Independent Evaluation Group review of the FCPF: “World Bank needs a high-level strategic discussion on its overall approach to REDD”

In August 2012, the Independent Evaluation Group of the World Bank published a review of the Forest Carbon Partnership Facility (FCPF). The review reveals some of the major flaws behind the FCPF and recommends that the World Bank needs to re-think its approach to REDD.

Since it was launched in 2007 in Bali, the FCPF has been controversial. Nevertheless, 18 countries have pledged a total of US$457 million to the FCPF. Germany has pledged most money to the FCPF (24%), followed by Norway (20%), Canada (10%), and Australia (9%).

The World Bank acts as a Trustee for two funds under the FCPF:

• The Readiness Fund (with US$239 million pledged of a target of US$300 million): through which 36 countries are “preparing themselves to participate in a future, large-scale system of positive incentives for REDD”; and

• The Carbon Fund (with US$218 million pledged of a target of US$350 million): aims to test “a program of performance-based incentive payments in some pilot countries”.

So what has the FCPF achieved with all this money? The IEG Review starts with the good news, and lists three “major achievements”. The “main achievement to date has been to use the World Bank’s convening power to operationalize REDD+ by developing the modalities of REDD+ readiness”. Translated into English, the Bank has held a series of international meetings and produced a “roadmap” for countries to develop REDD readiness strategies.

The review concludes that the FCPF has succeeded in creating a space for debate:

Even in the absence of an agreed-upon instrument and a system of positive incentives and financing flows for REDD+, the FCPF has rekindled interest in addressing challenges that have plagued the forest sector for years. Because of the requirements associated with REDD+, the FCPF has facilitated a level of consultation and dialogue at the country level that has not traditionally taken place in sustainable forest management projects.

The FCPF has supported 24 of 36 country members with their readiness strategies, but the IEG notes that implementation of these strategies “is so far at an early stage in most countries”. Results on the ground “should be assessed as part of the next independent, external evaluation commissioned by the FCPF”. The Bank has “helped the Democratic Republic of the Congo, Nepal, Indonesia, Ghana, and the Republic of Congo move into the implementation phase of REDD+”. Perhaps wisely, the review refrains from commenting on whether these countries can really be described as REDD ready.

The IEG’s description of the FCPF’s third “major achievement” is no more than an explanation that although the FCPF’s “own financial resources have proved insufficient for countries to achieve REDD+ readiness” countries have used the FCPF-supported readiness process to persuade other aid agencies to provide co-financing.

So far, so good (or mediocre, depending on whether your salary comes from 1818 H Street or not). The IEG review’s bad news is broken down into four key points:

• At the launch of the FCPF the Bank stated that “The facility’s ultimate goal is to jump-start a forest carbon market”. Five years later, the carbon markets have collapsed. The IEG comments that,

  “Whereas the period surrounding the launch of the FCPF was characterized by optimism about the UNFCCC process and increased momentum behind carbon markets, progress at the UNFCCC process has been slower than expected and a financing instrument for REDD+ remains elusive.”

• The Bank has so far only managed to get two private companies to pledge the minimum contribution of US$5 million to its Carbon Fund. These two make interesting bedfellows, one of the worlds biggest (and most polluting) oil companies and the world’s biggest “environmental” organisation: BP and The Nature Conservancy.

• The IEG notes that, “The FCPF’s is further complicated by ‘over-demand’.” Currently, the FCPF has 36 member countries, with 11 more wanting to join. Meanwhile, five to ten countries are hoping to take part in the Carbon Fund. The IEG raises the question of how the FCPF will “support this expanded demand for services”.

• “REDD+ is a more expensive, complex, and protracted undertaking than was anticipated at the time of the FCPF’s launch,” the IEG writes. What the IEG fails to point out is that this should come as no surprise. The Bank undertook no feasibility study, prepared no business case, and did no market or technical analysis before launching the FCPF in Bali. The FCPF anticipated that US$3.6 million would be adequate to cover the development of readiness strategies, but countries have budgeted an average of four times this amount.

• Only 16 per cent of the paid-in contributions to the Readiness Fund has been disbursed (either to recipient countries or spent by the Facility Management Team on technical support or administration). To make matters worse, the FCPF has so far spent about US$22 million to deliver a total of US$4.9 million in grants. Of this, 70% went to five countries.

The IEG recommends that the FCPF “needs to update and clarify its mission to the World Bank’s Board and to its participating members in relation to the changes that are taking place in the carbon market and with respect to the evolving nature of the Carbon Fund”. This makes sense. FCPF’s achievements have nothing to do with the carbon markets, whereas the problems it has run into are to a large extent a result of its focus on carbon markets.

The IEG also recommends that the World Bank “needs a high-level strategic discussion on its overall approach to REDD” and points out that the Bank “faces a risk to its reputation in case financing does not materialize on the scale envisaged”.

A final recommendation is that the Bank should focus on activities such as “legal and policy support for land tenure and forest governance reforms”. As the IEG notes, such “no regrets” investments and activities are also useful outside of the REDD context.