In order for REDD+ to be successful, incentives will need to reach the actors responsible for addressing the drivers of deforestation and for shifting land use to a more sustainable and low-carbon model. These actors span multiple scales, from international commodity buyers to national governments to sub-national governments to indigenous peoples and forest-dependent communities to individual landowners/users.

Devising effective and transparent carbon accounting systems and incentive mechanisms that motivate both national and sub-national actors will be critical to successfully implementing REDD+.

A nested approach to REDD+ is one way to structure such a system. Under a nested approach the national government could set up a national accounting framework and establish a nation-wide monitoring system. The national government could implement certain policy reforms that would lead to verifiable emission reductions and therefore earn incentives from an international system (or a bilateral arrangement). Meanwhile, implementation of REDD+ activities could also occur at the sub-national level led by local/regional governments, communities, NGOs, or private developers. These activities would account for emission reductions at the sub-national level and earn incentives directly from the international (or bilateral) system based on those reductions. Under the approach proposed in this paper, the sub-national accounting would need to be “trued-up” to the national level (i.e. all credits issued in any given year are based on the performance of the nation as a whole relative to its reference emission level).

A nested approach to REDD+ has the potential to address many of the drawbacks of pure national or pure sub-national approaches by accounting for in-country leakage, engaging national governments, and taking advantage of certain economies of scale, while also motivating sub-national actors to participate in REDD+ and attracting greater private investment. A nested approach may also provide for a more transparent distribution of the benefits from REDD+ since local actors could own and transact credits directly rather than relying on a national system of benefit-sharing. However, a nested approach will likely require more complex carbon accounting methodologies, clearly defined systems for sharing risk between actors, and defined institutional arrangements for managing the flow of incentives.

Nested carbon accounting should include the following elements: a clear national reference emission level, defined sub-national reference regions (non-overlapping areas that cover the entire land mass of the country designated based on common drivers of deforestation and political jurisdictions), and, in some cases, nested projects whose reference emission levels add up to the reference region and hence the national reference emission level.

Under the nested approach we propose in this paper, there is a risk that sub-national actors may not receive compensation for successful activities in the event that the country as a whole fails to perform. This risk will need to be minimized in order to promote sub-national participation and private investment. This paper outlines several options for risk management among actors, including insurance products, a global self-insurance fund, performance reserve accounts, or contracts between parties for replacement of REDD+ credits.

These options could be combined to meet the needs of particular country circumstances. The set of options chosen could lead to a greater assumption of risk by the national government, an even distribution of risk between actors, or a greater assumption of risk by sub-national actors. Several plausible arrangements exist, and the set of options chosen will greatly influence the level of sub-national involvement and private investment.

Given the potential advantages of a nested approach to REDD+, an international agreement on REDD+ and domestic legislation in the U.S. and other developed countries should allow developing countries the option to pursue a nested approach to REDD+ backed by adequate risk management strategies. Developing country governments should consider a nested approach to REDD+ when devising their national REDD+ strategies.