The most cost-inefficient tree-saving scheme ever: The Forest Carbon Partnership Facility

PHOTO Credit: Benoit Bosquet, head of the FCPF from 2008 to 2014.

In August 2012, the Independent Evaluation Group of the World Bank published a review of the Forest Carbon Partnership Facility (FCPF). The review revealed some serious problems with the FCPF and the Independent Evaluation Group recommended that the World Bank should re-think its approach to REDD.

Instead of re-thinking REDD, the World Bank continued pouring money into the Forest Carbon Partnership Facility and the Carbon Fund.

This year marks the tenth anniversary of the Forest Carbon Partnership Facility, and a re-think is long overdue. Last week, REDD-Monitor received this article with the request that it be published anonymously.

The most cost-inefficient tree-saving scheme ever: The Forest Carbon Partnership Facility

In June 2007, the World Bank announced that it was planning an international fund of at least 250 million dollars to fight deforestation, and thus to help reduce climate gas emissions. Bank spokesman Werner Kornexl said that, innovatively, the program “will be performance based, so a country will only receive funds after it was measured and verified that the emissions were reduced”. The fund had been requested by the G8 group of rich countries but, said Kornexl, it “is something that we have been working on already for some time”. It would be announced in December that year at the Bali climate summit as the Forest Carbon Partnership Facility. Ten years later, the FCPF has grown to more than $1.1 billion, most of which has been committed by the governments of Norway, Germany and the UK. But it has proven to be a staggeringly ineffective way to reduce deforestation, with astronomical administrative costs and nothing to show in the way of prevented deforestation. This article reveals the truth behind FCPF’s finances, and looks at what’s gone wrong.

FCPF consists of two parts:

• the Readiness Fund, which is supposed to assist countries in preparing a REDD+ strategy and carrying out other improvements in governance which ready it for taking part in large-scale REDD projects; and

• the Carbon Fund, which will purchase supposed emissions reductions from implemented REDD projects, most of which are supposed to be on a large (‘jurisdictional’ meaning state or province-wide) scale in tropical countries.

In the original design of the FCPF, countries were supposed to progress through the readiness process, supported by the Readiness Fund, and then advance to the implementation of programmes to benefit from the Carbon Fund when they were ‘ready for REDD’.

In practice, the readiness process has proven to be heavily bureaucratic, and so glacially slow that the FCPF’s supporting governments – impatient to try and show REDD working at a large scale – have progressively reduced their expectations of, and requirements for, any meaningful readiness having been achieved before countries embark on REDD ‘proper’. The hurdle of showing ‘readiness’ now consists merely of tropical governments carrying out a self-assessment of their supposed readiness measures. These sometimes seem to consist of little more than making paper changes, holding a few meetings of officials, and making vague policy commitments. The FCPF does not carry out any independent, objective, assessment of whether the country could genuinely be said to be ready for the tens of millions of dollars’ worth of forest carbon transactions that will follow with the Carbon Fund payments.

Gaining acceptance into the Carbon Fund has nevertheless proven difficult for most countries. Because the Fund requires REDD projects of a scale way beyond what has even been attempted before (mostly unsuccessfully), and is based on generating ‘trade-quality’ carbon credits, the technical demands of producing credible proposals are beyond almost all tropical governments. Most proposing governments so far have relied on international agencies (such as WWF) or REDD project developers to prepare their proposals for them. Even these proposal writers have shown their woefully poor understanding of the areas of tropical forest which they are intending to establish as carbon enclaves. Because of the fundamental impossibility to really show that their interventions will actually work – and won’t just shift deforestation elsewhere, for example – proposers (assisted by the FCPF) have resorted to technically complex and, they hope, near-undetectable ‘fiddles’. A favourite has been to choose a ‘reference area’ (i.e. comparing the proposed project area with other parts of the country) which has previously experienced high rates of deforestation, and to claim that the area to be covered by the Carbon Fund project would experience similar high levels without the intervention of the project. This means that so-called ‘Emissions Reductions’ could be achieved – and sold – simply if deforestation in the project area does not reach the same kind of high levels as in the falsely selected high-deforestation comparison area.

Because of the need for such complex deceptions, which the FCPF seems both unable and unwilling to detect, proposal documents have grown to astonishing sizes. That for the Democratic Republic of Congo (covering the entire 12 million hectare province called Mai Ndombe that, as yet, exists only in name) runs to 297 pages of dense technical information. It seems highly unlikely that anyone apart from the document writers – WWF and Wildlife Works Carbon – really understands the proposal.

The overall result is that, 10 years after the FCPF’s launch, only two countries, DRC and Costa Rica, have been accepted into the Carbon Fund project pipeline. Both proposals are currently claimed to be undergoing World Bank internal due diligence, but will no doubt be approved later this year. Not a single agreement has been developed to actually purchase ‘emissions reductions’. Not a single ton of carbon emissions has yet been prevented by the FCPF.

Yet by the end of 2015 – the most recent year for which figures are available – the FCPF had managed to spend nearly $55 million. Both the Readiness Fund and the Carbon Fund have incurred an astonishingly high level of ‘transaction costs’. Although the figures are slowly improving, administrative costs, “fund management” charges, Bank staff and consultancies etc have so far absorbed 64% of total expenditure. (See Figure 1 below, and Tables 1-3 at the end of the article. All figures are derived from the FCPF’s own annual reports.)

Germany, Norway and the UK (known collectively as the “GNUs”) account for more than three-quarters of the investment in the FPCF overall, and 90% of the investment in the Carbon Fund (see Figure 2). The FCPF’s levels of transaction costs would never be allowed in any programmes being run directly by any of the three main supporting governments. Typically, programmes are expected to have no higher than 10% administration costs. Programmes funded by Britain’s Department for International Development are obliged to follow strict ‘value for money’ requirements. But the UK’s contribution to the FCPF is not managed by DFID, but by the Department of Business, Energy and Industrial Strategy (BEIS), which seems able to circumvent such requirements. Norway’s contribution is managed by the Ministry of Climate and Environment, which also regularly circumvents the country’s usual aid rules.

In April 2016, Norway’s Secretary General, Ministry of Climate and Environment, Tom Rådahl, said that “Efficient management of the funds channeled through NICFI is an important success criterion for … the Government and the Norwegian Parliament.” In the case of the FCPF, the only way this could be true is if the Norwegian government and parliament thinks that “efficiency” means being able quickly to disburse funds to the World Bank, which then entirely wastes them.

The FCPF has to rank as the most inefficient means of saving forests ever. It’s time donor governments pulled the plug on this shocking waste of public money.