A U.N.-backed scheme that aims to reward developing nations for saving or rehabilitating their forests has made major progress during climate negotiations over the past two years and is likely to advance further at talks in Copenhagen.

But several issues still need to be resolved and will be discussed when negotiators from around the world meet in the Danish capital from next week to try to reach agreement on the outlines of a tougher global climate pact.

Here are some of the sticking points facing the scheme called reducing emissions from deforestation and degradation (REDD).

FINANCE

Rich countries, the United Nations and institutions such as the World Bank are putting up money to develop REDD. The problem is who manages the cash and governs how it will be used.

There are fundamental differences between developed and developing countries over whether the World Bank and other big lending agencies should disburse funds, or whether the United Nations should handle the money.

Developing countries have criticized the World Bank for being dominated by the United States and inflexible in its lending.

The United States and Australia tend to favor bilateral funding, to ensure a flow of forest carbon offsets to their future domestic emissions trading schemes.

SAFEGUARDS

One of the thorniest issues. It is widely agreed that for REDD to work, indigenous people or local communities need to be consulted and play a key role in fighting deforestation.

The problem is how to enshrine their rights into legal language all nations can accept. The current REDD draft negotiating text refers to the U.N.'s Declaration on the Rights of Indigenous Peoples, but these references are still in square brackets and therefore still up for negotiation.

Tricky, too, is how to ensure the full engagement of indigenous groups, plus maintaining an area's biodiversity and including all these into an internationally accepted regime that measures, reports and verifies steps to curb deforestation.

Protecting natural forests from being turned into plantations is another problem. The current draft text has two options, namely that any REDD scheme should not provide incentives for the conversion of natural forests and safeguarding the conversion of natural forests. Greens, such as WWF, prefer the first option.

The final choice of words is still to be made. Another problem is that the U.N. hasn't fully nailed down what the definition of natural forests is.

SCOPE

Lots more debate likely here. Should REDD just focus on curbing deforestation and build a reward structure on that basis, which is what Brazil wants?

Or should it be REDD+, which would also recognize efforts to enhance carbon stocks, conservation of forests and sustainable management of forests?

India and others would like this option since they say they have stopped most deforestation and instead want to be rewarded for efforts to protect and expand what's left.

Brazil also objects to REDD becoming a purely market-based scheme with money flowing from the sale of carbon offsets, fearing rich nations would buy the credits and so avoid cutting emissions at home.

Others, such as Indonesia, back a market-based scheme and are working closely with Australia to bring this about.

(Editing by Clarence Fernandez)

Australia