1 Climate and Deforestation Positive incentives to reduce deforestation emissions in developing countries: views from Brazil

2 1. Objective Develop a new arrangement to provide positive financial incentives for developing countries that voluntarily reduce their greenhouse gas emissions from deforestation.

3 2. Premise Voluntary arrangement in the context of the UNFCCC Does not generate future obligations Does not count towards emissions reductions commitments of Annex I countries

4 3. Proposal Concept Positive Incentive Arrangement Examples

5 Concept Overview Positive financial incentives for the net reduction of emissions from deforestation in developing countries relative to a reference emission rate (calculated according to a reference deforestation rate and its carbon stock content).

6 Concept – Quantifying the Incentive 1. Definition of the reference emission rate  Average rate of deforestation in a participating country on a time period to be defined Based on assessment of previous deforestation rates Periodically updated  Mean Carbon Stock per hectare per biome or vegetation type 2. Assessment of annual (or periodical) emissions from deforestation for comparison with the reference  Based on a transparent, consistent and scientifically-based monitoring deforestation system  Emissions are to be defined using standard values: Carbon tonnes per hectare, according to each biome or vegetation type.

7 Concept – Quantifying the Incentive 3. If emissions from deforestation have decreased, the difference is converted into a financial incentive to be received. 4. If emissions from deforestation have increased, the difference is converted into an amount to be subtracted (debit) from future financial incentives to be received.  The amount of the incentive per carbon tonne is to be calculated by a set amount to be reviewed periodically.

8 Concept – Quantifying the Incentive Reference Emission Rate Rate of emissions from Deforestation Credit Deficit System

9 Concept – Positive Incentive Arrangement 1. All the reduced emissions of a participating country are added together for a certain period. The amount of reduction of carbon emissions is converted into a monetary unit. 2. Developed countries voluntarily contribute with financial incentives, taking into account their obligations under the Convention (including Article 4.7). 3. The collected amount is divided among the participating developing countries in the same ratio as the emission reductions they have achieved.

10 Example Situation 1  3 countries submit their emission reductions from deforestation at time t (assuming 90 tC/ha): Country A: 150,000 ha => 13,500,000 Carbon tonnes Country B: 50,000 ha => 4,500,000 Carbon tonnes Country C: 200,000 ha => 18,000,000 Carbon tonnes  A reduction of 36 million Carbon tonnes requires a positive incentive of US$ 108 million, to be paid, voluntarily, by developed countries (assuming for example US$ 3/tC).  Countries receive proportionally: Country C: 50,0% Country A: 37,5% Country B: 12.5%