Annual Review - Summary Sheet. December 2015

Annual Review - Summary Sheet Title: Forest Carbon Partnership Facility (FCPF) Carbon Fund Programme Value: 141.5m UK investment ( 130m ICF + 11.5m ETF) Start Date: End Date: September 2014 December 2015 Review Date: December 2015 Start and end dates should indicate the period that the review covers, including if this is over 12 months. Summary of Programme Performance Year 2012 2013 2014 2015 1 Programme Score A A A A Risk Rating Low Low Medium Medium Summary of progress and lessons learnt since last review Since the last FCPF ICF Annual Review in September 2014, the Carbon Fund has made progress in the following ways: Seven new Emission Reduction Program Idea Notes (ER-PINs) were selected (or provisionally selected 2 ) into the Carbon Fund pipeline, bringing the total to 18 programmes. This was at the high end of our expectations for 2015 and met the conditions, outlined in the Extension Business Case, to commit the full sum of our additional contribution to the Carbon Fund in 2015. Additional contributions to the Carbon Fund have been received (or are expected) from the UK, Norway, and Germany. These additional contributions are sufficient to support an additional five programmes/emissions Reduction Purchase Agreements (ERPA) in the eventual portfolio (based on current assumptions this would bring the total number of programmes expected in the portfolio to 13-14) 3. This maintains the rate of over programming in the Carbon Fund, appropriately managing the risk that some programmes may not progress to ERPA signature. Agreed to extend the Carbon Fund, by five years, to December 2025. This will allow full 5 year ERPA terms and was an important part of our under-delivery risk mitigation strategy. Milestones and deadlines were agreed to encourage REDD+ countries to move swiftly through the Carbon Fund process. This was a key objective for DECC in 2015 and part of our delivery risk mitigation strategy. The deadlines mean that the portfolio can be managed and risk adjusted so that programmes that are failing to progress or programmes that are making positive progress are readily identifiable. Emission Reductions Purchase Agreement (ERPA) General Conditions Agreed. This was an important part of establishing the legal framework and standards for the Carbon Fund and was successfully endorsed prior to ERPA negotiations which are expected to begin from 2016. Technical Advisory Panel has been recruited. This was a key objective for the UK so that Carbon Fund Participants (CFPs), including the UK, had access to the technical resources and advice required to effectively assess the quality and methodological compliance of Emissions Reductions Program Documents (ERPD). Buffer Guidelines have been agreed which is central to effectively managing programme risks and provides programmes with guidelines on how to complete this element of programme design. DECC s objectives, as part of the Buffer Guidelines Review Group, were met in that the buffer guidelines appropriately balance the need for environmental integrity of the Fund without being 1 It should be noted that from this review onwards FCPF ICF Annual Reviews focus on the Carbon Fund. Previous reviews 2012-2014 were assessed on the basis of slightly different criteria (including progress of the Readiness Fund). Therefore direct comparisons to earlier reviews are not possible. 2 pending minor amendments to their programme idea recommended by Carbon Fund Participants (CFPs) 3 Portfolio simulations at this time are still based on assumptions from ER-PINs which are subject to change as the programmes in the pipeline develop. The number of programmes in the portfolio is also dependent on the volumes of ERs offered. 1

too risk averse and damaging the economic viability of programmes/the attractiveness of the Carbon Fund for forest countries. FCPF Second Independent Evaluation is underway. The findings of the evaluation have been delayed (interim findings were initially expected in November 2015). DECC has played an active role co-chairing the Evaluation Oversight Committee (OC) 4 to ensure the quality of the evaluation team s approach. As a result of this scrutiny, it took longer than expected to develop the inception report. However the OC are now confident that the approach will produce a robust and useful evaluation. The evaluation report is now expected in the first quarter of 2016. Further detail on these key elements of success is included as Annex 1. The Carbon Fund has generally performed well and has, so far, met most of the milestones and expectation set out in the logframe. However, the milestone of achieving two ERPAs in 2016 appears particularly challenging, as it assumes that ERPDs presented by forest countries are of sufficient quality and meet the standards of the FCPF Methodological Framework and that Carbon Fund Participants (financial contributors to the fund) can prepare adequately to engage in, and agree upon an approach to each of the ERPA negotiations. Delays in achieving this specific milestone (see output indicator 1.4) will have a knock-on effect in delaying the achievement of other milestones which relate to programme delivery later in the lifetime of the Carbon Fund (e.g. output indicator 1.7 and 1.6 and output 3). Initial delays to the timeframes were discussed as part of the Extension Business Case, which concluded that set up time for the Carbon Fund was initially underestimated; as this is a precedent-setting fund there was no previous benchmark for the time required to establish a complex and robust mechanism of this type. Slower than expected implementation also reflects that the FCPF is taking a participatory, inclusive, approach working with a range of countries at various stages of REDD+ readiness. This is an advantage of the Carbon Fund s approach, and is generating important lessons, but may have contributed to slower than anticipated implementation. Delays have also been experienced as a result of establishing ground-breaking methodological work. However, the outcome was a robust Methodological Framework that has broad support from financial contributors, forests countries, NGOs and other Observers. The section on value for money in the Extension Business Case outlined that despite a decrease in efficiency there was an increase in economy (due to the expanded pipeline) and that the positive Benefit Cost Ratios suggested that the Carbon Fund remained a sound investment. In light of our additional investment in the fund, the fresh analysis on which that extension business case was built, and the decision to extend the Term of the Fund and expand the pipeline to include more country programmes, a key recommendation of this annual review is to rebaseline the logframe to reflect updated expectations that are both ambitious and achievable. Progress on Recommendations from the Previous Review The 2014 Annual Review recommended that DECC should cease monitoring on the ETF investments in the Readiness Fund. As recommended a project completion report was completed in March 2015 and all FCPF Annual Reviews from this Review onwards will focus on the Carbon Fund. Summary of recommendations for the next year UK, other Carbon Fund Participants and the Facility Management Team (FMT), keep pressure on, and support, forest countries to deliver and meet the agreed milestones and deadlines, including ensuring that those programmes provisionally accepted into the pipeline meet the requirement set out in their respective Resolutions to make the specified changes at least 14 days prior to CF14. Avoid any further delays (noting the negative impact on efficiency of our investment). [on-going work by DECC Programme lead] REDD country Observers to the Carbon Fund are encouraged to play a more active role. [ongoing work by FMT and DECC Programme lead] 4 UK is a member of this committee that comprises of 3 donor countries, 3 REDD countries and 3 Observers) 2

Ensure a high quality evaluation, maintaining the effective role of the Oversight Committee and conclude recommendations for improvement based on the evaluation findings. Review the process of managing the evaluation so that lessons are learned and shared for future ICF evaluations (including a review of the management and process of the evaluation) [on-going work by FMT and DECC Programme lead as part of the Oversight Committee] Encourage continued engagement between the FCPF and GCF to ensure that lessons and experiences are shared as the GCF is developing options to operationalise results-based REDD+ [on-going work by FMT and DECC Programme lead] DECC completes the re-baselining of milestones in the logframe so that subsequent Annual Reviews can be compared, using the same assessment criteria. Update the target with updated expected results. Including reordering the logframe so the logical flow top to bottom reflects the FCPF-C Theory of Change. [DECC Programme lead, with support from economist and evaluation expert, to complete prior to March 2016 results collection]. CFPs coordinate and plan how to handle the next phase of the Carbon Fund as 2016 will witness the first reviews of fully-fledged ERPDs and the start of ERPA negotiations. [DECC Programme lead in liaison with other CFPs) As part of the ERPD appraisal look for evidence related to output 3 (Pilots have been successfully implemented on ways to sustain and enhance livelihoods and conserve biodiversity) as proxies for the indicators [DECC Programme lead as ERPDs are presented] Final guidance required (e.g. on transaction registries now that the buffer guidelines endorsed) [guidance to be developed jointly with the Partnership for Market Readiness (PMR) programme. Guidance is expected in the first half of 2016; to be completed by the FMT] Review these guidelines as the process moves from the theoretical to the practical [on-going work by DECC programme manager to engage as the Carbon Fund gains practical experience] Continue to monitor risk and implement the identified mitigation strategies, including monitoring the risk of further delays and under delivery. [on-going work by DECC programme manager in partnership with FMT] DECC to continue engagement and input on policy issues [on-going work by DECC programme manager] Update modelling assumptions in light of Buffer Guidelines. What the guidelines mean in practise will need to be monitored throughout the current year, and modelling assumptions regarding verified emissions reductions purchased, leakage and reversal will need to be updated accordingly [to be completed by DECC economist] Update modelling assumptions in light of ERPDs (Cost- effectiveness). The first ERPDs will become available in 2016, providing much more certainty on the outcomes of the programs. The assumptions should be checked against the ERPDs to ensure that they are still relevant. [to be completed by DECC economist] 3

A. Introduction and Context (1 page) Link to Business Original Business Case, 2013 [external link] Case: Extension Business Case, 2015 [internal link] Link to Log frame: See Annex 7 of Extension Business Case Outline of the programme The Forest Carbon Partnership Facility (FCPF) is managed by the World Bank and was established in 2008 to assist developing countries in their efforts to reduce emissions from deforestation and forest degradation and foster conservation, sustainable management of forests, and enhancement of forest carbon stocks (all activities commonly referred to as "REDD+") by providing value to standing forests. The FCPF has two separate but complementary funding mechanisms the Readiness Fund and the Carbon Fund. As recommended in the 2014 FCPF ICF Annual Review, at the end of 2014 DECC stopped directly reporting on the UK s 2008 3.5m Environmental Transformation Fund (ETF) investment in the Readiness Fund. A Programme Completion Report for the Readiness Fund was concluded and published in March 2015. The Carbon Fund is the focus of this Review and will be the focus of all subsequent UK reporting on the FCPF. The Carbon Fund is designed to provide payments on delivery of verified emission reductions ( payment for results ) generated by forestry programmes in countries that have come through the pipeline from the FCPF Readiness Fund. It has been operational since 2011. To date UK has invested 141.5m in the Carbon Fund ( 11.5m ETF investment in 2011; 45m International Climate Fund (ICF) investment in 2014; 85m ICF investment in 2015). Committed funds to the Carbon Fund at the end of FY15 (30 June 2015) totalled $456m. With significant additional pledges in 2015 from the UK (the 85m mentioned above), Norway and Germany we expect this to rise to c.$795m in FY16 5. The UK burden share in the Carbon Fund is expected to rise to c.28% (from the current 19%), surpassing Germany as the second largest contributor to the Carbon Fund following Norway. 5 Pledges to the Carbon Fund from UK, Germany, and Norway have been made in local currencies and are therefore subject to exchange rate fluctuations. The total given here is based on the assumptions outlined in the 2015 Joint Statement by Germany, Norway and the United Kingdom of Great Britain and Northern Ireland: Unlocking the Potential of Forests and Land Use announced in Paris, COP21, on 30 November 2015. 4

B: PERFORMANCE AND CONCLUSIONS (1-2 pages) Annual outcome assessment The Carbon Fund s ultimate success will be measured against the outcomes. Although the Carbon Fund is still in a relatively early stage of its lifetime (it became operational in 2011 and will terminate in 2025) and ER programmes are still under development, there have already been some indications of progress towards the outcomes identified in the Logframe: OUTCOME 1: The FCPF has contributed to the design of a global regime under or outside UNFCCC that provides incentives for REDD+ and has catalysed the creation of recognised global standards for REDD+ Other Funds are looking to use, or build upon, the standards defined in the FCPF Methodological Framework. For example the BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISLF) is considering how the Framework can inform the ISFL s methodological approach. The Green Climate Fund (GCF) has also indicated that the GCF s Performance Measurement Framework will be informed by the FCPF Methodological Framework. This suggests that the FCPF s Methodological Framework is the most advanced global standard for REDD+ transactions at scale and is being used as an example to inform other approaches. Under the UNFCCC, the Paris Agreement recognised the critical importance of conserving and enhancing forests. It sends a clear political signal that global efforts to slow, halt and reverse forest cover and carbon loss will continue, and encourages all Parties to play their part in these efforts, through action at home and support abroad. The Carbon Fund has an opportunity now to demonstrate how to implement REDD+ results-based payments and achieve the goals captured in the Agreement by operationalising the Methodological Framework. OUTCOME 2: Reduced emissions from deforestation and forest degradation from FCPF CF portfolio countries This outcome is dependent upon (a) successfully signing ERPAs and (b) programmes successfully delivering on their ERPA. The Carbon Fund has not signed any ERPAs or delivered emissions reductions but countries are making progress toward this stage with the first fully-fledged ERPDs expected in 2016. If these ERPDs are approved ERPA negotiations can commence and should be completed within 10 months. It is possible therefore that the first ERPA could be concluded in 2016 or early 2017. As explained in the Extension Business Case, implementation in the Carbon Fund has been slower than originally expected. This is partly because the Carbon Fund is a precedent-setting fund; there are no previous benchmarks for the time required to establish a complex and robust mechanism of this type. As a result we have now re-baselined our expectations on the timing of ERPAs. The original expectation was that ERPAs would be signed in 2015 and programmes would be delivering measurable results in terms of emissions reductions thereafter. We now expect the first ERPA to be signed in 2016 but there remain considerable challenges in achieving this. For example the Methodological Framework and other guidance, such as the buffer guidelines, have not yet been put into practice and tested. We also anticipate that the first ERPA negotiations will be complex requiring good coordination amongst Carbon Fund participants as buyers or ERs. As the Term of the Carbon Fund has been extended to 2025 and the potential pipeline expanded, this increases the likelihood of achieving this outcome by the end of the Fund. The milestones for the outputs that contribute to this outcome should be rebaselined as part of an update to the logframe, reflecting these new expectations, the Carbon Fund extension and the portfolio expansion. OUTCOME 3: FCPF has catalysed investment in REDD+ (CF and grants) REDD+ countries in the Carbon Fund are seeking investments to support the implementation of their programmes in order to successfully deliver emissions reductions and receive downstream payments from the Carbon Fund. 14 countries have reported on non-fcpf investments received for 5

implementation of ER Programs, totalling $1.1bn, or an average of $83 million per country, showing some progress towards this outcome. However, there is a risk that significant financing gaps for ER programmes remains. To address this risk the Carbon Fund has started to explore innovative financing options for programmes in the pipeline such as bonds and guarantees. An unprecedented 11 new programme ideas were pitched to the Carbon Fund in 2015. As a result UK, Germany, and Norway have pledged to support 5 new programmes demonstrating that donors are prepared to make further investments in REDD+ if strong proposals are forthcoming. Developments in the broader context for REDD+ (including emerging carbon markets, new financing mechanisms, and the broader climate change agenda post COP21) are likely to affect this outcome, but it is too early to judge this. OUTCOME 4: The FCPF has generated momentum to address governance and transparency issues and policy reforms related to sustainable forest resource management and REDD+ There are numerous examples of policy reforms initiated in Carbon Fund pipeline countries which are an encouraging demonstration of commitment towards successfully implementing their Carbon Fund programme. For example, Guatemala has introduced a draft framework law, PROBOSQUES (proforests) that will mandate $70m per year of the national budget for investment exclusively in REDD+ activities; Peru has committed to put 534,000 properties, 270 rural communities and 100 indigenous communities under formal land title, emulating Brazil s successful Critical Counties system; Democratic Republic of Congo (DRC) confirmed of a moratorium on new industrial logging concessions; Republic of Congo (RoC) proposed a new forest code that will establish a moratorium on palm oil concessions. Overall output score and description A Outputs met expectations Key actions Encourage sustained momentum as the Carbon Fund moves from the early stage programme idea stage toward full Emissions Reduction Programme Documents and implement the recommendations outlined in the summary sheet (p.2-3). Has the logframe been updated since the last review? The 2014 Annual Review recommended that DECC ceases reporting of the Readiness Fund and focuses instead on the Carbon Fund. The logframe has therefore been reorganised to reflect this change and draws out the most relevant sections to monitoring the Carbon Fund from the FCPF logframe (which covers both the Readiness Fund and the Carbon Fund). The logframe has also been updated to reflect the decision to extend the term of the fund to 2025. Target dates for each indicator are now 2025 instead of 2020. Rebaselining of the logframe should be completed as soon as possible so that progress can be measured effectively. The expected results should also be updated to reflect our increased financial contribution to the Carbon Fund. These changes should be made to the logframe without compromising the ability to monitor progress and fairly assess progress between Annual Reviews on a more regular basis. 6

C: DETAILED OUTPUT SCORING (1 page per output) Output Title Emissions Reductions Programmes planned and implemented/progressing through the Carbon Fund process Output number per LF 1 Output Score A Risk rating (H, M or L): Medium Impact weighting (%): 60 Risk revised since last AR? No (but previously not given for each output) Impact weighting % revised since last AR? Yes no weighting given previously Indicator(s) Milestones Progress 1.1 Number of Readiness Packages endorsed by PC (cumulative) 2 by 2014 8 by 2015 The first two R-Packages were approved in 2015. More are expected in 2016. While the submission and endorsement of the first two R-Packages in 2015 was an important milestone for the FCPF, overall progress towards reaching this important readiness milestone is slightly lagging behind earlier anticipated targets. The 2 R-Packages that have been approved are DRC and Costa Rica who are the two Carbon Fund countries that have prepared draft ERPDs. So these two countries have already overcoming the first barrier to ERPD submission. 1.2 Number of Early Ideas presented to the Carbon Fund (cumulative) 1.3 Number of ER- PINs invited into pipeline (cumulative) 1.4 Number of ERPAs signed (cumulative) 1.5 Amount of disbursements for ER Programmes according to plans (%) 1.6 Amount of ER purchases following ERPA signature (USD millions/year) 10 by 2014 20 by 2015 10 by 2014 17 by 2015 2 in 2016 8 in 2018 13 in 2019 This indicator relates to progress in the FCPF Readiness Fund and, whilst relevant to the Carbon Fund process (see annex 3) it is not strictly within the Carbon Fund s control. 15 by 2014 24 by 2015 The number of early ideas presented has exceeded expectations. 11 by end of 2014 18 by end of 2015 The number of ER-PINs selected into the pipeline met our expectations as it is consistent with our portfolio projections that current funds could support about 13-14 programmes in the eventual portfolio. 2 ERPAs in 2016 is very ambitious. This would require less than 6 months from ERPD selection to ERPA signature. It is likely that the first ERPA will be the most lengthy negotiation as CFPs organise their collective negotiating position for the first time. The 2018 and 2019 milestones seem more feasible According to the milestones and deadlines agreed by the Fund, technically the final ERPA signature could be January 2020 Targeting 100% Progress cannot yet be assessed: Milestones for this disbursement by indicator will be completed once ERPDs have been the end of the selected and ERPAs signed and the expected schedule fund in 2025 of payments is confirmed 10 in 2016 This seems unrealistic. Even if the milestone 1.4 was achieved purchases would not likely commence until 2 years after the ERPA signature. Purchases depend on the verification periods agreed in the ERPAs. Better 7

1.7 Number of pilots where carbon accounting, programmatic elements and pricing are operating as planned (cumulative) 1.8 Average % of monetary benefits shared with beneficiaries in approved pilots 2 in 2016 8 in 2018 13 in 2019 TBD milestone and estimates can be made once the first ERPAs are signed. This follows the same schedule as indicator 1.4 but intends to track the programmes progress beyond ERPA signature. As a result, the milestones are reliant on 1.4 proceeding as intended. Any delay in 1.4 will have knockon delays for 1.7. It is too early to assess: milestones to be defined at the time of preparation of benefit sharing plans and ERPA signatures Key Points From 2016, the Carbon Fund will be entering the latter half of the process, moving from early programme ideas towards detailed programme documents and towards negotiating (and signing) ERPAs. The number of Early Ideas and Emissions Reductions Program Idea Notes (indicators 1.2 and 1.3) has exceeded our initial expectations. The pipeline for the Carbon Fund increased in 2015 to 18 programmes. This demonstrates that there is strong demand from forest countries to participate in the Fund. The expected results of the Carbon Fund, as a pilot mechanism for results-based REDD+ will increase as more countries will now be part of the eventual portfolio. The level of over-programming in the Fund (there are 18 countries in the pipeline and funds to support approximately 13-14 programmes in the eventual portfolio) means that the risk of programmes dropping from the pipeline is adequately managed. In addition over programming has created an element of competition in the Carbon Fund, such that programmes will only be accepted into the pipeline if they are able to move swiftly through the process and present a high quality ERPDs for selection into the portfolio. Most of the other milestones for this output have not yet been reached. Output 1.4 (number of ERPAs signed) currently has a milestone for 2016, of 2 ERPAs, which is very ambitious. Although it is still possible to achieve this milestone it would require (a) both ERPDs expected in the June 2016 to be approved and (b) for both parties (forest country and CFPs) to efficiently negotiate an ERPA within the final 6 months of the year. Given that both the process of ERPD selection and ERPA negotiations would be the first for the Fund, they would be precedent-defining. Therefore it is anticipated that these first ERPDs and ERPAs may take the longest to negotiate (it is possible that the process will speed up once CFPs are familiar with the process; therefore it is possible that the 2018 and 2019 milestones are achievable even if the 2016 milestone is particularly stretching). ERPA negotiations can take up to 10 months, which means for ERPDs selected in June 2016, the ERPA may not be signed until April 2017. Given that delays in achieving the milestones for this particular indicator (1.4) will have a knock on effect in delaying the achievement of other milestones which relate to programme delivery later in the lifetime of the Carbon Fund (e.g. output indicator 1.7 and 1.6 and output 3), the milestones for this (and all related indicators) should be updated to reflect our revised expectations. The Carbon Fund process (see Annex 3) means that countries must have a Readiness Package endorsed under the Readiness Fund before they can submit an ERPD for selection under the Carbon Fund. This means that delays in the Readiness Fund could cause delays in the Carbon Fund. However, from 2016 the Participants Committee, responsible for decisions under the Readiness Fund, now will take place a few weeks before the Carbon Fund meetings (rather than after them) so that R-Packages can be endorsed shortly before ERPDs with minimal delays caused by FCPF procedures. Given that R- Packages are the responsibility of the FCPF-Readiness Fund (not the Carbon Fund) it is recommended that this indicator should be removed as an output indicator from the logframe and from assessments of the Carbon Fund s performance. The delays in reaching R-Package stage should be taken into account when rebaselining the milestones for this output. A score of A (met expectations) has been given for this output. Two of the indicators (1.2 and 1.3) have exceeded expectations (1.2 and 1.3); One is no longer considered relevant (1.1); Three of the indicators 8

have not yet reached milestones and should be updated to reflect revised expectations on timings (1.4, 1. 6 and 1.7); and milestones for two indicators can only be reasonably be set once ERPAs have been signed (1.5 and 1.8). Summary of responses to issues raised in previous annual reviews (where relevant) N/A Recommendations DECC completes the re-baselining of realistic milestones in the logframe so that subsequent Annual Reviews can be compared. Update the target with updated expected results. Including reordering the logframe so the logical flow top to bottom reflects the FCPF-C Theory of Change. [DECC Programme lead, with support from economist and evaluation expert, to complete prior to March 2016 results collection]. o Specifically, re-baseline indicator 1.4 (and all other interdependent indicators) to provide realistic milestones. o Remove R-Package as an indicator in the Carbon Fund logframe. It should, instead, be an assumption that needs to be met in order to achieve the outputs that are within the control of the Carbon Fund. CFPs coordinate and plan how to handle the next phase of the Carbon Fund as 2016 will witness the first reviews of fully-fledged ERPDs and the start of ERPA negotiations. [DECC Programme lead in liaison with other CFPs) UK, other Carbon Fund Participants and the Facility Management Team (FMT), keep pressure on, and support, forest countries to deliver and meet the agreed milestones and deadlines, including ensuring that those programmes provisionally accepted into the pipeline meet the requirement set out in their respective Resolutions to make the specified changes at least 14 days prior to CF14. Avoid any further delays (noting the negative impact on efficiency of our investment). [on-going work by DECC Programme lead] 9

Output Title standards and preparations in place for high-quality ER Programmes discussed and endorsed by CF Participants Output number per LF 2 Output Score A Risk rating (H, M or L): Low Impact weighting (%): 20 Risk revised since last AR? previously not given for each output Impact weighting % revised since last AR? Yes no weighting given previously Indicator(s) Milestones Progress 2.1 Methodological Endorsement Achieved in 2014 Framework and Pricing Approach endorsed 2.2 Business Processes endorsed (ER-PIN, ERPD, ERPA) Endorsement 2.3 Legal Documents (General Conditions, ERPA Term Sheet) endorsed 2.4 Buffer and registries guidelines approved Key Points Low risk as most guidance and standards have been endorsed. However there is a small risk that as the standards and guidance are put in to practice, forest countries are unable or unwilling to fully satisfy the requirements of the standards. Although most of the guidance and standards have already been endorsed they may face challenge as they are put into practise when programmes develop. It will be important to maintain the robust standards which are central to the Carbon Fund s credibility. Summary of responses to issues raised in previous annual reviews (where relevant) N/A Recommendations N/A as these outputs have now largely been completed. Achieved in 2014/15. Further work on the process for ERPD and ERPAs may be required as the Carbon Fund operationalises these processes for the first time in 2016. Endorsement Achieved in 2014. Endorsement Buffer Guidelines expected to be endorsed in early 2016 with the related guidance on registries to follow shortly after. 10

Output Title Pilots have been successfully implemented on ways to sustain and enhance livelihoods and conserve biodiversity Output number per LF 3 Output Score A Risk rating (H, M or L): Medium Impact weighting (%): 15 Risk revised since last AR? No (but previously not given for each output) Impact weighting % revised since last AR? Yes no weighting given previously Indicator(s) Milestones Progress 3.1 Number or ER programmes that demonstrate ways to maintain or enhance livelihoods including at local levels 2 in 2016 8 in 2018 13 in 2019 Requires ERPDs to be selected into the portfolio until performance against this indicator can be monitored. This follows the same schedule as indicator 1.4 but intends to track the programmes progress beyond ERPA signature. As a result, the milestones are reliant on 1.4 proceeding as intended. Any delay in 1.4 may have knock-on delays 3.2 Number or ER programmes that demonstrate ways to conserve/restore biodiversity (fauna and flora) and take into account traditional knowledge 3.3 Number or ER programmes that demonstrate relevant sustainability standards, as provided for in the Common Approach for Readiness preparation including those for grievance redress, and in the World Bank 2 in 2016 8 in 2018 13 in 2019 2 in 2016 8 in 2018 13 in 2019 for 1.7. This follows the same schedule as indicator 1.4 but intends to track the programmes progress beyond ERPA signature. As a result, the milestones are reliant on 1.4 proceeding as intended. Any delay in 1.4 may have knock-on delays for 1.7. This follows the same schedule as indicator 1.4 but intends to track the programmes progress beyond ERPA signature. As a result, the milestones are reliant on 1.4 proceeding as intended. Any delay in 1.4 may have knock-on delays for 1.7. Key Points This output will become relevant once ERPAs have been signed and ER programmes are being implemented. The milestones for this output are dependent on the achievement of indicator 1.4 (ERPA signatures). Although the milestones have not yet been reached, they are very ambitious and are not aligned with our current expectations for the Carbon Fund. The milestones for these indicators (and all related indicators) should be updated to reflect our revised expectations. Summary of responses to issues raised in previous annual reviews (where relevant) N/A Recommendations DECC completes the re-baselining of realistic milestones in the logframe so that subsequent Annual Reviews can be compared. Update the target with updated expected results. Including reordering the logframe so the logical flow top to bottom reflects the FCPF-C Theory of Change. [DECC Programme lead, with support from economist and evaluation expert, to complete prior to March 2016 results collection]. As part of the ERPD appraisal look for evidence related to output 3 (Pilots have been successfully implemented on ways to sustain and enhance livelihoods and conserve biodiversity) as proxies for the indicators [DECC Programme lead as ERPDs are presented] 11

Output Title Knowledge gained in the development of the FCPF and implementation of ER programmes are broadly shared and used by international REDD+ practitioners Output number per LF 4 Output Score A Risk rating (H, M or L): Medium Impact weighting (%): 5 Risk revised since last AR? No (but previously not given for each output) Impact weighting % revised since last AR? Yes no weighting given previously Indicator(s) Milestones Progress 4.1 Examples of utilisation of/or reference to FCPF knowledge products No target or milestones applicable (n/a) In response to demands from forest countries for guidance on technical aspects of carbon accounting required under the FCPF Methodological Framework, a web-based tool on reference levels and MRV design has been launched. The Nature Conservancy and the FCPF provided financial support to a well-received study on Early Lessons from Jurisdictional REDD+ and Low Emissions Development Programs. Six of the eight case 4.2 Number of people reached, by type of knowledge product and type of audience (including website site counts) 4.3 Number of neutral/positive mentions of FCPF and REDD+ issues in different key media worldwide TBD TBD - Increase in neutral and positive mentions worldwide studies are in countries in the Carbon Fund pipeline. Increased social media efforts in 2015, including the recruitment of a Communications Officer. FCPF is currently reporting an increase from 206 to 700+ Facebook followers since October 2015 with some posts reaching over 400 people. Twitter presence has also increased by tweets from the @WBG_Climate account which has over 50,000 followers. Mentions of the FCPF have remained consistent and largely refer to how the FCPF is piloting REDD+ at scale. Focus has been on the selection of ER-PINs into the pipeline as well as general interest in the Carbon Fund s approach to engaging the private sector. 4.4 Number of negative mentions of FCPF and REDD+ issues in different key media worldwide TBD - Decrease of negative mentions worldwide Negative mentions have reduced since the approval of key guidance, such as the Methodological Framework. However there have been some negative mentions of the FCPF in relation to safeguards for land tenure and carbon rights Key Points Some good evidence of effective knowledge management and communications via the FCPF website. This output, combined with output 2, are fundamental to the broader outcome that the FCPF is seeking to deliver in contributing to the future design of REDD+ results based payments by actively sharing lessons and knowledge gained through the Carbon Fund pilot. In 2015 the FMT employed a communications officer to focus on improved communications and sharing of the lessons learned in the FCPF. This has resulted in increased social media efforts. Indicators 4.2 and 4.3 are reported on by the FMT as part of the FCPF Annual Reports. During the rebaselining and refining of the logframe, further consideration of how to measure the reach and reputation of the FCPF including the direct (non-media) messages from other stakeholders such as NGOs could be made. For example, NGO concerns relating to specific programmes are published on the FCPF website but they are not currently monitored as part of the logframe. Summary of responses to issues raised in previous annual reviews (where relevant) N/A 12

Recommendations Encourage continued engagement between the FCPF and GCF to ensure that lessons and experiences are shared as the GCF is developing options to operationalise results-based REDD+ [on-going work by FMT and DECC Programme lead] DECC completes the re-baselining of realistic milestones in the logframe so that subsequent Annual Reviews can be compared. Update the target with updated expected results. Including reordering the logframe so the logical flow top to bottom reflects the FCPF-C Theory of Change. [DECC Programme lead, with support from economist and evaluation expert, to complete prior to March 2016 results collection]. o Consider if there are any relevant milestones for this output; none are given as part of the FCPF s logframe. o Consider if the number and type of messages from external organisations about the FCPF via direct contact could be monitored. For example, NGOs writing to CFPs to communicate their concerns with a programme. In the majority of cases, the FMT is also contacted and the correspondence is posted on the FCPF website. D: VALUE FOR MONEY & FINANCIAL PERFORMANCE (1 page) Key cost drivers and performance The analysis is based on the Extension Business Case 2015. It uses the best available data gathered from the FMT, published documents, ER-PINs from the current pipeline 6, academic literature on the impact of interventions and experienced forestry experts and officials. The Carbon Fund has not yet produced any results as it is in the pre-delivery stage, so the evidence has been evaluated as moderate. 7 This evidence base is built on expected results as opposed to actual results. Economy (i.e. Are we or our agents buying inputs of the appropriate quality at the right price?) The economy of the Carbon Fund has increased this year due to favourable exchange rate movements from a UK perspective and the reduction in fixed central administration and management fees that are now expected to be spread across more programmes. The economy of the Carbon Fund is sensitive to changes in the Sterling to US dollar exchange rate. This has worked in the UK s favour since the original Business Case was calculated in Sterling, which has slightly appreciated against the US dollar ($: exchange rate was 0.65 in 2013, moving to 0.64 in 2015). This means that each verified emissions reduction, assuming that it is priced at $5/t CO2e, will cost the UK 3.20/t CO2e, compared to the 3.26/t CO2e originally expected. Historically the exchange rate has been even more favourable to the UK (the average $: exchange rate over the past 5 years is 0.63 8 ), therefore if this trend continued in future years the value of the UK contribution would further increase. It should be noted however future that exchange rate movements are uncertain; future depreciation is arguably equally as likely. An important consideration in the coming year is the ongoing price negotiations for the verified emissions reductions. Fund participants have signalled that $5/t CO2e is the upper limit they are willing to pay. If the final price agreed is lower, the economy of the Carbon Fund would increase; if the final price agreed in higher, the economy of the Carbon Fund would decrease. 6 Noting that Carbon Fund programmes are diverse, this adds to the learning value of the Fund but makes portfolio simulations harder. For example Indonesia s programme is almost 4 times the average size, whereas Fiji s programme is just $3m (see Annex 1). 7 Countries are responding to the incentive provided by RBF scheme as evidenced by the growing pipeline, and are developing and implementing appropriate plans to achieve planned results. Actual results related to finance leveraged and individuals supported may start reporting in 2017 following the signing of the first ERPA in 2016. First actual results related to carbon savings are only expected to be reported during the first payment year of 2018. 8 Bank of England Monthly Average Spot Exchange Rate, Sterling to US$. 13

In the 2015 Extension Business Case, administration costs have been lowered as a percentage of total funds committed, since the additional funding enables a greater number of verified emissions reductions to be purchased from two new programmes, meaning that the fixed costs related to central administration and management fees are spread. This decrease is not offset by the increase in variable administrative costs (for example preparation, supervision, and verification costs related to the development of the ER-PINs). Based on the latest update from the FMT administrative costs on ER purchases are forecasted to decrease from 10% to 8.2% (or 9.1% to 7.6% as a percentage of total committed funding). Original Business Case 2013 Total UK contribution 56.5m ( 45m ICF + 11.5 ETF) Extension Business Case 2015 Total UK 141.5 ( 130 ICF + 11.5 ETF) Total funds committed ( m) 454.4 588.2 Admin costs ($m) 41.3 44.5 Fund available for ER purchases 413.1 543.7 Admin costs as a % of total 9.1% 7.6% Admin costs on ER sales 10.00% 8.18% From 2016 a fee will be imposed on all contributions to World Bank Trust Funds to recover the costs of World Bank services. This does not apply to the current UK contributions, but should DECC make a new contribution to the Carbon Fund after 1st January 2016, it would be charged 5% on the first additional $50m, regardless previous contributions, and 4% for the next $450m. Efficiency (i.e. How well do we or our agents convert inputs into outputs?) One main factor the delay in programme set-up has resulted in a decrease in value for money when it comes to efficiency. The set up time for the Carbon Fund was initially underestimated; as this is a precedent-setting fund there was no previous benchmark for the time required to establish a complex and robust mechanism of this type. It was originally thought that the first emission reduction payments from the Carbon Fund would be paid out after 2 years of set-up in 2016. Now it is expected that first payments will only take place in 2018, following the first ERPA in the autumn 2016 and a year of verification in 2017 9. This has an impact on the net present value (NPV) of the UK investment and the benefit-cost ratio (BCR), as expected monetised benefits are more heavily discounted. If the Carbon Fund had made its first savings as expected, the BCA would have been 26:1, however the loss of efficiency means that the BCR is reduced to 24:1. This represents a 227m decrease in the overall UK attributed NPV of circa 3.5bn. Cost effectiveness (i.e. How much impact does an intervention achieve relative to the inputs that we or our agents put in?) The cost of reducing a tonne of carbon is used as a measure of cost effectiveness. In the 2015 Extension Business Case, the UK attributed cost per tonne decreased from 4.8/tCO2e to 4.6/tCO2e. This is mostly explained by the increase in economy as explained in the section above. As a payment-for-results mechanism, disbursements are tied to the achievement of clearly specified outcomes, in the case of the Carbon Fund this is emissions reductions. Therefore the majority of 9 Some countries have expressed the need for advance payments in their ERPINs. This option is still on the table in the ERPA negotiations, however this analysis does not take this possibility into account as it is expressly nonfavoured by the FMT due to risk of non-recovery should future results be insufficient to cover past payments, see risks highlighted in the section below. Should a future decision like this be made at Fund level the risk to expected results will have to be mitigated. 14

payments will only be made if the intervention is successful 10. However it is possible that programmes will not be able deliver all the anticipated ERs. Guidelines have been agreed to insure programmes against the risk of reversals and leakage, though it is not clear yet how this will work in practise. VfM performance compared to the original VfM proposition in the business case The economic analysis on the UK s investment in the Carbon Fund was recently updated as part of the 2015 Extension Business Case. The updated analysis concluded that the UK investment continues to represent value for money, as shown by the decrease in cost per tonne from 4.8/tCO2e to 4.6/tCO2e. Whilst efficiency had decreased due to slower than anticipated delivery, economy increased due to the greater number of programmes. Assessment of whether the programme continues to represent value for money As the Carbon Fund is still in the early stages of implementation, it is too early to judge whether it is returning the expected results. As analysed in the 2015 Extension Business Case however there is a positive UK NPV of 3.3bn and a BCR of 24:1 (see column (3) of Annex 2). 11 The public abatement cost of the intervention approximated by project level attribution - is 13.7/tCO2e compared to the original expectation of 16.4/tCO2e and also has a high positive NPV ( 1110m) and BCR (8.8:1). Overall, the cost per tonne of the Carbon Fund is well within the range of DECC ICF current investments ( 2.6-21/tCO2e) suggesting that it is a sound investment. To ensure continuing value for money the following actions have been identified for the upcoming year: (1) Monitor the upcoming World Bank Fee Reform (Economy) As detailed above, this will have an impact on the economy of the fund. However this is only applicable for new contributions to the Carbon Fund from 1 January 2016. (2) Avoid further implementation delays (Efficiency) Milestones and deadlines, countries should be encouraged to move faster to avoid further delays in programme development and ensure that the Carbon Fund delivers actual results as soon as possible. (3) Update modelling assumptions in light of Buffer Guidelines (Cost-effectiveness) Buffer guidelines have now been agreed, but it is unclear what this will mean in practise. This will need to be monitored throughout the current year, and modelling assumptions regarding verified emissions reductions purchased, leakage and reversal will need to be updated accordingly. (4) Update modelling assumptions in light of ERPDs (Cost- effectiveness) The first ERPDs will become available in 2016, providing much more certainty on the outcomes of the programs. The assumptions should be checked against the ERPDs to ensure that they are still relevant. Quality of financial management The FMT provide annual financial reports as part of the FCPF Annual Report. Budgets are approved annually by Carbon Fund Participants at the Carbon Fund meeting closest to the end/start of the World Bank s fiscal year, which starts on July 1 and ends on June 30. We have confidence in the capability of the supplier/partners to deliver the requirements of the programme. The FMT s capacity is assessed in the risks section above; FMT have offered assurance it will scale up resources to meet the needs of an expanded pipeline, if required. It is likely that efficiencies will be realised as the portfolio size increases and learning is shared across programmes. Where 10 There is a possibility that programmes could negotiate advances to cover the upfront costs of their ER programme. 15

additional expertise is required, such as a Technical Advisory Panel to support the development of programmes, it will be procured by the World Bank. Date of last narrative financial report December 2015 Date of last audited annual statement December 2015 See FCPF FY15 Annual Report E: RISK Overall risk rating: Medium Overview of programme risk A comprehensive risk register for the Carbon Fund was provided as Annex 6 to Extension Business Case, 2015. The table below summarise the key risks and mitigation strategies. Updates to the Extension Business Case are provided in green text. Risk Description Mitigation Residual RAG Delivery risk (including underspend) due to attrition, quality concerns, external factors, or other delays, insufficient ER-PINs develop into full Programmes to absorb the full capitalisation of the Fund, and/or operational delivery of forest nations programmes is unsuccessful. The Carbon Fund is currently over programmed (11 programmes in the pipeline with the intention to include 8 in the portfolio). Encourage World Bank to maintain this ratio of over-programming 12 to an extended pipeline this was achieved with additional programmes added to the pipeline in October 2015 and the scale of additional finance pledged in December 2015. Scrutinise ER-PINs (and ERPDs) to ensure that only programmes of a sufficiently high quality are accepted into the pipeline (and portfolio). Where a country is offering a relatively low share of its ERs, the Fund may negotiate to purchase more. The Carbon Fund was extended to 2025 in April 2015. Part of the rationale for this extension was to improve the likelihood of programmes delivering the full volume of ERs. Milestones and associated deadlines will be discussed to ensure that programmes progress swiftly through the carbon fund process and do not become complacent in light of extension. milestones and deadlines were agreed in October 2015 to facilitate monitoring of programme development. Innovative, multi-sector, REDD+ programmes are inherently complex and risky. Programmes have not yet been implemented or tested so this risk remains medium. 12 Over-programming could become a risk if attrition does not occur as expected and all pipeline programmes progress to develop high quality ER programmes. If this occurred additional funding would be required to sign a higher number of ERPA than currently anticipated (8 for the current pipeline, 13 for an expanded pipeline (with additional GNU funding)). 16

Delivery risk (including underspend) due to programmes being unable to attract sufficient funding from other sources for the upfront investments required to implement the programmes and produce the ERs which the Carbon Fund intends to purchase World Bank is unable to adequately support additional programmes. Support the World Bank s efforts to advise countries on wider support that may be available to them from the Bank and other sources (including the continuing to investigate the possibility of financial advances or advanced payments from the Carbon Fund and/or the use of innovative financial instruments such as bonds and guarantees) Scrutinise ER-PINs and ERPDs (detailed programme designs) to ensure robust financial plans are in place and an integrated approach to leveraging public and private finance, before final approval of programmes for funding. 13 The financial plans are not currently assessed by the TAP, however financial issues are an important part of the World Bank s due diligence process that is undertaken in parallel to the Carbon Fund process (see Annex 3). Encourage the World Bank to ensure they are adequately resourced to support programmes in the current and potential expanded pipeline. The World Bank has recently recruited 5 additional staff to the FMT to support the current pipeline. The World Banks strategic staffing planning includes a provision for additional resources should the pipeline be expanded. Currently low risk due to assurances from the World Bank on their strategic staffing plan. Outstanding actions from risk assessment Other than continuing to uphold the mitigation strategies identified there are no outstanding actions from the risk assessment. Innovative, multi-sector, REDD+ programmes, such as those in the Carbon Fund, are inherently complex and risky. We are content with the current level of risk and the World Bank s approach to risk mitigation as detailed in the above table. F: COMMERCIAL CONSIDERATIONS Delivery against planned timeframe 13 The issue of linkages between phase II and phase III REDD+ finance was discussed at the Forest Investment Program Sub-Committee Meeting in May 2015. It concluded that that in many cases a combination of investment and incentives will be required to ensure the long-term sustainability of emission reductions achieved and the need for improved coordination of multiple sources of REDD+ financing, which should be done at the country level, led by the national entity as the focal point, to ensure that donor/international public finance is being used effectively and efficiently in achieving REDD+ outcomes http://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/fip_co_chairs_summary_6_1_20 15.pdf. Gaps in upfront funding could also be filled by bilateral programmes and leveraging the public sector. 17

Perceived delays in the Carbon Fund were discussed at length in the Extension Business Case. As the Carbon Fund has now been extended by five years to 2025, our expectations (and logframe) should be re-baselined so that progress can be monitored effectively based on updated, realistic, expectations. Performance of partnership (s) The FCPF Facility Management Team (FMT) have recently scaled up staff to meet the need of the Carbon Fund. As a result the Carbon Fund in general is performing well. Progress in the Carbon Fund is also dependent upon the efforts of forest countries as the programmes are country owned. DECC is playing an active role as a Carbon Fund Participant. Asset monitoring and control The assets in the Carbon Fund relate to the emissions reductions produced by the programme. The guidance on registries will help inform how these assets will be recorded and transferred to CFPs. G: MONITORING & EVALUATION Evidence and evaluation The Extension Business Case provides the latest update and builds on the original rationale of the original Business Case, most of the assumptions remain unchanged. An independent evaluation is currently underway and due to conclude in the first half of 2016. A new logframe and theory of change which separates DECC s investments in the Carbon Fund from the FCPF as a whole were developed as part of the Business Extension Case. Further refinements to these should be made as a result of this annual review as discussed in Section C. Monitoring progress throughout the review period The bi-annual Carbon Fund meetings provide great opportunities to monitor progress throughout the year. As outlined in Section C the Carbon Fund is continuing to meet our expectations in terms of outputs. At the programme level, there are some outstanding concerns (prepared by the NGOs and posted on the FCPF website) about programmes which will have to be taking into consideration when reviewing and selecting ERPDs into the portfolio. H: TRANSFORMATIONAL CHANGE Rating The Carbon Fund s overall KPI 15 box marking is currently judged be 1 no evidence yet available/too soon to revise assessment in business case (see Annex 4) Evidence and evaluation See Annex 4. Monitoring progress throughout the review period The note describing the indicators for KPI15 was prepared for the March 2015 Results Collection (see Annex 4) it will be updated as part of the next Results Collection process. 18

ANNEX 1: DETAILS OF CARBON FUND PROGRESS AND ACHIEVEMENTS IN 2015 Building on the overview provided on the summary sheet, the following captures the detail of the progress made since the last FCPF ICF Annual Review in September 2014: Additional ER-PINs Selected into the Pipeline At the thirteenth meeting of the Carbon Fund (CF13), in October 2015, nine countries (Côte d Ivoire, Cameroon, Dominican Republic, Fiji, Guyana, Lao PDR, Madagascar, Mozambique, and Nicaragua) presented Emissions Reductions Program Idea Notes (ER-PIN) for potential selection into the Carbon Fund pipeline. Four of these (Côte d Ivoire, Dominican Republic, Madagascar, and Nicaragua) were accepted into the pipeline and allocated up to $650,000 each to develop a more detailed Emissions Reductions Program Document (ERPD). Three others (Fiji, Lao PDR, and Mozambique) were provisionally accepted and provisionally allocated funding for ERPD development subject to agreed revisions to be made to their ER-PINs. This brings the total number of programmes in Carbon Fund pipeline to 18. Additional Financial Contributions to the Carbon Fund Developing ambitious, credible, and robust programs was recognised as the best way to attract additional finance to support an expanded pipeline. As a result, the UK has made an additional contribution of 85m, Norway has provided an additional NOK 1.1bn (roughly equivalent to 85m), and Germany intends to contribute an additional 50m 14. These additional contributions are sufficient to support circa five large-scale ER programmes. With the additional programmes included in the pipeline, the rate of over programming in the Carbon Fund has been retained; based on current portfolio simulations, current funding levels are sufficient to include 13-14 of the 18 pipeline programmes in the eventual portfolio. Extension of the Carbon Fund At the Twelfth Meeting of the Carbon Fund (CF12) in April 2015, Carbon Fund Participants unanimously agreed to extend the Carbon Fund, by five years, to December 2025. This extension will enable programs to have sufficient delivery periods which were previously constrained due to delays in program development to date. The extension reduces delivery risk, provides flexibility, provides longer term certainty for REDD+ results based payments. This extension of the Carbon Fund is sufficient to allow additional countries to join pipeline, no later than CF14 (scheduled for June 2016) and only if there are funds to support them. A review of the Carbon Fund in light of the evolving institutional environment for REDD+ finance will be will be undertaken before the end of 2019. Agreed Milestones and Deadlines It is important to ensure that extension of the Carbon Fund does not reduce efforts to move quickly through the process towards delivering results. At CF13, in October 2015, interim milestones and associated deadlines were agreed to facilitate better monitoring of pipeline development and prospects for the eventual portfolio. The following deadlines were agreed: Indonesia 15 to submit its revised ER-PIN no later than 14 day prior to CF14 Peru and Guatemala 16 to sign Letters of Intent (LOIs) by April 8, 2016 All other LOIs (including Indonesia) to be signed within 9 months after selection into the pipeline The Trustee may terminate an LoI after consultation with the Carbon Fund Participants (CFPs), if the relevant REDD Country does not submit an ERPD within the time provided for within the LoI (usually 18 months after LoI signature). 14 See Joint Statement by Germany, Norway and the UK at http://standwithforests.org/wpcontent/uploads/2015/02/2015-gnu-joint-statement-on-redd-for-cop-21-final.pdf 15 Indonesia was provisionally selected into the pipeline at CF11 in October 2014. Indonesia failed to meet 16 Peru and Guatemala were selected into the pipeline at CF11 in October 2014. At this time there was no deadline for signature of an LoI. To remain in the pipeline they must sign an LoI by 8 April 2016 (18 months after their selection into the pipeline. 19

ERPA General Conditions Agreed The General Conditions applicable to future Emission Reductions Payment Agreements (ERPAs) were agreed by donors/financial contributors and REDD+ countries at the 19th Participants Committee Meeting in November 2014. The General Conditions are the non-negotiable elements of an ERPA and includes, among other things, the provisions for the sale of and payment for Emission Reductions, the transfer of legal title, benefit sharing, non-carbon benefits, and dispute resolution. This was an important part of establishing the legal framework to ensure the Trustee is able to negotiate future ERPAs. Buffer Guidelines have been agreed The Buffer Guidelines are designed to manage the risks of uncertainty (e.g. improved observation methods and data, may indicate that the emissions reductions were overestimated and therefore the Carbon Fund over paid) and reversal (certain physical disturbances may cause forest carbon emissions that reduce the number of emissions reductions achieved). The Buffer Guidelines were informed by a review group comprising of Carbon Fund Participants (financial contributors), Observers, and forest country representatives. When the Guidelines were presented at CF13 there was some opposition from forest countries. The importance of active involvement of observers (including forest countries) in review groups was emphasised to ensure high quality products and the widest possible buy-in. The final version of the Guidelines is due to be approved virtually in early January, and will form an important part of overall ER programme design. Technical Advisory Panel has been recruited At CF12, in April 2015, the Process Guidelines for the Carbon Fund of the Forest Carbon Partnership Facility were updated to articulate the role of an ad hoc technical advisory panel (TAP) in assisting the assessment and selection ERPDs. The TAP will review advanced drafts of ERPDs and assess it against the criteria and indicators listed in the Methodological Framework of the FCPF Carbon Fund. Carbon Fund Participants and Observers are then invited to provide comments on the advanced draft ER Program Document, taking into account the assessment by the TAP. Following this the Programme entity continues to develop the ER Program and the ER Program Document, based on inputs received from the TAP. Once a final version is submitted the TAP reviews the ERPD again to assess how the comments from the TAP, CFPs and Carbon Fund Observers on the advanced draft ER Program Document have been considered in the final ER Program Document. This should minimise the burden/risks of detailed programme document approval for DECC as the TAP can provide a high quality independent review function to support the Trustee and Donors in reviewing/approving ERPDs. Second Independent Evaluation is underway As per the FCPF Monitoring & Evaluation Framework (which sets out the continuous process of performance reporting and schedule of evaluations which aim to assess the relevance, effectiveness, efficiency, impact and sustainability of the FCPF) the second independent evaluation was scheduled to take place in 2015. Some progress has been made: An Evaluation Oversight Committee (OC) has been convened (as recommended by Independent Evaluation Group in the 2012 Global Program Review of the FCPF) UK has been participating (alongside Canada, Norway, Ghana, Panama, Transparency International and IUCN); A REDD+ expert and an Evaluation expert have been selected to help steer the evaluation and provide quality assurance; Terms of Reference have been agreed; and the evaluation team have been procured; the Inception Report has been endorsed; and the evaluation team have begun their study. However, their evaluation has been delayed. Interim findings were initially expected in November 2015. The OC were keen to ensure the quality of evaluations approach and it took longer than expected to develop the inception report. However the OC are now confident that the approach will produce a robust and useful evaluation. The evaluation report is now expected in the first quarter of 2016. 20

UK Attributed Project Level UK Attributed Fund- of Fund Level Total Investment ANNEX 2: (1) 2013 Original Business Case (2) 2015 Extension Business Case UK additional Investment ( 85m) (3) 2015 Extension Business Case Total UK Investment ( 141.5m) UK investment ( m) 45 85 Total Fund Size ( m) 295.9 377 Total investment ( m) 1,769 1,881 NPV ( m) 3,750 7,222 BCR ( m) 3.1 4.8 Total investment cost per tonne ( /t) 32.6 25.0 CO2e saved (Mt) 54 75 Land area protected (k ha) 5,242 6,856 Livelihoods impacted (k people) 330 431 Private finance leveraged ( m) 725 769 Public finance leverage ( m) 887 1029 Attribution 15% 23% Total Ecosystem Value Protected ( m) 270 465 Total CO2e Value ( m) 262 1103 Income Change ( m) 307 486 NPV ( m) 794 1,969 BCR 18.65 24.16 Attributed cost per tonne ( /t) 4.80 4.64 CO2e saved (Mt) 9.4 18.3 Land area protected (k ha) 797 1,547 Livelihoods impacted (k people) 50 97 Private finance leveraged ( m) (Ratio) 110 (1:2.5) 174 (1:2.0) Public finance leverage ( m) (Ratio) 70 (1:1.6) 110 (1:1.3) Attribution 5% 8% NPV ( m) 235 667 BCR 6.2 8.8 Attributed cost per tonne ( /t) 16.35 13.66 21 141.5 377 1,881 7,222 4.8 25.0 75 6,856 431 769 1,029 38% 774 1,835 809 3,276 24.15 4.64 30.5 2,574 162 289 (1:2.0) 183 (1:1.3) 14% 1,110 8.85 13.66

ANNEX 3: CARBON FUND PROCESS FROM ER-PIN TO ERPA IMPLEMENTATION 22