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The discussion paper assesses selected options currently “on the table” in the international debate and the United Nations Framework Convention on Climate Change (UNFCCC) negotiations on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD). REDD design options are analyzed with regard to their implications for overall climate change mitigation, biodiversity conservation and equity issues. First of all, it is found that for REDD to be successful it will not be sufficient simply to put a price on forest carbon. Instead, to permanently reduce and stop global deforestation, REDD needs to trigger a change in our dominant human development model, which will require policy reforms and enforcement to prevent markets from driving deforestation. Among other things, this needs to be reflected in the design of a REDD mechanism, which must i) pay heed to the complex task of reducing deforestation, allowing for a flexible, country-specific approach, to ensure broad participation to tackle deforestation on a global scale; ii) address deforestation by integrating REDD into overall development planning, to achieve lasting results and maximize synergies with other development goals; and iii) be consistent with the overall mitigation effort to prevent dangerous climate change. The scope of REDD, definitions and several methodological issues will have a decisive influence on the extent of benefits, or in some cases even threats, REDD will have for biodiversity conservation and equitable access to REDD. The design of transfer systems at both the international and national level is key to enabling countries to permanently reduce deforestation and forest degradation. To do so, transfer systems must go beyond mere compensation for avoided deforestation. Instead, they must be embedded in overall development planning and engage in providing alternative (at best low-carbon, low-resource) livelihoods. This will require political reforms and investment into other sectors, which may not immediately lead to emission reductions in the forest sector. Transfers channelled through a REDD offsetting mechanism are less suited to do so unless proper national transfer systems are in place. Alternatively, the Tropical Deforestation Emission Reduction Mechanism (TDERM) Triptych or the Forest Carbon Partnership Facility, the latter complemented by the UN REDD Programme, could be used as a transitional international transfer system for REDD funds in the period 2013– 2020. Given their comprehensive international approach to tackling deforestation, both can be expected to perform better concerning active consideration of human, and especially indigenous people’s rights, and delivery of benefits other than carbon retention. It is safe to assume that REDD in the period 2013–2020 will require several billion US$ a year to set the incentives to reduce deforestation and forest degradation. The real costs may differ significantly from opportunity cost calculations though, both under an offset scheme and a market-linked approach, where prices would either be determined by the market or be negotiated. While prices will influence a countries decision to reduce deforestation, a price below the opportunity costs would not necessarily reverse a countries decision (and policies) to reduce deforestation. The discussion on how these funds should be raised continues to be the most controversial one. While the demand from the Annex-I compliance market in the 2013–2020 period could most likely absorb all emission reductions through a REDD offset mechanism, this would seriously undermine domestic emission reductions in countries listed in Annex-I of the UNFCCC (Annex-I countries) and set the world on a path towards dangerous climate change. Depending on whether Annex-I countries commit to low or ambitious 2020- targets in Copenhagen and the amount of emission reductions from REDD and the Clean Development Mechanism (CDM), Annex-I countries could offset 24 to 69 % of their emissions via the CDM and REDD (not counting Brazil). Furthermore, the present uncertainty on Annex-I reduction targets and quantitative “REDD targets” set by countries not listed in Annex-I of the UNFCCC (non-Annex-I countries) makes it impossible to foresee the impact of REDD on carbon prices. Two models with different policy assumptions show, though, that REDD has a great potential to destabilize the compliance market, unless regulatory instruments, like e. g. banking of credits, are applied. According to the Intergovernmental Panel on Climate Change’s (IPCC) 4th Assessment Report, emission reductions of 25–40 % in Annex-I and 15–30 % in non-Annex-I countries are necessary to see global emissions peak before 2015 and to stabilize the level of greenhouse gases in the atmosphere at 450 ppm, which is considered the threshold to dangerous climate change. To design REDD as an offset mechanism for Annex-I compliance, Annex-I 2020-targets would need to be around 38 %. Limiting the amount of REDD offsets to be used for Annex-I compliance could solve the problem of domestic emission reductions. However, it would also reduce the amount of funding below the level deemed necessary to reduce deforestation significantly. Furthermore, there are legitimate concerns that an offset mechanism could potentially yield lower benefits for biodiversity conservation and lead to an inequitable distribution of funds, though this depends strongly on the governance structure and type of national transfer system of each participating country. Market-linked approaches such as the TDERM or another multilateral fund supplied with proceeds from the auctioning of emission allowances would also be able to raise the necessary funding without jeopardizing domestic emission reductions in Annex-I countries. Here, estimates range from 5.7 to 113 bn US$ annually, though the top-end figure would have to be split between finance for adaptation, REDD and technology transfer.

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