FACTBOX: U.N. scheme aims to use carbon credits to save forests

(Reuters) - The United Nations hopes to include a market-based scheme aimed at using carbon credits to save rainforests as part of a broader pact to fight climate change.

Called REDD, or reduced emissions from deforestation and degradation, the scheme won backing at last year's U.N.-led climate talks in Bali and trial schemes are now being developed, a number of them in Asia.

The idea is to refine the pay-and-preserve scheme for inclusion into the Kyoto Protocol's successor from 2013.

WHY IS REDD IMPORTANT?

Deforestation contributes about 20 percent of mankind's greenhouse gas emissions, particularly carbon dioxide and methane from clearing and burning forests. Tropical rainforests are crucial water catchments and act as lungs for the planet by soaking up vast amounts of carbon dioxide from the air.

They also contain a rich array of plant and animal species and many indigenous communities depend on them for their livelihoods. Paying to preserve these forests can help brake climate change and maintain the planet's rich biodiversity.

WHAT'S THE AIM?

REDD's aim is simple: saving remaining tracts of rainforest by paying national and local governments to keep them standing. The payment, via the sale of carbon credits, would reflect the value of carbon stored in the forests or the lost opportunity costs of cutting down the forest for its timber, for cattle farming, or growing crops, such as palm oil.

HOW WOULD IT WORK?

Mechanisms are still being worked out. But essentially one idea is to use the sale of fully fungible REDD credits to help developing nations halt logging and in return allow rich nations to meet a portion of their U.N. emissions reduction goals. Estimates vary but REDD could yield between $10 billion and $30 billion a year in funds for the developing world, with REDD credits fetching $4 to $10 a metric ton.

CONCERNS

There are many and include:

-- Permanence, or compliance. How to ensure the forest will remain standing for the long-term and that a country has the means to protect that forest from fire or illegal logging.

-- Baseline. Each country will need to set a starting point for REDD to report changes to forest cover over time (increase and decrease). The problem is calculating that baseline.

-- Leakage - How to prevent a halt on logging in one area driving deforestation in another location.

-- Flood of carbon credits. The European Union fears a flood of cheap REDD credits could overwhelm Europe's emissions trading system. But some researchers dispute this, saying a properly regulated market would allow for a gradual increase in REDD credits over time. The United States also needed to commit to modest emissions cuts as a minimum.