Harnessing carbon markets for tropical forest conservation: towards a morerealistic assessment

The proposed Clean Development Mechanism (CDM) of the Kyoto Protocol paves the way for financial and technological transfers to support forestry proje cts that sequester carbon or protect carbon stocks. From its inception, the concept has been highly controversial. It has been enthusiastically suppor ted by those who believe that conservation of tropical forests will be diff icult unless forest owners and managers are compensated for the environment al services of their forests. Others believe that financial transfers suppo rting 'carbon farming' would ignore social concerns and the full range of g oods and services of forests. This paper examines the implications of CDM f or forest conservation and sustainable use, by drawing on recent literature and the results of a policy dialogue with CDM stakeholders. We conclude th at initial estimates of the contribution tropical forestry could make to bo th climate change mitigation and to forest conservation need to be scaled d own. CDM payments for tropical forestry are likely to be received in a far more limited area than initially expected. The cost-effectiveness of forest ry projects relative to projects in the energy sector may have been overest imated. In particular few estimates have adequately accounted for the likel ihood that the duration of CDM forestry projects is unlikely to be as long as the residency time of carbon in the atmosphere. Also political realities and investor priorities may not have been sufficiently understood. CDM fun ding for forestry may also decline in future as economically viable clean t echnologies are increasingly developed in the energy sector. Tropical fores ts are likely to be an intermediate climate change mitigation strategy for buying time, until more permanent options become available. The most import ant justification for including forests in CDM may lie in the contribution CDM could potentially make to forest conservation and sustainable use. An a nalysis of the implications of CDM for forests reveals the importance of in volving forest stakeholders more closely in the CDM debate. To prevent perv erse outcomes and reduce the risk of 'leakage' of emission reduction to are as outside project boundaries; CDM projects may need to be limited to niche s which meet certain political and institutional preconditions and where su fficient understanding of local decision-making and the broader context is available. CDM may be more effective if used to remove non-economic impedim ents to forestry activities that are economically viable and meet local nee ds. Lessons from the forestry sector in relation to plantations, natural fo rest management, forest conservation and non-timber forest products are dis cussed to illustrate the dangers of misusing CDM and also to give examples of how CDM could be harnessed for better use of forests. CDM should be seen as one more tool for enhancing the effectiveness of more conventional ways of promoting forest conservation and sustainable use.