By Iain Henderson, member of UNEP Finance Initiative REDD+ and Sustainable Land Use
A long, long time ago, in an age when the REDD+ acronyms that both comfort and confuse were but a twinkle in negotiators’ eyes, the world was a very different place. This was the ‘pre-smartphone period’, a world without Twitter or Facebook, a world where ‘text neck’ had yet to enter the medical lexicon.
In this bygone era (aka the late 1990s), while riding London’s Underground with no smartphone to amuse me, I would study the adverts that lined the carriages.
One advert that remains seared in my memory was for a company that prided itself on its innovation and lateral thinking.
The advert told the story of the 1960s space race between the Soviet Union and the United States, when the latter spent millions of dollars developing a ballpoint pen that astronauts could use in orbit. The demands of space travel required the pen to work in near zero gravity conditions, upside down and at extreme temperatures. After years of toil, the Americans succeeded in creating just such a pen, thanks to the most brilliant minds of their generation and a multimillion-dollar R&D budget. Meanwhile, the Soviet Union had found an alternative solution: Their cosmonauts would carry pencils.
Ignoring the inconvenient truth that this advert is based on an urban myth, it has some interesting lessons for REDD+. The column inches devoted to the design and function of financial mechanisms like the Green Climate Fund seemingly increase with every passing month. These mechanisms will channel new and additional funds – about which there is justified and historical concern – required to plug the various ‘financing gaps’ we are all aware of in development circles. The international community is essentially working furiously on the design of a development ballpoint pen that at times feels like it needs to be all things to all people.
But aren’t we overlooking something? Is it possible that we aren’t spending enough time looking at the ‘pencils’?
A new report commissioned by UNEP analyzes the nature and scale of agricultural commodity subsidies and examines how they can shape the prevailing investment climate, which in turn might positively or negatively influence forest loss. These subsidies are the instruments that already affect capital flows in landscapes by influencing behavior through price, legality or information. Arguably, given that these incentives already exist, they can be thought of as ‘pencils’ in the context of REDD+.
Several key points stand out from the report on a topic I have little doubt will be one of growing interest for the REDD+ community. The most significant message for me, however, is one of opportunity.
The authors highlight the vast gulf between REDD+ finance and agricultural subsidies provided through a range of government tools in the two countries profiled – Brazil and Indonesia. Annual domestic agricultural subsidies for commodities often associated with historical deforestation exceed REDD+ finance by factors of 70 and 164 times, respectively.
Despite these vast multiples, it would appear that this is not an area many countries have been able to look at in the development of their REDD+ plans to date. Based on the assumption that these huge flows will probably have a far greater impact on private sector behavior in a landscape than REDD+ funds used in isolation, it is suggested that REDD+ funds could be used to help identify and potentially reform existing subsidies that are working against development objectives, creating a significant multiplier effect.
This is a clear opportunity to try and generate a ‘double dividend’ by redirecting resources that currently might have unintended negative consequences with regards to REDD+ objectives. This opportunity exists as some subsidies will, to paraphrase UNEP Goodwill Ambassador Pavan Sukhdev, have been designed to deal with yesterday’s priorities, which might not be entirely aligned with today’s objectives or tomorrow’s problems.
As with many development challenges, however, reforming subsidies is arguably easier in the rarefied world of economic theory and perfect markets than in life, as the report points out. Subsidies are hard to identify and even harder to estimate. The research team only managed to quantify around half of the relevant subsidies they found. Subsides are also rarely commodity-specific and manifest themselves in many different ways under many different names (e.g., aid, incentives, support, aid, fiscal instruments, etc.), which adds another layer of complexity to the challenge.
However, if these hurdles can be overcome, the report alludes to well-designed subsidies being an important tool in the policy-maker toolbox. This has already started to happen, and the report provides encouraging examples of subsidy reforms that support REDD+ in both countries profiled. The next step for UNEP and the UN-REDD Programme will be to take the analysis to a deeper level and explore in finer detail how subsidies could be reformed for (almost) everyone’s benefits and for significant forest and climate gains. Indonesia has volunteered to take this next step and, during the Tropical Landscape Summit called for by the Indonesia Investment Coordinating Board on 27–28 April, the Government will start its scrutiny of counter-productive land-use subsidies. The topic will also be on the agenda at the Global Landscapes Forum event on investment in London on June 10 and 11.
The key message I gleaned from reading this stimulating report is that while it is vital to continue to focus on the important race to develop the ballpoint pen in REDD+, let’s not forget the pencils.
The ‘Subsidies to key commodities driving forest loss’ report can be downloaded here.
About the author: Iain Henderson joined the UNEP Finance Initiative (UNEP FI) in Geneva in 2012 and leads their work on REDD+ and Sustainable Land Use. He was previously an investment banker for over a decade in London and more recently worked for WWF on sustainable finance in Hong Kong. He is part of the UNEP team working on private sector engagement under the UN-REDD Programme and is a member of the World Economic Forum’s Global Agenda Council on Forests.