Insights and Experiences from the BioCarbon Fund Emission Reductions Projects in the Land-Use Sector: An Overview 2020 INTRODUCTION © 2020 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Layout and cover design: Eszter Bodnar I www.visilio.com All photos courtesy of World Bank or partners, used with permission, or via Shutterstock. 2 ACKNOWLEDGEMENTS The report was prepared by Evanshainia Syiem, Dale Lewis and Japhet Seulu (Community Leyla Arpac, and Sana Khan with financial Markets for Conservation) support from the BioCarbon Fundplus Technical Zambia Landscape Management project Assistance and Capacity Building Trust Fund. Caroline Merle and Paola Reyes (Office National The authors are grateful for guidance and des Forêts – ONF) inputs from World Bank task teams managing Marion Chesnes (formerly with ONF, currently with BioCarbon Fund projects, fund management Agricultural Research for Development – CIRAD) teams, and the legal counsel group that supports Colombia Bajo Seco Commercial Reforestation the BioCarbon Fund. project The team also thanks the following people who Dominik Klauser (Syngenta Foundation for provided valuable project insights that helped Sustainable Agriculture) inform many of the lessons learned highlighted in BioCarbon Fund Participant (Donor) this report: Shalindra Dilhan Mylvaganam and Dan Radack Dean Thomson (formerly with World Vision provided guidance during the preparation of this Australia, currently with Point Advisory) report. The document benefited from reviews by Ethiopia Humbo Natural Regeneration project Neeta Hooda, Karin Teixeira Kaechele, Andres Bernabe Espejo Minan, Ellysar Baroudy, and Wangu Mutua (Vi Agroforestry) Stephanie H. Tam. Janet Hulstrand and Eszter Kenya Agricultural Carbon project Bodnar provided very helpful assistance with editing and design. 1 Contents Executive Summary................................... 6 V. Managing the Risks Associated with Carbon Lessons Learned........................................................ 7 Finance Operations..................................... 31 Conclusions................................................... 36 1. Introduction............................................ 11 VI. Stakeholder Engagement and Overview of Results............................................... 13 Communications..........................................37 Conclusions................................................... 39 2. Lessons Learned....................................14 VII. Benefit Sharing ............................................... 40 I. Implementation under CDM and VCS.......... 14 Conclusions................................................... 45 II. Building and Sustaining Institutional Capacity.......................................................... 20 VIII. Emission Reductions Title Transfers...... 45 Conclusions................................................... 23 Conclusions................................................... 48 III. Financing Mechanisms....................................24 IX. Beyond Emission Reductions Payments 48 Conclusions................................................... 52 Conclusions................................................... 28 IV. Leveraging Resources..................................... 29 3. Conclusions........................................... 52 Conclusions.................................................... 31 Bibliography ............................................. 54 ANNEX I: Project Summaries..................55 2 ACRONYMS & ABBREVIATIONS A/R Afforestation/Reforestation AES Tietê Alienação de Ações do Capital Social da Companhia de Geração de Energia Elétrica Tietê AFD French Development Agency AFOLU Agriculture, Forestry and Other Land Use AGROSAVIA Corporación Colombiana de Investigación Agropecuaria ASI Achats Service International BioCF BioCarbon Fund BioCFplus TA BioCarbon Fundplus Technical Assistance (TA) and Capacity Building Trust Fund BLL Brown Bag Lunch CAZ Ankeniheny-Zahamena Corridor CCG Climate Change Group CDM Clean Development Mechanism CDM EB CDM Executive Board CER Certified Emission Reduction CFAM Carbon Finance Assessment Memorandum CFM Community Forest Management CFMG Community Forest Management Groups CIAT Consorcio Bosque Tropical CI Conservation International CITES Convention on International Trade in Endangered Species of Wild Fauna and Flora COMACO Community Markets for Conservation CORMAGDALENA Corporación Autónoma Regional del Río Grande de la Magdalena CORPOICA Corporación Colombiana de Investigación Agropecuaria CSR Corporate Social Responsibility CSP Community Support Program CVS Corporación Autónoma Regional de los Valles del Sinú y del San Jorge DOE Designated Operational Authority DCR Democratic Republic of Congo EB Executive Board EP3 Third Environmental Program Support Project ER Emission Reductions ERPA Emission Reductions Purchase Agreement ESALQ University of São Paulo Agriculture and Agronomics Research Center EU ETS European Union Emissions Trading System FCPF Forest Carbon Partnership Facility FMNR Farmer-Managed Natural Regeneration FINAGRO Fondo para el Financiamiento del Sector Agropecuario FONAFIFO Fondo Nacional de Financiamiento Forestal FPUA Forest and Pasture User Associations FSC Forest Stewardship Council GHG Greenhouse Gases GIFDCP Guangxi Integrated Forestry Development and Conservation Project GP Gram Panchayat (Indian farmers’ cooperative) GZAR Forestry Department of Guangxi Zhuang Autonomous Region 3 IBRD International Bank for Reconstruction and Development IDA International Development Association INGEOCORP Ingeocorp Sociedad Comercial de Responsabilidad Limitada IPF Investment Project Financing ISFL Initiative for Sustainable Forests Landscapes JKPL JK Paper Mills Limited KACP Kenya Agricultural Carbon Project LULUCF Land-Use, Land-Use Change and Forestry MASBOSQUES Corporation for Sustainable Management for Forests MHWDP Mid-Himalayan Watershed Development Project MRV Measurement, Reporting and Verification NASA National Aeronautics and Space Administration NDC Nationally Determined Contributions NFA National Forest Authority NPV Net Present Value NRDP Natural Resources Development Project ONFI /A The French National Forest Office (ONF International /Andina) PAC III Niger Community Action Program PCF Prototype Carbon Fund PDD Project Design Document PE Project Entity PES Payment for Ecosystems Services PGC Producer Group Cooperative PHRD Policy and Human Recourse Development PPP Public Private Partnership PSA Payment for Ecosystems Services RECPA The Rwoho Environmental Conservation and Protection Association REDD+ Reducing Emissions from Deforestation and Forest Degradation-plus SALM Sustainable Agricultural Land Management SAS Solvay Energy Services SCCFM Climate Change Fund Management Unit SGP Small Grants Program SIDA Swedish International Development Agency SIF Sociedad Inversora Forestal TARAM Tool for Afforestation/Reforestation Approved Methodologies tCER/CER temporary Certified Emissions Reduction UNFCCC United Nations Framework Convention on Climate Change UNEP UN Energy Programme VCS Verified Carbon Standard VCU Verified Carbon Unit VSL Village Saving & Loaning Association 4 5 EXECUTIVE SUMMARY Executive Summary Global annual greenhouse gas emissions (GHGs) removals into tradable carbon credits, called have grown steadily by 41 percent since 1990 (Ge Verified Carbon Units (VCUs). These two market et al 2020); and the land use, land-use change, mechanisms have enabled BioCF projects and forestry (LULUCF) sector accounts for 6.5 to generate and receive payment for carbon percent of the world’s emissions.1 The United credits while contributing to improving rural Nations Framework Convention on Climate livelihoods and bringing environmental benefits to Change (UNFCCC) included the LULUCF sector communities. among the sectors eligible for emission reductions (ER),2 which enables developed countries to Implementing ER operations in the land-use meet part of their ER targets under the Kyoto sector comes with a diverse set of challenges, Protocol.3 particularly where poor communities and smallholder farmers and landholders are involved; Housed within the Climate Funds Management and where opportunity costs are high. Results Unit (SCCFM) of the Climate Change Group take several years to be realized, and only then (CCG) in the World Bank, the BioCarbon Fund can ER payments be received and distributed (BioCF), a public-private initiative, has pioneered to beneficiaries. Because of this, BioCF project results-based payments for ERs from the land- entities (PE), public agencies, NGOs, and private use sector. Established in 2004, BioCF piloted companies have faced implementation challenges, the first Afforestation/Reforestation (A/R) including issues inherently related to the complex projects; Reduced Emissions from Deforestation requirements of CDM and VCS. The challenges and Forest Degradation (REDD+) projects; and can be daunting: dedicated and continuous Sustainable Agricultural Land Management engagement by stakeholders, and adequate (SALM) activities at project scale. A majority of financial and technical capacity are essential in the 22 projects in the BioCF portfolio, spread order to ensure that project objectives are met, across 16 countries in five continents, are and benefits can be realized. registered with the UNFCCC Clean Development Mechanism (CDM); the rest are under the The first BioCF experiences have provided Verified Carbon Standard (VCS). a wealth of knowledge not only on the methodological side—that is, how to quantify CDM was established under the Kyoto Protocol ER levels from various land-use activities—but in order to give countries that have made ER have also helped to pave the way for other land- commitments the flexibility they need to reach use carbon initiatives that have followed. BioCF their targets, while contributing to sustainable projects have had firsthand experience with development (Baroudy et al 2011). CDM allows ER issues related to institutional capacity; financing projects in developing countries to earn Certified mechanisms; benefit-sharing; and issues with Emission Reduction (CER) credits,4 which can be ER title transfers, among other issues. These used for compliance purposes. VCS was created experiences can offer useful lessons learned for as a voluntary GHG program that allows certified current and future ER initiatives in the land-use projects to turn their emission reductions and sector. 1 According to Historical GHG Emissions Data on ClimateWatch accessed here: https://www.climatewatchdata.org/ghg-emis- sions?breakBy=sector&chartType=percentage§ors=843 2 Emission reductions means reductions and enhanced removals of greenhouse gas emissions. 3 The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change, which com- mits its Parties by setting internationally binding emission reduction targets. 4 Each CER is equivalent to one ton of carbon dioxide equivalent (tCO2e). 6 Lessons Learned This report is based on a desk review of project documents (including monitoring and verification reports available on the CDM and VCS project In 2011, a lessons-learned report5 was published pages); World Bank project documents; at around the time when most of the BioCF interviews with World Bank staff involved in CDM projects were preparing for their first the preparation and supervision of the projects, verification under the UNFCCC Kyoto Protocol’s and BioCF administration; and some of the first commitment period. At that time, the BioCF implementing agencies or PEs. Both quantitative VCS project portfolio was not yet fully developed. and qualitative analyses were used in order to The 2011 report provided helpful information for compile the lessons learned. project developers, concerning both the challenges and opportunities in designing and implementing This analysis includes examination of the CDM Afforestation/Reforestation (A/R) projects. issues that have impacted BioCF projects It also provided insights relevant to policymakers throughout the project life cycle. The relationship and negotiators involved in the debate about of how these various issues have impacted reforming the CDM rules, and informed implementation and ER delivery is illustrated in discussions on new market-based strategies Figure 1. for climate change mitigation in the Agriculture, Forestry and Other Land Use (AFOLU) sector. Issues related to financial aspects, and the high transaction costs incurred in implementing It has now been more than 15 years since BioCF the projects, were exacerbated for stand-alone was established, and close to a decade since and small-scale projects. Technical capacity the first lessons-learned report was published. A was another common issue among all of the majority of the BioCF projects have undergone at BioCF projects, given the complex CDM and VCS least one verification; have received results-based requirements. The average duration of these payments for emission reductions; and have projects was 8-10 years, with a maximum of only implemented benefit-sharing plans. Some have two verifications, and thus only two payments. had to terminate implementation altogether. Since many of these projects were small scale, and PEs had little or no additional sources This report, therefore, looks back at the 10-15 of financing, this impacted implementation, years of implementation of BioCF projects, and including in the monitoring and verification their groundbreaking experience under both the stages. BioCF provided advance payments to compliance (CDM) and voluntary (VCS) standards. some projects which has helped maintain cash Among these projects are concrete, real-world flow in between Emission Reductions Purchase examples of both the successes and challenges Agreement (ERPA) payments following successful faced in monitoring, reporting, verification (MRV), verification. BioCFplus Technical Assistance and and communicating project objectives and results Capacity Building (BioCFplus TA) also provided to stakeholders, and distributing benefits. While technical assistance for MRV related aspects of there are common experiences that have been the projects; and in some cases, projects were faced by both CDM and VCS projects, even in able to leverage resources from cofinancing cases where CDM requirements have impacted grants or loans, or through associated World projects negatively, some of the projects have Bank investment projects. These various been able to achieve successful results despite financing mechanisms have had different impacts these challenges. on the projects, and on their ER delivery. 5 Baroudy, E., and Z. Salinas. BioCarbon Fund Experience: Insights from Afforestation and Reforestation Clean Development Mechanism Projects. 2011. Washington, DC: World Bank Group. The first commitment period of the Kyoto Protocol was 2008-2012, and the second commit- ment period is 2013-2020. 7 EXECUTIVE SUMMARY Figure 1: Relationship of Various Aspects that Impacted BioCF Projects Good Addresses financing CDM/Verra mechanisms related issues Equitable Sustained benefit institutional sharing capacity Delivery of ER Title ERs & project transfer sustainability Risk Benefits management beyond & mitigation ERpayments Efficient stakeholder engagement Benefit sharing and how it was managed, Upon analysis of the issues shown in Figure 1, we given the long duration of these projects, is find that while BioCF projects varied in several also analyzed in this report. Engagement with aspects there were key factors common among and communication to stakeholders is an projects that helped in success of the project. important issue that was directly linked to These include: how well the projects managed benefit sharing issues that cropped up during the years of • Strong technical capacity of the project implementation. ER title transfer was a critical entity. Availability of technical know-how issue in projects where subproject entities (the helped projects to successfully meet the CDM and VCS requirements, as well as project stakeholders) were involved, and their effectively generate ERs through proper rights to the land was directly linked to their implementation. rights to the ERs. In some cases, due to changes in land titles or administrative reforms, benefit • Access to upfront or additional financing. sharing was significantly impacted; in some Additional financing options available to cases, it led to termination of ERPAs altogether. projects, such as government grants, private The risk mitigation strategies used by the Fund, investments, and cofinancing, helped some and by the projects to address anticipated of the projects meet part of their financial negative impacts on ER delivery targets are also gaps. analyzed. Finally, since BioCF projects were land- use projects that often involved impoverished • Leveraged resources provided by the rural communities, or vulnerable landscapes, World Bank. BioCFplus TA, a trust fund the benefits beyond the ER payments were also dedicated to supporting projects through analyzed; several of the projects witnessed the capacity building activities, and monitoring, generation of such additional benefits. influenced project sustainability. Projects 8 that were part of larger World Bank These lessons can be informative for large-scale investment projects benefitted from the programs like the Forest Carbon Partnership additional available financial and technical Facility (FCPF) and the BioCarbon Fund Initiative resources. for Sustainable Forest Landscapes (ISFL), and other similar initiatives. • A good benefit-sharing plan in place. Equitable and transparent benefit-sharing The BioCF projects have demonstrated that ER plans positively impacted the perceptions initiatives are very challenging for stand-alone of project beneficiaries, and in some projects, and even more so when they are on cases incentivized them to sustain project a small scale. Since ER payments can only be activities. received when results have been generated, such projects need to have enough upfront • Successful stakeholder engagement and capital to be able to implement the required partnerships. Strong public-private and activities. For the projects that were associated local university partnerships; and PEs with larger investment programs, like the World that effectively managed expectations of Bank investment project financing programs, the beneficiaries and communities contributed upfront financial needs for project preparation to the success of BioCF projects. and technical capacity needs were adequately addressed, and the complementary objectives of Figure 2 shows a positive linear correlation6 the investment projects and the carbon finance between availability of the above outlined (CF) operations helped in overall ER delivery. This success factors in a BioCF project (referred to as is very important, as it can help with scaling the “Success Score”), and ER delivery. It should up the CF initiative, and mainstreaming it into be noted that these success factors are not subnational or national ambitions in the effort to exhaustive for all land-use projects. address climate change. The lessons learned and collected in this study The examples provided in this report underscore have helped to identify a wide range of issues and the importance of effective communication, challenges, as well as good practices on various and stakeholder engagement throughout all the aspects of ER operations, which can lead to processes of CF operations. In addition, clearly either the success or failure of these initiatives. communicating tangible project benefits beyond Figure 2: Correlation Between Success Factors and ER delivery 200% 180% 160% ER Performance % 140% 120% 100% Correlation Co-efficient: 79% 80% 60% 40% 20% 0% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% Success Score % 6 Positive linear correlation is a relationship between two variables, in which both variables move in the same direction. (That is, if one variable increases, the other variable will also increase.) 9 EXECUTIVE SUMMARY the ER payments is very important in order to can help with cost-effective monitoring and get buy-in from project stakeholders, and to verification and address the problem of sustain their engagement in the project even high staff turnover that is often common in beyond the close of the ERPA. The projects in government agencies. which ER payments were seen primarily as an additional source of financing were more Given the untested methodologies at the time successful. Equitable and transparent benefit the BioCF projects were developed, an enabling sharing is also very important in results-based environment such as the BioCFplus TA Fund initiatives like ER projects. This directly impacts helped to pilot innovative projects. This will be stakeholder engagement and helps to avoid relevant for new large-scale initiatives, because conflicts during the distribution of benefits. they are also piloting new methodologies and Benefit sharing arrangements should also be frameworks at the national or subnational level, flexible enough to allow provisions to be updated in countries that often have limited technical during the course of implementation, in cases capacity. where the arrangements are impacted by administrative reforms. Risk management strategies and corrective actions taken early on can help to address The experiences of the BioCF projects have issues that threaten a project’s ability to deliver shown that building and sustaining institutional ERs and receive payment. This is of overriding capacity, especially technical capacity, is importance, and should not be overlooked. often very challenging, particularly when there These issues include, among other things, is high staff turnover and poor knowledge illegal encroachment, land title changes, and transfer. Partnering with academic institutions infrastructure development. These issues can that can integrate the MRV work as part of impact ER delivery, and the overall sustainability their curriculum through internship programs of the project. 10 1. Introduction BIOCARBON FUND (BIOCF) Housed within the Climate Funds Management Unit (SCCFM) of the Climate Change Group (CCG) in the World Bank, the BioCarbon Fund (BioCF), a public-private initiative, has pioneered results-based payments for emission reductions from the land-use sector. Established in 2004, BioCF piloted the first Afforestation/Reforestation (A/R), Reduced Emissions from Deforestation and Forest Degradation (REDD+), and Sustainable Agricultural Land Management (SALM)7 activities at project scale. A majority of the 22 projects in the BioCF portfolio, spread across 16 countries in five continents, are registered with the UNFCCC Clean Development Mechanism (CDM); the rest are under Verified Carbon Standard (VCS). Implementing ER operations in the land-use related to institutional capacity, financing sector comes with a diverse set of challenges, mechanisms, benefit sharing, and ER title particularly where poor communities and transfers, among others. smallholder farmers and landholders are involved, and where opportunity costs are high. Results The BioCF purchased verified ER credits from take several years to be realized before payments its projects on behalf of the BioCF donors (participants) through Emission Reductions for emission reductions can be received and Purchase Agreements (ERPAs) signed with the distributed to beneficiaries. Because of this, BioCF PEs.8 These PEs included public entities, private PEs, public agencies, NGOs or private companies companies, and nongovernmental organizations have faced implementation challenges. Inherent (NGOs). The payments for ERs were reinvested in issues related to the complex requirements of project activities and development programs for CDM and VCS have posed additional challenges the benefit of the participating communities. to PEs. Dedicated and continuous engagement by stakeholders, and adequate financial and It has now been 15 years since the establishment technical capacity were essential in order to of the BioCF; during that time, a majority of meet project objectives and realize the intended the 22 projects have undergone monitoring, benefits. reporting, and verification; received ER payments; and distributed benefits from these The first experiences of the BioCF have payments to the beneficiaries. Some of the provided a wealth of knowledge not only on the projects have terminated their ERPAs with the methodological side—that is, how to quantify BioCF or have altogether terminated project the ERs from various land-use activities but activities. There are variety of reasons that have also helped pave the way for other land- some projects succeeded, and others were use carbon initiatives that have followed. These not so fortunate; these factors are thoroughly projects have had firsthand experience in issues discussed in this report. 7 SALM projects reduce soil carbon emissions by adopting measures and practices aimed at the protection, conservation, and sustainable use of resources (soil, water, and biodiversity); and the restoration of degraded natural resources and their ecosystem functions. 8 The project entities (PEs) are the institutions that implemented the projects. 11 INTRODUCTION Table 1: Emission Reductions: Actual Delivery Compared to Original ERPA ER ERPA DELIVERY PROJECT VOLUME COMMENTS (ORIGINAL (tCO₂) ERPA) Albania Regeneration Project 230,360 56% Second verification to be confirmed in 2020. Brazil Plantar Reforestation 2,264,286 100% Delivered Project Brazil AES Tiete Reforestation Delivered. ER Delivery against amended ERPA 400,000 42% Project is 83%. China Watershed Management Delivered. ER Delivery against amended ERPA 462,014 69% and Refor-estation Project is 100%. ERPA terminated in 2019 after first Costa Rica Agroforestry Project 557,940 4% verification. ER Delivery against amended ERPA is 34%. Project terminated in 2016 after first Chile Carbon Sink Project 850,000 46% verification. ER Delivery against amended ERPA is 89%. Delivered. ER Delivery against amended ERPA China Reforestation Project 400,000 73% is 100%. Colombia Bajo Seco Commercial Reforesta-tion 1,222,507 100% Delivered Project Colombia Carbon Sink Project 246,992 0% Project terminated in 2015 before verification. Colombia Agroforestry Project 120,000 0% Project terminated in 2018 before verification. DR Congo Fuelwood and Timber Delivered. ER Delivery against amended ERPA 500,000 9% Plantation Project is 55%. Ethiopia Humbo Assisted Delivered. ER Delivery against amended ERPA 165,000 110% Natural Regener-ation Project is 125% resulting in 25% additional ERs. Delivered. ER Delivery against amended ERPA India Agroforestry Project 276,000 19% is 29%. India Watershed Management 150,000 90% Delivered and Refor-estation Project Kenya Agricultural Carbon 150,000 123% Delivered Project Madagascar Conservation 430,000 100% Delivered Project Moldova Soil Conservation 600,000 142% Second verification to be confirmed in 2020. Project Moldova Community Forestry 550,000 100% Delivered Develop-ment Project Delivered. ER Delivery against amended ERPA Nicaragua Reforestation Project 174,797 82% is 97%. Niger Acacia Plantations Delivered. ER Delivery against amended ERPA 500,000 21% Project is 95%. Uganda Reforestation Project 261,221 10% Second verification to be confirmed in 2020. Zambia Landscape Project actually delivered more than the ERPA 265,578 100% Management Project volume, in total about 700,000 tons. 12 In 2011, a lessons learned report9 was published monitoring, and verification reports); benefit around the time when most of the BioCF CDM sharing plans, ERPAs, BioCF annual reports, and projects were preparing for their first verification the 2011 lessons learned report; (ii) structured under the UNFCCC Kyoto Protocol’s first interviews with World Bank colleagues who were commitment period.10 At that time, the BioCF involved in the preparation and supervision of VCS project portfolio was still not fully developed. BioCF projects and fund management, including The 2011 report informed project developers of the World Bank legal counsel supporting BioCF; the challenges and opportunities in designing and and (iii) structured interviews with selected PEs, implementing CDM A/R projects. It also provided and selected BioCF donors. insights relevant to policymakers and negotiators involved in the debate about reforming the CDM For reference, a brief background of each of the rules, and informed discussions on new market- BioCF projects is provided in the Annex at the end based strategies for climate change mitigation of this report. in the Agriculture, Forestry and Other Land Use (AFOLU) sector. OVERVIEW OF RESULTS The current report, therefore, looks back at the Over the course of implementation and based 10-15 years of implementation of BioCF projects, on the risk assessment conducted during annual with the aim of highlighting practical examples monitoring and reporting, some of the project’s from them by detailing the challenges faced, the ERPAs were amended, for a variety of reasons. successes, and the good practices used, in order Reducing the volume was one of the most to share informative and practical conclusions. common reasons for amending ERPAs, as a way It includes concrete examples of some of the to prevent the project from defaulting on its challenges projects have faced during MRV; ERPA commitment, and for the BioCF to better describes good practices that have been helpful manage its portfolio commitment. in communicating project objectives and results to stakeholders, and in distributing benefits. Most of the projects have undergone at least While there are common experiences that have one verification, with a maximum of two for been faced by these projects whether they were any project under CDM or VCS. While most of CDM or VCS, there are examples where CDM the BioCF projects have completed their last requirements have impacted projects negatively verification/s, there are some that are still in and where projects have been able to come out the final stages of getting their verifications successful despite these challenges. confirmed before the final ER payments can be made. Based on the data of completed Both qualitative and quantitative analyses of verifications and payments, an analysis was the data collected were conducted to extract made on ER delivery by project comparing the the lessons learned that form the crux of this % delivery against the original ERPA before the report. The data collection methods included (i) volume was amended down. Most of the BioCF a thorough desk review of World Bank project- CDM projects that did not terminate during the related documents (preparation, supervision, course of implementation have gone through two completion reports); CDM and VCS documents verifications to meet, or at least try to meet, their (project design documents (PDDs), and validation, ERPA commitments. 9 Baroudy, E., and Z. Salinas. BioCarbon Fund Experience: Insights from Afforestation and Reforestation Clean Development Mechanism Projects. 2011. Washington, DC: World Bank Group. The first commitment period of the Kyoto Protocol was 2008-2012, and the second commit- ment period is 2013-2020. 10 The first commitment period was 2008-2012, and the second commitment period is 2013-2020. 13 LESSONS LEARNED 2. Lessons Learned . I. Implementation under issues, technical capacity, and overall transaction CDM and VCS costs that led to delays in implementation, as well as issues encountered during verification presented additional challenges. CDM and VCS each have their own specific rules and requirements, and specific methodologies. The following sections of this report highlight The projects registered under them must adhere some of the main experiences encountered in to these requirements—which spell out how implementing the BioCF CDM and VCS projects. project design, implementation, monitoring, and reporting must be done—before ERs can 1. Duration of the registration process, and of be verified and certified. These standards and the subsequent monitoring and verification processes are crucial, as they provide the basis? process impacted the timely disbursement of for the issuance of credits, and allow for certainty ER payments. in both the expected volume, and the time of issuance. BioCF projects receive payments for verified ERs once the verification has been confirmed by the Uncertainty regarding ER payments, and CDM Executive Board (for CDM projects), and VCS regulatory risks, have impacted the performance (for VCS projects). Figure 3 summarizes the CDM of projects that relied too heavily on carbon project cycle, and the average time between each revenues: this limited the number of such process before payments could be made. The projects that were developed and implemented. process is similar under VCS. For the three BioCF Since LULUCF projects involve several different VCS projects, the timeline between each process stakeholders, who are all expecting ER payments, was also lengthy (as seen in Figure 4). this kind of uncertainty can impact these projects more than other types. Figures 3 and 4 show the on-the-ground reality experienced by BioCF projects going through The BioCF projects have faced several challenges the validation and verification processes. The in implementing their activities, given the length of time for verification to be confirmed complexity of the CDM and VCS requirements, and payments to be received was often quite processes, and methodologies. Land eligibility long; this led to delays in ER payments. This Figure 3: Duration of validation/monitoring/ time lag also often had a negative impact on verification process projects, and on project continuity. Most of the BioCF projects went through two verifications, PDD 6.5 No. of months but not all of them, for several reasons: (i) some Validation 4.2 were able to successfully deliver their ERPA commitment after only one verification; (ii) PDD 8.7 VCS others were not ready at the time when most Registration 3.6 CDM of the BioCF CDM projects were going through Monitoring & 3.45 verification in the first commitment period of the Verification 11.05 Kyoto Protocol; and (iii) some of the ERPAs had Credit to be terminated after only one verification, or Issuance 22.8 even before any verification had occurred at all. after 2.9 Figure 5 shows the timeline comparison between Verification the first and second verification for projects PDD - Project Design Document that went through two verifications. While the 14 Figure 4: CDM project cycle Stage I: Project Preparation Stage II: Project Implementation Preparing PDD PE Preparing PDD PE Avg. time: 4.2 months Avg. time: 4.2 months Validation Auditor Validation Auditor Avg. time: 3.6 months Avg. time: 3.6 months Registration CDM EB Registration CDM EB EB - CDM Executive Board; PDD - Project Design Document; PE - Project Entity; Auditor - accredited validation verification body Source: CDM and VCS project pages projects in Figure 5 were able to sustain their 2. In some cases, the high transaction costs project activities despite the long waiting period incurred by CDM methodologies prevented before ER payments and benefits could be regist­ration and implementation of a project realized, some of them had to terminate their altogether. ERPAs. For most of the BioCF projects, the cost of The delay in payments had a particularly generating ERs often exceeded the amount of the negative impact on projects that were heavily ER payments. In some cases, the costs related dependent on ER payments, with little or no other to the application of specific methodologies was financial resources to sustain their cash flow. too high compared with the estimated results. As a result, project stakeholders became less For example, the Brazil Plantar Reforestation engaged which impacted the overall generation Project was unable to register one of its planned of ERs and the amount of payment received. The components—reducing the methane emissions wait time plus the small payment made it even resulting from charcoal production—due to the more difficult for such projects to sustain project high costs imposed by the applicable methodology, activities. and by the data collection requirements. Figure 5: Timeline Between Two Verifications of Selected CDM and VCS Projects Kenya Agricultural Carbon Project 3.0 yrs India Watershed Management and Reforestation Project 4.4 yrs Colombia Commercial Reforestation Project 4.8 yrs China Reforestation Project 5.2 yrs Nicaragua Reforestation Project 6.3 yrs Moldova Community Forestry Development 6.2 years Ethiopia Regeneration Project 6.3 yrs China Watershed Management and Reforestation Project 6.6 yrs 15 LESSONS LEARNED 3. The timeline for ER payment under the BioCF on degraded agricultural areas due to overly CDM projects was not aligned with the timeline stringent and comprehensive land eligibility of national results-based payment initiatives. analysis. In 2009, the CDM Executive Board (EB) This led to delays in delivery, and in some introduced simplified rules, and reduced the level cases, termination of projects. of stringency required to provide evidence of land available for implementing project activities. Payment for ERs to BioCF projects depended This gave some BioCF projects the chance to on the verification results. For the BioCF CDM conduct updated land eligibility studies after projects, the verifications took a long time to 2009; however, the struggle to find new eligible complete, often because several issues were areas led to additional delays in the project cycle. raised that required multiple iterations of the Overall, at the Fund level, CDM land eligibility monitoring results reported. Projects where the rules caused 13 percent of the BioCF projects to participation of farmers was embedded in the decrease the project area from what had been local results-based payment initiatives faced originally planned. issues due to these delays. This impacted their interest in continuing to participate, even in For example, in the Colombia Carbon Sink Project, in cases where participation was through national addition to delays caused by conducting a new land results-based program, which subsequently led to eligibility analysis, the project’s own limitations in termination of the BioCF ERPA. getting enough farmers to participate in the project on time eventually led to termination of the ERPA. For example, in the Costa Rica Agroforestry Project, farmers participated in the CDM project through the 5. There were pros and cons to the various national Payment for Ecosystems Services (PES)11 approaches to addressing the nonpermanence program by signing 5-year subcontracts with the project entity (FONAFIFO). After going through the or temporary nature of forestry carbon offsets first round of verification and payment, farmers were by both CDM and VCS projects. aware of the high transaction costs of the project, To address the nonpermanence of A/R projects, versus the actual amount of the ER payments, and CDM established a temporary crediting approach, the long waiting period before they were able to be in which verified ERs were issued as temporary paid.12 As a result, they had very little incentive to Certified Emission Reductions (tCERs). According renew their subcontracts for the second verification, to this approach, ERs are reported and verified and many of them ended up selling their land to from the start date of the project activity during external buyers. Because of this, the volume of ERs each verification event to ensure the validity expected for the second verification was so low that of tCERs that were previously verified and it did not make economic sense for FONAFIFO to issued. To BioCF, the portion of ERs that were continue with the project. Consequently, the ERPA reverified issued again constitute as reissued with BioCF was terminated. ERs. Under the ERPA, payment was only made 4. Over time, modified CDM land eligibility for ERs that were not paid for previously, to rules contributed to delays, and in some cases avoid double payment. This means that after created tensions among landowners that led the second verification, BioCF projects would to the limitation or termination of the project not be able to receive payment for reissued activities. ERs. They would only receive payment for ERs that were in addition to those already verified In the early days of CDM, land eligibility rules and paid for before. This was very risky for may have affected project implementation projects, as any negative impacts encountered 11 PES are payments to farmers or landowners who have agreed to take certain actions to manage their land or watersheds in order to provide an ecological service. 12 CDM A/R projects were subject to verification only once every five years following registration; and ER payments are made only after verification is completed and confirmed. 16 during project implementation would affect their traded under EU ETS, which reduced the demand ability to generate additional ERs in the second for them, and the price they could bring as well. verification. On the other hand, VCUs issued by VCS remain Under the tCER approach, tCERs of any permanent throughout the project crediting commitment period expire at the end of the period, since a certain percentage of verified commitment period that immediately follows the emissions are required to be set aside as buffer commitment period during which those tCERs ERs in the VCS pooled buffer account,14 to insure were issued. As a result, they tCERs have to be against the risk of reversals. Should a reversal replaced before that expiry date. This is a way to event occur in a project, the buffer ERs can be address the risk of reversal “due to fire, disease, cancelled from the account to compensate for or encroachment.” This risk is borne primarily by the loss. VCS also allows the release of buffer the buyer, who therefore, must replace tCERs ERs over time, to be issued as VCUs when at before their expiry date; or the project developer, verification the evidence shows that risks have who must conduct regular field verifications been successfully mitigated or reduced. This (Diaz 2010). In addition, due to skepticism over encourages better management practices. the nonpermanence of land-use ER projects, the European Union Emissions Trading System (EU Although this approach is a better risk ETS) imposed “qualitative” restrictions to tCERs management strategy, setting aside ERs can issued from such LULUCF activities.13 Hence, consume a substantial amount of a project’s unlike permanent CERs, tCERs could not be potential VCUs, particularly when the project 13 Learn more on the use of credits under EU ETS here. 14 More information is available on the “Fact Sheet: VCS AFOLU Requirements: Crediting GHG Emission Reductions from Agriculture, Forestry, and Other Land Use” available here. 17 LESSONS LEARNED is small and when the amount of eligible VCUs The World Bank has provided technical support is low. Three of the VCS projects (Kenya, to PEs in developing methodologies that in some Madagascar, and Zambia) had an average of cases were scalable to the same sectors in the 10.8 percent verified ERs that were set aside as host countries. buffers. Release of the buffer credits set aside from previous verifications can only occur if a For example, in the Brazil Plantar Reforestation verification report submitted to VCS (showing Project, the PE was involved in developing the evidence of reduced risks) was issued at methodology that was adopted, based on the ER least five years after the issuance date of the activities adopted by the project, and was later verification report which reported these buffer deemed scalable to the entire pig-iron industry in credits. Additional information on the release of Brazil. It was also used by other companies in the buffer credits can be found in the VCS rules and sector. The company implementing the project also requirements for registration and issuance. set up a “Plantar Carbon” unit to engage with the government, and facilitated the implementation of a 6. Despite the complexity of CDM, projects policy to use renewable charcoal by 2020. benefited from being registered as CDM The Brazil AES Tiete Reforestation Project involved projects, and in some cases it facilitated access reforesting riparian areas along the banks of 10 to other nationally led mechanisms. hydropower reservoirs with native forest species. A The majority of the projects in the BioCF portfolio key benefit of this project, on the regulatory side, opted to register with CDM, especially during was the validation of the project methodology for the early years of the program, when there was estimating ER volumes in forests planted with a carbon market, and participants were actively native species. AES Tietê adjusted the field protocols using carbon credits for compliance purposes. and equations in order to estimate ER volumes. Since the projects were internationally validated The new baseline and monitoring methodology because of their CDM registration, it provided was codeveloped by AES and the World Bank, and them with credibility, which facilitated their approved by the CDM Executive Board. registration with national climate mitigation mechanisms. CONCLUSIONS For example, the Colombia Bajo Seco Commercial • ER projects are results-based initiatives; Reforestation Project had the opportunity to payments are made only for verified ERs. acquire additional carbon credit revenues, since Maintaining a cash flow during the period they had generated more credits than the ERPA prior to ERPA payment is essential in order contract volume. After meeting their BioCF ERPA to avoid the problems caused by delays in commitment, the project realized that they could ER payments due to lengthy verification market their additional credits under the Colombian processes, which can disincentivize national crediting scheme, which is also related community engagement in project to meeting their tax requirements. Although the activities. This is even more prevalent in Colombia Agroforestry Project did not manage large-scale programs, which involve larger to deliver its ERs under CDM to meet its ERPA areas and hundreds of project stakeholders. commitment, it benefitted from the credibility it Links to other sources of financing, including had gained as a CDM project. This allowed it to also larger investment initiatives, can help. But participate in the national standard. in addition to simply maintaining the cash flow through other sources of funding, it is 7. Some CDM methodologies were created very important that tangible nonmonetary in collaboration with the project entities benefits, such as improved livelihoods, are specifically for their projects, and are now clearly communicated to potential project registered methodologies for other future, beneficiaries. ER payments should be viewed similar projects to use. as additional income or benefits, not as the 18 sole source of income, nor the sole benefit reversal had occurred, the risk of replacing of participation in the project. Section IX of lost tCERs was even higher, especially this report (Beyond Emission Reductions) if buyers could not replace them with describes projects that have used this permanent CERs. For the PEs, managing approach, and were successful in delivering the expectations of project stakeholders not only their ER objectives, but improving was already difficult: the inability to receive livelihoods for the people; and that were payment for tCERs that were previously able to achieve continued engagement by paid for made it even more difficult for PEs stakeholders even after termination of the when only very small ERs were generated in ERPA. subsequent verification. • Where projects have participated in upholding international standards, their access to other mechanisms to continue II. Building and Sustaining ER initiatives has helped in the overall Institutional Capacity sustainability of climate change mitigation. Furthermore, for projects that have Preparing projects to meet CDM and VCS managed to successfully implement ER standards requires significant technical programs under international standards, capacity: this was challenging for most of the scalability also becomes more promising. project developers given their limited capacity The scalability of jurisdictional programs to (Baroudy et al 2011). The duration of the gap national programs also helps countries scale between monitoring and verification for land- up their nationally determined contributions use projects, particularly under CDM, impacted (NDCs). the technical capacity that could be built in • The BioCF experience has shown the high the initial stages, because of frequent staff cost of implementing ER projects, given the turnover, and the resulting lack of knowledge need to adhere to international standards transfer; subsequently also negatively affected like CDM and VCS. It is therefore important project implementation. Overall, limited technical that projects are adequately financed, capacity was a critical issue that affected and that they have the technical capacity most of the BioCF projects, as well as the to address the needs that arise during BioCF portfolio throughout the project cycle. preparation, monitoring, and verification. The lessons learned described below shed light Projects that are embedded in larger on good practices and strategies that were investment programs can get the help they adopted by some of the PEs, with support from need with the upfront costs of preparation the World Bank; and that resulted in successful and implementation, so that they can implementation. meet the international standards and methodology requirements. 1. Partnerships Can Help Leverage Capacity Building, and Reduce Costs • The buffer approach is both a more straightforward way to deal with the Successful public-private partnerships (PPPs), problem of nonpermanence, and also a and partnerships between local universities, better form of insurance against reversal nongovernmental organizations (NGOs), and risks. The tCER approach was not PEs increased institutional capacity and very efficient because the long waiting facilitated cost-efficiency in project design, period before verification and payment implementation, and monitoring. Collaboration can negatively impact stakeholders’ between government and private companies engagement in the projects, and therefore, helped increase institutional capacity, and led ER delivery as well. Further, once a to efficiency in the design, monitoring, and 19 LESSONS LEARNED verification phases of the projects. Thirty-nine Faber Castell). When CORMAGDALENA, the public percent of the BioCF projects were public-private entity component, ceased their supervision after partnerships (PPP): this successfully mobilized two years as per the agreement, ONFA provided the needed financial resources and technical training to small and medium farmers on plantation capacity, and aligned objectives in order to create management, agropastoral practices, and the sustainable and scalable models for long-term commercialization of wood. improved land use. And government partnerships with NGOs led to successful project performance On the other hand, lack of coordination and through efficient monitoring of the forest. clearly defined roles can hamper public-private partnerships. For example, in the Colombia For example, in the Colombia Bajo Seco Commercial Agroforestry Project, the complexity of the Reforestation Project, the French National Forest institutional design posed challenges. The Office (ONFA) provided technical assistance and beginning of the project involved three main support to farmers for maintenance work, and components; multiple farmers and indigenous advised on carbon commercialization: this led peoples; the planting of several different species to efficient implementation of the project. ONFA of trees on degraded lands; and unclear land was trusted as the intermediary implementing tenure situations. Under these circumstances, partner by the other project entities (Corporación the regional environment authority Corporación Autónoma Regional del Río Grande de la Magdalena Autónoma Regional de los Valles del Sinú y del (CORMAGDALENA); Fondo para el Financiamiento San Jorge (CVS),15 the Corporación Colombiana del Sector Agropecuario (FINAGRO); and A.W. de Investigación Agropecuaria (CORPOICA),16 and 15 CVS aims to execute the policies, plans, programs, and projects on environment and renewable natural resources, as well as to comply with timely application of the current legal provisions on their protection, administration, management, and exploitation, in accordance with the regulations and guidelines issued by the Ministry of Environment, Housing, and Territorial Development. 16 Now called AGROSAVIA, this is a decentralized public entity of mixed nonprofit, scientific, and technical participation, whose purpose is to develop and execute research, technology activities, and transfer processes of technological innovation to the agricultural sector. 20 the consultant firm, Consorcio Bosque Tropical For example, in the Brazil AES Tietê18 Reforestation (CIAT),17 did not resume the planting/replanting Project, AES Tietê partnered with local universities program on time, and failed to provide maintenance to conduct verification and data-crunching work. for some of the project areas. This led to failure to Their successful partnership with the University of undergo verification, and eventually the project was São Paulo Agriculture and Agronomics Research terminated before full implementation. Center (ESALQ) demonstrates the benefits of having collaboration agreements with universities and In the China Reforestation Project, the mobilization research centers. Such agreements can make project of technical and financial resources through design, implementation, and monitoring much more a partnership between the Guangxi Forestry efficient and effective. This project was based on Department and private forest companies techniques related to the environmental recovery resulted in efficient preparation of the PDD, and of degraded forestry habitats that was developed CDM validation and registration. Validation only by ESALQ. Subsequently, ESALQ provided technical took about five months, compared to the market support for collecting growth data for various tree average of about ten months in the CDM project species, as well as developing allometric equations cycle. for various native species. PhD students conducted Similarly, in the Niger Acacia Plantations Project, this work for free in exchange for the professional Achats Service International (ASI), a Franco- experience they gained—an arrangement that was Nigerien agribusiness company oversaw purchasing very helpful for AES in reducing their verification costs. commodities on behalf of the government, in a situation of mutual trust and collaboration. As seen In the Niger Acacia Plantations Project, professors in Figure 6, the PPP projects were mostly self- from the national university conduc­ ted the reliant, and were able to sustain project activities preparation for verification. Efficient organizational without upfront or interim financing from BioCF for structure of this project not only built replicable monitoring and reporting prior to verification. capacity in the government and communities but also saved costs. In the Ethiopia Humbo Assisted Natural Regeneration Project, the strong engagement of the NGO World Vision with participating communities Figure 6: Interim Advance Payments Requests helped with efficient monitoring of the forest, which from Various Types of Project Entities in turn led to successful project performance. World Vision provided technical capacity building Public-private Partnership 30% 50% for local communities concerning the benefits of project activities—and their relation to the project’s sustainability—that enabled communities to continue to feel ownership of the forest. Private Entity 40% 50% Projects can also use the support of professors from national universities to help conduct the Government 40% 10% Entity forest inventory and reporting. The projects that had an efficient organizational structure not No. of Projects only built replicable capacities in the government and in the participating communities: they also Requested advance payments reduced costs. Did not request advance payments 17 CIAT, an international consultant firm, works in collaboration with hundreds of partners to help developing countries make farming more competitive, more profitable, and more resilient through smarter, more sustainable management of natural resources. 18 AES Tietê (Alienação de Ações do Capital Social da Companhia de Geração de Energia Elétrica Tietê) is a large Brazilian electrical energy generator that owns and operates 10 hydropower plants, with an installed capacity of 2,651 MW within the state of São Paulo, Brazil. 21 LESSONS LEARNED 2. Staff Turnover and Its Implications for this, coupled with continuous technical investment Knowledge Transfer from the forest agencies, and a low level of government agency turnover over a period of 17 High staff turnover and poor knowledge transfer years, led to efficient knowledge management and can negatively affect project implementation. transfer. Due to frequent administrative changes, in many of the projects, knowledge transfer was absent. And in the Teak Reforestation Project in Nicaragua, This was even more evident when government the PE, a private sector company (Precious Woods) institutions were implementing the projects. had several members of the management team The frequent staff turnover that is common in who had been active since the very beginning of the government agencies affected the efficiency of project: this helped with successful implementation. operations, caused delays in verification (and The project achieved 82 percent of its original ERPA therefore, in ER delivery and payments as well), volume. and negatively impacted the sustainability of land-use projects. 3. Lack of Technical Capacity for CDM In the Costa Rica Agroforestry Project, the frequent Requirements Affected Project Design, turnover in government staff, and reliance on a small Preparation, and Verification number of technical consultants made knowledge transfer challenging; this ultimately affected The CDM methodologies are complex: they posed implementation. At the design stage, consultants challenges for PEs that did not have strong were hired to provide technical expertise on MRV; technical capacity. This had implications for some this involved working directly with the government. of the projects that eventually impacted the However, due to administrative changes this valuable delivery of emission reductions. knowledge was not retained over time, and resulted In the Uganda Reforestation Project, the project in unnecessary delays that delayed the payments, entity, the National Forest Authority (NFA), lacked and made maintaining stakeholder engagement technical capability in various aspects of the even more difficult than it already was. CDM requirements from project design through In the Uganda Reforestation Project, and the DR verification. Specifically, issues of species selection, Congo Fuelwood and Timber Plantation Project, and incorrect mapping during the project design technical training provided at the beginning of project stage created problems in implementation. For implementation, and preparation for verification was example, one of the community forest management not sustained. While these projects have been able (CFM) areas was outside of the project area, to continue implementation, preparation for the final due to a mapping error. In addition, community verification benefited from technical support provided planting ended up being slower than anticipated in through BioCFplus TA funding. the design stage, which caused delays in the first verification. On the contrary, when there was low turnover in government staff, or when the management Similarly, in the DR Congo Fuelwood and Timber team was actively engaged in the process Plantation Project, lack of technical knowledge throughout the project cycle, efficient capacity resulted in fewer ERs than originally contracted. building was enabled. The technical issue in this project concerned methodology: the PE removed the stumps of For example, in Moldova, the Soil Conservation and trees in the project area at the time of project Community Development projects together are preparation, which led to substantial loss of organic expected to generate more than 300 percent of carbon in the trees’ roots. The stumps should have the contracted ER volume under the two ERPAs. been left there: new trees could have been planted The PE, Moldsilva, has extensive experience and around the stumps, and contributed to generating knowledge of forest management and pest control: ERs. 22 CONCLUSIONS partnerships could become long-term, MRV work can even be built into the curriculum for Collaboration among several entities in university students, creating a mutually beneficial implementing a project can be beneficial because arrangement, where the government benefits of the financial and technical resources that can from efficient and cost-effective MRV, and the be leveraged from joint partnerships. However, as students benefit from gaining knowledge on evidenced by the Colombia Bajo Seco Project, it carbon accounting work. may be helpful to identify a strong project entity (“champion”) that has the resources needed to Building knowledge and capacity of communities effectively coordinate project activities, and in the program area through community who can play an intermediary role with other workshops can also support the participation partners. And as was seen in the Colombia of landholders in forestry activities in such a Agroforestry Project, despite the potential way that they acquire knowledge of forest benefits of implementing a project under a management practices as part of the process. multiple partnership structure, there are also This can encourage landowners/farmers to potential risks, for example, delays due to lack of continue to be involved in sustainable forestry, coordination between the partners. and strengthen their sense of ownership while contributing to ER generation. The key lesson learned from BioCF projects regarding high staff turnover is that partnership The availability of more MRV experts who with academic institutions to assist with MRV understand the CDM and VCS requirements, work can be very helpful. For one thing, there and other project mechanisms, could help to is less frequent turnover among university avoid overestimation of ERs. The interviews that professors, which helps to maintain institutional were conducted for this report revealed that in memory. In large-scale programs, where such BioCF projects where technical capacity was low, 23 LESSONS LEARNED there were in some cases errors in calculation. The projects employed a variety of financing Such lack of technical capacity could impact te­ stra­ gies to manage costs. This section of the preparation of the project and the reported ERs, report examines lessons learned both about stra­ as in the case of the DR Congo project. The lack gies that helped to ensure project suc­ te­ cess, and of MRV experts in most of the projects, along cussion those that did not. It also includes a dis­ with other issues, including the lack of technical of good practices that influenced the finan­­cial capacity and financial constraints, resulted in sustainability of projects, for long-term benefits. significant overestimation of ERs, and ultimate underdelivery compared to what was initially 1. Financing Through Self-Reliance and/or projected or contracted under ERPA. Through Integration with World Bank Lending Operations III. Financing Mechanisms The cost to BioCF for the generation of 1 ton of CO2e was $6.67 The financing mechanisms used by BioCF were important, since operations are results-based, and therefore ER payments are made only for verified ERs. Where good financing mechanisms were Project entities faced extensive costs in used, project activities were able to be implemen­ preparing and implementing the projects before ted as planned and to generate the anticipated results could be generated and payments ERs. However, the cost of imple­ men­ ting these received. For entities that were able to provide projects was nearly half the value of ER payments self-financing (in the case of stand-alone received by projects. Figure 7 compares the total operations), or were able to access financing cost to BioCF—including the support provided leveraged through larger initiatives (like World by the BioCFplus TA—to the ER pay­ ments made. Bank investment projects), the investment needs It is important to note that all of the costs elaborated in this section of the report are costs Figure 7: Total Cost of BioCF Project Operation borne by BioCF: they do not include invest­ ment or vs. ER Payments Made monitoring costs borne by the PEs. $45,000,000 The BioCF costs are categorized as follows: 8,892,263 tCO2e generated $40,000,000 • Technical Assistance Costs. Costs $35,000,000 incurred by BioCFplus TA to provide support in the preparation for validation, monitoring, $30,000,000 and verification; $25,000,000 • Project Preparation Costs. Costs that $20,000,000 were incurred at the time of preparing the $15,000,000 project for approval by BioCF and the World $10,000,000 Bank; and the costs of helping with CDM or VCS registration. $5,000,000 $- • Implementation Costs. Costs incurred ER Value BioCF Costs during supervision (for example, periodic site visits by the World Bank), and in the Technical Assistance Costs* validation and verification stages (for example, hiring verification bodies to Preparation and Implementation Costs conduct verification). ER Payments 24 during project preparation and implementation the initial project design had to be cancelled, since were adequately addressed. BioCF projects that the ERPA unit price of US$2.50/tCO2e could not did not have adequate financing, either in the justify the costs associated with implementing initial stages or later on in the project cycle, REDD+ activities. At this price, landowners with faced significant challenges during the course of small parcels of land could not benefit from the ER implementation. payments because the transactional costs incurred by the operations were too high. The project For example, in the Zambia Landscape Management continued for a while with only the agroforestry Project, the PE, Community Markets for Conservation activities; however, even that was challenging to (COMACO) was able to avoid financial shortages generate ERs, because a significant number of during the project lifecycle by integrating their project the farmers who were expected to participate in activities into the organization’s existing business the project did not sign subagreements with the model. This project included the implementation of project: again because the opportunity cost was sustainable land management practices (SALM) too high. and Reduced Emissions from Deforestation and Forest Degradation (REDD+), which were in line In the Uganda project, the plantation and monitoring with COMACO’s primary operations: supporting activities were severely impacted by the lack of communities by training farmers in sustainable adequate financing available to the PE, the National agricultural practices; buying crop surpluses; and Forestry Authority (NFA). Plantation targets providing other value-added products. Thus they were not achieved, and encroachment in the pine were able to avoid additional transaction costs for forest plantations, and illegal crop cultivation by implementing the project. Over the years, COMACO neighboring communities was common. It should has grown, and in 2019 they achieved $5.5 million in be noted that the lack of proper communication annual revenue.19 about the project and its objectives, and its potential benefits to the communities may have The India Watershed Management and Reforestation also negatively affected the results. In any case, the Project provides a good example of a project that was emission reductions achieved were minimal; there implemented by government agencies, and which were no other incentives provided to communities; showed success in ER delivery as well as stakeholder and the resulting payments were so small that they interest in continuing with project activities after the were almost negligible. close of the ERPA. This project was embedded in a larger World Bank investment project (the Himachal 2. Cofinancing Through Loans, Grants, and Pradesh Mid-Himalayan Watershed Management Other Modalities to Complement Carbon Project), and has potential to scale up its ER project Revenues component.20 The BioCF project involved 20 percent of the area included in the larger World Bank project, Loans, grants, and other financing mechanisms and technical as well as financial resources were can be a good way to help projects meet leveraged for implementing its activities, including their investment needs in the early phases of regular monitoring. The project delivered 90 percent implementation. In most cases, however, they are of its ERPA contract volume, and revenues from the often hard to obtain, and come with their own ER payments have been distributed to the project sets of requirements. For small-scale stand-alone beneficiaries—farmers living in and around the project projects, it may be especially challenging to find area who are contributing to the implementation of such sources of funding. project activities. In the Brazil Plantar Reforestation Project, In the Colombia Agroforestry Project, a stand-alone Rabobank, an agricultural financing institution in project, the REDD+ component that was part of Brazil, accepted tCERs that were expected to be 19 Confirmed by COMACO representative. 20 India Himachal Pradesh Implementation and Completion Report (ICR). 25 LESSONS LEARNED generated from the project as collateral: this played Upfront advance payments are even riskier than an important role in sustaining project activities. interim advances, as they are based on ex-ante However, this is an exceptional example as not all estimates according to the PDDs; whereas at projects would have been able to access this type least interim advance payments are based on of finance as they were not financially strong, and the ex-post estimates calculated after the first therefore presented a higher risk. For most of these verification. Some discounts were also applied projects there was also a high level of uncertainty to the interim advance payments, to account about the volume of ER that would be generated, for any anticipated impacts of implementation and when it would be delivered. issues that had been experienced during the project cycle. In the Moldova Soil Conservation Project, the project entity (Moldsilva), financed the afforestation Underlying investments and commitments, of degraded agricultural lands, while the support including robust national climate policies,21 can for community forest and pasture management provide the necessary enabling environment was partially financed by a Climate Change Policy for ER projects. China provides a good example. and Human Recourse Development (PHRD) grant Recent NASA estimates show that China is 348 provided by the World Bank. This grant helped percent greener than the global average of forested the project develop forest inventories and relevant areas. These results are largely attributed to the action plans to improve existing forests, and also strong commitment and secured investments helped in the training of community authorities by the Chinese government (Chen et al 2019). and forestry specialists. Although these grants The BioCF projects in China benefitted from this were made available for targeted use, a World environment,22 which was complemented by interim Bank mission in 2013 revealed that not all of the advance payments and links to a larger World communities were able to use the PHRD grants; Bank investment project. On average, the return on some because their needs were not eligible, and investment for these projects was 73 percent against others due to insufficient capacity (insufficient investments made by the Fund; this is above the number of staff and/or lack of skills) to apply for portfolio average of 69 percent. the grants. Cofinancing through grants can help secure complementary financing for projects, The Ethiopia project, and the two Moldova projects, provided that the modalities and design of also received interim advance payments. Both the grants are closely aligned with the project projects were managed by strong PEs, and both objectives. successfully delivered on their ER targets. However, interim advance payments (that is, payments for 3. Advance Payments to Address Preparation monitored but not yet verified ERs), while useful for Costs or Maintain Cash Flow sustaining activities in some cases, posed risks for projects with more limited institutional or financial In some cases, upfront, or interim advance capacities. For example, the Chile Carbon Sinks payments, were provided for under the ERPA Project received an advance payment for monitored to help projects meet their preparation costs, ERs, but not all monitored ERs were successfully or maintain cash flow. Both types of advance verified. This resulted in an overpayment to the PE. payments are risky, since the delivery, and the The project was unable to reimburse the amount even­tual amount, of ERs is always uncertain. that was overpaid through the advance; this That said, if managed well, advance payments eventually resulted in termination of the ERPA, can help sustain cash flow, maintain project acti­ and of the whole project. To mitigate the risk of vities, and ensure ER delivery. But they require an overpayment, World Bank generally requires a enabling environment, and a strong PE. performance guarantee for loan agreements (a Letter 21 World Bank Group. 2019. State and Trends of Carbon Pricing 2019. Washington, DC: World Bank 22 The China Watershed Management and Reforestation Project, and the China Reforestation Project. 26 of Guarantee) from borrowers; but this is not a viable of financing—is recommended as a solution for these BioCF projects with limited financial prescreening criterion. For pioneering and institutional capacities, and of course they are project developers, untested methodologies the ones who need advance payment the most. incurred uncertain costs. Although the benefits from ER payments constitute Figure 8 shows the ER delivery of projects that a valuable incentive for afforestation/ received either interim or upfront advance pay­ reforestation (A/R) projects, some of the ments. While most of these projects delivered operations were limited by the lack of funds more than 50 percent of their ER targets, this was to cover significant upfront costs. Especially not always the case. Advance payments do not in small-scale operations, the lack of always result in successful ER delivery: the quality adequate financial resources, coupled with of management of the advance, technical issues, a lack of technical capacity to fulfill CDM and political issues can all affect the ultimate methodology requirements made it very results. difficult to meet ER targets. The Uganda project is one such example: it was only able CONCLUSIONS to achieve 23 percent of the contracted ER volume following the first verification. The financial sustainability of BioCF projects was And in the Colombia Carbon Sink Project, dependent upon the accessibility of additional one of the subproject entities was unable financing opportunities and the financing to reimburse costs due to its poor financial capabilities of the PEs. health, which was realized only after 8 years of preparing for registration and validation • Financial analysis of project entities— under CDM.23 Including a financial and particularly when they are stand-alone institutional capacity analysis of the project operations without other sources entity at the design stage of a project may Figure 8: ER Delivery of Projects that Received Advance Payments (as of February 2020) 160% 140% original ERPA amount ER Delivery % against 120% 100% 80% 60% 40% 20% 0% t t t t t t t t t t n t ec ec ec jec ec en jec ec ec ec ec tio oj oj oj oj oj oj oj oj pm o o ta Pr Pr Pr Pr Pr Pr Pr Pr Pr Pr lan lo n n n y n n n s n ry ve nk tr rP tio io tio io tio io io st es De ct at at at Si ra ra ta re be du rv rv st or ne ne fo es on ry m se e re of ro ro ns or st ge ge Ti rb fo r on rP Ag Ag re f Co Re Re Ca d Re Re il C an Fo be a a ar ile ia a a a di bi m So pi d ity gu in an sc Ch m In oo Ti io Ch un ra b va ga lo h elw a Al Et ca Co m do a in ad Ch Fu Ni m ol M Co M o ng va Co do DR ol M 23 Biocarbon Annual Reports 2006-2015. 27 LESSONS LEARNED result in better projections of ER, reduce alternatives to reforestation activities. Where portfolio risks, and prevent delays. Such there are strong PEs that have a high level of feasibility studies will help increase the technical capacity, strong political will and quality of the portfolio by establishing the so on, as seen in the Ethiopia and Moldova agency’s financial status; relationship with projects, advance payments can help bolster the project participants; and ability to carry the sustainability of projects. However, A/R or land-use change activities through to upfront or advance interim payments have successful ER generation. sometimes proven to be risky for the Fund, as in some cases they led to overpayment • Advance payments can be a helpful strategy when financially weak projects were unable to ensure the financial sustainability of to reimburse the investments made by the a project, but may not be the only way to Fund. achieve good performance. While advance payments did help with upfront financing • Carbon finance can help bring additional needs or the maintenance of cash flow for revenue streams to larger initiatives or some projects, it alone did not impact project programs. Embedding ER operations in performance unless there were other success larger World Bank investments, or national factors (for example, a strong project entity, government programs, can help ensure low implementation costs, and so on). For the necessary investment costs, while example, the PE in the Colombia Agroforestry also bringing additional income in from Project, despite receiving advance payment, the ER payments. ER projects that were was unable to sustain the project activities: part of larger World Bank investment the cost of implementation was too high operations were better able to meet their for the farmers, and they saw more value in implementation needs, particularly in the initial phases of operation. Financial 28 and technical capacity leveraged through 1. Support for Capacity Building and Monitoring the larger programs enabled them to successfully monitor the project activities, Approximately 55 percent of the BioCF projects meet required standards, and generate the received financial support and technical assistance ERs. The India Watershed Management through BioCFplus TA during the early stages of Project, for example, benefited from being pro­ject preparation, as well as during validation included in the larger project.24 In turn it has and verification. Given the complexity of CDM and provided additional economic incentives VCS requirements, and the limited capacity of to the farmers, including environmental project entities, BioCFplus TA has been crucial for benefits that resulted from adherence to the a number of projects. This technical support has CDM standard. helped these entities avoid errors, and has en­ abled successful verification, ultimately allow­ing ER Projects that were able to secure additional payments to be realized. The support provided by financing through government or private BioCFplus TA includes guidance on forest inven­ ry; to­ investors were better able to sustain their preparation of monitoring reports fol­ ing CDM low­ operations and leverage the incentives provided guidelines; and support for projects in res­­ponding by ER payments. However, in some cases PEs did tion requests to clarifications and corrective ac­ not have the resources needed to obtain funds raised by the CDM Executive Board (CDM EB). that could assist with covering their upfront BioCFplus TA also supported some projects with costs. In the case of the Colombia Carbon Sink project preparation and design that was crucial Project, lack of local governance, as well as a lack to the successful implementation of project of access to additional financing contributed to activities. Without such technical support, some its termination. of the projects might not have been able to realize successful validations or verifications, and IV. Leveraging Resources could have thus been terminated prematurely. As seen in Figure 9, projects that received technical assistance through BioCFplus TA In addition to the potential financial resources discussed in the previous section, resources Figure 9: Impact of BioCFplus TA on ER Delivery leveraged through BioCFplus TA, played a significant role in supporting BioCF projects 80% during the preparation and monitoring stages, 70% and in enabling them to implement innovative new methodologies. 60% Recieved BioCFplus 50% TA BioCFplus TA is a multidonor trust fund that was Did not 40% recieve originally dedicated to supporting BioCF projects 30% BioCFplus during validation and verification. Later it was TA reestablished to support work programs beyond 20% the scope of BioCF projects. 10% The key findings and lessons learned about 0% resource leveraging through BioCFplus TA are Average Performance summarized below.25 24 World Bank investment project financing - Himachal Pradesh Mid-Himalayan Watershed Management Project 25 The BioCFplus TA Trust Fund is funded by the Department of Global Affairs, Canada. In its early days, the Fund typically focused on ca- pacity building for project development, and development of the first methodologies and tools used for carbon accounting of A/R projects. While it has continued to provide technical support to BioCF projects, a larger part of the funding now focuses on carbon asset creation, and the development of methodologies for the agriculture and livestock sectors. 29 29 LESSONS LEARNED delivered on average 14 percent more on their ing for soil carbon ERs and REDD+. These ERPA commitments. However, it should be noted methodologies were later regis­ tered as that receiving BioCFplus TA assistance was not VCS methodologies and which were used always a direct factor for success; despite this by the Zambia Landscape Manage­ ment funding, some projects still did not perform well. project and the Kenay Agricultural Carbon Financial shortcomings and poor management Project.26 The SALM methodology allowed of implementation activities also significantly accounting for ERs generated from the impacted performance. adoption of cultivation techniques that lead to improvements in soil productivity.27 As In the Niger Acacia Plantations Project, BioCFplus TA mentioned earlier, this has been a successful funds were used to hire an experienced consulting project, and it continues to engage with firm to design the forest inventory for monitoring other partners to verify and sell the ERs to and verification purposes. These funds provided then reinvest in project activities. training to all stakeholders involved (government staff, community representatives, and professors in • BioCFplus TA also supported development national universities). This was very helpful in efficient of the Tool for Afforestation/Reforestation monitoring of the ERs. Approved Methodologies (TARAM), which In the Kenya Agricultural Carbon Project, which aims to capture ex-ante ER projections that adopted Sustainable Agricultural Land Management were included in the PDD. Although this is a (SALM) practices through VCS, BioCFplus TA critical tool to forecast project performance provided the PE, as well as farmers, with training and assess risks, some training was required in field measurement practices and certification to build knowledge and capacity for using it requirements for VCS validation and verification. The accurately. project successfully completed validation and two verifications under the BioCF ERPA, and issued more CONCLUSIONS ERs than they had contracted for. The project is now continuing to be implemented in partnership with BioCFplus TA funding has been instrumental other institutions, and has gone through additional in creating enabling environments through verifications. developing the methodologies and tools that are crucial for innovative pilot projects. In the In the Albania Regeneration Project, BioCFplus TA new generation of funds (like FCPF and ISFL, funds helped to build capacity in complying with the availability of such funding may help to CDM requirements—in particular, the capacity to avoid the delays and other issues that many help with field monitoring requirements and carbon stock measurement—which resulted in successfully BioCF projects have experienced, due to lack of preparing the project for the verification site visit. technical capacity in MRV. The experience of The successful site visit in turn made the project a these projects has indeed shown the significant sustainable one, and improved the PE’s ability to impact of an enabling environment supported assess and monitor the performance of the project by the Fund, including funding for technical over time. assistance. Most of the projects had technical capacity issues related to MRV and carbon 2. Development of Methodologies accounting; without the funding provided by BioCFplus TA, they might not have been able to • BioCFplus TA also supported the develop­ go through the verifications, or even be registered ment of methodologies to promote account­ under CDM or VCS. 26 VM0015 Avoided Unplanned Deforestation and VM0017 Sustainable Agricultural Land Management. 27 With SALM methodology, carbon stock changes in different carbon pools (soil, biomass) are determined by combining information on the project area and the management practices adopted (activity data) with coefficients (emission factors) that quantify the emissions or removals per unit of activity. 30 FCPF and ISFL both have new methodological • Cost-recovery clause. Under the cost- requirements that are aimed at helping pilot recovery clause, the Fund has the right to large-scale jurisdictional ER programs. Most claim reimbursement from the project, up to of the programs will likely benefit from the a specified amount, for costs incurred during availability of some technical assistance to preparation, validation, and verification. ensure smooth operation and MRV. In several cases, projects were unable to reimburse these costs due to financial constraints; and in some of them, ER V. Managing the Risks delivery was such that the equivalent dollar value after deduction for costs would have Associated with Carbon resulted in zero ER payment to the project. Finance Operations As a result, in such cases the Fund had to significantly reduce or waive cost recovery altogether. Based on this experience, it Risk management is an integral part of carbon seems clear that cost recovery is not an finance (CF) operations, and the type of risk efficient way to mitigate investment risks. management approaches used can contribute to the success or termination of projects and/ • Reissuance clause for CDM projects. BioCF or ERPAs. In BioCF, risk mitigation strategies land-use ER projects are subject to reversals and corrective actions were implemented both due to either natural or anthropogenic at the Fund level and the project level. World causes. To ensure that the carbon stock28 Bank fund managers assessed the project risks, generated from the beginning of the especially after the first verification, as a way of project activity is retained, and remains better managing portfolio commitments, and valid, ERs generated are always verified also helping projects to avoid defaulting on their from the start date of project activities. ERPAs. The projects were scored as low, medium, As a result of this, ERs that were verified high, or no risk. Assessing the risks also helped and issued in previous verification events to identify bottlenecks, and to apply corrective were reverified and reissued. However, actions to better manage the risks. This section payment under the ERPA would always of the report provides insight into the kinds of be for ERs generated in addition to what risks faced by the projects; how they impacted was verified and paid for before. For ER delivery; and how some of them were some projects, where the business model effectively addressed. involved the regular harvesting of grown trees, this resulted in a decrease, or loss, 1. Risk Management Strategies and Corrective of ERs that were generated and paid for Actions following the first verification. Only 38 percent of the projects delivered more ERs The conditions for recovering costs and avoiding in the second commitment period than overpayment were introduced into ERPA in in the first commitment period; and the an attempt to reduce investment risks. BioCF rest of them either maintained the same invested funding to support projects during their volume, or the volume decreased. To legally preparation for CDM and/or VCS registration. In mitigate this risk, the reissuance clause cases where underdelivery, or failure to deliver was introduced in the ERPAs. It explained were anticipated, the following conditions were that BioCF is not obligated to pay for added to the ERPAs, to manage investment and reissued ERs; this helped to avoid double overpayment risks: payment for them. It should be noted that 28 Forest carbon stock is the amount of carbon that has been sequestered from the atmosphere and is now stored in the forest ecosys- tem, mainly within biomass and soil. 31 LESSONS LEARNED the reissuance clause was a BioCF approach Plantation and the DRC Fuelwood and and not a requirement by CDM; therefore, Timber Plantation projects, which went the reissuance clause is a risk mitigation through just one verification (in the second strategy specific to BioCF. commitment period), BioCFplus TA helped retrain stakeholders. Subsequently both • Market and project delivery risk-adjusted projects carried out successful monitoring in prices were adopted as a carbon pricing preparation for verification. approach. In 2002, the World Bank was the only buyer of ERs generated from carbon • Adjustments to ER payments, and operations: this remained true until 2005, amendments to ERPA volumes were when the Kyoto Protocol was put into made in order to mitigate the risks of place. The prices established by the World underdelivery and overpayment. In addition Bank varied by project, depending on the to the reissuance and cost-recovery risk profile. The assessment of risk for each clauses in ERPAs, the risk of overpayment project considered the project methodology; was sometimes mitigated through the the availability of upfront self-financing or adjustment of payments, and amendment cofinancing; whether or not the countries of ERPA volumes after monitoring the had active political issues (e.g. sovereign progress of the project. Overall, about 50 revolutions, political turnover); and donor percent of the BioCF projects had ERPA expectations, among other factors. The amendments that reduced the originally price was discounted to the net present contracted volumes, allowing the projects value (NPV), and adjusted on a case by case to achieve 80 percent or more of their basis. Project entities signed ERPAs with the commitments.29 On the other hand, BioCF World Bank at an average price of about $4 projects in Ethiopia, Moldova, and Nicaragua per verified ERs. received adjusted annual ER payments relative to the project performance outlined • In order to avoid errors in implementation, in their monitoring reports and site visits, and in light of the complex requirements which were later deducted from their of CDM and VCS, technical support payments for verified ERs. was provided to many of the projects. Implementing the projects while ensuring • Quick response to issues of illegal that they met CDM or VCS standards, encroachment helps to support safeguards and their methodological requirements, and address reputational risks. In the calls for good technical knowledge. To Nicaragua project an encroachment issue avoid errors caused by lack of sufficient was uncovered during a World Bank technical knowledge and capacity, mission. A farmer had illegally occupied a technical assistance through the BioCFplus plot of land owned by the project entity TA Fund was provided to most of the (Novelteak). Novelteak tried to persuade the projects. This was particularly important farmer to resettle. However, when this did not only in helping projects avoid errors in not work, they had to resort to legal means, implementation: it also contributed to the and in 2015 the Nicaraguan court ruled in successful delivery of some of the projects. Novelteak’s favor; this allowed for a forced For example, international technical eviction of the farmer from the project area. consultants hired through BioCFplus TA In order to mitigate the risks inherent in for the Albania Regeneration Project this situation, the World Bank immediately helped carry out the essential task of conducted a process of due diligence in verification. Similarly, in the Niger Acacia order to clarify the ownership claims of the 29 Only the Moldova Soil Conservation Project volume of ERPA was increased in 2015, as two ERPAs were combined. 32 farmer. This included reviewing the process helped to protect the forests. This gave that Novelteak had undertaken prior to the the communities a sense of ownership eviction order from the Nicaraguan court. and therefore, they were already actively The World Bank also conducted multiple engaged in keeping the forest protected coordinated consultations throughout from encroachment when the road was 2017 with Novelteak, in order to arrive at built. In the case of the Ethiopia project, a process for resettling the farmer in line the project ended up delivering more than with standards acceptable to the World the amended volume after the second Bank. As a result, Novelteak agreed to hire a verification; however, it was not possible third-party nongovernmental organization to increase the volume again, and the to assist in the resettlement process, and fund donors did not want to purchase to avoid setting a precedent for any illegal the additional ERs. Fortunately, since the settlers in the future. In February 2018, the project already had a successful experience World Bank also conducted a third-party through another project in marketing Gold audit to be sure that there were no other Standard verified ERs, with the support of illegal settlers in other parts of the CDM BioCFplus TA, it registered for participation project area. in the Gold Standard, and was able to market the additional ERs through them. • Community-managed monitoring or patrolling can also help to keep track of • Access to upfront funding from project activities that may be threatening the partners, or upfront ERPA advance forest plantations. For example, illegal payments, helped to mitigate underdelivery encroachment in the project area was also due to financial risks. A number of the a common issue in the Ethiopia Humbo pilot BioCF projects faced financing gaps Assisted Natural Regeneration Project. in the beginning, due to the significant However, government certifications upfront investments needed in order to for forest monitoring were given to implement project activities. Financing communities or individuals who then gaps in the initial stages increased the risks 33 LESSONS LEARNED of implementation delays, underdelivery, still be made after each verification. Since or project termination altogether. Upfront most of the farmers are very poor, and advance payment was provided to just a the Fund’s aim was to improve livelihoods few projects, as it was highly risky both for as well as acquire ERs, the Fund decided the Fund and for the projects, since they to waive the conditions of the reissuance would have to eventually reimburse any clause. A key lesson learned here is that advances paid. Projects that were able to short-rotation forest plantation activities secure cofinancing opportunities through may not be suitable for A/R CDM projects larger World Bank initiatives, for example since, given the CDM rules, it creates both the projects in Madagascar and Moldova, regulatory and contractual risks. However, were able to resolve any upfront or interim as seen in Figure 10, the India Agroforestry financing issues. Project was the only project that did not generate additional ERs in the second • High opportunity costs due to land-use commitment period. changes, and incompatible socioeconomic factors can present risks for land-use 2. Impact of Risks Assumed by BioCF Projects carbon operations. In the India Agroforestry and Stakeholders Project, which engaged small landholders in reforesting their land by raising eucalyptus Environmental risks were hard to anticipate trees, farmers were able to gain more and mitigate, and often resulted in reduced ER revenues from selling the harvested timber delivery. In some of the projects (i.e. Chile, China, to a local paper mill than maintaining the Moldova, Nicaragua), when the initially planned plantations for ER payments. As a result, project activities were not realized, the most the trees were harvested before ERs could common reason was because of unanticipated be verified: this resulted in loss of carbon environmental risks such as poor soil conditions, stocks. However, expectations had been drought, floods, snowstorms, fires, and so on. raised among farmers that payments would As seen in Figure 11, 22 percent of the projects Figure 10: ER Delivery, by Project, Over the Two Commitment Periods Certied Emission Reduction 2,000,000 1,800,000 1,600,000 1,400,000 India Agroforestry Project (CERs) 1,200,000 harvested trees resulting in lower ERs than CP1 1,000,000 800,000 600,000 400,000 200,000 - Niger Acacia Madagascar Zambia Landscape DR Congo Fuel Kenya Agricultural Uganda China India Watershed Ethiopia Zambia Landscape India Agroforestry Nicaragua Albania China Watershed Moldova Colombia Moldova Soil Commitment Period 1 (CP1) Commitment Period 1 (CP1) + Commitment Period (CP2) 34 were unable to fully implement plantations on than had been anticipated, it was found that the total land area initially proposed in their projects that reduced the land area delivered on PDDs for weather-related reasons. On average, average 24 percent less. (However, in some cases, these projects had to reduce the planned area ERPAs were amended to reduce the ER volumes (hectares) by 18 percent, creating the possibility corresponding to the reduced land area.) of lost ERs. In the DR Congo Fuelwood and Timber Plantation When BioCF donors assumed financial risks for Project, the land area involved was reduced by 65 potential underdelivery from the beginning of the percent from what had been stated in the PDD. projects, there was a positive impact. Without the The monitoring reports revealed that the field donors’ willingness to invest in pioneering projects, measurements found the plantations to be of the ER operations may not have been attractive inadequate quality. Furthermore, unforeseen fire enough to small-scale carbon finance projects, events, and the financial precariousness of the particularly given the complex methodologies project led to a revision of the original land area. The involved, and with many of the PEs being new ERPA volume was also reduced by 84 percent, to to carbon operations. This encouraged them to correspond with the reduced land area: as a result undertake pilot project activities and, in some of this reduction, the project was able to achieve cases, yielded successful delivery of ERs.30 80 percent of its contracted ER amount. It should be noted that despite the underperformance risks Reduction in project land area (hectares) borne by this project, as one of the first land-use contributed to the risk of projects. Notably, CDM projects in West Africa, various social benefits, 65 percent of BioCF projects were reduced in such as an increase in the number of seasonal terms of the size of the project area during the and permanent jobs in forest management, were monitoring or verification phases for a variety realized. of reasons (Figure 11). Although several issues (but primarily lack of financial resources and/ CONCLUSIONS or technical capacity) contributed to lower ERs being generated from the project activities Carbon operations in the land-use sector face both anticipated and unanticipated risks that can Figure 11: Reasons for Deviations from the impact ER delivery and other project objectives. Plans in the Project Design Document (PDD) Hence, having effective risk mitigation strategies in place is crucial, since they can help reduce Land Ineligibility major deviations from the project objectives. by CDM Rules No Deviation • Adequate capacity building can help 13% Inaccurate mitigate the risk of underdelivery due to Land Measurement poor governance. In some cases, BioCF 35% 8% invested resources to build technical capacity by hiring international firms, or Unknown conducting consultations with available 9% Reasons in-house resources. This strategy helped projects to progress with their verifications 13% and achieve their ERPA commitments. 22% An emphasis on capacity building where required may also help with mitigating the Environment Issues Lack of Financial (snowstorm, Capacity for risks of monitoring errors and verification droughts etc.) Implementation results. 30 Small-scale projects ranged from 690 to 20,000 hectares in size. 35 LESSONS LEARNED • Amending ERPAs to adjust delivery 1. Types of Communication Approaches expectations may be inevitable in order for projects to avoid defaulting on their Consultations about, and clarification of project agreements. However, having strong objectives, activities, and benefits were effective technical capacity from the beginning can in managing expectations when they were also help to avoid overestimation of ERs in held early-on, and throughout implementation. the first place. Furthermore, embedding ER On the other hand, when there was a lack of initiatives in larger investment programs clarity about payment structures and/or the that can help support the implementation distribution of roles, it sometimes resulted of activities can help to avoid the need for in overly high expectations, and delayed ER ERPA amendments, and to achieve the payments. Because some of these projects were targeted ERs. Cost recovery, although it pioneering efforts in the countries in which they helps fund/buyers of ERs manage the risk were being developed, in the beginning there of underdelivery or overpayment, may not may have been insufficient understanding of always be easy to implement. carbon offset operations among those who were managing the projects, and the communities • Regular supervision of land-use projects that were involved in implementation. In such may help in mitigating illegal settlements situations, exercising an approach in the planning, and disputes, and avoid negative monitoring, and evaluation stages that includes implications to the ERPA. Regular community-based stakeholder participation monitoring and supervision of projects can can help to ensure that implementation will inform PEs of potential risks and limitations, continue after the development phase of and can help to avoid issues like illegal projects. Frequent trainings and key stakeholder encroachment that can have safeguards meetings can also help increase understanding implications. of the project, and establish subagreements with communities. VI. Stakeholder Engagement For example, in the Kenya project, which adopted and Communications SALM practices to generate its ERs, a participatory approach to stakeholder engagement, amongst In most of the BioCF projects, the communication other factors, helped the project to deliver over approaches used to manage expectations 20 percent more than what it was committed to contributed to the success or failure of the under the ERPA. On the other hand, in the India projects. These projects were implemented Agroforestry Project, lack of clarity about the rules by government institutions, private sector regarding results-based payments created false companies, or NGOs, which in some cases involved expectations among participants. During the first local communities and/or individual landowners/ verification it was found that most of the trees on farmers participating in project activities. In such the farmers’ lands had been harvested for sale to a cases, the dedicated and continued engagement local paper mill. As a result, only the still-standing of the communities or individual landowners trees could be accounted for in the ER calculation, was critical to the successful implementation and only those ERs could be paid for. As the PE had and delivery of ERs, and the overall long-term been unclear about this rule to the farmers, it sought sustainability of the project activities and to claim payment for ERs from harvested trees outcomes. This section of the report highlights the following both the first and second verifications. types of communication approaches employed to However, BioCF only made payments for standing gain stakeholder engagement, and how each of stock. This kind of miscommunication has caused them impacted the project, as well as the ultimate unnecessary delay of verifications and the ultimate results. disbursement of ER payments. 36 In the Madagascar Conservation Project, (CORMAGDALENA)31 for about 15 years,32 and ambiguities about the financial structure, and the landowners appreciated the way they had included distribution of the roles among the government’s and effectively engaged the community in project ministerial agencies led to a three-year delay in the development and implementation.33 These robust ERPA payment following verification. The delay was relationships, and a high degree of trust, helped mainly to ensure that the ERPA payment made to ONFI to successfully implement the project. The the government of Madagascar would reach the project fully delivered on its ERPA and had no need communities who were the intended stakeholders for any amendments, like reducing the ERPA volume and beneficiaries of the project. Benefit distribution (as has happened with other projects), throughout among the involved stakeholders, the government the ERPA term. agencies, and the communities was not clear, and the timeline for distribution of such benefits to A combination of a top-down and bottom-up communities was also not clear. The initial plan was approach that involves all stakeholders can to have the payment transferred from the national create economies of scale. The Brazil Plantar treasury; however, according to the treasury rules, Reforestation Project, one of the first carbon if payments are not disbursed within one year, finance projects developed prior to the Kyoto they are reallocated for other purposes at the end Protocol, emerged from a bottom-up idea of a financial year. There was concern that the that was developed by the project entity distribution of the benefits would take more than a Plantar Group, a forestry business company, year, and therefore, an alternative had to be sought as opposed to a strictly top-down result of a for distribution of the ERPA payment. Establishing public policy. The project, which was incubated this alternative, as well as defining the benefit- within the CDM, and supported by the World sharing distribution and the mode of distribution, Bank, resulted in emission reductions through took three years to be finalized. This significant reforestation and the introduction of renewable delay could have been avoided if these issues had charcoal for use in the pig iron industry. As been identified and communicated clearly early on. has been previously noted in this report, an enabling environment where public-private Long-term community engagement can partnerships are encouraged can result in contribute to the sustainable management of a exponential benefits. Plantar undertook project, and may lead to benefits beyond the life frequent consultations with local stakeholders, of the project. In projects where communities for example when they were preparing their played a significant role in implementation, reports for Forest Stewardship Council preexisting as well as continued engagement by (FSC)34 certification; and they consulted with the project entity contributed to the successful implementation and delivery of ERs. stakeholders and incorporated both positive and negative feedback. They also maintained In the Colombia Commercial Reforestation Project, open communication channels with both local the long-term relationship between the PE, ONFI, communities and global stakeholders by issuing the Colombian government, and landowners and distributing a newsletter called Jornalipto created the confidence in ONFI to effectively (De Gouvello et al 2018). These practices implement the operations. ONFI had already set an example of successful strategies for worked closely with the municipality of Corporación encouraging and supporting stakeholder Autónoma Regional del Río Grande de la Magdalena engagement. 31 CORMAGDALENA is a Colombian public institution with industrial and commercial purposes. It is in charge of the management of the Magdalena River, including sustainable use and preservation of the environment, fishing resources, and other renewable natural resources in the river basin. 32 As confirmed in the interview with an ONFI representative. 33 Colombia Bajo Seco Implementation Completion Report, 2019, pg. 15. 34 FSC certification is considered the “gold standard” designation for wood harvested from forests that are responsibly managed, socially beneficial, environmentally conscious, and economically viable. 37 LESSONS LEARNED In the Ethiopia Humbo Assisted Natural buy-in from the federal and state government Regeneration Project, a participatory, bottom-up stakeholders. There was evident reluctance from approach of including communities in the planning government agencies (for example, the Ministry of “Sustainable Development Plans”35 created of Science and Technology (MCT)) to engage a sense of ownership for the farmers. This was with the World Bank and the Plantar Group evident from the trust expressed by community through the Prototype Carbon Fund (PCF).38 and cooperative members toward the project The World Bank was, however, able to work entity, World Vision. Similarly, in the Chile Carbon with the government and managed to obtain Sinks Project, a participatory approach and support for the project. A letter of no-objection complementary biodiversity initiatives created to proceed through validation of the project was an environment that facilitated the formation obtained from the Brazilian Inter-ministerial of productive networks of collaboration and Commission on Global Climate Change, and trust between the public and private sectors, signed by the Minister of MCT in 2000. In 2009, nongovernmental organizations, and the local that Commission issued the letter of project community. These engagements enabled the approval to the Plantar Group (De Gouvello et communities to work closely with the National al 2018). With buy-in from the government, the Forestry Corporation, the Tree Club, INGEOCORP,36 Plantar Group became an integral part of Brazil’s and the Carrizal and Caliboro Schools of Law.37 policy development for the sustainable use of renewable charcoal from planted forests,39 as 2. The World Bank’s Role in Stakeholder a direct result of the project (Figure 12). This Engagement demonstrates that the World Bank’s role as a strong intermediary can be helpful in raising The World Bank’s role as an intermediary awareness of project activities that can benefit between governments and project entities helped both national economies and local communities raise awareness of BioCF project activities in a sustainable manner. locally and nationally. At the inception of the Brazil Reforestation Project, the government Figure 12: Relationship of Stakeholders in the of Brazil had been a part of the Kyoto process, Brazil Reforestation Project and was actively involved in CDM (De Gouvello et al 2018). Brazil had a large stake in the World Bank New policies were climate change negotiations, as its national communicated with developed benefiting economic, social, and security interests were federal and state the pig iron sector and government to obtain local communities all contingent upon the growth of the energy support for the project sector and development of the Amazon (Johnson F d r l 2001). Nevertheless, the topic of tradable credits & St t related to forestry activities was a politically Govt. sensitive topic for the Brazilian negotiators at the the United Nations Framework Convention on Pl nt r Group Climate Change (UNFCCC) at that time. In this critical socioeconomic context, the World Bank World Loc l B nk Communiti s supported the Plantar Group in order to secure 35 Sustainable development plans were created by each cooperative, to invest carbon revenues into infrastructure that would benefit the community at large. To learn more about creating community development plans, please refer to the Benefits Sharing thematic summary. 36 Ingeocorp Sociedad Comercial De Responsabilidad Limitada - Ingeocorp S.R.L 37 Chile Project Implementation Completion Report, 2017. 38 Established in 2004, the Prototype Carbon Fund (PCF) was the first public-private partnership implemented by the World Bank with a mission to pioneer a market for project-based Greenhouse Gas (GHG) reductions within the framework of the United Nations Framework Convention on Climate Change (UNFCCC). 39 The regulation of the law (Decree 7390 of 2010) specifically mentions “the increase in the use of vegetal charcoal from planted forests and improvement in the efficiency of the carbonization process.” 38 CONCLUSIONS Provision of a benefit-sharing plan, or benefit- sharing arrangements, was not initially Collaborative approaches to the design and incorporated under the BioCF ERPAs. However, implementation of carbon finance operations can after the first payments were made to projects, increase landowners’ sense of ownership, and following the first verification, BioCF realized contribution to the environment. that a few of the projects had not fully disbursed the ERPA payments, or the benefits from these • Carbon operations that involve communities payments, to the communities. And since can benefit from continuous collaboration to evidence of benefit sharing was not a requirement, achieve economies of scale. On the contrary, it was difficult for BioCF to legally hold PEs involving too many stakeholders in the accountable for delaying the distribution of design stage can pose risks due to delays benefits. The only leverage that BioCF had was in decision making; the right balance of that most projects were expecting to undergo a technical experts and operational taskforces second verification and hoping to receive a final may help to achieve optimal results. payment. Through negotiated ERPA amendments, such provisions were later included in some of • Timely and transparent dissemination of the ERPAs; however, it was not possible to do information and results can help to keep so in all of them. Many of the projects made stakeholders updated and maintain public sure that the payments eventually reached the support. The progression of a project beneficiaries of the project whether or not their through the various stages can be positively ERPAs were amended. They did not, however, impacted by timely information sharing. have comprehensive benefit sharing plans, nor Timely communication of project issues (for had they adopted practices that would help to example, a lack of funds for plantations) ensure fair distribution of the benefits from the can enable the application of risk-adjusting ERPA payments. strategies. Transparency of information may also be an influential factor in creating The following analysis presents some of the project sustainability. Projects where lessons learned in regard to benefit sharing, and beneficiaries’ expectations are met may be good practices that were adopted by some of easier to scale beyond the ERPA terms, as a the BioCF projects. Experience has shown that result of continued interest. the distribution of benefits not only incurred costs but was also time consuming. Based on the lessons learned, some relevant conclusions can VII. Benefit Sharing be useful for current and future results-based initiatives in the land-use sector in addressing potential issues related to the benefit sharing of The BioCF projects were not only aimed at ER payments. reducing carbon emissions; they were also intended to generate environmental benefits and 1. Good Practices enhance sustainable development, while respecting the rights of landowners; and to provide incentives Clearly defined benefit-sharing arrangements. to stakeholders involved in the project activities. Some of the BioCF PEs established sub- Therefore, determining how incentives and benefits agreements with the project beneficiaries that flow to beneficiaries of the project has been an clearly outlined the roles and responsibilities of essential component of these initiatives. the beneficiaries, and the share of their partici­pa­­ tion in the project. This practice was help­ful in the tici­ efficient transfer of funds to project par­ pants Every $1 cost to BioCF = (i.e. landowners, farmers) following the receipt of $0.49 in ERPA payments ER payments. Table 2 shows the benefit-sharing arrangements of selected BioCF projects 39 LESSONS LEARNED Table 2: Examples of Benefit Sharing Arrangements PROJECT BENEFIT SHARING ARRANGEMENT • 90% to beneficiaries; of which 80% distributed to farmers, and 20% to India Watershed Management farmers cooperatives and Reforesta-tion Project • 10% to project management unit (PMU) for administrative fees Ethiopia Humbo Assisted • 85% to communities Natural Regeneration Project • 15% retained by the project entity (World Vision) • 80% to communities Niger Acacia Plantations Project • 20% retained by project entity Achats Service International (ASI) to cover transaction costs China Watershed Management • 60% to farmers and Reforestation Project • 40% owned by the forest companies that invested in the project Linking the distribution of benefits to community Clearly defined eligible and ineligible expenses development. In addition to clearly defined bene­ as criteria for receiving ER payments. When fit-sharing arrangements, develop­ ment plans handling public money, checks and balances that were carefully planned and execu­ ted by imposed by the PEs have helped to avoid the PEs helped to ensure that carbon revenues unintended uses of ER payments. For example, would reach the right­ful landowners, and bring in the Zambia Landscape Management Project, development to communities. upon receipt of ER payments, the PE (COMACO), reviews the budgets for activity plans that In the Zambia Landscape Management Project, have been submitted by the CFMGs prior to revenues generated from the project activities are transferring the funds. If a line item seems distributed to local multipurpose farmer cooperatives; unreasonable or inconsistent with project the chiefdoms of villages; and Community Forest activities the budget submission is rejected. Management Groups (CFMG). The CFMGs, which are responsible for the administration and expenditure Availability of dedicated community/landowner of the ER payments, had detailed budgeted activity bank accounts, and evidence of distribution of plans that link carbon payments to livelihood ER payments. Individual and/or community bank improvements and increased conservation impact. accounts for beneficiaries has been an effective mode of distributing the monetary benefits In the Kenya Agricultural Carbon Project, a generated from carbon credits. In projects where comprehensive benefit-sharing plan was made, cash payments were made to communities, the that detailed how communities would leverage their World Bank requires evidence of such payments resources to improve their livelihoods. ER payments in the form of receipts signed by the recipients, were distributed to the farmers in the form of low- or bank transfer receipts. For example, in the interest-rate loans through the Village Saving and Kenya Agricultural Carbon Project,40 the PE (Vi Loaning Association (VSL) accounts. These loans AgroForestry) distributed payments to farmer were used by farmers to facilitate farm enterprises group bank accounts. As per the project’s benefit- and other livelihood improvement activities. About sharing criteria, funds were to be transferred to 27 percent of the 29,497 farmers who participated the accounts upon submission of current bank in the project preferred to reinvest their carbon statements as proof that the accounts were revenues, to increase their shares in the VSL. active. Similarly, in the Niger Acacia Plantations 40 The Kenya Agricultural Carbon Project implemented Sustainable Agricultural Land Management (SALM) practices, and in return received payment for reducing soil carbon emissions. 40 Project, carbon revenues were transferred to Project, the seven participating communities each grappe41 bank account that had already (“kebeles”) received ER payments based on the been set up in the context of a larger World Bank amount of their forested land area. The decision investment program,42 that the project is part of. to use this as the basis of ER payments was a Once the payment was received, the World Bank result of the consultations held with the kebeles task team reviewed the payments that were during the design of the benefit-sharing plan. allocated to each participating community and And in the Niger Acacia Plantations Project, the their bank account information, substantiated PE (ASI) has entered into subagreements with with official bank documents. Upon distribution beneficiary communities which stipulate that of the payments to communities, the PE (Achats the volume of carbon credits to be purchased Service International (ASI)) was responsible for is based on the amount of land area that was sending receipts for the bank transfers to the provided for the project. According to the 2018 World Bank. forest inventory, all of the sites had generated Benefit distribution based on area of land their expected minimum ERs, even when some of forested, and community performance. Projects the sites had planted less hectares than what had where the benefit sharing of ER payments is been estimated in the subagreements. relative to the amount of land involved can help encourage smallholders to expand their 2. Challenges participation in the project. BioCF projects in Ethiopia and Niger established subagreements Lack of a benefit-sharing plan requirement with the involved communities that stipulated under ERPA led to delays in the disbursement that the ER payments would be calculated based of ER payments to some project entities due on the amount of forested land involved. In administrative reforms and in some cases Ethiopia’s Humbo Assisted Natural Regeneration threatened the eventual distribution of 41 Community groups were called “grappe.” 42 Community Action Phase (PAC) project. 41 LESSONS LEARNED benefits to beneficiaries. At the time that the two communes who had not yet received the Madagascar Conservation Project was their payments, an administrative reform designed and implemented, preparation of a took place that led to the reorganization of benefit sharing plan was not required. Therefore, the 24 communes into 12 municipalities. it was not included as a condition under the Therefore, it was necessary to establish new ERPA. After the verification was completed subagreements between the FPUAs and each in 2013 and payment was ready to be made, of the municipalities, in order to ensure efficient the government of Madagascar went through distribution of ER payments after the second financial reforms and enacted a law stating verification. The new subagreements would that all forest carbon revenues would be stipulate that the still-pending first payments considered government revenues. Because of to the two former communes would be taken this new law, the distribution of benefits had into account when it was time for the second to be explained repeatedly, as the government payment. While this has been agreed upon wanted to retain the rights to ER payments. between the World Bank and MoE, the remaining The World Bank requested that the government challenge is to ensure that the distribution of the develop a benefit-sharing plan in order to receive second payment is implemented as per the new the ER payments: after almost five years of subagreements, since BioCF closes at the end of negotiations, a plan was finalized. And although December 2020. the ER payment by the BioCF has now been made to the government of Madagascar, the Lack of clearly defined benefit-sharing payments have not yet been distributed to the arrangements and mechanisms can cause project beneficiaries. significant delays in the distribution of benefits. In the Uganda Reforestation Project Conflicts between beneficiary groups can impact (which is a combination of five small individual the distribution of benefits from ER payments. In projects), the project entity (the National Forest the Albania Regeneration Project, subagreements Association (NFA)) took about two years to were signed between the project entity, (the complete distribution of the ER payments to Ministry of Environment (MoE)), the Forest and the five participating communities. Although Pasture User Associations (FPUAs), and the 24 they had subagreements with the communities, participating communes. These subagreements the benefit-sharing distribution, and the criteria defined how the benefits that were accrued from for determining the calculation of payments, ER payments would be divided between the were not defined in the subagreements. As a MoE, the FPUAs, and the communes. Following result, when the first verification was conducted the first verification, MoE was able to disburse and ER payments were made, NFA had to first ER payments to most of the communes after determine how the proportion to be distributed they submitted investment plans that included to each of the communities would be calculated, reinvestment in forest maintenance, additional and how payment would be shared between the forest protection measures, and so on. Of the 24 projects that had delivered and those that had communes, two did not receive the ER payments not. (It was important that benefits were shared due to disagreements and disputes between even where ERs had not yet been delivered, to mayors and leaders of the FPUAs, creating ensure continued engagement in the project tensions and a potentially negative impact on activities for the second verification.) Because of project implementation. this complexity, the payment distribution was delayed for two years from the time that the Administrative restructuring can cause NFA received the ER payment from the BioCF. significant delays and disruption to the initially agreed upon benefit-sharing arrangements. Cash payments where many beneficiaries are In the Albania project, while the distribution involved may be a disincentive to effective of ER payments was pending completion for engagement in project activities and may 42 therefore affect the overall delivery of the Streamlining benefit-sharing mechanisms project. The Uganda Reforestation Project made with local or national institutions, and aligning direct cash payments to the five communities existing mechanisms with international associated with the project. In the first standards, could reduce transaction costs. In verification, each community group received the Costa Rica Agroforestry Project, the PES a payment of about $4,900 payment.43 The program44 was embedded into the results- payments were minimal because the project based payment operation under BioCF; and underdelivered in the first verification; it is it was through this mechanism that farmers also expected to underdeliver in the second participated in the project. The PES program verification. Because the level of effort required had initially imposed high transaction costs to implement and monitor the project activities on the farmers/participants—for example, outweighed the amount of cash payments requesting irrelevant bureaucratic documents, received, there was not enough incentive for or requiring proof from farmers that they did communities to continue engaging in the project. not owe anything to the national system.45 The As has been seen in some projects, investing PES also required formal land titles as eligibility in development activities for the communities criteria. Such requirements were impractical and rather than direct cash payments may be resulted in inefficiencies in establishing the PES more attractive, and could help to sustain sub-contracts with potential farmers. These project activities and overall development conditions were later improved, by streamlining efforts. the project entity’s (National Forestry Financing 43 Uganda Project Implementation Completion Report, pg.8. 44 In 1996 the Costa Rican government passed Forest Law No.7575, which recognized four environmental services provided by forest ecosystems: (1) mitigation of greenhouse gas emissions; (2) hydrological services; (3) biodiversity conservation; and (iv) provision of scenic beauty for recreation and ecotourism. The law provided the regulatory basis to contract landowners for the services provided by their lands. The country’s PES program, established in 1997, provides the mechanism to achieve this. Benefit Sharing at Scale: Good Practices for Results-Based Land Use Programs, pg. 9 45 Benefit Sharing at Scale: Good Practices for Results-Based Land Use Programs, pg.62 43 LESSONS LEARNED Fund (FONAFIFO)) database with those of • Incorporating the requirement to provide other government agencies, and amending the details concerning benefit-sharing plans conditions for eligibility by accepting evidence into the ERPA, and reporting on the of the right of possession of land for 10 years or implementation of such plans following ER more in lieu of formal land titles where these were payments also help to ensure accountability not available. on the part of the PEs. Currently, including a detailed benefit-sharing plan is a requirement The absence of updated subagreements can for ERPAs that are being signed in new lead to issues for benefit-sharing distribution carbon finance operations, such as the involving smallholder farmers. For example, FCPF and the ISFL. It is important to note in the Colombia Commercial Reforestation that while this provision can help to ensure Project, the project entity, French National that benefits from ER payments reach the Forest Office Andina (ONFA), ran into issues in intended beneficiaries during the term of delivering ER payments to some landowners. the ERPA, a risk still remains for the final Out of 31 signed subagreements, 4 had issues payment, which is made just before the that prevented payment from being made ERPA terminates, as has been seen with the to the concerned landowners. These issues Madagascar project. included changes in the land titles without • Benefit-sharing arrangements should updating of the subagreements; inheritance be flexible enough to allow for the ability disputes between the children of one of the to include provisions for updating during deceased landowners; and embargos imposed the course of implementation should by the local bank on two of the farms.46 The the previously defined arrangements be India Agroforestry Project, which involved impacted by administrative reforms. The more than 1,500 smallholder farmers, also case of Albania is very relevant in this regard, encountered issues in fully disbursing payments, and would be even more challenging and as many farmers had migrated from the area, complex in the case of large-scale juris­ and left behind unclaimed inheritances (5-10 dictional programs like those under the FCPF percent of the funds from the first ER payment Carbon Fund and ISFL. These programs are were not distributed for this reason). It is implemented by government agencies, which therefore critically important to ensure that often go through administrative changes. In subagreements and beneficiaries are kept up to date, and that the validity of subagreements such situations, elections can result in a total is monitored, in order to avoid delays and restructuring of the governance structures. inefficiencies in the distribution of benefits. • Consulting with beneficiaries to determine the types of benefits that communities will CONCLUSIONS receive, and benefit-sharing arrangements that clearly define the eligibility criteria from Clearly defining the benefit-sharing the beginning, can help to not only avoid arrangements, beneficiaries, eligibility criteria, confu­sion, but also manage expectations, and benefit distribution channels at the project and incen­tivize continued engagement in design stage can help prevent confusion, delays, ject activi­ pro­ ties. This has been seen in the and potential disputes during implementation. cases of the Ethiopia, Kenya, Niger, and Zambia projects. 46 To mitigate the embargo issue, legal fees were paid through carbon revenues, and were deducted from final ER payments, with interest generated by the bank account. 44 VIII. Emission Reductions • entities are involved in the implementation of a BioCF project, any major restructuring Title Transfers directly impacts any subarrangements that have been made with the subproject The ERs from BioCF projects that were purchased entities under the ERPA. This change by BioCF were transferred to the fund donors impacts the distribution of benefits from either for compliance purposes, or for further sale ER payments as well as the ability to to other buyers. Given this, rights or title to those transfer ER titles. For example, in the emission reductions was also transferred from Natural Regeneration Project in Albania, the project to the BioCF donors upon sale and the territorial administrative reform in purchase of such ERs. 2015 restructured the 24 communes who were participating in the project Many of the BioCF projects operated under into 12 municipalities.47 As a result, new arrange­ ments through which the PE (a government subagreements had to be established, in or private-sector institution) had complete rights order to ensure that there would be no over the project area, and the associated ERs. In disputes regarding carbon rights later on. such situations, the transfer of carbon rights, or (To make matters even more complicated, of ER title, was straightforward. In other cases, the Ministry of Environment was dissolved the communities or individual land­ owners who and replaced by a new Forestry Agency.) were involved in the project area had rights to their These institutional and territorial reforms land and the ERs. In such cases these became led to delays in getting the benefits to the subproject entities, and clear arrange­ ments had beneficiaries. to be established between these sub­­ entities and the main PEs, to ensure that the PEs were able • Land title transfers during project to transfer the ER titles to BioCF. Monitoring implementation can also cause delays and maintaining these sub­ arrangements was of in the distribution of ER payments, and critical importance, and there were challenges can impact the project entity’s ability to that impacted both imple­ men­ tation and benefit transfer title to ERs generated from the distribution. In some ins­tan­ ces these issues even project. When landowners end up selling led to termination of ERPAs. their land for other immediate needs, the PE may not be informed. This can affect the This section of the report includes both lessons benefit distribution process, and require that learned, and examples of good practices, from ER titles are reestablished. projects where land ownership and ER titles were directly linked to the communities or landowners For example, in the Colombia Commercial who participated in the projects. These lessons Reforestation project, the project entity (ONF could be useful for similar ER operations in Andina) realized during the distribution of ER mitigating or avoiding issues that could impact payments that some of the subcontracts with implementation and delivery. landowners had not been updated when land ownership was transferred to new owners. • Government reforms during project This delayed, and in some cases altogether implementation can lead to delays in prevented, ER payment to the landowners, if new ER payments, and result in the need to subagreements could not be established. This reestablish the project entities’ ability to type of situation poses a risk to the ERs that transfer title to ERs. Where subproject were transferred to BioCF. 47 According to the Implementation and Completion Report of the project, the reform consolidated 386 local government units with 61 new municipalities, and elected new mayors and municipal councils. 45 LESSONS LEARNED Similarly, in the Agroforestry Project in India, • In some of the projects, carbon rights were approximately 5-10 percent of the benefits differentiated from land rights in order to remained undistributed, since it was difficult avoid disputes between government and for the project entity (Veda Climate Change landowners. For example, the Colombia Solutions Ltd.) to trace several smallholder Agroforestry Project, initiated by a farmers, who had migrated and left unclaimed public-private partnership, engaged the inheritances and revenues. communities of the San Nicolas region by implementing a plan for the sustainable In the Costa Rica Reforestation Project, the management of forest resources. The project subcontracts signed between the farmers and entity, the Corporation for Sustainable the PE (FONAFIFO),48 under the PES program Management for Forests (MASBOSQUES) specified that all rights to the sequestered carbon signed legal agreements with the was transferred to FONAFIFO in exchange participating landowners, which established: for annual payments under the PES. As the (i) MASBOSQUES’s commitment to farmers were private landholders who owned implement the forestry and agroforestry the reforested area, the PES program continued plantations, (ii) the landowner’s commitment as long as the PES contracts were valid. The to project maintenance; and (iii) the PES contracts were for 5 years: following the landowner’s agreement to transfer the title first verification and payment, most of the for the carbon credits to MASBOSQUES, landholders sold their land, or did not renew their so that MASBOSQUES could enter into a PES contracts.49 As a result, FONAFIFO had to commercial ER transaction with the World mutually terminate the ERPA with BioCF, and Bank. therefore could not proceed with the second verification, from which they would have received In the Moldova Soil Conservation Project the second ERPA payment. to conduct project activities on the 48 National Forest Financing Fund (Fondo Nacional de Financiamiento Forestal). 49 Costa Rica Project Implementation and Completion Report (ICR), pg.17. 46 communal lands, the PE (Moldsilva) Therefore, in projects that involve several signed subagreements with most of the participating landowners, it may be helpful communes, establishing: (i) the usufruct to ensure the validity of subcontracts right of the commune land for a period through open communication and consistent ranging from 5 to 20 years; and (ii) the follow-ups with participating communities transfer of carbon rights’ ownership from through monitoring and supervision. For the communes to Moldsilva. Communes large-scale programs, this can become an were also given the option of investing in excessively complex issue if a robust system the planting and maintenance activities of monitoring and updating contracts is not in return for receiving carbon revenues maintained. rather than delegating them to Moldsilva via a subagreement. However, according • Clear communication from the onset of to the Implementation and Completion project activities not only helps to avoid Report (2019) of the project, none of the delays or conflicts and prevent problems communities chose this option; all of with ER title transfers; it can also the participating communities chose to incentivize continued engagement by the delegate their responsibilities and carbon participating communities. In the Moldova rights to Moldsilva, in recognition of their Soil Conservation Project, 95 percent of technical expertise. This was evident the landowners signed agreements with from the 95 percent of the communities the project entity, Moldsilva, to continue that signed subsequent agreements with carbon project activities after the end of Moldsilva to continue the project activities. the project. The participating communes were well-informed about their rights, and CONCLUSIONS saw the benefits of selling carbon credits by integrating into CDM. • Where subproject entities’ rights to their land are directly linked to the title to ERs, it is important that they are made fully aware of the impact that sale of their IX. Beyond Emission land can have on ER title transfer. Such Reductions Payments subproject entities should also be informed that the PE must be notified about any BioCF results-based initiatives combine the sale or transfer of their land rights to new financial returns from the sale of emission owners; and the new owner is aware of the reductions (ERs) with the indirect benefits ER project and the title to ERs generated realized through improved livelihoods and from their land. sustainable land management practices. • Clear and consistent communication Implementation of these ER operations in the between the project entities and land-use sector has yielded a wealth of lessons participating communities can be helpful for similar operations. in minimizing land title transfer issues. As can be seen in the examples provided This section of the report outlines some of by the Colombia Bajo Seco Commercial the success stories of projects that were able Reforestation Project and the India to realize benefits beyond the ER revenues; Agroforestry Project, land title transfer contribute to community development and issues such as outdated land titles, improved livelihoods; and have a positive impact abandoned land, and inheritance disputes on the environment and agricultural land. It will can not only create delays in the distribution also highlight examples of some of the projects of ER payments but can also pose a risk to that have already achieved or are planning to the validity of the ER titles being transferred. scale up their ER operations. 47 LESSONS LEARNED 1. Socioeconomic Benefits project activities and consistent reporting of how the communities planned to utilize • Some of the BioCF projects contributed to the revenues to their benefit. For example, the improvement of rural livelihoods through the projects in Ethiopia and Niger for the job creation for communities within the restoration and regeneration of degraded project area. According to the 2018 World lands enabled participating communities to Employment and Social Outlook Report invest in infrastructure development such by the International Labour Organization as new roads, schools, and a health center (ILO), although climate change mitigation in Ethiopia; and new mills in Niger. They also initiatives will cut jobs from resource- invested in purchasing medical equipment intensive industries, the number of jobs and school supplies. In both cases, the created by carbon offset opportunities like communities remained proactively engaged BioCF will be greater than the number of jobs in project activities beyond the term of the lost. This was evident in BioCF operations, Emissions Reduction Purchase Agreements where many new operational and seasonal (ERPAs). Another notable example was the jobs were created to implement land-use project in Zambia for the implementation change activities (e.g. plantations), positively of REDD+ and SALM activities to sequester impacting rural communities. Approximately carbon. Prior to the project, poor farming 72 percent of the BioCF project activities practices such as residue burning had led helped to generate employment for the local to rapid depletion of soil nutrients. There communities (Table 3). was also a general lack of land-use planning and forest management, which was leading • Where ER revenue was reinvested to forest loss. After receiving ER revenues, in development initiatives such as business opportunities through the sale of infrastructure development, social livestock, new poultry businesses, and the inclusion, capacity building, improved soil renovation of new schools and offices were productivity, improved yield, and so on, created; deforestation was reduced; and soil the projects were quite successful, and quality was improved. they incentivized continued engagement in project activities. In the communities where • Projects that incorporated gender BioCF project ER revenues were reinvested development objectives helped to increase for the improvement of community women’s participation in project activities. livelihoods (for example, through new However, despite gender-sensitive planning, business ventures) the carbon operations the participation of women in leadership were appreciated, and citizens realized their roles was low, due to cultural norms and a benefits. This was evident through continued low level of literacy among women. Some Table 3: Jobs Generated in Some of the BioCF projects PROJECT JOBS CREATED TYPES OF JOBS Nicaragua Reforestation • 21 full-time staff Seasonal jobs for tasks such as planting, maintenance, Project • 72 seasonal jobs weeding, pruning, fire control, thinning, and harvesting • 30 permanent jobs Permanent jobs in forest management, and seasonal DR Congo Fuelwood and jobs in the maintenance and plantation phases of the Timber Plantation Project • 200 seasonal jobs project Ethiopia Humbo • 16 permanent jobs Permanent jobs as forest guards and workers for grain Assisted Natural stores and flour mills. Seasonal jobs were temporary Regeneration Project • 250 seasonal jobs labor during project implementation. 48 BioCF projects made the participation of as the collection of fuelwood and nonwood women in forest management activities forest products for food, medicine, and one of their development objectives fodder (Setyowati 2013). throughout implementation. For example, in the reforestation project in Brazil, and the While embedding gender objectives can be Ethiopia regeneration project, there were helpful, it is also important to consider local significant gender components built into cultural norms. For example, it was noted in the project design that aimed to encourage the Zambia Landscape Management Project women to participate in project activities. As that 52 percent of the participating farmers a result, in Brazil a large number of women in the 81 cooperatives were women, but only did participate in the production of cloned 6 percent of the cooperatives were led by seedlings for the plantations (De Gouvello women (LTS International 2019). Women’s et al 2018). In Ethiopia, each cooperative participation was strongly influenced by the participating in the project had female membership of their spouses; for example, participation ranging from 12.1 to 39 percent the proportion of women in leadership roles (Thiede 2014). This was particularly crucial, was very low since generally the spouse since women are often direct users of the would be given priority for such roles if both forest through traditional practices such of them were participating. “Revenues from first verification paid for my daughter’s education fee to study medicine and the revenues from second verification paid for her to specialize in pediatrics. Today, she is the first pediatrician from carbon revenue of the region.” Landowner testifies at an event organized by the project implementing agency ONFA (French National Forest Office in Colombia – Andina) 49 LESSONS LEARNED • Revenues from ER payments can also Similarly, as they became aware of the facilitate local women-led businesses, tangible benefits in the project area and access to education for impoverished (increased rainfall, and biodiversity) communities. In the Niger Acacia communities in the Colombia Commercial Plantations project, one of the investment Reforestation Project became more plans from the ER revenues included the environmentally conscious. ONF Andina establishment of microcredit and financing reported that although in the beginning for women and youth. This will encourage farmers did not have a theoretical vulnerable communities to create business knowledge of carbon operations, they were ventures, and improve livelihoods. And in the proud to be part of having an impact on a Colombia Commercial Reforestation Project, global level from their region. which engaged participating landowners in reforesting lands previously dedicated to • Project activities helped participants acquire cattle grazing, landowners who participated knowledge of technical procedures, learn in the project activities were able to use the how to form cohesive groups, and other ER payments toward access to education useful skills. Several BioCF projects were for their children. piloting operations in developing countries where carbon initiatives had not yet been 2. Environmental Benefits widely known or practiced. With the help of BioCFplus TA funding, these projects were • The environmental benefits from able to acquire knowledge through capacity reforestation activities (increased rainfall, building workshops that helped them sustain access to new water resources, increased project activities within and beyond the term biodiversity) created awareness and of the ERPA. For example, during a World appreciation of such benefits within the Bank mission to monitor the Chile Carbon communities. In the Ethiopia Humbo Sinks Project, the team visited a school to Assisted Natural Regeneration Project, the review the environmental education and communities acknowledged the project’s activities that were being carried out with impacts on the environment (reduced children in the project area. The students erosion, increased vegetative cover, demonstrated their knowledge of birds ty­ improved soil fertility, reduction of pests, pical to the area and the importance of con­ and increased water streams). Ultimately, serving the native forests, especially for its these benefits also impacted the day-to- function in recharging groundwater. The field day lives of the communities: for example, trip with the students was also an effective with access to new water sources closer to outreach method for spreading awareness their homes, children did not have to travel within the communities, as those community as far to fetch drinking water, which allowed members then adopted conservation for increased school attendance, and better measures initiated by the project.50 personal hygiene. According to an interview with members of the communities led In other cases, projects gained substantial by the project entity, World Vision, more technical knowledge that can positively impact than 50 percent of community members the land-use sector at large. For example, in realized the environmental benefits that the Brazil Reforestation Project, which aims to were evident from the plantations, and reforest lands along the banks of hydropower regeneration of degraded lands. reservoirs, the project entity, AES Tiete,51 50 Chile SIF Project Implementation Completion Report, 2017. 51 AES Tietê S.A. is a large Brazilian electrical energy generator that owns and operates 10 hydropower plants, with an installed capacity of 2,651 MW within the state of São Paulo, Brazil. 50 “Six years ago, a child would be washed maybe every three days. Now they are washed every day. Children also wash themselves at the standpipe. Children and their clothes are cleaner now.” Female cooperative members in Ethiopia project testified in World Vision interviews. assimilated technical knowledge of how to • Livelihoods”) in partnership with Livelihood reforest lands with 400 native species. This Venture. This project aims to improve was previously considered a major hurdle in the livelihood of 30,000 farmers through Brazil, especially in large-scale reforestation introducing sustainable farming practices, projects using native species. AES’s technical and to increase milk productivity by 30 know-how was disseminated through technical percent through reforestation of degraded visits, presentations, and publications by its lands on Mount Elgon in Kenya; and this trained personnel in seedling plantation and is all thanks to the success of the Kenya management. According to the Carbon Finance BioCF project. It should be noted, however, Assessment Memorandum (CFAM) document of that scalability of projects requires robust the project, acquisition of new knowledge and financial resources to implement and techniques for A/R around reservoirs was the supervise. most substantial social contribution expected from the Brazil Reforestation Project. While private financing can help in countries where public resources are lacking, some 3. Scalability of Projects Beyond BioCF countries, such as China, are driving carbon projects forward with strong political will • Political will, an enabling environment, and government resources. This was evident available funding, and farmers’ dedicated from two Chinese projects in the BioCF interest in a project can facilitate the portfolio,52 led by the National Guangxi Forestry scaling up of project activities. Some Department. Despite being the first A/R BioCF projects have been able to replicate projects in the country to be registered under or scale up project activities beyond CDM, the technical and financial resources their involvement or participation in mobilized through the partnership between BioCF through the ERPAs. For example, the Guangxi Forestry Department and the in the Kenya Agricultural Carbon Project forestry companies resulted in highly efficient (KACP), 68 percent of the farmer groups preparation, validation, and registration of the were interested in sustaining the project project. (For example, validation only took about activities because they realized that their 5 months, compared to an average of about improved farm productivity and incomes 10 months for most projects.)53 The Guangxi had resulted from improvement of the Forestry Department worked closely with soil. This motivated the project entity, the forestry companies in allocating funding Vi-Agroforestry, to not only continue resources and experienced staff not only to supporting the farmers in the KACP support CDM preparation, but also throughout project, but to replicate the methodology implementation. This was crucial to the success used in another project (“Mount Elgon of the projects. 52 The China Watershed Management and Reforestation Project, and the China Reforestation Project. 53 BioCF Tranche 1 Window 1 Annual Report 2009. 51 CONCLUSIONS CONCLUSIONS • Emphasizing the importance of the potential socioeconomic and environmental BioCF has yielded a wealth of lessons learned benefits, and presenting ER payments for future initiatives, as well as benefits as added revenues can help gain and for participating stakeholders that include sustain stakeholder participation in environmental and livelihood improvements, and the project. Projects that promoted ER the acquisition of knowledge. Furthermore, by revenues as an additional incentive, mobilizing the resources made available through while putting more emphasis on benefits the funds, some of the projects were able to such as additional income from land- achieve scalability. use change, were more successful. A robust plan to raise awareness and to Encouraging landowner participation in forestry direct participants more toward the more activities by promoting the long-term benefits, comprehensive benefits can help encourage while managing expectations, may help to community participation and better promote sustainable and climate-friendly land implementation of project activities. It is management practices beyond the duration of the also important to manage expectations project. Several projects created both seasonal through clearly communicating the and permanent jobs for rural communities. benefits; misinformation can cause farmer/ They also built capacity and knowledge that landowners to either overestimate or could be transferred beyond the term of the underestimate their expectations, and project. Encouraging landowners to participate this can have an ultimate impact on their by communicating the potential benefits of the participation in carbon operations. operations can ultimately lead to continued good practices in forest management, and ultimately the creation of more jobs. 3. Conclusions The lessons learned and collected in this study usually the amounts provided were not enough, have helped to identify a wide range of issues and and did not help much with ER delivery. Where challenges, as well as good practices on various projects were associated with larger investment aspects of emission reduction (ER) operations, programs--like the World Bank investment which can lead to either the success or failure of project financing programs--the upfront these initiatives. A number of these lessons can financing needed for project preparation, as well be informative for large-scale programs like FCPF as technical capacity needs, were adequately and ISFL, as well as other similar initiatives. addressed. The BioCF projects have shown that ER initiatives In addition to addressing the upfront financial are very challenging as stand-alone projects, needs, integration into larger programs whose and even more so when they are small-scale in objectives complemented those of the project, nature. As ER payments can only be accessed helped to further enhance the ability of the project when results are generated, such projects need to to deliver ERs. This was even more prevalent have enough upfront capital to implement the ER for large-scale initiatives that involved major generating activities. Where projects did not have investment needs and stakeholder engagement such upfront financing on their own, advance in order to achieve the intended results. Not only payments or grants helped to some extent, but can large investment programs help leverage 52 resources for ER programs; they can also lead to turnover, and even more importantly can help to scalability and long-term sustainability since they provide cost-effective and efficient monitoring and can be easily main­streamed into subnational or verification. This is very relevant for large-scale national ambitions. programs, which could leverage local resources by partnering with nearby academic institutions that Communicating the benefits beyond the ER can integrate the MRV work into their curriculum payments is very important, as has been seen in as internship programs. some of the successful BioCF projects. For project stakeholders, particularly those who are directly Equitable and transparent benefit sharing is involved in implementing the ER generating very important in results-based initiatives like activities, the benefits have to be tangible: ER projects. It directly impacts stakeholder improved livelihoods, income generation, and the engagement and prevents conflicts during like. ER payments should be viewed as additional the benefit-sharing process. Benefit-sharing sources of finance, not as the sole benefit of arrangements should also be flexible enough participation in the project. Where these projects to allow for updating during the course of are embedded into larger investment programs, implementation if the previously defined ER payments should also be seen as a source of arrangements are impacted by administrative finance that can be reinvested in project activities reforms. The case of Albania is very relevant, and that benefit the project stakeholders while also it will be even more challenging and complex in generating more ERs. the case of large-scale jurisdictional programs like those under the FCPF Carbon Fund and ISFL. Experiences from the BioCF projects have shown Such programs are implemented by government that building and sustaining technical capacity is agencies, which often go through administrative often very challenging, particularly in situations changes: elections can result in a total where there is high staff turnover and poor restructuring of the governance structures. knowledge transfer. Some projects have shown that successful partnerships with academic The experience of BioCF has indeed shown the institutions can help with the problem of high staff impact of an enabling environment supported 53 CONCLUSIONS by the BioCFplus TA fund. The availability of investment initiatives, major issues such as these, such resources has helped in piloting innovative which could potentially hamper project delivery projects, since most of the projects had technical can be addressed more easily. capacity issues related to MRV and carbon accounting. Without the TA funding they might Regular monitoring of land title transfers during not have been able to go through verifications, or project implementation helps to ensure that the even be registered under CDM or VCS. This will be ability to transfer titles to ERs is maintained, relevant for new large-scale initiatives, because and to avoid delays in ER payment distribution. they are also piloting new methodologies and Consistent communication between the PEs frameworks at the national or subnational level in and communities can be helpful in minimizing countries that often have a low level of technical land title transfer issues. In large-scale programs capacity. that involve a much greater number of project stakeholders and beneficiaries, this monitoring We also see the overriding importance of risk becomes even more crucial. management strategies and corrective actions that are taken to mitigate the risk of zero delivery, BioCF project examples underscore the or underdelivery, of ERs. While ERPA amendments importance of stakeholder engagement and can help to mitigate the risk for the Fund, they effective communication throughout all of have no advantages for the projects. In fact, the processes of carbon finance operations. closer attention should be paid, during the regular Frequent consultations and clarifications of monitoring and supervision of activities on the project objectives, activities, and benefits early ground, to detect implementation issues early in the project cycle can be helpful in managing on and take the necessary corrective measures. expectations of the involved communities. In Of course, sometimes natural hazards are the addition, timely and transparent dissemination cause for the failed activities; this cannot always of information and project results can keep be predicted or dealt with very easily. However, stakeholders updated and can help to maintain once again, when projects are linked with larger community support. Bibliography Baroudy, E., and Z. Salinas. 2011. BioCarbon Fund D. Diaz, 2010. “Moving Beyond the Buffer Pool.” Experience: Insights from Afforestation https://www.ecosystemmarketplace. and Reforestation Clean Development com/articles/moving-beyond-the-buffer- Mechanism Projects. Washington, DC: pool/ Cancun: Ecosystems Marketplace. World Bank Group. Durbin, J., D. King, N. Calderwood, Z. Wells, and Chen, C., T. Park, and X. Wang, et al. 2019. F. Goday. 2019. Benefit Sharing at Scale: “China and India Lead in Greening of the Good Practices for Results-Based Land Use World through Land-Use Management” Programs. Washington DC: World Bank Nat Sustain 2, 122–129 https://doi. Group. org/10.1038/s41893-019-0220-7 Ge, M., and J. Freidrich. 2020. “4 Charts Explain De Gouvello, C., C. Diewald, and F. N. Avelar Greenhouse Gas Emissions by Countries Marques. 2018. From Project to Global and Sectors.” https://www.wri.org/ Public Good: The Story of the Plantar blog/2020/02/greenhouse-gas- Group. World Bank Partnership (English). emissions-by-country-sector Washington, Washington, DC: World Bank Group. DC: World Resources Institute. 54 Gillenwater, M., and S. Seres. 2011. The Clean Thiede, B. 2014. Humbo Community Managed Development Mechanism: A Review of the Natural Regeneration Forest Project. First International Offset Program. Pew Evaluation Final Project Report. Ethiopia: Center on Global Climate Change, 8. World Vision. International Labor Organization (ILO). 2018. World Verra. 2014. “VCS+SOCIALCARBON Project Employment and Social Outlook: Greening Development Process.” https://verra. with Jobs. Geneva: International Labour org/wp-content/uploads/2018/03/ Organization. VCSSC-Guidance-Project-Development- Process-v3.0.pdf Washington, DC: Johnson, K. 2001. Brazil and the Politics of the Publisher?. Verified Carbon Standard. Climate Change Negotiations. Sage journals, Vol. 10, Issue 2, 2001. World Bank Group. 2019 “State and Trends of Carbon Pricing 2019.” https:// LTS International. 2019. End of Review Community openknowledge.worldbank.org/ Markets for Conservation: COMACO handle/10986/31755 Washington, DC: Phase III: Final Report. Edinburgh: LTS World Bank. International Ltd. Seyowati, A.B. 2012. Ensuring that Women Benefit from REDD+. Women Organizing for Change in Agriculture and Natural Resource Management (WOCAN) Brief. Unasylva 239, Vol. 63, 2012/1. ANNEX I: Project Summaries Albania Regeneration Project Objective: Restoration of 5,357.36 hectares of degraded lands, by assisting with the natural regeneration of vegetation. Project Background: This project supported a participatory approach within the community to arrive at a common agreement on the selection of sites and their protection from grazing, and facilitates the implementation of the interventions needed to accompany this change. The project was embedded under the larger umbrella of the Natural Resources Development Project (NRDP), a World Bank investment project financing (IPF) project to the government of Albania. Activities financed under NRDP included: (i) protection from grazing, to promote natural regeneration; (ii) supplemental planting to enrich species diversity and to stabilize highly eroded areas; and (iii) silvicultural measures to enhance biomass density. The Ministry of Environment, Forests, and Water Administration and its regional and district directorates were responsible for project implementation and supervision, as well as monitoring, reporting, and verification (MRV). The Forest and Pasture User Associations (FPUA) were responsible for planting, tending to trees, and annual reporting. 55 ANNEXES Brazil Plantar Reforestation Project Objective: Establishment of plantations in 11,731 hectares of land, to supply all of the iron production needs in the state of Minas Gerais, located in the Southeastern region of Brazil, with charcoal from renewable wood supplies, instead of GHG-intensive reducing agents. Project Background: The project areas covered the São Francisco Basin: the main sub-basins are the Paraopeba and Três Marias reservoirs. The project-integrated activities were implemented in response to the Clean Development Mechanism (CDM) incentive, which allowed the project entity, the Plantar Group, to overcome the constraints to obtaining supplies of sustainably produced biomass. The establishment of plantations as a renewable source of energy for industrial needs resulted in a twofold benefit to the climate: (i) generation of carbon stocks and greenhouse gas (GHG) removals by sinks, in addition to those that would occur in the absence of such plantations; and (ii) the use of sustainable sources of biomass in place of fossil fuels and nonrenewable biomass, to reduce GHG emissions in one of Brazil’s major industrial sectors, the iron and steel industry. The harvesting of the project plantations established in 2000 commenced in 2007/2008; this project entity was the first of its kind to have 100 percent of its iron production based on renewable charcoal. Brazil AES Tietê Reforestation Project Objective: Reforestation of 2,001.2 hectares of riparian areas along the banks of AES Tietê’s 10 hydropower reservoirs in the state of São Paulo, with native forest species. Project Background: The project used a mix of native tree and shrub species, which were selected based on their traditional occurrences in the reforested areas, as well as their ability to provide a long-term sustainable riparian forest habitat. The project entity, AES Tietê S.A., is a large Brazilian cal energy generator that owns and operates 10 hydropower plants. Between 2001 and 2007, electri­ AES Tietê reforested about 1,568 hectares of noncontiguous lands along the reservoirs. The results de­mons­ rated that the riparian areas will only regenerate forest cover through human intervention, t­ as the areas were no longer able to regenerate naturally; therefore, reforestation activities were required. Chile Carbon Sinks Project Objective: Reforestation of 2,917 hectares of marginal and degraded “Secano Interior” lands in Regions VII and VIII of Chile. Project Background: The project was implemented by Fundaćion Chile, a leading nonprofit organization that is devoted to innovation and technology transfer. Through land-use contracts, small and medium landowners received annual payments for the use of their lands, plus 10 percent of the revenues at the time of harvest. The principal goals of the project were to: (i) promote reforestation; (ii) provide an alternative, productive land-use opportunity for small landowners; (iii) support small landowners in converting part of their landholdings into planted forests, thus allowing them to retain their property rights; (iv) reverse and control soil erosion and degradation through planting; (v) enhance biodiversity values, as well the livelihood of local landholders; and (vi) sequester carbon dioxide from the atmosphere. 56 China Watershed Management and Reforestation Project Objective: Facilitatation of reforestation for the Guangxi Watershed Management in the Pearl River Basin, by establishing about 3,000 hectares of multiple-use forests with mostly native species, on degraded lands in the Huanjiang and Cangwu counties of Guangxi Province. Project Background: The reforestation in Huanjiang included sites neighboring the Mulun National Nature Reserve and the Shiwanshan National Nature Reserve, and sites with severe soil and water erosion in Cangwu. The project was implemented separately but linked with a larger umbrella project—the Guangxi Integrated Forestry Development and Conservation Project (GIFDCP)—which supported the monitoring of environmental and social impacts on natural forests, as well as watershed and biodiversity aspects of the Guangxi Zhuang Autonomous Region. The project demonstrated an innovative technical and methodological approach to credible carbon sequestration. It enabled the carbon that was being sequestered by the plantations to act as a “virtual cash crop” for local project beneficiaries. Beneficiaries gained direct benefits from harvesting the plantation for timber and nontimber products, as well as income from the sale of carbon credits, which in turn reduced the threats to natural forests. China Reforestation Project Objective: Reforestation of 8,000 hectares of multiple-purpose forests on degraded lands in Northwest Guangxi. Project Background: The project contributed to controlling soil and water erosion, as well as to res­ toring degraded lands. Most of the tree species that were planted were native to the region (inclu­ding ted with a mix of birch, China fir, Chinese red pine, and sweet gum), and some of the area was plan­ eucalyptus to meet small timber and fuel wood needs. By bridging the income gap and miti­ ga­ ting financing risk, carbon finance helped the project overcome investment barriers, namely the lack of commercial bank loans available for forestry activities in degraded areas. The project was implemen­ ted by the Guangxi Longlin Forestry Development Company Ltd, in association with the Forestry Department of Guangxi Zhuang Autonomous Region (GZAR). It benefited from GZAR’s expe­ rience in the first CDM A/R project ever registered (the China Watershed Management and Refores­ tation Project), which was registered in 2006. The project was also developed under the umbrella of the World Bank-financed Guangxi Integrated Forestry Development and Conservation Project. Colombia Bajo Seco Commercial Reforestation Project Objective: Reforestation of 4,400 hectares of land traditionally devoted to extensive cattle grazing in northern Colombia, in the lower part of the Magdalena River Basin (Magdalena Bajo Seco). Project Background: The covered region included six municipalities—Santa Bárbara de Pinto, Plato, Tenerife, Zapayán, Pedraza, and Piñón—and is one of the most deforested areas in the country. The program became the first example of a public-private partnership for the forestry business in Colombia. There has been a shift away from the traditional approach of using donations, loans, or government subsidies for forestry initiatives, to an internalization of forestry as a business. Participating landowners now perceive the forestry initiative as their own business, since they receive the payments for emission reductions. 57 ANNEXES Colombia Carbon Sink Project Objective: To restore and increase the productivity of 2,194.8 hectares of degraded land across six municipalities through three interventions that will actively involve, and bring benefits to, the surrounding communities. Project Background: The project area, located in the savannah landscapes in the northern part of Colombia, in the department of Cordoba, was characterized by soils that were under a significant process of degradation due to exhaustive livestock systems. The Centro Internacional de Agricultura Tropical (CIAT), the Corporación Colombiana de Investigación Agropecuaria (CORPOICA), and the Corporación Autónoma Regional de los Valles del Sinú y del San Jorge (CVS) partnered to pilot the use of silvopastoral and reforestation systems as a tool for arresting the process of land degradation in the coastal plains of Colombia. The first intervention focused on recuperating 492.4 hectares of degraded pastures by establishing forage shrubs and trees for fruit production, which also feeds the animals in the area. This activity was carried out by the Zenu indigenous community, and local cattle ranchers. The second intervention focused on the reforestation of 1,502 hectares of land with rubber trees: this was undertaken by local small-scale farmers who have traditionally used the degraded area for cropping. The third intervention concentrated on reforestation of 200.2 hectares of land with high-value timber species, and is being carried out by local medium-scale farmers. Colombia Agroforestry Project Objective: The establishment of forestry and agroforestry systems on 617.15 hectares of natural grasslands; securing their sustainable management with active community participation; and generating ERs from the reforestation activities. Project Background: This project was located in the subregion of the valley of San Nicolas, which is made up of nine municipalities in the eastern part of the Department of Antioquia, Colombia. More specifically, it was situated in the hydrological basin of the Rivers Negro and Nare. The project implemented a plan for sustainable management of the forest resources in the Antioquia region of San Nicolas through the establishment of forestry and agroforestry systems on natural grasslands, with active participation of the local communities. Costa Rica Agroforestry Project Objective: Carbon sequestration through agroforestry practices in small and medium privately owned farms in the Brunca region of Costa Rica. Project Background: Farmers in the Brunca region worked with a cooperative (COOPEAGRI) to introduce forestry activities on their privately-owned farms. COOPEAGRI is a cooperative of farmers dedicated to agricultural activities such as raising coffee, sugarcane, and cattle. Located in the Perez Zeledon County, the region covered by the project encompassed a total area of 892.42 hectares of rolling hills covered with pastures, coffee, sugarcane, and small patches of forest. The project was promoted and implemented by Fondo Nacional de Financiamiento Forestal (FONAFIFO), which was created by the Costa Rican government to implement a Payments for Environmental Services (PES) to promote reforestation and forest conservation on private lands in the country. The PES program was managed by FONAFIFO; COOPEAGRI provided technical assistance to the farmers participating in the CDM afforestation/reforestation (A/R) project, who individually subcontracted with the PES program. 58 Democratic Republic of Congo (DR Congo) Fuelwood and Timber Plantation Project Objective: Conversion of 4,220 hectares of natural grassy savannah into an abundant and sustainable fuelwood supply for charcoal production in the Ibi Batéké region. Project Background: This project worked with the local population and with farmers to stop the destruction of the natural forests, and to concentrate on planting managed forests. Degraded lands were transformed into a managed forest of acacia, eucalyptus, and other indigenous species that sequester carbon and contribute to the supply of fuelwood for the capital city of Kinshasa. The project was developed by NOVACEL, whose founders are native to the Ibi Batéké region. It integrated agricultural, livestock, and forest production with the agroindustrial production of commodities such as cassava flour, corn flour, and charcoal, resulting in the strong involvement of local communities. BioCF played a pivotal role in enabling NOVACEL to obtain the private sector loans needed to finance the project’s upfront investments, and facilitated the participation of a second carbon buyer, Orbeo, a subsidiary of the French conglomerate Société Generale and Rhodia. UMICORE, SUEZ, and AFD (the French Development Agency) financed some of the investment needs for the project, and the United Nations Environment Program (UNEP)’s CASCADE program provided technical assistance. At the end of 2016, due to financial difficulties, all of the obligations of the project were transferred from NOVACEL to a new company called Mushiete & Cie. In addition, Orbeo was incorporated under Solvay Energy Services (SAS). Ethiopia Humbo Assisted Natural Regeneration Project Objective: Restoration of 2,700 hectares of a biodiverse native forest through an assisted natural regeneration project, while supporting local income and generating jobs. Project Background: The project restored indigenous tree species to the Humbo area, a mountainous region of southwestern Ethiopia. The local community has been actively engaged, with seven community cooperative societies managing the regeneration areas, and a system in place to monitor the project’s environmental and social issues. The project was the first of its kind in Ethiopia in that it has employed farmer-managed natural regeneration (FMNR) techniques. FMNR techniques enable rural communities to assist with the resprouting of native species by identifying, selecting, and pruning existing tree and shrub root stocks in the soil. The project was jointly implemented by World Vision Ethiopia, Australia, and the community cooperatives. India Agroforestry Project Objective: Mobilization of resource-poor farmers to raise tree plantations on highly degraded agricultural lands. Project Background: The project was implemented in the Indian states of Orissa and Andhra Pradesh, engaging small landholders spread over a total of 1,600 hectares in six districts: the Rayagada, Koraput, and Kalahandi districts in Orissa; and the districts of Visakhapatnam, Srikakulam, and Vizianagaram in Andhra Pradesh. It was implemented by a joint partnership between VEDA MACS Ltd., a cooperative society that addresses issues related to sustainable development in general, and sustainable agroforestry practices in particular; JK Paper Mills Limited (JKPL), as the key industrial partner of the project; and Veda Climate Change Solutions Ltd., a new company created for the purposes of this project. The partners arranged short-term credit to farmers for upfront investment costs and provided subsidized planting materials; they also committed to purchasing the timber at market prices. Long-term credit for small and marginal farmers was also arranged, to help meet the costs of plantation and maintenance. 59 ANNEXES India Watershed Management and Reforestation Project Objective: Reforestation of 4,000 hectares of the Siwalik Hills of Himachal Pradesh, in catchment areas for three major rivers: the Ravi, the Beas, and the Sutlej. Project Background: This project was developed by the government of Himachal Pradesh (the Department of Forests), under the Mid-Himalayan Watershed Development Project (MHWDP) of the World Bank. It was implemented under four guiding principles: (i) adopting native and locally preferred tree species for reforestation (including more than 50 native species); (ii) involving the local Gram Panchayats (GPs), and small and marginal farmers, in reforestation activities that will strengthen the ongoing watershed interventions; (iii) facilitating technical, financial, and capacity development support from MHWDP for reforestation activities; and (iv) distributing carbon revenue to the village communities (GPs and farmers). Kenya Agricultural Carbon Project Objective: To promote and implement a combination of Sustainable Agricultural Land Management (SALM) practices within smallholder farming systems, and the generation of GHG removals through soil and tree carbon sequestration. Project Background: This project targeted smallholder farmers and small-scale business entrepreneurs organized in farmer groups and primary-level cooperatives. The project implemented SALM on 45,000 hectares of land owned by 60,000 smallholders, organized into 3,000 registered self-help groups. It was implemented by Vi Agroforestry, an NGO that has provided agroforestry advisory services to farmers in East Africa for over thirty years. It was financed by the Foundation Vi Planterar träd (“We plant trees”), and the Swedish International Development Agency (SIDA). This project was the first agricultural land management carbon project in the world to successfully issue emission reductions (ERs) under VERRA as a result of the successful implementation of sustainable land management practices. The financial incentive derived from carbon finance served as a catalyst for the adoption of sustainable practices, and complemented the key incentive of the 15-20 percent increase in farmers’ yields that has accrued from adoption of SALM practices. The carbon revenues were designed to end as carbon pools become saturated, while farmers continued to register increased yields and incomes from the healthier and more productive soils that resulted from the adoption of SALM. As the targeted farmers were typically poor, with limited assets, a reliable source of financing was required to help them meet the initial costs related to SALM adoption. Under this project, farmers were able to access financing through their Village Savings and Loan Associations (VSLs). 60 Madagascar Conservation Project Objective: To implement reduced emissions from deforestation and forest degradation (REDD+) activities in the areas around the Ankeniheny-Zahamena Corridor (CAZ) of Madagascar, in order to provide direct incentives and alternative livelihood activities for local communities. Project Background: The Madagascar Conservation Project covered 370,032 hectares of Madagascar’s humid eastern rainforest, and provides important ecosystem services to both the surrounding area and greater region. CAZ has long been regarded as one of Madagascar’s top conservation priorities; numerous studies have catalogued its rich biodiversity. To date over 2,043 species of plants have been identified, 85 percent of which are endemic. It protects the headwaters of eight large rivers that directly supply approximately 325,000 residents with water. By far the greatest threat to the forest corridor is slash-and-burn agriculture, which threatens the long-term existence of the corridor. If this pressure is not alleviated, CAZ will soon disappear, and with it the incredible biodiversity it houses; but also the essential ecosystem services it provides to countless rural families in the area. Moldova Soil Conservation Project Objective: To restore the productivity of degraded lands; enhance forest product supplies for local communities; and promote net GHG removals by creating sinks across a total area of about 20,300 hectares spread throughout the country. Project Background: The project was implemented by the National Forest Agency of Moldova (Moldsilva). It covered degraded lands in the northern, central, and southern regions of the country. Locally adaptive and naturalized species planted along with native species provided a cost- effective way to prevent soil erosion and landslides; stabilize slopes; and generate both wood and nonwood products for rural communities. Experience has demonstrated that the use of locally adapted naturalized species offers the best chance for the first stage of land reclamation and soil stabilization, prior to the establishment of native species, which require better soil conditions. Reforestation on poor and marginal lands was therefore first undertaken with locally adapted nonnative species; secondary plantings were undertaken later using native species. When possible, native species were planted directly on partially degraded sites. Moldova Community Forestry Development Project Objective: Creation of new community forests through the afforestation of 10,000 hectares of eroded and unproductive lands; the application of agroforestry practices; and the creation of forest protection belts. Project Background: This project enhanced GHG removals by sinks; improved forest and pastoral resources at the local and regional level; provided wood to the local population; and contributed to local and regional sustainable development projects. It was implemented by hundreds of local councils, in association with the National Forest Agency of Moldova (Moldsilva), which registered the second-ever A/R CDM project: Moldova Soil Conservation. 61 ANNEXES Nicaragua Reforestation Project Objective: Reforestation of 813 hectares of degraded pasture lands near Sapoá and Esperanza with teak and other native wood species. Project Background: This project contributed to the sustainable development of Nicaragua through reforestation, and helped to generate sustainable wood supplies that reduced pressure on natural forests and served as carbon sinks. The project was developed by Precious Woods Holding AG, a Swiss private agroforestry company that has operations in Brazil, Costa Rica, and Nicaragua. Precious Woods and its subsidiaries already have Forest Stewardship Council (FSC) certification for several of their existing agroforestry activities. In 2014, implementation and management of the project was transferred to Novelteak AG, which is also in the process of earning FSC certification. Niger Acacia Plantations Project Objective: Restoration of deforested and highly degraded land in the Sudano-Sahelian zone of the Republic of Niger by empowering rural communities to adopt sustainable agroforestry practices, and by establishing plantations of the native species Acacia senegalensis (Acacia Senegal) on more than 7,000 hectares of land. Project Background: The project was integrated as an activity under the larger World Bank Community Action Program. It represented the first effort in Niger to establish Acacia Senegal plantations on a large scale in regions where dry forests are unable to regenerate by natural means. The sale of emission reduction (ER) credits from the carbon that is sequestered in the plantations made the project more viable by providing an additional revenue stream that supplemented income earned from the sale of Arabic Gum from the acacia tree. The project was an innovative public-private partnership involving the following parties: Achats Service International (ASI), a dynamic Franco-Nigerien agribusiness; the Ministry of Water, the Environment, and the Fight against Desertification (ME/E/LCD); and the rural communities that benefited from the project through job creation, and by developing their own plantations. Implementation and management of the project was transferred to Novelteak AG, which is also in the process of earning FSC certification. 62 Uganda Reforestation Project Objective: Establishment of 2,000 hectares of pine and mixed native species plantations in the Rwoho Central Forest Reserve, grassland areas previously degraded due to deforestation and erosion. Project Background: This project promoted private and community-based tree-planting initiatives with investor shares. The project design can be easily replicated, and the plan is to extend it across the country to a number of deforested public forest reserves. This project became the first African forestry project to be registered under CDM in August 2009. It was implemented by Uganda’s National Forestry Authority (NFA) in association with local community organizations. The Rwoho Environmental Conservation and Protection Association (RECPA) managed 17 percent of the project area within the framework of a collaborative forest management agreement. NFA provided seedlings and technical advice to RECPA, which in return was in charge of protecting the plantations and the remaining patches of natural forest from fire. RECPA also linked the project with local communities. Zambia Landscape Management Project Objective: The main objectives of the project were twofold: (i) to sustainably increase smallholder farmer agricultural productivity, income, and welfare; and (ii) to reduce uncontrolled forest loss and degradation, and increase net forest cover. Project Background: The project stretched across nine chiefdoms in five districts in the Eastern Province of Zambia: Chikomeni, Chikuwe, Jumbe, Luembe, Magodi, Mwasemphangwe, Mwape, Nyamphande, and Zumwanda. Community Markets for Conservation Ltd. (COMACO) is a Zambian social enterprise that uses a model for rural development that links 107,000 smallholder farm families to market incentives and value chains to achieve poverty reduction; sustainable land management; and conservation impact at a landscape scale. The project consisted of two components: (i) the Sustainable Agricultural Land Management (SALM) component; and (ii) the REDD+ component. The purpose of the project was to promote widespread adoption of agricultural practices that increase food production per unit area, and farmers’ incomes. This approach taught farmers techniques such as how to plant leguminous nitrogen-fixing trees or shrubs alongside crops; residue management such as mulching, rather than burning branches, needles, and logs on the ground; and reduced tillage, all practices that optimize carbon sequestration. The second part of the project focused on reducing forest loss, protecting and expanding areas under the natural forest, and conserving biodiversity. This was achieved primarily through land-use planning and the creation of Community Conservation Areas (CCAs), coupled with the sustainable production of nonextractive forest products like honey and mushrooms. 63