Engaging the Private Sector in the Potential Generation of REDD+ Carbon Credits An Analysis of Issues

Climate Focus led a team of experts to analyze opportunities for involving the private sector in the generation of REDD+ credits for the UK Department for International Development (DFID).

The objective of the study is to analyze the role the private sector could play in investing in activities that could generate carbon market credits from REDD+ and the implications this has for designing such market mechanisms. The research focuses on ways in which the private sector could be incentivized to invest in REDD+ activities when the crediting baseline is set at a national level.

The analysis included i) a review of the pros and cons of engaging the private sector in REDD; ii) a critical review of options for designing REDD market mechanisms to stimulate private sector investment including sovereign trading and subnational crediting; and iii) a critical review of the potential use of guarantees and insurance to reduce private sector investment risk and securitization and bonds to raise upfront finance.

The paper finds the benefits of private sector engagement outweigh the potential risks. The section on market mechanisms includes analysis of different options for operationalizing the concept of “nesting” projects in national accounting systems and compares this to other REDD market approaches. The final section identifies some prospects for guarantees and insurance, but also identifies limitations and practical challenges with all options reviewed. Winrock International and Ecofys also contributed to the report.