Document of The World Bank FOR OFFICIAL USE ONLY Report No: 133939 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT PAPER ON A PROPOSED ADDITIONAL FUNDING GRANT FROM THE FOREST CARBON PARTNERSHIP FACILITY (FCPF) IN THE AMOUNT OF US$3.5 MILLION TO THE UNITED MEXICAN STATES AND IN THE AMOUNT OF US$1.5 MILLION TO THE UNITED NATIONS DEVELOPMENT PROGRAMME (UNDP) FOR THE BENEFIT OF THE UNITED MEXICAN STATES FOR A REDD+ READINESS PREPARATION SUPPORT PROJECT July 24, 2017 Environment and Natural Resources Global Practice Latin America and the Caribbean This document is being made publicly available after Grant signature. This document may be updated as needed and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. ABBREVIATIONS AND ACRONYMS AF Additional Funding BUR Biennial Update Report CO2e Carbon dioxide equivalent CONAF National Forestry Council (Consejo Nacional Forestal CONAFOR National Forestry Commision (Comisión Nacional Forestal) ENAIPROS 2013-2018 National Sustainable Forest Management Strategy to Increase Production and Productivity (Estrategia Nacional de Manejo Forestal Sustentable para el Incremento de la Producción y Productividad 2013-2018) ENAREDD+ National REDD+ Strategy (Estrategia Nacional para REDD+) ERPD Emissions Reduction Program Document ER-PIN Emissions Reduction Program Idea Note ESMF Environmental and Social Management Framework FCPF Forest Carbon Partnership Facility FGM Feedback and Grievance Mechanism INFyS National Forestry and Soils Inventory (Inventario Nacional Forestal y de Suelos) IBRD International Bank for Reconstruction and Development MRV Measurement, Reporting and Verification Mt Megaton (million metric tonnes) NDC Nationally Determined Contribution NGO Non-governmental organization OSSF Forestry Sector Social Organizations (Organizaciones Sociales del Sector Forestal) PC Participants’ Committee PES Payment for Environmental Services PROFOS Development Program for Social Organization, Planning, and Regional Forestry Development (Programa de Fomento a la Organización Social, Planeación y Desarrollo Regional Forestal) PRONAFOR National Forestry Program (Programa Nacional Forestal) REDD+ Reducing emissions from deforestation and forest degradation, and the role of conservation, sustainable management of forests, and enhancement of forest carbon stocks in developing countries RL/REL Reference Level or Reference Emission Level R-PIN Readiness Preparation Idea Note R-PP Readiness Preparation Proposal SAGARPA Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación) SEMARNAT Ministry of Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales) SESA Strategic Environmental and Social Assessment UNDP United Nations Development Programme UNFCCC United Nations Framework Convention on Climate Change USAID United States Agency for International Development Vice President: Jorge Familiar Calderon Country Director: Gerardo Corrochano Senior Global Practice Director: Karin Kemper Acting Practice Manager: Paul Jonathan Martin Task Team Leader: Angela Armstrong UNITED MEXICAN STATES REDD+ READINESS PREPARATION SUPPORT PROJECT CONTENTS Project Paper Data Sheet Project Paper I. Introduction 1 II. Background and Rationale for Additional Funding 2 III. Proposed Changes 7 IV. Appraisal Summary 13 V. World Bank Grievance Redress 16 Annexes 1. Revised Results Framework and Monitoring Indicators 17 2. Background on FCPF and OPCS Agreed Procedures 21 3. Bank Engagement with Mexico in the Forestry Sector 24 UNITED MEXICAN STATES REDD+ READINESS PREPARATION SUPPORT PROJECT ADDITIONAL FUNDING DATA SHEET Basic Information - Additional Funding Country Director: Gerardo Corrochano Sectors: Forestry Practice Manager/ Senior GP Director: Themes: Climate Change Karin Kemper Environmental category: B Team Leader: Angela Armstrong Expected Closing Date: April 30, Project ID: P120417 2019 Expected Effectiveness Date: July 28, Joint IFC: 2017 Joint Level: Lending Instrument: Carbon Offset / Grant Additional Financing Type: Scale-up Basic Information - Original Project Project ID: P120417 Environmental category: B Project Name: REDD+ Readiness Expected Closing Date: December 31, 2017 Joint Level: Joint IFC: Lending Instrument: Carbon Offset / Fragility or Capacity Constraints [ ] Grant Financial Intermediary [ ] Series of Projects [ ] Additional Funding Financing Data [ ] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other: Proposed terms: Additional Funding Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: US$5.00 Cofinancing: Borrower: Total Bank Financing: IBRD IDA Forest Carbon Partnership Facility US$5.00 Client Information Recipient: United Mexican States and UNDP Responsible Agency: CONAFOR Contact Person: Jose Francisco Quiroz Acosta Telephone No.: (52-33) 3777 7000 Email: francisco.quiroz@conafor.gob.mx Additional Funding Estimated Disbursements (Bank FY/US$m) FY FY18 FY19 Annual 2.7 2.3 Cumulative 2.7 5.0 Project Development Objective and Description Original project development objective: The original project development objective is to support a participatory and inclusive process for the finalization of Mexico’s National REDD+ strategy (ENAREDD+). Revised project development objective: The revised project development objective is to strengthen the REDD+ Readiness process in Mexico. Revised project description: Component 1: National Readiness Management Arrangements and Stakeholder Consultation and Participation. Component 2: Development of the National REDD+ Strategy, including the following sub-components: (a) Assessment of Land Use, Forest Policy and Governance; (b) REDD+ Strategy Options; (c) REDD+ Feedback and Grievance Mechanism; and (d) Social and Environmental Impacts Assessment. Component 3: National Forest Monitoring System, including the following sub- components: (a) Consolidation of MRV Processes and Institutionalization in the National Forest Monitoring System; and (b) Supporting data collection through the National Forest and Soils Inventory (INFyS). Revised Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [ X ]Yes [ ] No Natural Habitats (OP/BP 4.04) [ X ]Yes [ ] No Forests (OP/BP 4.36) [ X ]Yes [ ] No Pest Management (OP 4.09) [ X ]Yes [ ] No Physical Cultural Resources (OP/BP 4.11) [ X ]Yes [ ] No Indigenous Peoples (OP/BP 4.10) [ X ]Yes [ ] No Involuntary Resettlement (OP/BP 4.12) [ X ]Yes [ ] No Safety of Dams (OP/BP 4.37) [ ]Yes [ X ] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [ X ] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [ X ] No Does the project require any exception to Bank policy? [ ]Yes [ X ] No Has this been approved by Bank Management? [ ]Yes [ ] No REDD+ READINESS PREPARATION SUPPORT PROJECT I. Introduction 1. This Project Paper seeks approval to provide an additional grant from the Forest Carbon Partnership Facility (FCPF) in the amount of US$5 million to the United Mexican States for the REDD+ Readiness Preparation Support Project (P120417). The World Bank acts as Trustee of the FCPF, with FCPF financing processed via specific procedures agreed with OPCS (see Annex 2). The FCPF REDD+ Readiness Fund provides grant funding to support a future large-scale system of positive incentives for REDD+, in which REDD+ Readiness activities include supporting countries in adopting national REDD+ strategies, developing reference emission levels, designing monitoring, reporting and verification systems, and setting up REDD+ national management arrangements, including safeguards. Mexico’s request for FCPF Additional Funding (AF) was approved in May 2015 during the 19th Meeting of the FCPF Participants Committee, the governing body of the FCPF. At the Participants Committee meeting, significant progress was noted in the areas of stakeholder consultations, REDD+ strategy options, and development of reference emission levels. It was also noted that further development was needed in the areas of national Readiness management arrangements and the REDD+ implementation framework, including the monitoring, reporting and verification system. 2. The proposed additional grant would strengthen the National Forestry Commission’s (CONAFOR’s) capacity to transition from REDD+ readiness to REDD+ implementation, by filling the gaps identified at the Participants Committee meeting as well as in CONAFOR’s own self-assessment exercise. In particular, the additional grant would finance costs associated with strengthening Readiness management arrangements and the implementation framework, by scaling up Component 1 (National Readiness Management Arrangements and Stakeholder Consultation and Participation) and Component 2 (Development of National REDD+ Strategy) of the existing project, as well as introducing a new Component 3 (National Forest Monitoring System). These changes would support CONAFOR in (i) strengthening ongoing participatory processes, by building the capacity of ejidos, communities, community and ejido associations, and forestry sector organizations (OSSF), including women and youth, to increase their engagement in the REDD+ process;1 (ii) aligning the REDD+ Strategy with the sustainable forest management agenda, by supporting the newly created Sustainable Forest Management Technical Unit; and (iii) enhancing the national forest monitoring system, by supporting the newly created Measurement, Reporting and Verification Technical Unit, including providing support for data collection through the national forest and soils inventory. It is also proposed that the PDO be modified, given the expanded scope of REDD+ readiness activities, and that the additional grant be implemented over a period of two years. 1 In Mexico, Comunidades (or agrarian communities) are long-standing rural population centers that have been given formal ownership of their traditional or customary lands. Theoretically ―agrarian communities are entirely composed of indigenous peoples. Ejido refers to a portion of land that has been titled to a rural population nucleus that was formed more recently or relocated from another area. Most of them are non-indigenous campesinos. Both types of community property are governed by a similar structure, with an “Asamblea� of all ejidatarios or comuneros, a “Comisariado Ejidal‖ or “Comisariado de Bienes Comunales� and a “Consejo de Vigilancia.’ 1 II. Background and Rationale for Additional Funding in the amount of US$5 million. 3. Country and Sector Issues. Mexico has 64.8 million hectares of forest, covering 33% of its total land area. Of this, 51% —or roughly 32.85 million hectares—is classified as primary forest, the most biodiverse form of forest. Mexico’s deforestation rates have been decreasing, to an average of 0.24% for all forest types. Despite this positive trend, rates of forest loss vary with some areas in the country experiencing high rates of deforestation and degradation. Deforestation rates are particularly high in tropical dry forests and tropical rainforests. The causes of deforestation are primarily anthropogenic and related to the conversion of forests to land uses that are often more lucrative, such as agriculture and livestock activities. Causes of degradation include unsustainable logging, forest grazing, fuel wood collection, fires, and pests and diseases. The degradation of primary forests is a significant cause of greenhouse gas emissions. 4. Natural forests are central to the livelihoods of millions of people in Mexico. While forests contribute a modest 1% of GDP, they represent an essential source of employment, income and livelihood for some 12 million people. It is estimated that between 65 - 80% of the 64 million hectares of forests in the country belong to approximately 9,000 agrarian communities, including indigenous peoples and ejidos under this legally recognized collective land ownership system. To date, as many as 4,000 communities have participated in the demand-driven programs managed by CONAFOR, supporting sustainable forest management and payment for environmental services (PES), since they were launched in 2001. 5. Sustainable management of natural resources in forest landscapes can play a major role in efforts to reduce emissions from deforestation and forest degradation (REDD+), income generation, and conservation. There are many local communities in Mexico that are actively managing natural resources to both enhance conservation and generate income. However, without the administrative and technical capacity to profitably and sustainably manage forest and natural resources in forest landscapes, alternative land uses (agriculture, cattle, etc.) become more economically viable but with severe direct effects on deforestation and forest degradation. 6. Mexico has become a global leader in climate change issues, including REDD+. Mexico’s Inter-secretarial Climate Change Commission developed the Special Climate Change Program in 2008, setting an aspirational target of 50% reduction in greenhouse emissions by 2050, compared with 2000, for which the REDD+ agenda has become central due to the mitigation potential of the country’s forests. The National Law on Climate Change was issued in 2012 and in June 2013, a new Climate Change Strategy confirmed Mexico’s commitments in addressing climate change issues and the essential role of forests in mitigation actions. Over the past few years, CONAFOR has led the preparation of the National REDD+ Strategy (ENAREDD+) through a highly participatory process that is recognized as best practice in the REDD+ community. In addition, in its recently submitted Nationally Determined Contribution (NDC)2, Mexico reaffirmed the important role of forestry and land use for its mitigation and adaptation targets, committing to reach a rate of 0% deforestation by 2030. 2 Intended Nationally Determined Contributions under the United Nations Framework Convention on Climate Change (UNFCCC), mitigation and adaptation commitments defined prior to the 2015 COP in Paris and intended to contribute to the global mitigation efforts of global warming below 2 degrees, http://unfccc.int/focus/indc_portal/items/8766.php. 2 7. Forest Carbon Partnership Facility (FCPF) and REDD+. Mexico is one of 44 developing countries participating in the Forest Carbon Partnership Facility (FCPF), which helps build the capacity of tropical and sub-tropical developing countries in reducing emissions from deforestation and forest degradation and participating in a future system of positive incentives for REDD+. The REDD+ process comprises three phases: (i) the first supports readiness, including supporting countries in adopting national REDD+ strategies, developing reference emission levels (RELs), designing measurement, reporting, and verification (MRV) systems, and setting up REDD+ national management arrangements, including proper environmental and social safeguards; (ii) the second phase supports pilot investments and reforms; and (iii) the third provides performance- based payments for verified emissions reductions. It is anticipated that five to ten countries that have made significant progress towards REDD+ readiness will also participate in the Carbon Finance Mechanism and receive results-based financing from the Carbon Fund. Specifically, these countries will benefit from performance-based payments for verified emissions reductions from deforestation and/or forest degradation through an Emissions Reductions Program (phase III). Before an Emissions Reduction Program can be submitted for consideration, a Readiness Package (R-package) must first be endorsed by the FCPF Participants Committee. A major milestone in the FCPF process is the development of the R-package, which marks the transition from readiness to piloting performance-based activities. Mexico has taken this important step, and was formally accepted to the FCPF Carbon Fund in 2014 through the presentation and acceptance of its ER Program Idea Note (ER-PIN) to the Carbon Fund pipeline. Mexico’s Emission Reductions Program Document (ERPD)3 was provisionally approved during the 15th meeting of the Carbon Fund Participants held December 12-15, 2016, triggering the appraisal and negotiations process for the signing of an Emission Reductions Payment Agreement (ERPA) for an amount up to US$60 million under a payments for results scheme. 8. Background on the original project. In 2010, Mexico submitted a Readiness Preparation Proposal (R-PP) to the FCPF, providing a detailed assessment of the drivers of deforestation and forest degradation as well as a plan of action for its REDD+ readiness. The total budget envelope for carrying out these activities was estimated at more than US$23 million. The FCPF Participants Committee approved Mexico’s R-PP on March 2010 and granted Mexico a US$3.8 million readiness preparation grant. The FCPF preparation process, however, was delayed and the US$3.8 million grant was signed only on March 19, 2014 and became effective on July 7, 2014. 9. The objective of the original FCPF readiness preparation grant is to support a participatory and inclusive process for the finalization of Mexico’s National REDD+ strategy (ENAREDD+). The original project includes two Components: • Component 1. National Readiness Management Arrangements and Stakeholder Consultation and Participation (US$2,558,000): supporting the continuing dialogue and participatory process with stakeholder groups, within and outside government as part of the preparation of the National Strategy for REDD+ in Mexico (ENAREDD+). 3Mexico’s ERPD describes in detail the ER Program technical design, operational and financial planning, stakeholder consultation, methodological aspects (e.g. reference level and MRV), safeguards application, benefit sharing arrangements, and institutional arrangements. It is available at: https://www.forestcarbonpartnership.org/mexico 3 • Component 2. Development of the National REDD+ Strategy (US$1,242,000): analyzing the drivers of deforestation and designing policies and programs to tackle them, while putting in place the necessary institutional, legal, and socio- environmental management frameworks to make them effective. 10. Status of implementation and performance to date. CONAFOR has made significant progress to date in achieving the project development objective, with grant activities supporting major aspects of REDD+ Readiness, including strategy development, safeguards and participatory processes. CONAFOR’s wide dissemination and consultation of the REDD+ Strategy, in particular, is considered best practice. Through its national Program PROFOS (Programa de Fomento a la Organización Social, Planeación y Desarrollo Regional Forestal), CONAFOR supported 76 local forestry sector organizations (Organizaciones Sociales del Sector Forestal, OSSF) in facilitating awareness raising on REDD+, reaching 26,089 people via 461 workshops. National consultations4 of the REDD+ Strategy were conducted from July 2015 through February 2016, with wide-ranging participation by civil society and other stakeholder audiences. More than 240,000 comments were received during this process. CONAFOR is now integrating this feedback into the final version of the REDD+ Strategy. In addition, a grievance redress mechanism, that takes into consideration both regional and cultural characteristics has been designed and is currently being piloted in the Yucatan Peninsula. As part of the FCPF Readiness process, CONAFOR has also prepared the Strategic Environmental and Social Assessment (SESA), which laid the foundation for the development of the Environmental and Social Management Framework (ESMF); the SESA was finalized in December 2016. 11. The REDD+ Readiness Preparation Support Project has consistently been rated Satisfactory in all GRMs, with 59% of the grant disbursed as of July 2017. Disbursement rates have been lower than initially estimated due to (i) the significant fluctuation in the dollar-peso exchange rate, and (ii) CONAFOR prioritizing initial FCPF resource allocations toward the REDD+ Strategy’s consultative process (e.g., lower-cost activities). At the request of Mexico, the grant’s closing date was extended in April 2016 from October 31, 2016 to December 31, 2017. Remaining activities to be carried out by December 31, 2017 include, in particular, finalizing the REDD+ Strategy and implementation arrangements (e.g., safeguards and grievance redress mechanisms). Table 1 summarizes the progress achieved under the grant’s outcome indicators. 12. Other donors have also played an important role in supporting REDD+ preparation activities. For example, other development partners such as the Government of Norway and French Development Agency have provided approximately US$17.9 million in funding to support the national measuring, reporting, and verification system required for REDD+ implementation as well as inter-municipal governance mechanisms for territorial development. In addition, the US Agency for International Development (USAID) has provided support to REDD+ Readiness, by strengthening policies and laws necessary for the implementation of the National REDD+ Strategy, strengthening institutional and technical capacity with respect to REDD+, creating financial 4 Mexico’s consultation approach adheres to the FCFP/ UN-REDD Guidelines on Stakeholder Engagement in REDD+ Readiness, implementing key guiding principles such as i) the inclusion of a broad range of stakeholders, including forest dependent communities, and vulnerable groups, ii) ensuring transparency and timely access to information provided, iii) retro-alimentation of recommendations from consultations into strategy document, iv) consultations tailored to Mexico’s IP and their existing processes and platforms, v) gender sensitivity, as well as vi) design and piloting of an accessible and fair mechanism for grievance, conflict resolution and redress. 4 architecture necessary for reducing emissions from deforestation and forest degradation, and establishing monitoring, reporting, and verification systems. Table 1: Progress towards Achievement of Original FCPF Grant Objectives Indicators Baseline Value Target Value Progress to Date (Signing date: (closing date: December (July 2017) March, 2014) 31, 2017) Final version of ENAREDD+ ENAREDD+ not yet ENAREDD+ approved by ENAREDD+ widely reflects the comments and prepared Mexico’s National Forest consulted with CSOs and feedback from the various Council (Consejo other stakeholders sectors and stakeholders Nacional Forestal, (consultation process CONAF) and publicly considered as best disclosed practice). Final version will be publicly disclosed in 2017. A technically strong ESMF has ESMF not yet ESMF finalized The SESA report has been been finalized and validated by prepared finalized and the ESMF is a broad range of stakeholders being developed. A state-level comprehensive FGM only at State-level FGM piloted Firm has been selected feedback and grievance national level in one of the Early Action and the work is on-going mechanism (FGM) for REDD+ Areas to design the state-level is piloted in one Early Action FGM and define pilot. Area 13. Rationale for Additional Funding. In the Mid-Term Report (MTR) on REDD+ Readiness Activities presented to the FCPF Participants Committee (PC) on May 17, 2015 (during the 19th meeting of the FCPF PC), it was acknowledged that major progress has been achieved (see Table 2 below). However, it was also acknowledged that there was still a financing gap to fully implement the Readiness activities (an updated estimate of the financing required for Mexico’s REDD+ Readiness Preparation Project is provided in Table 4 below). In particular, it was noted that further development was needed in the areas of national Readiness management arrangements and the REDD+ implementation framework, including the monitoring, reporting and verification system. The PC allocated an additional grant of US$5 million to the United Mexican States to continue the REDD+ Readiness process, based on (i) the PC’s consideration of Mexico’s MTR, recognizing the significant progress achieved; (ii) Mexico’s commitment of at least 50% of the original Readiness Preparation Grant at the time of the funding request; (iii) the consistency of the additional funding activities with the endorsed R-PP and current country needs; and (iv) the availability of resources in the Readiness Fund. 5 Table 2: Progress on REDD+ Readiness by R-PP component from the Mid-Term Report as submitted to the FCPF (May 2015) Components (Sub-components in R-PP) Progress Status 1. Organize and Consult 1a. National Readiness Management Arrangements Solid progress, greater level of development required 1b. Stakeholder Consultation, Participation and Information Significant progress Sharing 2. Preparation of the REDD+ Strategy 2a. Assessment of Land Use, Forest Policy and Governance Significant progress 2b. REDD+ Strategy Options Significant progress 2c. REDD+ Implementation Framework Further development required 2d. Social and Environmental Impacts Solid progress, greater level of development required 3. Develop Reference Emission/Reference Level Significant progress 4. Monitoring Systems for Forests and Safeguards Design, Measures 4a. National Forest Monitoring System Significant progress 4b. Information System for Safeguards Further development required 14. Over the past months, Mexico has identified key activities to be implemented to support finalization of the REDD+ Readiness process as well as a smooth transition from Readiness to Implementation. These activities will reinforce ongoing processes initiated under the original grant, contributing to the consolidation of the National REDD+ Readiness process, and will ensure a solid foundation for the implementation of the ER Program and the National REDD+ Strategy. In particular, these activities will focus on further development of national Readiness management arrangements and the REDD+ implementation framework, as recommended in the MTR. The figure below illustrates how the additional funding complements the existing portfolio of FCPF instruments supporting the different stages of the national REDD+ process in Mexico. FCPF Readiness Fund (Phase 1) Preparation Additional Implementation Grant Funding Grant Period: 2009 - 2019 (US$3.8M) (US$5M) FCPF Carbon Fund ER-Program (Phase 3) Results-Based Payments Preparation Implementation (up to US$60M) (US$650K) Period: 2017 - 2022 Figure 1. Portfolio of FCPF Instruments supporting REDD+ Efforts in Mexico 6 15. Relationship to CPS and Bank sectoral strategies. The modified and scaled-up activities to be supported by the additional funding are aligned with the joint IBRD/IFC/MIGA Country Partnership Strategy (CPS) for the United Mexican States for the period of FY2014-2019 (Report No. 80800-MX), discussed by the Executive Directors on December 12, 2013. The CPS outlines four strategic themes, notably promoting green and inclusive growth, which supports reducing the footprint of growth and optimizing natural resource use. The CPS acknowledges not only the costs of land and forest degradation, but also the importance of forests as an essential source of employment, income, and livelihood, as well as forests important role in mitigating and adapting to climate change. Additionally, the proposed activities have important linkages with the thematic area supporting increasing social prosperity, as the proposed activities will support forest management activities for communities, ejidos, community and ejido associations, and OSSF, including women and youth. The FCPF Readiness operation is also aligned with the Bank’s Climate Change Action Plan and the Bank’s Forest Action Plan for FY16-20. FCPF project activities are fully consistent with the focus areas of the Bank’s Forest Action Plan, namely sustainable forest management and forest-smart interventions in other sectors. These focus areas aim to strengthen the foundations for positive forest outcomes, including climate change and resilience, rights and participation, and institutions and governance. 16. The FCPF operation is part of the broad strategic engagement supporting the country’s agenda on forests and climate change. Mexico has designed a number of projects and initiatives to strengthen the role of forests in adapting to, as well as mitigating, climate change impacts. The Bank is collaborating with Mexico in these efforts through a variety of instruments, including technical assistance and knowledge services, through the FCPF REDD+ Readiness operation and PROFOR analytical work, and investment support through the ongoing Forest and Climate Change Project and the Coastal Watershed Conservation Project (see Annex 3). Investment support under the Forest and Climate Change Project includes funding from the Strategic Climate Fund’s Forest Investment Program (FIP), which provides financing for REDD+ efforts to address key drivers of deforestation and forest degradation. III. Proposed Changes 17. The US$5 million in additional funding will support expanding and scaling-up support for Component 1 (National Readiness Management Arrangements and Stakeholder Consultation and Participation), in order to strengthen the capacity of various groups (ejidos, communities, ejido and community associations, and OSSF, including women and youth, to engage in the REDD+ process, and Component 2 (Development of National REDD+ Strategy) to support the newly created Sustainable Forest Management Technical Unit and the alignment of the REDD+ Strategy with the sustainable forest management agenda. In addition, a new Component 3 (National Forest Monitoring) is proposed to provide support for the newly created Measurement, Reporting and Verification Technical Unit, as well as data collection through the national forest and soils inventory. Given the expanded scope of the REDD+ readiness activities supported with the additional funding, it is also proposed that the PDO be modified. These proposed changes to the project’s PDO, design, and scope are detailed below. 18. The Project Development Objective will be adjusted to reflect scaled-up support for Mexico’s REDD+ Readiness process. While the current PDO aims “to support a participatory and inclusive process for the finalization of Mexico’s National REDD+ strategy (ENAREDD+),� 7 this REDD+ Readiness preparation goal is soon to be achieved. Mexico has conducted a highly participatory consultation process on the National REDD+ strategy over the last 12 months. This consultation process was concluded in February 2016 and the final version of the ENAREDD+ is planned to be publicly disclosed in 2017. To more fully define the objectives of ongoing REDD+ activities as well as those activities to be supported with additional funding, it is proposed that the PDO be modified with the aim of “strengthening the REDD+ Readiness process in Mexico.� 19. Changes in Results Framework. The following key results are expected from the Additional Funding: - Ejidos, communities, ejido and community associations, OSSF, including women and youth, supported and participating in REDD+ activities during 2017 - 2018 (Target 138 ejidos, communities, and OSSF); - Third and fourth year of the 2015-2019 National Forest and Soils Inventory (INFyS) cycle completed, with field data collected, entered and validated from INFyS conglomerates (Target 14,994 conglomerates); - Technical Specialized Unit on Sustainable Forest Management established and operating in accordance with agreed work plan; and - MRV reports prepared by CONAFOR’s Forest Monitoring Department (Target 4 MRV reports). 20. Changes to Components. The Additional Funding will expand and scale-up Component 1 (Organization and Consultation) and 2 (Development of REDD+ Strategy), as well as support a new Component 3 (National Forest Monitoring System). A summary of these changes is presented in the table below. Table 3: Proposed Component Changes under the Additional Funding Current Component Proposed Description of Proposed Component Name Component Name Adjustments under the Additional Funding Component 1. National No change The Additional Funding will support the transition Readiness Management process from REDD+ Readiness to Implementation Arrangements and while creating enabling conditions to consolidate the Stakeholder Consultation intervention model proposed in ENAREDD+ and Participation (integrated landscape approach) as country efforts move towards piloting result-based payments. While organization and consultation activities have been completed, the Additional Funding will help strengthen the participatory process required for ENAREDD+ implementation and for consolidating the ENAREDD+ intervention model by building the capacities of relevant stakeholders. 1a: National Readiness No change No change Management Arrangements 1b: Stakeholder Consultation No change While the consultation process of the ENAREDD+ and Participation. (that was the main focus under the original grant) has been completed, the focus under the Additional Funding will be on strengthening the capacities of various groups (ejidos, communities, ejido and community associations, and OSSF, including women 8 and youth) to engage in the REDD+ process, as well as supporting these groups in implementing activities under the REDD+ intervention model. Component 2. Development No change of National REDD+ Strategy 2a: Assessment of Land Use, No change No change Forest Policy, and Governance 2b: REDD Strategy Options. No change Additional Funding will support the newly created Specialized Technical Unit responsible for consolidating the REDD+ intervention model, to align ENAREDD+ with CONAFOR’s Sustainable Forest Management agenda, and in particular with the National Strategy for increasing sustainable production (ENAIPROS). These changes have the overall objective of consolidating sustainable forest management as an instrument for successful REDD+ implementation, and in particular, (i) promoting sustainable forest management with an integrated landscape management approach, (ii) strengthening community forest enterprises, and (iii) fostering competitiveness of the forestry sector. 2c: REDD+ Feedback and No change No change Grievance Mechanism. 2d: Social and Environmental No change No change Impacts Assessment (SESA) NEW - Component This new Component will support the newly created 3. National Forest Specialized Technical Unit in managing the National Monitoring System Forest Monitoring System, as well as data collection through the National Forest and Soils Inventory in order to help increase accuracy of carbon stock and GHG emission estimates. NEW - 3.a. This sub-component will support CONAFOR’s efforts Consolidation of in consolidating the National Forest Monitoring MRV processes and System and in building the capacity of the newly institutionalization in created National Forest Monitoring Department the National Forest Monitoring System NEW - 3.b. This subcomponent will support data collection of Supporting data relevant forest attributes with a view to increase the collection through the accuracy of forest carbon stock and GHG emission National Forest and estimates, consistent with relevant UNFCCC decisions Soils Inventory / technical guidance. (INFyS) 21. Sub-component 1.b Stakeholder Consultation and Participation. During the REDD+ Strategy consultations as well as during the 2015 Participants Committee meeting, the need to increase the knowledge of stakeholder groups, including communities, ejidos, community and ejido associations, and OSSF, on REDD+ was identified. This need was considered critical to ensure that these groups can participate more fully in and benefit from REDD+-related activities. To address this need, technical assistance will be provided under this sub-component to build the capacities and strengthen the role of OSSF to engage and increase the participation of beneficiary groups (ejidos, communities, as well as ejido and community associations, including women and youth) in REDD+ activities. In addition, to build the capacities of these different groups, the sub- 9 component will finance training courses and workshops in REDD+ areas covering safeguards, land management, benefit sharing, among others. It is expected that about 138 ejidos, communities, associations, and OSSF, including women and youth, throughout the country would receive some capacity building on the ENAREDD+. 22. This sub-component will allow CONAFOR to incorporate training and capacity building aspects linked to REDD+ into its programs that previously had not been considered. More broadly, these activities will facilitate CONAFOR in implementing its National Forestry Program (PRONAFOR), by working with social forestry organizations to promote integrated landscape management models via their engagement with beneficiary groups. 23. Sub-component 2.b(iii) REDD Strategy Options: The Additional Funding will enhance the alignment of the ENAREDD+ with CONAFOR’s Sustainable Forest Management agenda and in particular, with the National Strategy for increasing sustainable production (ENAIPROS). Sub- component activities aim to consolidate sustainable forest management as a key instrument for successful REDD+ implementation and strike a balance between the production and conservation dimensions of forest management (such high production-low impact forest management techniques have been piloted under various initiatives5 and have shown positive impacts). Both the ENAIPROS and REDD+ seek to reconcile conservation and sustainable development, by reducing greenhouse gas emissions and avoiding forest loss, while also ensuring the well-being of communities. 24. This sub-component will provide technical assistance and equipment to a Specialized Technical Unit on Sustainable Forest Management (UTE-MFS) that will help build capacity within CONAFOR’s Department on Promotion of Sustainable Forest Production (Gerencia de Fomento a la Producción Forestal Sustentable) to mainstream high production-low impact forest management approaches in CONAFOR’s operations, as well as foster inter-institutional coordination (for example, with the Ministry of Agriculture, SAGARPA). The technical assistance to be provided aims to: (i) promote sustainable forest management with an integrated landscape management approach (e.g., through enhanced land management technologies and more efficient and low impact production techniques as well as establishment of silvopastoral systems, in close coordination with SAGARPA); (ii) strengthen community forest enterprises; and (iii) foster competitiveness of the forest sector (e.g., through strategic analysis on the forest sector including analysis of business opportunities). 25. Component 3 National Forest Monitoring System: This proposed, new component builds on the Monitoring, Reporting and Verification (MRV) project financed by Norway and implemented with administrative and technical support from the United Nations Development Programme (UNDP), between June 2011 and March 2016, which contributed to developing the National Forest Monitoring System. The objective of the component is to ensure the system’s long-term sustainability within CONAFOR. As part of recent institutional reforms, CONAFOR has established a new Management Unit “Gerencia del Sistema Nacional de Monitoreo Forestal� (GSNMF) that is responsible6 for maintaining and overseeing the National Forest Monitoring 5 Experiences come from various initiatives implemented by the CONAFOR and particularly the Forest and Climate Change Project (financed by World Bank), the Biodiversity-friendly Forest Management project (financed by GEF and implemented by UNDP) 6 The new Area also performs the function of the former Area of National Forest Inventory and Geomatics. 10 System (NFMS). Specifically, Additional Funding provided under this component will strengthen the institutional capacity of the new GSNMF Management Unit, and also support data collection through the National Forest and Soils Inventory (INFyS). 26. Sub-component 3.a Consolidation of MRV Processes and Institutionalization in the National Forest Monitoring System. The Additional Funding will provide technical assistance by establishing a Specialized Technical Unit on MRV (UTE-MRV) that will strengthen the institutional and technical capacity of the new GSNMF Management Unit and help institutionalize processes needed to consolidate the National Forest Monitoring System. In particular, the UTE- MRV will: ▪ Support the implementation (and continuous improvement) of the NFMS, allowing CONAFOR to generate information, results and documents to comply with both national and international commitments in terms of mitigation and adaptation to climate change. For example, the UTE-MRV will help generate forest-related information to be incorporated into: (i) national GHG emission inventories, (ii) the technical annex of the Biennial Update Report (BUR), (iii) updates of National Reference Levels, (iv) the REDD+ National Registry, among others. The UTE-MRV will also contribute to improving emission factors and activity data; and ▪ Build capacity in the GSNMF Area to ensure a smooth transition of MRV processes to CONAFOR and their long-term sustainability. 27. Sub-component 3.b Supporting data collection through the National Forest and Soils Inventory (INFyS). Through the National Forest and Soils Inventory (INFyS), CONAFOR has collected national level forest data for two complete five-year cycles; data collection for the third cycle began in 2015 and completion of the survey of sample plots is critical to ensure consistency and improve estimations on forest biomass and emissions factors. With Additional Funding grant support, experienced firms will be contracted to conduct field data collection in INFyS plots in the third and fourth year of the 2015-2019 cycle, taking into consideration that forest inventory data are a direct input for calculating emissions factors and that the sample size (number of plots) is a determining factor in the uncertainty associated with the estimated emission factors. The objective of this subcomponent is to further improve accuracy of forest carbons stock and GHG emission estimates. 28. The table below summarizes the costs by component under the current grant and Additional Funding, to reflect revised support with the additional grant. Table 4. Costs by component Changes with Component (amount in US$) Original Cost* Additional Revised Cost Funding 1: National Readiness Management Arrangements and Stakeholder Consultation and Participation 2,558,000.00 1,000,000.00 3,558,000.00 1a: National Readiness Management Arrangements 950,000.00 - 950,000.00 11 1b: Stakeholder Consultation and Participation 1,608,000.00 1,000,000.00 2,608,000.00 2. Development of National REDD+ Strategy 1,242,000.00 1,500,000.00 2,742,000.00 2a: Assessment of Land Use, Forest Policy, and Governance 288,000.00 - 288,000.00 2b: REDD Strategy Options 124,000.00 1,500,000.00 1,624,000.00 2c: REDD+ Feedback and Grievance Mechanism 300,000.00 - 300,000.00 2d: Social and Environmental Impacts Assessment (SESA) 530,000.00 - 530,000.00 3: National Forest Monitoring System - 2,500,000.00 2,500,000.00 3a: Consolidation of MRV processes and institutionalization in the National Forest Monitoring System 365,124.09 365,124.09 3b: Supporting data collection through the National Forest and Soils Inventory (INFyS) 2,134,875.91 2,134,875.91 Total funding required 3,800,000.00 5,000,000.00 8,800,000.00 29. It is important to note that the activities to be financed by the Additional Funding Grant do not include implementation of REDD+ programs. The FCPF Readiness support is limited to participatory processes, technical assistance, and capacity building at the national and local levels. 30. Implementation Arrangements. CONAFOR has implemented activities under the original FCPF grant in a satisfactory manner and these implementation arrangements will continue for the majority of planned activities to be financed with the Additional Funding. However, as advised by CONAFOR, Mexico requested that the activities supported under sub-component 2b(iii) of the Grant Agreement7 be implemented directly by UNDP (acting as a Recipient of a portion of the total Grant amount allocated to Mexico) for the benefit of the United Mexican States. In view of the above and on the basis of UNDP’s experience in supporting these types of sustainable forest management approaches, the agency will be responsible for helping to establish the UTE-MFS as well as the delivery of activities under this sub-component. UNDP’s implementation responsibilities, including for procurement, financial management, and reporting, are outlined in a Project Document, agreed between CONAFOR and UNDP and satisfactory to the Bank. 31. As a result, there will be two Grant Agreements for the administration and execution of the Additional Funding with the United Mexican States and UNDP, as follows: ▪ A Grant Agreement between the World Bank and the United Mexican States (represented by its Ministry of Finance, Nacional Financiera (NAFIN), and CONAFOR, acting as the Recipient’s Executing Entity) for a total amount of 7 Align ENAREDD+ with the Executing Entity’s sustainable forest management agenda throug h, inter alia, the establishment of a specialized technical unit on sustainable forest management within the Executing Entity, including the provision of relevant technical assistance to promote sustainable forest management under an integrated landscape approach, strengthen community forest enterprises, and foster competitiveness of the forest sector. 12 US$3.5 million that covers activities under Component 1, 2 (but excluding sub- component 2(b)(iii)) and Component 3; and ▪ A Grant Agreement between the World Bank and the UNDP for a total amount of US$1.5 million covering activities under sub-Component 2(b)(iii) for the benefit of the United Mexican States. IV. Appraisal Summary 32. Technical. The technical assessment carried out during the preparation of the Assessment Note for the original grant remains valid. The activities to be financed under the Additional Funding were selected after technical discussions with CONAFOR and take into consideration the technical and financial needs of Mexico’s REDD+ Readiness process, the World Bank’s comparative advantage, as well as support provided by other partners. The rationale for UNDP (as a recipient of a portion of the Additional Funding resources) was discussed in detail with CONAFOR and deemed acceptable by the World Bank, based on their expertise and previous experience in Mexico. 33. Financial Management. The Financial Management (FM) of the original grant resources is considered Satisfactory. For the portion of the Additional Funding grant to be implemented by CONAFOR, financial management responsibilities will remain with CONAFOR, and the organizational structure is in place for the implementation of these activities. CONAFOR has the necessary capacity to implement the grant activities, and is adequately staffed with appropriate controls and procedures instituted. In addition, the project’s financial management arrangements, including accounting and reporting arrangements, internal control procedures, planning and budgeting, external audits, funds flow, organization and staffing arrangements are assessed as Satisfactory. The overall proposed FM risk for CONAFOR is Moderate. 34. A financial management assessment was conducted for UNDP, that takes into consideration the Engagement Note dated July 25, 2016 “UN Agencies Engagement in Operations� and the Bank agreement to apply the UN Financial Management Framework Agreement (FMFA). The financial management assessment found that UNDP will have in place an adequate financial management system according to its UN FMFA Framework that can provide, with reasonable assurance, accurate and timely information on the status of the funds as required by the Bank. The UNDP accountability system is acceptable to the Bank. The Bank will not request a separate audit report for the UNDP component of this operation. However, UNDP will use its own accounting and reporting systems and will submit to the Bank Interim Financial Reports (IFRs) each semester, produced by its accounting and reporting systems, in agreed format and content. The overall FM risk-rating assigned to UNDP for this project is Low. 35. Retroactive financing. CONAFOR has requested the option to use up to 20% of the grant funds under the Grant Agreement between the World Bank and United Mexican States to retroactively finance some payments related to costs incurred8 as part of the REDD+ Readiness process before the Additional Funding grant agreement is signed. In particular, CONAFOR plans to finance retroactively costs associated with strengthening the capacities of ejidos, communities, 8 Costs will be reviewed to ensure full eligibility under WB procedures. 13 ejido and community associations, and OSSF to engage in the REDD+ process (Subcomponent 1b) as well as building the capacity of the newly created national Forest Monitoring Department (Subcomponent 3a). 36. Procurement. Procurement will be conducted according to the World Bank’s “Procurement Regulations for IPF Borrowers,� issued in July 2016. CONAFOR has demonstrated capacity in implementing World Bank procurement policies. Both CONAFOR and UNDP have prepared and discussed with the Bank, Procurement Plans for Additional Funding implementation. Since UNDP’s Procurement Plan includes only contracts with Individual Consultants, very small value contracts with Consultants firms and small value goods (Request for Quotations), UNDP human resource and administrative procedures for selection of consultants and selection of goods’ suppliers through comparison of price quotations will be acceptable. 37. Safeguards. Social and environmental dimensions of the REDD+ Readiness are being managed in a satisfactory manner under the original grant. As part of the ongoing REDD+ readiness preparation grant, CONAFOR has undertaken a systematic Strategic Environmental and Social Assessment (SESA) to integrate key environmental and social considerations into the REDD+ Strategy. With the outcomes from the SESA, a draft Environmental and Social Management Framework (ESMF) has also been developed under the original grant, which provides a framework for guiding implementation of the REDD+ Strategy. The ESMF establishes the procedures for addressing potential environmental and social impacts from the implementation of REDD+ activities, including associated mitigation measures. In addition, the extensive consultation process that has been conducted among a wide group of diverse stakeholders during the preparation of the REDD+ Strategy is considered best practice (in particular, in terms of the representativeness of people consulted). Under the Additional Funding, OP/BP 4.09 on Pest Management and OP/BP 4.11 on Physical Cultural Resources will be triggered. These policies had remained as TBD (to be determined) under the original grant funding, but are now being triggered on a precautionary basis. In addition, the Additional Funding remains under Category B (see the table below). Table 5: Safeguards Policies triggered Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [] Natural Habitats (OP/BP 4.04) [X] [] Forests (OP/BP 4.36) [X] [] Pest Management (OP 4.09) [X] [] Physical Cultural Resources (OP/BP 4.11) [X] [] Involuntary Resettlement (OP/BP 4.12) [X] [] Indigenous Peoples (OP/BP 4.10) [X] [] Safety of Dams (OP/BP 4.37) [] [X] Projects in Disputed Areas (OP/BP 7.60)* [] [X] Projects on International Waterways (OP/BP 7.50) [] [X] * By supporting the proposed Project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 14 38. SESA Progress. The SESA process is fully integrated within the ENAREDD+ and has included workshops, conferences, study groups, and meetings with various community groups and stakeholders. The SESA process formally began with a national SESA workshop in May 2011, which resulted in a formal SESA charter that prioritizes responsibilities and actions to enhance the program’s environmental and social benefits while mitigating risks. Follow-up SESA workshops were held in Yucatan and Jalisco in 2011 to gather recommendations to improve and strengthen social and environmental programs. Analytical and participation processes were concluded in 2015 and the results were published in the study “Structuring possible risks and benefits derived from implementing greenhouse gas reduction investments and the National REDD+ Strategy.� The SESA report was finalized and published in December 2016. 39. Risks. The Overall Risk rating under the REDD+ Readiness Support project remains Moderate. CONAFOR has satisfactorily implemented all mitigation measures as identified in the Assessment Note for the original grant. However, it is worth noting that while the risks related to “Environment and Social� aspects,� as well as “Stakeholders� risks, have been lowered from Substantial to Moderate, the risk related to “Institutional Capacity for Implementation and Sustainability� has been upgraded from Low to Moderate given the new institutional arrangements under the Additional Funding, with implementation now conducted by two agencies, CONAFOR and UNDP. 15 Table 6. Systematic Operations Risk-Rating Tool (SORT) Risk Category Rating Justification Original Grant Additional Funding Political and Governance Moderate Moderate Macroeconomic Moderate Moderate Sector Strategies and Substantial Substantial Cross-sectoral coordination remains a Policies challenge to deliver on REDD+ mechanisms Technical Design of Project Moderate Moderate Institutional Capacity for Low Moderate This risk is upgraded to Moderate as the Implementation and Additional Funding will be implemented Sustainability by two Recipients (CONAFOR and UNDP) which may make the coordination process and the quality of delivery more difficult Fiduciary Moderate Moderate Environment and Social Substantial Moderate CONAFOR has demonstrated its capacity to adequately respond to Social and Environmental dimensions of REDD+ even though cross-sectoral coordination remains a challenge to deliver on the REDD+ mechanism Stakeholders Substantial Moderate CONAFOR has shown its capacity to efficiently and constructively engage with stakeholders on REDD+ Overall Risk Moderate Moderate V. World Bank Grievance Redress 40. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. 16 Annex 1: Results Framework and Monitoring Mexico: REDD+ READINESS PREPARATION SUPPORT PROJECT Results Framework Revisions to the Results Framework Comments/ Rationale for Change PDO Current Proposed The original project The proposed project development The current PDO is too development objective is to objective is to strengthen the REDD+ narrowly focused on a key support a participatory and Readiness process in Mexico. aspect of the REDD+ process, inclusive process for the while the proposed PDO more finalization of Mexico’s fully encompasses the areas National REDD+ strategy being supported by the original (ENAREDD+). project and the Additional Funding. PDO indicators Current Proposed change Comments Final version of Indicator continued, with no ENAREDD+ reflects the change proposed. comments and feedback from the various sectors and stakeholders A technically strong ESMF Indicator continued, with no has been finalized and change proposed. validated by a broad range of stakeholders A state-level Indicator continued, with no comprehensive feedback change proposed. and grievance mechanism (FGM) for REDD+ is piloted in one Early Action Area Ejidos, communities, ejido and New indicator. community associations, forestry sector organizations (OSSF), including women and youth, supported and participating in REDD+ activities during 2017 - 2018 (Target 138) Third and fourth year of the 2015-2019 New indicator. National Forest and Soils Inventory (INFyS) cycle completed, with field data collected, entered, and validates from INFyS conglomerates Technical Specialized Unit on New indicator. Sustainable Forest Management 17 Revisions to the Results Framework Comments/ Rationale for Change established and operating in accordance with agreed work plan Four (4) MRV reports prepared by New indicator. CONAFOR’s Forest Monitoring Department 18 RESULTS FRAMEWORK: YEARLY TARGET VALUES AND METHODOLOGIES FOR NEW INDICATORS Baselin Cumulative Target Values e 2016 2017 2018 2019 Origina Responsibility Frequenc Data Source/ PDO Level Results Indicators UOM l for Data Comments y Methodology Project Collection Core Start (2015) Gerencia de Publications of the Ejidos, communities, ejido and Educación, forestry programs of community associations, forestry Capacitación y CONAFOR (Rules Cultura sector organizations (OSSF), of Operation) Forestal and including women and youth, Number 0 0 63 138 138 Annual Gerencia de supported and participating in Gerencia de Fomento a la REDD+ activities during 2016 - Fomento a la Producción 2017 Producción Forestal Forestal Sustentable Sustentable Databases The values reported include the Third and fourth year of the 2015- years 2019 National Forest and Soils INFyS Databases/ corresponding Gerencia del Field Procedures to the third Inventory (INFyS) cycle Sistema Conglomera Manual and INFyS and fourth completed,9 with field data 7,013 7,013 11,061 13,052 14,994 Annual Nacional de te/Number Quality Assurance measurement collected, entered, and validated Monitoreo and Control System cycle of the from INFyS conglomerates Forestal Manual. INFyS, which began in 2015 and will conclude in 2019. 9 Completed denotes that field data from INFyS conglomerates have been collected and entered, and data quality has been reviewed. 19 Technical Specialized Unit on Gerencia de Progress Reports Fomento a la Sustainable Forest Management Yes/No 0 0 0 Yes Yes Annual from Conafor States Producción established and operating in Offices Forestal accordance with agreed work plan. Sustentable Capacity of CONAFOR’s Forest Gerencia del Reports generated Monitoring Department Sistema by the Gerencia del strengthened, with 4 MRV reports Number 0 0 0 3 4 Annual Nacional de Sistema Nacional de prepared. Monitoreo Monitoreo Forestal Forestal 20 Annex 2. Background on FCPF and OPCS agreed processing procedures 1. The Bank manages a range of carbon funds and facilities representing different profiles and segments of the carbon market. These funds are managed by the Bank as Trustee for the fund participants. The funds purchase greenhouse gas (GHG) emission reductions on behalf of the fund participants, i.e., public and private entities that have committed their monies to the funds. The emission reductions are generated by projects and programs mitigating GHG emissions in the developing countries or in countries with economies in transition, and project entities are paid for delivery of those emission reductions. These projects may or may not have underlying World Bank Group financing. The emission reductions can be used by fund participants for compliance with obligations under the Kyoto Protocol or with other regulated or voluntary GHG emission reduction commitments. 2. The FCPF is a global partnership of countries, business and civil society with the objective to help build the capacity in IBRD and IDA member countries in the tropics to reduce emissions from deforestation and forest degradation, forest carbon stock conservation, the sustainable management of forests, and the enhancement of forest carbon stocks (commonly referred to as REDD+). It was announced at the 13th Conference of the Parties (COP) to the UNFCCC in Bali in December 2007 and became operational in June 2008. The World Bank is the Facility’s Trustee as well as one of its Delivery Partners. It also houses the FCPF Facility Management Team (FMT) that is responsible for the operation of the Facility. The FCPF currently comprises 46 partner developing countries (17 in LAC, 18 in Africa, and 11 in the Asia-Pacific Region) and 17 financial contributors from both the public and private sectors. 3. The FCPF has two separate yet complementary funding mechanisms - the Readiness Fund and the Carbon Fund. a. The Readiness Fund supports developing countries in preparing themselves to participate in a future, large-scale, system of positive incentives for REDD+. This includes: adopting national REDD+ strategies; developing reference emission levels (RELs); designing measurement, reporting, and verification (MRV) systems; and setting up REDD+ national management arrangements, including proper environmental and social safeguards. b. The Carbon Fund supports performance-based payments for REDD+ interventions at the territorial level in countries that have made significant progress in their REDD+ readiness investments. Such payments are made based on the level of reduction of carbon emissions generated through REDD+ interventions. In contrast to the Readiness Fund, the Carbon Fund has only recognized the World Bank as its Delivery Partner. For the purposes of the Carbon Fund, the FCPF Charter stipulates that a country needs to have its Readiness-Package (R-Package) endorsed by the Participants Committee of the FCPF (PC) before the country can submit an ER Program to the Carbon Fund for its consideration. The R-Package thus is a major milestone under the FCPF process and comes at the transition from REDD+ readiness to piloting performance-based activities (see Figure 1 for the major milestones under the FCPF process). 21 Figure 1. Milestones under the FCPF Readiness and Carbon Funds Processing Procedures for FCPF operations as agreed with OPCS 1. Readiness Grants. Grants under the FCPF Readiness Fund (Readiness Grants) provide funding for preparation activities and are coded as Carbon Offset (CN) operations. 2. Project Number. In accordance with the preparatory nature of the Readiness Fund, the CN code stays in Lending Preparation (LEN) during the Readiness phase. This means that the P code remains open until all sources of funding associated with it are closed. 3. Preparation Grants. Guidance and instructions for the processing of preparation grants financed by trust funds have not yet been issued by OPCS. As a result, the FCPF’s Secretariat, in consultation with OPCS, prepared guidelines setting out the operational procedures for the processing of Readiness Grants. Currently, the FCPF’s Secretariat is working with OPCS in finalizing these procedures to integrate steps for the processing of additional funding. A final draft of the procedures is available here for reference. 4. Project Portal. The CN product line is not fully integrated to the Portal (only the ISDS and PID can be processed through the Portal). Until this issue is solved, OPCS has agreed to the “offline� processing of all project documents for the AF. The FCPF Secretariat is proactively working with OPCS to include milestones and Readiness Preparation Steps for the AF to allow the ISDS and PID to be processed through the Portal. As soon as we have a timeline for this change, we will communicate to all task teams processing Readiness Grants. 5. Additional Funding for Readiness Grants. For countries that have made significant progress towards REDD+ readiness, up to an additional US$5 million is allocated by the FCPF to support REDD+ further progress on readiness preparation readiness activities. The processing additional funds for Readiness Grants follow the Bank’s rationale for Additional Financing. To request Bank approval of the AF, task teams use a project paper, clearly indicating any changes from the original project (as described in the 22 respective assessment note) and reflecting the Readiness activities that will be implemented with the additional funding. In addition an updated concept stage ISDS and PID is prepared and disclosed upon approval. 6. Review Process. As reflected in the procedures, Readiness Grants are prepared using concept- stage documents, with a single decision point for the approval of the project package (a review meeting chaired by the Country Director). Comments from the review meeting are incorporated into the project documents and a final package (including evidence that all necessary advice/clearances/concurrences have been obtained) is circulated to the Country Director for approval. 23 Annex 3. Bank Engagement with Mexico in the Forestry Sector The World Bank has been supporting the forest sector in Mexico for the last two decades. This support has evolved in terms of scope and amount to respond to specific needs: beginning with institutional support to the creation of CONAFOR in the late 90s, and shifting to the piloting of programs in the 2000s, such as the Community Forestry and Payment for Environmental Services Programs that have since then become emblematic programs not only in Mexico but worldwide. The Program on Forests and Climate Change (FCC Program) in Mexico represents the largest and most ambitious World Bank engagement on forests today. In many ways, it represents a best practice that the World Bank is considering replicating in other countries. First, the FCC Program pilots an innovative approach at the territorial level that fosters multi- sectoral coordination. Second, it represents the most mature program in terms of a combination of various instruments (analytical, investment, performance-based) to enhance impacts on the ground. Third, it combines various sources of financing (IBRD, TFs and climate finance). It constitutes a strategic platform of engagement on sustainable and low-carbon rural development agenda in Mexico. Given its multi-sectoral nature, it strengthens collaboration modalities with key public entities in rural sectors (with CONAFOR, SAGARPA, the National Commission for Biodiversity (CONABIO), the National Water Commission (CONAGUA), among others) that will directly benefit other operations under preparation such as the GEF- financed Productive Territories project. The proposed ER-Program constitutes the new generation of engagement through carbon transaction, enhancing the capacity from Mexico to take advantage of the emerging carbon markets. The graph below highlights the multi-facetted approach of the FCC Program, combining various instruments (investments, technical assistance, knowledge, partnership/convening power and climate finance). The Forests and Climate Change Program in Mexico Knowledge Technical Assistance Investments Forests and CC project Convening (IBRD & TFs) power & ER-Program Partnershi Carbon ps Transaction Investments - Forests and Climate Change Project (P123760): IBRD Loan (MX-8120, US$350 million); 24 FIP Loan (TF-011570, US$16.34 million) and FIP Grant (TF-011648, US$25.66 million) - Dedicated Grant Mechanism (P151604) – FIP Grant (TF-017962, US$ 6 million) Technical Assistance - FCPF Readiness Support operation (TF010261, US$3.8 million and additional financing of US$5 million) - Impact Evaluation of the Payment for Environmental Service Program (DIME i2i and PROFOR, US$150k) Knowledge - Aligning Forests and Agriculture Policies/Programs (PROFOR, US$50k) - Analysis on Benefit-sharing Mechanism (PROFOR, US$50k) - Analysis of the Forest Sector Competitiveness in Mexico (Ford Foundation, US$100k) Convening Power and Partnerships - Dialogue on Sustainable Productive Landscapes in Mexico City on April 7-8, 2015 - Meeting with the Secretaries of Rural Development of the five ER-Program States (Yucatan, Campeche, Quintana Roo, Jalisco and Chiapas) on August 31, 2016. - Partnerships including with Inter-American Development Bank, USAID, Ford Foundation, French Agency for Development Climate Finance - Emission Reduction Program (FCPF Carbon Fund of up to US$60 million in carbon transaction) 25