LCDS based on ‘junk economics’

December 1, 2010 | By | Filed Under News 


-   UK Group

By Neil Marks in Cancun, Mexico

Guyana’s Low Carbon Development Strategy (LCDS), which the government is using to get money from rich countries in order to preserve the forest, is based on advice that has been described by a UK-based forest protection group as “junk economics.”
International consultants McKinsey and Company have provided services to Guyana and other countries in the context of a global plan to reduce emissions from deforestation and forest degradation, called REDD, which may be agreed to at the UN Climate Summit in Cancun.
McKinsey’s advice has been used wholesale by Guyana to produce the LCDS, which forms the basis for a five-year forest-saving deal with Norway worth US$250 million. The LCDS is also being supported with financing by the World Bank.
But Rainforest Foundation UK, which has been working since 1989 for the protection of the forest, says McKinsey’s advice is based on flawed analysis which could end up causing more destruction of natural forests and weaken forestry regulations in Guyana.
The report describes McKinsey advice as ‘McREDD’ and compares it to a ‘fast-food’ alternative.
“McREDD looks great and promises many things, but it is produced quickly, from ready-made ingredients, and could seriously damage health. In the end, junk economics could be more damaging to the world’s rainforests than junk food,” Rainforest Foundation UK states.
Guyana’s rainforest amounts to 15 million hectares – the size of England.

Rainforest Foundation UK says the consultants' advice is based on flawed analysis which could end up causing more destruction of our natural forests

Deforestation and forest degradation are estimated to contribute between 12% and 18% of greenhouse gas (GHG) emissions which cause climate change. The United Nations Climate Summit is exploring policies and financial incentives that would reduce emissions from deforestation and forest degradation (REDD). Guyana is among 40 national governments in the process of creating national REDD strategies, in collaboration with the World Bank’s Forest Carbon Partnership Facility (FCPF) and the UN-REDD programme, amongst others.
The first McKinsey report for Guyana presented a deforestation scenario of 4.3% per year – which would result in near total destruction of Guyana’s rainforest in 25 years. But Rainforest Foundation UK says this is wildly inflated from the actual rate of deforestation, which is estimated to be between 0.1% and 0.3% per year.
According to the UK group, the McKinsey scenario suggests that Guyana could earn approximately US$580 million per year by cutting its forest and replacing it with high value agriculture at this inflated pace, but this figure is unreasonable, Rainforest Foundation argues.
“Although this is implausible due to poor soil quality, the President of Guyana repeated this figure in international meetings as the level of funding Guyana would need to prevent deforestation,” the study by Rainforest Foundation stated.
“This, however, is based on an unrealistic, projected baseline and has very little relation to how much effective forest protection would cost in Guyana. Furthermore, there is a danger that these high-deforestation scenarios could become self-fulfilling prophecies and encourage tropical governments to pursue destructive practices in order to increase their expected compensation.”
The main problem with McKinsey’s advice, Rainforest Foundation points out, is its carbon mitigation cost-curve.
The carbon mitigation cost-curve is arguably one of the most well-known diagrams in climate change policy discussions. It is a visual representation which shows the size of opportunities for reductions in GHG emissions for different activities in order of cost. One axis shows how much carbon dioxide (a greenhouse gas) could be avoided by any one activity and another axis shows the cost per tonne of carbon dioxide equivalent reduced.
The cost-curve has been used by McKinsey in a number of reports commissioned by national governments and international institutions on how to respond to climate change, including many related to reducing emissions from deforestation and forest degradation in developing countries (REDD). McKinsey has produced national reports related to REDD for the governments of Brazil, Guyana, Democratic Republic of Congo (DRC), Indonesia and Papua New Guinea, amongst others.
Rainforest Foundation UK argues that the cost-curve approach is methodologically flawed as it excludes transaction and implementation costs, as well as the challenges of governance, and undervalues activities not integrated into formal markets, such as subsistence farming.
It points out that the approach is flawed as a policy-making tool as it does not consider alternative policy options, and favours policy that would allow industrial uses of the forest to continue business-as-usual, whilst penalising subsistence activities. This, the group states, is distorting national REDD plans.
Further, Rainforest Foundation says the use of the ‘top-down’ cost-curve approach has contributed to exclusive and opaque national REDD processes, which should have been “participatory, bottom-up and respectful of the rights of local communities and indigenous peoples in particular.”

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