65863 Carbon rights in rEDD+ PoliCy notE The findings, interpretations, and conclusions expressed herein are those of the author(s), and do not necessarily reflect the views of the funders. Supporting research for this document was carried out from July to October 2010. ii Carbon rights in rEDD+ Cover photo by Tran Thi Hoa Policies to control greenhouse gas emissions (GHG) from tropical deforestation and degradation have become a major focus of the international climate change negotiations over the last five years. Much of the debate has centred on the potential for developing new international financial systems through which countries, or the actors within countries, are rewarded for reducing GHG emissions from deforestation and forest degradation1 compared to a reference emissions level (REDD+). These policies raise a number of new legal issues at international and national levels. One of the main debates surrounds the issue of ‘carbon rights’––an issue that has arisen because REDD+ leads to the consideration of carbon as potentially new form of property in tropical forests. Furthermore, some approaches to REDD+ may make it possible for different actors to benefit from the transfer of these rights, for example, through carbon trading. REDD+ could present new financial and other opportunities for poor and vulnerable people. However, they may also face new risks if more powerful actors move to secure rights to benefits from emissions reductions or if they are excluded from REDD+ systems because they are unable to meet the requirements of emissions trading systems. This policy note summarizes2 what carbon rights are, how they are relevant in REDD+ and the main implications that could arise for poor and vulnerable people. 1 REDD+ officially includes the following activities: emissions from deforestation and degradation, and the conservation of forest carbon stocks, sustainable management of forests and enhancement of forest carbon stocks. 2For the full report see Peskett, L. and Brodnig, G. 2011. Carbon rights in REDD+: exploring the implications for poor and vulnerable people. World Bank and REDD-net. Carbon rights in rEDD+ 1 Photo by Curt Carnemark 2 Carbon rights in rEDD+ What are carbon rights? Regulations or contracts may distinguish between: The definition of carbon rights is open to • Sequestered carbon: this is the commodity, many different interpretations and is likely carbon, itself. It is important to determine to vary between legal contexts. In the REDD+ if the sequestered carbon is a property debate, one interpretation is that carbon can be separable from the tree or biomass in which considered as a new form of property in forest it is stored. The owner of the tree, forest, ecosystems. It has potential value because of soil or land will not necessarily own the the creation of new markets and funds aimed sequestered carbon. at reducing carbon emissions or enhancing removals. This raises legal issues surrounding • Carbon sinks: these are the reservoirs in how rights to carbon as property, and the which the carbon is stored. They may be associated rights to transfer and trade carbon, regulated by property rights that regulate are determined. As yet, neither regulated nor trees or below ground biomass. voluntary regimes have mandated a particular • Carbon sequestration potential: Refers to the legal regime for the allocation of carbon bundle of rights allowing an entity to explore property rights. and exploit the potential that land and Two concepts have to be considered in order forests have to store carbon. These would to define carbon rights: normally include certain rights to manage • the nature of carbon as property (i.e., what land and trees in a way which reduces is being owned; who may own which of the emissions or enhances removals of carbon. property rights in carbon; and who has rights A key issue illustrated here is that while to the benefits); and ownership of the tree, forest, soil or land may be • the derivative rights associated with trading. important in defining who has rights to explore In other words how does the integration benefits associated with carbon property, it is not of individual properties into national or the only condition. There are other factors that international REDD+ regimes result in need to be taken into account, such as whether benefits?; and what are the processes and the carbon is separable from such property, responsibilities that are associated with and the importance of rights relating to the this?. management of land and trees. These questions and definitions need to be carefully considered Carbon as property by any actors engaging in or likely to be affected by REDD+ schemes. The interpretation of carbon rights, whether it is in national legislation or in contracts, will need to define exactly what is being owned. Carbon rights in rEDD+ 3 Emissions trading rights Carbon rights in rEDD+ Ownership of sequestered carbon as property The relevance of does not convey much value in itself. It is carbon rights in REDD+ only through the integration into national or Carbon rights are relevant in a REDD+ context international emissions trading regimes that because they can determine benefit sharing commoditize carbon. Alternatively, fund based arrangements and potentially also the alignment approaches for REDD+ would also assign some of incentives with deforestation threats. value to carbon emissions reductions/removals. Therefore, they have large implications in The rules governing carbon trading could terms of equity and the potential effectiveness influence these derivative rights and therefore of REDD+ to reduce emissions. However, the have implications for carbon rights. These relevance of carbon rights may vary between the include: three main approaches to REDD+: • Existing international treaties and legal 1. National accounting and implementation: norms: International law contains a number In national accounting and implementation of principles underpinning procedural and approaches, national governments would substantive rights for non-state actors, with receive incentives in accordance with particular emphasis given to indigenous nationally implemented REDD+ activities, peoples and traditional communities. and with performance assessment linked • Specific REDD+ safeguards in an to reduction of GHG emissions under a international REDD+ agreement. Safeguards national reference level and a national on the rights of indigenous peoples and local monitoring, reporting and verification (MRV) communities are referred to in the annex system. Funding could either come from of the Cancun REDD+ agreement and may international carbon markets or funds. eventually form key criteria for establishing 2. National accounting with sub-national rights to trade carbon. or project implementation: Governments • International and domestic carbon trading are awarded carbon credits based on a rules (e.g., US or EU emissions trading national reference level and MRV system, system) will probably be developed which and agree to pass these on to national non- will place certain boundaries on the rights to governmental actors based on sub-national trade carbon. These may build on, or be an or project reference levels and potentially alternative to international safeguards. MRV systems. It is also possible that sub- • National rules and regulations will probably national actors could receive credits directly be developed in most REDD+ countries, from the international level. establishing conditions such as the types 3. Project based implementation and of activities and actors that are eligible for accounting: Projects have individual REDD+. 4 Carbon rights in rEDD+ tablE 1: CarbOn rigHTS and rEdd+ arCHiTECTurE Approach to REDD+ Finance Reference level Accounting/MRV Relevance of carbon rights 1 National International funds National National Title to carbon at local levels not necessarily essential, but would rely on effective and equitable benefit sharing 2 Regulated market National National Title to carbon at local levels not necessarily essential, but would rely on effective and equitable benefit sharing 3 Hybrid Regulated market National and sub- National and sub- Title to carbon relevant at local national/project national/project levels 4 Sub-national/Project Voluntary market Sub-national/ Sub-national/project project 5 Voluntary market Sub-national/ Sub-national/ Title to carbon relevant at local project project levels reference levels and MRV systems, and to be equitable and effective, but these could project implementers would receive credits be agreed by negotiation or by interpretation directly from international markets in of existing laws where these exist. Such an relation to the reference level. These could approach would of course depend on the either be regulated under an international ability of poor and vulnerable groups to agreement or be governed by voluntary negotiate with government, and the quality market rules. of implementation of benefit sharing systems and existing laws. Significant effort will As illustrated in Table 1, carbon rights may be be required to overcome these governance most relevant in approaches to REDD+ where challenges, which have existed in the forest sub-national or project implementation occurs, sector for many years. because the currency of trade (the carbon credits) needs to be established. In market or fund based Options for establishing national REDD+ schemes, establishing title to carbon rights in REDD+ carbon property rights at the local level may not In the approaches to REDD+ where title of be required for the implementation of REDD+ carbon rights are relevant at the local level, there unless the allocation of benefits is based on these are likely to be different options for the types rights. Benefits and compensation would still of property rights exercised over sequestered need to reach local levels in order for REDD+ carbon. Two main forms may exist: Carbon rights in rEDD+ 5 1. Simple ownership over the carbon sequestration potential could be different from sequestered, where carbon ownership and the owner of the carbon sink, who might also the rights to the sequestration potential are be different from the owner of the sequestered linked to ownership of physical resources, carbon. Usufruct rights may be useful in carbon such as the land and trees. Depending on projects, because they provide an existing how certain property rights over carbon are arrangement for granting rights to other interests defined, there could be a number of different in exploiting carbon benefits, if rights to options in terms of which actors have rights sequestered carbon are granted as part of the to sell carbon. For example, in Ghana the usufruct. However, they may make management definition of carbon as a natural resource of land more difficult, particularly where a or as an ecosystem service, would have a number of different parties have usufruct rights, number of different outcomes in terms of potentially preventing the party with interests who owns carbon credits associated with in the carbon from safeguarding their asset REDD+. and causing conflict with local communities 2. Usufruct rights over the land and forests if it results in a loss of access to forest land. that contain carbon. Usufruct rights include As a means to regulate the transfer of carbon, rights to use or derive benefit from property investors generally prefer clear ownership over that belongs to another entity, as long as the usufruct rights for reasons of greater statutory property is not damaged. They are relevant clarity. in the carbon rights context as they may govern the ability of actors who do not own land, to potentially derive benefits from the What are the implications of carbon carbon stored or sequestered on that land. rights for poor people? They can exist on public or private land, How carbon rights are interpreted in the design and can be established through a range of and implementation of REDD+ could have instruments (conservation concessions; implications in terms of the opportunities and encumbrances; conservation easements; and risks for poor and vulnerable people (such profits-à-prendre). as indigenous peoples, the forest dependent Under simple ownership, the owner of the poor and women). REDD+ could provide land would likely be considered to have the opportunities, such as additional income from right to manage the land to maximize carbon carbon sales, employment or improvements sequestration potential, and any benefits in environmental quality. However, poor and arising from the sale of carbon. The land, vulnerable people often lack ownership of land forests and carbon may still be subject to and forest resources, can be excluded by elites legislative planning restrictions. In the case of from decision making processes over resource usufruct arrangements, the owner of the carbon use, and may suffer increased vulnerability due 6 Carbon rights in rEDD+ Photo by Julio Pantoja Carbon rights in rEDD+ 7 to the constraints imposed by carbon market communities cannot directly engage in carbon mechanisms. trading, existing rules and regulations may In order to understand the implications it is specify entitlements to a share of the benefits. necessary to consider the different pathways However, contested or overlapping rights are through which carbon rights could affect poor common, which would act as a barrier for people and vulnerable groups. We do this by looking at to benefit from REDD+ in many cases. A bigger issues surrounding the treatment of carbon as risk is that existing access rights (e.g., to extract property and the boundary conditions that are fuel wood from forest reserves) may be restricted created through emissions trading rights. as investors seek to protect the carbon asset. One of the main concerns raised particularly Implications linked to ownership by civil society groups is that governments will of carbon as property be incentivized by the financial attractiveness of A range of different ownership options may exist REDD+ to ‘nationalize’ carbon rights, securing depending, for example, on whether carbon REDD+ funding for themselves while at the same ownership is linked to land or trees; whether time placing greater restrictions on land use these are naturally occurring or planted trees; or in order to meet the requirement in REDD+ to whether it is defined as a natural resource. Each demonstrate emissions reductions. The impact of of these options changes which actors benefit such a decision would likely be negative for both and the rights and possibly other rules related to forest protection and for any non-state actors benefit sharing. If poor actors own any of these affected by REDD+ activities. properties, they may be able to benefit directly Linked to this are questions around the from carbon sales. incentive effects of REDD+ on land titling In practice, there may be a low likelihood of processes. While it is possible that projects and communities directly owning carbon rights in programmes could progress well in the absence many countries because the rights associated of clear tenure, there is a common assumption with land and forests are often vested in the that this will be a requirement in many schemes. state. This is particularly the case in Africa The formalization of land tenure could be where it is estimated that around 98% of land positive for local communities—in many is under government control, in terms of how REDD+ countries much of the land has not been it is defined in statutes. This means that carbon surveyed and users do not possess written titles rights in REDD+ will often initially lie with or deeds. For example, in Brazil the ownership national governments. Poor people may be able in 70% of non-indigenous reserves is contested, to access benefits through usufruct arrangements. so titling could strengthen claims and possibly For example, in Ethiopia, if carbon credits are improve environmental management. However, treated in a similar way to non-timber forest in practice, evidence indicates that in many products, certain communities may have rights countries, processes can be highly political, to benefit directly from their sale. Even if extremely slow and may not be completed 8 Carbon rights in rEDD+ properly before activities are carried out. This projects with indigenous peoples has also raised can lead to conflict, with poorer groups and concerns about whether it is progressive in terms vulnerable individuals such as women often of empowering indigenous groups to participate losing out, especially where there are differences in (or opt out of) REDD+. between customary and statutory interpretations Whether REDD+ is governed by national of rights. regulations or voluntary carbon market rules, These concerns may be particularly acute contracts will play a crucial role in defining the where people are illegally residing on state rights and responsibilities of participants. There land (often classified as ‘squatters’). In some are a number of areas where implications could jurisdictions they may have fewer rights than arise for poor and vulnerable people: indigenous groups, whose customary claims are • Restrictions on land use practices where recognised in statutory laws (e.g., in Malaysia). REDD+ activities are occurring such as The danger is that in such cases, these people limiting fuel wood collection and preventing will not have rights to REDD+ benefits or carbon agricultural practices. Flexibility to sell credits, or be entitled to compensation linked to or lease land may also be a concern, as it REDD+ projects or programs that prevent their could increase vulnerability by limiting the existing land use systems. ability of people to respond to shocks. These restrictions could apply over long time Implications linked to periods (20–50 years), so communities need emissions trading rights to be aware of such requirements. Carbon rights can be established through • Contracting costs, such as the requirement regulations or through contracts. REDD+ for a certificate of land holding, which may regulations do not yet exist in most developing be too high for poorer community members countries, although they have been drafted in to meet. Indonesia and Brazil. These define who may participate and the types of lands and activities • Events of default (e.g., because of fire) which that are eligible. The advantage of regulations may entail additional and unexpected costs is that transaction costs can be reduced and for communities. greater investment may occur because there • Price negotiation which may be difficult is more legal clarity between different actors. where communities are unfamiliar with Current drafts of the regulations have been the market, and could lock them into costly criticized for lacking some specificity as to contracts. whom the beneficiaries are, and whether certain groups, such as indigenous peoples can Because of the complexities involved in be direct beneficiaries from the sale of carbon establishing forest carbon projects and high credits. In Brazil, the mandatory requirement transaction costs, it is unlikely that poor for a state organization to be involved in REDD+ individuals or communities will be directly Carbon rights in rEDD+ 9 Photo by ray Witlin 10 Carbon rights in rEDD+ involved in selling REDD+ credits. Often Conclusions investors will work with intermediaries or community groups that help to aggregate a Efforts to develop REDD+ mechanisms over the number of separate producers. In such cases, last few years have, through the notion of carbon it will be important to ascertain how the group rights, introduced another layer of complexity has been formed and its relationship to any to an already complicated debate about rights customary systems that exist; the membership to land, forests and other natural resources in requirements; and how decision making occurs tropical developing countries. A first step for within groups. To prevent the elite capture navigating this complexity and understanding widely discussed in the community forestry the implications, is for different actors involved literature, REDD+ projects may need to support in REDD+ to be clear about the concepts good governance and pro-poor activities within involved. This will vary considerably between producer groups. contexts, but key issues include the distinction Finally, the rules defined in existing between carbon as property and emissions international human rights laws, a future trading rights; and between rights to benefit from international REDD+ agreement, or voluntary REDD+ and rights to own and transfer REDD+ standards could influence the procedures used carbon credits in market systems. to implement REDD+. These may include Carbon rights are relevant in a REDD+ provisions to enhance participation in REDD+ context because they can determine benefit planning and implementation (e.g., consultation (and cost) sharing arrangements and influence processes), although in practice these are often the alignment of financial incentives with weakly enforced. Rules on the ownership of deforestation threats. However, carbon rights REDD+ credits do not yet exist for REDD+, but may be less important in certain approaches the Clean Development Mechanism (CDM) may to REDD+—this is another area where greater set a precedent. In this case, state rights are clarity could help to focus efforts in evolving transferred down to non-state actors through national REDD+ programmes. a process of authorisation by the government. As a new form of property which is associated This is a process that has relatively weak social with potentially large financial benefits, carbon safeguards. stored or sequestered in tropical forests presents considerable opportunities and risks for poor people. Opportunities are most likely to be realized where they have clear ownership rights over carbon, the right to trade, and support to access carbon markets, especially in project based approaches to REDD+. It is possible that benefits could also be realized in broader Carbon rights in rEDD+ 11 national systems where individual title to carbon as property is not, or cannot be established, via arrangements defined in existing policies or new REDD+ regulations that specify how any financial benefits should be shared. In both cases these are requirements that may be difficult to meet in many countries, without significant progress on rights reform, a strengthened ability of the poor to access legal systems, and a good understanding of who is facing new costs as a result of REDD+ policies. Similar reform processes have been underway in countries for many years, and in many cases poor people are suppressed by more powerful interests because of incentives to own land. The key to reaching an equitable outcome will be in ensuring that the incentive effect of REDD+ on rights regimes acts to increase the security of poor people over rights to the benefits from emissions reductions and improve the design and implementation of the rules associated with trading and benefit sharing. 12 Carbon rights in rEDD+ THE WORLD BANK 1818 H Street, NW Washington, D.C. 20433 USA Telephone: (202) 473-1000 Internet: www.worldbank.org/sdcc Email: socialdevelopment@worldbank.org.