Addressing uncertainty upstream or downstream of accounting for emissions reductions from deforestation and forest degradation
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- Pelletier, J., Busch, J. & Potvin, C. Climatic Change (2015) 130: 635. doi:10.1007/s10584-015-1352-z
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Uncertainty in emissions and emission changes estimates constitutes an unresolved issue for a future international climate agreement. Uncertainty can be addressed ‘upstream’ through improvements in the technologies or techniques used to measure, report, and verify (MRV) emission reductions, or ‘downstream’ through the application of discount factors to more uncertain reductions. In the context of Reducing Emissions from Deforestation and forest Degradation (REDD+), we look at the effects of upstream interventions on reductions in uncertainty, using data from Panama. We also test five downstream proposals for discounting uncertainty of the potential credits received for reducing emissions. We compare the potential compensation received for these emission reductions to the cost of alternative upstream investments in forest monitoring capabilities. First, we find that upstream improvements can noticeably reduce the overall uncertainty in emission reductions. Furthermore, the costs of upstream investments in improved forest monitoring are relatively low compared to the potential benefits from carbon payments; they would allow the country to receive higher financial compensation from more certain emission reductions. When uncertainty is discounted downstream, we find that the degree of conservativeness applied downstream has a major influence on both overall creditable emission reductions and on incentives for upstream forest monitoring improvements. Of the five downstream approaches that we analyze, only the Conservativeness Approach and the Risk Charge Approach provided consistent financial incentives to reduce uncertainty upstream. We recommend specifying the use of one of these two approaches if REDD+ emission reductions are to be traded for emission reductions from other sectors.