Forest Carbon Partnerhsip Facility

1
Stefano Pagiola World
Bank 1818 H Str NW Washington DC
20433 USA spagiola_at_worldbank.org The opinions
expressed in this presentation are the authors
own and do not necessarily represent those of
the World Bank Group. The materials in this
presentation may be freely reproduced with
appropriate credit to the author and the World
Bank.
Financing Forest Conservation The REDD Initiative
Stefano Pagiola Latin America and Caribbean
Sustainable Development Department World Bank
Payment for Ecosystem Services International
parliamentary hearing on forest protection and
the model of Payment for Ecosystem
Services Earth University, Costa Rica, 5-7 June
2009
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Financing Forest ConservationThe REDD Initiative

• Payments for environmental services (PES)
• Strengths and limitations of current financing
  sources
• Payments for water services
• Payments for biodiversity conservation
• Payments for carbon sequestration
• REDD financing for forest conservation
• Potential
• Challenges
• Learning by doing through the FCPF

3
Why deforestation?
Deforestation and use for pasture
Conservation
Benefits to land users
4
The logic of Payments for Environmental Services
(PES)
Deforestation and use for pasture
Conservation
Benefits to land users

• Payments must be annual
• So must funding

5
Payments for water services

• Government-financed national PES programs
• Costa Rica PSA
• Mexico PSAB
• China SLCP
• User-financed programs local PES programs
• Hydroelectric power producers
• Domestic water supply systems
• Industrial users
• Irrigation

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User-financed PES for water services
Costa Rica Payments by water users
(US/ha/yr)
Total 18,000ha ca US500,000/year
10
Energía Global (renewed twice)
15/30
Platanar S.A.
40
CNFL/Río Aranjuez
40
CNFL/Río Balsa
40
CNFL/Río Laguna Cote
4522
Florida Ice Farm and Heredia ESPH
45
Azucarera El Viejo
45
Hidroeléctrica Agua Zarcas
45
Misc
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Payments for water services are spatially
specific
1.9 million ha
Source Pagiola, Zhang, and Colom, 2007
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Payments for water services are spatially
specific
Costa Rica Watersheds with water concessions
Source Zhang and Pagiola, 2008
9
Amounts of payments for water services vary
substantially
Guatemala Watersheds with hydroelectric power
plants
Source Pagiola, Zhang, and Colom, 2007
10
Amounts of payments for water services vary
substantially
Costa Rica Watersheds with PES funding from
water tariff
Source Zhang and Pagiola, 2008
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Payments for biodiversity services

• Few examples
• Bioprospecting has disappointed
• Tourism
• Few examples of voluntary user payments
  (Tanzania)
• Some examples of government-imposed fees (Belize)
• Industry generally too fragmented
• Conservation organizations
• Generally limited to short-term funding
• Trust Funds convert short-term funding into
  long-term funding but only feasible for
  high-value cases (Monarch Butterfly Reserve,
  Mexico)
• Some longer-term arrangements by Conservation
  International

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Payments for carbon sequestration services

• Not eligible for EU ETS
• CDM market
• Only for afforestation/reforestation (A/R)
• Limited total amounts
• Restrictive conditions
• Voluntary (retail) markets
• Weak requirements
• Emerging certification standards
• Lower prices (but very variable)
• Potential for REDD
• Still being negotiated

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BioCarbon Fund projects

• Learning-by-doing for CDM A/R projects through
  carbon purchase transactions
• Tranche 1
• Window 1 Afforestation Reforestation
• 18 projects in 16 countries
• ERPAs for 5.7 MtCO2e by 2017 worth US 24 million
• First 7 of 10 approved CDM-approved methodologies
  
• First two CDM-approved A/R projects
• Window 2 Forest Protection, Soil Carbon
  Management
• 3 projects in 3 countries
• ERPAs for 0.9 MtCO2e by 2017 worth US 2.7
  million
• BioCarbon Fund buys about 40 of projects
  potential

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BioCarbon Fund Costa Rica CoopeAgri

• Joint project between FONAFIFO and CoopeAgri
• Work with 600 farmers in Brunca region
• 300 ha of reforestation
• 3,000 ha of assisted natural regeneration
• 180,000 trees in agroforestry systems
• Purchase of 558,000 tCO2e by 2017
• Contract signed in April 2006

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Reducing emissions from deforestation and forest
degradation in developing countries (REDD)

• Deforestation causes 20 of total GHG emissions
• REDD could help reduce emissions at much lower
  cost than many alternatives
• Stern Review (2007) US1-2/tCO2
• Kindermann and others (2008) US10-21/tCO2
• High additional benefits from biodiversity
  conservation, protection of water services
• Likely to focus on different areas than water
  payments

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Challenges for REDD

• How to establish a reference scenario (baseline)
  against which to measure reduced deforestation
• How to monitor, report, and verify REDD
• How to address potential leakage issues
• How to address permanence
• Whether and project-based activities might be
  included
• How to ensure forest-dependent peoples are not
  harmed
• etc etc

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The FCPFA partnership to make REDD happen
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FCPF guiding principles

• REDD climate change mitigation mechanism
• Not the silver bullet of development
• Main effectiveness criterion is emissions reduced
• Partnership
• Developing (REDD) countries have equal voting
  rights with donors and CF participants on
  Participants Committee
• Voluntary country-driven
• Neutral to climate change negotiations
• Capacity building
• Various performance-based financial approaches
  will be tested
• Catalyst
• Large financial flows are necessary
• Private sector is needed for scaling up
• National
• National strategies for REDD
• National reference scenarios
• Projects within national accounting approach
• National does not mean governmental only
• Test, learn and disseminate
• Inputs to discussions at CoP15 (Dec.2009) and
  beyond

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FCPF governance
Ad Hoc Technical Advisory Panels
All Eligible REDD Countries, Donors and Buyers
Participants Assembly

• Forum for exchange of information
• Meets at least annually
• Opportunity for subgroups to meet and discuss
  experiences, elect their representatives

Readiness Fund (World Bank as Trustee)
Carbon Fund (World Bank as Trustee)
Participants Committee (PC)
Observers
Primary decision making body, including all
policy issues
Carbon Fund Participants Committee
Facility Management Team (World Bank)
Decision making on specific carbon transactions
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FCPF Two mechanisms
Readiness Mechanism READINESS FUND Capacity
Building (2008-2012)
Carbon Finance Mechanism CARBON FUND Payments
for Emission Reductions (2009-?)
150 million 30 countries
200 million 5 countries
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FCPF Participating countries
Africa Cameroona Central African Rep.c Congo,
Dem. Rep.a Congo, Republicb Equatorial
Guineac Ethiopiaa Gabona Ghanaa Kenyaa Liberiaa Ma
dagascara Mozambiquec Tanzaniac Ugandab

• Latin America
• Argentinab
• Boliviaa
• Chilec
• Colombiaa
• Costa Ricaa
• El Salvadorc
• Guatemalac
• Guyanaa
• Hondurasc
• Mexicoa
• Nicaraguab
• Panamaa
• Paraguaya
• Perua
• Surinamec

Asia Cambodiac Indonesiac Lao PDRa Nepala Papua
New Guineaa Thailandc Vanuatub Vietnama
a Countries with access to total grant b
Countries with access to 200,000 grant access
to further resources subject to availability of
funding in the Readiness Fund. c Countries whose
access to grants is subject to availability of
additional funding for the Readiness Fund.
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FCPF Participants Committee 2008-09
REDD COUNTRIES Bolivia DRC Gabon Ghana Guyana Mada
gascar Mexico Nepal Panama Vietnam
DONORS AFD Australia Germany Japan Netherlands Nor
way Switzerland TNC United Kingdom United States
OBSERVERS Forest-Dependent Peoples, Private
sector, International Organizations, NGOs,
UNFCCC, UN-REDD Programme
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FCPF Readiness Mechanism (1)

• Reference Scenario
• Historical emissions
• How many years and data points?
• Future emissions?
• Adjustment coefficient applied to past emissions?
• Based on national development policy?
• Estimation of carbon stocks
• Test various methodologies based on IPCC Good
  Practice Guidance and Guidelines

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FCPF Readiness Mechanism (2)
National REDD Strategy In the countries
interested in REDD, how will emissions be
reduced? Where? When? At what cost? ? Economic
analysis National or sub-national
implementation? Policies or projects? How will
investment costs be financed? Who will
participate in REDD activities? How will they be
able to participate? ? Information,
consultations, capacity building Who will be
allowed to sell? ? Legal framework How will
additional social and biodiversity benefits be
recognized? ? Valuation, monitoring Sector
strategies (environment, forestry, energy,
transport, etc.) are the basis for the national
REDD strategy, but the focus is the resulting
emission reductions The strategy must be
national Public sector Private sector Civil
society Indigenous peoples
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FCPF Readiness Mechanism (3)

• National Monitoring System
• System design implementation
• National accounting of emissions
• Link sub-national projects with national system
• National registry including sub-national/private
  accounts
• Monitor carbon and more?

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What does ready mean?
Emissions reference scenario
FCPF Readiness
National REDD strategy 1. REDD strategy how to
reduce emissions? 2. REDD implementation
framework 3. Stakeholder consultations

• Monitoring
• Design system
• Conduct forest inventory
• Capacity building
• 4. Carbon stock assessment different levels
• Using default factors/existing inventory data
• Finance additional inventories, permanent plots
• Full assessment for forest degradation

Governance Implementation of Land-(use)
reforms Legislative reforms Institutional reforms
Improve law enforcement Financial sector reforms
Where to draw the line between readiness and
investments?
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Readiness investments payments
Incentive payments for REDD
FCPF Carbon Fund, Norway, private sector, etc.
Reforms investments for REDD
ODA, IBRD, GEF, private sector Forest Investment
Program, etc.
REDD readiness
FCFP Readiness Fund, UN-REDD, Australia, Norway,
AFD, etc.
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What does the Readiness Mechanism pay for?

• Direct grants
• US200,000 to assist country prepare R-Plan for
  all REDD Country Participants
• Up to US3.6 million (average) to help country
  execute R-Plan
• Progress report at US2 million
• Implementation support by WB country teams
• Country advisory services
• REDD methodology support

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What would the Carbon Fund pay for?

• Emission Reduction (ER) generated by reducing
  deforestation and/or degradation
• ER all rights, titles, and interests attached
  to a ton of CO2e of emission reduced
• ER delivered to the FCPF when verification report
  is received
• Performance-based payments
• Carbon other benefits
• ERs distributed to Carbon Fund Participants
  through internal registry

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Conclusions

• PES is not a universal solution to all problems
• May not be applicable in some situations
• Will not solve all development problems
• Within PES, many possible approaches
• Need to understand strengths and limitations of
  each