Forest carbon facility: "more harm than good"?

As details emerge of the World Bank's new facility to pay countries for preventing deforestation and forest degradation, concerns about its operations and governance mount.

A draft 'information memorandum' was circulated end 2007 on the Forest Carbon Partnership Facility (FCPF) which, according to the Bank, is to assist selected countries to find the most cost effective way to reduce emissions from deforestation and degradation (REDD) and promote carbon trading-based incentives for those reductions (see Update 57). The memo outlines operating arrangements for the funds that make up the FCPF, as well as the applicability of Bank safeguards and operational policies, and includes a draft charter.

There will be two funding mechanisms: a $100 million 'readiness fund' and a $200 million 'carbon fund'. Contributions to date include: Germany $57 million; UK $30 million; Netherlands $15 million; Australia $10 million; Switzerland $7 million; and $5 million from conservation NGO The Nature Conservancy. The Danish government reportedly made its support contingent on the Bank taking forest dwellers' rights into consideration.

The purpose of the readiness fund is to provide financial support to countries to prepare them to begin trading avoided carbon emissions. Countries would be supported to establish a baseline (past emissions levels caused by deforestation), create a strategy for REDD at a national level, and then design and create a monitoring system for the strategy.

The carbon fund is what would actually pay for the emissions reductions of the five pilot countries who are considered 'ready'. The secretariat of the fund would assess the carbon impact of various policies including general economic policies, forest policies, forest management and rural development, and pay countries accordingly. Despite having no evidence yet of the fund's effectiveness, the programme is to be scaled-up to the newly announced Forest Investment Facility (see Update 60) which aims to raise over $1 billion.

Serious questions about the facility have come from a number of quarters. Officials from some developing countries have asked how countries which have more sustainably managed their forests in the past will be credited. Northern aid agencies and transparency groups are concerned about the potential for corruption and how these arrangements will be monitored. Two new NGO reports have highlighted additional problems: the risk of flooding the market and driving down the carbon price, and the inadequacy of indigenous peoples' participation in the design and governance of the facility.

According to a report by NGO Rainforest Foundation, "inclusion of forest-based carbon credits in anything like the existing size of carbon markets might, at best, produce too little too late and, at worst, have the potential to do more harm than good by depressing the price of carbon below a level at which real emissions reductions projects were financially viable". Using carbon trading to prevent deforestation on any scale will require that a number of very challenging preconditions be achieved, including that rich countries agree to deep emissions reduction commitments. Rainforest Foundation believes that political energy should be focused on ensuring that these conditions are achieved, "rather than becoming overly absorbed in the probably only marginally effective issue of avoided deforestation credit trading".

On the FCPF's impact on indigenous peoples' rights to land and resources, NGO Forest Peoples Programme points out that:

• Proposed governance arrangements only allow input from indigenous peoples on invitation and only on a no voting rights basis;
• Oversight for safeguard application is entrusted to the secretariat and there is no allowance for a grievance or redress mechanism for indigenous peoples;
• There is no commitment to uphold human rights and the charter does not require the Bank to uphold standards in the UN Declaration on the Rights of Indigenous Peoples; and
• Plans to allow low-impact logging and plantation development in the emission reduction programmes will mean business as usual.

Planned retroactive consultations with indigenous peoples on the draft FCPF charter were to take place end February in Nepal, and in early March in Mexico and Burundi.