Policies to Reduce Emissions from Deforestation and Degradation ...

tor companies themselves. Similarly, REDD projects could generate buffer credits that are deposited
in national reserve accounts as well as an international pooled fund.
Permanent Credits with Host Country Liability
Some proposed REDD policies suggest that the host country accept liability if baseline deforestation
is exceeded in any current or future time period: a country that exceeds its baseline deforestation
rate would have to buy emissions reductions. However, with the reserve account arrangement,
countries would draw upon their reserve in the case of impermanence, and then would
replenish the reserve account during the next period when credits were generated. In the absence
of host country liability, if REDD credits became impermanent, emissions reductions would be reversed
and carbon in excess of target levels would be emitted into the atmosphere; essentially, the
environment would be liable.
Permanent Credits with Nonbinding Commitments
Some of the resistance to permanent credits comes from developing countries that are opposed
to taking caps on emissions; they argue that emissions caps will stifle needed economic development
and that Annex 1 countries are responsible for the current pool of carbon in the atmosphere.
However, it is possible to design a system with national-level accounting and crediting without
binding emissions commitments (Philibert 2000; Philibert and Pershing 2001).
Instead of a national cap on deforestation emissions, one can imagine a nonbinding target rate
of deforestation emissions. If deforestation emissions were below this reference rate, permanent
credits could be issued and sold. If deforestation emissions exceeded this reference rate, no credits
would be issued. No penalties would be imposed on the buyer or seller of the credits; however,
no new credits could be issued until deforestation emissions returned to the reference rate.
This system of nonbinding commitments risks the introduction of hot air—and an increase
in global emissions. This risk might be ameliorated by combining credits generated from nonbinding
commitments with set-asides. 15 In this case, if the reductions turned out to lack permanence,
they would have only a small effect on the overall emissions level because the credits would
have been limited to the amount of the set-aside. The downside to set-asides is that they limit the
number of REDD credits that can be used to meet emissions commitments.
Philibert (2000) and Philibert and Pershing (2001) propose another option for maintaining the
integrity of a system using nonbinding commitments that could be employed with a REDD crediting
system. A country could have two targets: one nonbinding, and one binding. The binding
emissions target would be the higher one; it would be set high enough not to constrain economic
growth. The nonbinding target would be set low enough that it would eliminate or greatly reduce
the risk of hot air. The lower, nonbinding target would be the selling target, below which a
country would sell credits. The higher, binding target would be the buying target, above which a
country would have to purchase credits. If actual emissions were between the two targets, no trading
could occur in either direction. A drawback of the two-target system is that parties would have
little incentive to make any change in their deforestation practices unless they were close to one
of the targets. If a country were between the targets, it would tend toward inaction. This drawback
could potentially be remedied by allowing countries between targets to generate gradually
discounted credits, as illustrated in Figure 3.2. Thus, incremental changes in deforestation rates
would affect the number of credits issued.
Policy Design Issues 5