Questions loom large as Bank pushes carbon finance for forest protection
25 September 2007
The World Bank has approved plans to proceed with the development of the controversial Forest Carbon Partnership Facility, although many critical issues remain unanswered. Civil society groups are concerned that the initiative may end up being profitable for governments, companies and investors without any real reductions in carbon emissions, true protection of forest resources, or equitable benefits for the poor.
Updated October 2, 2007
Last week, the World Bank’s Board of Directors approved a new initiative aimed at catalyzing a market for carbon emissions credits from avoided deforestation. The Forest Carbon Partnership Facility (FCPF) is designed to assist select countries in finding the most cost-effective way of reducing carbon emissions from forest degradation and deforestation and to generate incentive payments for those reductions.
Changes in land use and deforestation are the second largest source of climate change, accounting annually for one fifth of greenhouse gas emissions. There is broad consensus on the need to protect the planet’s remaining forests and widespread recognition of the need to provide countries with financial incentives to do so. However, there are divergent views about the best way to meet these needs and significant outstanding questions about the pace, design and potential impacts of proposed initiatives like the FCPF. In approving the concept of the FCPF last week, the Board gave a ‘green light’ for the Bank to proceed with development of the initiative, despite the absence of detailed information about how it will operate and lack of procedures for future Board oversight.
As proposed, the FCPF would include two components. The first is a “readiness mechanism” to assist some 20 countries in measuring their forest carbon stocks, identifying sources of forest-related carbon emissions, and preparing a strategy for effective emissions reductions measures. The second component is the “carbon finance mechanism,” through which the Bank would facilitate incentive payments to select countries that implement emissions reductions measures, by catalyzing public and private purchases of credits from avoided forest-related emissions. The aim is to attract donor funds, as well as buyers in the voluntary and regulated emissions reduction markets. Indonesia, Papua New Guinea, Costa Rica, Brazil and the Democratic Republic of Congo have been named as potential candidate countries for pilot carbon finance initiatives.
The FCPF is essentially designed to help prepare for a carbon trading system that recognizes emissions reductions from avoided deforestation and forest degradation post-2012 (the year when the current Kyoto Protocol expires). By some Bank projections, the market for credits from reduced forest emissions will exceed $1 billion by 2014.
Although the Bank states that “payments would only be made to countries that achieve measurable and verifiable emission reductions,” considerable questions remain about how verification of changes in carbon flows will take place, and how other impacts will be identified, prevented, captured or addressed. From available public documentation, it remains unclear what methodologies will be used to: a.) assess countries’ “readiness” to implement avoided deforestation measures and manage the market-based credit system that the FCPF would help catalyze; b.) measure carbon stock/storage and changes in emissions from forests; or c.) avoid the problem of in-country and trans-border ‘leakage’ – the phenomenon whereby deforestation (or other emitting activity) is reduced in one area, only to be increased in a neighboring zone. Given the difficulty of improving forest governance in the past, it is questionable whether the five countries proposed as pilots for the FCPF carbon finance component have sufficient capacity to implement commitments regarding avoided deforestation, or can acquire such capacity during the relatively short “readiness” phase envisioned by the Bank.
Some environmental and conservation organizations, as well as groups working with forest-dependent communities, are concerned that if the FCPF proceeds without adequate consultation or prior strengthening of community land tenure rights and forest law enforcement capacity within countries, it may end up generating a new source of revenues for governments, companies and investors without guaranteeing real reductions in carbon emissions, true protection of forest resources from degradation, or equitable benefits for the poor (especially forest-dependent communities). In a recent letter to the Bank, some groups cautioned that, as designed, the FCPF could generate perverse outcomes, enabling logging companies to benefit from carbon finance schemes that are supposed to reward forest protection. Others warn that without proper planning and approach, emissions reduction initiatives like those envisioned in the FCPF risk exacerbating conflicts between conservation groups and forest-dependent populations.
Furthermore, last week’s discussion and approval of the FCPF took place without prior public debate of the Bank’s track record in the forest and carbon finance sectors. The findings and recommendations of recent assessments of the Bank’s forest work should serve as the basis of planning for future forest sector activities, including the FCPF. However, two of the most recent such studies remain confidential. Despite being completed in early 2007, the Mid Term Review (MTR) of the Bank’s Forest Sector Strategy Implementation has neither been publicly disclosed and was scheduled to be discussed by the Board after the Directors approved the FCPF. In addition, a Board-requested review of safeguard policy implementation in select Bank forestry operations has still not been made public.
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