Guest Post: “Welcome to the machine.” A guide to the Forest Carbon Partnership Facility’s Carbon Fund

Anja Bursche has worked as an environmental governance consultant for German Development Cooperation, focusing on the Forest Carbon Partnership Facility from 2011 to 2013. The views and opinions expressed in the guest post are her own and do not reflect the views of the German government.

Welcome to the machine

Over the next two years donors will decide how to spend the US$390 million currently pledged to the FCPF’s Carbon Fund. Now is the time to watch the Carbon Fund very closely. But first we need to know how it works.

By Anja Bursche

The Forest Carbon Partnership Facility is a multidonor REDD+ initiative hosted by the World Bank. To some people the FCPF is a big success in terms of promoting forest and land use governance in many countries. To other people, the FCPF is a weird international body that spends most of its time in fancy talk and a labyrinth of lengthy papers and protocols, detached from reality on the ground. Indeed, so far only about US$12 million of the US$750 million currently pledged to the FCPF has been disbursed for on the ground activities.

But over the next three years, disbursements will soar, as will implementation on the ground. It is time to watch closely what the FCPF is doing, especially its Carbon Fund. Unfortunately, the FCPF and the Carbon Fund are terribly complicated machines – difficult to follow, let alone hold them accountable to their own rules.

This post is an attempt to explain at least parts of the machine. I am familiar with its workings from my own experience, but all information used is publicly available on the FCPF website. My post includes useful information and links to important FCPF decisions and rules that people on the ground should know in order to hold their governments and the Carbon Fund accountable. I believe that this accountability is crucial for the sustainability of the FCPF and REDD+.

According to its own objectives, the FCPF Carbon Fund is intended,

“to pilot a performance-based payment system for Emission Reductions generated from REDD activities, with a view to ensuring equitable benefit sharing and promoting future large scale positive incentives for REDD”.

At the same time, the Carbon Fund is meant,

“to test ways to sustain or enhance livelihoods of local communities and to conserve biodiversity; and … to disseminate broadly the knowledge gained in the development of … Emission Reductions Programs.” (FCPF Charter p. 11).

As international climate and economic policy stands today, this is not an easy task. Although operational since 2011, the Carbon Fund has not yet selected the pilot countries it is going to work with, except for one: Costa Rica. How does it plan to achieve its goals by 2020, the end date of the FCPF’s operations?

The Monitoring and Evaluation Framework of the FCPF (p. 14-15) defines the following interim goals and indicators:

• A minimum of five countries have signed a contract with the Carbon Fund by 2015.
• US$50 million to be disbursed by the end of June 2016, US$70 in 2017, 2018 and 2019, and US$85 million in 2020.

So the Carbon Fund will select at least four pilot countries (in addition to Costa Rica) in the next twelve months (see Step 1 below).
The Carbon Fund currently has a volume of US$390 million, which can be expected to grow. The details of how this money will be spent will be defined in the next two years, in order to facilitate smooth disbursement after that. During this time, countries and the Carbon Fund are working towards legal contracts, defining monitoring rules, safeguards and benefit-sharing conditions, each to be signed by the end of 2015 (see Step 2 and 3 below).

Step 1 – Which countries have applied to the Carbon Fund and how do they get selected?

So far, ten countries have presented their early ideas to the Carbon Fund: Chile, Costa Rica, Democratic Republic of Congo, Ethiopia, Indonesia, Mexico, Ghana, Nepal, Republic of Congo, and Vietnam. Only Costa Rica and DRC have drafted an ER-PIN (Emissions Reductions Program Idea Note). Only Costa Rica has been selected into the portfolio and has signed a Letter of Intent for funding of up to US$63 million to pay for up to 12 million tonnes CO2.

The selection criteria include progress towards readiness, political commitment, the generation of substantial non-carbon benefits, and likely future consistency with the Methodological Framework and Guiding Principles (see below). In other words, at this stage, a country does not yet have to comply with all the criteria and indicators of the Methodological Framework, which is the Carbon Fund’s equivalent to the Verified Carbon Standard or Climate, Community and Biodiversity Alliance’s REDD+ standards.

Step 1 is projected to be completed by the end of 2014, although a more realistic date might be sometime early in 2015.

Step 2 – What happens after selection of a country: Do they get payments right away?

No, not yet. After signing the Letter of intent, Costa Rica is now working out more details for implementation and making further progress on national readiness. Only after the assessment of Costa Rica’s Readiness Package, can the country present a final ER-PD (Emissions Reductions Program Document) to the Carbon Fund donors who will make their final decision as to whether they really want to sign a contract with Costa Rica. At this point, the World Bank and donors will have to look carefully whether the 37 criteria and 75 more indicators of the Methodological Framework will actually be met.

The Methodological Framework criteria and indicators talk about reference levels, monitoring systems, safeguards, grievance mechanisms, land tenure, benefit-sharing, non-carbon benefits, and so on. (They are well worth looking into, but it would take another post to discuss them in detail.) Also, it is safe to assume donors could need a little bit of assistance when reviewing this complex set of criteria for each candidate country, as donor staff are usually very busy, and not always familiar with the local context or the readiness process in this country.

This is why their decision is supported by:

• An independent expert review (Technical Advisory Panel – TAP review) that “may include, for example: i) consistency with Readiness progress; ii) consistency of the ER [Emission Reduction] Program with the selection criteria as determined by the CFPs [Carbon Fund Participants]; iii) consistency of the ER Program with the Carbon Fund methodological framework; iv) feasibility/risk assessment of the ER Program; and v) estimate of the emission reduction potential.” (see Carbon Fund Process Guidelines, p. 5)
  Note: This review is optional, not obligatory. If no TAP review is commissioned for the country in question, it might be helpful to remind donors of that possibility, or to propose a specific issue for review, well in advance of the meeting where ER Program documents would be considered.
• The assessment of the national readiness process through the Readiness Package.
• The World Bank’s due-diligence reports, draft Safeguard Plans and draft Benefit-Sharing Plans (see Carbon Fund Disclosure Regime, p. 3ff).
• Hopefully, a written and oral presentation of views from national civil society and indigenous peoples, as has been good practice in the FCPF so far.

Step 2 is projected to be completed for at least five countries by the end of 2015, a very tough target to meet.

Step 3 –What happens after the contract between a country and the Carbon Fund is signed?

The final contract to be signed is an Emissions Reductions Payment Agreement (ERPA). The ERPA defines the conditions for later disbursements to the country. A short version of this contract can already be reviewed on the FCPF website (ERPA Term Sheet), the longer, legal-speak version is still being refined (ERPA General Conditions and Commercial Terms).

After donors have made their decision, World Bank and country lawyers negotiate the ERPA, which might contain further clauses, such as progress milestones, conditions that need to be in place before any payments can be made. In all cases, performance-based payments are made only after a country has handed in a Monitoring Report or Interim Progress Report, including obligatory Annexes on the implementation of Safeguards Plans, Benefit-Sharing Plans and the achievement of priority Non-Carbon Benefits.

The first reports can be expected one or two years after ERPA signature, i.e. in 2016 or 2017.

The FCPF has produced a graphic illustrating the process from step 1 to step 3 (click on the image for a larger version):

How to use WB due-diligence reports?

The World Bank due-diligence reports contain helpful information, including results from safeguards specialists’ missions to the country, identified issues and steps for how to deal with them. There are various formats and depending on the country and desk officer, these reports differ in detail. The Project Information Document and Integrated Safeguards Data Sheet are not very detailed. The Carbon Finance Assessment Memorandum (CFAM), and R-PP Assessment Notes are (usually) more detailed. Finally, there are Grant Monitoring Reports from the Readiness phase.
The due-diligence reports from the Readiness phase couldalso be important for the Carbon Fund’s decision making process. However, it would be even more helpful if detailed assessments for an ER Program like the CFAM were available in time before the ER Program is discussed by donors. Currently, the Disclosure Regime requires CFAM to be available only before ERPA signature, which could be long after donors have made their decision. All due-diligence reports are accessible on the country pages of the FCPF or can be requested from the WB.

Will the Carbon Fund respect the principle of Free, Prior and Informed Consent?

While the Methodological Framework does not say anything about free, prior and informed consent (FPIC) and it is certainly not (yet) part of the WB safeguards policies, the FCPF Participants Committee has decided in June 2012 that:

“Although the World Bank policy does not expressly refer to ‘free, prior and informed consent (FPIC)’ per se, if the country has ratified ILO Convention No.169 and adopted national legislation on FPIC, or if the Bank is working on an ER Program with a development partner that expressly applies the principle of FPIC, the Bank should in turn require the application to the ER Program of ILO Convention 169 in that country, or should agree to the development partner’s application of its provisions pertaining to FPIC in that country or for that ER Program.” (Guiding Principles, p. 9)

It remains to be seen what this means in practice and whether it applies to any country working with UN-REDD on national FPIC guidelines for REDD+.

No independent verification of safeguards?

While the carbon accounting parts of Monitoring Reports are reviewed by an independent third party auditor, the Annexes on Safeguards, Benefit-Sharing and non-carbon benefits are not. Instead the World Bank itself will be responsible for their supervision. According to the ERPA Term Sheet (p. 9 ff),

“Failure to comply with any Safeguards Plan and/or to implement the Benefit-Sharing Plan [or the feedback and grievance redress mechanism] will result in a Seller Event of Default.”

This means payments would be delayed or stopped completely, but only upon the discretion of World Bank staff. This decision could have been made because donors trust the safeguards expertise within the Bank and its institutional checks and balances – why else would they invest so much money in it?

Two independent reviews will take place, in 2017 and 2020. An external evaluation of the whole FCPF in 2017 will include,

“a sample of in-country case studies in order to independently review and complement the information provided by countries and Delivery Partners on the achievement of non-carbon (social and biodiversity) benefits.”

A final evaluation in 2020,

“will have one part focusing on CF activities, which should also assess impact and sustainability of the operation in the selected countries” (M&E Framework p. 35).

Questions remain:

• After years and years of participatory governance in the FCPF, how much attention will the Monitoring Reports in the Carbon Fund receive from donors, observers and the rest of the world?
• Will World Bank supervision reports be available in time?
• Will there be any discussions with donors and observers about the accuracy of Monitoring Reports before payments are made?

The small print of the ERPA Term Sheet suggests that performance based payments from the Carbon Fund could be entirely left to the discretion of World Bank desk officers. Even more reason to watch closely while their terms are still being defined.