In the absence of large-scale, long-term demand and price signals for REDD+ emissions reductions, implementation of REDD+ has been significantly below what is required to avoid dangerous climate change. This is in part due to the absence of a clear economic incentive for either forest countries or the private sector to shift from business as usual activities to land use policies that have REDD+ at their core. In this context, a “put option” reduces uncertainty and makes more REDD+ activities commercially viable by offering a guaranteed buyer for a certain value or volume of emissions reductions. The visibility over future revenues that this incentive structure creates is a precondition for unlocking the vast pools of private capital managed by large, responsible money managers. Securing a guaranteed price in advance will help scale up REDD+ activities, as financing available from investors and lenders can be more easily accessed and secured on more favourable terms.
This briefing note sets out a strategic payment-for-performance approach to stimulate private sector investment in REDD+. The approach presented is a form of “put option contract” issued by a purchasing facility, using public funds.
To read the briefing note in full download the link below.
|IFF_Advanced commitment to payment_05.pdf||755.38 KB|