One of the most attractive features of the Cash-on-Delivery approach to development assistance is precisely that payments are made (only) for performance against agreed indicators of outcomes. If desired outcomes are not achieved by the recipient country, the donor country doesn’t pay. But this very feature could create one of two very different dilemmas for donors:
What if donors offered a financial reward for performance, and prospective recipient countries were unable to overcome the political and technical obstacles necessary to claim it?
Or what if so many countries came forward to claim the reward, demand exceeded the funding available?
A new CGD Working Paper, “The Politics of German Finance for REDD+” by Dr. Till Pistorius and Laura Kiff of UNIQUE Forestry and Land Use GmbH, lets us eavesdrop on candid conversations with experts in the German aid establishment about these dilemmas in the context of payment for reducing deforestation.
A strong tradition of finance for forests…
To understand German support for forests internationally, you have to go back a few centuries. Just over 300 years ago in 1713, Hans Carl von Carlowitz invented modern forestry as a way to deal with rapid deforestation and wood shortages caused by the mining industry and urbanization in Saxony. According Pistorius and Kiff, an appreciation of the timber and non-timber benefits that come from sustainable management of forest resources has resulted in “strong emotional ties between Germans and their forests” that prevail until today.
With domestic deforestation no longer a problem, over the last three decades Germans have extended these ties to tropical forests. In addition to numerous long-standing bilateral assistance programs in forest-rich countries, Germany has been a key participant in multilateral forestry initiatives dating back to the Tropical Forestry Action Plan (TFAP) in 1985, and the Pilot Program to Preserve the Brazilian Rain Forest launched in 1992.
Indeed, at CGD-sponsored event on climate finance last year, Artur Cardoso de Lacerda of Brazil’s Ministry of Finance singled out German support for capacity building over the long haul as a contributor his country’s extraordinary performance in reducing deforestation:
To be very honest to Brazil being in the position that we are now in terms of governance and capacity, we have received a lot of external support. Just one example—Germany has been supporting Brazil in terms of improving its management capacity in the forest sector for more than thirty years. So although we have a lot of responsibility for the results we have, we have to acknowledge that this support has been really instrumental to put us in this position nowadays.
Germany has now embraced REDD+ as a promising mechanism to realize a broad range of benefits from sustainable forest management, including conservation of biodiversity and ecosystem services as well as reduction of forest-based climate emissions. According to Pistorius and Kiff, controversy over REDD+ has been virtually nonexistent in the domestic political arena in Germany. With the exception of a brief NGO-generated debate on forest offsets and safeguards in the run-up to the climate negotiations in Copenhagen in 2009, a broad consensus has supported international forest protection as a climate mitigation strategy. As a result, debate about REDD+ has been limited to an “experts’ discourse” rather than broader discussions in the Parliament or the press.
…but recognition of limited results creates openness to results-based finance
One of the reasons that REDD+ appeals to German experts is their recognition of the limited effectiveness of traditional models of development assistance in the forestry sector. With perhaps the important exception of Brazil noted above, those models have not succeeded in helping partner countries slow deforestation. Performance-based finance offers the promise of a more effective approach. The following are statements from two experts interviewed for the study:
German cooperation has supported sustainable forest use and development for 30 years, and its success has been limited. Now there is a hope that there is a shifting paradigm with REDD+ because of its performance-based payments. I think this is one of the most attractive elements, as it is a new dimension of international cooperation where the partner country is more responsible. In this sense it’s based on performance and not just development aid without any conditions.
The concept of results-based payments is very attractive. Even in traditional ODA we probably need to head in this direction, so that it will require more ownership and responsibility from the countries.… It may be a painful process for some of countries, but I don’t see many alternatives because with the traditional ODA, what we did for 30 years, the success was limited. I think it would not be wise to go back to the old system.
In order to pilot the feasibility of results-based finance to reduce deforestation—and maintain the confidence of forest-rich countries and subnational jurisdictions while climate negotiations and the establishment of multilateral funding mechanisms drag on— Germany established the REDD+ Early Mover (REM) program. The REM program’s recent conclusion of an agreement with the state of Acre in Brazil is a welcome addition to the still-small “n” in the universe of REDD+ experiments at scale that will help us all learn the degree to which trees can grow on money.
What if we build it and nobody comes?
Long-standing, deep engagement of German experts in the forestry sectors of developing countries supports an especially nuanced knowledge of the governance challenges that would have to be addressed in order to reduce deforestation. This history of “hands on” involvement has bred skepticism regarding the degree to which “hands off” performance-based funding will be sufficient to overcome such challenges, especially in countries in sub-Saharan Africa where forest management capacity is low.
And indeed, the REM program has discovered that the number of “early movers”—countries or subnational jurisdictions positioned to take advantage of finance for verified reductions in forest-based emissions—is fewer than initially anticipated. Further, the process of achieving “readiness” is proving to take longer than expected. According to one expert:
Just providing a chunk of money will not resolve anything. REDD+ from a financing perspective is new, but all the underlying issues have been linked with the objectives of development assistance and bilateral cooperation … ; yet they still remain important issues, and you need all of these components to put together a workable solution.
Paradoxically, some German experts also have anxiety about what would happen if too many countries achieved REDD+ readiness (and therefore eligibility for results-based, or “phase III” finance) too soon. One expert said:
I have an uncomfortable feeling about the availability of funding for phase III, and I foresee already that REDD+ countries may become very impatient and frustrated if they see that the funding we promised a few years ago for phase III is not yet available.
Another expert commented:
In Warsaw we closed REDD+ negotiations on the REDD+ rule book, so the rules are there now, and they can be implemented. Like in Brazil—they did it. However, if more countries follow their example they will put us, the donors, in a very uncomfortable situation. They will say, so we are here now, where is the predictable stable finance you promised for result-based payments?
But maybe the two dilemmas do not constitute a paradox after all. According to Heru Prasetyo, head of Indonesia’s new REDD+ Management Agency, the prospect of results-based finance may induce countries to move more quickly toward readiness in order to get that “pot of gold at the end of the rainbow.” This would suggest that Germany’s “both/and” approach makes sense—putting money on the table for results-based finance could complement and improve the effectiveness of traditional capacity-building support.
Having lots of countries successfully reduce deforestation would be a really good problem for REDD+ donors to have, but how will they fulfill their commitments to reward those reductions? Donors could step up their pledges for results-based finance this week at UNFCCC COP 20 in Lima, and in the run-up to COP 21 in Paris next year, to avoid disappointment. If not, we may see forest countries begin to drive the pressures for donors to perform by outpacing pledges currently on the table.