This content is from: Local Insights

Creating carbon rights in Peru

Patrick Wieland
Forests sequester and store vast amounts of carbon dioxide and play a fundamental role in global climate regulation. Yet deforestation and forest degradation of tropical areas is accelerating dramatically. Forest loss is responsible for between 3.6 and 4.5 billion tonnes of carbon dioxide emissions per year, representing 17-20% of global greenhouse gas emissions (IPCC, 2007).

The carbon sequestration and storage functions of the world's forests are a type of ecosystem service. Ecosystem services are generally taken for granted: we benefit from the clean air and carbon offsetting services that forests provide, but do not equally share the costs for their preservation. To correct this situation, mechanisms to value ecosystem services through economic incentives have arisen as an international strategy. Reducing Emissions from Deforestation and Forest Degradation (REDD+) is one such incentive scheme.

The central idea behind REDD+ is to pay developing countries to stop deforestation and forest degradation. Despite concerns of so-called additionality, leakage and permanence, it is generally considered a cost-effective climate change mitigation strategy. REDD+ can also bring about a number of co-benefits, such as reduction of poverty, capacity building and protection of indigenous peoples. To be effective, though, REDD+ demands clearly defined and allocated carbon rights.

A carbon right is the legal entitlement created under national law to benefit from the carbon sequestered and stored in a tract of forest. It must be recognised and protected as a property entitlement, because without well-defined property rights it is difficult to reward the relevant actors or to establish responsibilities and liabilities in the future. As important as defining carbon rights is determining who is entitled to receive or control them.

Peru has a great potential for REDD+ money. It has the ninth-largest forest cover in the world, and the second in South America after Brazil. 60% of Peruvian territory is covered with forests. Deforestation and forest degradation is rapidly growing, however. Between 2000 and 2005, the rate of deforestation was 147,000 hectares per year, but this number is increasing.

Unlike other Latin American countries, where governments have prevented the negotiation of carbon rights by private actors, Peru has opted for a 'nested approach' which allows the adoption of early initiatives at sub-national level by private actors and civil society. There are at least 40 REDD+ early initiatives located in private and communal lands, national parks, and forest concessionaires. Some companies, including Pacifico, Scotiabank, Disney and the Dakar Rally, have publicly announced the acquisition of carbon offset credits from such projects.

In the absence of ad hoc legislation, however, project developers invest considerable time and resources in figuring out carbon tenure and drafting case-specific contracts. They are acting on a case-by-case basis, using legal advice to fill in the existing legal vacuums. Hence carbon transactions in Peru are still complex, expensive, and heterogeneous. This is why clarity over carbon ownership by explicit legislation would offer more security to investors by creating uncontested carbon rights that can be traded widely, therefore reducing investment risks. Although there have been many attempts to pass the first ecosystem services legislation in Peru, Congress has stalled in every attempt.

In sum, for Peru to develop all its potential in the carbon forest sector, it is fundamental that its laws stay attuned with the requirements that the carbon markets demand.

Patrick Wieland

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