Policy Update #15

The Direction of REDD+ Financing: Merging Ahead?

Over the past year, parties to the UNFCCC have taken significant steps to advance the concept of reducing emissions from deforestation and forest degradation in developing countries, and the role of conservation, sustainable management of forests and the enhancement of carbon stocks (REDD+).

The close of the 19th session of the Conference of the Parties (COP 19) to the UNFCCC saw the adoption of the Warsaw Framework for REDD+, which sets out the guidelines for developing country parties to receive results-based payments for verified emissions reductions in the forest sector.

However, the Warsaw Framework does not address non-carbon benefits of REDD+ or provide methodological guidance on non-market-based approaches for the implementation of REDD+. Parties continued discussions of these aspects of REDD+ at the 40th session of the Subsidiary Bodies to the UNFCCC (SB 40), which took place from 4-15 June 2014, in Bonn, Germany. The Subsidiary Body for Scientific and Technological Advice (SBSTA) made little progress on this agenda item, and further consideration of these issues was postponed to future sessions.

The road leading to the Warsaw Framework was a long one, and as SB 40 demonstrated, negotiations on REDD+ are set to continue. However, international organizations, non-profits, individual States, and aid/development agencies have not waited for the conclusion of negotiations to start funneling investments into REDD+, especially for phase I, the so-called "readiness phase." These initiatives, which include bilateral arrangements or international structures, such as the Forest Carbon Partnership Facility (FCPF) and the UN Collaborative Programme on Reducing Emissions from Deforestation (UN-REDD), have sprung up without the guidance of a globally-agreed framework for REDD+. Now that such a framework is in place, the question emerges whether these programmes, which in the meantime have developed their own methodologies for REDD+ finance, will converge toward the set of rules established under the UNFCCC.

This policy update recaps the decisions that make up the Warsaw Framework for REDD+, the outcomes related to REDD+ from SB 40, and the discussions on REDD+ finance at the seventh Standing Committee on Finance meeting (SCF 7) and the seventh Board Meeting of the Green Climate Fund (GCF). It then considers the need for coordination among the many institutions doling out REDD+ financing.

Warsaw Framework for REDD+

The Framework adopted in November 2013 at COP 19 in Warsaw, Poland, brought REDD+ closer to being operational as a global mechanism under the UNFCCC. Questions on monitoring, reference levels (i.e. business-as-usual (BAU) baselines against which emissions reductions are measured), and an online platform for information sharing were resolved. Parties agreed that the GCF would play an important role in channeling REDD+ payments to developing country governments, and that results-based payments will depend partially on the submission of a reference level for review by experts from an assessment team. Assessment guidelines and procedures were also established, so that developing countries know how their reference levels will be evaluated.

In addition, developing countries wanting to participate in GCF REDD+ activities will have to establish national forest monitoring systems (NFMS) as a basis for estimating forest-related greenhouse gas (GHG) emissions if they do not yet have such systems in place. Changes in emissions levels will be measured against respective national reference levels. In addition, parties officially mandated a link between safeguards (such as respecting livelihoods, the rights of indigenous peoples and local communities, and biodiversity) and payments. REDD+ beneficiaries must submit summaries identifying strategies to address the safeguards framework. Furthermore, all information submitted, including data on payments, should be posted on an “information hub” that parties requested the Secretariat to create.

June 2014 UNFCCC Negotiations

During SBSTA 40's opening statements, a number of developing country parties were hopeful the meeting could result in progress toward methodological guidance for using non-market-based approaches, as well as in identifying and incentivizing non-carbon benefits. However, during an in-session expert meeting on non-market-based approaches for REDD+, other developing country parties, as well as some developed countries, indicated that the Warsaw Framework for REDD+ provides sufficient methodological guidance and noted that non-market-based approaches are being negotiated under other agenda items. Some of these parties suggested closing the agenda item, arguing that there was no need for further methodological guidance. Others pointed out that joint mitigation and adaptation, being a non-market-based approach, was within the mandate of the agenda item.

Consideration of methodological guidance relating to non-carbon benefits – the social, environmental, and governance benefits associated with REDD+ – occupied a good portion of the SBSTA discussions. However, there was significant disagreement about the need for any specific guidance for incentivizing such benefits, which advance, for example, the preservation of ecosystem services or biodiversity conservation. Because of the diverse nature of these benefits, some parties were reluctant to attempt to develop guidance of international relevance on non-carbon benefits, while others insisted on the importance of such guidance.

In the end, parties agreed to continue considering methodological issues related to non-carbon benefits in 2015 at SBSTA's 42nd session and to discuss non-market-based approaches at SBSTA 41, to be held in Lima, Peru (FCCC/SBSTA/2014/L.8).

Outside the SBSTA proceedings, REDD+ also came up during a Technical Expert Meeting (TEM) on land-use held on 11 June. The World Bank and the Center for International Forestry Research (CIFOR) emphasized that landscape approaches should be used in implementing REDD+, indicating that more than just carbon quantities should be taken into account when carrying out mitigation action in the forestry sector. Along the same lines, participants noted the linkages among forestry, agriculture, bioenergy and food security. Some participants in the TEM suggested that REDD+ be accelerated by integrating decision making across the land sector. However, the complexity of REDD+ impedes formally linking it with other sectors within the negotiations.

Finance

Also in Bonn, during the fifth part of the second session of the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP 2-5) and the Ministerial Dialogue on the Durban Platform, the need to capitalize the GCF was underscored. Much anticipation around whether the GCF will be able to provide the necessary financing for REDD+ surrounds the ongoing efforts to operationalize the Fund. Some parties suggested COP 20 should open a REDD+ window in the GCF. During the TEM on land-use, the GCF reported that its initial focal areas include REDD+ implementation and sustainable forest management (SFM).

Currently, forest financing comes from scattered sources, and question marks surround the future of REDD+ financing. Some cooperative efforts, such as between UN-REDD and the FCPF, to consolidate financing are yielding positive results for REDD+ readiness, but as financing is scaled to move beyond the readiness and pilot programme phases, will cooperation and coordination efforts be scaled as well? Will the capitalization of the GCF lead to a convergence of REDD+ finance under the GCF? Or will donor countries, funds, and UN programmes continue to fund REDD+ independent of one another?

Seventh Meeting of UNFCCC Standing Committee on Finance (SCF 7)

Immediately following the SB 40 and ADP meetings in Bonn, the SCF held its seventh meeting from 16-18 June, and addressed, among other agenda items, “coordination and coherence: the issue of financing for forests, taking into account different policy approaches.” A member of the Committee noted that, in part because of the absence of a global instrument on forests, there is no specific financial mechanism for forests, and thus, neither a dedicated secretariat nor predictability in finance.

SCF members were cognizant of the need to coordinate among the various bodies working on forest finance. Yet, although the background paper serving as the basis for discussion suggests funneling most REDD+ finance primarily through the GCF, most members expressed hesitation at this idea. Committee members were not satisfied that the paper provides a full picture of forest-related finance outside of REDD+. As a result, the Committee did not feel it was in a position to offer recommendations.

Coherency

Admittedly, there is much forest-related finance to be considered outside of REDD+, but the SCF's decision to delay consideration of this issue represents a missed opportunity. Within REDD+ alone, ample opportunity exists for better coordination of finance. The first two phases of REDD+, readiness and pilot programmes, have largely been implemented through bilateral agreements, assistance through multilateral banks/funds and other forms of aid. In addition, an increasing focus outside the UNFCCC process is being placed on engaging the private sector in REDD+. This multitude of actors working on REDD+ results in a tug of war over how developing countries should best manage their forests and where to turn for financing their efforts in this area. While much progress was achieved on methodological guidance for developing countries to receive results-based payments and on institutional issues under the UNFCCC at COP 19, little progress has been made in creating cohesion between these decisions and the work of bodies outside the UNFCCC process.

At the seventh Board Meeting of the GCF, which took place from 18-21 May, the final six items needed to operationalize the Fund were agreed, including an initial Results Management Framework (RMF). The RMF, as it applies to REDD+, differentiates itself from the Warsaw Framework in that it will also be used for ex ante payments. However, plans for more specific guidance on REDD+ are in the pipeline, as the Board requested the Secretariat to “develop a logic model and performance framework for ex post REDD+ results-based payments, in accordance with the methodological guidance in the Warsaw Framework for REDD+, for consideration at the third Board meeting of 2014.” As an operating entity of the financial mechanism of the UNFCCC, the GCF's REDD+ approach should be in line COP decisions.

Entities not beholden to the UNFCCC COP, however, can continue to operate as they please, and it may prove impossible to pull REDD+ finance under one umbrella. Current REDD+ initiatives tend to follow their own methodologies. The Forest Carbon Partnership Facility (FCPF), which was originally intended to sunset once the GCF became operational, has recently completed a methodological framework for its Carbon Fund based on its experience thus far, and there is no indication that the FCPF will twilight soon. Likewise, UN-REDD, at its recent policy board meeting, adopted a roadmap for the development of a new strategy beyond 2015. Meanwhile, the Food and Agriculture Organization of the UN (FAO) takes its own approach to REDD+, based on its Strategic Framework.

Donor countries also continue to offer REDD+ funds to developing forest countries through bilateral agreements, making their own stipulations as they do so. Norway, through its Climate and Forest Initiative, and Germany, through its REDD Early Movers Programme, have taken this approach while REDD+ issues were being sorted under the UNFCCC. Despite the adoption of the Warsaw Framework, donor countries inclined to do so cannot be prevented from making bilateral deals under their own terms and conditions.

The primary implication of having various scattered institutions distributing REDD+ finance is that developing countries, their capacity already stretched, have to follow different rules, produce different documents and reach different benchmarks depending on where they turn for REDD+ financing. Partnerships are already emerging to address this – such as between UN-REDD and the FCPF who develop joint policy pieces on a number of issues in order to ensure coherence among programmes. Furthermore, agencies are emerging at the national level to manage different funding sources, such as the national REDD+ agency in Indonesia, which has significant authority in terms of setting rules and procedures. Despite the SCF's hesitation about a convergence toward the GCF, it would seem that funneling REDD+ funds through one institution would streamline the process for developing countries, make expectations clearer and avoid duplication of efforts.

Next Up: Lima

Expectations are high for COP 20, which will convene in Lima, Peru, in December, as it is the last negotiating session of the COP before a new legal instrument is to be agreed in Paris in 2015. In Bonn, some developing countries expressed support for including REDD+ in the negotiations of a global agreement, in particular the inclusion of the Warsaw Framework for REDD+.

Regardless of whether the Framework is enshrined in the new agreement, UNFCCC parties and the GCF can take a number of actions between now and Lima to build confidence in the efficacy and authority of the guidance created at COP 19. From capitalizing the GCF, to submitting reference levels, to completing the GCF's “logic model and performance framework,” showing the Warsaw Framework in action will be the most expedient way to encourage convergence to its methodology. If parties, as recipients and donors in the many existing REDD+ financial agreements, show solidarity for the agreed framework and see to it that results-based payments can begin flowing, they will perhaps give rise to a certain cohesion in the way current REDD+ institutions operate, making it easier for recipient countries to access finance and realize results.

 

The author would like to acknowledge and thank Jennifer Allan, Alice Bisiaux, Annalisa Savaresi and Jaime Webbe for their valuable comments and contributions to this Update.