WORLD BANKGROUP CLIMATE CHANGE BioCarbon Fund Initiative for Sustainable Forest Landscape (ISFL) Forest Carbon Partnership Facility (FCPF)

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1 WORLD BANKGROUP CLIMATE CHANGE BioCarbon Fund Initiative for Sustainable Forest Landscape (ISFL) Forest Carbon Partnership Facility (FCPF) Franka Braun, Carbon Finance Specialist, FCPF and BioCF Operations Team

2 FCPF & BIOCF: WORLD BANK FINANCING INSTRUMENTS FOR REDD+ Two global funds managed by the World Bank that aim to pilot results based financing for REDD+ by making payments for emission reductions: Forest Carbon Partnership Facility (FCPF) The FCPF s Carbon Fund is designed to pilot performance-based payments for emission reductions from REDD+ programs in a small number of FCPF countries (around 10-12) The BioCarbon Fund (BioCF) Through the Initiative for Sustainable Forest Landscapes (ISFL) the BioCF promotes and rewards GHG emission reductions from the land sector, including REDD+ in a small number of jurisdictions (around 4) 2

3 PARTNERSHIPS HOSTED BY THE WBG PROVIDING CLIMATE FINANCE FOR FORESTS AND LANDSCAPES Readiness $360m Result-based finance $465m Investment finance $639m Development of robust policy frameworks Capacity building Results-based actions fully measured, reported and verified for 6+ pilot programs Implementation of strategies, action plans and demonstration activities Capacity building Enabling environment $100m Result-based finance $280m Development and implementation of robust policy frameworks Capacity building Results-based actions fully measured, reported and verified for 4 pilot programs 3

4 Share of global production using sustainable land practices GROWING NEED TO SCALE UP CLIMATE-SMART LAND-USE +30% Our story: - Supporting climate-smart land-use since 2004 (BioCarbon Fund) - From small-scale pilots to large-scale landscape programs (FCPF, ISFL) - From A/R to REDD+ to agriculture to comprehensive landscapes (forestry, agriculture, energy) TARGET: landscape level transformations Where we started: Several successful pilots, but relatively small and disconnected 2-3%

5 KEY DIFFERENCES BIOCF ISFL & FCPF FCPF Carbon Fund Operates through 2020 Exclusively REDD+ Partnership governance structure REDD+ Readiness needs to be accomplished before payments are made Countries selected through a competitive process (8 in the pipeline) US$ 60 million Average Program size BioCF Initiative for Sustainable Forested Landscapes Operates through 2030 REDD+ and other land use interventions Landscapes (e.g., agriculture & energy) Emphasis on private sector engagement (as part of value chains, not buyers of ERs) Linked to national Readiness, but not a precondition for payments Countries selected by donors US$ 55 million Average carbon fund program size but also dedicated TA funds 5

6 COUNTRIES WE WORK WITH 12 Countries (soon more) are developing climate-smart landscape-level programs ($50-90m) (FCPF and BioCF) 51 Countries receive support from FCPF (REDD+ readiness) or BioCF (project-level support) Mexico Nepal Costa Rica Colombia Ghana ROC Ethiopia DRC Vietnam Indonesia Zambia Chile 6

7 WHAT DO THE CARBON FUNDS PAY FOR? -FUNDING MECHANISMS- Two linked funding streams BioCFplus FCPF Readiness ~$80m Technical assistance (ex-ante) BioCF Tranche 3 FCFP Carbon Fund Results based finance (ex-post) Examples: enabling environment, build public sector capacity, create integrated program, engage private sector Examples: payment for verified emission reductions from the landscape against baseline 7

8 WHAT DO THE CABON FUNDS PAY FOR? ERPA AND TRANSFER OF TITLE Performance based payments from the FCPF Carbon Fund and ISFL will be arranged through Emission Reductions Payment Agreement (ERPA) Legal document with rights and obligations for both the buyer (making the payment) and the seller (receiving the payment) Whoever signs the ERPA and receives the payments needs to be a (legal) entity that is able to take on the rights and obligations in the ERPA One of the requirements of the MF is that seller must be able to transfer Title to Emission Reductions for which it receives payment from the Carbon Fund Entity that signs the ERPA needs to show the ability to transfer Title to the Emission Reductions on behalf of the stakeholders in the program May be demonstrated through various means, including any laws or regulations, sub-arrangements with potential rights-holders, and/or benefit-sharing arrangements 8

9 THE PAYMENT STREAMS OVER TIME Two complementary trust funds to help develop programs: BioCF T3/ FCPF Carbon Fund Up-front payment s Payment for results Other Investments Align w/others to leverage $$ WB Operations, IFC, FIP, Private Sector Other BioCF+/ FCPF Readiness Design of program MRV systems Capacity building MRV time Preparation Implementation Results Scale-up 9

10 FCPF BUSINESS PROCESS: FROM ER-PIN TO ERPA Eliasch Review (2008): Halving deforestation has a potential GHG benefit of Gt/ per year Associated costs range from USD 17.2 USD 33 Billion/ year Voluntary Carbon market contracted 28 Million tons of AFOLU credits in 2012 FCPF+ ISFL will support approx Million USD programs until 2020 FIP 639 Million until??? In December 2009 at COP 15 in Copenhagen by six countries (US, Australia, Britain, France, Japan and Norway) pledged to provide new and additional resources, including forestry and investments, approaching US$ 30 Billion for the period (with balance between mitigation and adapation) 10

11 CROWDING IN FUNDING FOR REDD REDD Bonds - facilitate access to capital market resources for sustainable managements of landscapes at jurisdictional scale. From 2008 onwards, WB raised $ 6.4 Billion through green bonds. Private sector equity investments e.g. Macquarie Bank equity investments in REDD projects. Concessional finance/credit lines for sustainable supply chains - parallels of rural finance initiatives Guarantee instruments Partial risk and partial credit guarantees for buying down the risk of private investment Monetizing labeling and certification schemes e.g. off taking agreements for sustainable products Forest Investment Program (FIP) - promote sustainable forest management that leads to emissions reductions and enhancement of forest carbon stocks (REDD+) World Bank operations for example Mexico s ER-Program is part of a large operation consisting of a World Bank Sustainable Investment Loan (SIL), FIP money and Government counter-financing 11

12 WHO IS THE PRIVATE SECTOR? Consumer goods companies Traders and exchanges Smallholders Large local producers Finance (local and international) Entrepreneurs 12

13 HOW WE ENGAGE WITH PRIVATE SECTOR (1) Colombia Magdalena Bajo Seco CDM Program Reforestation of 4,000ha of degraded lands traditionally dedicated to cattle ranching Three phases to develop a viable public-private partnership based on equitable benefit sharing Phase 1: Breaking the barrier phase ( ): Regional environmental authority extending a loan to small farmers Phase 2: Transition to business model ( ): Colombian agrarian investment bank joins the project activity as an equity investor Phase 3: Implementation of business model ( ): Joint venture with large multinational pencil producer Under the first phase, 100% of the revenue from wood sales as well as from the sale of carbon credits go to the landowners who will use part of the revenue in order to repay loan Under the second and third phase, all revenues are shared according to the 30%/ 70% equity investment ratio amongst the three parties (CORMAGDALENA/ FINAGRO, Faber Castell, landowners) 13

14 HOW WE ENGAGE WITH PRIVATE SECTOR (2) We foster innovative public private sector partnerships. Ghana: Government partnering with the private sector through national Cocoa Board. Greening the supply chain of cocoa that is driving forest loss through agricultural expansion. Community-based approach to drive up cocoa productivity. Huge opportunities for livelihood improvements. Costa Rica: Government improving national timber industry to relieve pressures on old-growth forests. Expanding performance-based payments to farmers who conserve trees on their private lands. 14

15 Muchas gracias por su atención! Franka Braun Muchas gracias por su atención! Ellysar Baroudy Franka Braun 15