Carbon Fund Pioneering Multilateral Payments for Forest Carbon in a Bottom-Up Climate World

December 20, 2013

Here’s what was supposed to happen at the 2009 climate talks in Copenhagen: Rich, industrialized nations like the US and Australia would commit to deep reductions in their greenhouse gas pollution, joined by rapidly industrializing countries like China and India. Part of these commitments would be met by paying for emission reductions from reduced deforestation by tropical forest countries like Brazil and Indonesia. The summed-up emission reductions would be adequate to put the world on a path to a safe and stable climate.  And it would be sealed with handshakes by more than a hundred world leaders.

Here’s what actually happened: Political leaders failed to reach agreement in Copenhagen. Since then, consensus-driven negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) have proceeded, in the words of the Coalition for Rainforest Nations, at “the speed of the slowest and the ambition of the lowest.” “Commit what the atmosphere needs” to keep global warming within safe bounds has drifted into “contribute what you want.” The best-case-scenario would see a global climate agreement emerge in 2015, coming into force in 2020.  And all the while global deforestation rates, global emissions, and global temperature continue to climb.

What emerged in the wake of Copenhagen is a “bottom-up” climate world. Coalitions of countries and sub-national jurisdictions are moving faster than the UNFCCC on payments for reducing emissions from tropical deforestation, through a collection of initiatives involving Norway, Brazil, Indonesia, Guyana, Germany, and California, Acre (Brazil) and Chiapas (Mexico). Bolstered by an agreement in Warsaw last month on REDD+, the UNFCCC mechanism for payments for reducing emissions from deforestation and forest degradation, these bottom-up initiatives can now move ahead using a common international rulebook.

Of all the international initiatives for REDD+, the Carbon Fund of the Forest Carbon Partnership Facility (FCPF) perhaps comes closest to the original vision of multilateral payment-for-performance—rich countries paying tropical countries for verified emission reductions realized by keeping their forests standing.  Hosted by the World Bank, The Carbon Fund brings together eight governments, two companies and a non-profit organization[1] in a $390 million partnership to purchase emission reductions from jurisdiction-level REDD+ programs in about five tropical forest countries.[2]

Last week in Paris, The Carbon Fund reached an important milestone. After more than a year of negotiations, the Fund’s participants agreed to detailed guidance for forest countries’ REDD+ programs. The Methodological Framework consists of 38 criteria that forest countries’ REDD+ programs are expected to follow in order to sell emission reductions to the Carbon Fund from 2015-2020.  The Methodological Frameworks presents what buyers consider to be an ideal program, giving much-needed guidance to forest countries that had been holding back on developing programs to gain this understanding.

The new Methodological Framework attempts to bridge the diverse visions of not only the eleven financial contributors, but also a working group of REDD+ countries, observers from Indigenous Peoples and civil society, outside topic experts, and the World Bank. I advised on setting the reference levels relative to which reductions will be calculated—a thorny issue that goes straight to the heart of how much money forest countries can earn from their programs and how much the atmosphere benefits.  In the end none of the participants got all of what they would have if they'd written their own Framework. but the hope is that through strength in numbers, the eleven diverse donors and the World Bank will send a strong signal of joint intent, enjoy greater legitimacy, and benefit from economies of scale. The Methodological Framework is posted here and summarized in my tweets below.

Now that a landmark agreement on the Methodological Framework has been achieved, the Carbon Fund faces three critical questions:

First, will donors reward the success of the Carbon Fund with additional financial contributions?  Money to reduce emissions from deforestation is now moving through multiple multilateral channels, including UNREDD, the FCPF’s Readiness Fund, the Forest Investment Programme, and the re-invigorated BioCarbon Fund. All of these are worthy endeavors, but none hew as closely as the Carbon Fund to the original vision of REDD+ as a transaction of verified emission reductions. The Carbon Fund looks to be an especially attractive conduit for new or scaled-up REDD+ finance in near term, due to the large number of influential players involved and the opportunity to gain emission reduction assets. A recent announcement by the UK of potential additional contributions to the Carbon Fund is promising in this regard.

Second, is the Methodological Framework doable? The large number of rules in the Framework risks delaying programs or diverting scarce resources from activities on the ground. It’s possible a program could miss a few of the 38 criteria and still contract with the Carbon Fund. But what happens if a program misses 10, or 20? Politically, it may be hard for financial contributors to say "no" to candidate programs, but easy to repeat "try again later." The Carbon Fund prudently plans to review the stringency of its Methodological Framework in 12-18 months.

Most importantly, can purchasing verified emission reductions really incentivize tropical countries to reduce deforestation? This is the theory that the international community has been hoping to test since 2005. The Carbon Fund now provides a golden opportunity to put this theory into practice ahead of the hoped-for post-2020 global climate agreement. As the Carbon Fund moves from developing a framework to actually contracting with forest countries, the vision of multilateral REDD+ has moved $390 million closer to reality.

Below is my effort to sum this all up in a series of 26 tweets...

[1] These eleven financial contributors include Norway, Germany, Canada, the United States, Australia, the United Kingdom, Switzerland, the European Commission, BP, CDC Climat, and The Nature Conservancy.

[2] Candidate REDD+ countries include Costa Rica and the Democratic Republic of Congo, as well as Chile, Colombia, Republic of Congo, Ghana, Indonesia, Mexico, Nepal, and Vietnam.




CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.