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Demonstrating activities that reduce emissions
from deforestation and forest degradation

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Page Breddby providing value to standing
forests.

Managing editors/writers: Anita Gordon; Stephanie Tam
Writers: Benoit Bosquet; Andre Rodrigues Aquino
Design: Studio Grafik
Printer: Mosaic

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1.

Rethinking Forests

It is a blunt reality. Time is running out for the world’s forests. Tropical forests
have existed for more than 100 million years. Now huge tracts of theseancient landmarks may disappear forever within our children’s lifetime. Today,
day in and day out, forests, particularly in the tropics, are disappearing at an
alarming rate. Every year about 13 million hectares are lost to deforestation,
adding up to an area the size of entire countries. Cut...burned...slashed—
they are being destroyed for profit...for pastures...for livelihoods...for survival.
Combating the destruction of forests has been on the international community’s agenda for the
past three decades. However, little progress has been made so far in reversing deforestation
trends in most tropical and subtropical countries. Pressures on tropical forests are likely tointensify with continued large-scale conversion of forests into croplands and pastures, and with
continued over-harvesting through activities such as logging and collection for fuelwood.

The value of forests: much more than the sum of their parts
Forests play a crucial role in the lives of many of the poor on the planet as well as forest-dependent
indigenous peoples. Many of the countries that account for the highest percentage of global
forest cover are also among the poorest in the world. Forests are home to 300 million people
around the world—at least 100 million are indigenous peoples who are almost entirely dependent
on forests to live. Another 800 million rural people who live in or around tropical forests andsavannas rely on them for fuel, food or subsistence income. In many countries deforestation is oneof the major factors leading to depletion of water resources and degradation of water quality.

Photos: Rhett A. Butler

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Tropical forests cover only 6% of the surface of the earth, yet are home to more than half thespecies on earth. One-quarter of pharmaceutical drugs come from rainforest plants.

Deforestation and forest degradation and their impact on climate
Deforestation and forest degradation are the second leading cause of global warming,
responsible for about 20% of global greenhouse gas emissions, which makes the loss anddepletion of forests a major issue for climate change. In some countries, such as Brazil andIndonesia, deforestation and forest degradation together are by far the main source of national
greenhouse gas emissions. Eighty percent of the Earth’s above-ground terrestrial carbon and
40% of below-ground terrestrial carbon is in forests. In addition to the large contribution of
deforestation and forest degradation to global emissions, combating both has been identified
as one of the most cost-effective ways to lower emissions.
Currently, there appears to be a consensus that the issue of deforestation and forest degradationmust be effectively tackled as it would otherwise limit the options available to reduce greenhousegas emissions, greenhouse gas concentrations and increases in temperature to acceptable levels.
Any reduction in the rate of deforestation and forest degradation has the benefit of avoiding asignificant source of carbon emissions and reducing other environmental and social problems
associated with deforestation.
Unlike afforestation and reforestation activities, which generally cause small annual changes incarbon stocks over long periods of time, stemming deforestation causes large changes in carbon
stocks over a short period of time. Most emissions from deforestation take place rapidly, whereas
carbon removal from the atmosphere through afforestation and reforestation activities is a slow
process. While the accumulation of significant carbon stocks through afforestation andreforestation may take a long time, avoidance of deforestation and forest degradation
immediately reduces a large amount of emissions.

Making standing forests a priority
In addition to mitigating climate change, stopping deforestation and forest degradation andsupporting sustainable forest management conserves water resources and prevents flooding,
reduces run-off, controls soil erosion, reduces river siltation, protects fisheries and investments
in hydropower facilities, preserves biodiversity and preserves cultures and traditions. With allthat at stake it is clear what has to happen. With all the services that forests provide both tohumanity and the natural world, there is now widespread understanding of a simple yet profound
fact—that forests are more important left standing, than cut. Out of that understanding has comethe Forest Carbon Partnership Facility (FCPF).

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Creating a
Forest Carbon
Partnership

Background on the FCPF

Developing and industrialized countries asked the World Bank to develop a facility fordemonstrating activities that reduce greenhouse gas emissions from deforestation and forest
degradation in developing countries (REDD).
In response, in the summer of 2006, the World Bank began consultations on a proposed initiativewith a number of countries and organizations, including environmental NGOs. These
consultations highlighted the value of developing the facility in partnership with a broad rangeof actors—an approach that can balance the interests of potential donors and buyers, recipientsand sellers and other stakeholders.
The discussions gained momentum in June 2007, with the G8 summit in Heiligendamm, Germany.
As part of the preparations for the summit, the G8 began a high-level dialogue with developing
countries on reducing emissions from tropical deforestation. The Summit Declaration supported
the World Bank’s endeavor to form a global forest carbon partnership: “The World Bank, in close
cooperation with the G8, developing countries, the private sector, NGOs and other partners, [isencouraged] to develop and implement such a forest carbon partnership as soon as possible.”
The FCPF was launched at the 13th session of the Conference of the Parties to the United
Nations Framework Convention on Climate Change (UNFCCC) in Bali, and became operational
in June 2008. As of April 2009, 37 countries from Africa, Asia-Pacific and Latin America areparticipating in the FCPF, and 13 donors or contributors from both the public and private sectors
are supporting the FCPF financially.

Photos: Rhett A. Butler

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The role of the World Bank
The World Bank can play a critical role in assisting developing countries by providing access to
new funding, including private capital, to tackle deforestation and forest degradation andpromote sustainable development. The World Bank Group has demonstrated its commitment toprotecting the world’s forests through an active lending program that has grown steadily from
US$53 million in fiscal year 2004 to US$224 million in fiscal year 2008. Other relevant World Bank
initiatives include the Forest Investment Program, now in the design process, in addition to alarge number of carbon finance projects that focus on land use, land-use change and forestry.
The World Bank has considerable experience in designing pilot activities that pioneer carbon finance,
attracting private and public monies to capitalize carbon funds and creating new carbon assets. The
Prototype Carbon Fund (PCF) began operations in 2000—well before the Kyoto Protocol came into
force—with US$180 million in capital and the participation of seventeen companies and six
governments. Subsequently, the Bank continued to contribute new methodologies and approaches
to carbon emission reductions through the bottom-up procedures of the Clean Development
Mechanism (CDM) of the Kyoto Protocol. The Community Development Carbon Fund (CDCF) has,for example, been implementing carbon finance projects with specific community and poverty
reduction outcomes in which carbon finance is used to leverage the concept of output-based aid.
Over the past nine years, carbon finance activities at the Bank have grown to include 11 carbon
funds and facilities with a total capitalization of over US$2.3 billion. These funds cater predominantly
to parties seeking to comply with obligations in the first Kyoto commitment period (2008–2012).
One of these funds, the BioCarbon Fund (BioCF), has been pioneering afforestation and reforestation
activities under the Kyoto Protocol at the project scale, including new baseline and monitoring
methodologies for calculating carbon sequestration and new approaches to development benefits
for rural populations. The BioCF has also acquired experience beyond Kyoto with forest protection
activities generating emission reductions at the project level, currently financing three pilot projects
in Colombia, Honduras and Madagascar (see Box 1). The BioCF has developed a specificmethodology for REDD projects, peer-reviewed by world experts in forestry. The FCPF builds on the
BioCF experience for its future operations, but scales up to the national level in its approach, in orderto address concerns about leakage from individual projects and to address economy-wide drivers ofdeforestation and forest degradation. In addition, the FCPF supports countries in “docking” theirforest protection projects to a national monitoring, reporting and verification system for REDD.

Photo: Rhett A. Butler

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Box 1: Madagascar’s experience with REDD
Madagascar has been testing a number of REDD projects on the ground. The
Ankeniheny-Zahamena Corridor Project is situated in the Eastern part ofMadagascar, connecting protected areas that harbor the remaining core of
the Malagasy rainforest. The project is conducting ecological restoration andforest protection activities, including through the promotion of alternative
livelihood activities. Funding for the implementation of the project is provided
by the Government of Madagascar, the International Development
Association, USAID and Conservation International. By reducing
deforestation, the project expects to sell emission reductions in the voluntary
markets, as a sustainability strategy for the promotion of the alternative
livelihood activities and the management of the protected area. The
BioCarbon Fund is supporting this innovative reforestation and REDD
initiative by purchasing a percentage of the emission reductions it will
generate until 2017 and by providing technical assistance to the government.
Madagascar hosts several other forest carbon projects including forest
protection activities similar to the Ankeniheny-Zahamena Corridor Projectwith other technical and financial partners.

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3.

What isthe FCPF?

The Forest Carbon Partnership Facility is designed to set the stage for a large-scale system of
incentives for reducing emissions from deforestation and forest degradation in developing
countries, providing a fresh source of financing for the sustainable use of forest resources andbiodiversity conservation, and for the more than 1.2 billion people who depend to varying
degrees on forests for their livelihoods.
The Forest Carbon Partnership Facility builds the capacity of developing countries in tropicaland subtropical regions to reduce emissions from deforestation and forest degradation and to
tap into any future system of positive incentives for REDD. In some of these countries, the FCPF
will also help reduce the rate of deforestation and forest degradation by providing an incentive
per ton of carbon dioxide of emissions reduced through specific Emission Reductions Programs
targeting the drivers of deforestation and forest degradation.

Two mechanisms
The FCPF consists of two separate mechanisms, each with its own trust fund for which the WorldBank acts as Trustee:

The Readiness Mechanism is assisting 37 tropical and sub-tropical developing countries in
preparing themselves to participate in a future, large-scale, system of positive incentives for
REDD. This includes: (i) preparing a REDD strategy and/or complementing the country’s existing
strategy and policy framework for forest and environmental management, including answering
questions of carbon ownership and benefit-sharing mechanisms; (ii) establishing a reference
scenario for emissions from deforestation and/or forest degradation, based on recent historicalemissions and, possibly, an assessment of future emissions. The reference scenario is thereference against which countries will reduce emissions; and (iii) establishing a national
monitoring, reporting and verification system for emissions and emission reductions to calculate
the reductions in emissions against the reference scenario.
Each country participating in the FCPF is addressing the challenges of deforestation and forest
degradation in its own way and contributing valuable experience to the partnership. In this way
the FCPF is maximizing its learning value, by testing various approaches.

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FOREST CARBON PARTNERSHIP FACILITY I 7This experience is widely shared with the participants and with the global community throughthe FCPF website (www.forestcarbonpartnership.org), knowledge exchange sessions andinternational events. A program evaluation is also planned for 2010. The FCPF may foster SouthSouth partnerships and knowledge exchange (see Box 2).
REDD strategies are designed to set the framework for real and verifiable emission reductions.
Emission reductions often require basic reforms and investments in the forest sector and othersectors influencing the use of forests. The realization that these reforms and investments arenecessary is not new. What is new is that there may now be a source of long-term revenue to financethese programs, which may benefit countries, provinces, forest peoples and private companies.
The first step for interested countries was to submit a “Readiness Plan Idea Note” to the FCPF. The
Readiness Plan Idea Notes were reviewed by the FCPF’s governing body (see more details on thegovernance structure in Chapter 4), based on which the 37 countries were selected into the partnership.
The next step is for the selected countries to prepare their Readiness Plan. The Readiness Plan
provides a framework for a country to set a clear plan, budget and schedule to achieve “REDD
Readiness” to undertake REDD activities, in the specific country context. The Plan enables acountry to develop and implement a common vision of the role of REDD in national
development, which is shared by high levels of national and sub-national government, civilsociety, land users and other stakeholders.

Box 2 – South-South Cooperation in the Readiness Mechanism
The Readiness Mechanism opens up new possibilities of South-South cooperation.
Tropical countries with developed technologies to measure forest cover might provide
technical assistance to other countries. Countries in the Amazon Basin, Central America,
the Mekong Basin or the Congo Basin, for instance, could potentially benefit fromregional monitoring schemes and from technical assistance from countries with moreexperience in the area of monitoring forest cover change. Civil society groups fromdifferent developing countries
may also exchange information
on how to engage forestdependent communities andindigenous peoples in decisionmaking, or on how to pilot
REDD-related initiatives, such as
independent community forest
monitoring.

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The partnership’s governing body reviews and assesses Readiness
Plans, and on that basis decides on the allocation of FCPF grants tocountries.
Readiness activities must involve a high degree of consultation with civilsociety and indigenous peoples organizations. The national REDD
strategy design must itself be rooted in a broad-based consultative
process, where civil society, indigenous peoples organizations and theprivate sector is represented. Given the historical role of indigenous
Photo: Rhett A. Butler
peoples and other forest dwellers as stewards of tropical forests, it iscritical that governments set up participatory mechanisms to ensure that they be meaningfully
consulted during the formulation and implementation of their country’s Readiness Plan and REDD
Strategy and that they benefit from capacity building and future financial incentives.
To enhance such consultation and participation, the FCPF also supports a capacity building programthat specifically targets forest-dependent indigenous peoples and other forest dwellers, to strengthen
their understanding of climate change and the technicalities of REDD. Through activities such as
training workshops, conferences and dissemination of reports and other information, the capacity
building program aims to enable indigenous peoples and other forest dwellers to play a moremeaningful role in the design and implementation of REDD programs in their respective countries,
and to engage more effectively in, and contribute to, the international discussions on REDD. Suchstrengthened consultation and participation also helps to publicize and increase understanding of
indigenous peoples and other forest dwellers’ views and potential contributions to REDD systemdesign and implementation. Indigenous knowledge about forests may prove very useful to thenational monitoring, reporting and verification systems that will be set up, while the indigenous
peoples’ presence on the ground could be a key element of the enforcement mechanisms that will
be necessary in the course of REDD program implementation.
As of April 2009, three indigenous peoples and forest dwellers’ organizations are organizing
capacity building activities in their communities and regions with support from the FCPF:• Coordinadora de las Organizaciones Indígenas de la Cuenca Amazónica (COICA, in Amazonia);• Indigenous Peoples of Africa Co-ordinating Committee (IPACC, in Africa); and• Instituto de Investigación y Desarrollo de Kuna Yala (IIDKY, in Panama).

Carbon Finance Mechanism. A few countries that will have successfully participated in theReadiness Mechanism may be selected, on a voluntary basis, to participate in the Carbon Finance
Mechanism (or “Carbon Fund”), through which the FCPF will pilot incentive payments for REDD
policies and measures in approximately five developing countries. The Carbon Fund will remunerate
the selected countries in accordance with negotiated contracts for verifiably reducing emissions
more than in the reference scenario. The Carbon Fund’s payments are intended to provide an
incentive to the recipient countries and the various stakeholders—including forest-dependent
indigenous peoples, other forest dwellers or the private sector—within each of these countries, toachieve long-term sustainability in financing forest conservation and management programs.

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Box 3 – The Three Phases of REDD Financing
Beyond REDD readiness and before large-scale performance-based payments
can be expected to occur, most forest countries will need to adopt a numberof policy reforms and/or undertake a series of investment programs.
Investments may be needed to build institutional capacity, improve forest
governance and information, scale up conservation and sustainable
management of forests, and relieve pressure on forests through, for example,
relocation of agribusiness activities away from forests and onto degraded lands,
or improvements in agricultural productivity. Such investments may requiresignificant financial resources. To respond to this challenge, several initiatives
are under design, including the proposed Forest Investment Program (FIP)
under the Climate Investment Funds, as well as REDD bonds. In addition, the
UN-REDD Programme, the Global Environment Facility (GEF) and traditional
Official Development Assistance (ODA), without forgetting the governments'
own resources, would finance the necessary policies and investments.
The resulting REDD financing package consists of three phases: (i) readiness,(ii) reforms and investments, and (iii) performance-based carbon payments.

Performance-Based Carbon Payments(FCPF, Funds, Markets)

Reforms & Investments(Governments, UN-REDD,
FIP, ODA, Private sector)

Readiness(Governments,
FCPF, UN-REDD,
GEF, ODA)

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This would help reduce the negative impact on the global
climate from the loss and impoverishment of forests.
To be successful, the FCPF will strive to channel incentive
payments where they are needed. In some cases, forestdependent indigenous peoples and other forest dwellers or
the private sector will participate in the Emission Reductions
Programs included in the Carbon Fund’s portfolio and will
receive revenues from the sale of emission reductions from
REDD. In all cases, the national government will be central tothe commitment to reduce emissions. How the revenues fromcarbon payments are to be shared is a question for each
Photos: Rhett A. Butler
country to address in the context of its work on REDD
readiness (as part of its REDD implementation framework in
particular). The Emission Reductions Programs will thus build on, and test, the systems establishedin the readiness phase.
Emission reductions from REDD will vary. Some may offer, in addition to climate change mitigation
benefits, a range of ‘co-benefits’, in particular for local people and the local environment. How the
FCPF may help create, monitor and value co-benefits is a matter for the FCPF Participants todetermine. It is recognized that the FCPF is, first and foremost, a climate change mitigation
instrument. However, REDD programs must be designed to avoid any harm to local people andthe environment and, where feasible, to improve livelihoods and improve the local environment.
For example, REDD activities can enhance biological diversity by protecting and restoring natural
habitat, and preserve or improve livelihoods for local communities by securing customary property
or user rights to their forest land and their land’s timber and non-timber forest products.
The Carbon Finance Mechanism will test some of the approaches envisioned in the REDD
strategies. A variety of approaches will be considered for financing and testing in different
countries—for example, macro policy and legal reforms in forest conservation and management
and/or land-use strategies, payments for environmental services, establishment of parks andreserves and intensification of agriculture, among others.
Payments will only be made to countries that achieve measurable and verifiable emission
reductions, though upfront payments could be made under certain circumstances. Emission
reductions will be independently verified.
Together, these two mechanisms—both the Readiness Mechanism and the Carbon Finance
Mechanism—seek to create an enabling environment and collect a body of knowledge and experiencethat could facilitate much larger financial flows for REDD over the medium term (5-10 years).

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4.

Who isthe FCPF?

The FCPF brings together the following categories of participants:• REDD Country Participants from tropical and subtropical regions of the globe, which are
members of the International Development Association (IDA) or International Bank for
Reconstruction and Development (IBRD, the World Bank), located between the 35th parallelof latitude north and 35th parallel of latitude south;• Donor Participants, which are governments and private or public entities making the minimum
financial contribution to the Readiness Fund; and• Carbon Fund Participants, which are governments and private or public entities making theminimum financial contribution to the Carbon Fund .
These Participants elect a Participants Committee, which meets three times a year and makes themain decisions for the FCPF. The Participants Committee serves for a term of one year, and consistsof 10 members selected by REDD Country Participants and 10 members selected jointly by the Donor
Participants and Carbon Fund Participants at the time of an annual Participants Assembly meeting.
In addition, the meetings of the FCPF include Observers from forest-dependent indigenous
peoples and other forest dwellers, international organizations, the UNFCCC Secretariat, the UNREDD Programme, non-governmental organizations and non-contributing private sector entities.
These Observers participate in all the meetings and have full access to information in the same
way as the Participants.
The FCPF establishes a number of ad hoc Technical Advisory Panels made up of individual
experts to advise the FCPF governance bodies on specific issues—including the review of
Readiness Plans—and to provide technical assistance in REDD-related fields.
The World Bank is the Trustee of the Readiness Fund and the Carbon Fund and provides
secretariat services through a Facility Management Team. It ensures that FCPF operations comply
with applicable policies in the areas of safeguards, procurement and financial management.

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Page 1414 I FOREST CARBON PARTNERSHIP FACILITYFINANCIAL CONTRIBUTORSTO THE FCPF
Governments and private or public entities making financial
contributions to the FCPF Readiness Fund and/or Carbon Fund
as of April 2009 include:
Agence Française de Développement (AFD)
European Commission
Government of Australia
Government of Finland
Government of Germany
Government of Japan
Government of the Netherlands
Government of Norway
Government of Spain
Government of Switzerland
Government of the United Kingdom
Government of the United States of America
The Nature Conservancy

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5.

OperatingPrinciplesof the FCPF

Targeted capitalization of the FCPF
Contributions to the Readiness Fund of at least US$5 million per participant come fromgovernments and other public and private entities. The target size of the Readiness Fund was
US$150 million, but with more countries selected into the FCPF than originally anticipated due tohigh interest, that number has increased to US$185 million.
Contributions to the Carbon Fund of at least US$5 million per participant come from governments
and other public and private entities. The target size of the Carbon Fund is US$200 million.

Principles
The FCPF rests on a number of principles:• South-North Partnership
The FCPF is a partnership, which is translated into an equal role for developing and industrializedcountries in the FCPF’s governance structure. The partnership arises from the recognition that it
takes effective collaboration between developing and industrialized countries to substantiallyand sustainably reduce emissions from deforestation and forest degradation.
• Learning-by-doing
The FCPF focuses on a promising but yet-untested incentive system currently being negotiatedunder the UNFCCC. The Facility is designed to test various ways of reducing deforestation andforest degradation based on national circumstances. Various interventions will also be piloted,
from policy reforms to on-the-ground investments. Different incentive models will be used.

Photos: Rhett A. Butler

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Similarly, several approaches to the estimation of past and future emissions will be tested. Each
REDD country will innovate and contribute to the learning of all. A common principle underlies
these various approaches—namely that REDD must result in real, measurable and long-term
benefits related to the mitigation of climate change.
• Integration
The FCPF supports activities that are fully consistent with, and integrate into, the existing set ofpolicies and measures in the forest sector. Support is designed and delivered in a framework that isaligned with and integrated into national forest and agriculture sector strategies and related donor
assistance at the country and regional levels. The FCPF also aims to develop synergies with otherrelevant international policy processes, including the Global Environment Facility, the UN Forum on
Forests which will consider future funding mechanisms in support of conservation and sustainable
management of tropical forests, and the UN Convention on Biological Diversity. Financially, the FCPF
complements the resources already allocated to these policies and measures. Carbon finance, by
virtue of its system of recurrent performance-based payments, is expected to make the programs thatwere initiated using traditional sources of finance, more sustainable. The FCPF complies with theapplicable World Bank safeguard policies, and is inclusive of all the stakeholders and rights-holders
in the forest sector.
• Sovereignty
The FCPF respects sovereign country decisions in terms of the kinds of mechanisms and strategies
that are tested in each country to tackle deforestation and forest degradation. Regime neutrality
is also essential for the FCPF to avoid pre-empting the next climate regime in any way. This principle
also enables the FCPF to respond to the evolving understanding of REDD in the UNFCCC process.
• National approach
The FCPF assists interested countries in establishing a national accounting framework and anational reference scenario for emissions from deforestation and forest degradation. A national
approach to REDD is necessary to mitigate the risk of “leakage” of carbon emission reduction
benefits within a country, and also addresses nation-wide drivers of deforestation and forest
degradation. This national approach does not preclude implementation of sub-national programs
and projects, but these would need to be linked to the national accounting and reference
scenario. How to implement such a linkage or “docking” is an important contribution of the FCPF.
• Beyond climate change mitigation
By addressing the drivers of deforestation and forest degradation, the FCPF is expected to achieve
benefits that go beyond climate change mitigation, including poverty reduction and biodiversity
promotion. To the extent possible, REDD activities should be planned to increase these benefits
and the resulting improvements will be documented. The conservation of forest ecosystems will
also enhance the ecosystems’ and the forest communities’ resilience in the face of climate change.

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6.

FCPF andthe UNFCCC
Discussions

The FCPF does not pre-empt international negotiations on whether and how to include REDD
in the post-2012 international climate change regime. Instead, the FCPF provides practicalinsights and knowledge generated from the FCPF’s methodological, pilot implementation andcarbon finance experience to all interested entities. In-depth consultations with Parties to the
UNFCCC and with the UNFCCC Secretariat were conducted, which informed the design of the
FCPF and encouraged the World Bank to proceed with the Facility. As discussed earlier, the
FCPF is based on the principle of ‘regime neutrality,’ and is designed to produce ‘real life’
experience with REDD, which Parties to the UNFCCC may wish to utilize as they discuss a post2012 climate change regime. The FCPF seeks guidance from the UNFCCC and theIntergovernmental Panel on Climate Change (IPCC) as their activities continue to evolve, andseeks to align itself with emerging UNFCCC rules and modalities.
The ultimate aim of course is for the FCPF to assist developing countries in their efforts to reduce
emissions from deforestation and forest degradation, by providing value to standing forests.

Photo: Rhett A. Butler

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The World Bank
1818 H Street NW
Washington, DC 20433, USA
www.forestcarbonpartnership.org

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