Corruption, auditing and carbon emission reduction schemes

Query

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Purpose

We would like to provide support to the Indonesian Supreme Audit Institution (BPK) to equip them with the relevant skills to conduct integrity audits in relation to carbon emission reduction schemes.

Content

1. Corruption risks in carbon emission reduction schemes
2. Instruments for conducting integrity audits in carbon emission reduction schemes
3. Case study of Indonesia’s Reforestation Fund
4. References

Caveat

At the request of the enquirer, this expert answer primarily focuses on the challenges associated with programmes for Reducing Emissions from Deforestation and Forest Degradation (REDD).

Summary

There is a broad consensus that the success of climate mitigation strategies will in part depend on addressing governance challenges in the contexts in which these strategies are to play out. There are major corruption risks associated with carbon emissions reduction schemes such as REDD. First, REDD takes place in a corruption-prone sector. In many developing countries, the forestry sector faces corruption risks in the form of state looting, elite capture, theft and fraud. By facilitating illegal logging, deforestation and forest degradation, corrupt practices can critically undermine the success of climate mitigation schemes. In addition, specific governance challenges may be associated with emerging forest development practices and carbon trading schemes. These include inappropriate validation and verification, misappropriation of carbon rights, double counting and fraudulent trade of carbon credits.

Carbon emission reduction schemes are also associated with a planned large influx of funds (albeit staggered and performance-based) into countries that currently have limited absorption capacities and weak management systems. As a consequence, national governments hosting REDD programmes need to have effective auditing systems in place to ensure sound financial management and effective enforcement of financial regulation. Beyond addressing issues of financial management, Supreme Audit Institutions (SAIs) are assuming a growing role in the emerging field of environmental governance and integrity. While they generally do not directly address issues of corruption and financial integrity, environmental audits can reduce opportunities for corruption by promoting transparent and accountable programme management and strengthening the oversight mechanisms and monitoring processes of environment-related projects, including carbon emission reduction schemes.

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