Options market and risk-reduction tools for REDD+

REDD+ is at a crossroads – discussions have advanced in the UNFCCC negotiations and readiness efforts are progressing with public financing, but private capital is largely on the sidelines. A lack of demand is coupled with uncertainty and risks that hinder the implementation and development of supply. On the other hand regulated companies potentially face large carbon price uncertainty, generating significant risk. Options on REDD+ could provide a mechanism to mobilize private capital in the near and medium terms while offering business and governments a tangible hedging tool in today’s uncertain policy environment. NORAD is funding the Environmental Defense Fund, in collaboration with the LSE, IIASA and the Mercator Research Institute on Global Commons and Climate Change to undertake a project to develop an Options Market and Complementary Financial Structures to Mobilize Private Capital for REDD+ and Manage Climate Policy Risks.

LSE’s work on this project focuses on two main areas:

  1. Understanding the demand for REDD+
    To help to understand the current REDD+ demand context, and the future prospects for any REDD+ market LSE is engaging with a number of different actors involved in REDD+ and carbon markets. As part of this engagement LSE approached both CMIA and IETA for their assistance. The result was a workshop held with members of both CMIA’s REDD+ Working Group and IETA’s Land/Use Forestry Working Group in April 2014.The workshop had two main objectives: first to canvass the expertise and experience of the members of the groups; second to present initial thinking from LSE and the wider project regarding the use of options and other financial tools to reduce risks to both REDD+ sellers and REDD+ buyers and how they may increase demand and/or mitigate risk.A report outlines the key discussions and findings from the workshop is available here
  2. Understanding the nature of the opportunity costs of deforestation and forest degradation

 

Publications:

Engel, S., Palmer, C., Taschini, L., Urech, S., 2012. Cost-effective payments for reducing
emissions from deforestation under uncertainty. Working Paper. London: Grantham Research Institute on Climate Change and the Environment, Centre for Climate Change Economics and Policy, London School of Economics and Political Science.

Stefanie Engel, Charles Palmer, Luca Taschini and Simon Urech. Conservation Payments under Uncertainty In: Land Economics, February 1, 2015 vol. 91 no. 1 36-56.

Ruben Lubowski, Alexander Golub, Rowan Parkhouse and Luca Taschini (2014). Bridging the REDD+ Finance Gap. Chapter in ‘IETA GHG Market Report 2014′.

Tim Laing, Luca Taschini, Charles Palmer, Johanna Wehkamp, Sabine Fuss and Wolf Heinrich Reuter (2015) Understanding the demand for REDD+ credits. London: Grantham Research Institute on Climate Change and the Environment, Centre for Climate Change Economics and Policy, London School of Economics and Political Science.