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Barking up the wrong tree: agricultural subsidies crowding out REDD+ finance

20 May 2015

Deforestation has a number of negative environmental impacts including an increase in carbon emissions through loss of carbon sinks, and reductions in biodiversity. Although there are a number of causes of deforestation, agriculture is the biggest driver, with 80% of forest loss linked to the sector.  While governments worldwide have been pledging to reduce forest loss, direct and indirect support to agriculture and forestry is helping to fuel deforestation. This is happening at the same time as countries are directing money to the REDD+ programme to combat deforestation. A recent Overseas Development Institute (ODI) report indicates that agricultural subsidies worth at least US$486 billion in 2012 completely overshadowed the US$8.7 billion committed by developed countries to REDD+ since 2006. They argue that combined reform of both subsidies and REDD+ is required to address the root causes of deforestation.

Comparing REDD+ finance received, with domestic expenditure on agricultural subsidies (average US$ million)

REDD+ Finance (2006-2014 Annual Average)
Agricultural subsidies (2010- 2012 Annual Average)
Brazil
158
11,082
Chile
0
709
China
9
160,023
Indonesia
165
27,072
Mexico
12
7,880

Sources: REDD+ Finance (Norman and Nakhooda 2014), Agricultural Subsidies (OECD 2014)

Accounting for subsidies

There are various reasons why subsidies exist. These include arguments around food security, the role of vested interests in the agricultural or forestry industry, and minimal levels of transparency and national debate over the perverse effects of some subsidies. The ODI study pointed to the need to develop a robust assessment of the full extent of subsidies, in light of the current lack of international and national databases or publicly available information.

Jungle burned for agriculture in Mexico. Source: Wikipedia

A reform agenda

Subsidies need reform, and a new approach to REDD+ can play a part in contributing to that agenda. The 2014 New Climate Economy report recommended that at least US$5 billion per year should go to financing REDD+ in developing countries. However, only US$1 billion annually is currently being directed to REDD+ from public and private finance combined. The ODI report suggests a number of different mechanisms to support REDD+ and mobilise private finance. These include concessional finance programmes for sustainable land use (loans with terms more generous than market rates); payments for carbon; biodiversity and watershed services; and increased numbers of impact bonds or green bonds. These mechanisms could enable REDD+ to become a more robust part of both forest community economies and a better driver of GHG reductions. Furthermore, the ODI report points to how REDD+ finance can actively support subsidy reform, with funding going to support design and understanding of how subsidies work to eliminate the most perverse effects. Subsidies could instead focus on productivity, for example to encourage more drought tolerant crop varieties. However, reforms need to be accompanied by regulation of production expansion at the forest frontier. Efforts should also ensure that reform doesn't affect vulnerable communities.

The subsidies regime uncovered here touches on a wider debate on the demand for products such as meat, particularly resource intensive beef. Analysis from the Union of Concerned Scientists has focussed on how the choices made by consumers, policymakers and businesses can play a key role in combating deforestation. With demand for agricultural products forecast to grow by 50% by 2050, there is an urgent need to rethink how policy, business and consumption decisions affect some of the world’s most vital ecosystems.