Reducing emissions from tropical deforestation and forest degradation (REDD) in developing countries has emerged as a new element to complement ongoing climate policies. The strategy involves the provision of financial compensations for the reduction of greenhouse gas (GHG) emissions from deforestation and forest degradation. Although excluded from the first commitment period of the Kyoto Protocol, the idea was submitted by Papua New Guinea and Costa Rica in 2005, on behalf of the Coalition for Rainforest Nations (CfRN), at the 11th Conference of Parties (COP-11) to the UNFCCC in Montreal. The proposal has initiated a two year examination process, characterized by extremely high participation of the concerned parties, and decisive steps on the subject are anticipated at the COP-13 in Bali in December 2007. Based on the main country proposals, this paper examines the current debate on REDD and discusses some of the main remaining controversies within the debate, notably the REDD financing mechanism (mandatory markets versus voluntary funds) and the institutional framework for REDD (inside or outside of the post-2012 Kyoto regime). In doing so, the paper contributes to an improved understanding of the scientific, economic and political aspects associated with the debate.