Project Report:
Creating Economic Incentives for Tropical Forest Preservation: Compensated Reduction
- Explores and develops market-based solutions.


Tropical forest destruction contributes to several global environmental problems, including climate change, releasing up to 20% of total global greenhouse gas emissions. Compensated Reduction (CR) is an innovative mechanism enabling nations that reduce deforestation to be compensated through the emerging global carbon market. This project will provide the research and analysis needed to create a successful CR program and assess market design options.


To provide a market for reduced deforestation, Environmental Defense is advancing use of "Compensated Reduction" (CR) by building coalitions within Brazil and among forest nation stakeholders; providing technical and economic analysis; and conducting international outreach and dissemination of results of the analyses. Our progress in this area includes:

• Our partners, Amazon Institute for Environmental Research (IPAM) and Instituto Socioambiental (ISA) participated in a public hearing before the Congressional Environmental Caucus of Brazil’s House of representatives, and presented preliminary results of the report on costs and benefits of reducing carbon emissions from deforestation and forest degradation in the Brazilian Amazon.

• We are publishing a Portuguese translation of Tropical Deforestation & Climate Change.

• Amazonian representatives from IPAM, ISA and the Forest Peoples’ Alliance participated in the Bali Conference of the Parties (COP). IPAM sponsored a very well attended side event with the Forest Peoples’ Alliance. ED and WHRC organized a side event which featured Blairo Maggi, governor of Mato Grosso, Manoel Cunha, President of the National Council of Rubber Tappers (CNS), with WHRC and ED representatives.

• IPAM released the Amazon report in Brazil during the Bali COP with the launch of a new website ( The report was widely covered in the Brazilian press in January. IPAM, WHRC and EDF further released a new report at Bali about Reduced Emissions from Deforestation and Degradation, entitled, “Getting REDD Right”.

• Ruben Lebowski, Forest Carbon Economic, Market Design Fellow, has been hired. Dr. Lebowski, who holds a Ph.D. in environmental economics from Harvard, came to us from the Department of Agriculture, where he was measuring and modeling how agricultural policy affects changes in cropland.

• In late April 2008, Environmental Defense Fund staff and consultants and close partner organizations (IPAM, WHRC, the World Wildlife Fund, the Nature Conservancy, and Conservational International) met to strategize around achieving the best possible outcome for REDD in a post-2012 regime at the UNFCCC negotiations in Copenhagen, Denmark in 2009. We also convened strategy meetings in London with fellow REDD advocates, including Sustainable Forestry Management and the Rainforest Project of the Prince of Wales.

• In spring 2008, Environmental Defense Fund experts testified before the Senate Finance Committee, asking that Congress offer tropical forest nations opportunities to participate in a U.S. cap-and-trade market, and before the House Agriculture Subcommittee on the use of domestic and international offsets in U.S. climate legislation.

• In June 2008, we met with the governor of of Mato Grosso State, Blairo Maggi, who has expressed interest in farmer-to-farmer exchanges between Brazilian and American farmers on greenhouse gas reductions from agriculture and soil carbon sequestration. Such an exchange might afford opportunities to align U.S. farmers in favor of REDD crediting. IPAM is also organizing a seminar in September 2008 in Cuiaba, Mato Grosso, that will focus on the impacts of climate change and deforestation and on how market mechanisms, in particular REDD, can be used as a solution to curb the deforestation of lands for agricultural use.

• Dr. Ruben Lubowski has been collaborating with the Euro-Mediterranean Center for Climate Change (CMCC, based in Milan) on preliminary economic analyses that both illustrate the benefits of the inclusion of REDD credits in future carbon markets and dispel European concerns of a “market-flooding” scenario. The main findings are that forest carbon credits represent a promising reservoir of low-cost emissions reductions that are available in the short term. Moreover, the concerns about forest carbon credits “flooding the market” are unfounded: the true economic value of forest carbon credits lies in their potential to be banked for the future, lowering costs over the course of decades, rather than being used all at once.

• There was great interest at Bonn, Germany in June 2008 at the UN Subsidiary Body for Scientific and Technological Advice (SBSTA 28) in our quantitative analysis of critical issues that, to date, have generated much discussion, but with little analytical foundation. In response to developing country comments, we are conducting an analysis of financial flows to different regions as part of the next steps in our quantitative analysis conducted in-house and with CMCC. We are scheduled to present our updated research at a side event on “Market-based REDD” organized in collaboration with CMCC during the next round of UN climate change talks to be held in Accra, Ghana from 21-27 August.

• Several invitations to present our research in London and New York resulted from the discussions in Bonn, including a briefing for the Coalition for Rainforest Nations in New York.
• Environmental Defense Fund and CMCC are organizing a one-day workshop on these issues in Milan, Italy in October 2008. Upcoming research will focus on examining alternative assumptions for REDD credits and climate targets as well as financial flows among countries; the implications of alternative scenarios for a global supply of REDD credits beyond Brazil; the possibility of using temporary as well as permanent credits; and the role that REDD credits could play as an incentivized mitigation option.


To date, the developing nations that hold most of the world's tropical forests have had no incentive to preserve these forests on the large scale necessary to help stabilize the climate. A new concept, Compensated Reduction (CR), can be the solution, by providing a market for reduced deforestation.

In the proposed project, Environmental Defense will undertake activities to explore and develop this solution, by addressing technical obstacles, providing economic analysis, and assessing market design options. We seek to provide the underpinnings of a successful CR program.


As the U.S. moves toward federal legislation to curb the country's greenhouse gas emissions, Compensated Reduction can have significant benefits for the U.S. in creating legitimate markets for carbon. The project will study supply and demand effects on U.S. carbon markets and the effects of linking compensated reductions to the new California carbon market. In addition, as nations act to clarify the burgeoning carbon market, they must swiftly develop a CR market to ensure it is included as part of the post-2012 framework and to ensure that no major emerging carbon market erects insurmountable barriers to eventual fungibility.

Amount Approved
$25,000.00 on 6/26/2007 (Check sent: 6/28/2007)

  Related Organizations
Environmental Defense Fund  

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Grant Writer

Posted 4/10/2007 12:44 PM
Updated   12/13/2012 5:42 PM

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