COPENHAGEN - A U.N.-backed system to pay poorer nations for saving or replanting their forests has made significant progress at climate talks in Denmark, the official who chairs talks on the scheme said on Wednesday.

Reducing emissions from deforestation and degradation, or REDD as the scheme is called, has wide support from many nations because it puts a price on preserving and rehabilitating forests.

The scheme, for the first time, would provide an incentive to save tropical forests that soak up large amounts of planet-warming carbon dioxide, instead of cutting them down for timber or valuable cash crops.

REDD is a core issue of the talks in Copenhagen aimed at trying the lay out the roadmap for a broader, and tougher, deal to fight climate change. It has been one of the few bright spots in otherwise troubled climate talks.

I consider this more or less agreed text except in a few places, said Tony La Vina, the chair of the REDD negotiations.

REDD was adopted in U.N. climate talks in Bali, Indonesia, two years ago as an area negotiators should explore and develop ways to promote early action.

If finally adopted, it could lead to billions of dollars flowing to developing countries and forest communities from the sale of carbon offsets that rich nations would buy to meet mandatory emissions reduction obligations at home.

Deforestation is responsible for nearly a fifth of mankind's greenhouse gas emissions and curbing forest loss is regarded as a key way to brake the pace of global warming.

The carbon market sees great potential in investing in forests through the sale of valuable carbon offsets and dozens of REDD early action projects have started in nearly 40 countries, the U.N. says.

CAREFUL DESIGN

Greens say the scheme has to be carefully designed to ensure money flows to communities to give an extra incentive to save forests and to ensure forest protection in one area doesn't lead to deforestation in another, a concept called leakage.

La Vina, from the Philippines where deforestation is a major concern, said the draft text had improved safeguards on protecting the rights of indigenous forest people and conversion of natural forests into plantations.

It also affirms that developing countries should undertake transparent efforts to govern the scheme and take steps to ensure that emissions cuts from REDD projects can be measured, reported and verified, a key requirement for investors.

But the draft text doesn't mention earlier options to set a target to halt and reverse loss of forest cover, something that greens say is needed to give nations a clear goal.

La Vina said there were still a number of live options, such as all nations aiming to halt deforestation by 2030 and reducing deforestation and degradation by developing nations by half by 2020.

Governments must decide the final target, he said.

Financing was also still unclear but the United States pledged $1 billion as part of a $3.5 billion scheme as initial financing toward slowing deforestation, a U.S. government statement said on Wednesday.

La Vina said there was still debate on the concept of sub national activities. Most countries back a national approach to REDD to ensure any emissions reductions from REDD projects are accounted on a national level.

Greens see this as a loophole and fear sub-national projects could drive deforestation elsewhere in a country or region.

Will developed countries provide financing to developing countries to stop deforestation at a national level and help get us the reductions the science say is needed? said Roman Czebiniak of Greenpeace.

Or will REDD be a loophole that allows big corporations to continue to pollute so long as they set up a small forestry project in a developing country? he told Reuters.

La Vina said the dispute was unlikely to be resolved in Copenhagen but thought it might me settled during 2010.