FOR OFFICIAL USE ONLY Report No: 121863-CL INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A EMISSION REDUCTIONS PAYMENT AGREEMENT IN THE AMOUNT OF US$ 26 MILLION TO THE REPUBLIC OF CHILE FOR A CHILE REDD+ EMISSION REDUCTIONS PROGRAM UNDER THE FOREST CARBON PARTNERSHIP FACILITY CARBON FUND November 25, 2019 Environment, Natural Resources and Blue Economy Global Practice LATIN AMERICA AND CARIBBEAN REGION The World Bank Chile REDD+ Emissions Reduction Program (P160277) CURRENCY EQUIVALENTS (Exchange Rate Effective {11 19, 2019}) Currency Unit = CLP 787.50 CLP = US$1 0.0013 US$ = CLP 1 FISCAL YEAR January 1 - December 31 Regional Vice President: J. Humberto Lopez (Acting) Country Director: Marianne Fay Global Practice Director: Karin Kemper Regional Director: Anna Wellenstein Practice Manager: Valerie Hickey Stavros Papageorgiou Task Team Leader(s): Leonel Iglesias The World Bank Chile REDD+ Emissions Reduction Program (P160277) ABBREVIATIONS AND ACRONYMS AGCID Chilean Agency for International Development Cooperation (Agencia Chilena de Cooperación Internacional para el Desarrollo) BSP Benefit Sharing Plan CF Carbon Fund CFMM Carbon Fund Methodological Framework CFPs Carbon Fund Participants CONAF National Forestry Corporation (Corporación Nacional Forestal) COP Conference of the Parties DFDECS Deforestation, Forest Degradation, and Barriers to the Enhancement of forest Carbon Stocks DFIL Disbursement and Financial Information Letter DEFOR Regional Forest Department ENCCRV National Strategy for Climate Change and Vegetation Resources (Estrategia Nacional de Cambio Climático y Recursos Vegetacionales) ERPA Emission Reductions Payment Agreement ERPD Emission Reductions Program Document ESMF Environmental and Social Management Framework ER-PIN Emission Reductions Program Idea Note FCPF Forest Carbon Partnership Facility FGRM Feedback, Grievance and Redress Mechanism FM Financial Management FMT Facility Management Team FRL Forest Reference Level GASP Department of Protected Areas (Gerencia de Areas Silvestres Protegidas) GEF Global Environment Facility GEFEA Department of Control and Environmental Assessment (Gerencia de Fiscalización y Evaluación Ambiental) GEDEFF Department of Forest Promotion and Development (Gerencia de Desarrollo y Fomento Forestal) GEPRIF Department of Forest Fire Prevention (Gerencia de Prevención de Incendios Forestales) GHG Greenhouse Gas GoCL Government of the Republic of Chile INFOR National Forestry Institute (Instituto Forestal) IPPF Indigenous Peoples Planning Framework LOI Letter of Intent LULUCF Land Use, Land-Use Change and Forestry MINAGRI Ministry of Agriculture (Ministerio de Agricultura) MRV Measurement, Reporting and Verification NDC Nationally Determined Contribution The World Bank Chile REDD+ Emissions Reduction Program (P160277) OECD Organization for Economic Cooperation and Development OIRS Office of Information, Complaints and Suggestions (Oficina de Información, Reclamos y Sugerencias) PC Participants’ Committee REDD+ Reducing emissions from deforestation and forest degradation, sustainable management of forests, and conservation and enhancement of forest carbon stocks R-Package Readiness Package RPF Resettlement Policy Framework R-PP Readiness Preparation Proposal SESA Strategic Environmental and Social Assessment SIRSD-S System of Incentives for the Agro-environmental Sustainability of Agricultural Soils SIS Safeguards Information System TAP Technical Assessment Panel tCO2e Tons of Carbon Dioxide Equivalent UAIS Unit on Indigenous and Social Affairs (Unidad de Asuntos Indígenas y Sociales) UCCSA Climate Change and Environmental Services Unit (Unidad de Cambio Climático y Servicios Ambientales) UNFCCC United Nations Framework Convention on Climate Change WBG World Bank Group The World Bank Chile REDD+ Emissions Reduction Program (P160277) TABLE OF CONTENTS DATASHEET ............................................................................................................................................................ 5 I. STRATEGIC CONTEXT ................................................................................................................................... 10 A. Country Context .............................................................................................................................................10 B. Sectoral and Institutional Context ..................................................................................................................11 C. Relevance to Higher Level Objectives .............................................................................................................12 II. PROJECT DESCRIPTION ................................................................................................................................ 13 A. Project Development Objective .....................................................................................................................13 B. Project Components .......................................................................................................................................13 C. Project Beneficiaries .......................................................................................................................................19 D. Rationale for Bank Involvement and Role of Partners ...................................................................................19 E. Lessons Learned and Reflected in the Project Design ....................................................................................20 III. IMPLEMENTATION ARRANGEMENTS........................................................................................................... 20 A. Institutional and Implementation Arrangements ..........................................................................................20 B. Results Monitoring and Evaluation Arrangements .........................................................................................21 C. Sustainability ..................................................................................................................................................22 IV. PROJECT APPRAISAL SUMMARY .................................................................................................................. 23 A. Technical, Economic and Financial Analysis ...................................................................................................23 B. Fiduciary .........................................................................................................................................................24 C. Environmental and Social ...............................................................................................................................26 V. GRIEVANCE REDRESS SERVICES ................................................................................................................... 31 VI. KEY RISKS .................................................................................................................................................... 31 VII. RESULTS FRAMEWORK AND MONITORING ................................................................................................. 32 ANNEX 1: Implementation Arrangements and Support Plan ....................................................................... 34 ANNEX 2: Advanced Draft Benefit Sharing Plan .......................................................................................... 39 ANNEX 3: Carbon Finance and FCPF processing steps .................................................................................. 49 ANNEX 4: Chile’s milestones under the FCPF and next steps ....................................................................... 51 ANNEX 5: Analysis of drivers of deforestation and forest degradation ........................................................ 53 ANNEX 6: Detailed Description ER Program Measures................................................................................. 55 ANNEX 7: ER Program Financing Plan .......................................................................................................... 73 ANNEX 8: ER Volume Feasibility Analysis ..................................................................................................... 75 ANNEX 9: ER Program Monitoring Plan ....................................................................................................... 79 ANNEX 10: Priority Non-Carbon Benefits .................................................................................................... 84 ANNEX 11: Systematic Operations Risk Tool ............................................................................................... 85 ANNEX 12: Economic and Financial Analysis ............................................................................................... 88 ANNEX 13: ER Program Supporting Documents ........................................................................................... 92 ANNEX 14: ER Program Accounting Area .................................................................................................... 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) DATASHEET BASIC INFORMATION BASIC INFO TABLE Is this a regionally tagged project? Country Project Name No Chile Chile REDD+ Emissions Reduction Program Project ID Financing Instrument Environmental Assessment Category Emission Reductions Payment B – Partial assessment P160277 Agreement (ERPA) Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Project Approval Date Expected Project Closing Date December 01, 2019 31 December 2025 Bank/IFC Collaboration No Proposed Development Objective(s) The objective of the Program is to make payments to the Republic of Chile for measured, reported and verified Emissions Reductions (ER) from reduced deforestation and forest degradation, the conservation and enhancement of forest carbon stocks (REDD+) in selected regions of southern Chile, and to distribute ER payments in accordance with an agreed benefit sharing plan. Components Component Name Cost (US$, millions) N.A. Page 5 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Organizations Borrower: Republic of Chile Implementing Agency: Ministry of Agriculture PROJECT FINANCING DATA (US$, Millions) [ ] Counterpart Funding [ ] IBRD [ ] IDA Credit [ ] IDA Grant [x] Trust Funds [ ] Parallel Financing FIN COST OLD Total Project Cost: Total Financing: Financing Gap: 26.00 26.00 0.00 Of Which Bank Financing (IBRD/IDA): 0.00 Financing (in US$, millions) FIN SUMM OLD Financing Source Amount Forest Carbon Partnership Facility Carbon Fund (FCPF CF) 26.00 Total 26.00 Expected Disbursements (in US$, millions) Fiscal Year 2021 2022 2023 2024 2025 Annual 7.5 12.5 6 Cumulative 7.5 20 26 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Environment, Natural Resources and Blue Economy Climate Change (ENB) Climate Change and Disaster Screening No Page 6 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of No country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or No men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) No SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance  Moderate 2. Macroeconomic  Low 3. Sector Strategies and Policies  Substantial 4. Technical Design of Project or Program  Substantial 5. Institutional Capacity for Implementation and Sustainability  Moderate 6. Fiduciary  Substantial 7. Environment and Social  Substantial 8. Stakeholders  Substantial 9. Other: Climate Change and Natural Disasters  Substantial 10. Overall  Substantial COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✔] No Page 7 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Does the project require any waivers of Bank policies? [ ] Yes [✔] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Legal Covenants Section 7.01 (a). In addition to Section 5.01(b)(i) of the General Conditions, the Program Entity shall monitor and report to the Trustee on the implementation of the Safeguards Plans and Benefit Sharing Plan during Reporting Periods. The Program Entity shall monitor and report to the Trustee on the implementation of the Safeguards Plans annually after the date of the Legal Agreements. The Program Entity shall first monitor and report to the Trustee on the implementation of the Benefit Sharing Plan six (6) months after receipt of the first Periodic Payment and annually thereafter. The Program Entity may coordinate the annual monitoring and reporting of the Safeguards Plans and the Benefit Sharing Plan, provided that the Program Entity notifies the Trustee and the Trustee accepts such coordinated timelines. The Trustee reserves the right to initiate a separate monitoring of the implementation of the Safeguards Plans and/or the Benefit Sharing Plan annually after the date of the Legal Agreements by an independent Third-Party monitor. Sections 9.01(g) and (k) as well as Section 9.05(d) of the General Conditions shall apply to such Third-Party monitor mutatis mutandis. Section 7.01 (b). In addition to Section 6.02 of the General Conditions, the Program Entity shall implement the Benefit Sharing Plan on behalf of the Program Entity in accordance with the procedures set out in the Benefit Sharing Plan Operational Manual, provided that in the case of any conflict between the procedures set out in the Benefit Sharing Plan Operational Manual and the provisions of the Legal Agreements, the provisions of the Agreements shall prevail. Except as the Trustee shall otherwise agree, the Program Entity shall not amend, abrogate or waive any provision of the Benefit Sharing Plan Operational Manual. Conditions Type Description Effectiveness of Sale and Submission of a final Benefit Sharing Plan which, based on the advance draft version Page 8 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Purchase of the Benefit Sharing Plan provided by the date of the Legal Agreements, takes into account specific guidance to be provided by the Trustee, following consultations with Tranche A Participants, on the outstanding issues that need further clarification in the final version of the Benefit Sharing Plan, as well as the Benefit Sharing Plan Operational Manual, as may be updated from time to time with prior agreement of the Trustee; Effectiveness of Sale and Submission of evidence demonstrating the Program Entity’s ability to transfer Title Purchase to ERs, free of any interest, Encumbrance or claim of a Third Party; Effectiveness of Sale and Submission of the executed Subsidiary Agreement between the Program Entity, Purchase through its Ministry of Agriculture, CONAF, AGCID (as ERPA Payment Recipient Entity) and INFOR under terms and conditions acceptable to the Trustee, and subject to the Trustee’s prior review of and consent to the draft of such Subsidiary Agreement; and Effectiveness of Sale and The Program Entity has taken all necessary actions to duly authorize or ratify the Purchase Legal Agreements. Page 9 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) I. STRATEGIC CONTEXT A. Country Context 1. Chile is a high-income country with one of the most politically stable systems in Latin America, strong institutions and a solid record of economic growth during the last two and a half decades. The first South American country to join the Organization for Economic Cooperation and Development (OECD), Chile is one of the fastest growing Latin American economies. 2. Chile relies heavily on extracting its natural resource base for employment and exports. The country has a wide range of ecological zones; including expansive arid desert, remote Pacific islands, a Mediterranean ecosystem, high-altitude grasslands and wetlands, and temperate rainforests in the south, among others. This diverse landscape contributes to Chile’s rich biodiversity, natural beauty and highly favorable environmental conditions for its successful resource-based industries, including mining, forestry, fisheries, and agriculture. 3. Despite considerable economic progress, inequality is still a challenge in Chile, with high levels of poverty still present in the country’s rural areas where subsistence livelihoods depend highly on natural resources. At 22.1 percent, rural poverty rate is significantly higher than the urban poverty rate (10.2 percent), making forested areas even more central to the poverty agenda. In addition, the incidence of poverty is especially high among Indigenous Peoples, women, and youth. One out of four indigenous individuals live in rural areas and these Indigenous Peoples show substantially higher poverty rates (extreme poverty rates are two times greater among Indigenous Peoples than among the general population: 6.6 percent vs 3.2 percent). 4. Increasing social discontent, fueled by slower income growth and high inequality, has increased sensitivity to any policy change that affects the standard of living, shown by violent demonstrations that started in October 2019 following a four percent increase in subway fares. Although the authorities declared a state of emergency, imposed a curfew, and suspended the subway fare hike, the demonstrations continued in Santiago and spread to other major cities, not only against public transit fare hikes but the high cost of living – particularly of health – and low pensions. 5. Managing water resources, natural capital and social sustainability are the key challenges facing the government in the effort to sustain the gains in poverty reduction and to accelerate shared prosperity, especially into rural areas and among vulnerable communities. Rapid economic growth has resulted in pressures on natural resources, particularly in relation to water resources management, degradation of soil and native vegetation resources, fish stock depletion, biodiversity conservation and air pollution. These environmental challenges disproportionally affect the poor and vulnerable, as they tend to depend more on natural resources and are especially affected by pollution, soil erosion, and other negative externalities arising from extractive activities (i.e. mining and commercial logging) driving economic growth. 6. Chile’s characteristics place it among the countries that are at highest risk of being affected by climate change as weather patterns are expected to negatively affect the country’s water resources and alter export- oriented agribusiness and silvopastoral systems. The 2017 forest fires were a warning sign of potential climate change risks and impacts. Addressing climate change adaptation and increasing the overall resilience of the Chilean economy to adverse weather events and the changing availability of water will have to play a key role in any future environmental and economic agenda in Chile. Page 10 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) B. Sectoral and Institutional Context 7. The Government of Chile (GoCL) has committed to protecting the environment to ensure the long- term sustainability of its economic growth, as well as to respond to Chile's status as a member of the OECD and to meet its international commitments under the United Nations Framework Convention on Climate Change (UNFCCC) as the host of its 25th Conference of the Parties. Through its Nationally Determined Contribution (NDC) as part of the Paris Agreement, the GoCL has clearly signaled its commitment to contribute to global efforts to mitigate greenhouse gas (GHG) emissions, including through expansion of renewable energy, reduction in energy consumption and increased forest carbon sequestration and management. Chile’s NDC includes an unconditional commitment to reduce the carbon intensity of its Gross Domestic Product by 30% below 2007 levels and by up to 45%, conditional to receiving international financial support. 8. With regards to the forestry sector NDC, Chile has committed to restore and sustainably manage 100,000 hectares and to reforest another 100,000 hectares of mainly native forests, subject to the amendment and extension of key legislation underpinning relevant national forest programs. Chile is also part of the Bonn Challenge and has committed to restoring a total of 500,000 hectares by 2020. The forestry sector also has the potential to contribute to Chile’s clean energy ambition as established in its Energy Policy 2050, since much of the energy used for heating purposes comes from biomass (29 percent of the primary energy use) and therefore has impacts in terms of climate change (GHG emissions) and health (pollution). 9. Chile’s overall forest cover is expanding. The country has around 17.34 million hectares of forests, of which around 81.8% are natural forests (14,181,752 hectares) while 17.1% (2,958,115 hectares) are comprised of mostly exotic timber plantations, with the rest being mixed forests. According to the Food and Agriculture Organization gross deforestation is very low, estimated at around 27,000 ha annually (0.16%), with (mostly exotic) plantations expanding by about 64,000 ha each year. This said, forest degradation remains a serious problem for the country’s native forests, with almost 4 million hectares of forests affected in total. 10. Most degradation occurs in the native temperate forests of the south, where unsustainable and unmanaged fuelwood extraction is a major contributor to the problem. This was illustrated in the subnational Forest Reference Level (FRL) developed by the country for its southern regions and registered with the UNFCCC in 2016, where forest degradation resulted in much higher GHG emissions than those produced from deforestation. These emissions neutralize the absorptive capacity of the native forest sector hindering its capacity to act as a net carbon sink (see Table 1). In addition, degradation changes the structure of native forests in terms of their size and species composition, altering their capacity to provide ecosystem services such as hydrological functions and biodiversity conservation, and to provide development dividends. Table 1. GHG emissions from native forests in selected regions of southern Chile (tCO2e)* Regions Deforestation Degradation Conservation Enhancement Net Total Maule 84.982 608.976 -14.780 -1.182.162 -502,985 Biobío & Ñuble 396.645 1.209.890 -72.359 -1.282.143 252,033 La Araucanía 1.059.067 1.907.344 -334.741 -1.517.894 1,113,776 Los Ríos 644.696 1.373.080 -710.081 -2.022.041 -714,346 Los Lagos 1.267.494 4.050.103 -1.298.478 -4.007.772 11,348 Total 3.452.884 9.149.392 -2.430.439 -10.012.012 159,826 Source: CONAF, 2016. Forest Reference Emission Level / Forest Reference Level of Native Forests in Chile. *positive numbers indicate emissions; negative numbers indicate removals. Page 11 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) 11. The direct causes of these emissions have been widely documented and are well known in Chile, including: (i) forest fires; (ii) unsustainable use of forest resources for timber, firewood production and livestock grazing; (iii) expansion of agricultural and livestock activities in forest lands; (iv) encroachment of monoculture tree plantations and urban expansion; (v) the effects of climate change, desertification, land degradation and drought; and (vi) pests and diseases. These causes are driven by underlying actors that have been identified through extensive analytical and participatory work during the preparation of the proposed operation, including: (i) deficiencies in the public policies regulating, promoting and controlling the management of vegetation resources; (ii) low level of knowledge and cultural valuation of vegetation resources among the general public; (iii) informality of the firewood market; (iv) rural poverty with the consequent lack of alternative economic opportunities for small forest owners; (v) low profitability and high opportunity costs of native forest lands; (vi) fragmented and unregulated land tenure in rural areas; and (vii) weaknesses in forest governance. These drivers are expected to continue in the future leading to continued GHG emissions in the forest sector unless measures are taken to address them. C. Relevance to Higher Level Objectives 12. The proposed operation is fully aligned with the World Bank Group’s Country Partnership Framework for Chile (currently under development). The proposed operation will directly contribute to Focus Area 3 on Improving Water, Land and Climate Change Management, and in particular to Objective 7 on Strengthening climate change mitigation and adaptation capacities. In addition, the World Bank Systematic Country Diagnostic for Chile (Report No. 107903-CL), issued on June 6, 2017, identifies native forest degradation as one of the major challenges to environmental sustainability in the country. 13. The proposed operation is part of a broader package of engagement of the Bank in support of Chile’s forest and climate change sectors, in line with the programmatic approach of the WBG Forest Action Plan FY16-20. This support combines technical assistance, investments and results-based finance, including two FCPF Readiness Grants to support preparation of the ENCCRV (P124908; US$8.8 million); an NDC Partnership Support Facility grant to help identify investments opportunities for the ENCCRV (TF0A4793; US$250,000); a GEF operation to support investments in Sustainable Land Management (P085621; US$23 million); and a project-scale carbon finance transaction pilot under the BioCarbon Fund (P111918; US$3.87 million) (Figure 1). Figure 1. WB Programmatic Approach to Chile’s forest & climate change sector 14. The proposed operation is also aligned with the World Bank’s corporate commitments on Forests and Climate Change. The operation supports several Focus Areas under the WBG Forest Action Plan (Sustainable Forestry and Forest Smart Interventions) as well as Cross-Cutting Themes (Climate Change and Resilience, Rights and Participation, Institutions and Governance). In addition, it is aligned with the WBG Climate Change Page 12 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Action Plan’s top-level priorities on Supporting Transformational Policies and Institutions, by translating Chile’s NDC into climate policies and investment plans into actions; and on Scaling Up Climate Action by mobilizing REDD+ financing to support large-scale, multi-sectoral programs in the climate-smart land use, water and food security high-impact area. II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 15. The Project Development Objective (PDO) is to make payments to the Republic of Chile for measured, reported and verified Emissions Reductions (ER) from reduced deforestation and forest degradation, the conservation and enhancement of forest carbon stocks (REDD+) in selected regions of southern Chile, and to distribute ER payments in accordance with an agreed benefit sharing plan. PDO Level Indicators 16. The achievements of the PDO will be measured through the result indicators included below, standardized for ERPA operations under the FCPF across the World Bank Group to reflect the nature of the ERPA as a transaction-based operation. Section VII includes the Results Framework along with a detailed description of each indicator: i. Volume of Emissions Reductions that have been measured and reported by the Program Entity, verified by a Third Party, and transferred to the FCPF Carbon Fund; (tCO2e); ii. Amount of payments made by the FCPF Carbon Fund for Emission Reductions generated by the Program (USD); iii. Emission Reductions payments distributed in accordance with agreed Benefit Sharing Plan and arrangements. (Yes/No). B. Project Components Scope of the instrument 17. The proposed operation consists of a stand-alone Carbon Finance Project between the World Bank as Trustee of the Forest Carbon Partnership Facility (FCPF) Carbon Fund and the Republic of Chile as the Program Entity. It involves the delivery of and payment for GHG ERs generated from the implementation of Chile’s REDD+ ER Program, namely the National Strategy on Climate Change and Vegetation Resources (ENCCRV, for its Spanish acronym), and distribution of such payments in accordance with a Benefit Sharing Plan (BSP). 18. A Carbon Finance project refers to a transaction involving delivery of and payment for ERs between a Project or Program Entity and the Bank as Trustee of carbon funds. It does not involve the direct financing of any of the underlying investments generating the ERs paid by the carbon funds. The World Bank manages a range of carbon funds and facilities representing different profiles and segments of the carbon market. These funds, managed by the World Bank as Trustee for the fund participants, purchase ERs on behalf of the fund participants, i.e., public and private entities that have committed their monies to the funds. The ERs are Page 13 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) generated by Projects and Programs mitigating GHG emissions in eligible countries and Project or Program Entities are paid for delivery of those ERs. 19. The instrument for the operation is an Emission Reductions Payment Agreement (ERPA). The ERPA is the legal document that will be signed between the Seller (i.e. the Republic of Chile through the Ministry of Finance as the Program Entity) and the Buyer (i.e. the FCPF Carbon Fund through the World Bank), which sets out the terms (e.g. volume, price, conditions of sale and purchase, call and/or put options, advance payments etc.) of the transaction negotiated between the two Parties. Whereas the ERPA covers the terms of the transaction that are negotiable on a case-by-case basis, the ERPA General Conditions represent the legal underpinning of the ERPA, providing for a set of (non-negotiable) general rules and procedures for the sale and purchase of ERs that apply to each transaction. They were approved at the 18th meeting of the FCPF Participants Committee on November 1, 2014, as per FCPF Resolution PC/18/2014/2. 20. ER Payments represent Part 1 of a Carbon Finance Project. A CF Project may include BSPs or similar instruments, in which the Recipient undertakes to apply part of its ERPA revenue for a specific purpose or group of beneficiaries (“Dedicated Payments”). Such Dedicated Payments represent Part 2 of a Carbon Finance Project. The BSP or similar instrument provides the details and directions for how the Recipient’s revenue should be used for such a purpose or group of beneficiaries. The Bank is not responsible for ensuring the implementation of the BSP or similar instrument on the ground. The Bank’s oversight responsibilities on the BSP or similar instrument end when the final ERPA payment is made to the Recipient or the ERPA terminates, whichever occurs earlier. A summary of the BSP of Chile’s ER Program is included as Annex 2. 21. The World Bank financing for this operation is provided by the FCPF. The FCPF Carbon Fund results- based 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 its target countries to achieve long-term sustainability in financing forest conservation and management programs. The Carbon Fund will remunerate selected countries in accordance with ERPAs for verifiably reducing emissions compared to a baseline scenario (i.e. forest reference level). ERPA proceeds are distributed according to a Benefit Sharing Plan satisfactory to the World Bank. Annex 3 provides further details on the FCPF and the processing of carbon finance transactions within the World Bank, while Annex 4 provides a summary of Chile’s progress and milestones under the FCPF. Chile’s REDD+ ER Program 22. Results-based payments under the proposed operation will be based on the GHG ERs generated under the ENCCRV, which represents Chile’s REDD+ ER Program described in detail in Chile’s Emission Reductions Program Document (ERPD) approved during the 15th meeting of the FCPF Carbon Fund Participants in December 2016 1. As part of its efforts to implement Chile’s NDC commitments in the forestry sector, the Ministry of Agriculture (MINAGRI), through the National Forestry Corporation (CONAF), has developed the ENCCRV with the objective to position the country’s natural forests as a key element of national climate change mitigation and adaptation efforts. Chile’s NDC document clearly establishes the ENCCRV as the key instrument for meeting the country’s climate change mitigation targets in the forest sector; while the National 1 Chile’s ERPD describes in detail the ER Program technical design, operational and financial planning, stakeholder consultation, methodological aspects (e.g. reference level and MRV), safeguards application, benefit sharing arrangements, and institutional arrangements. It is available at: https://www.forestcarbonpartnership.org/chile Page 14 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Climate Change Action Plan 2017-2022 (PANCC, for its acronyms in Spanish), establishes the ENCCRV as the main mitigation action in the forestry sector. 23. The ENCCRV was developed based on extensive analytical and participatory work supported by an FCPF REDD+ Readiness Grant (P124908). The analytical work included studies on the direct causes of deforestation, forest degradation and the barriers for the enhancement of forest carbon stocks at the national level; and the underlying legal, technical, economic, and social drivers (for a summary of the analysis, see Annex 5). This work was coupled with a strong participatory process that included one National (125 participants) and 15 Regional workshops (1,266 participants); a Self-assessment process of the readiness of the country (74 participants); a pubic consultation (506 participants); and an Indigenous Peoples dialogue and consultation (90 workshops; 1,1813 participants) 2. Following this participatory process, the ENCCRV was approved by the Ministerial Council on Sustainable Development on November 14, 2016. 24. Overall, the ENCCRV comprises a total of nine Strategic Actions designed to address the key drivers of deforestation, forest degradation, and barriers to the enhancement of forest carbon stocks that are implemented through 16 Enabling and 12 Direct Mitigation Measures (the ER Program Measures). Direct Measures include those that directly generate GHG emissions through specific investments in activities on the ground (e.g. re/afforestation, forest management, etc.). Enabling Measures include those with an indirect effect on GHG emissions through policy or regulatory reforms. Table 2 includes a summary of the ER Program Measures, while and Annex 6 provides a detailed description of each Measure together with their respective targets under different financing scenarios. 25. Implementation of the ENCCRV will focus on six of the country’s most forested regions where GHG emissions from deforestation and forest degradation are the highest: Maule, Biobío, Ñuble 3, La Araucanía, Los Ríos, and Los Lagos; covering a total of approximately 15,300,000 hectares and representing the GHG accounting area of the ER Program. The ER Program is expected to have a transformative impact on Chile’s policies, regulations, and practices related to the management of its native forest resources, leading to the scaling up of the proposed ER Program Measures at the national level in support of the country’s efforts to mitigate and adapt to climate change. A map of the ER Program Area is included at the end of this PAD. Table 2. ER Program Measures Drivers Strategic Actions ER Program Measures All Drivers Crosscutting Measures (MT) MT.1. Inclusion of climate change and land degradation aspects in the new Forestry Development Law. MT.2. Revision of the existing Native Forest Recovery and Development Law N° 20.283. MT.3. Strengthening forest land tenure for increasing access to forestry programs and projects. MT.4. Afforestation and Revegetation Program in priority areas. MT.5. Ecological Restoration Program in priority areas. MT.6. Environmental Awareness and Training Program. MT.7. Strengthening CONAF’s forest control systems MT.8. Strengthening Protected Area (PA) Management Plans. 2 For a detailed description, see: http://www.enccrv-chile.cl 3 On September 2018, the region of Biobío was separated into the region of Biobío and the region of Ñuble. Page 15 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Forest Fires Preventive silviculture and IF.1. Analysis of GHG emissions and intensity of forest fires. post-fire restoration (IF) IF.2. Restoration of Fire-affected Ecosystems Program. IF.3. Fire Preventive Silviculture Program IF.4. Fire Prevention Community Awareness Program IF.5. Inclusion of forest fire prevention and post-fire restoration elements in Law No. 20,283 IF.6. Technology Transfer Program for agricultural waste management. Unsustainable use of Promotion of sustainable US.1. Forest Planning and Zoning Program. vegetation resources forest management models US.2. Integrated regulatory and tax exemption system to promote (US) forest value chains. US.3. Strengthening CONAF’s Dendroenergy Program Unsustainable Cattle Promotion of integrated MG.1. Program for controlling livestock grazing in public areas. grazing silvopastoral models (MG) MG.2. Strengthening Local Councils to improve management of areas under intensive livestock grazing. MG.3. Agricultural Research Program Pests and Diseases Promotion of native plant PF1. Strengthening CONAF’s Phytosanitary Protection Program. protection measures (PF) Climate Change Promotion of adaptive GA.1 Climate Change Adaptation Program for Native Vegetation. effects management models (GA) Expansion of Promotion of sustainable RH.1. Eliminating the reforestation exemption on deforested lands agricultural and agricultural land in Law N°19.561 livestock activities management (RH) RH.2. Strengthen environmental safeguards in agricultural irrigation and drainage works (Law N°18.450) RH.3. Exclude forest lands from the eligibility of agricultural subsidies included in Law N° 20.412. Expansion of Promotion of sustainable RS.1. Strengthen forest control in native areas under high risk of monoculture plantation models (RS) substitution by forest plantations. plantations Low economic value Payment for Environmental NN.1. Pilot the incorporation of PES schemes in existing forest of native forests Services incentive programs (MT.1; MT.2; US.1) 26. The ER Program Measures will be implemented in both public and private (including community) lands. Unlike standard project-level carbon finance transactions, due to the scale of ER Programs the FCPF rules do not require that the Program delineates the geographic boundaries and land ownership of each targeted area where ER Program Measures will be implemented. A Land Tenure Assessment is required at the Program area level (more than 15 million hectares in the case of the Chile Program) to identify any issues that might affect ER Program implementation and subsequent transfer of ER titles to the FCPF. As such, a Land Tenure Assessment was carried out in the Program area based on available datasets to characterize and map lands based on their land tenure type (public, private, indigenous and agricultural communities, etc.), status (regular, irregular, etc.) and suitability for the implementation ER Program Measures. Results indicated that approximately 73% of the national territory is comprised of regularized rural property and would be available for implementing ER Program Measures. In addition, the Assessment indicated that land tenure is regulated by a robust regulatory framework in Chile, and that it is a requirement to access the subsidies of environmental, agricultural and forestry government programs. Given that there is a percentage of rural owners with irregular land tenure, Chile’s Program will directly support their inclusion through an ER Program Measure aimed at providing legal assistance for regularizing land titles, including collective land tenure for indigenous peoples’ lands, therefore addressing the risk of non-participation by vulnerable groups. The results of the Land Tenure Page 16 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Assessment will also be used in the eligibility criteria for accessing the Benefit Sharing Plan of the operation, prioritizing small forest owners as defined by the Native Forest Law No. 20.283 (which includes indigenous and agricultural communities). The Land Tenure Assessment has been publicly disclosed and is available on the ENCCRV website. 27. The financing for the underlying investments that will generate the ERs from Chile’s ER Program through the implementation of the ENCRV is based on a mix of CONAF’s existing national budget and secured international grants, amounting to approximately US$74 million. The ENCCRV considers a set of additional financing scenarios for scaling up its ambition, conditional to securing incremental financial support from international climate funds, bilateral negotiations, redirection of fiscal expenditure, and other sources including the private sector. Table 3 provides a summary of the different financing scenarios of the ENCCRV, while Annex 7 includes a detailed breakdown of the expected sources of funding under each financing scenario and their expected investment allocation in the different ER Program Measures. Table 3. ENCCRV Financing Scenarios (US$) (2017-2025) Sources of financing Unconditional Low-conditional High-conditional Government Budget 51,460,829 151,096,779 249,734,738 International grants 22,699,000 63,381,045 105,029,974 Private Sector 0 39,140,000 78,280,000 Total 74,159,829 253,617,824 433,044,712 28. The ENCCRV financing only considers a fraction of the resources that Chile is investing in its forest sector annually through the National Budget process. For example, CONAF’s total budget for 2018 amounted to approximately US$138 million, supporting a set of Programs which are all expected to contribute to ER generation (see Table 4). This budget size has been maintained consistently in the past and given Chile’s future commitments as per its NDC is not likely to change. In addition, the ERPA proceeds, once materialized are expected provide an additional source of financing for the ER Program Measures through the BSP. Table 4. CONAF 2018 Budget Programs Amount (US$) National Corporation 29.992.200 Fire Management Program 49.975.918 National Protected Areas 26.828.352 Forest Management 28.901.926 Afforestation 2.373.498 Total 138.071.895 Part I: ER Payments 29. The World Bank, as the Trustee of the FCPF Carbon Fund, will make payments to the Republic of Chile as the Program Entity through an ERPA for the ERs generated from the implementation of the ENCCRV during the ERPA Term. The ERPA Term will cover the period from January 2018 4 to December 2025, unless terminated earlier. 4In July 2019, the FCPF Carbon Fund Participants approved the possibility of payments for ERs generated before the ERPA signature date (retroactive ERs), provided the following conditions are met: (i) unconditional selection of the ER Program into the Carbon Fund Page 17 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) 30. Payments (i.e. disbursements) will only be made after the successful verification of results (i.e. volume of ERs generated as per PDO indicator 1) of each monitoring and reporting period, and upon confirmation by the World Bank that safeguard instruments and the Benefit Sharing Plan have been properly implemented. Monitoring and Reporting events are expected to occur biannually in accordance with an agreed ER Monitoring Plan. ER results will be measured against the Program’s baseline, which consists of Chile’s National Forest Reference Level (FRL) registered with the UNFCCC in 2016. Verification of ER results will be carried out by an Independent Reviewer contracted by the World Bank, and in accordance with the criteria and indicators of the Carbon Fund Methodological Framework. 31. The monetary value of the ERPA is defined by the ER volume and the unit price, which are both subject to negotiations and reflected in the ERPA Term Sheet. The ER Program is estimated to generate a total ER volume of 9,823,836 tCO2e between 2018 and 2024; this estimate is based on conservative assumptions about the effectiveness of the Program in addressing the drivers of deforestation and forest degradation in the Program Area without any conditional financial support (i.e. based on existing resources). This total is then discounted to reflect the risk of uncertainty in calculations (8%) 5 and the risk of reversals (21%) 6, with a remaining ER volume of 7,139,964 tCO2e available to be transacted. 32. Of the remaining volume, the volume of ERs included in the ERPA equals 5,200,000 tCO2e, as per the Letter of Intent (LOI) signed in August 2014 between the World Bank and the Program Entity. A unit price of US$ 5 per tCO2eq has been considered, which corresponds to the willingness to pay expressed by CFPs and agreed with by the Program Entity, resulting in a total contract value of US$26,000,000. The operation may include the payment of Additional ERs exercised as a call option in the future, at different prices as negotiated between the Program Entity and the CFPs and approved by national authorities (i.e. Ministry of Finance). Such call option would be processed as Additional Financing. See Table 5 for a summary of this information. Table 5. ER Volume to be transacted ER Volume ER Volume (unconditional scenario) (tCO2eq) Total ER Volume expected by the Program 9,823,836 Uncertainty risk discount (8%) 785,907 Reversal risk discount (21%) 1,897,965 ER Volume Available for transactions 7,139,964 Committed in FCPF LOI 5,200,000 Additional ER Volume available 1,939,964 33. It is important to consider that the expected contract volume and value represent ex-ante estimates based on assumptions about the Program’s effectiveness in generating ERs. The actual total ER volume available to be transacted and resulting schedule of payments will depend on the actual effectiveness of the Program in generating ERs as reported and verified after each monitoring event. An effectiveness analysis for portfolio; (ii) ER Program Measures that generated the retroactive ERs have been implemented in a manner consistent with the Environmental and Social Management Framework (ESMF) for the ER Program approved by the Bank; (iii) Forest Monitoring System for the ER Program is operational by the end of the first ER Reporting Period; (iv) payments for retroactive ERs are subject to the final BSP, as approved by the World Bank; and (v) Program Entity has demonstrated its ability to transfer title to retroactive ERs. 5 Refers to statistical uncertainty related to the measurement and reporting of the of ERs generated under the Program. 6 The Carbon Fund Methodological Framework defines a Reversal as “A situation where the cumulative monitored and verified ERs are less than the currently transferred ERs, i.e., at any point in time more ERs have been transferred than is warranted by the underlying reported and verified results of the ER Program.” Page 18 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) the different financing scenarios of the ENCCRV in terms of ER volume generation showed that the baseline scenario (unconditional financing) is sufficient to generate a steady flow of ERs to support the ERPA operation, as long as investments in ER Program Measures prioritize the most cost-effective activities aimed at reducing emissions from deforestation and forest degradation, rather than a/reforestation which have longer carbon sequestration times and a higher emphasis on non-carbon benefits. See Annex 8 for further details. Part II: Dedicated Payments (Benefit Sharing Plan) 34. ERPA revenues will be redirected towards the implementation of the ENCCRV and thus increase the ambition of Chile’s NDC in a sustainable and inclusive manner. The BSP will support the implementation of a set of priority ER Program Measures that have been identified in consultation with stakeholders, focused on direct activities such as afforestation and reforestation with vulnerable landowners based on mostly native species which are not included in current government programs. 35. The advanced draft of Chile’s BSP as of October 2019, including arrangements for the governance and flow of ERPA funds, categories of beneficiaries, types benefits, and criteria and processes for the distribution of benefits is summarized in Annex 2. A final version is included as a Condition of Effectiveness in the ERPA. C. Project Beneficiaries 36. Beneficiaries of Chile’s ER Program and BSP are expected to be mostly small forest owners (including indigenous communities) in vulnerable rural areas, therefore contributing to the WBG twin goals. The BSP will not include direct cash transfers to Program beneficiaries (monetary benefits). Beneficiaries will receive non- monetary benefits through the implementation of subprojects related to the ER Program Measures based on a list of eligible activities (e.g. technical assistance, inputs, capacity building, and others) and in accordance with applicable safeguard instruments, in order to improve environmental, social and economic conditions in beneficiaries’ lands. Activities supported by the BSP will improve beneficiaries’ livelihoods by reducing soil erosion and increasing land productivity, generating timber and non-timber forest products, improving hydrological and other ecosystem services, and strengthening adaptation to climate change (non-carbon benefits). The Program will also generate benefits for the larger community by enhancing the delivery of global environmental services such as biodiversity conservation and increased carbon sequestration. D. Rationale for Bank Involvement and Role of Partners 37. Chile’s ER Program would be among the first of its kind worldwide to receive results-based payments for REDD+ under the FCPF Carbon Fund, along with other countries such as the Democratic Republic of Congo, Ghana, and Mozambique. The World Bank is supporting similar initiatives in other jurisdictions in Africa, Asia and Latin America through the FCPF, GEF, and BioCarbon Fund and has gained unique expertise in providing technical assistance to support the design and implementation of large-scale ER Programs for which there are few other references worldwide. In addition, the World Bank brings significant value to the ER Program given its current engagement in Chile’s native forest sector as its Delivery Partner under the FCPF, with two REDD+ Readiness grants (P124908) and a GEF Sustainable Land Management (SLM) operation (P085621). 38. Chile also participates in other REDD+ initiatives supported by development partners. In particular, Chile is an active member of the UNFCCC process on REDD+ and is part of the UN-REDD+ Program jointly implemented by the United Nations Development Program, the United Nations Environment Program, and the Food and Agriculture Organization of the United Nations, all of whom have been active partners in Chile, Page 19 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) together with others such as the Swiss Development Cooperation Agency, supporting the implementation of grant-financed activities under the umbrella of the ENCCRV. In addition, Chile is in advanced stages of approval of a proposal to the REDD+ Window of the Green Climate Fund, under which it will receive ER Payments for the 2014-2016 period which will be implemented by directly the FAO. Payments under this proposal are also expected to be directed towards the implementation of the ENCCRV. E. Lessons Learned and Reflected in the Project Design 39. Early lessons considered from the implementation of similar-scale Carbon Finance Projects indicate that a results-based finance instrument for REDD+ requires clarity on upfront financing and investments needs to address the drivers of deforestation and forest degradation. Performance-based payments can produce effective incentives and they can leverage more traditional forms of finance, including private finance, for sustainable land-use activities. Countries that receive the payments need to have appropriate capacity and systems in place, including safeguards, fiduciary, and Measurement, Reporting and Verification (MRV) that can give reasonable confidence that results have been achieved and risks are being managed with due diligence 7. 40. Design of the ER Program also builds on the lessons learned after almost 10 years of implementation of the Native Forest Law No.20.283 in Chile and several official and unofficial evaluations indicating how to make it more effective. The analytical work on the drivers of deforestation and forest degradation gathered a wide range of expertise and knowledge from the sector that is reflected in the design of ER program Measures, such as: (i) the need to make cost information more accurate; (ii) provide advanced payments to small forest owners that lack access to credit; (iii) increase technical assistance on the ground; (iv) adopt more sustainable forest management models; and (v) make changes to regulatory frameworks outside the forest sector, among others. 41. The design of the BSP builds on existing models currently implemented through Component 2 of the GEF project mentioned above, which operates though the implementation of SLM subprojects directly by CONAF’s regional offices supported by technical assistance teams, based on Implementation Plans for priority areas designed with technical, social and environmental eligibility criteria and consulted in local stakeholder platforms. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 42. The World Bank, as Trustee of the FCPF, will sign the ERPA with the Ministry of Finance, representing the Republic of Chile as the ER Program Entity, and with the Ministry of Agriculture (MINAGRI), in charge of Chile’s agriculture and forest sector policy and management. The main agency responsible for the implementation of the ER Program under MINAGRI will be Chile’s National Forestry Corporation (CONAF). CONAF is a public-private institution tasked with the administration and enforcement of forest legislation in Chile, acting as the country’s Forest Service. It has more than 130 branch offices located in all of the county’s regions with a permanent staff of over 2,000 employees. The Climate Change and Environmental Services Unit 7 See “Early Lessons from Jurisdictional REDD+ and Low Emissions Development Programs”; “Results-based finance for REDD-plus: Lessons learned from the FCPF and the BioCarbon Fund”; “Harvesting Knowledge on REDD-plus: Early Lessons from the FCPF Initiative and Beyond”, available at: https://www.forestcarbonpartnership.org/redd-strategies Page 20 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) (UCCSA, Spanish acronym) will be the main technical counterpart within CONAF, having led the preparation of the ENCCRV over the past years and with increased capacity on safeguards and ER monitoring and reporting. 43. Implementation of the ER Program will require the collaboration of several Departments and Units within CONAF which will be coordinated through CONAF’s Interagency Committee on Climate Change (GICC, for its Spanish acronym), whose role is to provide strategic direction and coordinate CONAF’s work related to climate change issues with the UCCSA acting as the technical Secretariat (Table 6). Table 6. CONAF’s Interagency Committee on Climate Change (GICC) Acronym (Spanish) Unit/Department UCCSA Climate Change and Environmental Services Unit UAIS Unit on Indigenous and Social Affairs GEDEFF Department of Forestry Promotion and Development GEFEA Department of Enforcement and Environmental Assessment GEPRIF Department of Forest Fire Prevention GASP Department of Protected Areas DAL Department of Legal Affairs 44. ERPA Payments will be received, on behalf of the Program Entity, by Chile’s Agency for International Development Cooperation (AGCID, for its Spanish acronym), which will also sign the ERPA in the capacity of ERPA Payment Recipient Entity. AGCID is a public institution under the Ministry of Foreign Affairs authorized to receive and administer international funds on behalf of Chile and has been the recipient of a number of trust funded grants with the World Bank (including FCPF and GEF). Once received, ERPA revenues will be transferred by AGCID to Chile’s Forest Institute (INFOR, for its Spanish acronym) which will execute them in accordance with the BSP, and under CONAF’s technical supervision. INFOR is a private foundation affiliated with MINAGRI created in 1961 and has the capacity to receive and administer extrabudgetary funds, and as such was selected by the Program Entity for the operation of the Dedicated Payments through the BSP. The Program Entity, through MINAGRI, will enter into a Subsidiary Agreement with AGCID, CONAF and INFOR, specifying the roles and responsibilities of each agency and satisfactory to the World Bank. B. Results Monitoring and Evaluation Arrangements 45. ERs generated through the implementation of the ER Program will be measured in tCO2e/year and represent the key metric for receiving results-based payments under the ERPA signed with the Carbon Fund in line with the primary PDO indicator. ERs will be monitored through the measurement, collection, compilation and recording of all relevant data and parameters (i.e. Activity Data and Emission Factors) necessary for estimating ERs generated within the ER Program Accounting Area through the National MRV system for REDD+ in accordance with a Monitoring Plan and in compliance with the Carbon Fund Methodological Framework. The monitoring of Activity Data will rely on CONAF’s Forest Ecosystem Monitoring Department, which operates and regularly updates the country’s Cadaster of Vegetation Resources. Emission Factors will be measured through regular forest inventories operated by CONAF (Forest Carbon and Wood Energy Monitoring System) and INFOR (Continuous Forest Inventory). The ER Program Monitoring Plan specifying the parameters to be monitored in each Reporting Period is included as Annex 9. 46. The Program Entity, through CONAF, will be responsible for monitoring and reporting ERs during regular Reporting Periods specified in the ERPA. ER results will be reported in the form of ER Monitoring Reports and shall be subject to Verification by an Independent Reviewer, after which respective payments (i.e. Page 21 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) disbursements) will be made. Unless agreed otherwise in the ERPA, the World Bank shall arrange for such Verification and shall contract (separately from regular supervisions) an Independent Reviewer for Verification purposes based on standard Terms of Reference across the FCPF. Expected Monitoring and Reporting periods, ERPA ER volumes and respective payments are shown in Table 7. Table 7. Monitoring and Reporting Periods, Expected ER Volumes and Payment Schedule. Monitoring Reporting Period Submission for Expected ERPA Payment Schedule Events Verification Volume (tCO2e) (US$) 1 01/2018-12/2019 04/2021 1,500,000 7,500,000 2 01/2020-12/2021 04/2023 2,500,000 12,500,000 3 01/2022-12/2023 04/2025 1,200,000 6,000,000 Total 5,200,000 26,000,000 47. The ER Program’s Forest Reference Level (FRL) represents the benchmark (i.e. baseline) against which the results of the ER Program will be measured, in tCO2e/year, as it may be updated from time to time in order to allow for improved data and methodological approaches. It was calculated as the net average of the annual GHG emissions and removals from four REDD+ activities (deforestation; forest degradation; conservation; and enhancement of forest carbon stocks) in the six regions of the ER Program during the 2001- 2013 period (see Table 1). The Program’s FRL has been approved by the FCPF and was registered with the UNFCCC in 2016. 48. Each ER transaction between the Program Entity and the World Bank, as the Trustee of the FCPF Carbon Fund, will be registered in the FCPF’s ER transaction registry in order to avoid double counting and/or claiming of the transacted ERs. The Registry is currently under construction and its functions will be to document and record, among others, the issuance, serialization, acquisition, holding, retirement, cancellation and/or transfer of ERs transacted between the FCPF Carbon Fund and participating ER Programs. 49. As required by the ERPA, progress made with the implementation of the ER Program Measures, safeguards compliance, and operation of the BSP will be monitored and reported in Interim Progress Reports (at least annual), in a form and substance satisfactory to the World Bank. ER Monitoring and Interim Progress Reports will also include information on the Program’s efforts to generate and/or enhance Non-Carbon Benefits. Annex 10 provides a preliminary list of prioritized Non-Carbon Benefits and proposed indicators. C. Sustainability 50. The sustainability of the ER Program measures is supported by the following: (i) alignment of the proposed ER Program Measures with national sectoral policies (i.e. ENCCRV; PANCC 2017-2022) and international commitments (NDC); (ii) a highly participatory process with major forest stakeholders at the national and regional levels throughout the preparation and validation process of the ENCCRV; (iii) reinvestment of ERPA payments (FCPF and others) in accordance with the BSP to scale up Program activities; (iv) the introduction of several amendments to current and new laws and regulations governing national forest incentive programs to leverage additional public sector finance included as ER Program Measures; and (v) exploration of new financial mechanisms to leverage private sector finance with the National Economic Development Corporation (CORFO, for its acronym in Spanish), Emission Trading Schemes, and others. Page 22 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis (i) Technical 51. The ENCCRV was designed to comply with the international requirements of the FCPF Carbon Fund Methodological Framework (CFMM), as well with the UNFCCC REDD+ rules. The CFMM includes a series of technical Criteria (#38) and Indicators (#78) built around 5 Sections, namely: (i) level of ambition; (ii) carbon accounting; (iii) safeguards; (iv) sustainable program design and implementation; and (v) ER Program transactions. The UNFCCC REDD+ mechanism includes a set of interrelated Decisions that were completed at COP21 known as the Warsaw Framework. 52. As part of the Carbon Fund business process, a Technical Assessment Panel (TAP) of international experts assessed Chile’s ER Program against the CFMM criteria & indicators. The assessment process included a detailed desk review of the Program documents, and a country visit that took place in June 2016. The assessment process was completed in November 2016. Out of 63 indicators applicable at the preparation stage, the TAP assessment concluded that the ENCCRV fully complied with 58, while there were 5 that needed further improvement. These were related to sources of uncertainty in carbon accounting, and carbon ownership. On December 2016, Chile’s ENCCRV was the first ER Program to be approved without any conditions by the FCPF Carbon Fund. 53. In addition, as part of the UNFCCC REDD+ rules, Chile submitted its National FRL to the UNFCCC Secretariat in January 2016 for it to be assessed by a Roster of Experts. The assessment lasted approximately 15 months and was completed in March 2017 with positive remarks by the Assessment Team. The UNFCCC Technical Assessment of Chile’s FRL is also included in the ER Program’s Supporting Documents. 54. Furthermore, a series of important technical studies were conducted as part of the preparation phase of the ENCCRV, including: (i) a Report on the drivers of deforestation and forest degradation; (ii) a Land Tenure Assessment; (iii) an Economic analysis with prioritization of areas for maximizing net social benefits; and (iv) and Independent technical feasibility assessment. This set of analysis has strengthened the technical rigor of the theory of change underlying the program activities and their effectiveness in addressing the drivers of deforestation and forest degradation leading to ER generation. (ii) Economic Analysis 55. As this operation only covers the Carbon Finance transaction, a traditional economic and financial analyses is not considered appropriate for two significant reasons. First, the operation does not involve the direct financing of the underlying investments that will generate the ERs. Second, any quantitative measure to value the Program benefits is likely to be an underestimate not reflecting their true value as most of the (local, national and global) benefits generated by the Program will consist of positive (environmental) externalities that are not captured by markets. Nevertheless, the following provides an analysis to grasp some of the broader economic benefits generated by the Program, and the proposed ER Program Measures are expected to incentivize the support of participating forest owners. Page 23 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) 56. A financial analysis at the beneficiary level was conducted in order to gain a better understanding of the financial barriers for the implementation of some of the key direct ER Program Measures. The analysis shows that these interventions (a/reforestation with native species, native forest restoration, preventive silviculture, etc.) do not generate significant monetary returns in the short and medium term for Program beneficiaries. The analysis clearly shows that for all the simulated cases and scenarios, landowners’ Net Present Value (NPV) results in negative values. For very small landowners the financial gap varied from -3.050 US$/ha to -3.350 US$/ha, while for small landowners it varied from -2.600 US$/ha to -2.900 US$/ha. If current practices (i.e., those that degrade native vegetation resources) are abandoned in favor of the proposed sustainable practices promoted by the ENCCRV, landowners will not embark on those activities because they are not systematically profitable. In addition, small landowners face financial barriers in accessing rural credit schemes that would allow them to participate in government programs subsidizing these activities on an ex- post basis. This analysis has informed the design of the ER Program Measures to be piloted through the BSP in a twofold manner: compared to current subsidy programs, subprojects financed by ERPA proceeds will cover a higher percentage of total activity costs; and they will be provided upfront (ex-ante) directly by CONAF. 57. In addition to the strictly financial analysis, an economic analysis was conducted using total economic valuation methods to reflect the true value of the underlying investments in the ER Program Measures. The results showed that when non-market values and other related benefits are incorporated in the analysis (e.g., improvement of water regulation and watershed management, enhanced scenic beauty, climate adaptation and resilience benefits, enhanced carbon sequestration, among others), the negative NPV is reverted justifying the Benefit Sharing Plan mechanism. Estimated total net economic benefits per hectare are US$ 3,394 on average, with the highest benefits coming from activities related to sustainable forest management (3,987 US$/ha) and afforestation with native species (3,696 US$/ha). 58. Annex 12 shows the detailed analysis at the beneficiary level as well as the results of the valuation of ecosystem service at the Program level, while the full studies are included in the ER Program’s Supporting Documents. The different set of analyses demonstrates that the proposed investments in a/reforestation, restoration, and forest management in Chile contribute significantly to the sustainable and inclusive economic development ambitions of Chile, since they generate and safeguard important environmental services at local, regional, and global levels, while supporting vulnerable populations with few economic alternatives. B. Fiduciary (i) Financial Management 59. A Financial Management (FM) Assessment was carried out to evaluate the adequacy of the FM arrangements for the implementation of the proposed Carbon Finance (CF) Project. World Bank FM policies for Investment Project Financing do not apply to CF Operations as CF Operations do not involve direct Bank financing of the underlying activities or investments but only Payment for ERs generated under such operations (Part 1 – ER Payments). However, the Project also requires the Recipient to distribute such ER payments (i.e. the ERPA revenue) in accordance with a BSP (Part 2 – Dedicated Payments). Therefore, the Recipient should have a Dedicated Payments system acceptable to the Bank. 60. Following the implementation arrangements for the proposed CF Project, CONAF will be the entity responsible for the implementation of the ER Program (ER Program Implementing Entity) and for preparing ER Monitoring Reports for submission to the World Bank, while AGCID will be the entity responsible for receiving the ERPA Payments (ERPA Payment Recipient Entity) on behalf of the Program Entity (Republic of Chile). Upon Page 24 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) third party verification of the ER Monitoring Report, in a manner satisfactory to the World Bank, CONAF will instruct AGCID to submit an ER Transfer Form to the World Bank for the pre-authorization of the ER Payment. 61. ER Payments will follow the World Bank’s disbursement policies and procedures, as described in the Disbursement and Financial Information Letter (DFIL) referenced in the ERPA. The World Bank will be able to disburse the ERPA proceeds using either the ER Payment or Advance Payment (future ER payments) methods upon submission of an Application for Payment form by AGCID. AGCID will receive the ERPA Payments from the World Bank in a segregated bank account (Designated Account) to be maintained in Banco Estado. 62. For Part 2 of the CF Project, AGCID will transfer the ERPA funds received in the Designated Account to a local currency bank account managed by INFOR, which will be responsible for setting up and maintaining an adequate budget and payment system to administer the ERPA funds in accordance with the BSP of the ER program, under CONAF’s technical supervision. INFOR will report to AGCID on the fiduciary aspects of BSP implementation. The flow of funds is summarized in Table 8 and figure 2 below. 63. INFOR has a well stablished budget and administrative unit whose staff has experience in managing local funds. INFOR will incorporate the funds into its budget system (web presupuestal) and will record the transactions of the BSP using the financial information system ERP-Lisa. INFOR will be responsible for preparing the BSP financial reports on a semester basis in US Dollars and submit them to the Bank. INFOR is an entity that is subject to the oversight of the General Controller Office (CGR, for its Spanish acronym). The financial audit reviews performed by the CGR will eb accessible to the World Bank, upon request, to verify that the payment system for the BSP is working adequately. Table 8. Flow of ERPA funds Step 1 AGCID sends ER Transfer Form (Schedule 3 of the ERPA) to the World Bank 8 Step 2 World Bank sends Confirmation to Authorize Payment form (Attachment 2 of the DFIL) to AGCID Step 3 AGCID sends Application for Payment in accordance with the DFIL Step 4 World Bank sends ER Payment to a Designated Account operated by AGCID in Banco Estado Step 5 AGCID transfers ER revenue to a local currency account operated by INFOR for BSP implementation Step 6 INFOR executes ERPA revenue in accordance with the BSP Step 7 INFOR reports back to AGCID on fiduciary aspects of BSP implementation 64. Based on the assessment, the main risks faced by the project include: (i) the implementation of the BSP will be split among AGCID (receipt of the ER payments in the Designated Account), INFOR (BSP fiduciary aspects) and CONAF (technical aspects). This arrangement is complex and may cause delays in the BSP implementation; (ii) lack of subsidiary agreement signed between INFOR and CONAF; (iii) lack of a specific operational manual to operate the BSP among the participating entities, including the format for the BSP financial report; and (iv) Lack of previous experience of INFOR in working with the World Bank. 8 This Form is not applicable to Advance Payments Page 25 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Figure 2. Flow of ERPA funds (illustrated) 65. In order to mitigate the FM risk, the following measures are put in place: (i) The ERPA will specify the roles of CONAF, AGCID and INFOR; (ii) a subsidiary agreement will be signed between AGCID, INFOR and CONAF, and included as an effectiveness condition in the ERPA; (iii) adoption of an operational manual for the BSP as an effectiveness condition of the ERPA, satisfactory to the World Bank, that includes clearly defined roles and responsibilities between AGCID, INFOR and CONAF, including the FM process and procedures to ensure adequate internal controls and to enable timely processing of payments and issuance of the BSP financial reports; and (iv) strengthening the administrative capacity of INFOR through the hiring one or more financial management specialists following the first receipt of ERPA funds from AGCID. The overall conclusion of the FM assessment is that once these mitigating measures have been properly implemented, the proposed FM arrangements will meet the World Bank’s fiduciary requirements for the program. (ii) Procurement 66. The World Bank Procurement Regulations will not apply for this CF Project, as the Bank funds will finance Part 1 of the Project, which only includes payments to the Program Entity for generated ERs, and thus, there will not be procurable activities under this Part of the Project. C. Environmental and Social 67. World Bank safeguards approach to ERPAs. The various governing documents of the FCPF, including the Charter, establish a commitment to applying World Bank Safeguard Policies to FCPF operations. As per the guidance on the safeguards approach for FCPF ERPA operations 9, this includes the following elements: (i) differentiated responsibility for the supervision of safeguard compliance depending on who is financing the underlying activities and whether or not they are included in the Government ER Program; (ii) comprehensive assessment of environmental and social risks associated with ER Programs and formulation and adoption of relevant safeguard frameworks and/or plans to address such risks; (iii) assessment of the Program Entity’s 9Managing Environmental and Social Risks for the FCPF Emission Reductions Programs. Supplemental Briefing Note to the Operations Environmental and Social Review Committee (OESRC). April 22, 2019. Page 26 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) capacity and systems to implement agreed safeguard frameworks and/or plans; (iv) Program Entity’s self- monitoring and reporting along with, as needed, independent third party monitoring and reporting on the implementation of safeguard instruments; and (v) operation of a feedback and grievance redress mechanism. The focus of the supervision responsibilities of the World Bank, as Trustee of the FCPF, will be on the performance of the Program’s safeguards system (which will integrate the necessary safeguard instruments to comply with the Bank’s Operational Policies). The Program Entity will need to assure this system and related instruments are implemented in a satisfactory manner. The World Bank will not supervise the safeguards aspects of all individual underlying activities of the ER Program. The World Bank will review the information from third-party monitoring and the GRM, along with the Program’s Entity’s self-reporting to determine whether or not to make the ER payments under the ERPA to the Program Entity. 68. Country systems. A review of Chilean regulatory systems has shown that Chile’s country system can be considered sufficiently aligned with the WB’s safeguards policies to ensure effective safeguards implementation in the context of the ER Program. As an OECD member, Chile has diligence regulations for environmental assessment and management, which mirrors international good practice. Clear and comprehensive environmental legal instruments and technical standards are available, and will be applied for the Program, such as CONAF’s Guide to Environmental Assessment, and the National Forest Law Regulation on Water, Soils and Wetlands. Specific protocols and checklists have also been developed to fill any gaps with World Bank Policies and are specified in the respective safeguard instruments. 69. Environmental Category and Safeguard Instruments. According to the World Bank’s Operational Policies the Program is classified as Category B, as ER Program Measures under the ENCCRV will include clearly defined activities with foreseeable impacts and mitigation measures, and are expected to fall into categories B and C. A participatory Strategic Environmental and Social Assessment (SESA) was carried out in compliance with OP/BP 4.01 and following FCPF Guidelines, in order to identify, avoid, and mitigate the potential negative environmental and social impacts associated with ER Program Measures. The safeguard policies triggered as a result of the SESA include OP4.01 (Environmental Assessment), OP4.36 (Forests), OP4.04 (Natural Habitats), OP4.09 (Pest Management), OP4.11 (Physical Cultural Resources), OP4.10 (Indigenous Peoples), and OP4.12 (Involuntary Resettlement). 70. Overall, ER Program measures are expected to have net positive environmental and social impacts by reducing the indirect effects of forest degradation such as soil erosion, slope destabilization, landslide formation, and GHG emissions. Restoration of degraded forests and the establishment of new forest areas will also have net positive impacts by restoring forest ecosystem functions with the associated carbon sequestration, biodiversity and environmental enhancements. These would constitute permanent and cumulative positive impacts. 71. Potential adverse environmental impacts are expected to be mainly temporary and minor. These include the potential use of pesticides and herbicides at subproject sites as part of an effort to make forest and/or agricultural activities more efficient and economic, and/or the introduction of potentially invasive species. All of the expected impacts such as the ones mentioned above are manageable and will be remedied considering the forest management practices required by the Native Forest Law and its Regulations which will be applied in the implementation of ER Program Measures, in addition to the provisions established in the ESMF. 72. To ensure that social and environmental risks are factored in during the implementation of the ER Program, each proposed ER Program Measure will be screened for its environmental and social impacts and Page 27 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) appropriate environmental assessment and mitigation measures will be implemented based on national Environmental and Social Management Systems (ESMS) and World Bank safeguard policies. Given that specific locations for the implementation of ER Program Measures are not currently defined, the safeguards procedures will be governed by an Environmental and Social Management Framework (ESMF), which sets out environmental screening and eligibility criteria, and defines the environmental and social due diligence to be followed, including the development of sire-specific plans when needed. The ESMF and its instruments, including a Resettlement Policy Framework (RPF) and an Indigenous Peoples Planning Framework (IPPF) will guide the ESMS already in place in-country to ensure that social and environmental risks are factored in the design and implementation of ER Program Measures and related activities in accordance with World Bank Policies. These instruments were approved by the Bank in May 2018. 73. Borrower Capacity. CONAF is a recognized public institution with strong environmental competence. Since 2010, it established an Environmental Assessment Unit (DEA, for its acronym in Spanish) in charge of the System of Environmental Impact Assessment, Environmental Monitoring and Control, and other responsibilities to oversee compliance with current environmental regulations related to the use and management of forest resources and xerophytic formations, the conservation of native forests and protected areas, and environmental licensing. CONAF has also instituted a Unit of Indigenous and Social Affairs (UAIS, for its acronym in Spanish) which focuses on the inclusion and participation of indigenous peoples in the formulation and implementation of sectoral plans, projects and programs. The UAIS has qualified professionals with ample experience on indigenous issues and maintains a local presence in the territories through its regional managers. 74. The Program Implementation Unit (PIU) within CONAF will be placed in the Climate Change and Environmental Services Unit (UCCSA, for its acronym in Spanish), which has a dedicated technical team at the national level and regional focal points with experience in engaging with a broad range of stakeholders in forest activities, including small forest owners, indigenous peoples, agricultural communities, and others. Division of roles and responsibilities for safeguards implementation will follow the existing national Environmental and Social Management Systems (ESMS) in place and clearly described in the ESMF, which are considered consistent with World Bank policies. The UCCSA will take on any additional safeguards responsibilities that go beyond the specific duties of the DEA and UAIS as attributed by national legislation, to fully comply with World Bank safeguard requirements, and will be the overall responsible for coordinating safeguard functions under the ER Program, including monitoring and reporting of safeguards compliance in progress reports submitted to the Bank (at minimum annually), along with monitoring of other aspects of the ER Program such as the implementation of the Benefit Sharing Plan. As the key counterpart for the Bank’s operations in the forestry sector in Chile (FCPF and GEF), UCCSA has built strong capacity in the application of World Bank safeguards policies and coordinating with DEA and UAIS in the development of the SESA and the ESMF. Additional capacity and financing needs for the application and reporting on the ER Program’s safeguard instruments, including the development of site-specific safeguard plans, will be covered through the FCPF funds. 75. Indigenous Peoples. The ER Program triggers OP/BP 4.10 as the ER Program area includes three of the four regions in the country with the highest concentration of indigenous populations, representing approximately 64% of the national total (Araucanía Region (32%), Los Lagos (24.8%), Biobío & Ñuble (5.2%), and Maule (2%); Indigenous Peoples are 9.1% of the total national population). Indigenous Peoples participated in most of the 16 Regional and National Workshops performed as part of the SESA process (as some Regions do not contain Indigenous Peoples). In addition, an Indigenous Peoples National Dialogue was carried out in 2016, with 1813 indigenous people participants in 90 workshops, to validate the approaches proposed in the ENCCRV. Page 28 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) 76. An Indigenous Peoples Planning Framework (IPPF) has been prepared in a culturally appropriate way in compliance with the Indigenous Peoples Policy (OP 4.10) for addressing issues related to Indigenous Peoples during the implementation of the ER Program. The IPPF will serve as guidance for preparing site-specific Indigenous Peoples Plans (IPPs) during the implementation of the ER Program under the principle of free, prior and informed consultation, based on existing practices and instruments developed by CONAF’s UAIS. To support and enhance the land and natural resource management practices of Indigenous Peoples, IPPs will be based on two natural resource management instruments that have been developed by the UAIS in a culturally appropriate manner and in a participatory way with Indigenous Peoples. These are the Mapuche Intercultural Forest Model (Modelo Forestal Intercultural Mapuche - MOFIM), tailored to the cultural uses of the Mapuche people and applicable between the Regions of Ñuble to Los Lagos; and the Andean Intercultural Forest Model (Modelo Forestal Intercultural Andino – MAIA), tailored to the cultural uses of the Aymara, Quechua and Likan Antai people, applicable from the Arica y Parinacota to the Atacama Regions, based on the presence of these Indigenous Peoples in those areas. These instruments will be applied to the ER program Measures implemented on indigenous lands and territories. 77. Involuntary Resettlement. OP 4.12 is triggered because although the SESA process confirmed that ER Program Measures are not likely to result in the displacement of peoples, certain activities such as grazing control, a/reforestation, forest restoration, strengthening of Protected Areas Management Plans and regularizing land tenure, among others, could result in activity displacement through increased restrictions or limited access to natural resources for Indigenous Peoples and other vulnerable groups depending on those resources for their livelihoods. To address this type of impacts, a Process Framework (PF) has been prepared as part of the ESMF. Additionally, a Resettlement Policy Framework (RPF) has been prepared to provide procedures in order to manage impacts in the event of potential relocation and/or land acquisition as a result of the implementation of the ER Program. Activities that could result in such impacts are extremely unlikely to be implemented as part of the ER Program and will be included in negative lists in the ESMF and the BSP so that they are ineligible for support. 78. Citizen Engagement. Since the early stages of preparation, the ENCCRV has had a special focus on participatory processes and vulnerable groups (particularly Indigenous Peoples), with the aim of identifying key issues and ensuring broad community support. CONAF carried out extensive consultation activities through workshops at the national and regional level with Indigenous Peoples, small forest owners, civil society, the private sector and other key stakeholders in order to consult, receive inputs, and validate the ENCCRV. This included: one National (125 participants) and 15 Regional workshops, one in each region of the country (1,266 participants), with significant participation from women (37%) and Indigenous Peoples (9%); a Self-assessment process of the readiness of the country (74 participants); a pubic consultation (506 participants); and an Indigenous Peoples dialogue and consultation (90 workshops; 1,1813 participants). Details on these regional workshops along with testimonial videos are available on line at: http://www.enccrvchile.cl. 79. Consultation. The ESMF and RPF include a specific section with clear guidelines to perform the free, prior and informed consultation with affected stakeholders during the implementation of ER Program Measures, including a minimum list of participatory activities and information to be provided upfront. With regards to Indigenous Peoples, the draft IPPF establishes that the ENCCRV consultation process will be consistent with Supreme Decree No.66 of the Ministry of Social Development, conforming ILO Convention 169 Article 6 N°1 and N°2 as well as IPF guidelines and requirements. In addition, the ESMF establishes that ER Program Measures implemented on Indigenous lands and territories will have to conduct a robust consultation Page 29 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) process resulting in a recorded broad community support of the Indigenous Peoples affected, whether or not they are direct beneficiaries of the Measures proposed. 80. Benefit Sharing. The advanced draft BSP includes several provisions to ensure a transparent, participatory, and equitable distribution of ERPA proceeds. Existing local multi-stakeholder platforms will be used in each Region to validate the use of the ERPA proceeds based on a set of social, environmental, and economic eligibility and prioritization criteria established in the final version of the BSP. Priority will be given to small forest owners, Indigenous Peoples, and women on a scoring basis. The safeguard instruments developed for the ER Program, including the ESMF, RPF, and IPPF, will also apply to the activities financed under the BSP. 81. Gender. CONAF, through its UCCSA department, has been pioneering an approach to promote gender participation as a key element of the ENCCRV approach to promoting equity and social inclusion. During the SESA of the ENCCRV, it established a requirement of 30% participation of women in all the workshops that were carried out. Gender is also one of the key prioritization criteria included in the BSP. 82. Feedback, Grievance and Redress Mechanism (FGRM). As per the Transparency Law of 2008, CONAF is required to facilitate public access to information and to maintain an Office of Information, Complaints and Suggestions (OIRS, for its acronym in Spanish) which will constitute the ER Program’s FGRM. Direct and indirect Program beneficiaries will be able to submit their grievances and suggestions through several means: in person at CONAF’s central and regional offices, as well as those of any of the other agencies involved in the ER Program Measures; during field visits through a specific FGRM form; by phone; email; or through CONAF’s webpage. CONAF’s OIRS network allows for the proper registration, filing, processing, and monitoring of complaints. CONAF will work together with its local OIRS in five ER Program regions to ensure that any complaints are dully recorded and addressed. 83. Safeguards approach for retroactive ERs. The approved ESMF will apply to both retroactive ERs and to ERs generated after ERPA signing. The Bank team carried out an initial screening of the information provided by the client (self-reporting) on the ER Program activities implemented during the retroactive period, to get preliminary evidence that: (i) these activities are within the scope of the ER Program covered by the ESMF; and (ii) they have been implemented in a manner consistent with the ESMF and other safeguard instruments. Actual payments for any potential ERs generated during the retroactive period included in the ERPA (January 2018 to December 2019) will be subject to further due diligence through the process of ER monitoring and reporting (an ER Monitoring Report for the retroactive period is expected to be received in April 2021). This due diligence process will follow the safeguards approach for ERPAs (described above) to determine whether the retroactive activities were implemented in accordance with the ESMF, focusing on whether the ER Program Entity maintained in place effective management systems and capacity to implement the ESMF and will include review of detailed safeguards reports from the Program Entity (self-reporting), field spotchecks carried out by the WB to identify any potential risks and impacts, and third party monitoring/audit. 84. Disclosure. The final versions of the SESA and ESMF were publicly disclosed in accordance with World Bank policies on September 29, 2018. A revised version of the ESMF to take into account the retroactive period of the ERPA was cleared and disclosed on November 01, 2019. 85. Other Safeguards Policies Triggered. No other World Bank safeguard policies are triggered. However, Chile will also report on the UNFCCC Cancun safeguards for REDD+ (Dec.1/CP16) through its National Communications, based on a Safeguards Information System (SIS). Page 30 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) V. GRIEVANCE REDRESS SERVICES 86. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. VI. KEY RISKS 87. The overall risk rating for the proposed operation is substantial, as it represents a first-of-its-kind, in Chile, large scale pilot to reduce GHG emissions from deforestation and forest degradation through an innovative financial instrument, namely a carbon finance transaction. Key risks include: Sector Strategies and Policies, given that the Program relies entirely on counterpart funding for the implementation of the underlying activities that will generate the ERs; the Technical Design of the Program, given the innovative nature of the financing instrument and the highly technical requirements of REDD+; Environment and Social, given the complexity of applying investment-type safeguards instruments in the absence of underlying Bank financing; Stakeholders, given that expectations regarding the Program’s BSP will have to be carefully managed. A detailed description of the key risks and mitigation measures is provided in Annex 11. . Page 31 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) Project Development Objective The Project Development Objective (PDO) is to make payments to the Republic of Chile for measured, reported and verified Emissions Reductions (ER) from reduced deforestation and forest degradation, the conservation and enhancement of forest carbon stocks (REDD+) in selected regions of southern Chile, and to distribute ER payments in accordance with an agreed benefit sharing plan. Project Development Objective Indicators RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline End Target Volume of Emissions Reductions that have been measured and reported by the Program Entity, 0 5.2 verified by a Third Party, and transferred to the FCPF Carbon Fund (tCO2e) Amount of payments made by the FCPF Carbon Fund for Emission Reductions generated by the 0 26 Program (USD million) Emission Reductions payments distributed in accordance with agreed Benefit Sharing Plan and No Yes arrangements (Yes/No) Page 32 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Monitoring & Evaluation Plan: PDO Indicators Methodology for Responsibility for Indicator Name Definition/Description Frequency Datasource Data Collection Data Collection The indicator measures the Volume (i.e. ERs) aspect of the transaction. It is conditioned on the existence and Volume of Emissions operation of a National Forest Monitoring system to ER Monitoring Reductions that have been measure and report the ERs generated by the ER CONAF Report measured and reported by the Program. All ERs generated by the ER Program during MRV Biannual Program Entity, verified by a each Reporting Period are subject to Verification by an System Third Party Third Party, and transferred to Independent Reviewer contracted by the WBG in World Bank Verification the FCPF Carbon Fund consultation with the Program Entity, transfer of ERs require the set-up of a Registry capable of receiving, holding and transferring ERs to the Carbon Fund. The indicator measures the financial value aspect of the transaction based on the pricing approach agreed Amount of payments made by between the Program Entity and the Carbon Fund. It is Review of AGCID the FCPF Carbon Fund for Client conditioned on the establishment of adequate Biannual Designated Emission Reductions generated Connection financial management arrangements for the transfer Accounts World Bank by the Program of the funds from the World Bank to the Program Entity. The indicator seeks to capture the development aspects of the transaction. As per the General Emission Reductions payments Conditions of the ERPA, ERPA payments have to be Review of INFOR distributed in accordance with distributed based on a Benefit Sharing Plan that has Progress Biannual Progress Reports agreed Benefit Sharing Plan been deemed acceptable to the WBG. ER Monitoring Report and spotchecks World Bank and arrangements Reports will have to provide evidence satisfactory to the WBG that the Benefits have been shared in accordance with the Benefit Sharing Plan. Page 33 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 1: Implementation Arrangements and Support Plan COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) ERPA Institutional Arrangements 1. The World Bank, as Trustee of the FCPF, will sign the ERPA with the Ministry of Finance, representing the Republic of Chile as the ER Program Entity, and with the Ministry of Agriculture (MINAGRI), in charge of Chile’s agriculture and forest sector policy and management. The main agency responsible for the implementation of the ER Program under MINAGRI will be Chile’s National Forestry Corporation (CONAF). CONAF is a public-private institution tasked with the administration and enforcement of forest legislation in Chile, acting as the country’s Forest Service. It has more than 130 branch offices located in all of the county’s regions with a permanent staff of over 2,000 employees. The Climate Change and Environmental Services Unit (UCCSA, Spanish acronym) will be the main technical counterpart within CONAF, having led the preparation of the ENCCRV over the past years and with increased capacity on safeguards and ER monitoring and reporting. 2. ERPA Payments will be received, on behalf of the Program Entity, by Chile’s Agency for International Development Cooperation (AGCID, for its Spanish acronym), which will also sign the ERPA in the capacity of ERPA Payment Recipient Entity. AGCID is a public institution under the Ministry of Foreign Affairs authorized to receive and administer international funds on behalf of Chile and has been the recipient of a number of trust funded grants with the World Bank (including FCPF and GEF). Once received, ERPA revenues will be transferred by AGCID to Chile’s Forest Institute (INFOR, for its Spanish acronym) which will execute them in accordance with the BSP and in coordination with CONAF. INFOR is a private foundation affiliated with MINAGRI created in 1961 and has the capacity to receive and administer extrabudgetary funds, and as such was selected by the Program Entity for the operation of the Dedicated Payments through the BSP. The Program Entity, through MINAGRI, will enter into a Subsidiary Agreement with AGCID, CONAF and INFOR, specifying the roles and responsibilities of each agency and satisfactory to the World Bank. ER Program Implementation Arrangements 3. Implementation Arrangements for the ER Program Measures. Overall management and oversight of the ER Program will be the responsibility of a multidisciplinary team established within CONAF’s UCCSA, which will be responsible for coordinating all ER Program management functions and monitoring its progress, in coordination with other CONAF departments and regional teams through the Interagency Committee on Climate Change. CONAF’s regional offices will guide and supervise the implementation teams, constituted by technical assistance teams (extension agents hired by INFOR) who will be in charge of planning and executing field activities and subprojects related to the implementation of ER Program Measures on beneficiaries’ lands. Table 1 of this Annex illustrates the different teams and roles involved in the implementation of the ER Program on the ground. Table 1. ER Program Implementation structure and roles Team Role Composition CONAF-UCCSA CONAF’s central team in Santiago A multidisciplinary team will be placed under the Page 34 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) responsible for managing and UCCSA in coordination with the GICC and other coordinating all of the ER Program’s relevant Departments. teams and activities and liaise with Climate Change and Environmental Services Unit the World Bank team. The UCCSA (UCCSA): 12 professionals (staff and consultants) will be in charge of overall planning, including forestry engineers, geographers, public supervision and reporting, including administration and environmental specialists. The on MRV and safeguards aspects in team includes staff with experience and trained in collaboration with the respective the World Bank fiduciary rules and procedures. Departments. Department of Forest Ecosystems Monitoring (DMEF) and National Forestry Institute (INFOR): in In addition, the UCCSA will be in charge of operating the national land use monitoring charge of coordinating all system (Vegetation Resources Cadaster) and operational aspects of the ER National Forest Inventory respectively, these Program with other Departments Departments will be in charge of MRV functions in through CONAF’s Interagency coordination with MRV specialists placed in the Committee on Climate Change UCCSA team. (GICC). Indigenous and Social Affairs Unit (UAIS): responsible for overseeing social and Indigenous Peoples issues in CONAF’s operations, reporting directly to the Technical Secretariat of CONAF’s Executive Director. Interagency Committee on Climate Change (GICC): CONAF internal committee responsible for coordinating operational aspects related to climate change, including the following Departments: Forest Fire Protection, Natural Protected Areas, Enforcement and Environmental Assessment, Social and Indigenous Affairs, and Legal, with the UCCSA acting as the technical Secretariat. Regional CONAF CONAF’s Regional Forestry i. DEFOR Director. Offices Departments (DEFOR, for its ii. Climate Change and Environmental Services acronym in Spanish) and their Coordinator. operational teams will be iii. Ecological Restoration Program Coordinator. responsible for planning and iv. Native Forest law 20.283 Program Coordinator. supervising the implementation of v. Forest Fire Prevention Coordinator. field teams and activities in each vi. Forest Plantations Coordinator. region, in particular with regards to vii. Environmental Education Program Coordinator. on the ground activities. viii. Enforcement and Environmental Assessment Coordinator and team. ix. Indigenous and Social Affairs (UIAS) Coordinator. x. Lawyer. INFOR INFOR will be responsible for INFOR’s finance department will be strengthened as carrying out fiduciary activities for needed. the operation of the BSP, including procurement and financial management for the execution of subprojects and the implementation of ER Program Measures. Technical CONAF’s Regional Offices will work Technical Assistance Teams will operate under two Page 35 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Assistance with Technical Assistance Teams modalities as per CONAF common practice: Teams hired by INFOR in charge of CONAF’s Extension Agents: these agents form part of providing technical assistance for CONAF’s Forest Extension Program focusing on small the planning and implementation of and vulnerable landowners, which currently includes field activities related to the ER 56 professionals. Program Measures in collaboration Private Regional Operators: these agents conduct with private landowners or similar functions as CONAF’s extension agents but administrators of public lands, are private individuals that can be hired either by including the preparation of CONAF, INFOR (i.e. for activities on public lands) or Management Plans. directly by landowners (for activities with a margin of financial returns. Field workers Field workers consist of individuals CONAF currently operates an Employment Program hired directly either by CONAF, in coordination with the Ministry of Labor in order to INFOR or by Regional Operators in provide employment opportunities to vulnerable order to provide labor required as populations through CONAF’s operations. It is input for forestry related activities. estimated that approximately 200 field workers per year would be required in order to carry out the activities proposed by the ER Program in the field. Nurseries Team Responsible for coordinating and CONAF currently operates at least one nursery per supervising plant production in region, coordinated by the Department of Ecosystem CONAF’s nurseries to ensure and Society. The team will be composed of the Head sufficient plant material in order to of the Department in CONAF’s central offices and carry out field activities, in terms of the administrators of each of CONAF’s nurseries, in species types, quantities and coordination with Regional DEFOR Directors and the schedule delivery. Regional Climate Change and Environmental Services Coordinators. Approximately 155 workers are expected to be employed in each nursery, the majority of which are women. Communications Responsible for preparing and National and Regional offices of CONAF’s Team disseminating communication Communications Secretariat (SECOM, for its material related to the project acronym in Spanish), which include 10 professionals through CONAF’s existing platforms in CONAF’s central office and 2 journalists per (ENCCRV website, bulletins, region. magazines, etc.), in different formats and languages appropriate for the different targeted audiences. Expert External consultants from academia Specific areas of expertise identified include: Consultants and other areas will be hired on an 1. Economic and financial analysis of ad-hoc basis to provide specific ecosystem services. technical assistance to the ER 2. Forest policy and strategic planning. Program based on expert judgment 3. Environmental safeguards. in coordination with the UCCSA. 4. Remote sensing and modelling. 4. Environmental and Social (including safeguards). The UCCSA will be responsible for regularly supervising compliance with national and World Bank environmental and social safeguards, in collaboration with the Unit of Indigenous and Social Affairs (UAIS), the Enforcement and Environmental Assessment Department (GEFEA) and the Prosecutor’s Office, based on the procedures established in the ESMF. Additionally, CONAF will continue the participatory process with key stakeholders during the ENCCRV’s implementation phase, with the purpose of assessing the progress made and establishing a Page 36 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) continuous dialogue with stakeholders to improve the implementation of the project. During the preparation of the ENCCRV, CONAF has extensively engaged in consultations with key stakeholders, receiving comments from more than 3,000 people in total -over a period of 18 months- in different locations throughout the country. 5. Monitoring & Evaluation. The monitoring of activity data will rely on CONAF’s Forest Ecosystem Monitoring Department, which operates and regularly updates the country’s Cadaster of Vegetation Resources. Emission Factors will be measured through regular forest inventories operated by CONAF (Forest Carbon and Wood Energy Monitoring System) and INFOR (Continuous Forest Inventory). CONAF’s UCCSA Unit will be responsible for carbon accounting -based on the methodologies developed for the REDD+ Forest Reference Level- in cooperation with INFOR and the Ministry of Environment (which is responsible for the BURs). Information will also be reported through CONAF’s Territorial Information System Natural Resources Information Center (CIREN’s) Spatial Database Infrastructure (IDE-MINAGRI). These systems will be strengthened as part of the ENCCRV Measurement, Reporting and Verification (MRV) system, which is expected to be operational in 2018. 6. Communications & Outreach. Finally, CONAF’s SECOM will be responsible for all communications and outreach efforts related to the ER Program, with the support of other agencies within MINAGRI, such as the Foundation for Agricultural Communication, Training and Culture (FUCOA). The technical relevance of the communications and outreach material will be guaranteed by the UCCSA and the Inter-Managerial Commission on Climate Change, as appropriate. Implementation Support Plan 7. The task team has been supporting Chile’s REDD+ efforts since 2013 through two Recipient- Executed REDD+ Preparation Support grants for a total of USD 8.8 million (P124908; TF016024 and TF0A4915), as well as a USD 650,000 Bank-Executed grant specifically for the preparation of the ER Program (TF018493). 8. The implementation support strategy for the Program will be carried out jointly with the implementation support for the Readiness Grant to ensure complementarity and efficiency. It will build on the support provided during the Readiness process, focusing on the functions and activities typically monitored by World Bank task teams during supervision, including monitoring of technical activities, management arrangements, and compliance with safeguards operational policies, including appropriate stakeholder engagement. Special attention will be directed to methodological aspects of carbon accounting to ensure that the Program complies with the Carbon Fund Methodological Framework. The World Bank task team will include technical specialists with expertise in a range of areas, drawn from within the institution. World Bank safeguards specialists will be available to provide close support and detailed, hands-on guidance to their counterparts for their application in this type of operations. Technical specialists with highly technical expertise may be recruited externally, as necessary. Aspects of financial management and procurement will be limited to the operation of the BSP. 9. Implementation support will be supported by a USD 650,000 lifetime allocation Bank-Executed grant from the FCPF to the task team. The main focal areas of expected implementation support activities are summarized in Table 1. The required skills for the implementation support effort are illustrated in Table 2. Implementation support is expected to be particularly intense during the first 12 months of implementation. Implementation support missions will be reduced from three to two in the Page 37 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) years following the first year, although support provided remotely by the task team will remain continuous. Field visits will focus on compliance with safeguards operational policies, while also reviewing the annual audit reports and the monitoring reports of the BSP. The Implementation Support Strategy will be revisited regularly, taking into account implementation progress and continuous risk assessment. Table 3 lists the partners that will support the implementation support effort through related initiatives. Table 1. Main focal areas of implementation support activities Time Focus Skills Needed Resource Estimate First twelve • Benefit Sharing Plan establishment • Project planning and • 3 implementation months • Program Implementation Plan management support missions • Institutional arrangements • Safeguards • Remote support • Legal aspects from HQ office • Carbon finance 12-48 months • Program Implementation Plan • Project planning and • 2 implementation • Carbon accounting management support missions • Monitoring and Reporting • MRV • Remote support • Safeguards from HQ office • Carbon finance Years 4-onwards • Program Implementation Plan • Project planning and • 2 implementation • Monitoring and Reporting management support missions • MRV • Remote support • Safeguards from HQ office • Carbon finance Table 2. Required skills Skills Needed Number of Staff Weeks Number of Trips Task Team Leader • 12 weeks per year (Year 1) • 3 in Year 1 • 8 weeks per year (Year 2 onwards) • 2 in Year 2 onwards Social Specialist • 6 weeks per year (Year 1) • 3 in Year 1 • 4 weeks per year (Year 2 onwards) • 2 in Year 2 onwards • 6 weeks per year (Year 1) • 3 in Year 1 Environmental Specialist • 4 weeks per year (Year 2 onwards) • 2 in Year 2 onwards • 6 weeks per year (Year 1) • 3 in Year 1 Carbon Finance Specialist • 4 weeks per year (Year 2 onwards) • 2 in Year 2 onwards Legal specialist • 2 weeks per year • 1 per year Procurement Specialist • 1 week per year • 1 per year Financial Management Specialist • 1 week per year • 1 per year Table 3. Partners Name Institution/Country Role UNREDD Program UNDP, FAO, UNEP Focus on MRV and pilot activities Swiss Cooperation Agency Switzerland Support for pilot activities Green Climate Fund (potential) FAO/UNFCCC Field investments Page 38 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 2: Advanced Draft Benefit Sharing Plan COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) I. INTRODUCTION 1. Chile’s ER Program was selected in the portfolio of the Forest Carbon Partnership Facility (FCPF) Carbon Fund in December 2016, through Resolution CFM/15/2016/1. This annex provides a summary of the advanced draft Benefit Sharing Plan (BSP) of Chile’s ER Program presented to the World Bank as of October 2019. It describes how ERPA revenues will be administered and benefits distributed to beneficiaries. The BSP must be designed in accordance with the criteria of the Carbon Fund Methodological Framework and be acceptable to the World Bank before considered final. A final version of the BSP is a condition of effectiveness of the ERPA. II. FLOW OF FUNDS 2. Under the ER program’s institutional arrangements, AGCID will be responsible for requesting ER Payments to the World Bank upon submission, by CONAF, of a verified ER Monitoring Report satisfactory to the World Bank, including any related safeguards aspects. AGCID will open and maintain a Designated Account (DA) in U.S. Dollars in Banco Estado to receive the ER Payments. Once AGCID receives the ER Payments in the DA, AGCID will transfer those funds to a local currency bank account managed by INFOR for the execution of the BSP, under CONAF’s technical supervision. 3. INFOR will execute the ERPA funds for the implementation of eligible activities by applying procurement rules and procedures with due considerations of economy and efficiency. Annual operational plans for the use of the ERPA funds will be reviewed by the Bank to ensure consistency with the BSP, and use of the funds will be accounted for and audited to verify that the goods, works or consulting services acquired by INFOR do support the implementation of the agreed BSP as well as other agreed criteria such as the reasonableness of price, quality and delivery terms. 4. The detailed financial management processes and procedures, as well as procurement methods for the execution of the BSP will be established in a BSP Operational Manual, which is a condition of effectiveness of the ERPA. III. GOVERNANCE STRUCTURE 5. The governance structure of the BSP is embedded within a strong national system of fiscal control and oversight of international funds entering the country. Based on national procedures, execution of the ERPA will require approval by the Budget Office of the Ministry of Finance (DIPRES, for its Spanish acronym) and the General Comptroller’s Office (CGR, for its Spanish acronym). Political and strategic guidance will be provided through existing National Management Arrangements for climate change related policies, strategies and plans, namely the Intraministerial Committee on Climate Change (CTICC, for its Spanish acronym) of the Ministry of Agriculture (MINAGRI, for its Spanish acronym). CONAF, through its central and regional offices, will maintain technical oversight and responsibility for the proper implementation of the BSP, in consultation with regional stakeholder platforms (including Page 39 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) participation from civil society and Indigenous Peoples organizations, and academia). INFOR will be responsible for administering the ERPA funds in accordance with the BSP (i.e. including financial management and the procurement of goods, services, etc.) under CONAF’s technical supervision, and will report back to AGCID on fiduciary aspects of the ERPA funds management. Table 1 summarizes the institutional arrangements for the operation the BSP. Table 1. Governance structure for BSP implementation and supervision Institution (Spanish acronym) Role and Responsibility Ministry of Finance through the Budget • Program entity and approval authority for the ERPA Office (DIPRES) General Comptroller’s Office (CGR) • Approval and fiscal control of ERPA arrangements Chilean Agency for International • ERPA Payment Recipient Entity on behalf of the Program Entity Development Cooperation (AGCID) • Establish and maintain a Designated Account and others as necessary • Fiduciary supervision of the flow of funds National Forestry Institute (INFOR) • Funds Recipient and administrator, including procurement and financial management • Establish and maintain a Local Account and others as necessary CONAF Central Office • Responsible for ER Program Implementation • Design of initial BSP proposal • Technical supervision of the BSP implementation • Responsible for MRV functions and ER Monitoring Reports CONAF Regional Offices • Regional focalization of national-level strategic directions and development of technical proposals • Operation of regional distribution modalities for implementation of ER Program Measures and subprojects • Liaise with Regional Stakeholder Platforms for regional prioritization and validation of technical proposals • Responsible for safeguards application and reporting at national level Ministry of Agriculture Intraministerial • Strategic direction and alignment with MINAGRI policies, Committee on Climate Change (CTICC) strategies and plans related to climate change • Validation of technical proposals for prioritization of ER Program Measures, operational targets and sites • Coordination with regional offices of other MINAGRI services to support implementation of ER Program Measures Regional Stakeholder Platforms • Participation in the design and validation of technical proposals developed by CONAF Regional Offices IV. ALLOCATION OF ERPA PROCEEDS I. Allocation between the Central and the Regional Level 6. ERPA proceeds will be reinvested in the Program Area to maintain generation of ERs and incentivize the implementation of ER Program Measures in consultation with stakeholders. INFOR will execute the funds in accordance with the notional allocations specified in the BSP, as instructed by the CONAF and following the BSP governance structure. Specific allocations are illustrated below. Page 40 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) 7. Twenty percent (20%) of the Total Allocation will be allocated to cover the administrative and technical costs of operation and supervision of the ER Program and BSP by increasing the capacity of CONAF’s Central Office and INFOR, as well as to implement ER Program Measures that cannot be executed at the regional level. These funds will cover expenditures related to administrative and financial management, technical and safeguards support, MRV, and implementation of ER Program Measures as follows: Table 2. Distribution of the 20% Allocation at the Central level Expenditures eligible for support Distribution (%) Indicative amount (US$) 10 Administrative and financial management 37.7 1,960,000 Technical and safeguards support and monitoring 25 1,300,000 ER Program implementation 37.3 1,940,000 Total (20% of ERPA proceeds) 100 5,200,000 8. Eligible ER Program Measures to be implemented at the national level will include: i) Enabling Measures that require legislative reforms to existing legal frameworks or support of new legislation at the national level; ii) Direct ER Program Measures implemented on CONAF’s or other public institutions’ lands, based on the Table below. Table 3. ER Program Measures eligible for support at the national level Strategic Actions ER Program Measures (Spanish acronym) Crosscutting Measures (MT) MT.1. Inclusion of climate change and land degradation aspects in the new Forestry Development Law. MT.2. Revision of the existing Native Forest Recovery and Development Law N° 20.283. Preventive silviculture and post-fire IF.1. Analysis of GHG emissions and intensity of forest fires. restoration (IF) IF.5. Inclusion of forest fire prevention and post-fire restoration elements in Law No. 20,283 Promotion of native plant protection PF1. Strengthening CONAF’s Phytosanitary Protection Program. measures (PF) Promotion of climate change GA.1 Climate Change Adaptation Program for Native Vegetation. adaptive management models (GA) Promotion of sustainable agricultural RH.1. Eliminating the reforestation exemption on deforested lands in land management (RH) Law N°19.561 RH.2. Strengthen environmental safeguards in agricultural irrigation and drainage works (Law N°18.450) RH.3. Exclude forest lands from the eligibility of agricultural subsidies included in Law N° 20.412. 9. The remaining ERPA revenue (80%) will be allocated to support CONAF’s Regional Offices in the implementation of subprojects related to the ER Program Measures with small forest owners and other vulnerable landowners. The overall Regional Allocation will be further distributed based on three modalities described in further detail below: Standard Allocation (50%), Performance Allocation (20%), 10This amount is for illustrative purposes only and is based on the assumption of successful transfer of the minimum proposed ERPA contract value (US$26,000,000). Page 41 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) and Buffer Allocation. The process for Regional Allocation is described below. These subprojects will be implemented by hiring (through INFOR) Technical Assistance Teams that will execute activities on the ground under the technical supervision of CONAF. Figure 1. National to Regional Allocation II. Allocation at the Regional Level 10. The Regional Allocation (80%) will be distributed to each of the six (6) Regional Offices of CONAF located in the ER Program Area based on three modalities: Standard Allocation (50%), Performance Allocation (20%), and Buffer Allocation (10%). The Standard Allocation will be equally distributed among each of CONAF’s six Regional Offices located in the ER Program Accounting Area (approximately 8.3% each) in order to provide a financing floor for the implementation of the ER Program Measures at the Regional level. The Performance Allocation will be distributed to each Regional Office based on performance, i.e. in an amount proportional to the ERs generated at the Regional level compared to the total ERs generated at the ER Program Accounting Area level. The objective of this allocation is to incentivize performance at the Regional level. The Buffer Allocation will be distributed based on an “inverse performance” logic whereby these funds will be inversely redistributed to each Regional Office based on the percentage obtained in the Performance Allocation. The objective of the Buffer Allocation is to compensate low-performing Regions for unpredictable circumstances (fires, pests, or other) that might prevent them from reaching the target ERs. Figures 2 and 3 below illustrate examples of how the Standard, Performance and Buffer Allocations will operate. Figure 2. Standard Allocation Page 42 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Figure 3. Example of Performance & Buffer Allocation V. DISTRIBUTION MODALITIES 11. Once each Regional CONAF Office receives its notional Regional Allocation as a result of the sum of the Standard, Performance, and Buffer Allocations, INFOR will execute the funds to support the implementation of ER Program Measures in each Region in accordance with two modalities: 50% will be executed through a Participatory Modality, and 50% through a Direct Modality. 12. The Participatory Distribution modality will operate as follows: each CONAF Regional Office will develop a Technical Proposal for an Implementation Plan for the use of the funds (50% of the Regional Allocation) at the Regional level, using the ENCCRV Prioritization System for identifying priority sites for the implementation of each eligible ER Program Measure based on environmental, social, and economic criteria. The Technical Proposal will then be presented to the regional REDD+ stakeholder platform, in order to be reviewed, adjusted, and validated as needed. Once the Implementation Plan is approved by the respective stakeholder platform, CONAF and INFOR will develop an Annual Operational Plan for the implementation of prioritized ER Program Measures through the subcontracting of Regional Technical Assistance Teams who will execute subprojects in prioritized sites and following the signing of a subagreement with beneficiary landowners. These Regional Technical Assistance Teams will be hired by INFOR and supervised by CONAF. This modality follows similar procedures to existing operations financed through international grants (GEF, UNREDD) and Regional Funds. 13. The Direct Distribution Modality will operate through an open call for proposals by mirroring the existing procedures for distributing subsidies under the Native Forest Law No. 20.283. Each CONAF Regional Office will develop a set of Technical and Administrative Procedures (Bases Técnicas y Administrativas) specifying the requirements and criteria for accessing the funds. Potential beneficiaries will be required to submit a proposal based on a Subproject Template. Proposals will be selected by CONAF’s Regional Office based on a set of eligibility and prioritization criteria similar to the ones applies Page 43 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) in the Native Forest Law (see preliminary list of criteria in Table 4). Similar to the previous modality, awarded subproject proposals will be executed through subcontracting Regional Technical Assistance Teams that will be hired by INFOR and supervised by CONAF. Table 4. Preliminary list of eligibility and prioritization criteria Attribute Criteria Territorial 1-. Involvement of local actors. Prioritizing the specific 2-. Beneficiaries that are from extreme areas of the country needs of a region or 3-. Proposals at communal scale or superior. (e.g. Preventive forestry IF3) smaller territorial unit 100% of the attribute received if two of criteria are met Indigenous 1-. Involves indigenous people, communities, associations or organizations as Prioritizing the needs of beneficiaries communities, 2-. Involves indigenous people, communities, associations or organizations as organizations and landowners individuals of the 7 3-. Improves ecosystems and/or sites of cultural or religious significance in the recognized Indigenous indigenous worldview, as well as other types of spaces or areas of ancestral use. Peoples 100% of the attribute received if all three criteria are met 1-. Located in priority areas for the implementation of direct Measures (MT.3, MT.4) Environmental 2-. Includes the recovery of degraded soils. (MT.4) Prioritizing the specific 3-. Contributes to the protection and/or promotion of other ecosystem services, ecosystem conditions of such as water supply and regulation, biodiversity, culture, etc. (MT.3, MT.4) the territory 4-. Restauration of areas affected by fire (IF.2) 100% of the attribute received if all four criteria are met Forest 1-. Scarce formations and / or species in conservation category (MT.3) Prioritizing the 2-. Supports non-timber forest products development improvement of forest 3-. Decreases forest fragmentation. (MT.3, MT.4) resources 100% of the attribute received if all four criteria are met Gender 1-. Includes women as a beneficiary in a specific and distinctive manner. Enhances the role of 2-. Includes women and women's organizations as landowners women in forestry 100% of the attribute received if two of the above criteria are met development Page 44 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Figure 4. Distribution Modalities VI. TYPES OF BENEFITS 14. The distribution of ERPA proceeds will not include any direct cash transfers to Program beneficiaries (monetary benefits). Beneficiaries will receive non-monetary benefits through the implementation of subprojects related to the ER Program Measures based on a list of eligible activities (e.g. technical assistance, inputs, capacity building, and others) and in accordance with applicable safeguard instruments, in order to improve environmental, social and economic conditions in beneficiaries’ lands. Activities supported by the BSP will improve beneficiaries’ livelihoods by reducing soil erosion and increasing land productivity, generating timber and non-timber forest products, improving hydrological and other ecosystem services, and strengthening adaptation to climate change (non-carbon benefits). The Program will also generate benefits for the larger community by enhancing the delivery of global environmental services such as biodiversity conservation and increased carbon sequestration. 15. The priority ER Program Measures to be supported by the BSP have been identified in consultation with stakeholders 11 and include a subset of the ENCCRV Measures focused on direct activities such as afforestation and reforestation with vulnerable landowners based on mostly native species which are not included in current government programs. Table 5 includes a preliminary list of eligible activities and expected non-monetary benefits associated with each prioritized ER Program Measure to be supported by the BSP. 11 See: https://www.enccrv.cl/nota-informativa-35 Page 45 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Tale 5. Eligible Activities/Expenditures and resulting Non-Monetary Benefits ER Program Measures eligible Specific Activities to be Expected Non-Monetary Benefits at the Regional level financed (as a result of ER Program Measures) MT.4. Afforestation and Elaboration of management Technical assistance; Training; Improved Revegetation Program in priority plans; inputs for afforestation quality and availability of environmental areas. activities; plant production; services; Farm investments (inputs); MT.5. Ecological Restoration fence installation or improved land resources; Employment Program in priority areas. reparations; field preparation opportunities. and planting; fire protection. MT.6. Environmental Awareness and Hiring of educational teams; Training; Community empowerment on Training Program. graphic and audiovisual technical and environmental elements; material inputs and Improved community association capacity; elaboration; workshops and Access to government programs. training. MT.7. Strengthening CONAF’s forest Regional monitoring events; Training in environmental and forestry control systems. contracting of monitoring legislation; Formalization of commercial teams; Dissemination inputs activities; Improved knowledge of and activities. government support in commercial activities. IF.2. Restoration of Fire-affected Elaboration of management Technical assistance; Training; Improved Ecosystems Program. plans; inputs for restoration quality and availability of environmental activities; plant production; services; Farm investments (inputs); fence installation or improved land resources; Employment reparations; field preparation opportunities. IF.3. Fire Preventive Silviculture and planting; fire protection. Technical assistance; Training; Improved Program. quality and availability of environmental services; Farm investments (inputs); improved land resources; Employment opportunities; Protection of property and infrastructure (housing, production). US.1. Forest Planning and Zoning Technical studies; elaboration Incorporation of the community in the Program. of management plans; field territorial planning, lifting of demands on visits; dissemination inputs Wildlife Protected Areas (ASP), better and activities. quality and availability of environmental services. Access to government programs, new business opportunities, environmental certifications for productive activities. US.3. Strengthening CONAF’s Technical studies; elaboration Technical assistance, training, technological Dendroenergy Program of management plans; improvements in the production of Contracting of field teams; biomass, improvement in the public-private field visits; dissemination relationship with relevant stakeholders. inputs and activities; New business opportunities, reduction of workshops and training. costs by association of producers, better relationship between those who bid and demand (prices, payments) Page 46 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) GA.1. Climate Change Adaptation Technical studies; Contracting Technical assistance, training, Program for Native Vegetation. of technical and field teams; dissemination of new silvo-agricultural field visits; laboratory work; technologies, better use of water dissemination inputs and resources, better knowledge of state activities; workshops and support for silvo-agricultural activity. training; inputs and Improvement in productive and elaboration of graphic and technological techniques that reduce costs, audiovisual material. new business opportunities, availability in the market of better vegetable (biological) inputs adapted to specific conditions. VII. CATEGORIES OF POTENTIAL BENEFICIARIES 16. The BSP is expected to have three (3) main categories of potential beneficiaries: i. Public institutions involved in the operation of the ER Program and/or owners of public lands where ER Program Measures will be implemented through the 20% National level Allocation, and potentially through Regional Allocations as agreed by the Participatory Distribution Modality. ii. Small forest owners according to the definition provided in the Native Forest Law No. 20.283, which includes indigenous and agricultural communities. iii. Other interested parties, according to the definition provided in the Native Forest Law No. 20.283. Given that this definition is not sufficiently accurate to unequivocally define this category of potential beneficiaries 12, CONAF will develop a set of criteria to ensure that eligible beneficiaries in this category meet strict criteria of economic, social and/or environmental vulnerability. Private companies will be excluded from this category. 17. The BSP will prioritize small forest owners (SFO), and other vulnerable landowners and communities, including Indigenous Peoples and their customary rights on their lands. As part of the preparation of the ER Program, a Land Tenure Assessment was carried out characterizing the land tenure status in the ER Program area, which showed a large area of land with regularized property under small forest owners, Indigenous Peoples, and public lands available for the implementation of the ER Program Measures (see Table 6). This information has been mapped and is being used as part of the Prioritization System of the ENCCRV that will guide the selection of priority locales for the implementation of subprojects. Table 6. Land tenure status of eligible beneficiaries in the ER Program Area N° Area of National Other Indigenous Peoples Area of Regions N° SFO Non- Non- Protected Public and Agrarian SFO (ha) SFO SFO (ha) Areas (ha) Lands (ha) Reform Areas (ha) Maule 17.764 438.424 975 41.346 18.899 5.4 - Biobío & Ñuble 63.368 863.419 1.677 9.975 136.621 989 421666 Araucanía 44.566 97.174 224 0 256.152 12 1501751 Los Ríos 12.28 310.578 766 17.856 99.945 4.363 76489 12The Native Forest Law Administrative Procedures define “Other Interested Parties” as all others that do not fall under the category of small forest owner. Page 47 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Los Lagos 29.253 652.043 653 21.979 789.161 10.43 6405 Total 167.231 2.361.638 4.295 91.156 1.300.778 21.194 2006311 VIII. STAKEHOLDER PARTICIPATION 18. Early consultations on the design of the BSP took place through a series of participatory workshops that were carried out by CONAF during the preparation stage of the ENCCRV, which included one National (125 participants) and 15 Regional workshops, one in each region of the country (1,266 participants); a Self-assessment process of the readiness of the country (74 participants); a pubic consultation (506 participants); and an Indigenous Peoples dialogue and consultation (90 workshops; 1,1813 participants). These consultations have informed the design of the draft BSP. 19. During the implementation of the BSP, stakeholder participation will be ensured through the participation of a Regional Stakeholder Platform (RSP) in the decision-making process of the Participatory Distribution modality. Currently, the RSPs proposed by CONAF to perform such function are the Regional Councils on Climate Change (CORECC, for their Spanish acronym). The CORECC is a regional technical platform promoted by the Ministry of Environment (MMA, for its Spanish acronym), with the aim to encourage and facilitate compliance with the national commitments of the Paris Agreement at the regional level. It is a multi-stakeholder platform composed by representatives of public services, civil society, indigenous peoples, the private sector, and academia, led by the Regional Intendant in each Region (i.e. the President’s representative at the regional level) 20. Given that CORECCs are a recent initiative and that in some regions are yet not fully functional, this figure will be expanded or complemented as needed by an appropriate RSP. CONAF and the World Bank will agree on the minimum stakeholder representation at the regional level to ensure broad community support for the Technical Proposals presented by CONAF to be implemented through the BSP. This approach is already in place for the GEF Sustainable Land Management Project where Consultative Councils approve Implementation Proposals at the provincial level. IX. SAFEGUARDS 21. The Environmental and Social Management Framework (ESMF) developed for the ENCRV will govern and guide the application of safeguards in selected subprojects through the National Environmental and Social Management Systems in place. In all cases, CONAF shall ensure that subprojects are selected and executed with due consideration to the protection and preservation of the social, environmental, and ecological systems of Chile and due consideration of their impact on the natural and human environment, including customary rights, of the local residents on the area where they are implemented. Page 48 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 3: Carbon Finance and FCPF processing steps COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) 1. A Carbon Finance Transaction refers to the commercial transaction involving delivery of and payment for greenhouse gas (GHG) emission reductions (ERs) between a project entity and the Bank as Trustee of carbon funds. The Bank manages a range of carbon funds and facilities representing different profiles and segments of the carbon market. These funds are managed by the Bank as Trustee for the fund participants. The funds purchase ERs on behalf of the fund participants, i.e., public and private entities that have committed their monies to the funds. The ERs are generated by projects and programs mitigating GHG emissions in the developing countries or in countries with economies in transition, and project entities are paid for delivery of those ERs. The ERs can be used by fund participants for compliance with obligations under the Kyoto Protocol or with other regulated or voluntary ER commitments. A Carbon Finance Transaction is typically part of a larger underlying investment. These projects may or may not have underlying World Bank Group financing. The World Bank Group encourages Carbon Finance Transactions to be generated from World Bank Group financed projects. 2. The Forest Carbon Partnership Facility (FCPF) is a global partnership of countries, business and civil society with the objective to help build the capacity in IBRD and IDA member countries in the tropics to reduce emissions from deforestation and forest degradation, forest carbon stock conservation, the sustainable management of forests, and the enhancement of forest carbon stocks (commonly referred to as REDD+). It was announced at the 13th Conference of the Parties (COP) to the UNFCCC in Bali in December 2007 and became operational in June 2008. The World Bank is the Facility’s Trustee as well as one of its Delivery Partners. It also houses the FCPF Facility Management Team (FMT) that is responsible for the operation of the Facility. The FCPF currently comprises 46 partner developing countries (17 in LAC, 18 in Africa, and 11 in the Asia-Pacific Region) and 17 financial contributors from both the public and private sectors. 3. The Carbon Fund supports performance-based payments for REDD+ interventions at the territorial level in countries that have made significant progress in their REDD+ Readiness 13. Such payments are made based on the level of reduction of carbon emissions generated through REDD+ interventions. 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, to achieve long-term sustainability in financing forest conservation and management programs. 4. The Carbon Fund remunerates the selected countries in accordance with negotiated contracts, called Emission Reductions Payment Agreements (ERPA), for verifiably reducing emissions more than in a reference scenario. The ERPA is a legal document in which the Seller (e.g., a REDD+ country) and the Buyer (the Forest Carbon Partnership Facility Carbon Fund) agree on the commercial terms (e.g. volume, 13 This includes: adopting national REDD+ strategies; developing forest reference emission levels (FRELs); designing measurement, reporting, and verification (MRV) systems; and setting up REDD+ national management arrangements, including proper environmental and social safeguards. Page 49 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) price, conditions of effectiveness, options, advance payments etc.) of the sale and payment for Emission Reductions to be generated and verified under an Emission Reductions (ER) Program. All commercial terms in the ERPA are negotiable. 5. Whereas the ERPA covers the commercial terms of the transaction that are negotiable on a case-by-case basis, the ERPA General Conditions represent the legal underpinning of the ERPA, providing for a set of (non-negotiable) general rules and procedures that apply to each transaction. Such rules and procedures cover, among others, issues related to the sale, transfer and payment for verified ERs, the allocation of responsibilities in terms of ER Program development, ER Program Registration, ER Monitoring and ER Verification, ER Program/Sub-Project implementation and operation, application of World Bank Operational Policies (incl. environmental and social safeguards policies), benefits and benefit sharing principles, Reversals, Reversal Management Mechanisms, ER Program Buffer, transfer of Title to ERs, Events of Default and related remedies, governing law and dispute settlement. The General Conditions were approved by the FCPF Participants Committee at its 18th meeting on November 1, 2014, and are available on the FCPF website. 6. Once the Seller has finalized its Emission Reductions Program Document (ERPD) and assessed by a Technical Assessment Panel (TAP), has submitted its ERPD to the FCPF Carbon Fund and the FCPF Carbon Fund has decided to select the ER Program into its ER Program portfolio, the Seller and the Buyer start negotiating the commercial terms of an ERPA. Once such ERPA negotiations are finalized and an ERPA is signed, the General Conditions are incorporated into the ERPA by way of reference and, thereby, form an integral part of the ERPA itself. The term of an ERPA is expected to last at least 5 years, possibly more, but is subject to when an ERPA is actually signed. In any case, it will not go beyond the lifetime of the FCPF Carbon Fund which closes on December 31, 2025. 7. World Bank processing steps are incorporated in the business process of the Carbon Fund as follows: following signature of a Letter of Intent (LOI) by the Country Director, Concept Review takes place in parallel to ERPS development. Following ERPD selection by the Carbon Fund Participants (CFP), a Decision Meeting takes place authorizing Appraisal and Negotiations (in principle). After completion of negotiations and following approval by the World Bank, the ERPA is signed by the Country Director. ERPAs do not go to the Board. Figure 1. Processing steps under the FCPF Carbon Fund Page 50 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 4: Chile’s milestones under the FCPF and next steps COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) 1. Chile submitted a Readiness Preparation Proposal (R-PP) to the FCPF in October 2012, identifying a broad set of activities aimed at strengthening the technical and institutional capacities of the country to participate in a future REDD+ mechanism. The overall financial envelop for carrying out these activities was estimated at approximately US$14 million, supported by a number of multilateral and bilateral financing arrangements in addition to the Chilean government’s own contribution. After a positive review by a Technical Advisory Panel and the FCPF Participants Committee (PC), Chile’s R-PP was successfully endorsed in March 2013 during the PC’s 14th Meeting in Washington D.C. Following a due diligence process by the World Bank as the Delivery Partner, Chile signed a Readiness Preparation Grant Agreement in December 2013, in the amount of US$3.8 million. The objective of the Preparation Grant was to assist Chile in carrying out its Readiness Preparation Activities. On November 2015, Chile presented a Mid-Term Report (MTR) on the progress made with its Readiness activities during the 20th Meeting of the FCPF PC, acknowledging that there was still a financial gap to fully implement its REDD+ Readiness phase. The PC decided to allocate an additional funding of US$5 million to Chile in order to continue its Readiness process. On September 26, 2016, Chile’s R-Package was approved by the FCPF PC at its 22th Meeting in Ghana 2. Shortly after submitting its R-PP, Chile expressed its interest in participating as a pilot country in the FCPF Carbon Fund and submitted an Emissions Reduction Project Idea Note (ER-PIN) during the 9th Meeting of the Carbon Fund in April 2014. Chile’s ER-PIN was included in the Carbon Fund pipeline through a Letter of Intent (LOI) signed with the World Bank (represented by the Country Director) on August 2014, for a Maximum Contract Volume up to 5.2 million tCO2e. Chile is among the Latin American countries that form part of the Carbon Fund pipeline with signed LOIs, including Costa Rica (2013), Mexico (2014), Nicaragua (2016), Guatemala (2016) and Peru (2016). 3. With the support of a (Bank-executed) US$ 650,000 preparation grant (TF018493), Chile prepared its ERPD which was presented and approved during the 15th Meeting of the FCPF Carbon Fund Participants in Washington D.C., on December 12-15, 2016. The complete documentation related to Chile’s MTR, R-Package and ERPD, can be found at: https://www.forestcarbonpartnership.org/chile. 4. The key milestones and dates of Chile’s progress under the FCPF are included in the following Table. Page 51 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Table 1. Chile’s milestones under the FCPF Milestones Date (Expected) Participation Agreement signed with the FCPF August 01, 2013 Preparation Grant Agreement signed with the WB January 29, 2014 ER-PIN approval by the FCPF at CF9 April 9-11, 2016 LOI signature August 22, 2014 ER Program Preparation Start November 2014 MTR presentation at PC20 November 4-8, 2015 Submission of advanced draft ERPD to FMT May 23, 2016 TAP review of draft ERPD May 30, 2016 Readiness Package Approval at PC22 September 26-30, 2016 Submission of final draft ERPD to FMT October 26, 2016 TAP review of final ERPD November 18, 2016 Concept Note Review Meeting December 05, 2016 Presentation of final ERPD at CF15 December 12-15, 2016 ER Program QER July 13, 2017 Decision Review Meeting December 19, 2017 Appraisal Mission May 31 – June 1, 2018 ERPA negotiation process October 2018 – November 2019 Approval and ERPA signature (December 2019) ERPA implementation (December 2019 – December 2025) Page 52 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 5: Analysis of drivers of deforestation and forest degradation COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) 1. As part of the preparation of the proposed operation, analytical work was conducted to identify and prioritize the main direct and indirect Drivers of Deforestation, Forest Degradation, as well the barriers to the enhancement of forest carbon stocks (the “Drivers”) in the three Macro Zones of the country (North, Central, and South), with a particular focus in the proposed Program Area. The methodology included quantitative analysis combined with expert workshops and extensive consultations with local stakeholders. The final report is included as part of the ER Program’s Supporting Documents and has been publicly disclosed at the ENCCRV website 14. 2. The analysis concluded that the key direct drivers, with a varying degree of severity and uncertainty, correspond to: (i) forest fires; (ii) unsustainable use of forest resources for production and livestock grazing; (iii) effects of climate change, desertification, land degradation and drought; (iv) expansion of agricultural and livestock activities; (v) encroachment of monoculture tree plantations; (vi) pests and diseases; and (vii) urban and industrial expansion. 3. The key indirect (underlying) drivers identified were: (i) deficiencies in public policies regulating, promoting and controlling the management of vegetation resources; (ii) low level of knowledge and cultural valuation of vegetation resources; (iii) informality in the market for firewood; (iv) rural poverty with consequent lack of alternative economic opportunities; (v) low profitability and high opportunity costs; deficient economic model for the use of native forests; (vi) conflicts or problems with land tenure and fragmentation of ownership; and (vii) deficiency of forest institutions. These drivers are expected to continue in the future unless measures are taken to address them. Table 2. Drivers of Deforestation, Forest Degradation, and barriers to the Enhancement of forest Carbon Stocks D, FD, ECS Severity Uncertainty Identification and prioritization * ** *** DIRECT DRIVERS Forest fires D, FD Very high Low Unsustainable use of forest resources for production D, FD, ECS Very high Very high Unsustainable use of forest resources for livestock grazing D, FD High Very high Expansion of monoculture forest plantations D High Low Expansion of agricultural and livestock activity D Medium Low Expansion of urban activity D Medium Low Effects of Climate Change, Desertification and Drought FD, ECS Medium Very high Expansion of industrial activity D Low Low Pests and diseases FD, ECS Low Medium Overexploitation of water D Low Very high Soil erosion FD, ECS Low Low 14 http://www.enccrv-chile.cl Page 53 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) INDIRECT DRIVERS Public policy deficiencies in regulation of forest use D, FD, ECS Very high Medium Poor knowledge and cultural valuation of forest resources D, FD, ECS Very high Very high Public policy deficiencies in promoting forest development D, FD, ECS High Medium Informality in the firewood market D High Low Rural poverty and lack of economic opportunities D, FD, ECS High Medium Public policy deficiencies in forest control & enforcement D, FD Medium Medium Low profitability and high opportunity costs of forest land D, FD, ECS Medium Low Inefficient business models for native forest products D, FD Medium Medium Fragmentation of rural property D, ECS Medium Medium Land tenure disputes and/or irregularities FD, ECS Low Medium Deficiency of forest institutions D, FD, ECS Low High Lack of farmer associativity FD, ECS Low High Inefficient forest management plans D Low High * D: Deforestation; FD: Forest Degradation; ECS: Enhancement of forest Carbon Stocks. **Importance: determined by the frequency with which the driver was identified through technical reviews (data analysis and literature review) and mentioned during consultations with experts and focus groups. ***Uncertainty: defined as the existence of data enabling characterization of the driver in relation to the area and GHG emissions produced. Page 54 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 6: Detailed Description ER Program Measures COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) Table 1. Summary Table of ER Program Measures and Targets Operational targets Strategic Drivers ER Program Measures Un- Low- High- Actions conditional Conditional Conditional All Drivers Crosscutting MT.1. Inclusion of climate change Published Published Published Measures and land degradation aspects in the Law Law Law (MT) new Forestry Development Law. MT.2. Revision of the existing Native Revised Revised Revised Forest Recovery and Development Law Law Law Law N° 20.283. MT.3. Strengthening forest land 800 800 800 tenure for increasing access to Owners Owners Owners forestry programs and projects. MT.4. Afforestation and Revegetation Program in priority 25.805 ha 72.248 ha 140.000 ha areas. MT.5. Ecological Restoration 570 ha 10.129 ha 20.000 ha Program in priority areas. MT.6. Environmental Awareness 3.105 4.000 8.000 and Training Program. People People People MT.7. Strengthening CONAF’s forest 200 200 200 control systems Communes Communes Communes MT.8. Strengthening Protected Area 15 Plans 25 Plans 51 Plans (PA) Management Plans. Forest Fires Preventive IF.1. Analysis of GHG emissions and 100% Fires 100% Fires 100% Fires silviculture intensity of forest fires. and post-fire IF.2. Restoration of Fire-affected 2.468 ha 7.800 ha 10.000 ha restoration (IF) Ecosystems Program. IF.3. Fire Preventive Silviculture 1.683 ha 6.385 ha 8.000 ha Program IF.4. Fire Prevention Community 40 40 40 Awareness Program Communes Communes Communes IF.5. Inclusion of forest fire Enacted Enacted Enacted prevention and post-fire restoration Decree Decree Decree elements in Law No. 20,283 IF.6. Technology Transfer Program 100% 100% 100% for agricultural waste management. Communes Communes Communes Unsustainable Promotion of US.1. Forest Planning and Zoning 2.278 ha 41.000 ha 70.000 ha use of sustainable Program. vegetation forest US.2. Integrated regulatory and tax Enacted Enacted Enacted resources management exemption system to promote Regulation Regulation Regulation models (US) forest value chains. Page 55 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) US.3. Strengthening CONAF’s 10.621 ha 12.645 ha 14.041 ha Dendroenergy Program Unsustainable Promotion of MG.1. Program for controlling 300 ha 400 ha 800 ha Cattle grazing integrated livestock grazing in public areas. silvopastoral MG.2. Strengthening Local Councils models (MG) to improve management of areas 1 Council 8 Councils 16 Councils under intensive livestock grazing. MG.3. Agricultural Research 8 projects 8 projects 8 projects Program Pests and Promotion of PF1. Strengthening CONAF’s Diseases native plant Phytosanitary Protection Program. 30.760 ha 287.833 ha 540.000 ha protection measures (PF) Climate Promotion of GA.1 Climate Change Adaptation Change adaptive Program for Native Vegetation. 9 44 80 effects management Communes Communes Communes models (GA) Expansion of Promotion of RH.1. Eliminating the reforestation Revised Revised Revised agricultural sustainable exemption on deforested lands in Regulation Regulation Regulation and livestock agricultural Law N°19.561 activities land RH.2. Strengthen environmental Revised Revised Revised management safeguards in agricultural irrigation Regulation Regulation Regulation (RH) and drainage works (Law N°18.450) RH.3. Exclude forest lands from the Revised Revised Revised eligibility of agricultural subsidies Regulation Regulation Regulation included in Law N° 20.412. Expansion of Promotion of RS.1. Strengthen forest control in monoculture sustainable native areas under high risk of 40 areas 40 areas 40 areas plantations plantation substitution by forest plantations. models (RS) Low Payment for NN.1. Pilot the incorporation of PES economic Environmental schemes in existing forest incentive 100 ha 100,000 ha 265,000 ha value of Services programs (MT.1; MT.2; US.1) native forests Page 56 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Table 2. Detailed description of ER Program Measures Mitigation Measure MT1. Inclusion of climate change, drought, desertification, and land degradation issues in the new Forestry Development Law Strategic Action MT: Crosscutting Measures Driver All drivers Type (Direct/Enabling) Enabling Description This measure aims to inform the design of Chile’s new Forestry Development Law (currently under development), which is expected to update the national forest incentive programs providing new public budgetary resources for a/reforestation activities. The objective is to establish a paradigm shift compared to the previous versions of the law which were focused on the promotion of monoculture tree plantations, by incentivizing the use of native species through the inclusion of results-based payments for environmental services (ex-post) in addition to subsidizing investment costs (ex-ante), based on metrics associated with mitigation and adaptation to climate change, as well as land degradation, drought, and desertification. In particular, this measure will perform analytical work to include the following elements in the draft of the new law and its respective regulations: i. Additional incentives for a/reforestation activities with native species based on the “Adaptive management of native vegetation in the context of climate change, land degradation, desertification and drought” Program of the ENCCRV (GA). ii. Additional incentives for a/reforestation activities whereby landowners commit to maintain a permanent vegetation cover. iii. Additional incentives for a/reforestation activities implemented following the best practices outlined in the “Sustainable Forest management models” (US) Strategic Action, in particular through the use of a Management Plan with Zoning Criteria (PMCOF). iv. Include lands that are not designated preferably forest lands in the eligible areas of the new forestry law, but that require a/reforestation, such as degraded agricultural lands or highly degraded forest lands. v. Prioritize a/reforestation activities with native species on areas with steep slopes and watersheds, in order to protect water and biodiversity ecosystem services. Institutional Arrangements GEDEFF; GEFEA; Legal Budget Total: US$150,500 (Unconditional) Financing Source FCPF, CONAF Result Design of the new Forestry Development law informed Performance Indicator Delivery of 1 or more analytical products 2018 2019 2020 2021 2022 2023 2024 2025 Goal Law informed Law informed Law informed Law enacted Law enacted Law enacted Law enacted Law enacted Mitigation Measure MT2. Revision of the existing Native Forest Recovery and Development Law N° 20.283 Strategic Action MT: Crosscutting Measures Driver All drivers Type (Direct/Enabling) Enabling Description This measure aims to inform the revision of Chile’s Native Forest Recovery and Development Law N° 20.283 and its regulations, in Page 57 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) order to make adjustments to the subsidy levels and technical assistance provided under the law with the aim of increasing the number of beneficiaries and areas of forest under sustainable management. In particular, this measure will perform analytical work to include the following elements in the revised law and its respective regulations: i. Update the cost and output tables for activities that are mentioned only generically in the current version of the law, based on the information gathered from the ENCCRV pilot projects (e.g. ecological restoration, forest fire preventive silviculture, etc.). ii. Promote the use of Management Plans with Zoning Criteria (PMCOF) following the best practices outlined in the “Sustainable Forest Management models” (US) Strategic Action, through the inclusion of results-based payments for environmental services (ex-post) in addition to subsidizing investment costs (ex-ante), based on metrics associated with mitigation and adaptation to climate change, as well as land degradation, drought, and desertification. iii. Additional incentives (through subsidies or access to credit) for forest management activities that are based on PMCOF and include ecological restoration and/or preventive silviculture activities. Institutional Arrangements GEDEFF; GEF; Legal Budget Total: US$150,500 (Unconditional) Financing Source FCPF, CONAF Result Revision of Law No. 20.283 informed Performance Indicator Delivery of 1 or more analytical products 2018 2019 2020 2021 2022 2023 2024 2025 Goal Law informed Law informed Law informed Law enacted Law enacted Law enacted Law enacted Law enacted Mitigation Measure MT.3. Strengthening forest land tenure conditions for increasing access to forestry programs and projects. Strategic Action MT: Crosscutting Measures Driver All drivers Type (Direct/Enabling) Enabling Description This measure aims to support the regularization of property rights for rural landowners whose land tenure situation impedes them from participating in the ENCCRV direct measures (e.g. a/reforestation, forest management, etc.), with the objective of increasing the number of beneficiaries and areas of forest under sustainable management. In particular, this measure includes two elements: i. Adjustments to current land tenure regulations and requirements for participation in rural incentive programs: this will include analytical work to identify current barriers related to land tenure that impede small and medium landowners’ participation in rural incentive programs; and to propose adjustments that will allow their participation in the ENCCRV direct mitigation measures. ii. Direct legal support for forest land title regularization: this will include the provision of technical and legal assistance to small rural land owners who require property title regularization in order to participate in the direct measures of the ENCCRV (e.g. a/reforestation, forest management, etc).This support will be conditional to specific technical requirements and criteria to ensure the continuity of landowners’ commitment to the ENCCRV measures thereby ensuring the permanence of the interventions. Page 58 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Institutional Arrangements GEDEFF; GEFEA; Legal Budget Total: US$850,000 (Unconditional) Financing Source CONAF Result Revision of regulatory framework around forestry land tenure informed. Design and implementation of forest land title regularization program. Performance Indicator Delivery of 1 or more analytical products 800 forest landowners with registered title 2018 2019 2020 2021 2022 2023 2024 2025 Goal 100 200 300 400 500 600 700 800 Mitigation Measure MT.4. Afforestation and Revegetation Program in priority areas. Strategic Action MT: Crosscutting Measures Driver All drivers Type (Direct/Enabling) Direct Description This measure aims to support the establishment of permanent native vegetation cover in priority areas for the provision of ecosystem services in both private and public lands, in line with Chile’s NDC and UNCCD commitments and based on the best practices promoted by the ENCCRV. Species selection will be culturally appropriate based on the inputs provided by local stakeholders and aligned with the ENCCRV Measure on “Adaptive management of native vegetation in the context of climate change, land degradation, desertification and drought” Program of the ENCCRV (GA). Site selection will be based on the following criteria: iii. Areas with active soil degradation processes and/or risks such as erosion and landslides; iv. Fragmented forests without ecosystems or landscape connectivity; v. Multipurpose a/reforestation and revegetation. vi. Areas under Forest Zoning Plans (PMCOF). vii. Improvement of the quality of life and property value of small and medium rural landowners; viii. Restitution of native forest cover to areas previously converted to other land uses; ix. Contribute to the conservation and protection of wetlands. Institutional Arrangements GEDEFF Budget Total: $168,150,000; Unconditional: US$33,750,000; Conditional: US$134,400,000. Financing Source Unconditional: CONAF, UNREDD; Conditional: FCPF-CF, GCF, Private sector Result Design, implementation and monitoring of Afforestation and Revegetation Plans in priority areas. Performance Indicator 140,000 hectares 2018 2019 2020 2021 2022 2023 2024 2025 Goal 12,000 27,000 42,000 62,000 82,000 104,000 126,000 140,000 Page 59 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Mitigation Measure MT.5. Ecological Restoration Program in priority areas. Strategic Action MT: Crosscutting Measures Driver All drivers Type (Direct/Enabling) Direct Description This measure aims to support the ecological restoration of lands with native vegetation under severe degradation processes in priority areas for the provision of ecosystem services in both private and public lands, in line with Chile’s NDC and UNCCD commitments and based on the best practices promoted by the ENCCRV. Species selection will be will be culturally appropriate based on the inputs provided by local stakeholders and aligned with the ENCCRV Measure on “Adaptive management of native vegetation in the context of climate change, land degradation, desertification and drought” Program of the ENCCRV (GA). Site selection will be based on the following criteria: x. Areas with severely degraded native vegetation resources and species under a conservation category; xi. Areas important for the generation of provisioning, regulating, supporting and cultural ecosystem services; xii. Contribution to reducing forest fragmentation and increasing ecosystems and landscape connectivity; xiii. Areas under Forest Zoning Plans (PMCOF). xiv. Improvement of the quality of life and property value of small and medium rural landowners; xv. Reduction landslides and of natural disaster risks; xvi. Contribute to the conservation and protection of wetlands. Institutional Arrangements GEDEFF; GASP Budget Total: US$41,140,480; Unconditional: US$1,140,480; Conditional: US$40,000,000 Financing Source Unconditional: CONAF, UNREDD, FERI; Conditional: FCPF-CF, GCF, Municipalities, Landowners Result Design, implementation and monitoring of Ecological Restoration Plans in priority areas. Performance Indicator 20,000 hectares 2018 2019 2020 2021 2022 2023 2024 2025 Goal 5,000 10,000 15,000 20,000 maintenance maintenance maintenance maintenance Mitigation Measure MT.6. Environmental Awareness and Training Program. Strategic Action MT: Crosscutting Measures Driver All drivers Type (Direct/Enabling) Enabling Description The aim of this measure is to increase general public awareness on the importance of native vegetation for national and local sustainable development. Target audience will comprise a wide range of society actors, including public service agencies, private sector, universities, schools, and rural communities with a particular emphasis on areas recognized as biosphere reserves. The Program will provide information and training on the value of native forests and other vegetation formations, educating on the Page 60 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ecosystem services that these resources provide to society, best management practices, and the impacts of deforestation and forest degradation. Given the strong presence of Indigenous Peoples in the priority regions of the ER Program, a special focus will be given to adapt the education and training program by incorporating indigenous cultural values and management practices in relation to the native vegetation resources. The Program will include awareness and training activities such as: i. Workshops with local landowners and associations based on existing platforms; ii. Field visits and exchanges for local landowners and associations; iii. Environmental education courses for rural technical schools; iv. Environmental fora targeted at rural families; v. Technical courses; vi. University courses for public service officials; vii. Communication and outreach material for the general public, such as radi0 programs and local and national press releases. Institutional Arrangements GEDEFF; GASP; SECOM; UAIS Budget Total: US$2,220,000; Unconditional: US$860,000; Conditional: US$1,360,000 Financing Source Unconditional: CONAF; Conditional: tbd Result Design and implementation of an Environmental Awareness and Training Program Performance Indicator 8,000 people reached and/or trained 2018 2019 2020 2021 2022 2023 2024 2025 Goal 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Mitigation Measure MT.7. Strengthening CONAF’s forest control systems Strategic Action MT: Crosscutting Measures Driver All drivers Type (Direct/Enabling) Enabling Description This measure aims to strengthen control and enforcement of forest regulations to ensure the adequate protection of native vegetation resources through a series of activities, including: i. Strengthening CONAF’s institutional capacity for forest control and enforcement through, inter alia, technological improvements such as the establishment of an early warning system for illegal logging. ii. Strengthening the existing grievance redress mechanisms, in particular the role of municipal authorities in the monitoring and enforcement of forest regulations, through inter alia, increasing human resources and capacity building. iii. Promoting participatory monitoring approaches by supporting civil society participation in the monitoring and control of native vegetation resources. Institutional Arrangements GEFEA Budget Total: US$1,070,000 (Unconditional) Financing Source CONAF Page 61 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Result Increased forest monitoring and enforcement in priority municipalities. Performance Indicator 200 municipalities 2018 2019 2020 2021 2022 2023 2024 2025 Goal 25 50 75 100 125 150 175 200 Mitigation Measure MT.8. Strengthening Protected Area (PA) Management Plans Strategic Action MT: Crosscutting Measures Driver All drivers Type (Direct/Enabling) Enabling Description This measure aims to incorporate key elements related to climate change, desertification, land degradation and drought in the Management Plans of priority Natural Protected Areas of the National System of Protected Areas (SNASPE, in Spanish). Priority PAs will be defined based on the Forest Reference Level, as well as other criteria such as, inter alia, local capacities, ease of access, and ongoing initiatives. This measure will include several measures of the ENCCRV in the short, medium, and long-term planning instruments of said PAs, such as: i. Assess whether the conservation objectives and threats remain relevant for the PA in the context of climate change effects. ii. Identify priority sites for carrying out reforestation and restoration activities based on MT.4 and MT.5; iii. Develop Forest Management Plans with Zoning Criteria (PMCOF) for National Reserves in order to ensure the sustainable use of their productive potential based on US.1; iv. Incorporate education and outreach elements of the ENCCRV (MT.6.) in the information centers of PAs, as well as its public education programs and guided tours. v. Develop studies and scientific research focused on long-term monitoring of native vegetation in key SNASPE sites, based on the best practices for adaptive management defined in GA.1. Institutional Arrangements GASP; GEFEA; GEDEFF Budget Total: US$1,970,000; Unconditional: US$500,000; Conditional: US$1,477,600 Financing Source Unconditional: CONAF; Conditional: tbd Result Development and implementation of a Protocol for including climate change and desertification aspects in PA Management Plans. Performance Indicator 50% of SNASPE PAs 2018 2019 2020 2021 2022 2023 2024 2025 Goal 5% 10% 15% 20% 25% 30% 40% 50% Mitigation Measure IF.1. Analysis of GHG emissions and severity of forest fires Strategic Action IF: Preventive silviculture and post-fire restoration Driver Forest Fires Type (Direct/Enabling) Enabling Page 62 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Description This measure aims to strengthen technical capacities within CONAF to estimate GHG emissions from high magnitude forest fires (> 200 ha) through severity analysis using remote sensing tools, providing relevant inputs for post-fire restoration plans related to IF.2 Institutional Arrangements GEPRIF; GEDEFF; GEFEA Budget Total: US$844,290 (Unconditional) Financing Source CONAF Result Development and implementation of a Protocol to estimate GHG emissions and severity of forest fires. Performance Indicator 100% annual forest fires analyzed 2018 2019 2020 2021 2022 2023 2024 2025 Goal 15% 30% 45% 60% 70% 80% 90% 100% Mitigation Measure IF.2. Restoration of Fire-affected Ecosystems Program. Strategic Action IF: Preventive silviculture and post-fire restoration Driver Forest Fires Type (Direct/Enabling) Direct Description This measure aims to support the implementation of ecological restoration projects in public and private areas affected by fires at the national level. Areas to be restored will be prioritized based on ecological criteria (biodiversity, ecosystem connectivity, resilience of the vegetation), economic criteria (cost/benefit ratio), and GHG accounting (cost/sequestration ratio), taking into account the severity analysis conducted under IF.1. Institutional Arrangements GEPRIF; GEDEFF; GEFEA Budget Total: US$20,168,000; Unconditional: US$968,000; Conditional: US$19,200,000 Financing Source Unconditional: CONAF, UNREDD; Conditional: FCPF-CF, GCF, Municipalities, Landowners Result Design, implementation and monitoring of Restoration Projects. Performance Indicator 10,000 hectares 2018 2019 2020 2021 2022 2023 2024 2025 Goal 400 1,800 3,200 4,600 6,000 7,400 8,700 10,000 Mitigation Measure IF.3. Fire Preventive Silviculture Program Strategic Action IF: Preventive silviculture and post-fire restoration Driver Forest Fires Type (Direct/Enabling) Direct Description This measure aims to support the implementation of preventive silviculture activities in native forests, forest plantations, and other vegetation formations located in public and private lands, with an emphasis on the urban-rural interface. Activities will seek to reduce the potential damage from forest fires by carrying out early interventions such as the modification, zoning, and elimination of dead or live vegetation, plant waste and debris, in order to prevent and reduce the occurrence of forest fires, as well Page 63 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) as the establishment of firebreaks to delay and/or reduce the spread and surface area of forest fires. This measure will promote fuel load management on areas at high risk of forest fire with an emphasis on city limits where forests coexist with settlements. Critical areas will be prioritized based on a probability analysis of forest fire occurrence and spread based on a historical data and other variables such as slope, type of combustible material and wind speed, amongst others. GEPRIF; GEDEFF Budget Total: US$10,695,000; Unconditional: US$2.225.000; Conditional: US$8,470,000 Financing Source Unconditional: CONAF, SCD; Conditional: FCPF-CF, GCF, Municipalities, Landowners Result Design, implementation and monitoring of Fire Preventive Silviculture Projects in priority areas. Performance Indicator 8,000 hectares 2018 2019 2020 2021 2022 2023 2024 2025 Goal 1,950 3,600 5,250 6,900 7,450 8,000 Maintenance Maintenance Mitigation Measure IF.4. Fire Prevention Community Awareness Program Strategic Action IF: Preventive silviculture and post-fire restoration Driver Forest Fires Type (Direct/Enabling) Enabling Description This measure aims to increase the number of communities that are less vulnerable to forest fires. It builds on an existing Program operated by CONAF, named “Prepared Communities”, which promotes three activities: (i) fortifying houses and self-protection spaces; (ii) promoting community actions to manage fuel load; (iii) preparation for community action during emergencies. This measure will be linked to the ENCCRV Environmental Education and Training Program under MT.6. Institutional Arrangements GEPRIF; GEDEFF; SECOM Budget Total: US$2,216,250 (Unconditional) Financing Source CONAF Result Adjust and expand existing fire prevention community awareness Program to priority municipalities. Performance Indicator 40 municipalities 2018 2019 2020 2021 2022 2023 2024 2025 Goal 5 10 15 20 25 30 35 40 Mitigation Measure IF.5. Inclusion of forest fire prevention and post-fire restoration elements in Law No. 20,283 and its regulations. Strategic Action IF: Preventive silviculture and post-fire restoration Driver Forest Fires Type (Direct/Enabling) Enabling Description This measure aims to modify the current Regulation of Law No. 20.283 on Native Forest Recovery in order to incorporate additional incentives for activities that promote preventive silviculture and post-fire restoration on private native forest lands. This Page 64 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) measure will be coordinated with MT.2. Institutional Arrangements GEPRIF; GEDEFF; Legal Budget Included in MT.2 Financing Source - Result Revision of Law No. 20.283 informed. Performance Indicator Delivery of 1 or more analytical products 2018 2019 2020 2021 2022 2023 2024 2025 Goal Law informed Law informed Law informed Law enacted Law enacted Law enacted Law enacted Law enacted Mitigation Measure IF.6. Technology Transfer Program for agricultural waste management. Strategic Action IF: Preventive silviculture and post-fire restoration Driver Forest Fires Type (Direct/Enabling) Enabling Description This measure aims to reduce agricultural waste burning practices in areas of high risk of forest fires by encouraging farmers to apply alternative practices that contribute to sustainable land management rather than banning. It builds on previous CONAF experiences and contemplates the creation of a national level Technology Assistance Program to provide cost-effective and technically-feasible alternatives to farmers for the use and management of their post-harvest waste. Institutional Arrangements GEPRIF; GEDEFF Budget Total: US$1,309,000 (Unconditional) Financing Source CONAF Result Design, implementation and monitoring of technical assistance Program in priority areas. Performance Indicator 100% of the prioritized communes (municipalities) 2018 2019 2020 2021 2022 2023 2024 2025 Goal 20% 30% 40% 50% 60% 70% 80% 100% Mitigation Measure US.1. Forest Planning and Zoning Program. Strategic Action US: Promotion of sustainable forest management models Driver Unsustainable use of vegetation resources Type (Direct/Enabling) Direct Description This measure aims to develop a technical assistance Program targeted at both private and public lands to promote best practices for sustainable forest management based on the silvicultural requirements of native forest vegetation in the context of climate change, desertification, land degradation and drought, and other pressures on vegetation resources. The model would build on and further develop the technical specifications of the Management Plan with Zoning Criteria (PMCOF) instrument included in Law No. 20.283. A technical operational manual will be developed. Design elements to be incorporated include: Page 65 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) i. Forest interventions and technical assistance with a landscape focus; ii. Integrated management approach involving multiple actions at the farm level (reforestation, forest management); iii. Alignment and coordination among the different applicable rural incentive programs (forestry, livestock, agriculture); iv. Extraction rates adjusted to forest growth; v. Long term planning (i.e. at least five years) It is expected that the areas managed under this improved forest management model will function as sustainable development poles providing opportunities for productive value chain development, private sector investment, improved infrastructure, strengthening farmers’ associations, ecosystem services generation, tourism growth, training and capacity building. Institutional Arrangements GEDEFF; GEFEA; GASP Budget Total: US$51,355,840; Unconditional: US$1,655,840; Conditional: US$49,700,000 Financing Source Unconditional: CONAF; Conditional: FCPF-CF, GCF, New Forest Development Law Result Design, implementation and monitoring of Forest Planning and Zoning Program in priority public and private areas. Performance Indicator 70,000 hectares 2018 2019 2020 2021 2022 2023 2024 2025 Goal 6,000 14,000 22,000 30,000 40,000 50,000 60,000 70,000 Mitigation Measure US.2. Integrated regulatory and tax exemption system to promote forest value chains. Strategic Action US: Promotion of sustainable forest management models Driver Unsustainable use of vegetation resources Type (Direct/Enabling) Enabling Description This measure aims to promote value chain development for timber and non-timber forest products generated from areas under sustainable forest management through tax exemptions and other regulatory mechanisms. It will carry out a technical, legal and economic feasibility study to assess different options for increasing landowners’ profitability throughout the value chain, such as: tax reduction for sale of native forest products; requirements for certificate of origin at selling points; regulatory mechanism to promote the use of native forest biomass for energy generation in farms; green public procurement policies that support native forest products. Institutional Arrangements GEDEFF; GEFEA; Legal Budget Total: US$150,000 (Unconditional) Financing Source CONAF Result Development of legal, technical and economic feasibility studies to inform the establishment of tax exemptions Performance Indicator Delivery of 1 or more analytical products 2018 2019 2020 2021 2022 2023 2024 2025 Goal Feasibility Procedures Procedures Law enacted Law enacted Law enacted Law enacted Law enacted Page 66 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Mitigation Measure US.3. Strengthening CONAF’s Dendroenergy Program Strategic Action US: Promotion of sustainable forest management models Driver Unsustainable use of vegetation resources Type (Direct/Enabling) Direct Description The aim of this measure is to increase the production of certified fuelwood to supply consumption hotspots in priority municipalities, through activities such as: technical assistance for the development of Management Plan with Zoning Criteria (PMCOF) with local landowners to optimize management practices and extraction rates; construction of centralized/communal firewood collection and drying facilities to generate efficiencies and economies of scale; value chain development and fair trade initiatives; firewood certification. These activities will directly support CONAF’s existing Dendroenergy Strategy and recently approved Firewood Policy, which CONAF is already supporting through several pilot projects on which this measure will build on. Institutional Arrangements GEDEFF; GEFEA Budget Total: US$21,950,000; Unconditional: US$11,550,000; Conditional: US$10,400,000 Financing Source Unconditional: CONAF; Conditional: FCPF-CF, GCF, GEF Result Design, implementation and monitoring of sustainable firewood projects in priority areas Performance Indicator 16,000 hectares 2018 2019 2020 2021 2022 2023 2024 2025 Goal 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Mitigation Measure MG.1. Program for controlling livestock grazing in public areas. Strategic Action MG: Promotion of integrated silvopastoral models Driver Unsustainable Cattle grazing Type (Direct/Enabling) Direct Description The aim of this measure is to regulate the use of public areas commonly used for grazing (commons) through the creation of buffer zones in order to minimize the impact of livestock on critical sites for conservation and/or carbon sink values. Activities will include the provision of technical assistance to landowners located adjacent to protected areas or public lands in order to promote an integrated management of their properties by coordinating the different rural incentive programs applicable to forestry and livestock activities, such as improvements in forage availability, forest protection, etc. The measure will also promote new models of governance for such buffer zones through participatory management and consensus building between both public and private actors located in the territory. Institutional Arrangements GEDEFF; GASP Budget Total: US$1,088,400; Unconditional: US$450,000; Conditional: US$638,400 Financing Source Unconditional: CONAF; Conditional: FCPF-CF Result Design, implementation and monitoring of technical assistance Program in priority areas. Performance Indicator 800 hectares Page 67 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) 2018 2019 2020 2021 2022 2023 2024 2025 Goal 100 200 300 400 500 600 700 800 Mitigation Measure MG.2. Strengthening “Veranada” Local Councils to improve management of areas under intensive seasonal livestock grazing Strategic Action MG: Promotion of integrated silvopastoral models Driver Unsustainable Cattle grazing Type (Direct/Enabling) Enabling Description This measure aims to regulate and promote good practices in areas of seasonal livestock grazing (veranadas) to address the high stocking rate during the summer and the lack of a related regulatory framework and mitigate the effects of this practice on vegetation/wildlife (e.g. diseases). Activities will include strengthening and expanding Local Management Councils as governance models for veranadas and promote increased coordination between public-private stakeholders, including government agencies, grassroots organizations, and private landowners to develop agreed action plans for the management of such areas. Institutional Arrangements GEDEFF; GEFEA; GASP Budget Total: US$50,000; Unconditional: US$2,000; Conditional: US48,000 Financing Source Unconditional: CONAF; Conditional: Municipalities Result Development of Protocol and establishment of Veranadas Councils in priority areas. Performance Indicator 16 Management Councils established 2018 2019 2020 2021 2022 2023 2024 2025 Goal 2 4 6 8 10 12 14 16 Mitigation Measure MG.3. Agricultural Research Program Strategic Action MG: Promotion of integrated silvopastoral models Driver Unsustainable Cattle grazing Type (Direct/Enabling) Enabling Description The aim of this measure is to develop a research program to generate relevant technical information in support of Measures MG.1 and MG.2, linked with existing incentive programs supporting livestock activities (SIRSD-S) and under the guidelines of the Climate Change Adaptation Plan for the Forestry and Agriculture Sector (2008-2012; currently being updated). The research program will consider at least the following: a) Estimating the forage balance in priority areas in order to determine the nutritional requirements of livestock, which in turn will allow adjusting existing subsidy levels to actual investment requirements to ensure the sustainability of the interventions; b) Design of low-cost technologies for establishing drinking troughs for livestock, in order to avoid the uncontrolled movement of livestock within natural forests in seek of natural water courses, while ensuring that the water needs of vulnerable populations are met. Institutional Arrangements GEDEFF Budget Total: US$805,250; Unconditional: US$5,250; Conditional: US$800,00 Page 68 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Financing Source Unconditional: CONAF; Conditional: New Forest Development Law Result Design and implementation of an Agricultural Research Program Performance Indicator 8 research projects 2018 2019 2020 2021 2022 2023 2024 2025 Goal 1 2 3 4 5 6 7 8 Mitigation Measure PF1. Strengthening CONAF’s Phytosanitary Protection Program. Strategic Action PF: Promote native plant protection measures Driver Pests and diseases Type (Direct/Enabling) Enabling Description This measure aims to strengthen CONAF’s capacity to implement pest and disease prevention and control in native vegetation resources. CONAF currently operates a Program on Forest Sanitary Protection through biological control in approximately 30,000 ha of forest plantations located in small and medium rural properties. However, the institution lacks a plan to implement this program to native vegetation resources. Activities will include development of a permanent phytosanitary monitoring plan for critical native vegetation resources that are affected by pests and diseases; training of forestry professionals on pest prospection, detection, control and prevention; and establishment of a pathology laboratory to support the development of pest control agents. Institutional Arrangements GEDEFF Budget Total: US$4,080,000; Unconditional: US$80,000; Conditional: US$4,000,000 Financing Source Unconditional: CONAF; Conditional: GCF, tbd Result Prospecting, monitoring, preventing and controlling pests and diseases in native vegetation. Performance Indicators (a) 300,000 ha prospected; (b) 240,000 ha monitored; (c) 40 CONAF professionals trained; (d) 200 external professionals trained. 2018 2019 2020 2021 2022 2023 2024 2025 (c) 20 (a) 20,000 (a) 60,000 (a) 100,000 (a) 150,000 (a) 200,000 (a) 250,000 (a) 300,000 Goal (b) 100,000 (b) 200,000 (b) 220,000 (b) 240,000 (c) 40 (d) 100 (d) 200 Mitigation Measure GA.1 Climate Change Adaptation Program for Native Vegetation. Strategic Action GA: Promotion of climate change adaptive management models Driver Climate Change effects Type (Direct/Enabling) Enabling Description This measure aims to develop a Program for the adaptive management of vegetation resources in priority communes (municipalities) in the context of climate change, desertification, land degradation, and drought, in line with the Climate Change Adaptation Plan for the Forestry and Agriculture Sector (2008-2012; currently being updated). In addition, the Program will generate relevant inputs for the design and/or adjustment of rural incentive programs in the forest and agriculture sectors related Page 69 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) to the ENCCRV. Activities will be based on a number of existing initiatives that will be strengthened, such as: i. Creation of a permanent monitoring system on the effects of drought on native vegetation formations. This system will assess the effects of drought on specific vegetation populations and associations, as well as at the landscape level, and model potential displacement of vegetation communities; ii. Hydrological cycle studies in critical watersheds to define the impact of human activities on ecosystem degradation; iii. Designing and implementing ex-situ conservation programs, genetic selection and improvement for adapting to climate change; iv. Developing silviculrural practices and approaches that incorporate adaptation considerations, including in regional nurseries. Institutional Arrangements GEDEFF Budget Total: US$9,437,940; Unconditional: US$505,700; Conditional: US$8,932,240 Financing Source Unconditional: CONAF; Conditional: FIA, Municipalities Result Implementation of a Program to incorporate climate change adaptation aspects in native vegetation management in priority areas. Performance Indicator 80 priority communes 2018 2019 2020 2021 2022 2023 2024 2025 Goal 10 20 30 40 50 60 70 80 Mitigation Measure RH.1. Eliminate the reforestation exemption on deforested lands in Law N°19.561 Strategic Action RH: Promotion of sustainable agricultural land management Driver Expansion of agricultural and livestock activities Type (Direct/Enabling) Enabling Description This measure aims to inform the revision of Law Nº 19,561 of 1998 in order to reduce pressure on native forests from agricultural expansion and promote the recovery of abandoned lands. This law currently exempts landowners from the obligation to reforest previously deforested and abandoned land as an incentive to agricultural development. Additional modifications are contemplated, such as incorporating agricultural closure plans as a mandatory requirement to internalize the costs of land abandonment (loss of soil, etc.) that prevent future recovery of the original native vegetation. Institutional Arrangements GEDEFF; GEFEA; Legal Budget Total: US$50,000 (Unconditional) Financing Source CONAF Result Revision of Law N°19.561 informed. Performance Indicator Delivery of 1 or more analytical products 2018 2019 2020 2021 2022 2023 2024 2025 Goal Feasibility Processing Processing Law revised Law revised Law revised Law revised Law revised Mitigation Measure RH.2. Strengthen environmental safeguards in agricultural irrigation and drainage works (Law N°18.450). Strategic Action RH: Promotion of sustainable agricultural land management Page 70 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Driver Expansion of agricultural and livestock activities Type (Direct/Enabling) Enabling Description This measure aims to inform the revision of Law Nº 18.450 of 1985 in order to strengthen the environmental safeguard provisions of agricultural irrigation and drainage works it supports financially through public tenders in order to improve the efficiency and productivity of agricultural activities. However, the current Law and its Regulation do not provide for specific requirements on how environmental aspects related to forest and biodiversity conservation need to be addressed in such activities, contributing to deforestation and forest degradation. This measure will perform analytical work to identify potential modifications, such as: (i) include criteria during the public tender process that prioritize projects with concrete activities to protect native forests; (ii) require a declaration of the total extent of native forest existing in the property prior to the project, with a commitment to maintain it. Institutional Arrangements GEDEFF; GEFEA; Legal Budget Total: US$50,000 (Unconditional) Financing Source CONAF Result Revision of Law N°18.450 informed Performance Indicator Delivery of 1 or more analytical products 2018 2019 2020 2021 2022 2023 2024 2025 Goal Feasibility Processing Processing Law revised Law revised Law revised Law revised Law revised Mitigation Measure RH.3. Exclude forest lands from the eligibility of agricultural subsidies included in Law N° 20.412. Strategic Action RH: Promotion of sustainable agricultural land management Driver Expansion of agricultural and livestock activities Type (Direct/Enabling) Enabling Description The System of Incentives for the Agro-environmental Sustainability of Agricultural Soils (SIRSD-S) contained in Law No 20,412 of 2010 incentivizes the rehabilitation of agricultural soil, by financing related activities (e.g. removal and cleaning of stumps, dead trunks, etc.). Scarcity of land and technological advances have allowed the expansion of agricultural activities on soils classified as Class VI, making them eligible for receiving agricultural subsidies. This measure will perform analytical work to identify potential modifications to the current law and its regulations that will promote the protection and regeneration of native vegetation, such as removing soils classified as Class VI and VII and that possess native vegetation formations from the eligible areas of the SIRSD-S. Institutional Arrangements GEDEFF; GEFEA; Legal Budget Total: US$50,000 (Unconditional) Financing Source CONAF Result Revision of Law N° 20,412 informed Performance Indicator Delivery of 1 or more analytical products 2018 2019 2020 2021 2022 2023 2024 2025 Goal Feasibility Processing Processing Law revised Law revised Law revised Law revised Law revised Page 71 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Mitigation Measure RS.1. Strengthen forest control Program in native areas under high risk of substitution by forest plantations Strategic Action RS: Promotion of sustainable forest plantation models Driver Expansion of monoculture tree plantations Type (Direct/Enabling) Enabling Description This measure aims to avoid the substitution of degraded native forests with exotic tree plantations, which is a key driver of forest degradation in Chile. Activities will include: (i) strengthening forest monitoring and enforcement in key areas at high risk of substitution; (ii) ensure that areas officially categorized as secondary forests and mixed forests do not actually consist in native forests before conversion to plantations. This measure will be coordinated with MT.5. Institutional Arrangements GEFEA; GEDEFF Budget Included in MT.7 Financing Source CONAF Result Implementation of increased forest control measures in priority sites. Performance Indicator 40 priority sites 2018 2019 2020 2021 2022 2023 2024 2025 Goal 5 10 15 20 25 30 35 40 Mitigation Measure PSA.1. Pilot the incorporation of PES schemes in existing forest incentive programs (MT.1; MT.2; US.1) Strategic Action Payment for Environmental Services Driver Low economic value of native vegetation resources (underlying) Type (Direct/Enabling) Direct Description This measure aims to empirically test PES schemes associated with non-carbon benefits that currently do not exist in Chile. To date, several of the ENCCRV measures such as a/reforestation with native species (MT.4) and restoration of degraded native forests (MT.5 and IF.2) have been tested in the field in a number of regions with the objective of piloting payment schemes to landowners (periodically, in-cash and additional to the subsidy levels of current programs) for the non-carbon benefits generated by the ENCCRV investments, such as water supply, forest and biodiversity conservation. Activities will also include strategies for private sector engagement and legislative reforms to ensure sustainability through the development of an Environmental Forest Fund. Institutional Arrangements UCCSA Budget Total: US$69,252,000; Unconditional: US$700,000; Conditional: US$68,552,000 Financing Source Unconditional: UNREDD; Conditional: tbd Result Successful demonstration of PES schemes for incorporation into national forestry instruments Performance Indicator 265,000 hectares piloted 2018 2019 2020 2021 2022 2023 2024 2025 Goal 0 0 20,000 50,000 100,000 150,000 200,000 265,000 Page 72 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 7: ER Program Financing Plan COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) Table 1. Estimated Cost of ER Program Measures Financing Scenarios (US$) Operational Targets ER Program Measure Low- High- Unconditional Unconditional Low-Conditional High-Conditional Conditional Conditional MT.1 150.500 150.500 150.500 Published Law Published Law Published Law MT.2 150.500 150.500 150.500 Published Law Published Law Published Law MT.3 850.000 850.000 850.000 800 Owners 800 Owners 800 Owners MT.4 30.965.438 86.697.103 168.150.000 25.805 ha 72.248 ha 140.000 ha MT.5 1.140.480 20.258.061 41.140.480 570 ha 10.129 ha 20.000 ha MT.6 860.000 1.110.000 2.220.000 3.105 People 4.000 People 8.000 People MT.7 2.313.261 2.313.261 2.313.261 200 Communes 200 Communes 200 Communes MT.8 500.000 988.800 1.977.600 15 Plans 25 Plans 51 Plans IF.1 844.290 844.290 844.290 100% Fires 100% Fires 100% Fires IF.2 4.936.254 15.604.688 20.168.000 2.468 ha 7.800 ha 10.000 ha IF.3 2.225.000 8.437.915 10.695.000 1.683 ha 6.385 ha 8.000 ha IF.4 2.126.250 2.126.250 2.126.250 40 Communes 40 Communes 40 Communes IF.5 - - - Enacted Decree Enacted Decree Enacted Decree IF.6 1.309.000 1.309.000 1.309.000 100% Communes 100% Communes 100% Communes US.1 1.655.840 29.860.430 51.355.840 2.278 ha 41.000 ha 70.000 ha US.2 150.500 150.500 150.500 Enacted Regulation Enacted Regulation Enacted Regulation US.3 11.550.000 15.174.161 21.950.000 10.621 ha 12.645 ha 14.041 ha MG.1 450.000 602.295 1.088.400 300 ha 400 ha 800 ha MG.2 2.000 25.000 50.000 1 Council 8 Councils 16 Councils MG.3 805.250 805.250 805.250 8 projects 8 projects 8 projects PF.1 80.000 748.497 2.877.974 30.760 ha 287.833 ha 540.000 ha GA.1 1.036.266 5.236.266 9.436.266 9 Communes 44 Communes 80 Communes RH.1 50.000 50.000 50.000 Revised Regulation Revised Regulation Revised Regulation RH.2 50.000 50.000 50.000 Revised Regulation Revised Regulation Revised Regulation RH.3 50.000 50.000 50.000 Revised Regulation Revised Regulation Revised Regulation RS.1 - - - 40 areas 40 areas 40 areas NN.1 5.215.000 5.215.000 5.215.000 Design and Preparation of the ENCCRV NN.2 4.100.000 8.315.000 10.115.000 Measurement and Monitoring System NN.3 594.000 5.819.005 8.503.601 Safeguards Information System NN.4 - 40.676.053 69.252.000 Payment for Environmental Services TOTAL 74.159.829 253.617.824 433.044.712 Page 73 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Table 2. Financing Sources Source Institution Origin Conditionality Unconditional Low- High- (US$) Conditional Conditional (US$) (US$) Dendroenergy Initiative CONAF National Unconditional 1.400.000 1.400.000 1.400.000 Native Forest Department CONAF National Unconditional 1.982.799 1.982.799 1.982.799 Forest Control Department CONAF National Unconditional 2.313.261 2.313.261 2.313.261 Monitoring Department CONAF National Unconditional 4.100.750 4.100.750 4.100.750 Plantations Department CONAF National Unconditional 917.960 2.117.960 3.317.960 Fire Prevention Department CONAF National Unconditional 7.124.864 7.124.864 7.124.864 Climate Change Unit CONAF National Unconditional 1.214.460 1.214.460 1.214.460 Indigenous Affairs Unit CONAF National Unconditional 763.371 763.371 763.371 Ecological restoration CONAF National Unconditional 1.156.626 1.156.626 1.156.626 Seed Center CONAF National Unconditional 561.863 561.863 561.863 Technical Assistance Program CONAF National Unconditional 13.185.621 13.185.621 13.185.621 Native Forest Law CONAF National Unconditional 12.771.000 12.771.000 12.771.000 Post Fire Restoration Initiative CONAF National Unconditional 3.968.254 3.968.254 3.968.254 Targeted Support UN-REDD International Unconditional 560.000 560.000 560.000 Preparation Grant FCPF International Unconditional 8.800.000 8.800.000 8.800.000 Carbon Fund Preparation Grant FCPF International Unconditional 650.000 650.000 650.000 SIDA SIDA International Unconditional 1.700.000 1.700.000 1.700.000 UNEP CLCD International Unconditional 40.402 40.402 40.402 IDB IDB International Unconditional 180.000 180.000 180.000 GEF SLM GEF International Unconditional 5.800.000 5.800.000 5.800.000 Chile-México Chile-México International Unconditional 118.598 118.598 118.598 COSUDE II COSUDE International Unconditional 800.000 800.000 800.000 FERI CBD International Unconditional 50.000 50.000 50.000 UNREDD National Program UNREDD International Unconditional 4.000.000 4.000.000 4.000.000 Environmental Protection Fund MMA National Conditional 0 7.472.250 14.944.500 Regional Fund Regional National Conditional 0 6.000.000 12.000.000 Governments Community Initiatives Municipalities National Conditional 0 3.559.263 7.118.526 Law 20.283 Incentives Subsidy Programs National Conditional 0 30.537.000 61.074.000 Irrigation Promotion Law Subsidy Programs National Conditional 0 10.371.500 20.745.000 Law on Soils Conservation Subsidy Programs National Conditional 0 4.564.650 8.129.300 New Promotion Law Subsidy Programs National Conditional 0 33.750.000 67.500.000 Private sector Private Companies National Conditional 0 2.500.000 5.000.000 Agricultural Investigation Fund FIA National Conditional 0 735.500 1.471.000 Landowners (a/reforestation) Owners National Conditional 0 11.760.000 23.520.000 Landowners (restoration) Owners National Conditional 0 6.000.000 12.000.000 Landowners (preventive Owners National Conditional 0 880.000 1.760.000 silviculture) Landowners (SFM) Owners National Conditional 0 3.000.000 6.000.000 Protected Areas Department CONAF National Conditional 0 1.445.787 2.891.583 Public-private A/Reforestation Private Companies National Conditional 0 15.000.000 30.000.000 Initiative Bilateral cooperation Bilateral International Conditional 0 1.500.000 3.000.000 Green Climate Fund Grant GCF International Conditional 0 25.333.863 50.667.725 FCPF ERPA FCPF International Conditional 0 13.000.000 26.000.000 GEF MMA CC GEF International Conditional 0 848.182 2.663.249 Total 74.159.829 253.617.823 433.044.712 Page 74 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 8: ER Volume Feasibility Analysis COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) 1. This annex provides a feasibility analysis of the proposed ERPA operation by examining a range of effectiveness scenarios of the ER Program needed to generate the ER Volume included in the proposed ERPA (5.2 MtCO2e) comparing them to recent observations. In other words, it compares recent deforestation and degradation trends against the baseline to assess whether the volume included in the ERPA is feasible. These scenarios have been developed based on the following assumptions and limitations: i. A direct link between the levels of financing and expected effectiveness is limited due to the carbon accounting methodology applied (land-based vs activity-based), which does not allow attribution of ERs to specific investments (activities). Therefore, the effectiveness scenarios (conservative, medium, and optimistic) are assumed to correspond to the available levels of financing (unconditional, low-conditional, and high-conditional) with a high degree of uncertainty. ii. Effectiveness has been set as a percentage reduction/increase against the historical emissions/removals of each REDD+ activity as set in the Forest Reference Level (Deforestation, Forest Degradation, Conservation, and Enhancements of forest carbon stocks. iii. Effectiveness objectives have been set for each monitoring period, considering that the last year to be monitored corresponds to 2024. iv. ER Volumes presented for each effectiveness scenario have been already discounted for uncertainty (8%) and reversal risks (21%). v. All scenarios assume a prioritization of available investments to ER Program Measures that reduce emissions from deforestation and forest degradation due to their more immediate effect and cost-effectiveness in the generation of ERs. vi. For each hectare of avoided deforestation and forest degradation, the volume of ERs is between 97.5 and 858.7 tCO2e, depending on the region; while the average annual growth rate by forest type (9.5 tCO2e) is substantially lower than avoided deforestation and forest degradation (native forests in Chile might take up to 80 years to reach maturity). vii. ER Program Measures that increase forest carbon (i.e. a/reforestation) have a higher cost, although may generate substantial non-carbon benefits. In addition, these activities currently have limited budget assigned within CONAF. In contrast, activities aimed at reducing deforestation and forest degradation are already part of CONAF’s regular operations. 2. Based on the above assumptions and limitations, the effectiveness scenarios developed provide the following results in terms of ER generation: (a) Minimum effectiveness scenario: represents the minimum effectiveness objectives (Table 1) needed to be reached for each REDD+ activity in order to generate the ER Volume included in the ERPA: 5,200,000 tCO2e. (b) Conservative effectiveness scenario: represents the scenario included in the ERPA, with unconditional financing sources focused on increasing the effectiveness of avoided Page 75 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) deforestation and forest degradation activities (Table 2), generating an ER Volume of 7,139,964 tCO2e. (c) Medium effectiveness scenario: assumes incremental resources from the low-conditional financing scenario are invested in increasing the effectiveness of both avoided deforestation and forest degradation and carbon stock enhancement activities (Table 3), generating an ER Volume of 8,107,937 tCO2e. (d) Optimistic effectiveness scenario: assumes additional incremental resources from the high- conditional financing scenario are invested in further increasing the effectiveness of both avoided deforestation and forest degradation and carbon stock enhancement activities (Table 4), generating an ER Volume of 16,736,162 tCO2e. Table 1. Minimum Effectiveness scenario Monitoring ER Program effectiveness (%) Year event Deforestation Degradation Conservation Enhancements 2017 6 4 - - 1 2018 6 4 - - 2019 6 4 1.25 1.25 2 2020 6 4 1.25 1.25 2021 9 6 1.25 2.5 3 2022 9 6 1.25 2.5 2023 9 6 1.25 2.5 4 2024 9 6 1.25 2.5 Table 2. Conservative Effectiveness Scenario Monitoring ER Program effectiveness (%) Year event Deforestation Degradation Conservation Enhancements 2017 8 6 - - 1 2018 8 6 - - 2019 10 6 1.25 1.25 2 2020 10 6 1.25 1.25 2021 12 9 1.25 1.25 3 2022 12 9 1.25 1.25 2023 12 9 1.25 1.25 4 2024 12 9 1.25 1.25 Table 3. Medium Effectiveness Scenario Monitoring ER Program effectiveness (%) Year event Deforestation Degradation Conservation Enhancements 2017 10 5 1 2.5 1 2018 10 5 1 2.5 2019 10 5 1.5 2.5 2 2020 10 5 1.5 2.5 2021 10 5 2 2.5 3 2022 15 10 2 2.5 2023 15 10 2.5 5 4 2024 15 10 2.5 5 Page 76 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Table 4. Optimistic Effectiveness Scenario Monitoring ER Program effectiveness (%) Year event Deforestation Degradation Conservation Enhancements 2017 10 5 2 10 1 2018 10 5 2 10 2019 10 5 3 10 2 2020 15 10 3 15 2021 15 10 4 15 3 2022 15 10 4 15 2023 20 15 5 20 4 2024 20 15 5 20 Assessment of recent trends as a benchmark for future effectiveness 3. In order to assess how realistically the proposed effectiveness scenarios were set, an analysis of the most recent historical data was carried out to observe the trends in emissions and removals in the ER Program Area based on existing levels of financing (i.e. CONAF’s budget). Due to data and time constraints, the analysis only considered emissions and removals of GHG resulting from land use change activities, namely: Deforestation as a result of the conversion of forest land to other land; forest degradation as a result of conversion of forest land to exotic timber plantations; and carbon stock enhancements from the conversion of other land to forest land. Emissions and removals from the forest lands remaining forest lands were excluded from the analysis. 4. The most recent dates with monitoring data considered correspond to: 2009/2016 for the Maule region; 2008/2014 for the Biobío & Ñuble regions; 2007/2013 for the Araucania region; 2006/2013 for Los Rios region; and 2006/2012 for Los Lagos region. The historical period in the FRL used as comparison covers the 2001/2013 period for all regions. 5. The results of the analysis show the following: emissions from Deforestation in the most recent historical period correspond to 1.55 million tCO2e/year, as compared to 3.45 million tCO2e/year in the FRL, resulting in ERs of 1.90 million tCO2e/year. Emissions from forest degradation due to native forest conversion to exotic timber plantations in the most recent historical period correspond to 1.02 million tCO2e/year, as compared to 4.08 million tCO2e/year in the FRL, resulting in ERs of 3.06 million tCO2e/year. While carbon stock Enhancements due to the conversion of non-forest land to forest land in the most recent historical period correspond to 0.69 million tCO2e/year, as compared to 0.89 million tCO2e/year in the FRL, resulting in lower removals compared to the FREL equal to 0.2 million tCO2e/year. Considering the sum of the results for all activities, the ERs generated during the most recent historical period amount to 4.75 million tCO2e/year, representing an actual effectiveness in reducing emissions of 55% for Deforestation, 33% for Degradation and a negative effectiveness of 2% for stock Enhancements, much higher than the effectiveness considered in all of the scenarios presented during the ERPA term (Table 7 and Table 8). Table 7. ER effectiveness based on recent historical data Emission reductions (tCO2e year-1) Regions Period Deforestation Degradation Enhancements Total Maule 2009-2016 35.791 355.919 -143.011 248.698 Biobío & Ñuble 2008-2014 333.933 745.594 -50.075 1.029.452 Page 77 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) La Araucanía 2007-2013 960.127 1.209.848 -22.216 2.147.759 Los Ríos 2006-2013 284.672 603.272 -3.839 884.105 Los Lagos 2006-2012 282.803 146.122 16.372 445.297 Total - 1.897.326 3.060.754 -202.769 4.755.311 Table 8. Past Performance Effectiveness (%) Regions Period Deforestation Degradation Enhancements Maule 2009-2016 42 58 -12 Biobío & Ñuble 2008-2014 84 62 -4 La Araucanía 2007-2013 91 63 -1 Los Ríos 2006-2013 44 44 0 Los Lagos 2006-2012 22 4 0 Total - 55 33 -2 Table 9. Comparison of Effectiveness Scenarios with Recent Historical Data Effectiveness Objective compared by scenarios (%) Scenarios Deforestation Degradation Enhancements Optimistic 20 15 20 Medium 15 10 10 Conservative 12 9 3 Minimum 7.5 5 1.5 Recent historical data 55 33 -2 6. This result provides confidence over the overall effectiveness of the policies and actions implemented by CONAF during the most recent period in reducing emissions from deforestation and forest degradation based on its own resources. It is expected that these actions will be maintained over time, with incremental efforts as part of the ENCCRV. If large-scale force majeure events do not occur during the ERPA period (such as the mega-fires that occurred in 2017), the effectiveness of the ER Program could achieve results much greater than the effectiveness scenarios presented. 7. Regarding the decreasing trend observed in the enhancement of carbon stocks from the conversion of non-forest land to forest land, it is worth noting that i) the decrease is not significant enough to neutralize the ERs generated from other activities; and ii) given Chile’s commitments to the forest sector at the national (the ENCCRV and the Forest Policy 2015-2030) and international level (i.e. NDC), there is reasonable confidence that this trend will be positively reverted. Page 78 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 9: ER Program Monitoring Plan COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) Table 1. Monitoring and Reporting Periods Monitoring Events Reporting Period Submission for Verification 1 01/2018-12/2019 04/2021 2 01/2020-12/2021 04/2023 3 01/2022-12/2023 04/2025 Table 2. Activity Data for Deforestation Description of the parameter ΔATO_OTHERSi,t = areas of forest i converted to another land use category including the time period covered: during the following periods • Maule: 2015-2017-2019-2021-2023-2025 • Biobío & Ñuble: 2015-2017-2019-2021-2023-2025 • Araucanía: 2013-2017-2019-2021-2023-2025 • Los Ríos: 2006-2013-2017-2019-2021-2023-2025 • Los Lagos Sur:1997-2013-2017-2019-2021-2023-2025 • Los Lagos Norte: 2006-2013-2017-2019-2021-2023-2025 Sources or sinks for which the Deforestation (forest land converted to other land) parameter is used: Data unit: Hectares Value for the parameter: To be determined in each monitoring event Source of data: Land use change matrixes derived from Cadaster maps Spatial level: Regional, characterized by stunted, adult, young adult, mixed and young forests and arborescent scrubland, converted into areas with no vegetation, urban and industrial areas, bodies of water, areas where succulents, wetlands, scrubland, perennial snow and glaciers, meadows and farmland have been formed. Discussion of key uncertainties for Each regional map will be assigned with a level of uncertainty based on this parameter: an accuracy assessment. Estimation of accuracy, precision, N/A and/or confidence level: Table 3. Activity Data for Degradation from Unsustainable Use Description of the parameter ADegFF = area of degradation in forests remaining forests for the period including the time period covered: 2010/2025 Sources or sinks for which the Degradation parameter is used: Data unit: Hectares Page 79 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Value for the parameter: To be determined in each monitoring event Source of data: Satellite imagery, using pre-processing of georeferencing, co-registry of scenes for years 2010/2015/2017/2019/2021/2023/2025, resampling at 100m, relative scene calibration, reverse cosine topographic correction, and mosaic preparation. Spatial level: Local Discussion of key uncertainties for Each map will be assigned with a level of uncertainty based on an this parameter: accuracy assessment. Estimation of accuracy, precision, N/A and/or confidence level: Table 4. Activity Data for Degradation from Fires Description of the parameter A = regional area burned between 2010/2025 including the time period covered: Sources or sinks for which the Degradation parameter is used: Data unit: Hectares Value for the parameter: To be determined in each monitoring event Source of data: Annex of National GHG Inventory (Original source: Historical Statistics Forest Fires CONAF-Companies) Spatial level: Regional Discussion of key uncertainties for N/A this parameter: Estimation of accuracy, precision, N/A and/or confidence level: Table 5. Activity Data for Degradation from Substitution Description of the parameter ADegNFF = Area of degradation by substitution 2013/2025 including the time period: Sources or sinks for which the Degradation parameter is used: Data unit: Hectares Value for the parameter: To be determined in each monitoring event Source of Data: Land use change matrixes derived from Cadaster maps Spatial level: Regional, characterized by stunted, adult, young adult, mixed and young forests and arborescent scrubland, converted into areas with no vegetation, urban and industrial areas, bodies of water, areas where succulents, wetlands, scrubland, perennial snow and glaciers, meadows and farmland have been formed Discussion of key uncertainties for Each regional map will be assigned with a level of uncertainty based on this parameter: an accuracy assessment Estimation of accuracy, precision, N/A and/or confidence level: Table 6. Activity Data for A/Reforestation Description of the parameter = area of non-forest land used converted into forest during including the time period covered: the following periods: Page 80 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) • Maule: 2015-2017-2019-2021-2023-2025 • Biobío & Ñuble: 2015-2017-2019-2021-2023-2025 • Araucanía: 2013-2017-2019-2021-2023-2025 • Los Ríos: 2006-2013-2017-2019-2021-2023-2025 • Los Lagos Sur:1997-2013-2017-2019-2021-2023-2025 • Los Lagos Norte: 2006-2013-2017-2019-2021-2023-2025 Sources or sinks for which the Enhancement of forest carbon stocks from other land converted to forest parameter is used: land Data unit: Hectares Value for the parameter: To be determined in each monitoring event Source of data: Land use change matrixes derived from Cadaster maps Spatial level: Regional, characterised by the following types of forest with young, young adult, adult or stunted trees: Larch, Araucaria araucana, Austrocedrus chilensis, Pilgerodendron uviferum, Nothofagus betuloides, Nothofagus dombeyi-Lophozonia alpina-Laureliopsis philippiana, Sclerophyll, Nothofagus pumilio, mixed and arborescent scrubland. It is also characterised by the following land uses before conversion: Bodies of water, wetland, arborescent scrubland, perennial snow and glaciers, formation of succulents, plantations, pastures and farmland. Discussion of key uncertainties for Each regional map will be assigned with a level of uncertainty based on this parameter: an accuracy assessment Estimation of accuracy, precision, N/a and/or confidence level: Table 7. Activity Data for Enhancement of Forest Carbon Stocks Description of the parameter AAumFF = increase area in forests remaining forests for the period including the time period covered: 2010/2025 Sources or sinks for which the Enhancement of Forest Carbon Stocks in forest lands remaining forest parameter is used: lands Data unit: Hectares Value for the parameter: To be determined in each monitoring event Source of data: Satellite imagery, using pre-processing georeferencing, co-registry of scenes (2010/2015/2017/2019/2021/2023/2025), resampling at 100m, relative scene calibration, reverse cosine topographic correction, and mosaic preparation Spatial level: Local Discussion of key uncertainties for N/A this parameter: Estimation of accuracy, precision, N/A and/or confidence level: Table 8. Activity Data for Degradation in Conservation Areas Description of the parameter ADegFFConservacion = degradation area in forest land remaining forest land for including the time period covered: the period 2010/2025 in conservation areas Sources or sinks for which the Conservation parameter is used: Data unit: Hectares Page 81 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Value for the parameter: To be determined in each monitoring event Source of data: Satellite imagery, using pre-processing georeferencing, co-registry of scenes (2010/2015/2017/2019/2021/2023/2025), resampling to 100m, relative scene calibration, reverse cosine topographic correction, and mosaic preparation Spatial level: Local Discussion of key uncertainties for N/A this parameter: Estimation of accuracy, precision, N/A and/or confidence level: Table 9. Activity Data for Enhancements in Conservation Areas Description of the parameter AAumFConservacioF = increased area of forest land remaining forest land for including the time period covered: the period 2010/2025 in conservation areas Sources or sinks for which the Conservation parameter is used: Data unit: Hectares Value for the parameter: To be determined in each monitoring event Source of data: Satellite imagery, using pre-processing georeferencing, co-registry of scenes (2010/2015/2017/2019/2021/2023/2025), resampling at 100m, relative scene calibration, reverse cosine topographic correction, and mosaic preparation Spatial level: Local Discussion of key uncertainties for N/A this parameter: Estimation of accuracy, precision, N/A and/or confidence level: Table 10. Emission Factor for Degradation Description of the parameter Emission factor for degradation in forest land remaining forest land: including the forest class if • AB, basal area applicable: Data unit: Square meters per hectare Value for the parameter: Varies per hectare across forest area Source of data: Continuous inventory plots of INFOR Spatial level: Local Discussion of key uncertainties for Estimated error of the permanent plots of the INFOR Continuous Forest this parameter: Inventory Estimation of accuracy, precision, and/or confidence level: Table 11. Emission Factor for Enhancement of carbon stocks Description of the parameter Removal factor for enhancement of forest carbon stocks in forest land including the forest class if remaining forest land: applicable: • AB, basal area Data unit: Square meters per hectare Value for the parameter: Varies per hectare across forest area Page 82 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Source of data: Continuous inventory plots of INFOR Spatial level: Local Discussion of key uncertainties for Estimated error of the permanent plots of the INFOR Continuous Forest this parameter: Inventory Estimation of accuracy, precision, N/A and/or confidence level: Table 12. Emission Factor for Conservation Areas Description of the parameter Emission/absorption factor for degradation and enhancements in including the forest class if conservation areas: applicable: • AB, basal area Data unit: Square meters per hectare Value for the parameter: Varies per hectare across forest area Source of data: Continuous inventory plots of INFOR Spatial level: Local Discussion of key uncertainties for Estimated error of the permanent plots of the INFOR Continuous Forest this parameter: Inventory Estimation of accuracy, precision, N/A and/or confidence level: Page 83 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 10: Priority Non-Carbon Benefits COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) 1. A number of environmental and social non-carbon benefits have been identified during the preparation phase of the ENCCRV to be generated or enhanced through the implementation of the ER Program Measures on a priority basis. As per the ERPA General Conditions, the Program Entity (CONAF) shall provide information on its efforts to generate and/or enhance these Priority Non- Carbon Benefits as part of each ER Monitoring Report and Interim Progress Report. Detailed measurement indicators and associated baselines for each of these benefits is currently under development and will be being validated through local pilot projects related to the ENCCRV and will be integrated into the national MRV and SIS systems. Table 1. Expected Non-Carbon Benefits indicators Area Non-Carbon Indicator (Draft) Benefit Improved Water Area intervened (hectares) by ER Program Measure within 100 meters from a Resources water basin, subbasin, sub-subbasin, or stream edge. Area intervened (hectares) by ER Program Measure within a range of slope categories, based on the following table: Categories Slope (%) Range Reduced Soil Erosion Flat and Slightly Inclined 0-2 1 Environmental Soft and Moderately Inclined 2-8 2 Strongly inclined and Moderately Steep 9-25 3 Steep and Very Steep 25-65 4 Reduced fragmentation of forest ecosystems as a result of the Improved implementation of ER Program Measures, measured as the average of the Landscape following six metrics: i) N°. of Patches; ii) Shape Index; iii) Perimeter Area Connectivity Ratio; Area Weighted Mean Patch Fractal Dimension; Fractal Dimension; Mean Perimeter Area Ratio. Safeguards Numbers of national and international safeguards triggered and respected. compliance Quantitative methodology to be determined. Level of women participation in ER Program Measures and ENCCRV related Gender Equality Social activities. Quantitative methodology to be determined. Number of targeted beneficiaries characterized as vulnerable (e.g. poverty Reduced and other forms of vulnerability). Quantitative methodology to be Vulnerability determined. Page 84 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 11: Systematic Operations Risk Tool COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) Table 1. Risk categories and Ratings Risk Category Rating 1. Political and Governance M 2. Macroeconomic L 3. Sector Strategies and Policies S 4. Technical Design of Project or Program S 5. Institutional Capacity for Implementation and Sustainability M 6. Fiduciary S 7. Environment and Social S 8. Stakeholders S 9. Other: Financing of underlying investments S 10. Other: Climate Change and Natural Disasters S Overall Risk S 1. A substantial level of risk is assigned to the technical design of the Program due to the innovative nature of emission results-based operations and the high technical complexity of REDD+. In particular, a significant technical design risk relates to the effectiveness of interventions proposed in the Program to generate the ER results, upon which the performance of the overall Program ultimately depends. Given the scale of the Program and the carbon accounting methodology applied (land-based as opposed to activity based), the overall ER result cannot be attributed to any specific ER Program Measure, and therefore performance is only measured at the level of the jurisdiction (region). This also opens the risk of claims being made by private landowners that manage or conserve forests. To mitigate this risk, the ERPA volume is based on conservative effectiveness scenarios that have been set based on the empirical evidence of recent performance observed through the National MRV system and that has been achieved based on known levels of financing (i.e. CONAF’s institutional budget). Program activities and results are expected to be monitored on a continuous basis through CONAF’s existing MRV system so as to enable necessary improvements to implementation of interventions. An MRV specialist has been hired within the PIU to strengthen its monitoring capacity and coordinate with other Departments involved in the monitoring system. ER Title Transfer risk has been mitigated through documentation provided by the Program Entity demonstrating its ability to transfer ER Title to the FCPF on public lands. On private lands, the Program Entity ha proposed to use the BSP along with agreements with private landowners as a risk mitigation measure. 2. Environmental and social risks related to the Program are rated substantial. Given the innovative nature of large-scale stand-alone carbon finance transactions in the forestry sector (i.e. without any direct WBG financing of the underlying investments), and given the complexity of Page 85 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) attributing results (i.e. ERs) to specific activities and/or sites at a scale smaller than the jurisdiction (in the case of Chile, the Regions), the challenge of ringfencing and applying traditional IPF safeguard instruments is higher, requiring a risk-based, systems approach. To mitigate and manage this risk, the task team has supervised closely the development of a Strategic Environmental and Social Assessment (SESA) and an Environmental and Social Management Framework (ESMF) including accompanying instruments (such as a Resettlement Framework and an Indigenous Peoples Planning Framework). Chile’s national safeguard systems are considered sufficiently robust and aligned with World Bank policies, and CONAF has built its capacity in working with World Bank safeguards through a number of operations. As an OECD member, Chile has robust regulations for environmental assessment and management, which mirror international good practice. 3. Consultations with a large number of stakeholders have taken place at various levels during the preparation of the ENCCRV. While consultations and awareness raising are an integral part of the REDD+ process, substantial risks are still related to the management of expectations regarding benefits from the ER Payments and the risk of not meeting expectations in the case of underperformance. In order to mitigate that risk, the Program Entity will put in place: i) a set of clear and transparent eligibility criteria and procedures for accessing the Benefit Sharing Plan; and ii) an effective communication strategy during the Benefit Sharing Plan consultations and operation to communicate clearly the rules and procedures of the BSP. The current REDD+ Readiness grant also includes activities related to awareness raising and capacity building of stakeholders, including Indigenous Peoples, forest landowners, and civil society. A Feedback, Grievance and Redress Mechanism (FGRM) will also be in place based on existing structures. 4. Climate change and natural disasters are a substantial risk to the Program’s performance. Forest fires are a regular phenomenon in Chile but have been more frequent in recent years. There were 6,700 in the 2015-16 season, compared to an average of 5,200 between 1990 and 2000. A review of Chile's wildfires published in November 2016 in the journal Global and Planetary Change 15 warned that the "pattern, frequency and intensity" of wildfires in the country "has grown at an alarming rate" in recent years, in part because of intensive forest management practices that led to a large amount of flammable fuel in the country's forests. This, coupled with strong winds, and climate induced prolonged drought and extreme temperatures creates the perfect conditions for forest fires to spread. Between January 1 and February 10, 2017, Chile was confronted with “the greatest forest disaster in its history” 16 as fires devastated more than 500,000 ha of land with extreme propagations that reached 8,200 hectares per hour (ha/hour) and with heat intensities of 60,000 Kilowatts per meter (Kw/m). This mega fire is considered the second most destructive of the 21st century, second only to the one that occurred in 2016 in Alberta, Canada, where more than 700,000 hectares of forest were affected. According to official reports the most affected regions were Maule (55%), O'Higgins (18%) and Biobío & Ñuble (17%), two of which are in the Program area. The types of land use mostly affected were forest plantations (59%), followed by native forest (21%) and shrubs (19%). The public budget spent to address this emergency was estimated at US$26 million. Climate change is expected to exacerbate these phenomena. Despite the fact that the majority of the area affected were forest plantations, the surface and emissions affected by this mega-forest fire are substantially higher than the average of the historical emissions established in the FRL, putting the Program at risk of 15 Ubeda and Sarricolea (2016) Wildfires in Chile: A review. Journal of Global and Planetary Change 146: 152-161. 16 Speech addressed by President Bachelet Page 86 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) underperformance and/or reversals. To mitigate this risk, adoption of a Reversal Management Mechanism will be included as a condition of effectiveness in the ERPA. The expected volume of ERs after the first monitoring event will be discounted by 21% (calculated based on a methodology approved by the FCPF). This amount will be set-aside as buffer against the risk of reversals in future monitoring events and will be placed in a separate account in the ER Transaction Registry. Additional mitigation measures include the recent launch of a National Strategy to Strengthen Forest Fire Management, developed by CONAF in collaboration with the Civil Protection System. Importantly, the largest share of CONAF’s annual budget is allocated to fire prevention activities. Scaling-up preventive silviculture is also one of the ER Program Measures. 5. The level of available financing for the underlying investments is an additional risk considered substantial for the Program, given that the financial resources for the full implementation of the ER Program Measures have not been mobilized yet (83% are conditional to additional financial support). An important source of future conditional financing is expected to come from Chile’s own resources through the establishment of a new Forestry Development Law replacing the one expired in 2012 (DL701) which financed the country’s forest sector industry for decades. As such, the risk related to Sector Strategies and Policies is also linked to this risk and considered substantial since political support of the new administration for the native forest sector will be a critical factor for passing this and other legislative reforms included in the ER Program Measures. To mitigate this risk, CONAF is exploring different financing options through a World Bank executed grant supported by the NDC Partnership Support Facility, including: carbon pricing mechanisms; links with the energy sector (biomass); payment for environmental services; and private sector instruments (risk guarantees), among others. ERPA proceeds will also be reinvested in ER Program Measures and represent a significant source of financing under the low and high conditional financing scenarios; at the same time, CONAF is making efforts to access other international grant mechanisms such as the Green Climate Fund to support the ENCCRV. 6. Fiduciary risk for the management of ERPA revenue, which will be distributed in accordance with the BSP, is considered substantial mainly because of the complexity of the institutional arrangements with the participation of three Government agencies, AGCI, INFOR and CONAF. The three agencies will share BSP implementation responsibilities and interinstitutional agreements will be necessary to specify the main roles and responsibilities among such entities, which will be reflected in the subsidiary agreement to be signed as an effectiveness condition. In addition, INFOR has no previous experience in working with Bank funds under an ER Program. As a mitigation measure, the specific processes and procedures for the fiduciary management of the ERPA revenue to implement the BSP, including the BSP financial reports to be presented to the Bank will be defined in a BSP Operational Manual which is included as an effectiveness condition. 7. Other risks are considered low or moderate. In particular, Political and Governance risk will have to be monitored after civil unrests begun in Chile on October 2019 but is considered of moderate risk to the Program beyond potential delays in processing and/or implementation. Page 87 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 12: Economic and Financial Analysis COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) Financial Analysis at Beneficiary Level 8. The financial analysis at landowner-scale sought to determine the financial incentive structure at the beneficiary level for several landowner typologies and specific vegetation resource conditions within a scenario of implementation of the Direct ER Program Measures proposed by the ENCCRV (native forest restoration, afforestation with native species, preventive forestry and productive management of native forest). It allows to define the financial gaps of participating landowners in order to set appropriate subsidy levels for changing their behavior compared to the baseline scenario (i.e. continuation of forest degrading practices). Information from the financial analysis will inform the design of the ER Program Measures to be piloted under the ENCCRV and the BSP. 9. The analysis allowed the definition of different ranges of financing gaps for several landowner typologies under a number of land use conditions. The analysis focused on micro (10 ha) and small (100 ha) landowners, which are targeted by the ER Program based on their increased vulnerability. Ten hectares correspond to the average forest size for micro-landowners, while 100 hectares to the average forest size for small-landowners in rural Chile. Furthermore, the analysis assumes that the Roble-Rauli-Coihue species mix represents the average native forest in the ER Program’s priority intervention areas. This assumption simplifies the analysis and is valid taking into account the representativeness of this type of forest (in terms of area) and the high quality of information available to conduct this analysis. The analysis focused only on the forest-related activities carried out by the target landowners and it only considered income generated from timber and firewood products. Timber and firewood are, by far, the most important products extracted from the forest and the analysis relied on systematic price information. This analysis implicitly avoided cross-subsidies from other economic activities developed by the landowner that could potentially distort the financial results (e.g. livestock or agriculture). In terms of costs, it included investment costs related to the ENCCRV mitigation measures as provided by current government subsidy programs. Finally, the analysis explicitly incorporates different scenarios related to forest conditions (e.g., forest maturity, forest density, and typology by forest land use) and market conditions (e.g., firewood prices and timber prices) which were assessed through a montecarlo probabilistic analysis using the software @Risk allowing to estimate the distribution of landowners’ net present value (NPV). 10. The analysis was based on two basic assumptions: (a) The financial flow assumes a holistic landscape management model that includes more than one of the Direct ER Program Measures proposed by the ENCCRV (i.e. restoration, afforestation, preventive forestry and productive management of native forest). (b) Productive management activities are implemented under sustainability parameters based on forest growth parameters and long-term planning of the entire forest included in the property. The following landowner typologies were financially assessed: (a) Micro-landowner, with 10 ha and presence of Roble-Rauli-Coihue forest. (b) Small landowner, with 100 ha and presence of Roble-Rauli-Coihue forest. All cases contemplate a 20-year free cash flow to equity, considering the following variables: Page 88 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) • Four distribution scenarios of property-surface proportion according to the ENCCRV measures. Proportion according to action measure R1 R2 R3 R4 Afforestation Surface 0% 20% 30% 50% Restoration Surface 60% 30% 30% 20% Preventive Forestry Surface 10% 10% 10% 10% Sustainable Forest Management Surface 30% 40% 30% 20% • Three forest conditions associated to its state of development and degradation: - Condition 1 (C1): 10% saplings, 30% secondary forest, 60% small trees. - Condition 2 (C2): 34% saplings, 33% secondary forest, 33% small trees. - Condition 3 (C3): 60% saplings, 30% secondary forest, 10% small trees. • Annual variation of costs • Annual variation of total revenue • Financial gap equivalent to the sum of the landowners co-financing plus the ENCCRV grant. This variable was repeated for each typology according to surface and forest condition. • Annual probability of fire 5%, with fire damage of 50% loss of occurrence. The model randomly assigns scenarios with these probabilities, which are included in the NPV distribution. 11. Different scales of initial investment and administration expenses were defined according to each typology. To find the financing gaps, a Monte Carlo simulation was conducted with the @RISK software, where multiple NPV distributions were obtained. Firstly, in order to identify the gaps, the NPVs were obtained with contributions from current Law No.20.283, however, without contributions from incremental grant resources. Subsequently, NPV distributions were obtained with contributions from Law No.20.283, together with incremental grant resources. For each typology, 10,000 iterations were conducted to determine distribution of NPVs and its respective gaps, in order to reach higher values or values equal to zero. 12. The results of the analysis are strongly conclusive (see Table 1). They clearly show that for all the simulated cases and scenarios, the landowners’ NPV results in negative values. Results show that for micro-landowners the financial gap varies from -3.050 US$/ha to -3.350 US$/ha, while for small- landowners it varies from -2.600 US$/ha to -2.900 US$/ha for 10,000 scenarios. If current practices (i.e., those that degrade native vegetation resources) are abandoned in favor of the proposed sustainable practices promoted by the ENCCRV, landowners will not embark on those activities because they are not systematically profitable. Furthermore, the financial gap is substantial and not likely to be covered by the landowner himself or from any financial institutions including the current subsidy level available from existing forestry programs (e.g., from law N° 20.283). These results strongly support the public provision for the financing of the ENCCRV Mitigation Measures since the lack of financial returns does not make such investments attractive to traditional private sector actors. Table 1. NPV Financial Gap Table for several landowner typologies in forest conditions C1 and C3; in US$/ha for scenarios R1, R2, R3 and R4. NPV gap in US$/ha for RoRaCo Forest landowners Surface (in hectares) C1 C3 10 US$ 3.050 / ha US$ 3.350 / ha 100 US$ 2.600 / ha US$ 2.900 / ha Page 89 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) Economic Analysis at the ER Program Level 13. Despite the negative result of the financial analysis, the proposed ER Program Measures will result in the provision of significant benefits in the form of ecosystem services to local communities and society as a whole. These services include, among others, enhanced sequestration and long-term storage of carbon, climate adaptation and resilience benefits, improvement of water regulation and watershed management, enhanced scenic beauty (and related tourism benefits) and existence values associated with the conservation of biological diversity. 14. The significance of these ecosystem services, however, is seldom adequately recognized in economic markets, government policies or land management practices. The tendency to underestimate the value of ecosystem services is related, for the most part, to their “public good” quality. Ecosystems and the services they provide are owned by all and, thus, protected by none. They generate shared benefits and so encourage free riding. Being publicly provided, they are under-priced or un-priced and thus tend to be over-used and abused. Since the benefits are shared and ownership is collective, there is a tendency to free-ride on contributions for the provision of these goods. Collectively, these features lead to pervasive degradation of ecosystems as a consequence of systemic market failures. Therefore, a broader (full) economic analysis is required to fully capture the project’s real benefits. 15. An economic analysis of the ENCCRV, using environmental economics tools, was conducted to assess the total economic value of native forests. Unlike the traditional economic and financial analyses of investment projects, this study specifically considered the value of non-market benefits generated by the project in the form of environmental services, including: carbon sequestration, water supply, non-timber forest products, tourism (scenic beauty) and biodiversity. Combined with the cost estimations of the proposed investments, this analysis provides a full account of the economic and environmental impacts of the proposed Direct ER Program Measures. This economic analysis follows an extremely conservative approach. It only assumes direct benefits as well as lower bound parameters for key variables (e.g. the social price of carbon). It does not include, for example, secondary or spillover effects through enhanced sustainable practices achieved through better sustainable forest management. 16. Specifically, the analysis estimates each non-market benefit assuming the following parameters. Biodiversity refers to individuals who are willing to pay for the conservation of species of flora and fauna that lives in the eligible areas. Tourism corresponds to visitors to tourist attractions located in the eligible areas. Carbon sequestration corresponds to the local and global benefits and it is reflected in the different carbon prices used. Provision and regulation of water corresponds to the users of water associated with flows of surface water bodies, which has a market value within the existing water rights market in Chile. Finally, non-timber forest products correspond to the collection of non-timber forest products by users, either formally or informally. 17. The study was based on a spatially-explicit analysis of critical areas for environmental services, coupled with information on poverty, land tenure, and climate vulnerability, identifying clusters (priority areas) where investments in native vegetation would create the greatest reduction of poverty and climate vulnerability possible, thus maximizing the cost-efficiency and the social net benefits generated by the project. More specifically, the methodological approach is applied to a set of communes (municipalities) prioritized by a previous study conducted by CONAF-World Bank-Mayor Page 90 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) University, which identified the areas with the highest technical potential for implementing the ENCCRV main investments in native forest management, restoration and afforestation. 18. The with-project-scenario considers a 30-year period and is aligned with the ENCCRV implementation schedule for investments in native forest management, restoration and afforestation activities. On the other hand, the without-project scenario (business as usual) considers the maintenance of baseline degradation rates for the identified forest management and restoration areas, while for afforestation it is considered that current conditions will remain over time. 19. Considering the above, the total economic analysis applied to the ENCCRV indicates that investments in native vegetation in the 265,000 hectares covered by the direct mitigation measures of afforestation with native species, ecological restoration of degraded forests, sustainable forest management, and preventive fire management of the ER Program will result in significant net social benefits in the amount of about 900 million USD, hence making this initiative highly desirable for society. As illustrated in the table below, the expected net benefits per hectare (i.e. excluding associated costs) varies from USD 2,660 (for preventive fire management) to USD 3,987 (for sustainable forest management). Table 2. Net economic benefits of the ER Program’s direct Mitigation Measures USD/Ha Has Total USD Sustainable forest management 3,987 70,000 279,090,000 Ecological restoration 2,985 30,000 89,550,000 Afforestation with native species 3,696 140,000 517,440,000 Preventive fire management 2,660 5,000 13,300,000 Total net benefits 265,000 899,380,000 20. One of the most important benefit streams is carbon sequestration. The total benefits shown above are conservative since it assumes a carbon price of 32.5 USD/tCO2e, which is based on the social price of carbon defined by Chile’s Ministry of Social Development 17. It is important to notice that current World Bank estimates suggest an initial social value of 30 USD/tCO2e which increases up to 80 USD/tCO2e over time. Thus, the price assumed here corresponds to the lower bound of the World Bank’s indications. Just assuming a middle point in the analysis would increase the estimated net benefit by 50 percent. 17 http://sni.ministeriodesarrollosocial.gob.cl/download/precios-sociales-vigentes-2017/?wpdmdl=2392 Page 91 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 13: ER Program Supporting Documents COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) ENCCRV website: www.enccrv-chile.cl # Chile webpage on the FCPF website: https://www.forestcarbonpartnership.org/chile 1 Emission Reductions Program Document (ERPD) 2 FCPF TAP Assessment under the Carbon Fund Methodological Framework 3 Chile’s REDD+ Readiness Package under the FCPF 4 FCPF TAP Assessment of Chile’s Readiness Package 5 National Strategy for Climate Change and Native Vegetation (ENCCRV) 6 Drivers of Deforestation and Forest Degradation Assessment 7 Land Tenure Assessment and Benefit Sharing Study 8 Forest Reference Emission Levels/Forest Reference Levels of Native Forests in Chile 9 UNFCCC Technical Assessment Report of Proposed FREL 10 Strategic Environmental and Social Assessment (SESA) 11 Reports of Regional SESA Workshops 12 Environmental and Social Management Framework (ESMF) 13 Report on the Indigenous Consultation and Dialogue 14 Total Economic analysis study 15 ENCCRV Investment Plan 16 Information Note on Mainstreaming Gender in the ENCCRV 17 Chile’s National Action Program to Combat Desertification, Land Degradation and Drought 2016-2030 18 Chile Climate Change Action Plan 2017-2022 (PANCC) 19 Chile’s Nationally Determined Contribution (NDC) to the UNFCCC 20 Advanced Draft Benefit Sharing Plan Page 92 of 93 The World Bank Chile REDD+ Emissions Reduction Program (P160277) ANNEX 14: ER Program Accounting Area COUNTRY: CHILE Chile REDD+ Emissions Reduction Program (P160277) Page 93 of 93