REDD+ Supply and Demand 2015-2025

The estimates include supply and demand for project and subnational market-based REDD+ credits along with generation and payment for REDD+ emission reductions from Norway and Brazil. The report finds that supply of REDD+ credits from current project and subnational programs exceeds demand in all likely scenarios, with the exception of a Blue Sky demand scenario where supply only exceeds demand when Brazilian emission reductions are included. Forest loss in developing countries represents a significant contribution to global emissions along with significant climate change mitigation potential. The report notes that reducing emissions from deforestation and degradation, forest conservation, sustainable management, and enhancement of forest carbon stocks (REDD+) will be incentivized in a future climate agreement under the United Nations Framework Convention on Climate Change (UNFCCC). One option is the use of carbon markets. A voluntary market for forest credits started in the 1990s, and has grown over the last decade. Bilateral and multilateral initiatives are also piloting market mechanisms and non-market payments for emission reductions. The report provides two supply estimates: Potential Supply and Expanded Supply. Potential Supply is estimated empirically by calculating the potential volume of REDD+ credits that may be generated by registered VCS REDD+ projects plus the potential volume from additional REDD+ projects and subnational or jurisdiction level REDD+ programs under development. Expanded Supply captures significant uncertainty in jurisdictional supply above that included in the Potential Supply estimate. This uncertainty results from programs under the umbrella of the Governor’s Climate and Forests Task Force (GCF) and Brazil’s national level emission reductions. Three scenarios estimate potential demand: Status Quo, Compliance Growth, and Blue Sky. Status Quo demand represents the demand currently observable from the voluntary market and Japan along with fixed dollar funds such as the Forest Carbon Partnership Facility’s Carbon Fund, Initiative for Sustainable Forest Landscapes, and REDD Early Movers. Compliance Growth demand includes Status Quo and estimates potential future demand from regulations or national purchases that may be seen in developed and developing countries along with potential demand from the aviation sector. Blue Sky demand represents the highest and least likely demand scenario and is predicated on strong domestic action by national governments to limit the impacts of climate change. The report finds that supply and demand in the REDD+ credit market is unbalanced. There is short-term program level undersupply, but this is expected to quickly turn into chronic oversupply for projects and programs for most demand scenarios over the outlook period (2015-2025). The oversupply situation means that prices subject to market forces will remain depressed and expanding demand to absorb supply is critical. The Potential Supply scenario projects 918 MtCO2e over 2015-25, including retroactive crediting of emissions reductions that occurred before registration. For the Status Quo scenario, demand estimates vary between 207 and 739 MtCO2e over 2015-25 depending on price assumptions paid by the fixed dollar funds. For the Compliance Growth scenario demand varies between 429 and 1,188 MtCO2e over 2015-25. The report also notes that a substantial global commitment above and beyond the Blue Sky scenario is needed for market mechanisms to fully harness the mitigation potential of REDD+. The Blue Sky demand scenario estimates 3.5 GtCO2e over 2015-2025. The Expanded Supply scenario captures the impact of significant new programmatic supply potential from the GCF and Brazil, adding 4.8 GtCO2e in total over 2015-25. However, the Brazilian federal government is not claiming its national reductions as offsets or credits and is not currently seeking to bring them to market.