93673 2012 ANNUAL REPORT FOREST CARBON PARTNERSHIP FACILITY ACRONYMS 5 FOREWORD 7 EXECUTIVE SUMMARY 9 1. INTRODUCTION 11 1.1. Overview of the FCPF 11 1.2. UNFCCC’s REDD+ phases and FCPF’s step-wise approach 12 2. ADVANCING THE STEP-WISE APPROACH TO REDD+ READINESS 17 2.1. REDD+ Readiness Progress – FY12 in Review 17 2.1.1. Steadily Expanding R-PP Formulation 17 2.1.2. Increasing Focus on Implementation of REDD+ Readiness Activities 18 2.1.3. Piloting Midterm Reporting 18 2.1.4. Defining REDD+ Readiness 19 2.2. Implementing REDD+ Readiness Activities – FY12 Highlights 21 2.2.1. Scaling up Consultations and Stakeholder Engagement 21 2.2.2. Assessing Land Use and Drivers of Deforestation for REDD+ Strategy Development 23 2.2.3. Strengthening the REDD+ Implementation Framework 25 2.2.4. Early Lessons from Implementing the SESA Process 26 2.2.5. Advancing the Understanding on Setting Reference Levels 27 2.2.6. Exploring the Link between Community Monitoring and National MRV 29 3. SOWING THE SEEDS FOR EARLY PERFORMANCE-BASED PAYMENTS 33 3.1. Carbon Fund: Building the Framework for Operation 33 3.2. Opening the Carbon Fund Pipeline: ER-PIN Selection and Processing Guidelines 34 3.3. Developing the Methodology Framework and Pricing Approach 36 CONTENTS 4. ADVANCING THE REDD+ AGENDA TOGETHER 39 4.1. Expanding to Multiple Delivery Partners 39 4.2. Scaling up the Dialogue with Indigenous Peoples 39 4.3. Opening the Readiness Fund to New Countries 40 4.4. Coordinating with other REDD+ Initiatives 41 4.4.1. UN-REDD Programme 41 4.4.2. Forest Investment Program 43 4.4.3. BioCarbon Fund 43 4.5. Harvesting and Sharing Knowledge 43 4.5.1. Lessons for REDD+ from Payment for Environmental Services 43 4.5.2. Issues and Options for National REDD+ Registries 43 4.5.3. South-South Dialogue on Benefit Sharing 44 4.5.4. South-South Knowledge Exchange on Community Forestry 45 4.6. The REDD+ Partnership 45 5. FY12 FINANCIAL REPORT OF THE FACILITY 47 5.1. Budget Approval Process 47 5.2. The Readiness Fund 48 5.2.1. Funding Sources 48 5.2.2. Funding Uses 49 5.2.3. End of Year Account Balance 50 5.2.4. Readiness Fund Disbursements 51 5.2.5. Financial Commitments over the Longer Term 51 5.3. The Carbon Fund 53 5.3.1. Funding Sources 53 5.3.2. Funding Uses 53 5.3.3. End of Year Account Balance 55 5.3.4. Financial Commitments over the Longer Term 55 6. CONCLUSIONS AND OUTLOOK 57 THE FOREST CARBON PARTNERSHIP FACILITY Demonstrating activities that reduce emissions from deforestation and forest degradation FY12 ANNUAL REPORT Acronyms CF Carbon Fund COP Conference of the Parties (to the UNFCCC) CSO Civil Society Organization DRC Democratic Republic of Congo ER Emission Reductions ERPs Emission Reductions Programs ERPA Emission Reductions Purchase Agreement ER-PIN Emission Reductions Program Idea Note FAO Food and Agriculture Organization FCPF Forest Carbon Partnership Facility FIP Forest Investment Program FMT Facility Management Team FY Fiscal Year (World Bank fiscal year, July 1 through June 30) IDB Inter-American Development Bank IP Indigenous People KfW Kreditanstalt fuer Wederauflau (German Development Bank) Lao PDR Lao People’s Democratic Republic MRV Measurement, Reporting, and Verification NGO Non-Governmental Organization PA Participants Assembly PC Participants Committee PES Payments for Ecosystems Services REDD Reducing Emissions from Deforestation and Forest Degradation REDD+ REDD plus conservation of forest carbon stocks, sustainable management of forests, and enhancement of forest carbon stocks REL Reference Emission Level RL reference level R-PP Readiness Preparation Proposal SBSTA Subsidiary Body for Scientific and Technological Advice (under UNFCCC) SESA Strategic Environmental and Social Assessment TAP Technical Advisory Panel UNDP United Nations Development Programme UNFCCC United Nations Framework Convention on Climate Change UN-REDD United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries FOREST CARBON PARTNERSHIP FACILITY 5 Important international partnerships are also keeping the REDD+ flame alight. Rachel Kyte Vice President, Sustainable Development Network The World Bank FY12 ANNUAL REPORT Foreword It has been a challenging year for carbon finance. The prospect of a new international climate agreement remains elusive and carbon market prices have plummeted. REDD+ has not escaped the turbulence. Before this year, are more important than ever. Today, countries are embarking Parties to the UNFCCC had made real progress on defining on no-regrets options and their economic and governance the outline of a future regime for reducing emissions from reforms to reduce deforestation and degradation are simply deforestation and forest degradation, and REDD+ was hailed as too important to walk away from. We cannot afford to lose the beacon of hope in the negotiations. momentum. The potential to deliver a triple win of increased Unfortunately, at this time, it’s hard to escape the feeling food security, climate resilience, and mitigation are too great to that we have lost some steam since the excitement of the UN let go. climate gatherings in Cancun and Durban. Meanwhile, forests Despite the difficulties, FCPF has made good progress continue to be lost and efforts to get the world on a greener, this year. The Facility is making great strides in supporting low-carbon growth path need to increase in scale and pace to smart packages of policy reform to curb forest loss. It is also meet the challenges ahead. fostering inclusive governance at the partnership level through On the up side, new remote-sensing data on global the active participation of Indigenous Peoples and civil society emissions from deforestation suggest lower levels than from the north and south, and at the country level with the previously thought, which may be due in part to the actions of representation of these stakeholders in national management countries to contain forest loss. Also, there are still strongly arrangements for REDD+. Together, we are demonstrating a committed public donors and new prospects are emerging commitment to international cooperation, broad stakeholder for including REDD+ in national and sub-national cap-and- engagement, and public-private partnership. trade schemes in Australia and California. Also, major private My hope is that this FCPF approach will make our companies are committing to eliminate deforestation in their groundbreaking work on defining and measuring readiness and production chains. on preparing for performance-based payments all the more Important international partnerships are also keeping the relevant and sustainable. The World Bank is a proud member of REDD+ flame alight. The UN-REDD Programme brings the UN the partnership and we will keep doing our best, together with agencies together so they can deliver as one and build country the Participants, Observers, and Delivery Partners, to move it capacity and generate pilots. The Forest Investment Program forward in the years to come. focuses on investments in a small number of key countries to produce economic transformation and generate global knowledge. And, the Forest Carbon Partnership Facility (FCPF) itself, the first global partnership on REDD+ to be designed in the lead-up to the Bali conference, has become a central knowledge and financial platform to design and measure REDD+ readiness and pilot performance-based payments at Rachel Kyte scale. Vice President, Sustainable Development Network With a climate regime and financial support mechanisms The World Bank from the UNFCCC still in the planning stage, these initiatives FOREST CARBON PARTNERSHIP FACILITY 7 The FCPF has grown to 36 developing countries and 18 financial contributors (including developed countries, private sector firms and one NGO) and has 6 categories of observers, including Indigenous Peoples and civil society. FY12 ANNUAL REPORT Executive Summary In its fourth year of implementation, the Forest Carbon Partnership Facility (FCPF) focused on putting in place the operational framework for the transition from the Readiness Fund to the Carbon Fund. The Facility made significant progress in defining REDD+ Readiness as well as performance-based payments, building on both policy guidance from the UNFCCC and practical experience from countries implementing REDD+ Readiness activities on the ground. FY 2012 also marked a year of increased efforts to reach out to stakeholders, in particular forest-dependent Indigenous Peoples and local communities. The Facility broadened the number of Delivery Partners, which allows the FCPF to better extend technical assistance services to REDD+ Country Participants. FY12 was an important year for the FCPF as for Indigenous Peoples, Local Communities, and Southern implementation on the ground gained significant momentum Civil Society Organizations to $5.5 million over four years and commitments to and disbursements from the FCPF and increased the amount of grant funding to REDD Country Readiness Fund accelerated. With more and more REDD Participants to enhance their capacity for dispute resolution. Country Participants progressing from Readiness Preparation Four years into operations, the FCPF has made great Proposal (R-PP) formulation to R-PP implementation, the strides in building the capacity of its many participants. While attention of the FCPF shifted to measuring progress toward the early years of the Facility focused on developing the REDD+ Readiness. Guidance on the process and format for necessary process and procedural foundations, the emphasis midterm reporting was issued and the Democratic Republic of for FY12 was squarely on support to countries. Over the Congo (DRC) is the first REDD Country Participant closing in course of the last year a number of major knowledge pieces on this important milestone. The DRC now intends to request were developed on such topics as lessons from payments for additional REDD+ Readiness funding, which may be granted environmental services for REDD+, benefit sharing, national to countries that can demonstrate significant progress made REDD+ registries, the design of reference levels, community at this stage. Substantial progress was made on the design participation in monitoring systems, the role of community of the Readiness Package (R-Package), a document to be forestry under REDD+, and the analysis of drivers that underpin generated by a REDD+ country well advanced in its Readiness deforestation dynamics in the Congo Basin. In addition, effort preparation. Progress was also registered in defining the nuts was stepped up to disseminate knowledge and encourage and bolts for performance-based payments under the Carbon feedback from the broader REDD+ community through South- Fund. The rules of procedure were agreed upon and a working South-exchanges and communications. To enhance country group prepared guiding principles for the methodological presence and multiply the impact of FCPF funds on the ground, framework and pricing approach. As the Carbon Fund prepares the FCPF coordinated closely with partners, including the UN- to select the first Emission Reductions Programs in FY13, REDD Programme, the Forest Investment Program (FIP), and the corresponding template was developed and the selection bilateral and multilateral agencies. criteria for building a pipeline of program ideas were agreed Moving forward into FY13, the FCPF will place special upon. attention on the emerging pipeline for the Carbon Fund The word “partnership” in the FCPF conveys the idea of while continuing to support the Readiness process for REDD a multi-stakeholder forum, and the FCPF has indeed brought Country Participants. The FCPF will further boost its role in together both grassroots and policy-level audiences. An capturing the experiences of REDD Country Participants more important milestone for stakeholder engagement was an systematically, disseminating knowledge, and facilitating unprecedented global dialogue bringing together Indigenous South-South knowledge exchanges with the aim of accelerating Peoples representatives from 28 countries in Guna Yala, learning across countries. Once the Transfer Agreements are Panama. Reaffirming its commitment to meaningfully engage in place with the United Nations Development Programme Indigenous Peoples, the FCPF pledged to support a series (UNDP) and the Inter-American Development Bank (IDB) as of regional follow-up meetings. A Pan-African dialogue was new Delivery Partners, the FCPF will also be able to extend held in FY12 and similar regional meetings will be held in technical assistance services to a number of participating Latin America and Asia at the beginning of FY13. The FCPF countries, thus helping them to make step-wise progress also scaled up funding for the Capacity Building Program toward REDD+ Readiness. FOREST CARBON PARTNERSHIP FACILITY 9 The goal of FCPF is to provide incentives to reduce emissions while protecting forests, conserving biodiversity, and enhancing the livelihoods of forest-dependent peoples and local communities. FY12 ANNUAL REPORT Introduction 1.1. Overview of the FCPF The Forest Carbon Partnership Facility is a global partnership of governments, businesses, civil society, and Indigenous Peoples focused on reducing emissions from deforestation and forest degradation, forest carbon stock conservation, the sustainable management of forests, and the enhancement of forest carbon stocks in developing countries (activities commonly referred to as REDD+). The Facility pursues four strategic objectives: and systems, including adopting national strategies; developing > To assist countries in their REDD+ efforts by reference emission levels (RELs); designing measurement, providing them with financial and technical reporting, and verification (MRV) systems; and setting up assistance in building their capacity to benefit REDD+ national management arrangements (including proper from possible future systems of positive incentives environmental and social safeguards). for REDD+. The FCPF Carbon Fund is piloting performance-based payments for verified emission reductions from REDD+ > To pilot a performance-based payment system for programs in countries that have made considerable progress REDD+ activities, with a view to ensuring equitable toward REDD+ Readiness. The goal is to provide incentives benefit sharing and promoting future large-scale to reduce emissions while protecting forests, conserving positive incentives for REDD+. biodiversity, and enhancing the livelihoods of forest-dependent > Within the approach to REDD+, to test ways to sustain peoples and local communities. or enhance livelihoods of local communities and to conserve biodiversity. BOX 1: FCPF FUNDS AND PARTICIPANTS > To disseminate broadly the knowledge gained in the The Readiness Fund and the Carbon Fund are both underpinned development of the Facility and the implementation by a multi-donor fund of governments and non-governmental of Readiness Preparation Proposals (R-PPs) and entities, including private companies that make a minimum Emission Reductions Programs (ERPs). financial contribution of $5 million. The FCPF has two separate but complementary funding • Contributors to the Readiness Fund are known as Donor mechanisms—the Readiness Fund and the Carbon Fund— Participants. to achieve its strategic objectives (see Figure 1). Together the • Contributors to the Carbon Fund are known as Carbon two funds have raised $457 million. Fund Participants. The FCPF Readiness Fund supports participating countries • Developing countries participating in the FCPF (both funds) are known as REDD Country Participants. as they prepare for REDD+ by developing the necessary policies Figure 1: Governance Structure of the FCPF Participants Assembly (PA) incl. Observers from IPs & CSOs Technical Advisory Panels (TAPs) Participants Committee (PC) incl. Observers from IPs & CSOs Secretariat (FMT) READINESS FUND CARBON FUND Trustee • 36 countries • ˜5 countries (World Bank) • Grants and technical • Payments for verified assistance emission reductions Delivery Partners FAO FOREST CARBON PARTNERSHIP FACILITY 11 The FCPF has become a central piece in the new REDD+ international organizations, the UN-REDD Programme, the institutional landscape. It has created a standard framework UNFCCC Secretariat, and the private sector. The PC, which for REDD+ Readiness centered on the robust assessment of meets about three times a year, is the main decision-making country-owned proposals, fostered domestic thinking about and body of the FCPF. It reviews country submissions, decides on action on REDD+, and incentivized greater cooperation among grant resource allocations, and approves budgets. The World national and international entities. It has developed a unique Bank assumes the functions of Trustee, Facility Management inclusive governance approach reflective of its public-private Team, and Delivery Partner. The Inter-American Development partnership character. Governments and private participants Bank and the United Nations Development Programme are also share equally in governance responsibilities, and observers Delivery Partners under the Readiness Fund. have an active role in what is effectively a consensus-based decision-making model. Many participants feel this approach 1.2. UNFCCC’s REDD+ phases and FCPF’s step-wise has helped foster a spirit of cooperation and trust in the broader approach REDD+ community and helped negotiations on REDD+ proceed faster than many other components of the UN climate talks. At the sixteenth session of the Conference of the Parties to Thirty-six forest developing countries (13 in Africa, 15 in the UNFCCC (COP16) in 2010, the UNFCCC outlined a sequence Latin America and the Caribbean, and eight in the Asia-Pacific of three broad phases to develop a REDD+ mechanism under region) have so far been selected to join the FCPF. The total the climate convention. The sequence starts with basic number of financial contributors has grown to 18 (15 developed capacity building and development of strategies and action country governments, two private sector firms, and one NGO). plans (“Phase 1”), followed by implementation of national At the core of the FCPF inclusive governance structure is strategies and results-based demonstration activities (“Phase the Participants Assembly and the Participants Committee. 2”), to an eventual system with fully measured, reported and The Participants Assembly, which is composed of all the verified emission reductions (“Phase 3”). Compared to the countries and organizations participating in the FCPF, meets phased timeline identified by the UNFCCC, the FCPF Readiness annually and elects the Participants Committee (PC). The Fund relates to Phase 1 as identified in the UNFCCC’s Cancun Participants Committee comprises 14 forest (REDD+) countries Agreement and the FCPF Carbon Fund relates to Phase 2 (see and 14 financial contributors, along with six categories of Figure 2). observers representing Indigenous Peoples, civil society, 12 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT Figure 2: The Different Phases of REDD+ 1 2 3 Development of Implementation of Results-based national strategy strategies and results-based activities (fully MRV’ed demonstration emission reductions) activities CAPACITY BUILDING, INSTITUTION STRENGTHENING, PILOTING FCPF FCPF Readiness Fund Carbon Fund FOREST CARBON PARTNERSHIP FACILITY 13 FY12 ANNUAL REPORT At COP16, the UNFCCC also defined the four core elements of REDD+. Countries are encouraged to develop such elements, taking into account national circumstances and respective capacities: s A REDD+ strategy or action plan. s A forest reference emission level.1 s A forest monitoring system with robust, transparent monitoring and reporting of activities. s A system for providing information on how social safeguards will be addressed and respected.2 The design of REDD+ Readiness Preparation Proposals incorporates and aligns with these four core elements. As a demonstration initiative, the FCPF provides practical guidance that helps countries pilot the processes and systems that are being defined under the UNFCCC. Experience gained with support from the FCPF and other programs are having a tangible impact on the international REDD+ landscape and are informing the process under the UNFCCC negotiations. The objective and mandate of the FCPF, however, is not to design the eventual system for UNFCCC’s Phase 3. BOX 2: OUTCOMES FROM UNFCCC COP17 FOR REDD+ The COP17 in Durban, South Africa, in December 2011 had important outcomes for REDD+ with regard to financing, safeguards, and the development of reference levels: • With regard to financing, a decision was made to allow for both public and private financing for REDD+, recognizing that market-based approaches may be developed in the coming years. The recognition of a market-based approach sends a very positive signal to the private sector, which can potentially contribute significant amounts of investment for REDD+ but had been waiting for a sign of commitment and long- term predictability from the UNFCCC. • With regard to safeguards, a decision was made that countries need to provide transparent, consistent information that allows for improvements over time, builds on existing reporting systems, and provides for periodical national communications. • A significant decision was made on reference levels, which are to be developed by individual countries following a bottom-up approach. As per guidance from Durban, Reference Levels ought to be consistent with existing greenhouse gas inventory methods and support a step-wise approach of gradual improvement over time. Countries were invited to submit their proposed reference levels and supporting information to the UNFCCC, which will establish a process for assessing them. 1 A baseline of forest cover and emissions over time. 2 Occurring throughout the implementation of REDD+ activities to ensure the full and effective participation of relevant stakeholders (notably Indigenous Peoples and local communities). FOREST CARBON PARTNERSHIP FACILITY 15 Such South-South exchanges have steadily increased over the years to form one of the cornerstones of the Facility. Over the course of the last year, the step-wise approach has also proven useful for defining how to measure REDD+ Readiness. FY12 ANNUAL REPORT Advancing the Step-Wise Approach to REDD+ Readiness After just four years of operation, the FCPF has proven to be a major contributor to global progress under REDD+. The Facility has raised in-country awareness, capacity and technical skills, and know-how around REDD+ issues. The step-wise approach to REDD+ readiness has been key to the FCPF’s success. By breaking the REDD+ Readiness process down into a series of steps, the FCPF has aided countries in building REDD+ Strategies that are adjusted to their national circumstances yet still allow for cross-country learning. Such South- South exchanges have steadily increased over the years to form one of the cornerstones of the Facility. Over the course of the last year, the step-wise approach has also proven useful for defining how to measure REDD+ Readiness. This chapter provides a review of the step-wise progress made by REDD Country Participants over the course of FY 2012. 2.1. REDD+ Readiness Progress—FY12 in Review true cross-sectoral assessment of issues related to REDD+ and thus often remained weak in the analysis of drivers 2.1.1. Steadily Expanding R-PP Formulation of deforestation and the corresponding early definition of During FY12 the number of Readiness Preparation REDD+ strategy options. In contrast, the latest set of R-PPs Proposal formulation grants expanded to four more countries showed that feedback and guidance from the TAP and the PC (El Salvador, Mozambique, Nicaragua, and Thailand3). Making have been taken into account during country-level planning, immediate use of the funds received, three of the four countries thus leading to noticeable quality improvements in R-PP advanced to making an informal or formal R-PP presentation formulation. As a result, the cross-sectoral impact of economic within the same year. development outside the forest sector is now better reflected The R-PP is a first major milestone in the step-wise in the overall analysis; by extension, proposed implementation approach to REDD+ Readiness and forms the basis upon which frameworks for REDD+ put greater emphasis on the cross- the FCPF Participants Committee allocates grant resources for sectoral coordination effort needed to reduce emissions from REDD+ Readiness preparation. It documents a set of actions deforestation and/or forest degradation and to enhance carbon that a country proposes to implement to achieve the core uptake. Recent R-PPs furthermore demonstrate more realistic elements of REDD+ as per the text negotiated in Cancun and estimates of the expected costs of the REDD+ Readiness based on strategic planning and an accompanying stakeholder process by taking into account the cost of broad-based consultation. stakeholder engagement and the cost of building technical The overall number of R-PPs presented to the FCPF capacities at the national and local levels. Improvements in REDD Country Participants increased steadily in FY12. The overall quality were particularly evident in the recent R-PPs PC assessed the R-PPs from the Central African Republic, submitted by Latin American countries. Colombia, Guatemala, Mozambique, and Nicaragua and Burkina Faso, which is not an FCPF REDD Country allocated funds to support implementation. With these Participant but is a pilot country under the Forest Investment additional five R-PPs, two-thirds of FCPF REDD Country Program (FIP), voluntarily prepared an R-PP to benefit from the Participants have completed their R-PPs. In addition, El constructive feedback and technical guidance that is provided Salvador advanced to informal presentation and is expected as part of the FCPF’s R-PP assessment process. In doing to formally submit its R-PP for PC13 in October 2012 in so, Burkina Faso also aligned its national REDD+ Readiness Brazzaville, Republic of Congo. process with the FCPF’s step-wise process, thereby presenting The Participants Committee and the Technical Advisory a transparent roadmap for its planned REDD+ Readiness Panel (TAP) noted an increase in the quality of the R-PPs activities and committing itself to the quality standards set by that were submitted during FY12. Overall, more recent R-PP the FCPF with regard to REDD+ readiness. submissions reflect a better understanding of the crucial elements of REDD+ Readiness, including the sequencing and 3 This grant is executed by the World Bank. necessary funding of activities. Early R-PPs tended to lack a FOREST CARBON PARTNERSHIP FACILITY 17 2.1.2. Increasing Focus on Implementation of REDD+ contribute to REDD+ Readiness objectives. For example, the Readiness Activities World Bank, in its role as a Delivery Partner, has focused on identifying activities in its own portfolio of operations that During FY12 attention shifted from formulation complement the implementation of R-PPs. Efforts to leverage and presentation of country R-PPs to preparation and funding complementary to FCPF resources will remain a priority implementation of Readiness Preparation grant agreements. as countries’ total funding needs for REDD+ readiness continue In addition to the Democratic Republic of Congo (DRC), to exceed the resources available from the FCPF. Indonesia, and Nepal, which signed their Readiness Preparation Grants by the end of FY11, new agreements were signed in 2.1.3. Piloting Midterm Reporting FY12 with Costa Rica, Ghana, Liberia, and the Republic of Congo. Accordingly, by the end of FY12, seven countries had A midterm report is an important milestone in the step- entered into the REDD+ Readiness preparation stage and are wise approach to REDD+ readiness. At midterm, countries implementing their Readiness Preparation Grants as described report on the progress made in activities funded by the FCPF in more detail in Section 2.2.1. Readiness Preparation Grant and provide an overview of the The Facility Management Team, meanwhile, focused overall progress in implementation of the R-PP (as financed by efforts on improving the delivery of funds to address the slow other sources). As described above, the midterm report also delivery of much-needed financing in past years. Expedited provides an important opportunity for countries to receive up disbursements of Readiness Preparation Grants in FY12 to $5 million in additional funding if significant progress can be show that efforts are paying off (see Figure 3). To further demonstrated. accelerate the delivery of funds, the PC decided, at its 10th In FY12, the Democratic Republic of Congo started the meeting in Berlin, Germany, to increase the funds available process of assessing its midterm progress. It is expected for REDD+ Readiness preparation. Accordingly, countries can that the DRC will be the first country to submit its midterm now access up to $5 million in addition to their initial REDD+ report for review at the 13th Participants Committee meeting Readiness Preparation Grant ($3.6 million)—provided they can in October 2012. Initial lessons from the DRC’s experience are demonstrate significant progress at the time of the submission highlighted in Box 3. of their midterm progress report. Moreover, additional funds It should be noted that the format of the midterm report of $200,000 per country have been made available to enhance may have to be adjusted, in light of the further development country capacity for dispute resolution. of the R-Package, to provide for ongoing reporting on REDD+ The FCPF has also increased synergies with other forest Readiness. and natural resources management operations that can Figure 3: Grant Disbursement in FY12 ($ thousands) Formulation Grants - all countries 428 Preparation Grant - Costa Rica 0 Preparation Grant - DRC 797 Preparation Grant - Ghana 400 Preparation Grant - Indonesia 378 Preparation Grant - Liberia 0 Preparation Grant - Nepal 500 Preparation Grant -Republic of Congo 381 Formulation Grant Disbursements FY12 $428 Preparation Grant Disbursements FY12 $2,456 TOTAL Grant Disbursements FY12 $2,884 18 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT BOX 3: MIDTERM REVIEW IN THE DEMOCRATIC REPUBLIC OF CONGO Following a step-wise approach, the DRC has made substantial progress in the REDD+ Readiness phase and is getting ready for the REDD+ Investment phase. The government embarked on a mid-term review of progress made toward REDD+ Readiness and identified priorities to focus on during the remainder of this phase. This review process was supported by an independent review of overall progress on REDD+ Readiness (including the broader set of activities financed by other sources) commissioned by the government. The main recommendations of the independent review include: • Focusing on creation of a national REDD+ Fund aimed at attracting multi-donor financing and providing for improved long-term planning based on the availability of funds. • Elevating the leadership of the National REDD+ Committee to a higher level to reinforce cross-sectoral coordination. • Reassessing the role of the national REDD+ coordination office in the upcoming phases (investment and performance-based payments). • Continuing the decentralization of REDD+ Coordination to the local level. • Finalizing a REDD+ Framework Strategy by end of 2012, and aiming for subsequent completion of a full-fledged strategy in the coming years once lessons have been learned from investments. • Ensuring adequate financing to the Thematic Coordination Groups, to communication activities, and to the Provincial Focal Points. • Strengthening the rights of communities in forest management. • Adopting national rules for sharing the benefits from REDD+. Based on the above recommendations, the DRC prepared a $5 million request for additional grant funding to finance activities that would allow the country to respond to the recommendations above. This request will be considered by the PC during its 13th meeting in Brazzaville. 2.1.4. Defining REDD+ Readiness FY12 has been an important year in terms of advancing the definition of REDD+ Readiness. The policy context under the UNFCCC evolved and the contours of the eventual system have become clearer. With more and more countries progressing with REDD+ Readiness Preparation, countries are gaining practical experience on the ground in translating requirements into action. These developments have also been feeding into the development of the Readiness Package (R-Package). The R-Package is a major milestone in the REDD+ Readiness preparation process and comes at the transition from REDD+ Readiness (under the REDD+ Readiness Fund) to FOREST CARBON PARTNERSHIP FACILITY 19 REDD+ piloting (under the Carbon Fund). It thus follows the guidance through a two-step assessment process (i.e., first, logical sequence of the step-wise approach that begins with through a multi-stakeholder self-assessment at the country a country’s initial Readiness Preparation Idea Note (R-PIN), level and, second, through an assessment by the Participants followed by the drafting of the R-PP (formulation phase) and Committee with input from a Technical Advisory Panel, a the implementation of the R-PP (preparation phase). In other Delivery Partner, and others). This feedback will help countries words, the R-Package serves as the bridge between Phase 1 in their continued Readiness preparation and in piloting of and Phase 2 of REDD+ Readiness as defined by the UNFCCC. REDD+. With its comprehensive overview of the progress made With the development of the R-Package, countries will in REDD+ Readiness, the R-Package is furthermore intended take stock of the activities implemented during the REDD+ to attract additional funds from external sources for scaling up Readiness preparation phase, capturing lessons learned, activities. documenting early results, assessing remaining gaps, and Over the course of FY12, major progress was made identifying activities for the way forward to transitioning to in the design of the R-Package. Starting in October 2011, the implementation of performance-based activities. Country discussions began with the PC on the content; there were also experience to date with the formulation of R-PPs has helped continuous work streams between subsequent PC meetings to better define the elements of the evolving R-Package and and five dedicated video conferences to garner stakeholder to estimate more realistic timelines for finalization of an feedback. These discussions served to clarify the role of the R-Package. R-Package, as per the FCPF Charter, and the proposed two- The scope of the R-Package is national and encompasses step assessment process (first at the national level and then by all major Readiness preparation activities—not just those the PC). activities financed by the FCPF. As such, the R-Package The Participants Committee endorsed the purpose and captures the important relationships among different Readiness scope of the Readiness Package at PC12 in June 2012. Some preparation activities and helps to ensure consistency across parts of the R-Package, namely the assessment approach, still components. need to be discussed further among the FCPF stakeholders While preparation of the R-Package and submission to before REDD Country Participants can agree on the details of the PC is voluntary under the Readiness Fund, it becomes the R-Package template. Accordingly, the Facility Management mandatory if a country aims to submit an Emissions Reduction Team (FMT) continued to work on a proposal for the assessment Program Document4 for consideration by the FCPF Carbon approach by which the maturity of the national Readiness Fund. The preparation of the R-Package is nevertheless a process would be assessed. desirable step for any REDD+ country that has advanced in The step-wise approach to REDD+ Readiness is REDD+ Readiness preparation as it serves multiple purposes. represented in Figure 4, which shows the various steps leading It provides a country with the opportunity to demonstrate national commitment to REDD+ and transparency in performing Readiness preparation activities, including assurance to 4 The Emission Reductions Program Document is the key document based on national and international stakeholders that potential social which a country and the Carbon Fund may enter into a contractual agreement (i.e., into an Emission Reductions Payment Agreement). The country’s and environmental risks are being mitigated. Moreover, the R-Package needs to be endorsed by the PC before the Emission Reductions R-Package is intended to generate valuable feedback and Program Document is submitted to the Carbon Fund. 20 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT to the assessment of the R-Package and the basic relationship allowed for the capturing of early lessons from countries that between Readiness progress and eligibility for the Carbon Fund. are pioneering REDD+ Readiness preparation. Experiences were transferred to successive countries and have facilitated 2.2. Implementing REDD+ Readiness Activities— and accelerated implementation progress. Key topics covered in FY12 Highlights learning events included stakeholder engagement, community- based MRV, and benefit sharing. FY12 provided early implementation experiences from REDD+ Readiness activities advancing at the country level. 2.2.1. Scaling up Consultations and Stakeholder Implementation on the ground can be challenging, as each Engagement country needs to identify the right sequence of activities that will eventually lead them to REDD+ Readiness while taking Consultative processes and timely access to information into account the relevant country context. With a multitude of are important in increasing the ability of stakeholders to national, local, and international actors involved, views on what meaningfully engage in key REDD+ Readiness activities. should be the priorities to be implemented first and foremost In FY12 a stronger emphasis was placed on stakeholder can diverge. Early implementation of REDD+ Readiness consultations; this resulted not only in increased awareness but activities showed that ongoing efforts at broad stakeholder also in heightened trust among different stakeholder groups engagement continue to be particularly important in ensuring involved in REDD+. that REDD+ Readiness implementation receives support and Scaling up Stakeholder Engagement endorsement from national and local stakeholders. Organized along the building blocks of REDD+ Readiness, FY12 confirmed the importance of a broad-based the following section presents highlights from early consultative process. To ensure community support, it was implementation of REDD+ Readiness activities supported important that the information and capacity-building needs of by the FCPF Readiness Fund in FY12. In addition to country- local communities were met early on in the REDD+ planning specific examples of REDD+ preparation activities implemented process to enable meaningful participation in debates and to over the past year, this section describes a number of regional ensure that the concerns and priorities of local communities and global learning and knowledge-sharing events that were were taken into account by the relevant planning structures set organized by the FMT during FY12. These learning initiatives up for REDD+ in a country. enhanced the discourse and exchange among countries and Experiences from Cameroon and Kenya show that multi- Figure 4: Milestones of REDD+ Readiness Readiness Fund R-Package must be endorsed by the PC before an ER Program is submitted and an ERPA is signed R-PP MIDTERM READINESS PACKAGE ASSESSMENT PROGRESS REPORT ENDORSEMENT R-PP Formulation Readiness Preparation Implementation Carbon Fund SIGNATURE OF EMISSION REDUCTIONS PAYMENT AGREEMENT (ERPA) FOREST CARBON PARTNERSHIP FACILITY 21 stakeholder working groups consisting of both government and projects in Africa, Asia and Latin America. Based on the non-government representatives improved social inclusion and positive impact achieved by the program, the PC agreed to helped to build ownership of the REDD+ Readiness process a significant expansion of the Capacity Building Program by among key stakeholder groups. The series of consultations allocating an additional $3.5 million to the Forest-Dependent carried out at national and local levels in both countries in FY12 Indigenous Peoples’ program for FY 2012-2015 and allocating substantially boosted the informed engagement of stakeholders $2 million to create a new program for Southern CSOs and local in the national REDD+ Readiness process and further helped to communities. grow trust between local stakeholders and the government (see Box 4 for details). Enhancing Capacity for Dispute Resolution During FY12, the FCPF identified that the national feedback Expanding Capacity Building for Indigenous Peoples and Local and grievance redress mechanisms available to most REDD Communities Country Participants may not be sufficient to anticipate, Forest-dependent Indigenous Peoples, forest dwelling mediate, and resolve issues that may arise from REDD+ peoples, local communities, and Southern Civil Society implementation. Consequently, the Participants Committee Organizations (CSOs) are key partners in REDD+ design and allocated additional funds to strengthen national feedback and implementation. The UNFCCC COP16 decision on REDD+ calls grievance redress mechanisms. The additional funds provide for the full and effective participation of Indigenous Peoples for an incremental allocation of up to $200,000 to each REDD and local communities and the need to respect their traditional Country Participant (in addition to the original Readiness knowledge and rights. In recent years, forest-dependent Preparation Grants of $3.6 million). These additional funds IPs, local communities, and Southern CSOs have become are earmarked for assessing existing national institutional increasingly engaged in national REDD+ planning and the capacity for feedback and grievance redress, for building formulation of R-PPs and have been included as part of national institutional capacity and personnel requirements, and for REDD+ technical bodies that contribute to the planning and supporting the operation of relevant mechanisms. The FCPF design of REDD+. also provided additional funds to reinforce the capacity of In FY12, significant changes were made to scale up Delivery Partners to guide REDD Country Participants with capacity building for Indigenous Peoples, local communities, dispute resolution. As such, the World Bank’s team for Dispute and Southern CSOs. Since its initial approval, the FCPF’s Resolution and Prevention is helping to design a programmatic Capacity Building Program for Forest-Dependent Indigenous approach for grievance redress that reaches all 36 REDD Peoples had an allocation of $1 million for fiscal years 2009- Country Participants. As part of this effort, the team prepared a 2013 ($200,000 per fiscal year) and has funded 14 small diagnostic tools for sector-level institutional strengthening for BOX 4: IMPROVING SOCIAL INCLUSION – EXAMPLES FROM KENYA AND CAMEROON In Kenya and in Cameroon, the responsibility for preparing the national REDD+ Readiness Proposals was entrusted to multi- stakeholder working groups consisting of both government and non-government representatives, namely the National Association of Community Forest Associations (NACOFA) in Kenya and the REDD+ Civil Society Platform in Cameroon. This set up helped to build buy-in to the REDD+ Readiness process from key stakeholder groups. • In Kenya, the REDD+ Steering Committee entrusted the task of carrying out the consultative process to the Forest Action Network—a network with existing trust and representation from all forestry-related agencies (both government and non-government). As a result, it was possible to extend the consultative processes to the grassroots level, strengthen the basic understanding of REDD+, and provide local stakeholders with the opportunity to engage meaningfully. A series of workshops reached out at the local-level to 10 forest conservancies and, separately, to Indigenous Peoples; the series culminated in regional workshops and a national validation workshop. • In Cameroon, the REDD+ Civil Society Platform created a strong partnership with the government that was formalized in a Memorandum of Understanding outlining the engagement of the platform in the REDD+ Readiness process. The government subsequently transferred FCPF resources to the platform to strengthen its ability to work through its decentralized CSO/IP structures in the country’s 10 regions. Local CSO/IP representatives received further support to participate in national and regional information-sharing events and dialogues. Building on the positive experience, the Prime Minister’s office recently signed an Inter-Ministerial Decree on REDD+, which also includes one CSO and one Indigenous Peoples representative in the national REDD+ steering committee. 22 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT citizen redress; provided training to REDD Country Participants America and sub-tropical Asia, while fuel wood collection and in environment, social and governance risk management; charcoal production are the main forest degradation drivers and assisted national REDD+ coordination teams to more on the African continent. The main indirect driving forces of strategically manage stakeholder relations. forest change, including population and economic growth, are expected to increase in the coming years. Underlying 2.2.2. Assessing Land Use and Drivers of Deforestation for drivers are shifting and will redefine pressures on forests, REDD+ Strategy Development including pressure from global urbanization, developing country With a view to developing a national REDD+ Strategy, prosperity, changing food consumption patterns, and developing analytical work is needed to adequately assess land-use regional markets for key commodities. Most countries further patterns, drivers of changes in land use, and the policy and emphasized weak governance and weak institutions in the governance framework regulating development in relevant forest-related sectors as critical underlying factors in their economic sectors. In FY12, a number of countries made R-PPs. significant progress in their analysis of land-use trends and in the prioritization of direct and indirect drivers to be addressed BOX 5: BUILDING CAPACITY FOR DISPUTE RESOLUTION as part of their emerging REDD+ Strategies (see Box 6). IN MEXICO A recent study, Drivers of Deforestation and Forest Degradation: A Synthesis Report for REDD+ Policymakers,5 In FY12, Mexico embarked on the design of its grievance redress reviewed 31 national R-PPs, Readiness Preparation Idea mechanism for REDD+ related disputes. CONAFOR, Mexico’s Notes, and UN-REDD Programme Documents to improve government agency for forests, received technical support from knowledge on the role of drivers of deforestation and to the World Bank’s Dispute Resolution and Prevention team to present a global picture. The report noted that, although build its grievance redress mechanism according to global best the term “driver” is used broadly in the REDD+ debate, it is practices. Based on guidance received, CONAFOR identified and addressed gaps in their existing mechanism in order to provide important to distinguish between the proximate/direct causes citizens with an easily accessible and credible entry point to log and the underlying/indirect causes of deforestation and forest complaints. Rather than creating a new mechanism, CONAFOR degradation—in particular for the purpose of identifying REDD+ build on its existing systems to improve sustainability and allow intervention strategies. Based on the analysis of the R-PPs, for greater impact beyond REDD+ activities. the study identified commercial agriculture as the dominant proximate driver of deforestation in the majority of countries (especially in Latin America). Commercial timber extraction is 5 http://www.forestcarbonpartnership.org/fcp/sites/forestcarbonpartnership.org/ the dominant proximate driver of forest degradation in Latin files/Documents/PDF/Sep2012/DriversOfDeforestation.pdf BOX 6: EXAMPLES OF COUNTRIES ASSESSING DEFORESTATION DYNAMICS A pertinent analysis of the deforestation dynamics in the Congo Basin was completed in FY12. The Congo Basin harbors 70 percent of the African continent’s forest cover and forms the second largest tropical forest ecosystem in the world (after the Amazon). The 2-year modeling and research exercise resulted in a compendium of reports that provides policymakers and other interested stakeholders with a better understanding of how the development of different economic sectors, such as agriculture, transport, mining, energy, and logging, is expected to impact on the region’s forest cover. An in-depth analysis was carried out for each of the economic sectors; together, they form the basis for this innovative piece of analytical work that is anchored at the landscape level. At the core of the analysis is a modeling tool that explores the causal chain as well as the inter-linkages of deforestation effects from the different economic forces, including those exogenous to the Congo Basin. The resulting analysis cuts across the different sectors and aims to provide guidance to policymakers on how to better tackle the challenges of reconciling economic growth and forest preservation at a time when the Congo Basin countries are moving forward on the forest transition curve and entering into a phase of more intensive deforestation. In Liberia, the REDD+ Readiness process brought the need for land-use planning to the forefront of the national dialogue. As a post-conflict country, Liberia has a relatively short history of data-based planning. A sub-national assessment of different land uses emphasized the need for the resource-rich country to make strategic choices related to land allocation in view of the development trajectories for mining, agricultural, and forest management concessions. Important input to the national- level discussions on land-use planning were provided by a pilot study, supported by the European Space Agency, that entailed mapping of different land uses and identification of existing overlaps. It has since been proposed to extend this mapping to the whole country, with parallel work on valuation of forest resources supported as part of the FCPF-financed activities. The findings are expected to help decision makers with the formulation of a REDD+ strategy that is supported by relevant spatial data and information on land use. FOREST CARBON PARTNERSHIP FACILITY 23 FY12 ANNUAL REPORT 2.2.3. Strengthening the REDD+ Implementation Framework BOX 7: BUILDING BLOCKS OF NATIONAL REDD+ IMPLEMENTATION FRAMEWORKS—TWO EXAMPLES To ensure the effectiveness of REDD+ Programs, countries will need to adopt legislation and regulations defining the During FY12, the Government of Mozambique embarked on the scope of REDD+ in the country, the scale of implementation of formulation of new regulations to define the legal treatment of REDD+ activities, carbon rights, benefit-sharing arrangements, REDD+ demonstration projects. With technical assistance from management systems for REDD+ funds, and procedures for the FCPF, draft regulations were prepared that standardize dealing with REDD+ projects and initiatives nationally. A key the requests from the private sector, NGOs, and communities element of a country’s REDD+ implementation framework for permits to undertake REDD+ projects and eventually trade is a REDD+ registry (i.e., a national geo-referenced tracking carbon credits that derive from these projects. The regulations system). National REDD+ registries provide governments, deal with the process and competencies for granting such donors, and the private sector with transparent and meaningful permits to project entities, and set up minimum requirements data from which to make results-based payments for REDD+. that a project entity has to comply with when requesting such permits (e.g., safeguards, consultations requirements). The They ensure that important information pertaining to location, country is currently preparing these regulations in a highly ownership, carbon accounting, and financial flows of sub- participatory fashion, with active collaboration from national national and national REDD+ projects and programs are NGOs, research centers, and the private sector. An international captured, processed, stored, and accessible when required. workshop in Maputo brought together national stakeholders Regardless of whether REDD+ is financed via a market- and international experts for an exchange on how legal issues based mechanism or not, registries play a key role in the around REDD+ projects are dealt with internationally and in the national legal and institutional frameworks established for the forest sector in Mozambique. implementation of REDD+ by helping to aggregate and track The Government of the Democratic Republic of Congo multiple levels of REDD+ activities (e.g., national, sub-national, (DRC) is pioneering the design of a national REDD+ registry. and project level) and to channel international funding. National The government is developing a hybrid approach to REDD+ REDD+ registries are usually established in a step-wise accounting that includes elements of both sub-national and approach and evolve with the national circumstances. Initially, national approaches to REDD+. The REDD+ registry provides for national REDD+ registries simply tracked REDD+ activities accountability and transparency as it allows the country to make by GPS location and with proxies for carbon accounting. As all information related to REDD+ projects and initiatives in the national MRV capacities increase, REDD+ units are tracked country accessible to the public. The registry was formalized more systematically. Finally, once future carbon markets are through a decree signed by the Ministry of Environment establishing a detailed process for project developers to obtain established, national REDD+ registries will provide for different approval for the development of carbon projects. The country accounts, allowing for trading of REDD+ units. Box 7 provides expects to be able to attract additional financing to its REDD+ examples from two REDD Country Participants that have made activities by clarifying the “rules of the game’ and by avoiding progress in building the different elements of a national REDD+ potential double counting of emission reductions. The registry implementation framework. is embedded in the national forest monitoring system; it thus consolidates information on forest change and REDD+ activities in one place. The transparency of the system further promotes legality as it aims to prevent corruption by streamlining administrative processes. The registry is embedded in the national forest monitoring system; it thus consolidates information on forest change and REDD+ activities in one place. The transparency of the system further promotes legality as it aims to prevent corruption by streamlining administrative processes. FOREST CARBON PARTNERSHIP FACILITY 25 2.2.4. Early Lessons from Implementing the SESA Process BOX 8: EARLY LESSONS FROM THE SESA PROCESS IN COSTA While REDD+ has the potential to achieve multiple RICA AND MEXICO social and environmental benefits, there is a risk of adverse impacts if environmental and social considerations are not • The SESA process must be led by the respective fully integrated into the upstream development of a country’s government agency with assistance from the Delivery REDD+ Strategy through the use of a strategic environmental Partner. and social assessment (SESA). • Early and systematic information dissemination in a Important early lessons related to the implementation of culturally appropriate manner is key. the SESA process were gained in Costa Rica and Mexico (see Box 8). Critical to the success of early SESA implementation • Identification of all key stakeholders is a must; is the execution of a participatory process that includes all Indigenous Peoples and other local communities are key stakeholders, but often do not have uniform access the stakeholders identified in an initial stakeholder mapping to information on REDD+. exercise. The scoping exercise of potential environmental and social opportunities and risks must further allow for a dialogue • Engagement and continuous dialogue with key among the government, NGOs, CSOs, Indigenous Peoples, and stakeholders is important, including those who are local communities. opposed to REDD+. The early lessons from Latin America were transferred to • Prior meetings with key stakeholder groups on Ghana and Liberia; both countries benefited from additional contentious issues are recommended. technical assistance and guidance from the World Bank for • Adapting to dynamic situations is important as the key planning the roadmap for launching and implementing their stakeholders and the issues identified may change SESA processes. As part of the planning process, the roles and over time. responsibilities of all the stakeholders involved were mapped, institutional responsibilities specific to the country context were identified and assigned, and the overall SESA process was broken down into clearly identified and sequenced tasks. 26 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT 2.2.5. Advancing the Understanding on Setting Reference Levels in Bonn, Germany, in November 2011; and at the Forest Levels Day 5 on the sidelines of the 17th Conference of the Parties of the UNFCCC in Durban, South Africa, in December 2011. Reference levels serve to measure the performance of countries in reducing emissions and/or increasing uptake from the atmosphere resulting from changes in forest area and BOX 9: EMERGING TRENDS IN REFERENCE LEVELS FOR carbon content relative to other land uses over time. In light of FCPF COUNTRIES the high level of uncertainty surrounding both the definition of • Many countries appear to be using a national RL reference levels and the current lack of a recognized framework approach. for this process, countries are generally advised to adopt sound • Countries appear to be starting at the sub-national level, and feasible scientific methods that present a “no regrets” eventually building to the national level. approach (e.g., by taking a step-wise approach) until the definition of reference levels evolves. • The majority of countries plan to use a nested approach, In FY12, the Facility Management Team carried out a review i.e., a hybrid approach to REDD+ accounting that includes elements of both sub-national and national of 25 R-PPs with the goal of better understanding the current approaches to REDD+. trend countries are following to determine their reference levels (see Box 9) and what capacity needs they have in this context. • Two-thirds of the countries proposed developing In addition, a more in-depth review exercise was carried out reference levels by analyzing historic trends and that focused on five countries representative of the global FCPF projecting into the future. portfolio (Ghana, Guyana, Kenya, Indonesia, and Mexico). An • The timeframe of the work on reference levels is interactive learning session was subsequently conducted with unclear; many, however seem to have started in 2000. the five countries, in November 2011, to support them in their • Early cost estimates suggest that RL and MRV ability to develop RLs. development together use more than 50 percent of the Outputs from this learning activity include a draft Decision total R-PP budget. With such a significant portion Support Tool for Developing Reference Levels for REDD+. of the overall budget earmarked for this building block The above outputs and related findings were presented by FMT of REDD+ Readiness, it is important to support countries experts at the UNFCCC Expert Meeting on REDD+ Reference with implementation of a well-planned approach. FOREST CARBON PARTNERSHIP FACILITY 27 FY12 ANNUAL REPORT the benefit of community monitoring as a reliable, cost-effective BOX 10: DEVELOPING REFERENCE LEVELS AND AN MRV means of gathering data on local forest stocks and various non- SYSTEM IN NEPAL carbon benefits, including socioeconomic benefits and changes in ecosystem health (see Box 11). In the sequencing of REDD+ readiness activities, Nepal placed a Conclusions and recommendations for the way forward clear emphasis on the development of its reference levels (RL) are presented in Linking community monitoring to national and its measurement, reporting, and verification (MRV) system. Measurement, Reporting and Verification for REDD+.6 Detailed terms of references for RL and MRV development were developed and services were procured to kick off preparation activities in FY12. Nepal is using approximately half of its FCPF BOX 11: THE BENEFITS OF COMMUNITY MONITORING grant funds for RL/MRV. The development of the RL and MRV system builds on the Forest Resource Assessment 2011-2014 • Community monitoring is reliable, effective and supported by Finland. (Earlier support from Finland helped to economic, as local communities are usually familiar with the state of their forest, can be trained to use build basic capacity in forest monitoring and mapping within standard IPCC protocols, and are less costly to use than government institutions.) A number of other development expert inventories. New easy-to-use software on partners are also actively piloting remote sensing for MRV (e.g., handheld devices helps to ensure accuracy in World Wildlife Fund) as well as benefits sharing and community- measurement and can automate carbon and biomass based forest monitoring (e.g., Norway’s NORAD). Looking measurements. ahead to future implementation of its MRV system, Nepal is • Community monitoring enhances ownership and actively participating in the FCPF Working Group tasked with the motivation, and may also strengthen the rights of development of the Methodological and Pricing Approach for the communities in REDD+ and form the basis for a fair Carbon Fund—and further presented early ideas for an emission distribution of benefits. Community forest management reductions program at PC11 in March 2012. also encourages better management as the data collected can be used to plan management activities. 2.2.6. Exploring the Link between Community Monitoring • Community monitoring enriches the national carbon and National MRV database as it provides data at much higher intensity Community forest management features as an element for the areas monitored. Provided standardized protocols are used, community monitoring can directly in almost all emerging REDD+ Strategies and is a well- feed into national forest carbon accounting databases. established practice in many countries participating in REDD+ (e.g., Indonesia, Kenya, Mexico, Mozambique, Nepal, • Community monitoring helps to assess stock changes and Tanzania). It is thus sensible to consider the role that within forests as ground-level information is needed to signal forest change events and to validate and communities and Indigenous Peoples play in forest monitoring. corroborate data. This is especially true since national This is also specifically referred to in guidance by the UNFCCC forest inventories are usually too sparse to capture the COP and the SBSTA. impacts of management. In FY12, the Facility Management Team organized a workshop in Mexico to deliberate the benefits of community • Community participation in safeguards monitoring may serve to be as important as participation in carbon monitoring and how data generated by communities at the assessments. Self-evaluation of the social and local level can support and enhance national MRV systems. environmental impact of REDD+ initiatives may The workshop brought together 65 experts from more than complement scientific data collection in a very positive 15 countries representing MRV teams from national REDD+ way, as the self-evaluation by communities should programs in Africa, Asia, and Latin America, Indigenous better reflect local values and priorities. Peoples, community organizations, NGOS, and technical experts. Building on a body of published work as well as the experts’ 6 knowledge of community monitoring, the workshop confirmed Available at http://www.forestcarbonpartnership.org/fcp/node/339. FOREST CARBON PARTNERSHIP FACILITY 29 FCPF REDD+ COUNTRY PARTICIPANTS left side page crop FCPF REDD+ COUNTRY PARTICIPANTS REDD+ Country Participants. 37 REDD+ Country Participants have been selected into the FCPF. 36 have signed the Participation Agreement. The map illustrates the progress within the FCPF of each of the 36 countries as of June 30, 2012. MEXICO HONDURAS PARTICIPATION AGREEMENT SIGNED [36] GUATEMALA NICARAGUA INFORMAL R-PP PRESENTATION [18] EL SALVADOR COSTA RICA GUYANA GHANA R-PP ASSESSED BY PC [24] PANAMA SURINAME COLOMBIA LIBERIA READINESS PREPARATION GRANT SIGNED [7] The following countries have signed a R-PP Formulation Grant: PERU Cameroon, Colombia, Costa Rica, Democratic Republic of Congo, El Salvador, Ethiopia, Gabon, Ghana, Guyana, Indonesia, Kenya, Lao P.D.R., Liberia, Mozambique, Nepal, Nicaragua, Republic of Congo, Thailand, Uganda, BOLIVIA Vanuatu. PARAGUAY CHILE IBRD 36759R3 ARGENTINA OCTOBER 2012 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 30 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT right side page gutter crop NEPAL LAO P.D.R. THAILAND VIETNAM CAMBODIA A CENTRAL AFR. ETHIOPIA CAMEROON REPUBLIC UGANDA GABON KENYA CONGO DEM. REP. OF CONGO INDONESIA PAPUA TANZANIA NEW GUINEA VANUATU MOZAMBIQUE MADAGASCAR FOREST CARBON PARTNERSHIP FACILITY 31 The ER-PIN template was developed and is now in use for countries to submit their ideas of programs. FY12 ANNUAL REPORT Sowing the Seeds for Early Performance- Based Payments The Carbon Fund became fully operational in May 2011 and the last year focused on establishing the fundaments of the methodological and pricing framework for future performance-based payments. Looking back, substantial progress was made in FY 2012 in developing the necessary guidelines and templates and in establishing the rules of procedure needed to operate the Carbon Fund. As a result, the key building blocks for processing an emission reductions program from an initial idea to a negotiated Emission Reductions Purchase Agreement (ERPA) are now in place and the Carbon Fund is ready to accept the first Emission Reductions Program Idea Notes (ER-PIN) for review and potential selection into its pipeline. In the meantime, several countries (Costa Rica, the Democratic Republic of Congo, Ghana, Indonesia, Mexico, Nepal, and Vietnam) presented their early ideas to the Carbon Fund Participants. 3.1. Carbon Fund: Building the Framework for Discussions on the ERPA General Conditions advanced in Operation FY12. The PC agreed that, due to the complexity and novelty of the concepts, additional time was needed before an agreement Strategic discussions on the future of the Carbon Fund and could be reached on the details. A first step on the roadmap to on piloting performance-based payments have significantly the final ERPA General Conditions is the endorsement of the advanced over the past year. Looking back at FY12, the majority ERPA Term Sheet that was prepared in FY12 and is expected to in a set of sequenced goals to advance the Carbon Fund7 have be adopted by the PC in early FY13. been achieved: two funds have raised $457 million. • The ER-PIN template was developed and is now in BOX 12: ABOUT THE FCPF CARBON FUND use for countries to submit their ideas of programs. • The criteria for selecting ER-PINs into the pipeline The FCPF Carbon Fund will pilot payments for verified emission were agreed upon by the Carbon Fund Participants. reductions from REDD+ programs with the goal of providing incentives to reduce emissions while protecting forests, • The Rules of Procedure for the Carbon Fund were conserving biodiversity, and enhancing the livelihoods of forest- agreed upon by the Carbon Fund Participants. dependent Indigenous Peoples and local communities. Under • Guiding principles on the methodological framework the Carbon Fund, about five forest countries participating in the and policy guidance on a pricing approach for the FCPF whose Readiness Packages have been endorsed by the Carbon Fund were developed (see Section 3.3) and Participants Committee will enter into an Emission Reductions agreed upon by the Participants Committee (PC). Purchase Agreement (ERPA) for an average amount of between $30-$40 million. It is anticipated that the ERPAs will cover a A working group has been established to carry this period of five years. Programs are expected to be undertaken at work further and to provide expertise and advice a significant scale (for example, at the level of an administrative as the FMT develops a draft Methodological jurisdiction within a country or at the national level), to align Framework and Pricing Approach for consideration with the proposed national REDD+ Strategy and management by the Carbon Fund Participants at CF6 in FY 2013. framework, and to be consistent with the emerging national REDD+ MRV system and national reference emission levels. While progress has been made on the Readiness Package (see Section 2.1.4), other elements (e.g., the assessment criteria) continue to be under deliberation by the PC and are 7 expected to be adopted in FY13. An Action Plan with a sequenced set of goals for the Carbon Fund was agreed upon at an organizational meeting held in Barcelona in June 2011. FOREST CARBON PARTNERSHIP FACILITY 33 3.2. Opening the Carbon Fund Pipeline: ER-PIN BOX13: CRITERIA FOR A DECISION ON WHETHER TO INCLUDE Selection and Processing Guidelines AN ER-PIN IN THE CARBON FUND PIPELINE In FY12, the processing steps, from ER-PIN to ERPA 1. Progress toward Readiness: The emission reductions (ER) implementation, were deliberated and agreed to (see Figure 5). program must be located in a REDD Country Participant The ER-PIN is the first document to be presented to the that has signed a Readiness Preparation grant agreement Carbon Fund and, upon satisfactory review against a set of (or the equivalent) with a Delivery Partner under the criteria, forms the basis for the decision on inclusion in the Readiness Fund and prepared a reasonable and credible timeline to submit a Readiness Package to the Participants pipeline. FCPF REDD Country Participants that are making Committee. progress toward REDD+ Readiness are eligible to submit an ER- PIN to the Carbon Fund (see Box 13 for the selection criteria). 2. Political Commitment: The REDD Country Participant ER-PINs will be reviewed in batches, rather than on a must demonstrate a high-level and cross-sectoral political rolling basis, to allow for comparison among ER-PINs. The commitment to the ER Program and to implementing REDD+. windows for submission of ER-PINs will be aligned with the Carbon Fund meetings. In FY12, it was agreed to open the first 3. Methodological Framework: The ER Program must be window for submission of ER-PINs prior to CF5 in October 2012. consistent with the emerging methodological framework, Accordingly, eligible entities from REDD Country Participants including the PC’s guiding principles on the methodological framework. were invited to present, by September 1, 2012, ER-PINs that will be considered at CF5 in FY13. 4. Scale: The ER Program must be implemented either at Prior to the opening of the first window for submission of the national level or at a significant sub-national scale, and ER-PINs, Carbon Fund Participants were encouraged to share generate a large volume of emission reductions. early ideas on possible ER Programs with the Carbon Fund for 5. Technical Soundness: All the sections of the ER-PIN the purpose of providing early feedback and expert advice on template must be adequately addressed. the evolving ER concepts. In FY12, a number of countries took 6. Non-carbon Benefits: The ER Program must generate advantage of this opportunity for early feedback and guidance substantial non-carbon benefits. and informally presented ideas to the Carbon Fund Participants. 7. Diversity and Learning Value: The ER Program must These included Costa Rica, the DRC, Indonesia, and Mexico at contain innovative features, such that its inclusion in the CF2; Ghana and Nepal at CF3; and Vietnam at CF4. portfolio would add diversity and generate learning value for the Carbon Fund. Figure 5: Processing Steps: From ER-PIN to ERPA Implementation 1. ER-PIN 2. Review 3. Letter of Intent Signed (REDD+ country or (Carbon Fund Participants and (World Bank and REDD+ authorized entity) the World Bank) country/authorized entity) 4. Due Diligence (World Bank and Carbon Fund Participants) 6. ERPA Negotiation + 7. Implementation, 5. Overall Readiness Verification, Payments Signing Assessed (Carbon Fund Participants and (Carbon Fund Participants and (FCPF Participants REDD+ country/authorized REDD+ country/authorized Committee) entity) entity and World Bank) 34 FOREST CARBON PARTNERSHIP FACILITY 3.3. Developing the Methodology Framework and went a step further and defined elements that would help to Pricing Approach further operationalize the methodological framework for the Carbon Fund. For the purpose of the methodological frame- In FY12 a working group was established to make rec- work, the working group defined overarching accounting and ommendations to the PC on the broad, overarching guiding programmatic elements to ensure consistency with the UN- principles for the methodological framework and the policy FCCC principles of transparency, consistency, completeness, guidance for the pricing approach. Both are expected to evolve accuracy, and guidance on safeguards. For the purpose of the over time into detailed operational guidelines for implement- policy guidance on the pricing approach, the working group ing emission reductions programs. At this stage, however, only defined elements to ensure fairness, flexibility, and simplicity, broad guidance is needed to further shape the development of while protecting both parties (buyer and seller) from extreme the five building blocks of an ER Program (i.e., methodologi- price fluctuations (see Box 14). cal framework, pricing approach, ER Program design, ERPA It is worth mentioning that the working group itself was an contract and delivery, and World Bank due diligence). As per excellent way of bringing together representatives from REDD the FCPF Charter, the guiding principles are intended to be Country Participants, Donor Participants, Carbon Fund Partici- fundamental statements about the desired outcome of the ER pants, Observers, and FMT experts to carry this work forward Programs. in a highly participatory manner. The overall process was a suc- Since the overarching objectives and the scope of the cessful joint learning exercise that fostered knowledge transfer Carbon Fund are already sufficiently known, the working group among all the members of the working group. 36 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT BOX 14: KEY ELEMENTS OF THE METHODOLOGICAL AND PRICING APPROACH FOR THE FCPF CARBON FUND Recommendations for elements on carbon accounting: 1. Stepwise approach to reduce uncertainties: ER Program data and methods should be consistent with IPCC Tier 2 standards. In addition, the ER Programs should, by using conservative assumptions and quantitative assessment of uncertainties, be incentivized to reduce uncertainties associated with all aspects of accounting, inter alia reference levels, monitoring, and reporting (i.e., such that reductions in uncertainty are rewarded by a corresponding upward adjustment in ER volume). 2. Reference level: ERs from an ER Program should be conservatively measured and reported relative to a transparently presented and clearly documented forest reference emission level (REL) or forest reference level (RL) for the ER Program area, following the guidance of the Carbon Fund Methodological Framework and informed by the emerging national REL/RL. 3. Consistency with monitoring system: ER Programs should monitor and report ERs and other non-carbon variables consistent with the emerging national forest monitoring system, using methods appropriate to the ER Program circumstances (including community monitoring that is transparently presented and clearly documented). 4. Address reversals: The ER Program should, to the extent feasible, identify potential sources of reversal of ERs (e.g., non- permanence); have the capacity to monitor and report any reversal of previously monitored and reported ERs; and have measures in place to address major risks of anthropogenic reversals for the ER Program area. 5. Address displacement: Potential sources of domestic and international displacement of emissions (leakage) should be identified by assessing all the drivers of land-use change relevant for the ER Program; and leakage should be measured to minimize and/or mitigate the risk that displacement of domestic emissions are incorporated into ER Program design and the estimation and monitoring of ERs. Recommendations on programmatic characteristics: 1. Endorsement and implementing capacity: The ER Program should be endorsed by the national government (or governments, as appropriate) and be implemented by an entity that has the capacity to implement the proposed REDD+ activities, potentially via a stepwise approach. 2. Scale and ambition: The ER Program is ambitious, in that it demonstrates at a large scale the potential of the full implementation of the variety of interventions of the national REDD+ strategy, covering a significant portion of the territory. 3. Safeguards: The ER Program meets World Bank social and environmental safeguards, promotes and supports the safeguards included in UNFCCC guidance related to REDD+, and provides information on how these safeguards are addressed and respected, including through the application of appropriate grievance mechanisms. 4. Stakeholder participation: The design and implementation of ER Programs should be based on and use transparent stakeholder information sharing and consultation mechanisms that ensure community support and the full and effective participation of relevant stakeholders (notably affected Indigenous Peoples and local communities). 5. Benefit sharing: The ER Program should use clear, effective, and transparent benefit-sharing mechanisms with broad community support and support from other relevant stakeholders. 6. Non-carbon benefits: The ER Program should contribute to broader sustainable development. This could include, but is not limited to, improving local livelihoods, building transparent and effective forest governance structures, making progress on securing land tenure and enhancing or maintaining biodiversity and/or other ecosystem services. The ER Program should monitor and report on these non-carbon benefits as feasible, taking note of existing and emerging guidance on monitoring of non-carbon benefits by the UNFCCC, CBD, and other relevant platforms. Recommendations on pricing elements: 1. Fairness, flexibility and simplicity: Pricing should be fair and flexible, be kept as simple as possible, and protect parties from extreme price fluctuations. 2. Price structure: The ERPA price should, where feasible. be a combination of fixed and floating portions 3. Information negotiations: The ERPA price should be determined by negotiations between the CF Participants (the buyer) and the ER Program entity (the seller) based on their respective willingness to pay or to receive payment. This negotiations process should be informed by market surveys, transaction benchmarks, and/or other relevant information.. 4. Non-carbon benefits: The ERPA price negotiations process offers an opportunity for non-carbon benefits to be taken into consideration, although there would be no systematic quantification of non-carbon benefits for pricing under the Carbon Fund. FOREST CARBON PARTNERSHIP FACILITY 37 The objectives of the meeting were to update Indigenous Peoples on the FCPF and to reach a common understanding on a number of issues, including the application of the UNFCCC decision on REDD+ in the context of the FCPF. FY12 ANNUAL REPORT Advancing the REDD+ Agenda Together 4.1. Expanding to Multiple Delivery Partners While the World Bank was initially the only eligible Delivery Partner for the FCPF Readiness Fund, the Participants Committee at its 9th meeting in June 2011 approved the Inter-American Development Bank (IDB) and the United Nations Development Programme (UNDP) to serve as Delivery Partners under the Readiness Fund. The United Nations Food and Agriculture Organization (FAO) was approved to act as an additional Delivery Partner at PC10 in October 2011. The decision to open the Readiness Fund to Multiple Delivery 4.2. Scaling up the Dialogue with Indigenous Peoples Partners was based on the requests of REDD Country Participants as well as the fact that other Delivery Partners An unprecedented global meeting of Indigenous Peoples’ may be more effective at delivering support services in some representatives took place in Guna Yala, Panama, from countries based on their local presence and portfolio of September 27-29, 2011. Participants included Indigenous development operations. Peoples representatives from 28 countries, as well as FY 2012, the Facility Management Team substantially representatives from the Delivery Partners (WB, UNDP, IDB), advanced the legal and administrative work to finalize the from international and national NGOs, and from the FMT. Transfer Agreements to be signed between the World Bank, This global dialogue was organized in response to a as the Trustee of the FCPF, and IDB and UNDP, respectively, request made by Indigenous Peoples’ leaders to the World as Delivery Partners. Negotiations on the Transfer Agreements Bank in FY11. For planning purposes, a Steering Committee were completed during FY12 and both agreements are expected was formed composed of six Indigenous Peoples leaders to be signed in early FY13. Cambodia, the Central African representing Francophone Africa, Anglophone Africa, Asia, Republic, Honduras, Panama, Paraguay, Papua New Guinea, Meso-America, South America, and the Pacific. The objectives and Suriname have expressed interest in working with UNDP of the meeting were to update Indigenous Peoples on the as their Delivery Partner. Accordingly, UNDP is now assessing FCPF and to reach a common understanding on a number these requests. A similar process is underway with the IDB, of issues, including the application of the UNFCCC decision which is expected to provide REDD+ readiness support services on REDD+ in the context of the FCPF, the application of the to Guyana, Guatemala, and Peru at the request of these Common Approach to Environmental and Social Safeguards for countries. Both IDB and UNDP are expected to request that the Multiple Delivery Partners, and the mechanisms for effective FCPF Trustee transfer funds for the first countries as soon as engagement of Indigenous Peoples in FCPF processes. Transfer Agreements are signed. Country pairings have not yet The global dialogue at Guna Yala resulted in the adoption been identified for the FAO under the Multiple Delivery Partner of an Action Plan by the Indigenous Peoples representatives. arrangement. One of the main requests was a proposal for expanding the To ensure a uniform set of safeguard standards, the existing capacity building program, to which the PC responded Common Approach to Environmental and Social Safeguards positively (see Section 2.2.1). While in Guna Yala, the FCPF also for Multiple Delivery Partners had already been approved at committed to support the organization of a series of regional- the 9th FCPF PC meeting in June 2011. The Common Approach level follow-up meetings to the global dialogue. The first is designed to provide the World Bank and the Multiple Delivery event in this series was the Pan-African Indigenous Peoples’ Partners with a common platform for risk management and Dialogue with the FCPF held in Arusha, Tanzania, in April quality assurance in the REDD+ Readiness Preparation process 2012; it brought together more than 50 Indigenous Peoples by achieving substantial equivalence with the World Bank’s representatives from Africa. Similar regional events are applicable policies and procedures on environmental and planned for Latin America (Lima, Peru) and Asia (Chiang Mai, social safeguards, disclosure of information, and grievance and Thailand), followed by a subsequent second global dialogue in accountability mechanisms. the first half of FY13. FOREST CARBON PARTNERSHIP FACILITY 39 The ongoing series of Indigenous Peoples’ dialogues has not established composed of representatives from Indigenous only reaffirmed the commitment of the FCPF to meaningfully Peoples’ organizations. As part of Colombia hosting the 13th engage and consult with Indigenous Peoples but has also FCPF Participants Committee Meeting in Santa Marta, a contributed to increasing the attention of governments of REDD meeting with over 30 Colombian civil society organizations, Country Participants to the need to effectively engage Indigenous Indigenous Peoples and afro-colombian communities was Peoples in national REDD+ Readiness processes. Moreover, organized by the FCPF and the World Bank Latin America and workshops have strengthened the common understanding of Caribbean regional team, in coordination with the Ministry of the World Bank’s environmental and social safeguard policies Environment and Sustainable Development (MADS) in Bogota. and, more specifically, the application of the SESA approach to Participants exchanged experiences and perspectives about the FCPF’s Readiness mechanism. More generally, workshops the national REDD+ Readiness Process, including discussions have contributed to building overall capacity of and collaboration on the existing participatory mechanisms and platforms. among Indigenous Peoples and to identifying remaining The meeting also facilitated group discussion resulting in barriers to effective Indigenous Peoples’ participation in REDD+ recommendations on the following three topics: (i) the most readiness at both national and global levels. adequate manner to build a multi-stakeholder participation mechanism for the REDD+ process; (ii) identification of priority activities to be carried out in the next months as part of the BOX 15: COUNTRY-LEVEL DIALOGUE WITH INDIGENOUS Colombia REDD+ readiness process; and, (iii) improvement of PEOPLES —AN EXAMPLE FROM COLOMBIA the self-selection process for the observer seat of Indigenous Peoples and forest dwellers and the observer seat for CSOs of Colombia continues its active engagement with Indigenous the FCPF Participants Committee. Peoples through early dialogue and information dissemination activities at the national, regional and local levels. Additionally, the roadmap for initiating the SESA process in the 5 eco- 4.3. Opening the Readiness Fund to New Countries regions envisions further activities of engagement and dialogue In response to the expressions of interest received with Indigenous Peoples, afro-colombian and campesino from a number of eligible countries over the past year, the communities at the regional and local levels in identifying the FCPF Participants Committee discussed the opening of the potential risks and benefits of the proposed REDD+ strategic Readiness Fund to additional countries. Formal expressions options. In an effort to continue systematic dialogue, for of interest were received from Belize, Bhutan, Burundi, Chad, example, a regional platform for discussing climate change Côte d’Ivoire, Guinea, Jamaica, Nigeria, Pakistan, Philippines, and REDD+ in the Amazon area with Indigenous Peoples was Sri Lanka, Sudan, and Togo. During its 10th meeting in Berlin, 40 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT the PC decided to consider the process and criteria for further assistance to countries to become ready for REDD+. FY12 inclusion of countries in the FCPF at its 14th meeting in consolidated this effort, with closer coordination within Washington, DC, in March 2013. As agreed by the PC during host countries on national REDD+ planning, national REDD+ its 11th meeting in Asuncion, the criteria will include, at a committees, and the network of CSOs involved in REDD+. minimum: i) availability of resources; ii) the country’s proposed Coordination has entailed joint country missions and sharing date of R-PP submission for formal assessment by the PC; and responsibility for financing Readiness activities. At the global iii) the country’s proposed Delivery Partner. level, coordination between the FCPF and the UN-REDD An important consideration for the PC is the need to Programme involves joint scheduling of governance body balance the financial and human resources implications meetings, the harmonization of programmatic documents, the associated with a possible expansion of the number of FCPF coordination of analytical and capacity building efforts (see Box REDD Country Participants with continued quality support 16) and the joint delivery of Secretariat services to the REDD+ to the existing REDD Country Participants and the capturing Partnership. In addition, the FCPF and UN-REDD updated the of lessons from the faster-moving countries. The PC agreed joint R-PP submission template as of April 2012. There may still that the allocation of existing resources and support for be room for closer cooperation further in the future. REDD+ Readiness activities among the current REDD Country Participants will take precedence over allocations to potential BOX 16: JOINT COUNTRY NEEDS ASSESSMENT new countries. 4.4. Coordinating with other REDD+ Initiatives The UN-REDD Programme and the FCPF jointly commissioned a Country Needs Assessment in FY12 to identify and prioritize REDD+ has a challenging agenda given its multi-sectoral the technical, institutional and financial needs of REDD+ and multi-stakeholder dimensions, and the large financial countries in advancing REDD+ readiness. The decision to and capacity needs involved. It is important, therefore, that carry out a joint assessment was made following requests for development partners come together to provide a package of engaging countries in assessments of countries’ readiness financial and technical assistance to better serve their client needs to the UN-REDD Programme Policy Board during its 6th countries. meeting in Vietnam and the 10th FCPF Participants Committee 4.4.1. UN-REDD Programme Meeting in Germany. For the past three years, the FCPF and the UN-REDD Programme have deepened their cooperation in providing FOREST CARBON PARTNERSHIP FACILITY 41 FY12 ANNUAL REPORT 4.4.2. Forest Investment Program The BioCF and the FCPF are fully complementary as they operate at different scales, with the BioCF largely investing in The Forest Investment Program (FIP) supports developing and developing methodologies at the project level that can be country efforts to reduce deforestation and forest degradation integrated into larger systems and the FCPC building capacity and promote sustainable forest management that lead to for national-level REDD+ accounting and piloting national or emission reductions and enhancement of forest carbon sub-national level implementation. stocks (REDD+). The FIP focuses on sizable investments in a By pioneering forest carbon transactions at the project level, smaller number of key countries in order to achieve economic the BioCF is learning important lessons on topics that are highly transformation and generate global knowledge. The FIP is relevant for the operationalization of the FCPF Carbon Fund. currently active in eight pilot countries (Brazil, Burkina Faso, More specifically, the BioCF is generating experiences on: i) the DRC, Ghana, Indonesia, Lao PDR, Mexico, and Peru), most how to set up, monitor and verify performance-based payments of which are also FCPF REDD Country Participants (with the on the ground; ii) how to set up benefit-sharing mechanisms exception of Brazil and Burkina Faso). for the monetary benefits from forest carbon transactions; At the country level, FIP investment plans propose iii) how to define and account for non-carbon benefits, such interventions that have been prioritized through a country- as environmental and socioeconomic benefits; and iv) how to led process. They build on the FCPF Readiness or equivalent prevent and address the potential occurrence of reversals that processes and draw on the Readiness Preparation Proposals could undermine the environmental integrity of a forest carbon and the emerging REDD+ Strategies. Coherence and transaction. cooperation across the different FIP and FCPF activities have been achieved, especially in the DRC and Mexico, as governments ensure that FIP planning is coordinated by the 4.5. Harvesting and Sharing Knowledge same teams that carry out FCPF planning and coordination. At 4.5.1. Lessons for REDD+ from Payment for the Secretariat level, the FIP uses experts from the FCPF Roster Environmental Services of Experts to review the draft FIP Investment Plans in an effort to ensure that FIP investments are consistent with national A major knowledge product delivered in FY12 was the R-PPs and emerging REDD+ Strategies. The two programs publication Lessons Learned for REDD+ from PES and are also working together to harmonize the delivery process Conservation Incentive Programs.8 The publication documents for the grants mechanisms for Indigenous Peoples and local experiences generated from over a decade of implementation communities supported under each program. The FIP further of Payments for Ecosystem Services (PES) and conservation commissioned a learning product on REDD+ stakeholder incentive programs in Costa Rica, Mexico, and Ecuador. The collaboration at the country level that, amongst other things, is publication shares a wealth of lessons learned as well as intended to inform stakeholder engagement across the different practical implications for REDD+ programs and policies for REDD+ initiatives and provide recommendations to further stakeholders in other countries. The applicability of the PES enhance such collaborative efforts. experience to emerging national REDD+ programs is based on the fact that both PES and REDD+ are performance-based 4.4.3. BioCarbon Fund payment mechanisms and therefore rely on supportive legal and policy frameworks as well as effective measurement, The BioCarbon Fund (BioCF) is a public-private carbon reporting, and verification. South-South knowledge exchange fund, operational since 2004, that pioneers projects that on the topic was facilitated with coordination support from sequester or conserve carbon in forest- and agro-ecosystems, Forest Trends, with a technical workshop that convened 20 mitigating climate change and improving livelihoods. The PES experts and a number of practitioners in Costa Rica. overall goal of the fund is to demonstrate that land-based Additional panel discussions involving a range of international activities can generate high-quality emission reductions with stakeholders were held in Durban and Washington. strong environmental and socioeconomic benefits for local communities. About 80 percent of the BioCF’s resources have 4.5.2. Issues and Options for National REDD+ Registries been earmarked for afforestation and reforestation projects under the Clean Development Mechanism; the remainder has A timely knowledge piece delivered in FY12 was National been allocated to REDD+ and sustainable land management REDD+ Registries—An Overview of Issues and Design projects. BioCF projects have a range of different objectives, Options9—a joint publication from the FCPF and the German including fuel wood production, timber production, and Development Bank (KfW). As countries progress toward REDD+ environmental restoration. With the development of 10 CDM- 8 approved methodologies and a variety of capacity and outreach http://www.forestcarbonpartnership.org/fcp/sites/forestcarbonpartnership. org/files/Documents/PDF/Mar2012/Full%20version%20of%20PES%20 activities, the BioCF has actively promoted the development Lessons%20for%20REDD%2B%20March%202012.pdf of the forest carbon market and pioneered forest carbon 9 http://www.forestcarbonpartnership.org/fcp/sites/forestcarbonpartnership. transactions on the basis of local know-how. org/files/Documents/PDF/Jun2011/REDD%20Brosch%C3%BCre%202011%20 druck%20digital.pdf. FOREST CARBON PARTNERSHIP FACILITY 43 Readiness, the FCPF and other REDD+ partners are exploring with (e.g., how to identify beneficiaries, how to ensure principles ways to fund forest carbon emission reductions through results- of equity), and how to share (e.g., how to select an appropriate based payments that form part of a national REDD+ strategy. and effective distribution mechanism, how to avoid and mitigate Before countries adopt national reference levels, however, potential conflict, how to monitor performance). a mechanism is needed to track and validate sub-national, To facilitate cross-country knowledge sharing on this results-based actions to ensure environmental integrity across topic, the Facility Management Team organized a series of different REDD+ initiatives and to promote transparency and three dialogues in FY12 involving 13 countries (Central African appropriate benefit sharing with stakeholders. To date, there Republic, Republic of Congo, Ethiopia, the DRC, Ghana, is little practical experience illustrating how sub-national Indonesia, Kenya, Lao PDR, Liberia, Madagascar, Nepal, or project Emission Reductions Programs (ERPs) can be Tanzania, and Vietnam).10 Particularly helpful to the participants integrated into national accounting. REDD+ registries could be were the experiences shared by countries who have working an important tool to centrally record the information necessary benefit-sharing mechanisms in place. Examples included a to address these issues and facilitate transparency and tracking cash payment to individual households employed by REDD+ pilot of that information. The report elaborates how national REDD+ projects in Tanzania, a revenue distribution mechanism from registries could help to manage the implementation of ERPs, a carbon offset project bordering the Makira Protected Area in results-based funding, private investment, and, potentially, Madagascar, and a REDD+ questionnaire in Vietnam designed REDD+ carbon markets if a market-based mechanism is used. to filter the collective choices of different beneficiary groups for benefit and disbursement schedules. Overall, participants 4.5.3. South-South Dialogue on Benefit Sharing agreed that determining “legitimacy” is key to the success Indicative of the role of the FCPF in supporting global of a benefit-sharing mechanism and that countries will need knowledge creation and dissemination, the FCPF promoted to cover this topic as part of their ongoing consultation and South-South knowledge exchange on benefit sharing. REDD+ stakeholder participation processes. countries have acknowledged the critical importance of As part of the knowledge exchange among countries, equitable, pro-poor, and transparent benefit sharing, and relevant studies and tools developed by partner initiatives almost all are in the process of developing frameworks on were also reviewed. This included a study11 by the Program on benefit sharing. While there are some good examples of benefit Forests (PROFOR) which aims to inform the design of benefit- sharing mechanisms in use in local-level REDD+ pilot projects sharing arrangements in REDD+ initiatives, as well as a related as well as in other sectors at the national level (e.g., mining), interactive tool designed to facilitate the assessment of benefit- no functioning model yet exists for REDD+ at the national level. sharing mechanisms that would match specific country capacity As countries continue to advance the design of their respective and context. systems, they continue to grapple with the pragmatic details 10 A similar session is planned with Latin American countries in FY13. on what to share (e.g., how to designate direct and indirect 11 http://www.profor.info/knowledge/making-benefit-sharing-arrangements-work- benefits, how to determine share of benefits), who to share it forest-dependent-communities. 44 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT 4.5.4. South-South Knowledge Exchange on Community the rotating Partnership co-chairs to organize four Partnership Forestry meetings in FY12; each brought together approximately 100 country partners and stakeholders. The Partnership made A new publication provides practical information on the significant advances in developing the Voluntary REDD+ role of community forest management as a strategic option Database that countries are using to report on fast-start to promote REDD+ goals. Various tropical countries have financing, making it possible to see how REDD+ financing already demonstrated that the effective decentralization flows evolve, to identify important discrepancies, and to assess of forest management rights and responsibilities, when whether or not the discrepancies are being resolved over time. combined with long-term support from local communities, An external review of multilateral REDD+ initiatives, completed can lead to better management of forest resources. REDD+ in in September 2011, revealed the significant progress that has turn can foster decentralization of forest management rights been made in coordinating and harmonizing projects and offered and responsibilities. The publication REDD+ and Community recommendations for making further progress. Forestry: Lessons Learned from an Exchange of Brazilian A number of workshops broadened the REDD+ discussions Experiences with Africa,12 draws on a successful South-South to a wider audience—for example, bringing in finance experts to knowledge exchange on this topic in Brazil that included discuss the potential for private sector engagement in REDD+, policymakers and experts from five countries in the Congo inviting experts from California, Australia, and the EU to discuss Basin—Cameroon, Gabon, the Central African Republic, the existing and emerging pay-for-performance ER Programs, and Democratic Republic of Congo, and the Republic of Congo—and introducing finance and economy ministry officials to REDD+. Madagascar. Learning first-hand about the Brazilian experience The workshops also brought together practitioners to discuss of empowering forest communities to manage their resources such key issues as safeguards, monitoring, reference levels, was particularly relevant to the DRC, where new legislation on financing options, and drivers of deforestation and forest community forest management is currently being discussed. degradation. More generally, South-South exchanges like this have proven to Importantly, partners also reflected on the achievements of be powerful opportunities for policymakers to learn how their the Partnership—highlighting its role in increasing transparency, counterparts in other countries have tackled similar challenges; trust, and voice among countries and stakeholders—and began this helps them to improve the efficiency and effectiveness of discussing whether or not to extend the Partnership’s work emerging REDD+ Strategies in their own countries.13 program beyond its original term of end of year 2012. 4.6. The REDD+ Partnership 12 http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSDNET/0,,contentMD The REDD+ Partnership—for which the FMT serves as K:23202165~menuPK:64885113~pagePK:7278667~piPK:64911824~theSite Secretariat jointly with the UN-REDD Programme Team—takes PK:5929282,00.html. 13 REDD+ issues outside of negotiations to advance progress on The initiative was carried out by the FCPF with funding support from the Global Environment Facility, coordination support from the Amazonas Sustainable REDD+ and tap the knowledge of various constituencies. The Foundation, and technical support from the French Office National des Forest FMT worked closely with the UN-REDD Programme Team and International. FOREST CARBON PARTNERSHIP FACILITY 45 As increasing numbers of REDD+ countries move into R-PP implementation—“getting ready for REDD+” —and, as the work of the Carbon Fund gets underway, the annual expenditures and disbursements of both funds are increasing as forecast. FY12 ANNUAL REPORT FY12 Financial Report of the Facility 5.1. Budget Approval Process With four fiscal years of Readiness Fund operation now complete, and with the first Carbon Fund budget approved in June 2011, the budgetary, expenditure, and financial planning processes within the Facility are becoming more systematized. As increasing numbers of REDD+ countries move into R-PP implementation—“getting ready for REDD+”—and, as the work of the Carbon Fund gets underway, the annual expenditures and disbursements of both funds are increasing as forecast. Looking ahead, the expansion to other Delivery Partners in the Readiness Fund will introduce inevitable complications in the financial processes. On the upside, as the other Delivery Partners move into action, financial commitments and disbursements will accelerate. The budgets for both the Readiness Fund and the Carbon typically included FCPF Secretariat and REDD+ Methodology Fund are based on the World Bank’s fiscal year (beginning Support activities, such as the costs of travel and expenses for July 1) and are approved annually in accordance with the FCPF REDD Country Participants to attend the Participants Assembly Charter. The Participants Committee (PC) is responsible for and PC meetings and the work of the Technical Advisory Panels. approval of the annual budget for the Readiness Fund and the Pursuant to the Charter, the Readiness Fund pays 65 “Shared Costs” of the Facility, whilst the participants of the percent and the Carbon Fund pays 35 percent of Shared Carbon Fund are responsible for approval of the annual budget Costs, unless the PC decides otherwise. The PC has approved for the Carbon Fund as a separate trust fund. Both budgets are resolutions waiving cost sharing through the end of FY11 (to usually approved in June of the preceding fiscal year. reflect the fact that the Carbon Fund was only fully operational To date, the PC (and its predecessor, the Steering as of May 2011) and paying 100 percent of the Shared Costs Committee) has approved budgets for the Readiness Fund for from the Readiness Fund. In addition, the PC agreed that FY09-FY13, along with several amendments and revisions to cost sharing at the 65/35 level should commence from FY12 those budgets during each fiscal year. Only two annual budgets onward. However, there is an important caveat in Resolution have been approved for the Carbon Fund (FY12 and FY13), with PC/8/2011/8 approved in March 2011, in that the PC agreed informal guidance sought by the Facility Management Team for to a lifetime cap of $12 million on the Shared Costs that it developmental expenditures prior to that time (before the fund will charge to the Carbon Fund. This resolution responded to became fully operational). the concerns of several existing and potential Carbon Fund As part of the approval of the Readiness Fund budget, the Participants that an upward limit be placed on such costs given FCPF Charter indicates that the PC shall make decisions on all that the PC otherwise makes all decisions regarding their Shared Costs for activities that cut across and benefit both the composition and annual approvals. Readiness and Carbon Funds. In practice, the Shared Costs have FOREST CARBON PARTNERSHIP FACILITY 47 5.2. The Readiness Fund 5.2.1. Funding Sources In FY12, the $31.5 million received into the Readiness The Facility continued to grow in financial terms during Fund, in addition to the $181.1 million in cash received in the FY12, with the Readiness Fund receiving donor contributions previous three fiscal years, brought the total cash contributions of $31.5 million over the past year. Table 1 presents the to the end of FY12 to $212.6 million. This leaves outstanding contributions and public pledges for the Readiness Fund as commitments of about $22.8 million from existing signed at the end of FY12. Although total signed Donor Participation agreements to be paid into the Readiness Fund in the coming Agreements amounted to $235.4 million, some of the years, in addition to the pledged contribution of $4 million from agreements included a phased contribution into the Readiness the United States for which the agreement was signed in July Fund spread out over a few years. 2012. Table 1: Commitments and Pledges to the Readiness Fund as of June 30, 2012 (in $ thousands) Participant Name FY09 FY10 FY11 FY12 FY13-16 Total Australia 9,565 7,997 6,330 23,892 Canada 41,360 41,360 Denmark 5,800 5,800 European Commission 2,688 2,520 5,208 Finland 8,956 5,749 14,705 France 4,612 592 5,136 10,340 Germany 25,956 12,600 38,556 Italy 5,000 5,000 Japan 5,000 5,000 4,000 14,000 Netherlands 5,000 7,635 7,635 20,270 Norway 5,000 16,398 8,801 30,199 Spain 7,048 7,048 Switzerland 8,214 8,214 United Kingdom 5,766 5,766 United States of America 500 4,500 5,000 Committed Funding 53,895 32,290 94,880 31,538 22,755 235,358 United States 4,000 4,000 Committed Funding plus Pledges 53,895 32,290 94,880 31,538 26,755 239,358 48 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT 5.2.2. Funding Uses Table 2: FCPF Readiness Fund Annual Expenditures (in $ thousands) FY12 FY09 FY10 FY11 Revised FY12 Activities Actual Actual Actual Budget Actual Readiness Trust Fund Administration 471 362 366 421 356 FCPF Secretariat 988 1,321 1,685 2,588 2,056 REDD Methodology Support 828 1,266 1,921 1,624 999 Country Advisory Services 801 793 545 1,543 1,073 Country Implementation Support 409 1,660 1,904 2,493 1,701 IP and CSO Program 1,020 267 Total Readiness Fund (including Carbon Fund Shared Costs) 3,497 5,402 6,421 9,689 6,452 Less: Carbon Fund Shared Costs (1,474) (1,069) Total Readiness Fund 3,497 5,402 6,421 8,215 5,383 As the FCPF has shifted from startup to implementation phase, annual expenditures have also generally increased, although the sharing of some of the costs with the Carbon Fund in FY12 has resulted in a reduction of actual costs charged to the Readiness Fund. In FY12 the PC approved a somewhat larger budget for operational and administrative support to REDD+, in part to reflect the growing staffing capacity of the FMT, in part to reflect the growing program to support Indigenous Peoples and civil society organizations, and in part to reflect the anticipated use of Delivery Partners other than the World Bank. Both Table 3 and Figure 6 show a comparison of the FY12 final budget with the actual expenditures by activity on a cash basis. The PC originally approved a budget for the Readiness Fund of $7.2 million. With the additional budget approved during the year of just over $1.0 million for the Indigenous Peoples and CSO Capacity Building Program, the final approved budget for the Readiness Fund for FY12 was $8.2 million. This compared to total Readiness Fund expenditures for the year of $5.4 million. The fiscal year therefore closed with spending at 66 percent of the revised budget and $2.8 million unspent. A large share of this underspend related to the special budgetary request for the Indigenous Peoples and CSO Capacity Building Program; this funding has been held over to FY13. These FY12 expenditure figures also do not include some contracts that were issued to support operations of the FCPF but not yet fully Table 3: FCPF Readiness Fund Expenditures by Activity (in $ thousands) Original Revised Actual Expense Variance Budget Budget Expense Rate Activities Readiness Trust Fund Administration 421 421 356 65 85% FCPF Secretariat 2,588 2,588 2,056 532 79% REDD Methodology Support 1,624 1,624 999 625 62% Country Advisory Services 1,543 1,543 1,073 470 70% Country Implementation Support 2,493 2,493 1,701 792 68% IP and CSO Program 1,020 267 753 26% Total Readiness Fund (including Carbon Fund Shared Costs) 8,669 9,689 6,452 3,237 67% Less: Carbon Fund Shared Costs (1,474) (1,474) (1,069) (405) 73% Total Readiness Fund 7,195 8,215 5,383 2,832 66% FOREST CARBON PARTNERSHIP FACILITY 49 Figure 6. FY12 Budget Performance (in $ thousands) 3,000 2,588 Revised Budget Actual Expense 2,500 2,493 2,056 2,000 1,624 1,701 1,543 1,500 999 1,073 1,020 1,000 421 500 356 267 0 Readiness Fund FCPF REDD Methodology Country Country IP and CSO Administration Secretariat Support Advisory Services Implementation Support expensed (e.g., some of the Indigenous Peoples Program came to about $1,073,000, or about 70 percent of the amount contracts) and funding commitments that were made previously originally budgeted in FY12. The majority of these costs came to World Bank country teams supporting Readiness in specific from FMT, forestry, and social development staff advice and countries but not yet expensed. guidance to REDD Country Participants on their programs, As per Table 3, Readiness Fund Administration costs were including development of the R-PPs and SESA and consultation $356,000, or about 85 percent of the $421,000 budgeted in FY12. processes, as well as the sharing of cross-country experiences. These costs reflect the work of all World Bank staff involved This increased level of spending (compared to about $545,000 in fund management, contributions management, accounting, in FY11) largely reflects the fact that FMT staff worked more legal, and other services required by the Readiness Fund closely with REDD+ countries to develop and share guidance Trustee. and further develop individual country experiences. The FCPF Secretariat expenses were $2.1 million (or 79 percent underspend of $470,000 includes approximately $200,000 in of budget), compared to the budget of $2.6 million. Expenditures work on benefit sharing that was delayed as well as $100,000 included the standard costs for program management, for feedback on R-PPs that were anticipated but not formally organization of the annual Participants Assembly and PC submitted to a PC in FY12. meetings, and travel costs for REDD Country Participants to Costs for Country Implementation Support totaled $1.701 those meetings. Increasingly, knowledge and learning events million, or 68 percent of the planned budget. To date, this line on REDD+ and other key partner meetings (e.g., the UN-REDD item has reflected the direct assistance of World Bank country Programme or REDD+ Partnership) are jointly organized to teams to REDD Country Participants, including technical maximize the use of participant time and to keep costs as low as assistance, grant supervision, and assessments provided to possible. FCPF Secretariat costs in FY12 also included the costs the PC. While spending and activities were generally on the of the Global Dialogue with Indigenous Peoples held in Panama levels anticipated at the start of FY12, most of the underspend in September 2011, the costs of hosting and maintaining came from an allocation of $575,000 that was pending the the FCPF Web site, strengthened communications to FCPF signature of a Transfer Agreement with a Delivery Partner (IDB). stakeholders, and expanded translation of FCPF materials. That Transfer Agreement was signed in early FY13. Now that With the budget for REDD+ Methodology Support activities agreements are formalized with the new Delivery Partners, the set at $1.6 million in FY12, and total expenditures at $1.0 costs of Country Implementation Support will include the costs million, this line item saw spending of only 62 percent against incurred by partner institutions beyond the World Bank. FY12 plans. While costs did reflect the expenses of the independent TAPs supporting the FCPF (consulting contracts 5.2.3. End of Year Account Balance and travel and meeting costs), the allocated funds for the In summary, per Table 4, at the close of FY12 the Readiness Carbon Fund TAP on specific topics (e.g., Methodology and Fund stood at almost $190 million. Total new funds into the Pricing) were not expensed this fiscal year. Spending covered account totaled about $32.5 million, including donor contributions considerable work with other REDD+ institutions (e.g., UN- of $31.5 million (see Table 1) and investment income of $0.9 REDD) to coordinate and develop joint tools, such as the R-PP million earned on the account balance. Total disbursements on template, the R-Package, and previously approved programs a cash basis were $8.3 million, made up of cash expenditures such as the Indigenous Peoples Capacity Building Program. of $5.4 million (see Table 3), and grant disbursements of The related line item for Country Advisory Services approximately $2.9 million (see Figure 3 in Section 2). 50 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT Table 4: FY12 Financial Statement for the Readiness fund, consistent with World Bank policies for the financial Fund (in $ thousands) management of trust funds. These policies generally require funds to be fully set aside for commitments made by the Item Amount participants as well as for meeting the fiduciary obligations Beginning Balance 165,804 entered into by the World Bank as Trustee. Donor Contributions 31,538 In order to plan resources over this longer-time horizon, the PC issues resolutions from time to time to establish Investment Income 924 funding priorities and commitments for the coming years. Total Receipts 32,462 These commitments are considered “notional” when the PC Cash Disbursements 5,383 has set aside or allocated financial resources of the Readiness Grant Disbursements* 2,884 Fund that are not yet signed into formal grant agreements or contracts. They are converted to ”full” commitments once the Total Disbursements 8,267 grant agreements (or vendor contracts) are signed by recipients Fund Balance 189,999 and/or by the World Bank as Trustee of the Readiness Fund. *Includes $176,850 of Bank-executed grant disbursements. As noted above, full signed commitments amount to approximately $30 million. However, there has been a considerably higher level of notional grant commitments made 5.2.4. Readiness Fund Disbursements by the FCPF to REDD Country Participants, together with the An important aspect of the Readiness Fund from its necessary direct implementation support costs and associated inception has been that it makes available grant funding to country services costs. Table 5 provides a more complete picture countries—the grants are now up to $3.8 million per REDD of the level of these notional commitments to REDD Country Country Participant—in support of country-led Readiness Participants. work. The REDD Country Participants manage and utilize the As shown in Table 5, as of the end of FY12 notional grants for REDD+ activities and expenses, which are counted as commitments of full grants and the estimated associated country disbursements in World Bank financial statements only after services to 36 countries amount to approximately $178 million. the REDD Country Participant completes reimbursement from Total committed and pledged funding to the Readiness the grant resources. By the end of FY12, 20 R-PP Formulation Fund as of June 30, 2012, is approximately $239 million (see grant agreements had been signed, with 17 of them actively Table 1). This level of funding is adequate to meet the notional disbursing in 2012; seven Readiness Preparation Grants had commitments of full Readiness Preparation Grants of up to $3.8 also been signed. These signed agreements represent firm million to all 36 selected REDD Country Participants (Equatorial commitments of approximately $30 million. Against these Guinea has not signed a Participation Agreement), together with signed grants, approximately $2.9 million in disbursements the costs of the estimated associated country services for those were fully processed and expensed by REDD Country 36 countries. Participants during the fiscal year (see Figure 3 in Section 2), In addition to the notional commitments shown in Table 5, bringing the total to date to just under $5.0 million. the long-term financial plan includes reserves for the operation of the Secretariat by the FMT and the trustee role of the World 5.2.5. Financial Commitments over the Longer Term Bank over the full term of the Fund—reflecting the fact that the Since the term of both funds runs until December 31, 2020 Facility is expected to be fully active through that time, even when (with Carbon Fund ERPA payments expected to dominate the the Carbon Fund is supporting programs in select REDD Country latter years of financial operations), the annual budgets need Participants and making ERPA payments. A regularly updated to fit into a long-term financial planning framework for each long-term financial plan was presented to the PC in June 2012 Table 5: Readiness Funds Notionally Committed to Grants and Associated Services for REDD Country Participants (as of June 30, 2012) Notional Commitments Amount per Country Total Grants and Country Services (US$ millions) Number (US$ millions) Full Support through Readiness Package Preparation Grants (up to US$3.6m) 3,800 36 133.0 Direct Implementation Support 650 36 23.4 Associated Country Services * 36 22.0 Total Notional Commitments to Grants and Country Services 36 178.4 *Associated Country Services comprise an average per country share of REDD Methodology Support and Country Advisory Services. FOREST CARBON PARTNERSHIP FACILITY 51 FY12 ANNUAL REPORT as required to provide the necessary financial big picture to of June 30, 2012, of $214.4 million, in addition to the pledged aid strategic decision making for the fund. That financial plan contribution of $4 million from the United States (for which the showed a surplus over the term of the fund, after taking into agreement was signed in July 2012). account all the notional commitments, of $31.1 million. During FY12, the PC also approved access for REDD 5.3.2. Funding Uses Country Participants to up to $5 million in additional grant With the Carbon Fund only becoming fully operational funding for countries that showed good progress. The PC will in May 2011, the first budget approval of the Carbon Fund take into account these possible additional grants and the Participants took place, along with initial planning for the future surplus at that time when considering the future strategic directions of the Fund, at the Organizational Meeting of the direction of the fund at PC14 in March 2013. Carbon Fund in late May/early June 2011. Table 7 shows that first budget and the costs to date of the Carbon Fund. 5.3. The Carbon Fund The FY12 expenditure of $1.5 million is in contrast to 5.3.1. Funding Sources the budgeted expenditure of $2.1 million. This expenditure Table 6 shows that contributions and pledges to the Carbon comprises almost $1.1 million for Shared Costs (see Readiness Fund through FY12 amounted to $218.4 million. This includes Fund for details) and $470,000 for Administration and other fully committed funding (signed Participation Agreements) as costs as detailed in Table 7. Table 6: Commitments and Pledges to the Carbon Fund as of June 30, 2012 (in $ thousands) Participant Name FY09 FY10 FY11 FY12 FY13-16 Total Australia 12,735 5,658 18,393 BP Technology Ventures 5,000 5,000 Canada 5,015 5,015 CDC Climat 5,000 5,000 European Commission 6,347 362 6,709 Germany 4,009 3,819 21,125 15,443 25,200 69,596 Norway 10,000 51,000 61,000 Switzerland 10,796 10,796 The Nature Conservancy 5,000 5,000 United Kingdom 17,940 17,940 United States of America 10,000 10,000 Committed Funding 25,356 4,181 71,800 36,912 76,200 214,449 United States of America 4,000 4,000 Committed Funding plus Pledges 25,356 4,181 71,800 36,912 80,200 218,449 Table 7: FCPF Carbon Fund Annual Expenditures (in $ thousands) FY09 FY10 FY11 FY12 FY12 Actual Actual Actual Budget Actual Shared Costs (paid by the Readiness Fund)* 635 1,728 1,262 Shared Costs (paid by the Carbon Fund)** 1,474 1,069 Carbon Fund Administration 183 366 490 286 Marketing to Private Sector 45 1 Meeting Logistics 50 183 Program Development 60 Total Carbon Fund Costs 183 366 2,119 1,539 * Per PC Resolutions: PC/3/2009/6, PC/6/2010/8, PC/9/2011/4 and not included in Total Carbon Fund Costs. ** Per PC Resolutions: PC/9/2011/4. FOREST CARBON PARTNERSHIP FACILITY 53 FY12 ANNUAL REPORT 5.3.3. End of Year Account Balance time it was estimated that approximately $180 million would be available for the purchase of emission reductions from about Table 8 shows the summary financial statement from the five Emission Reductions Programs. opening of the fund to the end of FY11. The balance of the fund at the end of FY11 was almost $86.4 million. Table 8: FY09-FY11 Financial Statement for the Carbon Fund (in $ thousands) Item Amount Beginning Balance Donor Contributions FY09-FY11 101,337 less Promissory Note balances (15,000) Investment Income FY09-FY11 602 Total Receipts FY09-FY11 86,939 Cash Disbursements FY09-FY11 549 Fund Balance 86,390 Table 9: FY12 Financial Statement for the Carbon Fund (in $ thousands) Item Amount Beginning Balance 86,390 Donor Contributions 36,912 Investment Income 520 Total Receipts 37,432 Cash Disbursements 1,539 Fund Balance 122,283 Table 9 shows the summary financial statement for FY12, with a beginning balance at the end of FY11 of almost $86.4 million. At the close of FY12 the balance of the Carbon Fund stood at almost $122.3 million. Total new funds into the account during FY12 totaled $37.4 million, including donor contributions of $36.9 million (see Table 6) and $0.5 million in investment income earned on the account balance. Expenditures on a cash basis totaled $1.5 million (see Table 7). 5.3.4. Financial Commitments over the Longer Term As outlined in section 5.2.5., since the term of both funds runs until December 31, 2020 (with Carbon Fund ERPA payments expected to dominate the latter years of financial operations), the annual budgets need to fit into a long-term financial planning framework for each fund that is consistent with World Bank policies for the financial management of trust funds. These policies generally require funds to be fully set aside for commitments made by the participants as well as for meeting the fiduciary obligations entered into by the World Bank as Trustee. The latest long-term financial plan was presented to the Carbon Fund Participants at CF2 in October 2011, at which FOREST CARBON PARTNERSHIP FACILITY 55 Close attention will be paid to the delivery of progress reports from countries that are trailblazing implementation on the ground and are moving the REDD+ agenda forward. FY12 ANNUAL REPORT Conclusions and Outlook FY2012 was an important year for the Forest Carbon Partnership Facility as implementation on the ground gained significant momentum and financial disbursements of the FCPF Readiness Fund accelerated. With more and more REDD Country Participants progressing from R-PP formulation to R-PP implementation, the attention of the FCPF shifted to measuring progress toward REDD+ Readiness. Accordingly, the design of the Readiness Package, a document to be generated by a REDD+ country toward the end of its Readiness preparation phase, was substantially advanced during FY12. In parallel, much progress was made toward defining the framework for future performance-based payments under the Carbon Fund. As the Carbon Fund gets ready to accept the first ideas for Emission Reductions Programs in FY13, the selection criteria for building a pipeline of program ideas were agreed upon, together with the overarching methodological (accounting and programmatic) and pricing elements to govern the future programs. Four years into FCPF operation, the emphasis of the The expansion of the FCPF to multiple Delivery Partners Participants Committee and participating countries now lies will become effective in FY13 with the signature of Transfer on the technical, institutional, policy, and financial elements of Agreements with IDB and UNDP. As a result, the FCPF will REDD+. Country representatives in particular have progressed deliver support services more effectively in some of the REDD on a steep learning curve, and many have become REDD+ Country Participants in which the World Bank currently has no experts in their own right who are now challenging the Facility program or finances no forest sector operations. This means to increasingly focus on substance through a highly advanced that technical assistance services – a key benefit that countries technical discourse. receive from the Facility – can be extended to a larger group Moving forward into FY13, close attention will be paid to the of REDD Country Participants. Special attention will also turn delivery of progress reports from countries that are trailblazing in FY13 to developing assessment criteria for the R-Package implementation on the ground and are moving the REDD+ and to the emerging pipeline of the FCPF Carbon Fund. It is agenda forward. These pioneer countries are starting to learn anticipated that the first program will enter the fund’s pipeline important lessons from early implementation, and it will be and that countries will further develop their early ideas for the role and responsibility of the FCPF to ensure that these large-scale programs aimed at reducing forest emissions while lessons and experiences are systematically captured and widely also delivering environmental and social benefits. disseminated to facilitate learning and accelerate progress on The next few years will show whether overall momentum REDD+ Readiness in countries that are following in the footsteps can be sustained to address the more challenging aspects of the early implementers. of REDD+ and eventually determine whether REDD+ can Progress reports should further provide valuable insights accomplish its objectives on the ground. As REDD+ Readiness for fine-tuning criteria and benchmarks for REDD+ Readiness, activities continue to advance, we will learn: i) whether there as the first midterm reports provide some answers on how is sufficient political willingness and capacity to tackle critical REDD+ Readiness can be measured. governance issues; ii) whether important policy and legal FY13 should also provide for an uptick in grant reforms in land management can be advanced; iii) whether and commitments as multiple countries advance either to accessing how cross-sectoral land-use planning will consider economic, grant funding for REDD+ Readiness preparation ($3.8 million) environmental, and social trade-offs; and iv) whether benefit- or to accessing additional grant funding (up to $5 million). The sharing arrangements can succeed in channeling incentive latter can be requested by countries that have demonstrated payments to those stakeholders who are most critical for significant progress in REDD+ Readiness preparation in protecting forests. accordance with the resolutions from PC10 and PC12. FOREST CARBON PARTNERSHIP FACILITY 57 58 FOREST CARBON PARTNERSHIP FACILITY FY12 ANNUAL REPORT Acknowledgments Photo Credits All photos courtesy of the World Bank Photo Library/Rhett A. Butler unless otherwise noted. Additional photos provided by: Ole Doetinchem (pages 6 and 42) Carolina Hoyos Lievano (page 40) Kyle O’Donoghue (cover, inside cover, pages 15, 19, 20, 26 and 28) Flickr: (pages 8, 32, 38) Design by Corporate Visions, Inc. FOREST CARBON PARTNERSHIP FACILITY 59 Carbon Finance Unit The World Bank 1818 H Street, NW Washington, DC 20433, USA www.carbonfinance.org www.forestcarbonpartnership.org 60 FOREST CARBON PARTNERSHIP FACILITY