Michael Dutschke and Sheila Wertz-Kanounniko

with Leo Peskett, Cecilia Luttrell, Charlotte Streck and Jessica Brown.

Key points

• A financing mechanism for reducing emissions from deforestation and forest degradation (REDD) is under negotiation, to take effect after 2012. The mechanism will draw on various public and private financing sources to respond to the diverse needs of different developing countries.
• Financing for upfront capacity building (‘readiness’) is likely to rely on public funds, while financing for ongoing emission reductions is likely to come from funds and/or carbon markets (both voluntary and compliance-oriented).
• Financing gaps are likely to arise, first in supporting the REDD demonstration period prior to 2012, and second in countries with weak capacity and governance, and thus higher investment risks.
• The most promising avenues for addressing financing shortfalls are market-linked mechanisms that tap carbon markets via auctioning emission allowances, fees and taxes on carbon transactions.
• The governance context of many tropical forest areas requires substantial prior investments in land tenure clarification and improved law enforcement before marketbased finance becomes feasible.

This CIRFOR infobrief can be downloaded from CIFOR's website.