Pagiola, World Bank, 2009 1 Payment for Ecosystem Services International parliamentary hearing on forest protection and the model of Payment for Ecosystem

Pagiola, World Bank, 2009 1

Payment for Ecosystem ServicesInternational parliamentary hearing on forest protection and the model of Payment for Ecosystem Services

Earth University, Costa Rica, 5-7 June 2009

Financing Forest ConservationThe REDD Initiative

Stefano PagiolaWorld Bank1818 H Str NWWashington DC [email protected]

The opinions expressed in this presentation are the author’s own and do not necessarily represent those of the World Bank Group.

The materials in this presentation may be freely reproduced with appropriatecredit to the author and the World Bank.

Stefano PagiolaLatin America and Caribbean Sustainable Development DepartmentWorld Bank


Financing Forest ConservationThe REDD Initiative

Payments for environmental services (PES) Strengths and limitations of current financing

sources Payments for water services Payments for biodiversity conservation Payments for carbon sequestration

REDD financing for forest conservation Potential Challenges Learning by doing through the FCPF


Why deforestation?

Benefits to land users

• Water• Biodiversity• Carbon

Costs to downstream populations

Deforestation and use for

pasture

Conservation


The logic of Payments for Environmental Services (PES)

Benefits to land users

• Water• Biodiversity• Carbon

Costs to downstream populations

Deforestation and use for

pasture

Conservation

Payments must be annual So must funding

Payment

Conservation with payment

for service

Cannot depend on donors!


Payments for water services

Government-financed national PES programs Costa Rica PSA Mexico PSAB China SLCP

User-financed programs local PES programs Hydroelectric power producers Domestic water supply systems Industrial users Irrigation


User-financed PES for water services

Hydropower producer

Domestic water supplyBottler

Irrigated agricultureHotel

10

15/30

40

45+22

45

(US$/ha/yr):Total 18,000ha

ca US$500,000/year

40

40

45

45

Energía Global (renewed twice)

Platanar S.A.

CNFL/Río Aranjuez

CNFL/Río Balsa

CNFL/Río Laguna Cote

Florida Ice & Farm and Heredia ESPH

Azucarera El Viejo

Hidroeléctrica Agua Zarcas

Misc

0ha 2,000 ha 4,000 ha 6,000 ha

Costa Rica: Payments by water users


Guatemala: Watersheds with hydroelectric power plantsGuatemala: Watersheds with large-scale irrigationGuatemala: Watersheds with domestic water use (>1000 hhs)

Payments for water services are spatially specific

Source: Pagiola, Zhang, and Colom, 2007

Guatemala: Watersheds with significant potential for water PES

1.9 million ha


Payments for water services are spatially specific

Source: Zhang and Pagiola, 2008

Costa Rica: Watersheds with water concessions


Amounts of payments for water services

vary substantially

Source: Pagiola, Zhang, and Colom, 2007

Guatemala: Watersheds with hydroelectric power plants

High potential for payments Low potential

for payments


Amounts of payments for water services

vary substantially

Source: Zhang and Pagiola, 2008

Costa Rica: Watersheds with PES funding from water tariff


Payments for biodiversity services

Few examples Bioprospecting has disappointed Tourism

Few examples of voluntary user payments (Tanzania) Some examples of government-imposed fees (Belize) Industry generally too fragmented

Conservation organizations Generally limited to short-term funding

Trust Funds convert short-term funding into long-term funding but only feasible for high-value cases (Monarch Butterfly Reserve, Mexico)

Some longer-term arrangements by Conservation International


Payments for carbon sequestration services

Not eligible for EU ETS CDM market

Only for afforestation/reforestation (A/R) Limited total amounts Restrictive conditions

Voluntary (‘retail’) markets Weak requirements

Emerging certification standards

Lower prices (but very variable)

Potential for REDD Still being negotiated


BioCarbon Fund projects

“Learning-by-doing” for CDM A/R projects through carbon purchase transactions

Tranche 1 Window 1: Afforestation & Reforestation

18 projects in 16 countries ERPAs for 5.7 MtCO2e by 2017 worth US$ 24 million First 7 of 10 approved CDM-approved methodologies First two CDM-approved A/R projects

Window 2: Forest Protection, Soil Carbon Management 3 projects in 3 countries ERPAs for 0.9 MtCO2e by 2017 worth US$ 2.7 million

BioCarbon Fund buys about 40% of project’s potential


BioCarbon Fund: Costa Rica CoopeAgri

Joint project between FONAFIFO and CoopeAgri

Work with 600 farmers in Brunca region: 300 ha of reforestation 3,000 ha of assisted natural regeneration 180,000 trees in agroforestry systems

Purchase of 558,000 tCO2e by 2017 Contract signed in April 2006


Reducing emissions from deforestation and forest degradation in developing countries (REDD)

Deforestation causes 20% of total GHG emissions

REDD could help reduce emissions at much lower cost than many alternatives

Stern Review (2007): US$1-2/tCO2

Kindermann and others (2008): US$10-21/tCO2

High additional benefits from biodiversity conservation, protection of water services

Likely to focus on different areas than water payments


Challenges for REDD

How to establish a reference scenario (baseline) against which to measure reduced deforestation

How to monitor, report, and verify REDD How to address potential leakage issues How to address permanence Whether and project-based activities might

be included How to ensure forest-dependent peoples are

not harmed etc etc


The FCPF:A partnership to make REDD happen


FCPF guiding principlesREDD = climate change mitigation mechanism

Not the silver bullet of development Main effectiveness criterion is emissions reduced

Partnership Developing (“REDD”) countries have equal voting rights with donors

and CF participants on Participants CommitteeVoluntary & country-driven Neutral to climate change negotiations

Capacity building Various performance-based financial approaches will be tested

Catalyst Large financial flows are necessary Private sector is needed for scaling up

National National strategies for REDD National reference scenarios Projects within national accounting approach “National” does not mean “governmental” only

Test, learn and disseminate Inputs to discussions at CoP15 (Dec.2009) and beyond


FCPF governance

ReadinessFund

(World Bankas Trustee)

Carbon Fund

(World Bankas Trustee)

Participants Committee (PC)

Facility Management Team

(World Bank)

Ad Hoc Technical Advisory Panels

Carbon Fund Participants Committee

Participants AssemblyAll Eligible REDD Countries, Donors and Buyers

- Forum for exchange of information- Meets at least annually - Opportunity for ‘subgroups’ to meet and

discuss experiences, elect their representatives

Primary decision making body, including all policy issues

Decision making on specific carbon transactions

Observers


FCPF: Two mechanisms

Readiness Mechanism

READINESS FUND

Capacity Building

(2008-2012)

Carbon Finance

Mechanism

CARBONFUND

Payments for Emission

Reductions(2009-?)~$150

million30 countries

~$200 million~ 5 countries


FCPF Participating countries

AfricaCameroona

Central African Rep.c

Congo, Dem. Rep.a

Congo, Republicb

Equatorial Guineac

Ethiopiaa

Gabona

Ghanaa

Kenyaa

Liberiaa

Madagascara

Mozambiquec

Tanzaniac

Ugandab

Latin AmericaArgentinab

Boliviaa

Chilec

Colombiaa

Costa Ricaa

El Salvadorc

Guatemalac

Guyanaa

Hondurasc

Mexicoa

Nicaraguab

Panamaa

Paraguaya

Perua

Surinamec

AsiaCambodiac

Indonesiac

Lao PDRa

Nepala

Papua New Guineaa

Thailandc

Vanuatub

Vietnama

a Countries with access to total grantb Countries with access to $200,000 grant; access to further resources subject to availability of funding in the

Readiness Fund.c Countries whose access to grants is subject to availability of additional funding for the Readiness Fund.


FCPF Participants Committee 2008-09

REDD COUNTRIESBoliviaDRC

GabonGhanaGuyana

MadagascarMexicoNepal

PanamaVietnam

DONORSAFD

AustraliaGermany

JapanNetherlands

NorwaySwitzerland

TNCUnited KingdomUnited States

OBSERVERSForest-Dependent Peoples, Private sector, International Organizations, NGOs, UNFCCC,

UN-REDD Programme


FCPF Readiness Mechanism (1)

Reference Scenario Historical emissions

How many years and data points?

Future emissions? Adjustment coefficient applied to past emissions?

Based on national development policy?

Estimation of carbon stocks

Test various methodologies based on IPCC Good Practice Guidance and Guidelines



National REDD StrategyIn the countries interested in REDD, how will emissions be reduced? Where?When?At what cost? Economic analysisNational or sub-national implementation?Policies or projects?How will investment costs be financed?Who will participate in REDD activities?How will they be able to participate? Information, consultations, capacity

buildingWho will be allowed to sell? Legal frameworkHow will additional social and biodiversity benefits be recognized?

Valuation, monitoring

Sector strategies (environment, forestry, energy, transport, etc.) are the basis for the national REDD strategy, but the focus is the resulting emission reductions

The strategy must be nationalPublic sectorPrivate sectorCivil societyIndigenous peoples



National Monitoring System System design + implementation National accounting of emissions Link sub-national projects with national

system National registry including sub-national/private accounts

Monitor carbon and more?


What does ‘ready’ mean?

National REDD strategy:1. REDD strategy: how to reduce emissions?2. REDD implementation framework3. Stakeholder consultations

Monitoring: 1. Design system2. Conduct forest inventory3. Capacity building4. Carbon stock assessment: different levels Using default factors/existing inventory data Finance additional inventories, permanent plots Full assessment for forest degradation

Governance:Implementation of Land-(use) reformsLegislative reformsInstitutional reforms Improve law enforcementFinancial sector reforms

Where to draw the

line between readiness

and investments

?

Emissions reference scenario

FCPF R

ead

iness


Readiness + investments + payments

Incentivepayments for REDD

Reforms &investments for

REDD

REDDreadiness

FCFP Readiness Fund,UN-REDD, Australia, Norway, AFD, etc.

ODA, IBRD, GEF, private sectorForest Investment Program, etc.

FCPF Carbon Fund, Norway, private sector, etc.


What does the Readiness Mechanism pay for?

1. Direct grants US$200,000 to assist country prepare R-Plan for

all REDD Country Participants Up to US$3.6 million (average) to help country

execute R-Plan Progress report at ~ US$2 million

2. Implementation support by WB country teams

3. Country advisory services4. REDD methodology support


What would the Carbon Fund pay for?

• Emission Reduction (ER) generated by reducing deforestation and/or degradation

• ER = all rights, titles, and interests attached to a ton of CO2e of emission reduced

• ER delivered to the FCPF when verification report is received

• Performance-based payments • Carbon + other benefits• ERs distributed to Carbon Fund Participants

through internal registry


Conclusions

PES is not a universal solution to all problems May not be applicable in some situations Will not solve all development problems

Within PES, many possible approaches Need to understand strengths and limitations of

each

Documents

Pagiola, World Bank, 2009 1 Payment for Ecosystem Services International parliamentary hearing on forest protection and the model of Payment for Ecosystem