27 November 2012 | When Ghanaian businessman John Addaquay applied to his country’s Forestry Commission for seed money to get the Vicdoris REDD Project off the ground, he thought the money would be coming from the World Bank’s Forest Carbon Partnership Facility (FCPF). After all, the FCPF had just awarded $3.4 million to the Commission to develop REDD readiness, and his project would be testing new methods that could help scores of other project developers move forward across Africa.
As the project works its way through the system, however, it’s becoming clear that the quest for funding is more complex than he – and most project developers – realized. That, in part, is because few people really understand the role that the World Bank plays in promoting REDD Readiness.
Developed countries have pledged $7.3 billion to jump-start REDD, according to the Forest Trends REDD+ Expenditures Tracking Project. Of that, $4.3 billion is slated to be delivered by the end of this year.
But only a small portion of that is coming through multilateral entities like the World Bank and United Nations. The World Bank’s FCPF, for example, has a total of $435 million, while the Bank’s other major REDD effort, the Forest Investment Program (FIP) has $639 million.
Even the United Nations REDD-Programme (UN-REDD) has just $117.6 million as of July 2012.
And none of these entities are charged with funding pilot projects like Addaquay's, but instead with building up governance structures that can support projects down the road.
In 2006, the World Bank was in talks to create an initiative that would value standing forests through capacity-building and performance-based payments. Germany became an early leader of these discussions, which led to the establishment of the FCPF one year later and over $160 million in pledges from 10 countries and one NGO. The FCPF was officially launched at the 13th Conference of the Parties (COP 13) to the United Nations Framework Convention on Climate Change (UNFCCC) in Bali, Indonesia, in 2007 and became operational in 2008.
The number of financial contributors has grown to include 15 developed country governments, one NGO and two private sector firms, bringing the total to 18, according to the FCPF’s 2012 Annual Report.
Managed by the Participants Assembly and the Participants Committee, governments and private participants share an equal amount of responsibility in the FCPF’s governance structure. The Participants Assembly is composed of all the countries and organizations involved in the FCPF. It meets annually and elects the Participants Committee (PC), which is made up of 14 REDD+ countries and 14 financial contributors plus six observer representatives that includes indigenous peoples, international organizations, the private sector and UN-REDD.
The PC is the main decision-making body of the FCPF. It approves budgets and decides on issues such as grant resource allocations.
The World Bank functions as the FCPF’s trustee, secretariat and delivery partner. The FCPF was proposed as a facility that would assist developing countries in preparing for REDD+ as well as implement pilot projects at the national level based on performance based payments. In order to fulfill its responsibilities, the FCPF uses two finance mechanisms – the Readiness Fund and the Carbon Fund.
The Readiness Fund is designed to build capacity in developing countries with tropical forests and assist them in preparing for future large-scale REDD systems by funding readiness activities such as determining national reference scenarios of past emissions and how these emissions would change in the future. Creating a national REDD strategy is another activity financed by the Readiness Fund. To be considered for the Readiness Fund, countries must submit a Readiness Plan Idea Note which is then reviewed by the PC.
The Carbon Fund will finance demonstrations that test financial incentives for emissions reductions in five developing countries. These pilots will take place at an administrative, jurisdictional or national level and will align with the national REDD+ strategy. To qualify for participation, nations must first participate in the Readiness Fund, and their readiness packages must be endorsed by the PC. The countries that do participate would have to reduce emissions beyond the reference scenario to receive payments.
The early years of the FCPF were centered almost entirely on capacity building. Fiscal year 12 saw a focus on support to participating countries through close coordination with FIP and UN REDD. FCPF says FY 13 will place a special emphasis on developing the Carbon Fund while still supporting the Readiness process.
Both mechanisms are meant to set the stage for a broader global REDD program based on financial payments for emissions reductions. According to the FCPF’s Information Memorandum, the funding provided by the FCPF does not have the capacity to cover all of the costs needed to create large-scale REDD programs. FCPF isn’t designed to fund the necessary investments like policy reforms and restructuring institutions that is needed to undergird sustainable emissions reductions and carbon based payments. These must come from other funding sources.
When it launched the FCPF, the World Bank believed that funding for other activities would easily flow from Official Development Assistance sources like multilateral and bilateral funds, as well as from governments and the private sector. But as the process developed, FCPF realized funds weren’t flowing from these sources. If countries lack money to make necessary policy changes or create investment programs, then they are unable to reach the phase where they’re ready for a pilot project.
FCPF Coordinator Benoit Bosquet calls this the “missing middle”, because the lack of funds from other sources has created a funding gap between the FCPF’s Readiness Fund and the Carbon Fund.
This is where the FIP comes in. Created to at least partly fill the funding gap, the FIP will provide upfront financing for reforms covering infrastructure, land use tenure, policy reforms, and restoration of degraded land. While these expensive reforms are recognized as necessary, their expenses are not covered under the Readiness Fund’s coverage of readiness strategies and monitoring systems.
How the FIP is used and implemented depends on many factors and will vary from country to country. For example, Indonesia’s REDD+ activities are coordinated through the Presidential REDD+ Task Force, a uniquely Indonesian institution.
The FIP operates on a broader scale than the Readiness Fund. It examines all reforms needed in a forestry sector rather than just at alterations needed for REDD. These reforms cover institutional capacity, improvement of agricultural productivity and forest conservation and management. Forest management includes protection from fires and pests. The FIP could also invest in ways to release the pressure put on forests by encouraging landowners to plant crops on non-forest areas instead of clearing rainforests.
The FIP will also provide funding for pilots that demonstrate how countries will use the FIP finance to make the necessary changes to earn carbon payment.
While the FIP is operational and has been since 2009, distributing its funds is somewhat complex. The process is lengthy and the funds can move slowly. Investments have to be approved by the governing body - the FIP Sub-Committee - before money can be distributed. The Sub-Committee has equal representation between the contributor and recipient countries as well as representatives from indigenous peoples organizations and private sector observers.
The many safeguards the FCPF inherited from the World Bank could be adding to the delays in the distribution of FCPF funding. According to the REDD Desk, the Bank’s financial safeguards, fiduciary controls and other audits aren’t suited for the relatively fast and small payments needed for REDD+ activities. The Bank’s safeguards were put in place for large infrastructure projects, the REDD Desk says, noting the fact that while much money has been pledged and deposited toward REDD+, little has actually been dispersed. These safeguards could be hindering financial flows.
Another issue that may contribute to the long process stems from donor miscommunication. It can be difficult to gather donors together so they all have a solid understanding of what is happening inside a recipient organization, Senior Law and Policy Advisor of Forest Trends’ Trade and Finance Program Robert Oberndorf says.
For a smoother process, it is clear that the FCPF will have to coordinate closely with other REDD+ initiatives-mainly UN REDD. As both initiatives progress, they continue to become more closely aligned on a national and global level.
The FIP, as well, is complementary to these REDD initiatives that lack upfront funding.
Launched between the FCPF and the FIP in 2008, the UN-REDD Programme, financed through a multi-donor trust fund (MDTF) is comprised of two components. One component supports National Programmes for REDD+ Readiness in target countries while the other component is a Global Programme that develops common approaches, methodologies, tools and guidelines for national REDD+ Readiness processes.
Contrary to popular belief, UN-REDD also does not finance individual pilot projects, although second-phase UN-REDD Country Programs will finance pilot demonstration activities through performance-based incentives.
The FCPF and UN-REDD share the same interest of country ownership when initiating REDD systems and strive to make the process as uncomplicated as possible for the recipient country. A lack of collaboration and coordination will undermine this key principle and put undue burden on countries. Starting last year, for example, UN-REDD and FCPF collaborated to revise FCPF’s R-PP (Readiness Preparation Proposal) template so that countries can use the same approach for both initiatives. UN-REDD accepts R-PPs, which simplifies the lengthy application process used by countries to qualify for a UN-REDD country program.
UN-REDD and the FCPF also now collaborate on documents such as the Joint Guidelines for Stakeholder Engagement on REDD+ Readiness. These guidelines are for stakeholders of both or either initiative and include an overview of UN-REDD and the FCPF’s policies.
Because UN-REDD hadn’t planned how they would fund performance-based payments, the two organizations aren’t coordinated on the FCPF’s Carbon Fund activities. When a nation participating in UN-REDD enters the performance-based payments phase, UN-REDD will establish a fund within the country, whereas the FCPF’s Carbon Fund is a broader fund available to participating countries with eligible pilot proposals.
The key reason that UN-REDD and FCPF have not coordinated in this regard is because no country is at the stage of using the FCPF Carbon Fund. Last year, the FCPF saw major work on the framework for performance-based payments and this year, the Carbon Fund will evaluate Emissions Reduction Programs. UN-REDD did indeed intend to pilot performance-based incentives, but it is only now beginning to address in detail how this will be done, with Viet Nam becoming the first UN-REDD country to enter into Phase 2 of the Programme.
In Viet Nam, a national fund will be established though which performance-based incentives can be disbursed to finance REDD+ demonstration activities. UN-REDD may be the first source of finance for this national fund, but other sources, including (at some point) FCPF, will become available for this purpose. The Government of Viet Nam is likely to want all such finance channeled through the same funding apparatus. In this way, the country-led principles that both initiatives follow could lead to collaboration by default, as well as by design.
Before receiving funding, countries must first demonstrate they are well on the way to REDD+ readiness, including a fully operational forest monitoring and MRV system, establishing a national reference emission level (or reference level) and building the capacity of the institutions necessary to implement a REDD+ program. For many countries this will be extremely challenging, if possible at all.
Away from the growing number of REDD pilot projects, UN-REDD and FCPF aim to support the development of national REDD+ programs in order to prepare for the mechanism expected to emerge as part of a future international agreement on climate change.
While pilot projects provide a laboratory for testing different methodologies, there is still a gap between project-level experience and what would be needed to develop national REDD readiness. The UNFCCC will oblige participating countries to report GHG emissions only at the national level. If emissions reported are below the country’s national reference level, a country may qualify for performance-based incentives, which it would subsequently distribute in such a way as to ensure emissions remain below the reference level, while ensuring compliance with the social and environmental safeguards defined in the Cancun Agreements. REDD pilot projects, on the other hand, have defined boundaries and thus work quite differently. Each project must have its own reference level, account for potential leakage, develop a tailored monitoring methodology and seek dedicated investment. The lessons from these experiences are therefore not directly scalable to national REDD+ programs, and may thus offer limited assistance to the REDD+ readiness activities of either UN-REDD or FCPF.
In Ghana, the FCPF and the FIP are both operational. Ghana submitted an R-PP to the FCPF in 2010.
Ghana’s investment plan for the FIP will focus on the High Forest Zone in the western and Brong Ahafo regions. This area could yield major benefits in terms of carbon sequestration and is also an area where one of Ghana’s main deforestation drivers, agricultural expansion - particularly cocoa farming, has caused serious degradation.
Overall, the investment plan will focus on three areas-mitigation actions, investments to release pressure on forests and capacity building that includes forest management and information.
In Brong Ahafo, Addaquay feels ready to launch his project now but still waits for the funding. And when the funding will come in isn’t an easy question to answer. The funding will come when the countries are deemed ready.