Abstract:
Workable financial mechanisms are essential to abate greenhouse gas emissions. Deforestation, which
contributes a large proportion of total global emissions, must be avoided as an effective emissionsreduction
tactic, and to alleviate biodiversity loss and poverty. However, incentives to reduce emissions
from deforestation and forest degradation (REDD) have had mixed and suboptimal success because of
opportunity costs and administrative and technical issues, in particular, leakage, permanence, and
additionality. We show that these latter concepts can be ambiguous, potentially contrived and in some
cases, generate perverse outcomes. Encumbering avoided-deforestation projects with these
administrative shackles risks massive increases in global deforestation and a concomitant loss of
biodiversity, ecosystem services and emissions-reduction opportunities. We offer a solution built on a
proven insurance-based hedging principle, a concept we call iREDD, that could indirectly address specific
technical and administrative challenges, whether real or contrived. Project-specific iREDD insurance
policies and premiums would be negotiated upfront using a simple assessment of risk based on
governance quality, the integrity of management plans, liquidity, monitoring and evaluation frameworks,
and political acceptability. iREDD acts as both an incentive for prudent forest management given the
seller’s potential financial windfall if forests are diligently managed, and guarantees not to disenfranchise
the buyer.
