The experience of ecological fiscal transfers: Lessons for REDD+ benefit sharing

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In many countries, the state owns or manages forests in the national interests of economic development, ecosystem service provision or biodiversity conservation. A national approach to reducing deforestation and forest degradation and the enhancement of forest carbon stocks (REDD+) will thus most likely involve governmental entities at different governance levels from central to local. Sub-national governments that implement REDD+ activities will generate carbon ecosystem services and potentially other co-benefits, such as biodiversity conservation, and in the process incur implementation and opportunity costs for these actions. This occasional paper analyses the literature on ecological fiscal transfers (EFTs), with a focus on experiences in Brazil and Portugal, to draw lessons for how policy instruments for intergovernmental transfers can be designed in a national REDD+ benefit-sharing system. EFTs can be an effective policy instrument for improving revenue adequacy and fiscal equalization across a country. They facilitate financial allocations based on a sub-national government's environmental performance, and could also partly compensate the costs of REDD+ implementation. We find that intergovernmental EFTs targeting sub-national public actors can be an important element of policy mix for REDD+ benefit sharing, particularly in a decentralized governance system, as decisions on forest and land use are being made at sub-national levels. Given the increasing focus and interest on jurisdictional REDD+, EFTs may have a role in filling the shortfall of revenues for REDD+ readiness and for implementing enabling actions related to forest governance. If EFTs are to have efficient and equitable outcomes, however, they will require strong information-sharing and transparency systems on environmental indicators and performance, and the disbursement and spending of EFT funds across all levels

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