FCPF Carbon Fund Discussion Paper 5: Displacement (Leakage)

The FCPF needs to determine the methods it will use to quantify ERRs that are purchased by the FCPF Fund. Leakage refers to the displacement of deforestation and forest degradation from the areas where REDD+ activities take place to areas outside of the REDD+ implementation areas. Accounting for leakage is a critical element of the quantification of ERRs. The traditional leakage typology divides leakage into primary leakage, entailing activity-shifting and outsourcing, and secondary leakage, entailing market leakage and super-acceptance of alternative livelihoods. Primary leakage occurs when REDD+ activities limit the supply of goods or services from a given area, driving sourcing elsewhere. This can result in displacement of emissions rather than an overall reduction. Activity-shifting leakage can be difficult to quantify, particularly for larger logging or agricultural enterprises that may shift operations internationally. Outsourcing is another form of primary leakage, where the purchase of goods or services from outside the area where REDD+ activities take place can cause leakage even if local deforestation agents do not. Secondary leakage, on the other hand, occurs when market leakage and super-acceptance of alternative livelihoods lead to increased deforestation and forest degradation outside the REDD+ implementation areas. The FCPF Discussion Paper 4: Displacement (Leakage) explores various approaches to estimating ERRs from REDD+ activities. The paper suggests that potential sources of leakage should be assessed using standardized approaches and sources for all ER Programs. However, an approach for leakage assessment could be proposed by each Program, taking into account the specific circumstances of the Program. The paper also discusses the geographic extent to which leakage should be assessed. It suggests that leakage should be assessed within the region surrounding the Program area, as well as for the whole country, depending on the Program's activities and their potential impact on regional agricultural commodity or timber product markets. The paper also explores the possibility of developing default look-up tables generated by global or national-scale economic or other modeling, which could provide an agreed percentage of leakage for a given set of land use drivers and location. The FCPF Discussion Paper 4: Displacement (Leakage) aims to provide a common starting point for discussion on the Methodological Framework of the Carbon Fund. The paper presents background research and major approaches to estimating ERRs from REDD+ activities, as well as initial thinking on how to translate these topics into the context of the Methodological Framework. The paper also includes an introductory chapter, "FMT Update," which identifies further approaches and considerations that emerged since the original paper.