REDD+ as Performance-based A id

1. REDD+ as Performance-based Aid ArildAngelsenNorwegian University of Life Science

2. What is REDD+? • Bali Action Plan (COP15, 2007) launches REDD (or REDD+): Policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing countries; and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries Key characteristics: • Actions aimed to reduce GHG emissions from forests • Payments for environmental services (PES): • incentives & compensation

3. Why REDD+? • BIG: • 1/6 of GHG emissions • Cannot reach 2 degree without • CHEAP: (Stern report, 2006) • Negative - USD5/ton CO2 • 50 % red: USD 5-15 billion • But problems of implementation • QUICK: • Stroke of pen reforms • No deep restructuring of economy or new technoloigy • WIN-WIN: • Large transfer • Biodiversity • Compenated conservation (poverty reduction)

4. The core idea of REDD+ (multi-level PES) The core idea of REDD+ (multi-level PES) School of Economics and Business

5. A modified REDD+ Objectives: CO2 Co-benefits School of Economics and Business Policies: PES Broad PAMs Forest policies Scale: National Local/projects Funding: Rich pay poor Country commitment Funding: Market Public

6. REDD as performance-basedaid (PBA) • Now: 2/3 of international funding for REDD+ is from aid budgets • «Aidification» of REDD+ • Performancebasedaid (PBA): • Conditional payment a core idea of REDD+ • Pay for policy reforms or results • «No cure, nopay» • Surprisingly little experiences drawn from development aid experience into the REDD+ debate

7. Good arguments, but … • A contract of conditional payment is made: • “But with results-based payments I cannot see any large risk” (Erik Solheim, ex. Minister of Env. & Dev., Norway) • BUT, mixed experience: • “This is indeed the core of what conditionality is supposedly about – aid buys reform. Unfortunately, it does no such thing” (Collier, 1997) • “Conditionality is not an effective means of improving economic policies in recipient countries” (Killick , 1997) • Svensson (2003): Differences in compliance, but no difference in aid disbursement in World Bank projects • Eldridge and Palmer (2009): much support, little evidence School of Economics and Business

8. Challenge 1: Donors willing to spend (and recipients unwilling to reform) – The budget pressure • Strong pressure to spend • Seen as a measureofsuccess • If not, risk cuts in futurebudgets • How to change? • Focus on results rather than aid volumes • Disbursement untighten from annual budget processes (multi-year funds) • Competition: aid tournaments • Third parties to handle money Create a positive opp.costofaidfunds: Not spending is good (otherwisethreat not credible)!

9. .. how to change …. Recipient country: • Weaken domestic resistance to policy reforms needed to implement REDD+: • “Ownership” of the policy reforms • REDD+ aid will provide financial ‘arguments to proponents of policy reforms in the domestic political struggles. • Policy dialogue (or “cheap talk”)

10. Challenge 2: Performance criteria and measurement Source: Wertz-Kanounnikoffand McNeill (2012)

11. Move to the right in the table • But several problem with moving to the right • Time lag between the (costs of) actions and the payments. • Measurement is more challenging: • Area • Emission factors • Benchmarks more difficult to define (next) • Allocation and sharing of risk (next)

12. Challenge 3: Benchmarks (reference levels) • Benchmarks, i.e. the counterfactual in impact assessment, is genuinely difficult! • Even more difficult in REDD+: • How to predict deforestation (and degradation) (BAU baseline) • Who is to pay (crediting baseline)? • Huge implications:

13. Example on how choice of RL matters! 1. Norway – Brazil agreement • 10 years, updated every 5 years • 100 C/ha, USD5/CO2 2. Alternative: - 5 years, updated every year Annual payment (USD mill) School of Economics and Business

14. Challenge 4: Uncertainty and risk sharing • Several sources of uncertainty: • The BAU baseline has several inherent uncertainties • The costs of avoided deforestation and degradation are uncertain • The effectiveness of the REDD+ policies implemented is uncertain • Simple result-based contracts puts most risk on the service provider (recipient country)

15. Challenge 5: Putting money behind the promise • A result based system must have «credibility»: • A realistic expectation that money will be paid for actual results • The “puzzle”: • A result-based system (e.g. USD 5/tCO2) requires big money (tens of billions per year). • But cannot just throw big money into a very imperfect system with high uncertainty about results. • In the Brazil (and eventually Indonesia?) case: • Is the contract really result based, given that there is no way Norway can pay for results?

16. Lessons to be learned • REDD+ is not unique • we can learn from other forms of PBA • PBA is hard: • don’t be naïve; it’s no panacea • Don’t promise more than you can keep • be credible about payments • Mechanisms to increase opportunity cost of funds • be credible about performance-based • multi-year funds, competition (“aid tournaments”), disbursements handled by third parties • Don’t make all (REDD+) aid performance-based • recipient predictability, policy dialogue, credibility

17. Weshould do REDD+ (i.e. reduceemissions from forests) becauseit’simportant, not becauseit’seasy