Opportunity Knocks: Paying for Results at the Green Climate Fund

The Green Climate Fund (GCF) is the newest funding source to address climate change in developing countries. With $10 billion in pledges – and $5 billion committed to mitigation – the GCF is at a critical juncture because its Board is considering the rules and protocols it will follow when it pays for results. The risk for a multilateral fund like the GCF is that its Board will be more concerned about its reputation than about climate change; that it will demand assurances which compromise effectiveness; and that it will treat payments for slowing climate change as if they were charitable contributions from a patronizing philanthropist.

We believe the GCF can learn a lot from existing results-based aid agreements and the state of REDD+ finance (summarized in the forthcoming report of a CGD Working Group) which demonstrate the strengths and weaknesses of pay for results approaches. In particular, we think the GCF has a unique opportunity to make its grants and loans highly effective by leaving the financing of “readiness” investments to others and following three basic principles:

• focus its pay for results agreements in relatively few countries;
• protect the autonomy of its recipients; and
• link payments to independently verified emission reductions.

Other initiatives have fallen short by hesitating to enter into pay for results agreements that follow these three simple rules.

First, programs that pay for results need commitments that are large enough to draw the attention of policymakers to the task. When funds are limited, this means allocating money to the countries or sectors which would have the biggest impact – where the biggest tropical forests are. This contrasts with multilateral funds, like the Forest Carbon Partnership Facility (FCPF) and BioCarbon Initiative for Sustainable Forest Landscapes, that have faced pressures from their funders and beneficiaries to spread money across a wide array of participants in ways that dilute impact.

Second, programs that pay for results need to preserve the recipient country’s autonomy and agency over its own strategies. The aid system has recognized the importance of country ownership to program success. Yet, aid organizations don’t acknowledge that their conventional approach – involving detailed technical negotiation of country plans and strategies and active involvement in program designs that require external approval – undermines country ownership. Subsequently, when aid organizations monitor adherence to these plans, they introduce rigidities that interfere with the process of experimentation and adaptation that is necessary for real progress and real development.

Third, programs that pay for results need to recognize that the payment purchases a result. Once the result is verified and paid for, the funder has no more claim on determining how the money is spent. As one of our colleagues recently noted, countries pay Saudi Arabia for delivering oil all the time without introducing safeguards on how that country spends its revenues. After purchasing something which is good for the planet – reduced emissions – why would we insist on telling tropical forest countries how to spend their money? The recipient country should decide how the funds will be used, as Brazil does with Norwegian results payments which are channeled to the Amazon Fund.

GCF can see the importance of these rules by looking at other efforts to pay for reduced deforestation. Norways’ agreements with tropical forest countries are among the best. By focusing on a few countries that can produce results that are globally important, Norway has provided amounts that are large enough to have impact at the national level, to be visible and to bolster political willingness. Norway’s agreements with Brazil and Guyana respect those countries’ autonomy over deforestation policies, but its later agreements with Indonesia, Liberia and Peru have incorporated preparatory phases that infringe or impose rigid approaches on domestic policymaking, tie funding to specific strategies and actions, and delay the disbursement of results payments.

The Forest Carbon Partnership Facility (FCPF) Carbon Fund is also trying to pay for reduced greenhouse gas emissions but has been slow to move ahead. One difficulty is that money in the FCPF Readiness Fund is spread thinly across 47 participating countries, some of which contribute only marginally to global greenhouse gas emissions. Fortunately, the Carbon Fund itself plans to pilot payment for results in fewer countries. But to become eligible for these payments, countries must present strategies to reduce deforestation, procedures for complying with environmental and social safeguards, and detailed activity plans. And these hurdles are just the start. Once selected into the Carbon Fund pipeline, it may still take years before a country actually receives a performance payment. After all, the Carbon Fund has been operating since 2011 and only 11 countries have completed the first of 8 steps needed to begin receiving results payments.

The GCF Board has an opportunity to learn from other programs and implement an ambitious program to pay for reduced greenhouse gas emissions from deforestation. It can make this pay for result approach effective by focusing its effort on countries that can deliver more averted tons of carbon emission, rewarding countries that develop and succeed with the strategies they choose (without up-front clearance from outsiders), and recognizing verified emission reductions as the deliverable for its payments. The GCF’s objective and potential contribution are too important for it to take timid steps or ignore these basic lessons from the past.

We’d like to thank Jonah Busch and Frances Seymour for their valuable comments and corrections.