The REDD Finance Roundtable:
A Quick Chat With EDF, WWF, and UCS

21 November 2013 | WARSAW | Shortly after the US, UK, and Norway unveiled their trilateral Initiative for Sustainable Forest Landscapes on Wednesday, we sat down with Pipa Elias of the Union of Concerned Scientists, Chris Meyer of the Environmental Defense Fund (EDF), and former Mexican negotiator Josefina Brana-Varela, currently of WWF (World Wildlife Fund). It was our last face-to-face with Josefina before WWF joined 12 other NGOs in leaving the talks, and began as an informal catch-up session on REDD finance. The conversation flowed so freely, however, and touched so simply on so many complex issues, that we decided to transcribe it, tighten it a bit, and post it here as a Q&A. Some of the issues may have been overtaken by events since we had our chat, but it’s still an enlightening discussion.

I began by asking for their views on the new initiative we had just learned about.

Pipa Elias: The amount of new money is lower than I had expected or hoped for, so I’m a bit disappointed on that front, but it’s encouraging to see that they’re laying the foundation for the private sector, and on a large scale. It’s also important that Norway has committed to keep its funding through 2020. That’s a longer time period than REDD money is usually allocated.

Steve Zwick: Do you have any ideas which countries are invited and what criteria they will apply?

PE: They were pretty tight-lipped about this before the announcement, but the short answer is we don’t know the criteria. My guess, however, is that it’s going to be very similar to the way the BioCF operates in general. I don’t expect anything super different.

Chris Meyer: As for countries, Norway specifically said the province in Indonesia.

SZ: [German Minister for the Environment, Nature Conservation and Nuclear Safety Peter] Altmaier said Acre [Brazil] was included.

PE: He was referring to the German REDD Early Movers Fund, which is different than this new initiative. And the other thing that was really helpful about what Norway said was that this new initiative is going to be scaling up areas that have already gotten REDD off of the ground, but then they pledged this additional 100 million for places that don’t have REDD off of the ground yet. I thought that was very comprehensive of them, because they’re clearly saying, “OK, some people still need to get REDD started.” People who have started can get up to the point where they can receive payments for performance; they can bring the private sector in. They’re looking at the bigger picture which I thought was a nice approach.

Josefina Brana-Varela: It’s going to be interesting to see which countries they’re targeting, because it sounded like they were saying they want to help countries move from Phase 2 to Phase 3 (from piloting to performance-based projects). The German [Early Movers Fund] is more Phase 3, so it’s complimentary, and they do acknowledge there is a gap between the readiness phase (which establishes reference levels and accounting) and the phase for REDD actions (when performance-based funding starts to flow).

SZ: So, they are really creating a carrot out there for countries that get through the readiness phase. The actual readiness funding is more like a pea than a carrot.

JBV: Right – readiness funding alone doesn’t motivate countries, so donors need to send a signal that money will flow to those recipients who actually take action on this. For me, it’s really good that the donors are coordinating, because that means their initiatives are complementary. The REDD Early Movers Program is good because it intends to be Phase 3, but obviously they can’t support a lot of countries if there is no transition.

Hopefully this means the requirements for recipient countries are not going to be extremely different among the donors, because forest countries are already finding it difficult to deal with the different rules and requirements they get from one place to another one.

PE: It ties in really closely in what is happening here in the talks, because we need to be able to implement the SBSTA decisions from last week – the “rule book”, they’re calling it now – but that won’t happen unless we get a finance decision.

The technical stuff, by the way, is quite good. If we get finance taken care of, then we’ve got an incredible set of rules, and the World Bank will start to adopt them, maybe this fund will start to adopt them, and then countries can have a common standard that they know most funders are going to expect out of them. But we need to finish here.

SZ: The technical stuff was really good, and I also have to complement WWF again. I took that course you put together on terrestrial carbon accounting, and it’s incredible to see how much clear guidance already exists – and how little people know about it. Shouldn’t some of this funding go to that?

JBV: That’s Phase 1 – the readiness phase – but this new initiative is for countries that have already gone through that.

PE: Right – that’s what the Forest Carbon Partnership Facility is for. It’s providing funding to countries to get their readiness started.

SZ: I get lost with these readiness initiatives. I know that 38 countries got $200,000 each to start their readiness, but that’s not really much money – you have to train people, harvest existing data to create a respectable forest inventory. It sounds easy, and in some cases it is, but a lot of data is missing…

JBV: You’re talking about the Carbon Fund, right?

SZ: Right.

JBV: Well, the Forest Carbon Partnership Facility has two funds. The readiness fund is the one that has 38 countries now, and something like 11 more are going to apply in December. That’s the fund that’s for starting preparation plans.

Then there is the second fund, and this is the one most people are referring to when they talk about payments for results, the Carbon Fund, but it’s not really operational yet. It has capital – $389 million from different donors – but they are working on the rules right now on how to access those funds. The methodological framework is supposed to be close or finalized in December, but we don’t know if that is going to be the case or not. In the meantime, countries were encouraged to present early ideas – and the “ER PINs”, which are “Emission Reductions Project Idea Notes”. Those are the first document you put in the carbon fund.

SZ: So far, it’s just Costa Rica and the Democratic Republic of Congo that submitted ER PINs, but we reviewed them in that class and they didn’t really meet the requirements for a good reference level.

JBV: They weren’t meant to. They were just meant to say, “This is our proposal based on what we know now.” Costa Rica went through the process and got into the pipeline, which means that it is in the next phase, where they get $200,000 but can request up to $450,000.

Now they have to go to the next phase, which means they have to develop the ER (emissions reduction) program. So as part of the ER program, one of the requirements is to have a reference level, and to show how you are going to do your monitoring, what you are going to do for benefit sharing, and how you are going to involve stakeholders. You need to show what is your proposal and what results are you promising in order to access the fund. After this, the readiness payments trail off and it’s mainly payments for results-based actions.

SZ: And only two countries have presented ER PINs?

JBV: Only two have been reviewed. Other countries are presenting their ideas, and the DRC got feedback on theirs and is revising it. They will present the revised ER PIN in March. If they go to the second phase, they will get the 200,000 again to help them prepare this ER program. Once they have their program, they again have to go to the participants committee in the Carbon Fund, and then the proposal is assessed. Either it’s accepted or rejected. We don’t know. There isn’t a lot of money so they will probably fund only five proposals.

PE: The UK said they would fund one more under the FCPF, but not which one.

JBV: Right, and I believe the carbon fund will also get more money.

CM: The carbon fund is supposed to end by 2020, and there’s nearly $400 million that still needs to be spent. That means we have two more years to get these programs built or designed and get them approved, because in 2016, in theory, you’re starting to get your results counted and you get paid.   The idea, I think was to have three done by the end of next year.

JBV: Right – they initially aimed for this year, but moved it back because the rules haven’t been adopted. Until you have the rules, it’s difficult to say whether you are approved or not. Many other countries will get into the pipeline, but that doesn’t guarantee that you will get the money or that your proposal will be financed. That, again, is why these talks today are so important. If they approve the rules, then donors and recipients all know the requirements. Then we can have more submissions, and maybe we will also see more money coming into the Carbon Fund, and maybe into this new initiative as well.

CM: Once it gets going, you can see more people channeling more funds into it. Over the next five years, we’re talking 50 or 60 million, which is only $10-12 million or so a year. That’s why it’s really looking at sub-national and small countries. We’re having some problems right now in the methodological talking about HFLDs – or “high forest low deforestation” country reference levels. If all we get are countries like DRC AND Costa Rica, that could be difficult.

SZ: Because they’ve had low deforestation, so their reference levels will be low, but the potential for future deforestation is high?

CM: Right. So they’re going to ask for adjustments.

SZ: Which they should. That makes sense.

JBV: Yes, but if the only countries you submit to the Carbon Fund are the HFLD ones, you’re not going to get global reductions.

SZ: There’s no answer to that yet.

PE: Well, there is an answer, but not if you’re only going to fund five countries.

SZ: My answer to that would be it’s priming the pump and letting other countries know that the money is there so that other countries…

PE: Yeah, that’s the idea. But, again, if we don’t get the actual emission reductions, then you’re going to lose some of the main purpose of piloting. It has to do both. Start small to show it can work but you have to start with countries where it’s going to work.

SZ: How about the issue of nesting. That ties into this too because there are so many voluntary projects that already exists. Our State of the Forest Carbon markets showed that 26.5 million hectares of forestland are already covered by REDD finance, and these projects can generate reductions of 1.4 billion tons over the next five years, and all of it’s voluntary. Conservation International did some work that showed there is very little correlation between where voluntary projects are already underway and where public-sector funding is going. Shouldn’t there be some incentive on the part of donors to build jurisdictional regimes in areas where something is already happening voluntarily?

JBV: In theory, yes, but it’s a problem, because assumptions that are valid for the project sector are not going to hold for sub-national or jurisdictional approach.

SZ: Because of different reference levels?

JBV: Different everything. The assumptions are different, and the construction of your reference level is different, and the economic dynamics – the drivers – are different.

I believe that the majority of countries that are undergoing the REDD readiness process is because they really want to make this national policy. They really want to incorporate this into their national plans and strategy. The projects, the private sector may have found these nice places where they want to work…

SZ: Then what should nesting focus on?

JBV: When you want to scale up, you have to deal with problems that are not easy for the private sector to tackle. You have to have public finance to cover governance issues, and you have to have other guarantee funds or partnerships that make the private sector willing to engage and provide some security that their investments are going to be secure. So the problem for me is how you create this security for the project level so that they want to engage at that scale because it’s a completely different story.

SZ: So voluntary projects that aren’t in the right jurisdiction are just out of luck?

CM:   I think you’re going to see some projects out of luck, and some that are lucky and get a system like Acre’s, where they’ll be able to nest into something. I was surprised to hear there were 50 independent projects in Indonesia and another 50 in Brazil. The language coming out of here is that there are going to be national focal points to control all the finance coming in and out of the country and reserve the right of “no objection”.   So REDD being constructed here that if there is going to be the big money, it’s going to go through the choke point. And they’re going to be getting their piece of it. There’s not going to be as much opportunity, I think, it’s going to be difficult for project promoters. That reference level they used to build their whole financial model is not going to be there anymore. All of a sudden, they’re going to have to go to the national level unless they’re able to negotiate something different.   The whole idea of crediting specific actions to a specific project is going to be different, too, or else they’re going to be looking at leakage and everything else.

PE: Again, that’s why every year we delay and we don’t get REDD decisions like we didn’t in Doha, continues to add to the unknowns.

CM: You’re still going to have those niche boutiques projects that have a lot of other values like the Surui Carbon Project or the Wildlife Projects that will continue to have donor or corporate sponsorships, but it’s still going to be a pretty small market, I think.

JBV: And the trick is how you nest it in the national approach or jurisdictional approach in a consistent way and how you develop a nice and solid benefit-sharing mechanism that includes all. And then if you manage to do a good nesting and can consider projects and can consider jurisdictions that will add up to the national level, then you will be preventing leakage.

SZ: You can account for leakage in voluntary projects but you can’t really prevent it. What about this committee that they are haggling over now?

PE: I think the concerns that were hearing from the countries that want a committee are legitimate, but a committee to me at this point doesn’t seem to solve all of those concerns or maybe any of those concerns. To me, what we need to do is pick it apart and address each of these issues and then maybe we’ll have the right answers. I’m not seeing right now how a new governance body decided here would address those problems.

JBV: The other difficulty is the discussions didn’t start identifying gaps and then proposing the creation of a body. It was more like the idea of this committee would solve all these issues of coordination and support. There is a misconception out there that the committee would solve all these transaction costs that the REDD countries have – the costs they incur just to for apply for different funds from different sources. I see two problems: first, the committee doesn’t really solve that problem, and second, the functions it aims to address will be addressed by other bodies in the convention and there are many linkages that can be explored. So, before we go creating some bureaucratic body, we have to first explore the options that we have to address these gaps or functions.

In the point we are now under the convention, it’s kind of weird to create a new body. We are going to transition to a new climate regime or supposedly we are going to do that and if we do that, the different bodies of the convention will need to get aligned to the Green Climate fund mandate and structure. So why would you create something in a period where you’re transitioning to something new? It doesn’t make any sense. Why don’t we try to fulfill these functions with the things that we already have in place and then wait for the transition and then make a decision of what is needed? The negotiations to create such a body are going to take a while, so if we start working on this, we are getting distracted for the actual important decisions which is finance-not just for REDD but for all the issues. And then we get distracted and we probably will end having a REDD committee or   body in 2016 when it doesn’t make sense to have it because we’re going to transition. So it’s not a solution and we are concerned that it’s taking away from the discussions on finance.

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