The Framework Convention on Climate Change has yet to deal with tropical deforestation although it represents an important source of greenhouse gas emissions. In December 2005 negotiations on a possible regime to reduce emissions from deforestation resume under the impulse of a regime proposal based on the concept of compensated reduction. Over the course of 2006 Panamanian policy-makers working within the National Environmental Authority (ANAM) determine that such a regime is in the interest of Panama given that the integrity of the Kyoto Protocol's existing flexibility mechanisms is protected. However reducing its deforestation rate is not currently possible for Panama due to ANAM's limited institutional capacity to act on the field and limited political capacity to influence the national agenda. Important up-front flows of funds from developed countries combined with the adoption of a progressive project based compensation mechanism could contribute to reverse this trend.

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