World Bank Fund Will Pay to Leave Forests Standing

NUSA DUA, Bali, Indonesia – A new multi-million dollar fund to compensate developing countries for the value of their living forests was launched today by the World Bank at the United Nations climate conference in Bali.

The Forest Carbon Partnership Facility was developed because forests are more important left standing than cut down, said World Bank Group President Robert Zoellick, introducing the new facility. As a natural function, trees absorb carbon dioxide, the main greenhouse gas.

“This initiative is a practical pilot to expand the tools for Climate Change negotiations,” said Zoellick. “The Forest Carbon Partnership Facility signals that the world cares about the global value of forests and is ready to pay for it. This can change the economic options for many people who depend on the forests for their livelihoods. There is now a value to conserving, not just harvesting the forest.”

Deforestation and forest degradation together are the second leading cause of global warming, second only to the combustion of fossil fuels.

High on the agenda at the Bali talks is reducing the 1.6 billion tons of carbon emissions caused each year by deforestation, which amounts to about 20 percent of global carbon emissions and more than the combined total of the world’s energy-intensive transport sectors.

Deforestation and forest degradation are responsible for a high percentage of some countries’ national emissions – 70 percent of Brazil’s and 80 percent of Indonesia’s, for instance.

The new facility will build the capacity of developing countries in tropical and subtropical regions to reduce emissions from deforestation and degradation and tap into a future system of positive incentives to reduce emissions.

The resources of the Forest Carbon Partnership Facility can be used in any new climate change regime negotiated after 2012, when the first commitment period of the Kyoto Protocol ends.

The Kyoto Protocol currently does not give carbon finance incentives to developing countries for reducing deforestation and degradation, known by the acronym REDD.

This issue is under discussion at the climate change meetings in Bali, and it may become part of a post-2012 climate change agreement.

The facility is a new source of revenue for the more than 1.2 billion people who depend on forests for their livelihoods.

Nine developed countries and a nongovernmental organization have already made financial commitments totaling US$160 million to the Forest Carbon Partnership Facility. The largest contributor to date is the government of Germany.

“We must not lose another day when it comes to climate and forest protection”, said German Development Minister Heidemarie Wieczorek-Zeul. “I am very pleased that in our capacity as G8 President, Germany was instrumental in helping to develop the Forest Carbon Partnership Facility.”

Germany will contribute US$59 million (40 million euros) to help developing countries conserve their forests and mitigate climate change. “Forest protection must be a central element in a future agreement on climate change,” said Wieczorek-Zeul.

The other contributors include the United Kingdom (US$30 million), the Netherlands (US$22 million), Australia and Japan (US$10 million each), France and Switzerland (US$7 million each), Denmark and Finland (US$5 million each).

In addition, The Nature Conservancy, a nongovernmental organization based in the United States, has committed US$5 million.

The World Bank and the Forest Carbon Partnership Facility recognize the special role that indigenous peoples and other forest dwellers play in managing and protecting the forests in which they live and on which they depend. They will have observer status in the facility’s governance structure, at the same level as other constituent groups, such as international organizations, non-contributing private sector, and nongovernmental organizations.

The facility consists of two separate mechanisms, each with its own trust fund for which the World Bank will act as trustee.

The Readiness Mechanism – target size: US$100 million – will assist some 20 countries in preparing themselves to participate in a future, large-scale, system of positive incentives for reducing deforestation and degradation.

This will include some basic infrastructure capacity building for these countries such as preparing a national REDD strategy, establishing a baseline and putting in place a monitoring system. Indigenous groups and other forest dwellers will participate in the process so they can benefit from future carbon finance flows.

The Carbon Finance Mechanism – target size: US$200 million – will enable an initial group of these countries that will have successfully participated in the Readiness Mechanism to pilot incentive payments for REDD.

The Carbon Fund will remunerate the selected countries or actors within the selected countries, in accordance with negotiated contracts, for emissions reductions that are verified independently.

On Saturday, meetings on forest conservation took center stage at the first Forest Day ever held at a UN climate meeting. The parallel event was hosted by the Center for International Forestry Research, CIFOR.

The Executive Secretary of the UN Framework Convention on Climate Change, UNFCCC, Yvo de Boer, was presented with a set of key recommendations on the role of forests in combating climate change for consideration by the government ministers participating in the high-level segment of the conference which begins Wednesday.

De Boer welcomed the contribution that the many world-leading experts and forest organizations attending Forest Day could make in influencing forest and climate policy at the global level

“In the climate change process, there is growing political acknowledgement of the need to reduce emissions from deforestation,” he said, adding that “if we do not sustain trees, we will soon live in a world that will not sustain us.”

Forest Day recommendations from the Collaborative Partnership on Forests include the recognition that the success of REDD mechanisms “depends on the political will to address the drivers of deforestation, including drivers beyond forestry sector.”

“We cannot rely on markets alone. We need a combination of market mechanism and governance,” the partnership recommends.

Other recommendations stress functional simplicity and moderate transaction costs.

“To ensure equity in the distribution of REDD benefits, it’s essential to clarify land rights and legal rights to carbon,” the partnership recommends, adding, “We need adaptation now. Adaptation should be focused on the most vulnerable, including forest-dependent people.”

A new study by CIFOR presented on Forest Day in Bali warns that the new push to reduce emissions from deforestation and degradation, is imperiled by “a routine failure to grasp the root causes of deforestation.”

Based on more than a decade of in-depth research on the forces driving deforestation worldwide, the report shows that there is ample opportunity to reduce carbon emissions if financial incentives are sufficient enough to flip political and economic realities that cause deforestation.

“After being left out of the Kyoto agreement, it’s promising that deforestation is commanding center-stage at the Bali climate talks,” said CIFOR Director General Frances Seymour. “But the danger is that policy-makers will fail to appreciate that forest destruction is caused by an incredibly wide variety of political, economic, and other factors that originate outside the forestry sector, and require different solutions.”

Stopping deforestation in Indonesia caused by overcapacity in the wood processing industry is a completely different challenge from dealing with deforestation stemming from a road project in the Amazon or forest degradation caused by charcoal production in sub-Saharan Africa, Seymour said.

Complex, indirect forces are often more important than the logging and slash and burn activities usually understood as the main causes of deforestation.

Forces such as fluctuations in international commodity prices; agricultural and, more recently, biofuel subsidies; and roads and other infrastructure projects can encourage forest clearing, the CIFOR report shows.

“Deeply ingrained and routinely corrupt government practices often favor large corporate interests over community rights to forest resources,” CIFOR says.

The report sees promise in the idea that deforestation can be addressed with financial incentives that compensate landowners for “environmental services.”

Seymour said discussions in Bali to fight deforestation by compensating forest stewards for protecting the carbon-storage capacity of forests through what is now a multi-billion dollar global market for carbon credit are potentially powerful.

“Such payments to individual land-users have the potential to flip financial incentives from favoring forest destruction, as they now do, to favoring conservation,” Seymour said. “But the key question is whether or not REDD incentives will be sufficient to flip political and economic decisions at the national level that drive deforestation.”

“It’s critical to understand that, due to decades of inattention to the rights of forest dwellers, new payment streams tied to conservation could intensify the severe poverty that now afflicts the majority of rural forest communities in the developing world,” she said.

“Since forest property rights are often very unclear, payment for carbon services could end up providing incentives for corrupt officials or local elites to appropriate this new forest value from local communities,” Seymour said. “We’ve seen this happen before in similar situations, and there’s every reason to believe, given the kind of money now being paid for carbon credits, that it could happen again.”

“We need to temper the desire for maximum reduction in forest-based carbon emissions with regard for the legitimate rights of forest communities to realize the income potential of their forestlands,” Seymour said. “At times there will be trade-offs between reducing carbon emissions and reducing poverty.”

The CIFOR report is online here.

For more information on Carbon Finance at the World Bank, visit: www.carbonfinance.org