate and Energy Framework and prevent the EU mitigation compliance regime from becoming fragmented. It would ensure that all mitigation efforts are recognized and properly accounted for as part of EU climate action. At the same time, it would allow Member States with higher international ambition to rely on the ESD institutions and regulations (e.g., registries, reporting, markets, institutional oversight). In addition, the Union would be in a position to formulate EU-wide qualitative and quantitative criteria applying to the nature and provenance of credits eligible for compliance.

The 2009 Effort Sharing Decision codifies the current distribution of mitigation efforts among EU Member States.21 The non-ETS EU mitigation target for the period 2013–20 is currently distributed (the so-called “burden sharing”) among Member States on the basis of their GDP per capita. This translates into emissions targets ranging from +20 percent compared with the baseline year of 2005 for poorer Member States to -20 percent for wealthier Member States. Collectively, all national targets will deliver total EU emission reductions of around 10 percent from the sectors addressed in the ESD by the year 2020.

A new ESD decision (ESD 2030) will be necessary to share the burden of the -40 percent mitigation target for the period 2021–30. Non-ESD-sectors hold significant mitigation potential,22

and new ways of driving domestic action will have to be devised. The European Commission is currently evaluating the effectiveness of the ESD, pursuant to its mandate.23 In addition to adjusting and tightening the post-2020 domestic emission targets, the ESD 2030 offers room for additional mitigation targets linked to achieving emission reductions in partner countries outside of the EU.

21 Decision No. 406/2009/EC of the European Parliament and of the Council of 23 April 2009 on the effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments up to 2020.

22 EU Commission (2015), Next Phase of the European Climate Change Programme: Analysis of Member States Actions to Implement the Effort Sharing Decision and Options for Further Community-Wide Measures (contract DG ENV C.5/SER/2009/0037); see also Client Earth, (2013), “The Future of the Effort Sharing Decision within a Post-2020 Climate Framework,” available at http://www.clientearth.org/reports/esd-discussion-paper-13-march-2013.pdf.

23 See Effort Sharing Decision, Article 14, Evaluation Mandate: http://ec.europa.eu/clima/news/docs/2015060802_esd_evaluation_mandate_en.pdf.

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Whereas the ETS covers and regulates carbon dioxide emissions from installations in the industry and power sector, the ESD targets all GHG emissions from non-ETS sectors, which account for roughly half of EU emissions. The ESD covers all GHG emissions from fuel combustion and fugitive emissions from fuels in the energy sector and industrial processes, solvent and other product use, agriculture, and wastes that are not covered under the EU ETS.24 The ESD does not cover international shipping or aviation, nor does it cover emissions from land use, land-use change, and forestry (LULUCF).

The ESD allows a number of flexible mechanisms that reduce the compliance costs for Member States. Annual targets are formulated as annual emission allocations (AEAs) that follow a linear trajectory between a defined starting point in 2013 and the target for 2020. Each Member State decides how it will meet the annual ESD targets. The ESD grants Member States a certain degree of flexibility to borrow, bank, and transfer AEAs: Member States (a) are permitted to borrow up to 5 percent of their future AEAs from future years; (b) can unlimitedly bank unused AEAs of one year for any other future compliance year until 2020; (c) are entitled to transfer up to 5 percent of their future AEAs to other Members; and (d) can transfer unused AEAs to other Members.25 Additionally, Member States are allowed to purchase, within limits, international credits, namely certified emission reductions (CERs) and emission reduction units (ERUs) from CDM and Joint Implementation (JI) project activities outside of their borders to meet their targets.

A more ambitious general mitigation target could allow for international offsets. Provided that the EU commits to mitigation beyond the -40% communicated to the UNFCCC under its INDC, the ESD 2030 could include the option to use international credits as emissions offsets. This permission could -in addition or in lieu of credits from project activities- include credits from sectoral and jurisdictional programs such as REDD+. The credits currently permitted under the current ESD are for the most part similar to those allowed under the EU ETS. Notably however CERs from afforestation and reforestation under the CDM are also permitted. The quality restrictions applicable to CERs and ERUs formulated in the context of the EU ETS do not apply to the ESD.

Provided that the EU target is being raised beyond -40 percent, the ESD 2030 could permit Member States to use REDD+ credits for compliance. The flexibility to use REDD+ credits would be limited to any additional target and would not affect the EU’s -40% (or greater) target of domestic action. At the same time, additional REDD+ credit quotas could be used to help compensate for the diverging cost profiles of emission reductions across Member States. According to the conclusions 24 Effort Sharing Decision No. 406/ 2009/ EC, Annex I.

25 Effort Sharing Decision No. 406/ 2009/ EC , Article 3.

of the European Council of October 2014, the calculation of Member State targets based on GDP per capita will, in the future, be adjusted “to reflect cost-effectiveness in a fair and balanced manner”.26 This means that Member States with high opportunity costs for emission reductions will benefit from slightly lower emission reduction targets, and Member States with low opportunity costs for emission reductions from slightly higher targets. The integration of an additional REDD+ credit window would create a separate tool for balancing the burden-sharing efforts, as it would allow high-cost Member States to take on higher quotas without increasing the domestic opportunity costs.

The EU could also include an international mitigation target into the ESD 2030. If Member States have agreed to a target at the EU level, this target could be broken down into Member State targets similar to the domestic mitigation target taking into account Member State GDP and ability to support partner countries. To codify the international mitigation target, ESD 2030 would have to include an additional article that could read “each Member State shall, by 2030, contribute to the limitation of greenhouse gas emissions in developing countries at least by the percentage set for that Member State in Annex X to this Decision in relation to its emissions in 2005.”27 Such provision would complement the domestic mitigation target by formulating the obligation to reduce emissions abroad.

By specifying the international mitigation target in an annex to the ESD 2030, the EU could formulate differentiated targets for each Member State. Member States who wish to engage in enhanced international mitigation action (e.g., those in the Green Growth Coalition) could accept stricter national targets under the ESD in combination with higher international credit quotas (to include REDD+). Member States who oppose stricter targets, by contrast, would retain a domestic mitigation target in line with the -40 percent overall ambition.

Creating a separate framework for land use, land-use change, and forestry (LULUCF) emissions would offer more opportunities for REDD+ crediting. The October 2014 European Council conclusions were ambiguous about the role of the domestic LULUCF sector in achieving the mitigation targets for the non-ETS sectors.28 Emissions and removals from LULUCF are not part of the ESD. Discussions are ongoing about

26 European Commission, “2030 Framework for Climate and Energy Policies,”, para. 2.11.

27 This formulation follows closely the formulation for the mitigation obligation under the current ESD, Article 3.1., which reads, “Each Member State shall, by 2020, limit its greenhouse gas emissions at least by the percentage set for that Member State in Annex II to this Decision in relation to its emissions in 2005.”

28 The EU’s INDC has a similar ambiguity (“Policy on how to include Land Use, Land Use Change and Forestry into the 2030 greenhouse gas mitigation framework will be established as soon as technical conditions allow and in any case before 2020…”)

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how the LULUCF sector could contribute to increased mitigation action. The European Commission has recently completed stakeholder consultations on the integration of agriculture and LULUCF into the EU 2030 climate and energy framework.29 It may well be that the EU decides to formulate a separate LULUCF compliance framework. In such case, yet another opportunity for an international REDD+ credit window – defined against LULUCF reduction targets – will emerge. However, if the EU interprets its INDC to mean that LULUCF will be part of the -40 percent commitment, the existing target would be weakened because the EU’s domestic LULUCF sector, based on the accounting rules from the Kyoto Protocol, represents an overall sink. A commitment to international mitigation could counter such efforts to weaken the EU 2030 framework.

4. Supporting International Mitigation and REDD+ before 2020

There are a number of options that could encourage EU Member States to acquire REDD+ credits before 2020, and still allow the recognition of these efforts in the context of the EU Climate and Energy Framework.

The time prior to 2020 could be used as a trial phase with ESD shadow budgets. Member States could individually or jointly start testing REDD+ crediting, credit transactions, and compliance processes well before REDD+ crediting is permitted under the ESD from 2020 onward. The trials could be financed from voluntary Member State contributions, for example, from annual emission allocations (AEA) transaction proceeds, or from public international climate finance sources. They would use, and respond to, the ESD infrastructure – including monitoring, reporting, transaction budgeting, implementation, and registry operations – even though the functions of credit surrender and compliance would not yet formally apply. Ideally, Registry Regulation No. 389/2013 would be amended to allow for the creation of REDD+ units in the registry and their exchange among dedicated credit holdings.

Additional funding could come from ESD-related auction revenues. The European Council suggests in its conclusions of October 2014 that the ESD could benefit from a “limited, one-off, reduction of the EU ETS allowances.”30 Any release of EU ETS

29 European Commission website, “Consultation on Addressing Greenhouse Gas Emissions from Agriculture and LULUCF in the Context of the 2030 EU Climate and Energy Framework,” accessed July 15, 2015 at http://ec.europa.eu/clima/consultations/articles/0026_en.htm.

30 European Commission, “2030 Framework for Climate and Energy Policies,” para. 2.12.

allowances into the emission targets regulated by the ESD should not be cost-neutral. Rather, they should be released by way of an auction, with auction proceeds to be earmarked for REDD+ credit sourcing. Similarly, should the ESD 2030 dictate mandatory AEA auctioning or should Member States voluntarily organize AEA auctions,31 then the auction proceeds should be used at least in part to invest in REDD+ credits.

International REDD+ credits could be acquired from the proceeds of AEA transactions. AEA transfers are currently designed as abstract (or naked) transactions without earmarking AEA proceeds for further mitigation efforts. This can be seen as an unnecessary diversion of the value embodied in ESD credits. The ESD 2030 should respond through a measure that ring-fences all AEA transactions, that is, earmarks some or all AEA proceeds to directly fund emission reduction activities within the transferring country or – as an option – in developing countries, where they could be invested in REDD+ credits. Funds may be managed internationally (e.g. in the context of the Green Climate Fund) centrally (e.g. in the form of a European Climate Fund) or bilaterally, provided stringent monitoring and reporting is foreseen. But even before any EU-wide agreement on the management of funds, Member States could commit to use the proceeds from AEA transactions to support international mitigation and REDD+.

ESD 2030 could allow a portion of the existing international offset quota to be used by REDD+ credits. It is unlikely that Member States will agree to increase the pre-2020 mitigation targets. The EU could however amend the ESD to allow for REDD+ credits alongside the types recognized today, i.e. CERs and ERUs. If REDD+ credits are procured through a solid and robust certification process, for example, in the context of jurisdictional partnerships with the highest monitoring and verification standards, they are likely to outscore many CERs and ERUs in terms of environmental integrity, and they may also be politically more acceptable to civil society. 32 The international offset provisions in Article 5 of the ESD could be mobilized in this respect.

Finally, the ESD 2030 policy framework can honor “early action” by allowing for retroactive crediting. The future ESD compliance provisions – planned for adoption in 2016 – can stimulate early REDD+ action by allowing pre-2020 credits into the post-2020 framework. This would enable Member States to plan ahead and build a REDD+ credit asset in anticipation of the 2021–30 trading period. REDD+ frontloading would not only prepare an EU REDD+ credit market before 2021, but also help Member States to hedge their future compliance risks.

31 Even the current ESD framework recognizes the instrument of AEA auctions, see Recital No. 10 of Decision 406/2009/EC.

32 Client Earth, (2013), The Future of the Effort Sharing Decision within a Post-2020 Climate Framework,” http://www.clientearth.org/reports/esd-discussion-paper-13-march-2013.pdf

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5. Sourcing REDD+ Emission Reductions

REDD+ credits can be sourced through bilateral or multilateral partnerships that secure high environmental credibility and a maximum of co-benefits.

The acquisition of REDD+ credits constitutes an international mitigation strategy that combines sustainable development benefits with cost-efficient GHG mitigation. REDD+ is formulated as a sectoral mitigation mechanism that foresees the accounting of emission reductions at the national or jurisdictional levels. As such, REDD+ has significant political benefits because it is well placed to generate credits in the context of government-to-government cooperation.

In cooperation with forest countries, REDD+ credits could be ensured through different strategies:• Bilateral partnership agreements between the EU and

REDD+ countries

• Bilateral agreements between EU Member States and REDD+ countries

• Approved multilateral or bilateral programs

The European Commission can enter into bilateral partnership agreements on behalf of the EU. Both the EU ETS Directive and the ESD provide the possibility of allowing offset credits generated under bilateral agreements between the EU and partner countries. To date, no bilateral agreements have been concluded and there are few indications that any are under negotiation. The European Commission has stated, however, that the “primary focus of potential bilateral agreements [is to create] demand for credits from new market mechanisms (NMMs) and to pilot the establishment of such NMMs.”33 NMMs are discussed under the UNFCCC. The EU is pressing for the modalities and procedures of NMMS to be established as soon as possible, and is exploring the idea of setting up pilot programs in sectoral crediting.34 It also indicated that it “is very open with regard to the scope of bilateral

33 See “Commission’s Frequently Asked Questions on International Credits in the EU ETS,” http://ec.europa.eu/clima/policies/ets/linking/faq_en.htm.

34 See http://ec.europa.eu/clima/policies/ets/linking/index_en.htm.

agreements that might be reached”35 and in a 2012 submission to the UNFCCC, the EU put forward modalities and procedures for a NMM that arguably permits activities in the land-use sector.36

In the absence of EU action, individual Member States could enter into bilateral partnership agreements with REDD+ countries. Similar to the partnership agreements between the subnational states of California (United States), Chiapas (Mexico), and Acre (Brazil), individual Member States (or groups of Member States) could enter into bilateral agreements with REDD+ partner countries. Such agreements would embed the sourcing of REDD+ credits into a broader bilateral or multilateral cooperation as well as stipulate the minimum requirements for the generation of acceptable REDD+ credits. Such credits could be used to meet the international mitigation target under a dual target or serve as offsets under a more ambitious general target.

REDD+ emission reductions could also come from credible existing REDD+ programs. Initiatives such as the World Bank-administered Forest Carbon Partnership Facility ’s Carbon Fund and BioCarbon Fund, or the REDD Early Movers program37 have put effort into defining credible rules leading to high-quality REDD+ credits. Instead of negotiating rules from scratch, the EU or its Member States could agree to meet their additional commitments by acquiring REDD+ credits generated by these programs. The same strategy may eventually apply to the Green Climate Fund (GCF), though it is unclear whether there will be a REDD+ window under the GCF and, if so, how it will operate. Possible restrictions on the earmarking of funds by donors may prevent the EU or Member States from targeting REDD+ programs under the GCF.38

If such partnerships are formed, clear and transparent rules would be needed to avoid double-counting emissions and emission reductions. If a general mitigation target is adopted, with REDD+ allowing for flexibility to meet higher domestic targets, there would have to be some form of transfer of REDD+ credits to the EU or Member States under clear accounting rules to prevent both the forest country and the EU or Member State from counting the same emission reductions.

35 See the “Commission’s Frequently Asked Questions on International Credits in the EU ETS.”

36 Submission by Cyprus and the European Commission on behalf of the European Union and its Member States, Draft COP Decision on the modalities and procedures for the NMM, contained in Document FCCC/AWGLCA/2012/MISC.6/Add.6, 26 November 2012.

37 A number of EU Member States are already major contributors to these funds, most notably the UK and Germany

38 See http://www.gcfund.org/fileadmin/00_customer/documents/MOB201410-8th/GCF_B.08_15_Outcome_IRM_fin_20101002_reissue.pdf.

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Additional provisions specific to REDD+ credits—for example, the use of buffer accounts to mitigate the risk of “reversals”— would also need to be in place.39 If a dual commitment was adopted, with the REDD+ credit used to meet an international target, no transfer of credit would be necessary; however, the corresponding emission reduction would count against the international target of the EU partner. If a joint commitment is formed between the EU or a Member State and a REDD+ partner country, clear accounting rules would need to specify the proportion of REDD+ credits generated that could be counted by the host country versus the proportion that could be counted by the EU or Member State.

If REDD+ emission reductions are sourced through bilateral or multilateral programs, it is recommended to formulate minimum quality criteria. Such criteria would have to apply to all credits used for compliance under an additional or more ambitious EU target. Such criteria could relate to the environmental credibility of the mitigation effort and to reference levels and the measurement and verification methodologies. They could also relate to social and environmental co-benefits and REDD+ safeguards.

39 A reversal is the risk of nonpermanence, that is, that an emission reduction could be reversed due to anthropogenic disturbance of forest.

REDD+ is formulated as a sectoral mitigation mechanism that foresees the accounting of emission reductions at the national or jurisdictional levels. As such, REDD+ has significant political benefits because it is well placed to generate credits in the context of government-to-government cooperation.

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of Member States – cannot set a new EU mitigation target. However, they can commit to international mitigation targets. Such commitments would start as political pledges before or at the Paris conference. During 2016 these pledges could be integrated into the EU 2030 climate and energy policy framework. Figure 1 summarizes the options for action.

Political pledges of Member States could be included in the new 2030 ESD. While the EU ETS leaves little room for additional mitigation targets, new commitments can be included in the 2030 ESD which is expected to be negotiated in 2016. The ESD formulates emission targets in non-EU ETS sectors for Member States. The ESD 2030 can formalize international mitigation pledges made by Member States. If there is agreement to set a more ambitious general mitigation target, the ESD could also permit REDD+ as an eligible offset category.

International mitigation targets can be closely coordinated with tropical forest countries. They could even be formulated as joint mitigation targets with both EU and partner countries equally responsible to achieve the pledged emission reductions. The sourcing of REDD+ credits through partnerships with forest countries allows the definition of quality criteria applicable to all sourced credits.

Because REDD+ is conceived as a mechanism that accounts for climate benefits at the national or jurisdictional levels, it is suitable for government-to-government partnerships. Countries that negotiate REDD+ partnerships can agree on the percentage of REDD+ credits to be transferred to the party that provides funding and the percentage that counts as “own mitigation contribution” of the tropical forest country. Parties can also agree on strategies to avoid double-counting (e.g. nesting, registries, buffers) and on criteria that ensure environmental and social benefits of REDD+ measures.

There is no single policy solution to climate mitigation, with significant costs and benefits associated with all approaches. However, in most cases, long-term benefits will far outweigh the costs, and this is certainly true of REDD+. In the context of the UNFCCC, REDD+ is one of the few mechanisms that can already rely on a negotiated finance framework. It is also characterized by a particularly cooperative spirit between countries and by tested bilateral partnerships. REDD+ therefore provides a unique opportunity to take advantage of existing frameworks and international partnerships backed by significant technical experience and political will to implement.

6. Conclusions and Roadmap

The long-term benefits of additional mitigation action far outweigh the additional costs. REDD+ provides a credible mitigation strategy in the context of additional international mitigation targets.

As the Paris climate conference approaches, the reduction of emissions from tropical deforestation remains an important policy priority. Efforts to define a framework for REDD+ have progressed relatively far compared with other issues treated under the UNFCCC. The success in negotiating REDD+ has stimulated action in many developing countries and has created bilateral and multilateral partnerships supporting such action. Anchoring REDD+ in the Paris agreement will help sustain the interest of many countries to further strengthen the momentum in implementing forest-related climate action.

The cooperative spirit that surrounds REDD+ provides an opportunity for joint leadership of developed and developing countries under the UNFCCC. Partnerships between EU and tropical forest countries could serve as a model for how collaborative action can generate real and measurable climate benefits. For example, forest countries would commit to action and embark on reforms; companies would take action to improve the sustainability of their commodity supply chains; and EU countries would provide financial and political incentives as well as technical and capacity support.

To increase its climate ambition and support mitigation partnerships with tropical forest countries, the EU would have to mobilize additional finance and demand for REDD+ credits. The EU could mobilize demand for REDD+ credits by increasing the ambition of its 2030 emission limitation target. Such an increase in ambition could be expressed as a general mitigation target that would allow REDD+ and other international offsets for compliance, or as an additional international mitigation target, which would formulate obligations to achieve the target by supporting additional emission reductions abroad.

Ideally, the EU as a whole would commit to additional action. But if that is not possible, individual Member States can make additional pledges. Member States – or groups

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Figure 1 Options for Action on International Mitigation Targets

Decide whether to allow REDD+ credits in new European

Union E�ort Sharing Decision

EU adopts general mitigation targets > 40%

with international �exibility mechanism

EU adopts internationalmitigation target separate

to 40% domestic target

Member States or group of Member States adopt

internationalmitigation target

Possible framework for land use, land-use change, and forestry with REDD+

credits allowed

Int' o�set quota set for each MS to ensure cost e�ectiveness in fair and

balanced manner

Rules for transfer of ownership of REDD+ credits to European

Union Member States

Earmarking of proceeds from annual emission allocations

transactions, or European Union E�ort Sharing Decision related auction revenues, for REDD+

Decide whether to adopt speci�cREDD+ target

Formation of emission sharing agreement between

MS to meet international target (in $ or tCO2)

Adopt rulesde�ning REDD+ credits

Partnerships betweenEuropean Union & REDD+ countries, European Union +multilateral REDD+ funds,with clear accounting rules

Pre-2020 trial phase,with retroactive creditingof early action post-2020

Decide whether to pledge speci�c REDD+ target

Partnerships between Member States & REDD+ countries,

Member States + multilateralREDD+ funds, with clear

accounting rules

Stricter targets for Member States re�ected in new

E�ort Sharing Decision, e.g., use of E�ort Sharing

Decision infrastructure

or

or or

Stimulating Demand for REDD+Additional Mitigation Targets and EU Effort Sharing

CHARLOTTE STRECK and PAUL KEENLYSIDEwith contributions from MORITZ VON UNGERCHARLOTTE STRECK and PAUL KEENLYSIDEwith contributions from MORITZ VON UNGER