Why we think the Founders Pledge report overrates CfRNpost by Sanjay · 2019-11-04T17:54:13.171Z · score: 47 (22 votes) · EA · GW · 10 comments
Exec summary What is CfRN? Why has it been prioritised for a review by SoGive? Summary of FP rationale for recommending CfRN How the REDD+ system works Historic deforestation achieved Cost-effectiveness analysis excludes opportunity costs Insufficient incentive funds Plans for funding from the private sector appear optimistic How material are these concerns? Conclusion Appendix: None 10 comments
We believe that the Founders Pledge Climate Change report overrates Coalition for Rainforest Nations (CfRN), both in terms of CfRN’s past record, and in terms of CfRN’s potential for future success.
We have not rigorously assessed FP’s opinion on different interventions, but have assumed for the purposes of this piece that forestry is a high-impact choice of intervention to support to tackle climate change.
Our primary concerns are:
- We think the FP report understates the risks to the REDD+ scheme (we haven’t checked whether that’s just because it’s easier to see those risks now, and perhaps those risks were less obvious at the time the FP report was written)
- We think that the opportunity costs of funding to REDD+ should be given more weight in the analysis
However despite this, we still believe that CfRN is a good choice of charity to support. This is because of the combination of CfRN’s (a) choice of a presumably promising intervention area (forestry) and (b) unique positioning to fill a valuable role.
After meeting with and reviewing the other FP recommendation, which is CATF, we are more confident in seconding the FP recommendation of CATF.
We also believe that some areas of CfRN’s work would be suitable for impact investment.
This report sets out SoGive’s current opinion, as well as highlighting areas throughout the report where further analysis could improve the opinion. It is possible that our opinion could evolve as new information comes to light.
Thanks go to John Halstead from Founders Pledge and SoGive volunteer alexrjl for their review, and also to CfRN for reviewing this piece. Any errors remain with SoGive.
CfRN strongly disagreed with this analysis; this piece will try to highlight the areas of disagreement in each relevant section.
What is CfRN?
The Coalition for Rainforest Nations (aka CfRN) is an intergovernmental organisation of more than 50 rainforest nations which works to promote environmental sustainability while creating opportunities for economic advancement within tropically forested developing countries. It was founded in 2004 by the Prime Minister of Papua New Guinea and the President of Costa Rica.
CfRN has played a pivotal role in establishing a global agreement on deforestation in UN climate change treaties. Beginning in 2005, CfRN launched and championed a mechanism known as Reducing Emissions from Deforestation and Forest Degradation (REDD+) in the United Nations Framework Convention on Climate Change (UNFCCC). Under REDD+, developing countries are provided with results-based compensation for preventing deforestation and degradation, and for conserving and enhancing carbon stocks.
Why has it been prioritised for a review by SoGive?
SoGive provides a donation platform (https://app.sogive.org) and charity analysis. We prioritised CfRN for review because:
- We believe that climate change is a potentially high-impact cause area to donate to
- We have investigated [EA · GW] Cool Earth because it had largely been considered a top donation opportunity by the Effective Altruism community. The review suggested that Cool Earth had been over-rated. While not proving that Cool Earth is a bad choice, it certainly opened the door to further investigation of high-impact climate change charities.
- We are now prioritising for review the charities recommended by Founders Pledge (FP) and Let’s Fund. CfRN is one of the charities recommended by FP.
Summary of FP rationale for recommending CfRN
CfRN came to our attention because it was recommended by Founders Pledge (FP).
The rationale for the FP recommendation can be split into two elements:
1. FP considers deforestation a high-impact area to tackle in order to address climate change. Based on our high-level review, we agree.
2. FP considers CfRN specifically to be a high-impact charity to donate to. We are somewhat more sceptical than the FP report is, on the basis of a number of meetings with CfRN and the independent analysis we have done. On balance we are still somewhat positive about CfRN.
1. Review of deforestation as an intervention area
First, FP considered a number of different types of intervention and scored them as set out in the table below:
(table comes from p48 of the FP report)
Under their assessment FP considers that there is a roughly 6 point margin of error, and groups the top four items together as worthy of consideration.
Our review of this area of FP’s work has been only cursory, however we have no reason to disagree with FP’s claim that forestry is a potentially high-impact area to support.
One factor not (we think) already captured in the FP write-up is timing. I.e. avoiding deforestation acts immediately, whereas other interventions (such as planting trees or low carbon innovation) may take many years to have an impact on the levels of greenhouse gases in the atmosphere.
This is (presumably) an argument in favour of tackling deforestation. Implicit in this is the claim that averting a tonne of CO2eq earlier is better than averting a tonne of CO2eq later. This may be correct, e.g. vicious circle/tipping point effects (such as release of greenhouse gases from the melting of permafrost) could mean that averting a tonne of CO2eq a few decades from now might be too late. We have not explored this line of thought thoroughly.
2. Review of CfRN specifically
FP sets out the following rationale for recommending CfRN:
· It works on one of the top four areas
· It has a good track record
· The future work is cost-effective
· It is a strong organisation
· It has room for more funding
In this piece, we argue that CfRN is a bit less good than the FP recommendation suggests, but still good. In particular we will challenge the following areas:
· Historic deforestation achieved: The historic track record around reducing deforestation is good but less good than FP gives credit for in their CEA.
· Cost-effectiveness analysis excludes opportunity costs: The FP cost-effectiveness analysis shows substantial leverage (i.e. a small amount of money into CfRN leads to lots of money raised). However it doesn’t take into account the possibility that the money raised might anyway have been used for something worthwhile.
· Insufficient incentive funds: The track record around raising incentive funds – an integral part of the REDD+ system – is insufficient: only 4% of the amount that should have been paid has been. The failure to raise incentive funds casts doubt on the future success of the REDD+ system.
· Plans for funding from the private sector appear optimistic: The ability to generate future funds is based on plans to reach individuals and corporates. These plans appear optimistic.
How the REDD+ system works
In a nutshell, the REDD+ system works by providing developing world countries (or rainforest nations) with a financial incentive in return for stopping deforestation.
In particular, the system involves rainforest nations receiving the following amount:
(reference rate of deforestation [T CO2e] minus actual rate of deforestation[T CO2e]) × $5
- The reference rate is determined based on historic rates of deforestation. It represents how much deforestation is expected to happen if there were no REDD+ incentive. It’s measured in tonnes of CO2eq.
- The actual rate is measured and then verified by the UN. The UN takes some care in doing this, including the use of satellite imagery. It’s measured in tonnes of CO2eq.
- The $5 figure is a figure which captures the cost per tonne of CO2 equivalent. This is thought to understate the cost. CfRN cited a McKinsey study which suggested that the $5 cost covers 25% of the opportunity cost if the recipient country had decided to let the rainforest land be used commercially. This means that the REDD+ system is helping to recompense the rainforest nation for not deforesting, but the rainforest nation is shouldering most of the burden itself.
The REDD+ system is enshrined in the Paris agreement. The Paris agreement requires that emission reductions are reviewed and evaluated, and that climate finance is reviewed and evaluated. It does not place an explicit legal obligation on developed world countries to fund the REDD+ incentives.
Note that as an intermediary, CfRN is working to keep both sides of the transaction happy. I.e. the funders (e.g. corporates or governments from the developed world) should be satisfied that rainforest nations can deliver on reductions in deforestation and the rainforest nations need to trust that they will receive their incentive.
Historic deforestation achieved
Thus far (i.e. up to 2017), the REDD+ system has achieved 6.3 billion tonnes of CO2eq averted (approved by the UNFCCC) + a further 2.4 billion (under review by UNFCCC). So 8.7bn tonnes in total. This refers to the reference rate minus the actual rate, as set out in the previous section. In terms of $, this would be $31.5bn or $43.5bn including the results under review.
We understand from the FP report that around $10bn has been pledged, i.e. significantly less than the amount needed.
According to the UNFCCC’s REDD+ Information Hub, payments have been made for around 255 million t CO2eq. This is just under 4% of the achieved results, which is far behind the amount pledged, let alone the amount needed; this seems to indicate that c $30bn is yet to be found (or even more if we include the results under review).
The FP CEA includes a pessimistic set of figures. Under this pessimistic scenario, the amount of funding raised was $5bn. However 255 tonnes × $5 per tonne = c $1.3bn, which is substantially less than the pessimistic figure in the model. Arguably this was just an intermediate step in the calculation – i.e. it’s maybe harsh to hold FP to account for being too optimistic on the amount of funding raised; FP presumably created the model with a view to modelling the impact on CO2, not $. However this does seem to suggest that the FP analysis did not fully anticipate the shortfall in funding that CfRN is currently facing.
It is however that pledgers may yet pay up, however at this stage it must considered whether rainforest nations will start to doubt the REDD+ scheme (more on this later)
CfRN strongly disagreed with the findings of this section. In particular, they pointed out that there is funding going to REDD+ outside of the REDD+ Information Hub, and when asked for more information about this, they said “just this UNGA, Boris Johnson pledged another $1 billion for rainforests, President Macron another $80 million, and Angela Merkel $200 million with goal to mobilize another $800 million. This is in addition to Norway’s $330 million per year.”
Due to constraints of time/process the apparent gap between the c. $2.4bn mentioned in this quote from CfRN and the c.$30bn required has not been explored at this stage.
Cost-effectiveness analysis excludes opportunity costs
While CfRN hopes to raise substantial funds for REDD+, we should consider what would have happened with those funds otherwise.
To be clear, this section is *not* considering the opportunity cost of your (the donor’s) money going to CfRN. Rather, CfRN enables other funds to be raised and donated to REDD+ – this section is considering the opportunity cost on those funds.
Assessing CfRN’s impact without considering the opportunity costs of the funds used on REDD+ overstates the impact of CfRN. E.g. imagine a Cost-Effectiveness Analysis which models CfRN as $3m of CfRN → $500m of REDD+ funding → some large amount of CO2 eq averted. This would mean CfRN is as impactful as a body which can achieve an eye-watering 10,000% return on investment, and which invests your money and then donates to REDD+. And indeed if REDD+ were the only way to achieve climate outcomes at scale (e.g. in the event of a carbon tax) then this may be legitimate. However REDD+ is not the only option (although it is a good option). Other options include simply planting trees.
To consider opportunity costs we’re going to consider three scenarios:
A “high” opportunity cost is meant to capture the idea that the counterfactual use of the funds is roughly as good as the actual use of the funds (in terms of a very rough ballpark estimate). Indeed there may conceivably be other interventions with better cost-effectiveness than REDD+.
There is some uncertainty about the High/Med/Low assessments in the “Opportunity Cost” column, especially in the case of the international development counterfactual. The claim that most of the funding is likely to come from high-to-medium-opportunity-cost sources is even more uncertain (counterfactuals are hard).
Considering opportunity costs of REDD+ funds in more detail
We consider a public sector / private sector split. Thus far most of the funding has come from the public sector, and this may remain the case in the future, depending on how CfRN’s efforts to raise more funds from corporates go.
Counterfactual = other climate change: For public sector sources (i.e. funding from governments) funding can come from budgets which are already allocated to climate change. While some in the climate change arena consider REDD+ a cost-effective way to achieve positive climate change outcomes, once the full cost is taken into account (not just the $5 per tonne that the funder pays), it’s not clear that this is materially more cost-effective than, say, just planting trees. When we refer to the “full cost” here, we’re referring to the fact that the $5 is thought to be just 25% of the cost of achieving the reduction in deforestation (i.e. the developed world country is paying $5 per tonne and the rainforest nation is paying c $15 per tonne). In this case it’s not clear that this is achieving a materially better outcome from a climate change perspective.
A more careful analysis of how governments and other funders actually allocate their resources may shift this opinion. For example, although there are other scalable ways to avert greenhouse emissions for a cost of c.$20 per tonne of CO2eq, by assessing the opportunity cost as high, we are implicitly assuming that governments and other funders make cost-effective resource allocation decisions. If in fact governments allocate funds to less cost-effective solutions, or indeed to poor interventions which are actually net harmful for the environment, this opinion on the opportunity cost could be reassessed.
Counterfactual = international development: The governments with the greatest propensity to support REDD+ have some correlation with those most prone to meet the 0.7% of gross national income on overseas development aid (ODA). E.g. until now this has been largely Norway, which funds an outsized amount of ODA for a small country, and the other countries CfRN have mentioned have largely also mostly been material ODA contributors. So another possibility is that the funds may be reallocated from ODA to REDD+, especially since there’s a clear development narrative that can be used (i.e. developed nations became rich by burning fossil fuels, REDD+ allows developing world nations to receive a financial incentive to not do the same thing).
It may be that international development work is a higher impact use of funds than climate change (see https://forum.effectivealtruism.org/posts/GEM7iJnLeMkTMRAaf/updated-global-development-interventions-are-generally-more [EA · GW], hereafter “Hauke’s article”). It is possible to disagree with Hauke’s article, indeed if you are considering donating to a climate change charity you may well disagree. A simplistic application of the finding of Hauke’s article would lead to a conclusion that the opportunity cost noted in the table above should be “high”. Below we set out two reasons why a simplistic application of Hauke’s finding might be too simplistic:
(a) To perform this comparison, the author, Hauke Hillebrandt, evaluated the benefits of funding climate change work using a Social Cost of Carbon (SCC) calculation from a paper in Nature Climate Change: https://www.nature.com/articles/s41558-018-0282-y. You may disagree with this calculation of the SCC. We consider this below and remain unclear whether this SCC calculation is too optimistic or too pessimistic.
(b) Hauke’s calculation considered a donation to GiveDirectly to be the representative of donations to Global Development. You may think that ODA funded by a government or multinational body differs from the effectiveness of a donation to GiveDirectly. We consider this below and lean towards the view that ODA probably underperforms GiveDirectly.
To briefly expand on these points:
(a) If you open the Nature paper and look at the methods section (at the end) you’ll see that Social Cost is calculated with reference to economic cost (i.e. GDP). There are a number of reasons why GDP is generally considered an inadequate measure of social value. In this particular context, this also doesn’t capture the risk that climate change may make conflict more likely, which may suggest that the benefits of tackling climate change are undervalued. Conversely Hauke notes in his article that the SCC has been criticised for being too high for various methodological reasons.
(b) It may be reasonable to believe that ODA funding achieves outcomes comparable to a donation to GiveDirectly, for example you may believe that ODA funders are “good” (impact focused and cost-effectiveness focused); indeed my (limited) understanding suggests that the UK government’s approach (i.e. DfID’s approach) really is good, although this may not apply equally to other funders. You may also believe that international development work includes enough low-hanging fruit that it is relatively easy to find effective work (although this article https://80000hours.org/articles/effective-social-program/#estimates-within-international-development-and-meta-analyses-vs-rcts considers this and suggests that while this is true, it’s not enough to materially change the bottom line – i.e. most international development interventions don’t work). Beyond the concerns already noted, aid agencies have large budgets, and it may be hard for them to find enough high quality projects to fund; and even if they have found enough high quality projects for their average impact to be good, the best they can do at the margin may still underperform GiveDirectly. On balance, this (incomplete) analysis seems to lean in the direction that ODA probably underperforms GiveDirectly
The tentative conclusion is that this opportunity cost should be treated as medium. It’s entirely possible that a more rigorous analysis of this could change the assessment to high or low.
Counterfactual = miscellaneous: From our discussions with CfRN, it seems that governments do also “create” new budgets for REDD+, which means that the money would have otherwise been spent on “normal” government spend: roads, hospitals, military, etc. To a large extent, it seems reasonable to believe that REDD+ is a substantially better use of funds than a new road or hospital in a country which is already well developed and has plenty of roads and hospitals.
Which counterfactual is most likely? Our impression is that it’s easier to reallocate funds to REDD+ from funds already allocated to climate change or international development than it is to create new budgets for it. Therefore it seems more likely that funds would have a counterfactual of “other climate change” or “international development” than “miscellaneous”. Counterfactuals are hard, and it’s possible that a more detailed analysis of this area could shed more light.
For private sector sources, the FP report argues that REDD+ offsets from corporates are genuinely additional, because if the marginal cost of abatement is above $10 then private sector willingness to mitigate is for the most part reduced to zero. If this is the case, the counterfactual means shareholders (e.g. people with pensions or life insurance policies, or retail investors or high net worth individuals) getting a bit more money. Under the classification set out above, this would count as “Counterfactual = miscellaneous”. The implicit judgement is that using the money on REDD+ instead of making shareholders slightly richer is a much better outcome. This judgement seems likely to be correct.
However, if you believe, as we do, (and as the FP report also suggests) that large-scale (e.g. $100m+) corporate funding is likely to come with at least some government encouragement, if not compulsion, then it seems likely that the true counterfactual is “other climate change”.
Insufficient incentive funds
As highlighted in the “Historic deforestation achieved” section above, only a very small amount of the incentives promised appear to have actually been delivered. (note that the FP report does acknowledge this, e.g. it says “These funds have not yet been disbursed, so our estimate of their effect is based on the projected impact of REDD+ money.”)
The risk with this is that rainforest nations may become sceptical of their receiving the incentives at all, and may withdraw from the scheme.
Indeed Brazil appears to already be expressing these concerns. Under Jair Bolsonaro, Brazil has indicated that they believe they need to find another way to develop in the absence of REDD+ funds, and have reduced their investment in avoiding deforestation by 95% (i.e. a factor of c.20).
Of the deforestation results achieved so far, over 90% of it has come from Brazil. So for Brazil to withdraw from the scheme (or mostly withdraw from the scheme) is a body blow for REDD+. Having said that, an increase in involvement from other countries (such as Indonesia) may help.
This concern has been raised with CfRN who have argued that we should be more sanguine. In particular, they point out that at the outset there were concerns among potential funders. Funders were concerned that rainforest nations may not be able to find ways to effectively reduce deforestation. So while some funders (notably Norway and Petrobras) have provided funding, this is really just trying to make the case at this stage. In other words you could view this as the pilot stage coming to an end now. And now that it’s been demonstrated that rainforest nations *can* reduce deforestation, the focus is now on ensuring that the funding is available.
Given that Brazil is reducing its involvement however, we are not sanguine about this risk.
One more thing to note: while the REDD+ scheme isn’t fully delivering what’s promised to rainforest nations, it would be overly harsh to characterise an unpaid REDD+ payment as having zero value for a rainforest nation. For example, a nation could use the money it is due through the REDD+ scheme as a bargaining chip in other negotiations.
On review of this write-up, CfRN responded with “Brazil is still engaged and correctly demanding ‘donors’ respect national sovereignty around how funds are deployed.”
If you believe, as we do, that risks to the future of the REDD+ scheme are now elevated, does this reduce the value of donating to CfRN, or is it all the more reason to try to push on and support the scheme?
- Firstly this *does* reduce the value of donating to CfRN, as it increases the probability that the donation will achieve nothing or a reduced amount of impact.
- If donors to CfRN were strongly reacting to this bad news by withdrawing their support for CfRN, then this might make CfRN more neglected. However based on my conversations with CfRN we don’t understand this to be case (this is not an area which has been carefully probed though).
Plans for funding from the private sector appear optimistic
Part of CfRN’s funding needs is for the registry and exchange programme, which will enable the raising of funds from corporates (and perhaps individuals too). The registry and exchange has two components:
- A registry, which tracks each tonne of CO2eq averted throughout its lifecycle (i.e. from its origination in a rainforest through to the funder, via each intermediary). This is to avoid double counting, and allows for compliance grade offsets.
- An exchange, which allows for the trade of carbon offsets
The addition of private sector funding would be important (assuming a material amount of private sector funding is achieved). As noted in the FP report (p. 72), 10% of REDD+ finance as at 2014 has come from the private sector (note that the original source for this claim is referring to pledges for REDD+ finance, not actual payments). Furthermore CfRN have suggested in our conversations that the funding for REDD+ was never expected to be solely from governments, so this diversification is necessary.
In the FP CEA, they forecast amounts of funding that was well into the hundreds of millions of dollars, even under the most pessimistic scenarios.
The FP report’s rationale for this is that carbon offset transaction values have declined, and that CfRN believes that this is because of unmet demand for compliance grade offsets. The FP report referenced the below chart in justifying this.
However it is easy to imagine many other reasons for this, for example because the fundamental demand has changed for reasons totally unrelated to the demand for specifically compliance grade offsets.
In particular, note that most companies do not have a regulatory requirement for compliance grade offsets. (That said, the FP report does argue that the scale of future demand may be large, e.g. it says: “To give an idea of the scale of future demand, according to one analysis, the demand for forest offsets from the aviation sector alone could be more than $3bn per year in the 2020s”; further review of this analysis may make us slightly more sanguine on this.)
CfRN suggested in our conversations that corporates may nonetheless desire the extra comfort that comes from having more rigour in ensuring that the climate impact is actually achieved. We have requested and not received further information to help us better understand this claim, however this is contrary to SoGive’s experience of dealing with corporates, as we have indicated to CfRN.
To expand on this, let’s separate out two ways in which companies may contribute to the REDD+ scheme:
· As part of their Corporate Social Responsibility (CSR), the company chooses to donate and/or encourage their staff to donate
· The company has been encouraged/compelled to make some sort of carbon offset (e.g. because of a government requirement, such as a carbon tax)
In our experience of dealing with corporates and their CSR schemes, we have found that corporates are more interested in corporate goals (such as staff retention) than impact goals (such as ensuring that the donations are definitely achieving the best impact). Goals such as staff retention are best achieved with emotive marketing rather than rigour in tracking impact, and CfRN’s edge is in the latter, not the former.
Independently of this source of concern, we would generally suggest that any small team spending a few million dollars per annum is unlikely to generate hundreds of millions of dollars from dealing with corporates (or from anything else). All the more so when the team is not experienced with that market. For reference, a fundraising spend which results in 4 times as much fundraised revenue would be considered reasonable.
In other words, expecting CfRN to build the system *and* ensure that large amounts of funding go through the platform is unrealistic.
More realistic, however, is the possibility that large amounts of funding go through the platform because of, say, government influence on companies. It is conceivable that CfRN could generate hundreds of millions of dollars of funding from corporates through a combination of selling the REDD+ concept to them and governments gently encouraging the use of REDD+. Alternatively if there were some sort of carbon tax (especially one which required the use of REDD+, or at least required compliance grade offsets) then this projection becomes much more easily achievable. (We understand that the carbon tax scenario is also the scenario which the FP report thought most likely as well)
Note that it is overly generous to assign all the of benefits of this solely to CfRN. Crediting the outcomes solely to CfRN would be correct if, for example,
- CfRN were solely responsible for driving REDD+ donations
- The cause of the REDD+ funding were something else (e.g. a carbon tax) but that system could not be implemented without REDD+
However it is possible to have a carbon tax without REDD+ (although if there is a carbon tax, having REDD+ in place is a great idea).
In sum therefore, it seems that CfRN’s impact in the corporate space is unlikely to be as outsized as you might think from the FP analysis. E.g. the <$10m of spend at CfRN being solely responsible for >$100m of funding is unlikely to be the case.
CfRN strongly disagreed with the claims in this section. They have said “we try to stay ’small’ and partner wherever someone can do it better than us” and “Regarding setting up funds. We conceived and jointly established three (made the original request, engaged in collaborative design processes, and participated on founding boards) in partnership with the World Bank and UN System — the Forest Carbon Partnership Facility ($1.3 billion), the Forest Investment Program ($750 million) and the UN Multi-Donor Trust Fund’s UN-REDD Program ($320 million) = $2.4 billion in total.”
How material are these concerns?
A big part of the driver for the FP recommendation is the intervention area – forestry – which has not been carefully reviewed in this piece. Under the FP analysis, there is a big gap between forestry and the next best intervention (energy efficiency). Thus shaving off a few percentage points of impact is unlikely to move the dial. If, however, you thought that the opportunity costs were high enough to take out the large majority of the impact, or if you thought that the REDD+ system were actually displacing more cost-effective work then you might revise your view of CfRN. Similarly if you thought there was a very high probability of REDD+ failing, or some combination of those two concerns, then you might be more negative on CfRN.
The tone of this report may appear negative about the FP analysis. It is worth stating explicitly, therefore, that we found the FP report to be insightful and useful, and that while there are some areas of disagreement, we consider the FP report to be a valuable contribution to the analysis of climate change donation opportunities. On a related note, we have also met with the other charity recommended by the FP report (CATF) and find the case made here to be much more convincing.
While this write-up sets out a number of areas in which we are less optimistic about CfRN than the FP report suggests, we still think that CfRN is a fairly good charity to support, assuming that we second the FP view on the value of forestry.
We conclude that there are risks to the REDD+ scheme, and we think that the opportunity costs of the scheme may be substantial.
Some useful links:
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