1 An International Climate Finance Extension Business Case for Investment in the REDD for Early Movers (REM) Programme Project Purpose: Support transformation to sustainable forest and land use and improved rural livelihoods in developing countries Programme Value: £42.9m New/ extension: Extension Country/ Region: Existing project in Colombia; extension to Brazil Senior Responsible Owner: Pete Betts, Director, International Climate & Energy Start Date: 10 November 2017 End Date: 31 December 2022 25 September 2017
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An International Climate Finance Extension Business Case for Investment in the REDD for Early Movers (REM) Programme
Project Purpose:
Support transformation to sustainable forest and land use and improved
rural livelihoods in developing countries
Programme Value:
£42.9m
New/ extension:
Extension
Country/ Region:
Existing project in Colombia;
extension to Brazil
Senior Responsible Owner:
Pete Betts, Director, International Climate & Energy
Start Date:
10 November 2017
End Date:
31 December 2022
25 September 2017
2
Intervention Summary
What support will the UK provide?
1. BEIS will invest £42.9m of our International Climate Finance (ICF) to extend our partnership
with KfW’s REDD for Early Movers (REM) initiative. This will enable the implementation of
programmes to reduce deforestation in two Brazilian States: Acre and Mato Grosso. REM
will provide results-based payments to the States if greenhouse gas emissions from
deforestation in their territories reduce compared to historic levels.
2. The States, and their delivery partners, will use the money they receive to tackle remaining
deforestation, increase the productivity of sustainable industries and improve rural
livelihoods in these areas. By accelerating some of the world’s most ambitious programmes
to address deforestation, REM aims to demonstrate rewards and lessons that encourage
ambition and better delivery in less advanced initiatives that follow behind.
3. This builds on BEIS’ initial £30.4m investment in REM in 2015, which has enabled Colombia
to accelerate a programme to address deforestation in its Amazon region.
Why is UK support required?
Benefits of addressing deforestation
Deforestation accounts for between 6 and 12% of annual carbon dioxide emissions.
Because forests have the potential to capture carbon they could play a bigger role in climate
solutions than this suggests, providing up to one third of mitigation required by 2030. An
estimated 1.2bn of the world’s poorest people depend on forests for subsistence and
deforestation strikes disproportionately at the extreme poor, indigenous peoples, women and
girls.
How REM will help address it
Compelling business models to improve the livelihoods of people in forested regions, without
losing more forest, do exist. However communities and businesses need help with the
significant upfront investment in technical capacity, infrastructure and market building
needed to kick start new sustainable forms of production. They also need stronger
governance to level the playing field so that unsustainable enterprises do not profit at their
expense.
In most emerging economies addressing deforestation will require the concerted application
of many different interventions, over many years, as there is no one single driver or solution.
Providing results-based finance to governments and stakeholders that are making progress
can be an effective way to incentivise this work while still affording them some flexibility and
scope to adapt.
The leading recent example of addressing deforestation is Brazil’s. In just seven years,
emissions from tropical deforestation in the Brazilian Amazon declined by 75%, a total of 2.6
billion tonnes of CO2 (below a 1995-2005 average). Global emissions were 1.6% lower
because of Brazil’s achievement.i Brazil has made world-leading progress to tackle drivers of
deforestation but it is now working to get to grips with a challenging tail of more difficult
governance and market failures, in difficult economic and political times. Many less
advanced initiatives around the world are watching Brazil’s example, hoping to draw
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inspiration and lessons from the progress that is being made.
Brazil’s success has been achieved by intensifying and relocating beef and soy production
and enforcing stringent environmental standards for these industries.ii Illegal deforestation
became riskier with expansion of protected areas, improved law enforcement, fines and
embargos and with market exclusion through the beef and soy ‘moratoria’. Within Brazil’s
federal system, where many relevant powers are devolved to the State level, some State
governments have made particularly strong contributions. Acre and Mato Grosso are
regularly identified as the most committed and ‘ready’ to go further.iii
Though results-based finance can provide incentives and flexibility for recipient governments
to deploy an array of remedies such as these, traditional results-based payment systems
can leave partners waiting a long time to receive a first payment. This is particularly
challenging in the forest and land use sector as government budgets are often limited and
private capital difficult to raise. REM’s approach is to move quickly and opportunistically,
providing support to governments that have already started to make significant progress to
reduce emissions from deforestation but need funding to go further, which significantly
reduces the waiting time and enables partners to respond to deforestation challenges faster.
The States of Acre and Mato Grosso have begun transitions to sustainable land use with
relatively little international support. Though Brazil famously secured a $1bn donor finance
agreement with Norway, its share of international climate finance for forests is small
compared to its land mass and deforestation challenges, averaging just $1.6 donor finance
per hectare of forest per year. This is ten times lower than Mexico; twenty times lower than
Indonesia and Ghana.iv REM’s support is needed to consolidate progress, tackle more
difficult reforms and increase the visibility of this leading work to demonstrate the rewards
and lessons of addressing deforestation to less advanced initaitves following behind.
Action at the State level
4. Acre is potentially the most advanced jurisdiction in the Amazon basin because of years of
investment to engage local indigenous communities, foresters and farmers in its low-
deforestation development model. Acre made significant progress in the last decade,
reducing deforestation by more than 60% while growing its economy at more than twice the
Brazilian average. It has reached a point where it has strong potential to demonstrate the
rewards and lessons of achieving ‘zero deforestation’ but with some substantial barriers to
overcome to get there. Particularly to get productive industries (including rubber, other non-
timber forest product and fish farming cooperatives) to the point where they are fully
competitive, as well as establish stronger command-and-control systems against illegal
deforestation.
5. Mato Grosso has made substantial progress to reduce deforestation and has ambitious
plans agreed for how the State will go further in partnership with the private sector. It faces
some different drivers of deforestation compared to Acre e.g. the soy industry (dominated by
larger private sector stakeholders) plays a key role. The State’s Government is partnering
with major companies in the soy and beef industries to help them meet zero-deforestation
standards. This has the potential to increase the supply of sustainable soy to companies
such as Marks and Spencer and Unilever that are committed to achieving zero-deforestation
supply chains but coming under increasing civil society and consumer pressure as these
prove difficult to implement.
6. Both States occupy strategically important positions at Brazil’s deforestation frontier, offering
the potential to stabilise it before it encroaches further into the heart of the Amazon. Rural
areas of the States where the programme will be working are home to some of Brazil’s
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poorest municipalities with Human Development Index scores comparable to the national
averages of the Republic of Congo and Namibia.v The States are arguably the most
committed and ready jurisdictions working to address deforestation in Brazil, and among the
leading group globally.vi
Investing in REM will reinforce the approach of the UK’s Embassies in Brazil which are
increasingly focussed on reaching the biggest possible audience with action at the State
level across international trade, Newton Fund, Chevening and other initiatives. In Brazil’s
federal system this is the level where a lot critical activity is devolved. The Embassy is
working to put these local efforts at the centre of the UK’s bilateral relationship with Brazil.
The Embassy teams are keen to work with BEIS to help deliver the best impact for our
investment in Mato Grosso and Acre.
In particular work in Mato Grosso will associate the UK with a major public-private
programme to reduce deforestation for beef and soy production, in partnership with large
Brazilian and international companies. This Produce, Conserve and Include (PCI) initiative is
highly visible within Brazil and increasingly of interest to international stakeholders. Mato
Grosso is a major source of UK soy bean imports. Companies such as Unilever and Marks
and Spencer are coming under increasing civil society and consumer pressure – and
activelty working – to reduce the deforestation risks associated with the soy they use. BEIS
funding to accelerate the delivery of PCI could make a significant contribution to this aim.
Because the programmes in Acre and Mato Grosso are highly advanced and ambitious by
global standards we expect our partnerships to engage a global audience, including
because the States are playing a prominent role in the group of 38 Governors from forested
states across the world that meets regularly under the Governors’ Climate and Forests Task
Force.vii
What are the expected results?
The extension of BEIS’ investment in REM would enable Acre and Mato Grosso to:
- increase the capacity of local environmental protection authorities, at a time when
Brazil’s national Government is cutting budgets, including to implement new rules that
require farmers to restore recently-deforested land;
- build the capacity and track record of new deforestation-friendly industries that require
substantial investment to get started but struggle to attract traditional private lending;
- particularly in the case of Acre, help these industries reach production volumes and
standards that attract market prices and capital investment which will allow businesses to
become independent of donor support;
- significantly reduce emissions from deforestation, increase the intensity of agricultural
and forest-based production to produce more on less land, as well as strengthen the
livelihoods and resilience of some of Brazil’s poorest communities; and
- move their programmes further, faster, generating valuable experience and sharing
lessons with less-advanced jurisdictions.
BEIS has conducted a cost-benefit analysis that focuses on a portion of 36% of the £42.9m
investment, which will go to the most direct interventions to establish new farming systems.
This partial analysis estimates BEIS’ investment will lead to (attributed figures):
- 12 thousand hectares of avoided deforestation;
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- 5.6 Megatonnes of emissions of carbon dioxide equivalent avoided or captured;
- improvement in the livelihoods of 2500 people living in some of Brazil’s poorest areas;
and
- £7.1m private finance leveraged
We also expect this work, which aligns well with the UK Embassy’s increasing focus on
State-level action that reaches a wider stakeholder group across the country, to help
strengthen the UK’s bilateral relationship with Brazil. Also beyond that, because the
programmes in Acre and Mato Grosso are advanced and ambitious by global standards, and
because the States are playing a prominent role in global fora e.g. the Governors Climate
and Forests Task Force, we expect the initiative to have a global audience and
Strategic Case ............................................................................................................................................................................ 7
What support will the UK provide? ............................................................................................................................................................................................. 7
Why is UK support required?...................................................................................................................................................................................................... 7
Theory of Change ..................................................................................................................................................................................................................... 17
Appraisal Case ......................................................................................................................................................................... 20
Options for delivering fast-initiation finance ............................................................................................................................................................................. 21
UK Visibility ............................................................................................................................................................................................................................... 24
Assessment of the Green Climate Fund option ....................................................................................................................................................................... 24
Assessment of the visibility of the different delivery options .................................................................................................................................................... 25
Summary of options appraisal results ...................................................................................................................................................................................... 27
How REM payments work ........................................................................................................................................................................................................ 28
BEIS’ scale of funding appraisal ............................................................................................................................................................................................... 29
Value for money appraisal ........................................................................................................................................................................................................ 34
Commercial Case ..................................................................................................................................................................... 43
Selection of KfW ....................................................................................................................................................................................................................... 43
Safeguards and due diligence .................................................................................................................................................................................................. 43
Negotiating a value-for-money contract ................................................................................................................................................................................... 44
Appointment of subcontractors ................................................................................................................................................................................................. 46
Financial Case .......................................................................................................................................................................... 48
Nature and value of the expected costs ................................................................................................................................................................................... 48
Financial accounting considerations for BEIS .......................................................................................................................................................................... 52
Financial planning and forecasting ........................................................................................................................................................................................... 52
Monitoring, reporting and accounting for expenditure .............................................................................................................................................................. 53
Management of assets ............................................................................................................................................................................................................. 53
Financial and fraud risk assessment and provisions to withdraw funding ............................................................................................................................... 53
Management Case ................................................................................................................................................................... 55
What are the management arrangements for implementing the intervention? ........................................................................................................................ 55
Local governance of Acre and Mato Grosso REM Programmes ............................................................................................................................................. 55
Donor participation and BEIS’s influence ................................................................................................................................................................................. 56
HM Government staffing ........................................................................................................................................................................................................... 57
How will progress and results be monitored, measured and evaluated? ................................................................................................................................ 57
Monitoring, evaluation and learning plan.................................................................................................................................................................................. 58
Lessons learned from the Colombia partnership ..................................................................................................................................................................... 59
What are the risks and how will they be managed? ................................................................................................................................................................. 60
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Strategic Case
1. This Extension Business Case proposes to increase funding for the REDD for Early Movers (REM)
Programme, an initiative the Department for Business, Energy and Industrial Strategy (BEIS)
invested £30.4m in at the end of 2015. A more detailed Strategic Case for investing in the
Programme was set out in the original Business Case available online here. Therefore this
document summarises the main points of the original Business Case and provides updates if things
have changed significantly or where the increase in funding will be used in a different way.
What support will the UK provide?
2. BEIS will invest £42.9m (£15m RDEL and £27.9m CDEL)1 of our International Climate Finance
(ICF) in REM to support implementation of REDD+2 programmes in two Brazilian States: Acre and
Mato Grosso. The Programme will provide results-based payments to the States if greenhouse gas
emissions from deforestation in their territories reduce compared to historic levels.
3. Results-based REDD+ partnerships have the potential to strongly incentivise action on the ground,
protect UK funds against non-performance and give host governments scope (within reasonable
limits) to innovate and adapt their programmes to local circumstances. However implementation of
these partnerships has been slower than anticipated when REDD+ was conceived. REM is
different, moving quickly to provide ‘fast-initiation’ support to the governments that have already
started to make significant progress to reduce emissions from deforestation but need funding to go
further.
4. The States, and their delivery partners, will use the money they receive to tackle remaining
deforestation, increase the productivity of forest-friendly industries and improve rural livelihoods in
Acre and Mato Grosso. By accelerating some of the world’s most ambitious programmes to address
deforestation, REM aims to demonstrate rewards and lessons that encourage ambition and better
delivery in less advanced initiatives that follow behind.
Why is UK support required?
The benefits that forests provide
5. From 2010 to 2015, the world’s natural forest area decreased by a net 6.5 million ha per yearviii,
roughly three times the size of Wales. Deforestation accounts for between 6 and 12% of annual
carbon dioxide emissionsix. As forests also have the potential to capture carbon they could play an
even bigger role in climate solutions than this suggests potentially providing one third of mitigation
required by 2030. Without significant action to halt and reverse forest loss the global goals of the
Paris Agreement may be beyond reach.x
6. An estimated 1.2bn of the world’s poorest people depend on forests for subsistence and income.xi
Deforestation undermines these livelihoods, and strikes disproportionately at the most vulnerable,
including indigenous people, the extreme poor and women.xii More than three-quarters of the
world’s accessible fresh water originates from forested catchments.xiii Loss of forests, and the
services they provide, may have contributed to human conflict in countries like Colombia, Liberia
and Myanmar.xiv Reaching the 2030 sustainable development goalsxv will be harder if current rates
of deforestation cannot be slowed.
7. Work in this area closely aligns our climate finance with UK private sector activity by supporting the
implementation of companies’ zero-deforestation supply chain commitments, working alongside
1 These numbers have the potential to change slightly (less than +/- 1%) during contract negotiations with KfW
2 Framework under the UNFCCC to Reduce Emissions from Deforestation and forest Degradation and enhance forest carbon stocks (+)
36. Providing financial support at this critical moment would help the States weather the effects of
present restrictions on Federal Government spending and continue to set an example with world-
leading progress to address deforestation and improve rural livelihoods.
37. Our investment in REM would enable Acre and Mato Grosso to:
- increase the capacity of local environmental protection authorities, at a time of fiscal constaint, including to implement new rules that require farmers to restore recently-deforested land;
- build the capacity and track record of new deforestation-friendly industries that require substantial investment to get started but struggle to attract traditional private lending;
- particularly in the case of Acre help these industries reach production volumes and standards that attract market prices and capital investment that allow businesses to become independent of donor support;
- significantly reduce emissions from deforestation, increase the intensity of agricultural and forest-based production to produce more on less land, as well as strengthening the livelihoods and resilience of some of Brazil’s poorest communities; and
- move further, faster, generating valuable lessons that can inform the approaches of those less-advanced or complementary jurisdictional approaches to addressing deforestation.
38. Rural areas of the States where the programme will be working are home to some of Brazil’s
poorest municipalities with Human Development Index scores comparable to the national averages
of the Republic of Congo and Namibia.xxviii The States are arguably the most committed and ready
jurisdictions working to address deforestation in Brazil, and among the leading group globally.xxix
Working at the local level is consistent with the approach of the UK Embassy in Brazil which is
increasingly focussed on reaching the biggest possible audience with action at the State level
across international trade, Newton Fund, Chevening and other initiatives. In Brazil’s federal system
this is the level where a lot critical activity is devolved. The Embassy sees these local efforts as
centrepieces of the UK’s bilateral relationship with Brazil. The Embassy team is keen to work with
BEIS to help deliver the best impact for our investment in Mato Grosso and Acre.
In particular work in Mato Grosso would associate the UK with a major public-private programme to
reduce the deforestation of beef and soy consumption with large companies which is highly visible
within Brazil. Because the programmes in Acre and Mato Grosso are highly advanced and
ambitious by global standards we also expect a global audience for the work, including because
these States are playing a prominent role in the group of 38 Governors that meets regularly under
indigenous people; and 2000 families on larger cattle farms.
The second phase of REM support to Acre will expand these interventions and extend
incentives to new areas of Acre where deforestation pressure is significant. It will also
introduce support for new forest-friendly industries such as bamboo, wild cocoa and forest
oils. It will help Acre to enforce and support farmers to comply with new elements of Brazil’s
Forest Code including the Environmental Compliance Programme (PRA) which adds, to
previous obligations for farms not to deforest, a requirement for farmers to restore
deforested land. It will also strengthen command-and-control efforts and wider aspects of
forest governance.
Phase 2 support to farmers and extractivists will focus on creating cooperatives around new
processing facilities that help farms achieve a much higher rate of production and quality of
product; which in turn will help them access markets that bring higher financial returns.
Where extractivists are collecting products from the forest there is good evidence that the
forest is more valued by local communities and that they play an effective role in ‘policing’
these areas to prevent deforestation.xxxiii Where farmers can realise higher returns on less
land there is less incentive for them to clear forest land. There are examples from Phase 1
5 The reasons for the higher number of beneficiaries is not yet clear – evaluation report pending
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where these cooperatives have made a lot of progress e.g. Acre established a competitive
Brazil nut business that has now started to transition off REM support; in these cases Phase
2 will focus on final steps to make the industries ‘bankable’ so that they can sustain
themselves on just private investment.
There are promising new models that Phase 2 will focus support on, including a major new
fish farming cooperative with native fish species that provides farmers with materials, feed,
training, processing and marketing services which early analysis suggests will enable them
to increase financial returns per hectare tenfold.
As in Phase 1 the support indigenous communities, farms and businesses receive will be
conditional on them complying with zero-deforestation requirements and in some cases
implementing restoration requirements under the PRA.
Mato Grosso
In the Centre-West of Brazil, Mato Grosso is one of Brazil’s largest states, with six times
Acre’s land area but a lower proportion forested. The Amazon rainforest covers just over
50% of the State. It has two other important biomes: the tropical savannahs of the Cerrado
(40% of Mato Grosso’s land area); and the wetlands of the Pantanal (6%). The State had
some of Brazil’s highest rates of deforestation from 1995 to 2005 but is also the State that
achieved the largest reductions in deforestation; from 2004 to 2015 reducing deforestation
86% while remaining Brazil’s largest soybean and cattle producer. This happened for a
variety of reasons including the State’s efforts to enforce legal restrictions on forest clearing
on private lands with a Rural Property Environmental Licensing Registry (CAR the initialism
in Portuguese), as well as NGO and legal campaigns that led big companies sourcing from
the region to reject soy and beef linked with deforestation.
In Mato Grosso deforestation in the Cerrado is largely driven by the expansion of cropland
e.g. for soya, including by large businesses working at industrial scale. In its Amazon region
expansion of cattle farming is the primary driver, largely on smaller farms. Like Acre, Mato
Grosso’s deforestation is geographically concentrated. In 2015 72% of deforestation
occurred in 20 municipalities (of more than 100 in total) in the State; 10 of those
Municipalities where responsible for 52% deforestation. Based on 2016 figures 53%
deforestation occurs in private lands, with a high proportion in farms that have not yet
registered in CAR.
Mato Grosso has designed and started to implement an ambitious REDD+ programme
(SiSREDD) and recently launched the “Produce, Conserve and Include” Strategy (PCI),
which sets out targets to:xxxiv
- Reduce forest loss 90% by 2030; and eliminate illegal deforestation by 2020
- Restore degraded pastures and intensify agricultural production (including to increase
cattle production from 50 to 90 kg per hectare per year) to grow the local economy while
taking pressure of forests
- Register 100% of private farms in the Rural Environmental Registry by 2018
- Increase smallholder access to markets from 20% to 70% by 2030 and triple the volume
of credit available to them
Mato Grosso has not received REM support to date and its REDD+ programme is at an
earlier stage of implementation. REM will support the creation of several sub-programmes,
including: establishment and capacity building of forest-friendly farming and forestry
cooperatives; partnerships with larger agribusinesses and industry associations;
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implementation of land management plans and forest-friendly production systems in
indigenous territories; strengthening Mato Grosso’s deforestation monitoring and control
system, particularly to increase the pace of detection of significant instances of deforestation
to curb illegal activities much faster; and support for the programme’s ‘enabling framework’
including work to enable Mato Grosso to strengthen its participation in the national REDD+
strategy by ensuring a suitable safeguard monitoring system is in place.
Theory of Change
39. The original Business Case provided a Theory of Change for REM’s support in Colombia, with
some details that are very specific to that case. As BEIS is now proposing to increase funding to
enable work in two Brazilian states, and because we may increase funding again in the future as
REM moves to new geographies, we have updated the Theory of Change below to give a better
overview.
Figure 5 – Theory of Change for BEIS’ investment in REM
40. Assumptions that may need to hold for these changes to occur are set out below.
Activities to outputs - REM funds will leverage significant additional public policy and financial contributions
from Acre, Mato Grosso and partners. - REM funds will help overcome initially high start-up costs, increasingly leveraging
additional private investment over time. - Armed conflict, political instability or force majeure will not significantly impede
Impact
Outcome
Output
Activity
Wider influence beyond the ProgrammeE.g. partners go on to successfully secure finance from other initiatives; evidence of other REDD+ initiatives taking account of REM lessons; and increased motivation for REDD+ from politicians, implementers & stakeholders
KPI 15Transformation
Forest cover protected
GHG emissions avoided
Results-based paymentsare made
KPI 6Mitigation
KPI 8Forest hectares
Forest governance is strengthened with policies, laws and enforcement efforts that make deforestation a more risky activity that actors are less likely to pursue
Forest-friendly productive systems are established, consolidated, intensified to produce more on less land, producing higher-quality products, receiving better returns and transitioning towards self-sufficiency
Livelihoods improved E.g. farming families and indigenous communities
KPI 3Livelihoods
Stronger capacity in host government institutions, agencies, delivery partners, civil society and systems (e.g. deforestation monitoring systems)
Funding the creation of implementation units, capacity building for delivery partners and civil society, as well as development of key systems needed for delivery of the Programme
Funding inputs for policy and law-making, improved land-use planning, land titling and registration and capacity building for land and environmental authorities that enforce these rules
Funding and raising private capital for extension services, materials, processing facilities, and market-building for farms, indigenous communities and businesses that comply with zero-deforestation conditions
Programme delivery by host governments, fiduciaries, KfW and delivery partners including:(i) operational and financial planning (ii) monitoring, reporting, evaluation and learning and (iii) delivery of technical assistance, grants and loans to delivery partners, landholders and businesses
implementation of the programme. - Elections, machinery of government change and other major organisational changes will
not bring significant periods of time where implementation could not reasonably be expected to be advanced.
- Policies and programmes which could not reasonably be expected to controlled by the organisations leading implementation of the programme, their agencies and delivery partners will not impede implementation.
- Exchange rates do not deviate significantly from starting assumptions. - There are no major changes in local or global market conditions, e.g. for timber and soy,
such that they would significantly impede efforts to reduce deforestation and foster profitable forest-friendly industries.
Outputs to outcomes - Governance (policy and law making, as well as enforcement of these decisions) is strong
enough to prevent rebound effects; so funding productive systems does not lead to more deforestation.
- Deforestation becomes a more risky activity to engage in, legally and financially. - Production becomes more intensive; producing more forest and agricultural products on
less land. - Armed conflict, political instability or force majeure will not significantly impede
implementation of the programme or increase drivers of deforestation. - There are no major changes in local or global market conditions, e.g. for timber and soy,
such that they would significantly impede efforts to reduce deforestation and foster profitable forest-friendly industries.
- Policies and programmes which could not reasonably be expected to controlled by the organisations leading implementation of the programme, their agencies and delivery partners do not impede or reverse the achievement of outcomes e.g. an energy ministry does not introduce measures that incentivise oil extraction in forest land.
Outcomes to impacts - There is continuation or emergence of wider REDD+ initiatives beyond REM. - The host governments that REM partners with remain eligible to apply to these
mechanisms. - New initiatives in REM’s host countries, or elsewhere, seek to learn and apply lessons
from earlier ones.
Risks
41. The political and technical complexity of addressing deforestation means investments in this area
are, by their nature, high-risk. There is a balance to be struck between providing flexible modes of
support and ensuring programmes deliver credible, value-for-money investments. While supporting
progressive front-runner governments is intended to facilitate momentum and cement political
support, the flip-side is that if this support fails to achieve its aims that could have a far reaching
impact. Our assessment is that increasing funding for REM carries high operational risk but also
potential to bring significant rewards. Given the initiative’s potential to produce transformational
impact, we judge this to be within the scope of the risk appetite of BEIS’ ICF.
42. The risks, and the ways these risks will be mitigated, are described in more detail in the
Management Case. The main risks are:
- Change in political and economic conditions in Brazil. Changes in Brazil’s Federal Government
continues and impacts are hard to predict. Brazil’s economy is beginning to emerge from a
severe and protracted recession. We have limited ability to mitigate these risks other than by
continuing to build up our REM portfolio across a diverse range of jurisdictions. Acre and Mato
Grosso have relatively stable political conditions and commitments to preserve environmental
spending despite the Federal Government
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- ’s austerity drive.
- Drivers for Deforestation in Acre and/or Mato Grosso increase – reducing their eligibility for
payment and negatively impacting the rate or scale of delivery as a consequence. In 2016
deforestation in Brazil was up on previous years, as El-Niño conditions that made it easier to
clear forests using fire and cuts to federal government budgets provided a particular challenge.
There is no certainty that deforestation will reduce in the future. This is still a live issue in 2017
with an increasingly powerful agricultural lobby working to influence the Federal Government. As
well as budget cuts and uncertainty regarding what rainfall the Amazon will see this summer.
The Governments of Acre and Mato Grosso are concerned they will not be able to adapt
budgets and enforcement efforts quickly enough in response to these risks. As a results-based
initiative REM must accept some degree of uncertainty in this area and its chief mitigation is the
incentives it will provide to the States to redouble their efforts to tackle illegal deforestation and
build forest-friendly industries.
- Capacity for BEIS to troubleshoot. REM moves quickly and may uncover implementation issues
with a higher frequency as a result, which are inevitably harder to resolve at a distance and with
language and cultural barriers. We will increase the level of staff time BEIS dedicates to REM.
As part of this we are requesting approval to use ICF programme funds to put in place a
dedicated locally-engaged team member at a UK Embassy office in Brazil to help oversee
delivery and ensure synergies with our other programmes including Partnerships for Forests.
- Management failure. We will mitigate this risk by working with an existing trusted delivery
partner, engaging in critical decisions such as approvals of spending plans and financial reports
and ensuring delivery partners in Brazil receive capacity building to continuously improve their
management practices. Some of REM’s assurance processes for how partners use the results-
based payments they receive are ‘light touch’ compared to traditional upfront funding
programmes. However we believe this flexibility, which empowers partners to optimise and
adapt their approaches, is justified.
- Stakeholder grievances e.g. if an indigenous community challenges the programme on the basis
that its rights have been infringed. REM will require Acre and Mato Grosso to apply careful
processes of stakeholder participation, risk assessment, safeguard systems and grievance and
redress mechanisms. Even so, when dealing with so many stakeholders, including thousands of
indigenous communities spread across vast and remote areas, some objections are expected.
There have been isolated incidents of violent conflict in both States, often as a result of
overlapping land use claims as is common in many tropical rainforest environments.
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Appraisal Case
‘Fast-initiation’ REDD+ finance
43. REDD+, recognised in Article 5 of the Paris Agreement, encourages developed countries to support
developing country efforts to halt and reverse deforestation. It requests support in three notional
phases: (i) grants and technical assistance to build REDD+ plans, organisational capacity and an
enabling framework for implementation of these plans; (ii) upfront funding to help kick-start
implementation; and (iii) results-based payments to reward countries that reduce or reverse
emissions from forest loss.
44. The benefits of moving to results-based REDD+ payments include: they strongly incentivise host
governments to work to achieve emission reductions at a national or subnational scale; donor
money is protected in the event that programmes do not perform; results-based agreements are
less prescriptive, allowing host governments to pursue approaches that fit their local circumstances,
to innovate and adapt; the approach is particularly useful in the forest and land use sector where
many diverse and changeable drivers of land use change need to be addressed – a results-based
agreement accommodates this complexity with less administrative burden; and results-based
REDD+ also builds capability for host countries to participate in global carbon markets, though the
strength of that advantage will depend on how those markets develop.xxxv
45. REDD+ implementation has been slower than originally anticipated when REDD+ was conceived. It
is not a silver bullet but can play a useful role as part of a suite of options to help build the case for
action and support the transition to sustainable land use systems. Results-based finance initiatives
currently in operation today have faced challenges, and provide lessons learned that can inform
future implementation:
- success is highly contingent on how committed a host government is and the capacity and
preparedness of their ministries, agencies and delivery partners;
- substantial, flexible and well-coordinated financial support is needed, particularly to avoid
overburdening host governments with work to secure funding from many different sources;
- traditional approaches to providing results-based finance can leave host countries waiting a long
time to receive a first payment, which is particularly challenging in the forest and land use sector
where government budgets are often limited and private capital hard to raise; and
- motivating host countries is not just about improving financial incentives, many simply see action
in the land sector as ‘too hard’, so more examples of the rewards and lessons of addressing
deforestation while increasing agricultural output are badly needed to convince governments to
pursue this new paradigm.xxxvi
46. In the original Business Case we proposed that a new approach of ‘fast-initiation’ REDD+ finance is
needed to respond to these lessons. This would target the most committed and ready forest nations
or subnational governments where the fastest and most significant outcomes can be achieved with
the lowest risk of negative unintended consequences. It would do so with a streamlined
administrative process that governments and delivery partners can navigate without undue delay. It
would increase the overall delivery capacity of delivery vehicles for REDD+ finance to address or
offset the bottlenecks in the existing management capacity of the major multilateral REDD+ funds.
47. The initiative would aim to raise the ambition of the REDD+ plans of leading jurisdictions and
provide the right kind of support to address the barriers they face and ensure their successful
delivery. This could include addressing their upfront investment needs but also ensuring they build
the systems required to access results-based finance which is likely to form a major component of
future streams of REDD+ finance. A results-based conditionality would ideally be included to
incentivise greater ambition and ‘own contribution’ from the forest nation jurisdiction. To maximise
the scale and success of programme delivery the initiative would be designed to leverage both
public and private sector support.
48. The initiative would aim to deliver transformational impact at the global level by demonstrating proof
of concept for REDD+, building the evidence based to inform more successful approaches in a
wider set of REDD+ initiatives that follow behind it, and demonstrating the rewards of REDD+ early,
to improve political will to address global deforestation and (though only playing a small part) agree
ambitious climate agreements. This would be best achieved by consistency with some of the
principles of transformational change of UK International Climate Finance, including testing new and
innovative approaches and ensuring initiatives are locally-owned.
Figure 6 – notional theory of change for a ‘fast-initiation’ REDD+ vehicle; to inform the options appraisal
Options for delivering fast-initiation finance
49. Increasing ‘fast-initiation’ support for REDD+ could be achieved in a number of ways. In the original
Business Case, online here, we generated a large range of options informed by the UK’s
experience and expert analysis from colleagues at the German development agency GIZ. These
were as follows:
Option Assumptions
1. A new UK-funded bilateral initiative (initially led by UK but could grow to be multi-donor or multi-recipient)
On the basis of limited HMG staff availability we assumed that this option would be achieved by appointing a Multilateral Development Bank or similar delivery partner to manage the initiative for DECC (now BEIS).
2. The UN REDD programme We analysed the potential for the fund to deliver the objectives of the Strategic Case in its present form or with modifications that might be feasible to achieve in a relatively short space of time.
3. The Forest Investment Programme (FIP)
As above we considered the fund in its present form or with modifications that could be achieved in near term.
4. The BioCarbon Fund Initiative for Sustainable Forested Landscapes (BioCF)
7. “Do nothing” – DECC (now BEIS) makes no additional investment beyond BAU
We assumed that DECC (now BEIS) continues with other elements of the investment strategy outlined in the Strategic Case. This option was dismissed before detailed analysis on the basis that it would not be possible to achieve GNU public commitments on increasing REDD+ finance and that a significant opportunity for demonstration of the rewards and lessons of REDD+ would be missed.
50. We noted that the Green Climate Fund, at the time, had potential to support REDD+ but was not yet
set up to do.
51. We have now revisited this analysis from end 2015 to establish if the characteristics of the options,
or their context, have changed significantly such that the assessment in the original Business Case
should be revised. Our conclusion is that the characteristics and circumstances of the seven original
options have not changed sufficiently to affect their scoring, but that the Green Climate Fund has
now progressed to a point where it should be considered in the shortlist as an eighth option.
1. Bilateral. BEIS International Climate Finance team has grown significantly in size, but to meet
the demands of an increasing portfolio of programmes. Primarily because of the technical and
fiduciary expertise required to deliver a REDD+ programme, it is still our assessment that BEIS
would need to appoint a delivery partner, like a Multilateral Development Bank, to assure
delivery on our behalf.
2. UN REDD. This initiative continues to focus on capacity building in the first phase of the REDD+
process. Complicated governance, and the transaction costs associated with that, remain a
limitation.
3. Forest Investment Programme. The performance of this initiative continues to “meet
expectations” with no substantial changes in performance, approach or circumstances since end
2015.xxxvii
4. BioCarbon Fund. The performance of this initiative has increased marginally, “meeting
expectations” in our last Annual Review,xxxviii though with some significant recommendations for
how management can improve. It remains in a relatively early phase of development.
5. Forest Carbon Partnership Facility. This fund has continued to make good progress in line
with our expectations.xxxix The way the initiative works, and the context it is operating in, has not
changed significantly since end 2015.
6. REDD for Early Movers. The Programme has continued to make good progress, “exceeding
expectations” in some areas in our last Annual Review,xl though we do not consider this
significant enough to increase its scores. The way the initiative works, and the context it is
operating in, has not changed significantly since end 2015. Our direct experience of working
with the initiative is greater now, so our assessment has a higher level of confidence.
7. Do nothing. This option was used as the counterfactual in the assessment of other options.
There are no significant changes in the do-nothing scenario.
8. Green Climate Fund. This initiative has developed significantly since end 2015. It is discussing
a potential new REDD+ funding approach. For this reason we have now added it to the options
appraisal, though it is not ready to move at this stage. Its assessment is detailed below.
52. The appraisal of investment options will be based on their potential to contribute to the key strategic
objectives identified in the Strategic and Appraisal Cases. As well as and their fit with key
operational factors that will be required to ensure those objectives are delivered successfully. The
Strategic and Appraisal Cases identify these main objectives:
Strategic objectives
Level Objective Includes6
Outcome Ambition and delivery
1. Incentivises and supports
delivery of more ambitious
REDD+ plans
a) Supports upfront investment needs
b) Provides (at least compatible with) a results-based
approach
c) Leverages additional public and private investment
Outcome Acceleration
2. Enables the delivery of
leading REDD+ plans to
progress faster
a) Targets intensive support at the most committed and
ready7
b) Streamlined ‘customer journey’ for forest nations
c) Increases the ‘bandwidth’8 of the global REDD+
architecture
Impact Transformation
3. Early9 demonstration of the
rewards and lessons of
REDD+ at scale, leading to
stronger global REDD+
momentum
a) Locally-owned plans
b) Testing new approaches
c) Compatible with wider and future REDD+ architecture
d) Demonstrates rewards and implementation results10
in
the near term to inform future REDD+ initiatives11
e) Builds goodwill for UNFCCC negotiations
53. The following are the main success factors12 that have a significant role to play in achieving these
strategic objectives.
Success factors
Objective Includes
Management
4. Robust programme and project management
systems, capacity and capability
a) Effective governance
b) Financial management approaches
c) Strategic and performance management approaches
d) Capacity and capability of staff
e) Transparency and accountability
Economy and Efficiency
5. Minimises the costs of achieving the
strategic objectives of the investment
a) Minimises the costs of inputs
b) Maximises the conversion of inputs to outputs
HMG capacity
6. Manageable within the limited staff
resources of DECC(now BEIS)’s International
Climate Finance team
a) Manageable additional FTE requirement for HMG
b) Scalable or replicable
c) Aligned incentives with other stakeholders
54. Each of the six appraisal criteria above was given an equal weighting in the option appraisal
exercise. Each criterion will be scored as follows:
1 2 3 4 5
Very weak Weak Moderate Strong Very strong
6 These subcategories are considered potential indicators of meeting the objective, weighted equally, and not exhaustive
7 REDD+ ‘readiness’ includes getting in place required government capacity, safeguards systems, MRV and a REDD+ plans
8 One measure of this would be the time dedication of programme managers across major REDD+ delivery vehicles increasing
9 N.B. the Theory of Change above puts strong emphasis on ‘speed’, to achieve better local outcomes and to achieve longer-term global
transformational impact by early demonstration that informs what follows – overall appraisal of options strongly weighted for speed 10
Results include flows of funding that demonstrate the rewards of pursuing a REDD+ plan and lessons generated on successful and less-successful implementation approaches 11
E.g. Green Climate Fund support for REDD+, if approved, potential ICAO offsetting mechanism etc. 12
‘Success factors’ are elements of the context or management process of an initiative that lead directly or indirectly to its success. The presence of success factors does not guarantee the success of an initiative, but their absence is likely to contribute to failure to deliver an initiative’s objectives. Ref: Association of Project Managers, Body of Knowledge, Sixth
Edition.
24
UK Visibility
55. Since the development of the original Business Case there has been an increase focus on ensuring
ICF investments are ‘visible’, bringing with them recognition of the UK’s role and wider benefits that
come with that e.g. strengthening the overall relationship of the UK and recipient countries. We
have looked at how including this priority as a factor in scoring for the selection of delivery options
affects the the outcome of the options appraisal in the sections that follow.
Assessment of the Green Climate Fund option
56. The assessment set out below draws substantially from the UK’s April 2017 Annual Review of the
Green Climate Fund’s (GCF) progress and BEIS’ direct experience of working with the Fund. For
ease of comparison we have assumed additional money provided to the GCF would be focussed on
REDD+ projects, though in reality the GCF does not earmark contributions in this way. Any
increase in funding for the GCF would support the full range of GCF result areas (energy, transport,
resilience etc.) not just REDD+ ones. It would also be subject to the decision making processes of
the GCF which involves a large number of other Board members. To keep the below assessment
simple we also presupposed the Fund could absorb a significant amount of additional finance for
REDD+, though in practice the initial scale of any GCF REDD+ support may be modest, and
therefore could be drawn from funds already committed.
Option 8 – Green Climate Fund
Ambition and delivery of REDD+ plans
Moderate-Strong (3.5)
The GCF already has mechanisms in place to support host countries’ investment needs. It has the
potential to make both upfront and results-based payments, though it has not supported the latter
to date. The criteria the Fund uses to approve project proposals has a strong focus on efficiency
and effectiveness which will encourage host governments and delivery partners to build in a clear
‘own contribution’ from public spending and demonstrate how they will leverage private finance.
GCF aims to use a full range of terms and instruments (grants, loans, equity, guarantees, results-
based finance etc.) to get the best incentives in place to raise ambition. REDD+ programmes are
complex, with many different technical approaches to results-based payment possible. For that
reason the GCF is currently exploring options for a request for proposals (RfP) for REDD+
programmes, which would give guidance on what kinds of results-based REDD+ proposals the
GCF is likely to approve for funding. That includes e.g. what greenhouse emission baselines would
be acceptable as a benchmark for payments. With discussions around this ongoing it is difficult to
say to what degree the GCF’s potential in this area will translate into higher ambition and more
effective delivery of host country REDD+ plans.
Acceleration
Moderate (3)
As described above the GCF is in the process of exploring a potential RfP for REDD+ programmes,
which could be approved at the earliest at the 18th Board Meeting in September and October 2017.
With this presently uncertain it is unlikely that host countries and delivery partners will be preparing
results-based REDD+ proposals; or if such proposals are under development it is likely that they
would require substantial adjustment to fit the requirements set out in RfP if that is finalised and
approved. Therefore, if the RfP approach is pursued, there is likely to be a period of further
development of proposals before a first proposal is approved by the Board. Thereafter further time
may be needed to sign a funding agreement and make a first payment. This will to some extent
depend on what results periods the GCF is willing to reward and what processes it will put in place
for assessing results, as well as any assessments that may be required for how countries use the
funding they receive. It will also depend to some extent on which countries come forward with
proposals; in some other REDD+ funds it is easier to target the most committed and ready (often
tonne of CO2 equivalent reduced, which reflects the rate negotiated in all major jurisdictional-scale
results-based REDD+ partnerships to date. REM requires host governments to ‘retire’ at least one
additional tonne (meaning it cannot be used in the future in carbon markets or to underpin a results-
based payment) for each tonne REM pays against. This is an insurance mechanism against
uncertainty in measurement and calculation as well as the potential for some emission reductions to
be ‘reversed’ in the future; but also a way to ensure host governments make an explicit financial
contribution by forgoing potential payments.
74. Once this maximum is established REM then determines whether the full sum should be paid to
partners, or a lesser sum, based on an assessment of their capacity to implement the funds
effectively. KfW and REM donors are closely involved in the development of partners’
implementation plans both at the outset when the overall plan is being designed and annually as
plans are updated, as well as through appraisal missions and with no-objection powers at key
decision points. The Work Plans agreed between KfW and recipients include the projects that
partners intend to support, their rationale, additionality, delivery mechanism, costs, timetable,
interactions with other sources of funding (including the host government). KfW has a formal no-
objection power for approval of these plans and embeds a team member within the lead
implementing organisation of each partnership to ensure they are robust. This is described in more
detail in the Commercial, Financial and Management Cases. KfW’s assessment of recipients’ Work
Plans, coupled with their assessment of the extent to which partners have effectively utilised
payments already received, determines whether partners receive the maximum or a lesser sum.
BEIS’ scale of funding appraisal
75. We have approached the assessment of how much funding BEIS should contribute to REM
windows in Acre and Mato Grosso in a similar way to the original Business Case for investing in
Colombia. That assessment appears to have been well judged, with c. one third of our funding for
Colombia disbursed in the first 1.5 years of a four to five-year partnership. The assessment
procedure is based on: (i) deforestation rates for 2015/6 and 2016/17 which are already known (ii)
deforestation rate scenarios for future years and (iii) the financial plans of Acre and Mato Grosso
which indicate how much funding they would be able to implement effectively in the timescale that
REM allows.
The scenarios of future deforestation rates that we have used for both Acre and Mato Grosso follow
the same pattern used for Colombia; they are:
a. 2020 target: in this scenario both regions move steadily from their most recent deforestation rate
to their reduction goals in 2020 which are an 80% and 89% reduction of deforestation compared
to levels in their historical reference period as agreed between KFW and local authorities. These
reference periods are 2004-2015 for Acre and 2006-2015 for Mato Grosso
b. Optimistic: assumes a more moderate path, assuming the States move steadily from the most
recent deforestation rate to just 75% of their 2020 reduction goals.
c. Stable: assumes a scenario in which deforestation remains at a stable rate equal to the average
deforestation rate between 2015 and 2016, to serve as a conservative benchmark for limited
change “on the ground”.
d. Pessimistic: assumes a scenario in which net deforestation increases between 2015 and 2020 by
30% compared to the 2015–2016 average14. This scenario presents a scenario where
implementation is derailed by the natural volatility from exogenous factors e.g. rising prices for
agricultural commodities.
14
In the original Business Case for Colombia we used one ‘most recent’ year. However in Brazil there have been large fluctuations in deforestation rates in recent years partly due to El Nino conditions.
Figure 9 – Eligibility for REM results-based payments
80. REM does not necessarily pay its partners the full sums that their deforestation performance makes
them eligible for. If their work plans or utilisation of previous payments suggests they cannot
effectively implement all of the potential funding in a reasonable timescale, a lesser sum will be
paid. Therefore in order to determine to what extent the above eligibility, based on deforestation
rates, would translate into actual payments we have evaluated the absorptive capacity of the Acre
and Mato Grosso programmes based on the draft work plans that each has prepared. Acre’s work
16
NB under this scenario Mato Grosso’s maximum payment eligibility would fall significantly over time as deforestation rises, and this
would potentially significantly restrict payments compared to Mato Grosso’s budget needs which, as a new programme, are likely to increase significantly over time. Initially Mato Grosso’s eligibility would be high but its capacity to absorb funding low. As REM accounts for budgeted needs and implementation capacity, as well as deforestation results, the outcome would be that REM would pay Mato Grosso significantly less than the £69m maximum eligibility suggests.
32
plan, including administration fees, identifies requirements for REM finance totalling up to £26m;
Mato Grosso’s identifies requirements for up to £43.3m.17
81. We have assumed that capacity to absorb and implement payments effectively will be broadly equal
in all years of the partnership with Acre, because it is already an established REM partner. In Mato
Grosso’s case we have assumed that some time will be needed to reach full capacity for effective
implementation, so we have employed the same (proportionally) increase in capacity over time as
the scenario used in the original Business Case for investing in REM Colombia.
82. Under the optimistic scenario, Acre is limited by the absorptive capacity in 3 out of 4 years. In Mato
Grosso (i) the higher forecasts of emission reductions relative to the results-based payment
performance trigger coupled with (ii) the assumed gradual ramping up capacity to implement the
Work Plan effectively over time, causes our model to predict relatively low initial payment volumes
to Mato Grosso (strongly limited by low initial implementation capacity) rising over time to a point
where deforestation performance becomes limiting rather than implementation capacity. The overall
effect is a recommended investment volume that is substantially below the maximum payments
Mato Grosso could theoretically receive if REM simply paid for all emission reductions generated
without regard to recipients’ implementation capacity.
UK payment forecasts under the optimistic deforestation scenario, accounting for Acre and Mato
Grosso Work Plans and implementation capacity and German finance contributions
Year
payment
made
Performance year of
results Acre
Performance year of
results Mato Grosso
Payment to
Acre
Payment to
Mato Grosso
2017 2014-15 2014-15 £5m £2m
201818 2016-17 2015-1619 £3.3m £7.9m
2019 2017-18 2016-17 £5m £7.6m
2020 2018-19 2017-18 & 2018-19 £5m £7.1m
83. We have created a representative portfolio of investment “pillars” to structure the economic
modelling that follows based on the Work Plans of Acre and Mato Grosso. These are a
simplification of more detailed tables in the Work Plans. These representative portfolios are broken
down below. For the purposes of estimating the benefits of the investment we have modelled under
the assumption that just the direct interventions to improve production of farming and forestry
systems, which are possible to model robustly, generate benefits. These are “agri-environmental”
interventions that establish new productive farming and forestry systems, for which we have
adequate sources of information to enable cost-benefit modelling. Based on the breakdown of
funding in Acre’s more detailed Work Plan we estimate these activities to be 36% of the use of
funding, so we have used that proportion in modelling for both Acre and Mato Grosso.20 The use of
the remaining 64% of funds that would be used for interventions in farms and forests that are less
easy to model, as well as less direct ‘governance’ and enabling framework improvements, is not
modelled and therefore it does not generate modelled benefits.
17
NB these are indications of how much funding the two States propose they could effectively implement in the period to 2022. These are not UK funding contributions, which are recommended below based on: scenarios of deforestation; implementation capacity; and forecasts of German contributions. 18
In the case of Acre this payment may be early in 2019 to allow time for emission reductions to be properly verified 19
In the case of Mato Grosso the first two payments will be based on pre-contract emission reductions, in Acre payments extend and existing REM agreement in place since 2012 20
The Work Plan for Mato Grosso that breaks down uses of funding was not available at the time of modelling but has since been received and this suggests a similar proportion of funding
these initiatives partner with fiduciaries and implementing organisations on the ground e.g. in
REM’s Colombia window KfW pays a fiduciary 5% to oversee Colombia’s procurements,
contracting, financial assurance and reporting whereas for other initiatives such partnerships
have not yet been established and/or assessed. There is a risk, covered in more detail in the
Commercial and Management Cases, that the downstream fiduciary costs in REM’s Acre and
Mato Grosso windows are higher than in Colombia.
- Efficiency. Working with sub-national or national governments has greater potential to
transform rural development models than project-scale approaches e.g. REDD+ programmes
may improve governance, rights and the rule of law in a way that benefits whole populations,
rather than just landholders engaged at the deforestation frontier. Partnerships like these also
offer better integration with host government spending; and can raise additional host
government funds. As well as integration with other climate finance and Official Development
Assistance initiatives. KfW scrutinises the additionality of proposed projects and interventions
before funding partners’ implementation plans. It requires partners to allocate a significant
portion (more than 50%) of funds to direct interventions with landholders and businesses on the
ground rather than just government and agency reforms. It also requires partners to retire
‘matching’ emission reductions for each reduction REM pays against, to hedge against
uncertainty, leakage and non-permanence and ensure an explicit financial ‘own contribution’ is
made by recipient governments. In addition to this we expect some leverage of private finance
from farms and forestry enterprises, as outlined later in the Appraisal Case.
- Effectiveness. By increasingly making payments conditional on results the UNFCCC REDD+
framework intends to provide a strong incentive for host countries to deliver emission reductions.
In addition REM requires partners to reinvest all of the money they receive to reduce
deforestation rates and improve rural livelihoods further. It does not, as standard, require
partners to conduct qualitative cost-benefit-based optimisation of their project and intervention
choices. Instead it requires them to set out a rationale for each choice, and a qualitative
assessment of the likelihood of the proposed investments addressing deforestation drivers and
improving livelihoods based mainly on their theory of change and feasibility for near term
implementation. Few of the tens of individual projects or interventions that a host government
may decide to pursue are required to provide their own detailed results framework; instead they
typically report on one or two key results that feed up into a consolidated logical framework for
the whole REM Programme window. However BEIS is working with KfW and partners on plans
for evaluations that could look into the results of particular interventions in more depth and help
optimise the portfolio of interventions supported over time.
90. In Acre REM has a solid track record, having just completed an initial four-year phase of support.
During this time REM contributed 25m Euros for 5 million tonnes CO2e of verified emission
reductions; supporting livelihood improvement for 3000 smallholder families; 6500 extractivist and
rubber tapper families; 5300 indigenous people; and 2000 families on larger cattle farms. This is
based on KfW’s initial assessments, with a full evaluation currently in progress.
Modelling
91. The appraisal carried out to estimate the expected results of investing funding of up to £18.3m for
KfW’s REM programme in Acre and £24.6m.
92. The modelling only draws on investment components with direct benefits on the ground (i.e.
investments in sustainable agriculture). These investments make up 36% of the results-based
payments available to the two States. As described above, the benefits of the enabling framework,
36
institutional capacity building and TA elements are expected to be indirect, non-linear and diffuse
and therefore remain hard to predict and model.
93. BEIS will not attribute any emission reductions delivered prior to this business case to our REM
funding. This is because pre-business-case effort by Acre and Mato Grosso cannot have been
directly incentivised by BEIS’ financial commitment; notwithstanding the UNFCCC REDD+
framework which invites developing countries to seek results-based payments, which was
formalised in the 2013 Warsaw decisions (Decision 9/CP.19 – Decision 15/CP.19).
Modelled activities
94. The appraisal draws on an illustrative portfolio of the type of Green Financing activities that are
proposed by the Governments of Acre and Mato Grosso whose main beneficiaries are expected to
be small, medium and large producers from the Brazil nut, cattle, exotic fruits, fish and rubber
supply chains both in terms of financial support to establish these systems (approximately 75% of
funds) and technical assistance to help landholders understand how to establish them successfully
(the remaining 25%).
95. The modelling is built on the stylised representation of these financing instruments and includes five
types of agricultural activities:
I) Agroforestry for Brazil nut production
II) Agroforestry for cattle production
III) Agroforestry for exotic fruits production
IV) Agroforestry for fish farming
V) Sustainable agricultural practices for rubber production
96. Agroforestry is an integrated approach that combines more traditional farm activities e.g. cattle
ranching – though often in a more intensive way – with safeguarding existing tree cover and
establishing new tree cover. Producing new products on such farms by introducing Brazil nuts,
exotic fruits, fish farming and rubber trees increases the intensity of production per unit area (e.g.
fish farming in Acre can achieve up to ten times as much financial return per hectare compared to
low-tech cattle ranching approaches). Producing in a more intensive way reduces the need for a
given farm to expand into natural forest area in order to make satisfactory returns.
97. Introducing trees onto farms can improve the productivity of more traditional approaches forms of
production like cattle ranching e.g. in silvopastoral cattle systems (SPS) the trees introduced are
often leguminous, improving the nutrient levels of soils and the nutritional quality of the grasses that
cattle feed upon, or they provide shade that cattle can utilise in periods of high temperatures,
improving milk yields. REM’s support to establish these systems is conditional on farmers not
deforesting remaining fragments of natural forest on their land. Moving forward in Brazil it will also
support requirements for farmers to restore natural forest where it has recently been lost.
98. The following table gives a breakdown of the assumed distribution of funding for the five modelled
activities in Pillar 3.
Percentage of new activities in: Acre (AC) Mato Grosso (MT)
Rubber agroforestry systems 21.6% 21.6%
Nuts agroforestry systems 21.6% 21.6%
Exotic Fruits agroforestry systems 9.9% 9.9%
Fish Farming 27.0% 27.0%
Silvopastoral agroforestry systems 19.8% 19.8%
37
Modelling assumptions
99. UK government contribution. For modelling and assessment purposes it is assumed that, BEIS will
make an International Climate Finance contribution of £18.3m to Acre and £24.6m to Mato Grosso.
It is assumed that the contribution is laid as a promissory note in 2017 and no money is returned to
the UK, as it is assumed that any unspent funds will be reallocated within REM after the 4 year
programme period – though in practice if delivery of the programme goes off course contracts could
allow BEIS to suspend, terminate, withdraw and claw back (where possible) funding sooner.
100. Benefit and cost attribution. Benefits are attributed on the basis of the contribution that the UK
Government commits to the entire REM Brazil window compared to the estimated total donor
funding required. This is 57% based on the assumption of the £75.7m overall funding pot. Private
finance mobilised is attributed to the UK Government on the same basis as the benefits.
101. Timescales. For the cost-benefit analysis it is assumed that benefits accrue over 10 years based on
the average sustainable lifetime of the type of agroforestry and agricultural interventions supported.
This limits the benefits in particular of rubber agroforestry, which do not produce rubber until year 6-
7 and continue producing rubber for the tree’s lifetime of 20-30 years. However, other systems are
more productive within that timeframe. Silvopastoral cattle, Brazil nut, exotic fruit and fish farming
productive systems are assumed to be sustained for 7, 10, 10 and 10 years respectively.
102. Assumptions on leverage and land area of intervention are based on multiple data sources from
Acre and Mato Grosso obtained during the scoping mission to both States (July 2017), online
statistics (mostly from Acre),21 and results of a research done by a well-known local NGO22. In many
cases, when data was not available, BEIS consulted local experts that have been or will be involved
in the implementation of the REM Programme to help identify sensible assumptions.
103. It is assumed that producers supported by the programme will either plant 3 hectares (1/3 of all
producers) or restore 3 hectares of existing systems (2/3 of producers) of their land. This is based
on feedback from the producers, which suggest changing land use on more than 3 hectares at a
time is difficult because production and financial risks increase with the size of land converted and
there is limited amount of labourers available in rural areas. In addition we assumed, as a condition
of accessing REM funding, producers will be required to restore 0.5 hectares of degraded land to
natural systems on their land and maintain the existing natural forest on their land by stopping any
deforestation activities.
104. We have assumed a private finance leverage ratio of 1:1 for modelled activities, based on the
modelling approach in the original business case for REM Colombia. KFW currently expects no
explicit additional public financial contribution from Acre, Mato Grosso or the Federal Government of
Brazil in the contracts it will sign. Therefore we have assumed BEIS investment does not leverage
additional public finance. This may change in due course as the contracts potentially give Brazil’s
public institutions confidence to increase their support.
105. Assumptions related to the investment costs, yields and prices of the different agricultural activities
are taken from multiple data sources from Acre and Mato Grosso obtained during the BEIS and KfW
scoping mission to both States (July 2017), as well as online statistics (in the case of Acre in
particular),23 and results of a research done by a well-known local NGO.24
21
Acre en Numeros (Acre in Numbers) available here 22
Novo Campo Programme, “Promoting sustainable cattle ranching in the Amazon; experiences developing cattle ranching with zero deforestation methods”. 23
Acre en Numeros (Acre in Numbers) available here 24
Novo Campo Programme, “Promoting sustainable cattle ranching in the Amazon; experiences developing cattle ranching with zero deforestation methods”.
106. Administration and management costs. For the purposes of modelling the expected benefits it is
assumed that both KfW’s administration costs of 2.5% and the Brazilian fiduciaries’ fees (assumed
to be 7.7% and 10.8%25 for Acre and Mato Grosso respectively at the time of modelling) are
charged upon the encashment of the promissory note. Project management costs are assumed to
be 9.45%. An additional 4.66% cost is assumed to be used for monitoring and evaluation at the
project level to verify that the conditions of loans are being met.
107. Carbon Equivalent abated and ecosystem values. The amount of carbon equivalent saved per
hectare by moving from the counterfactual activity to the programme activity is calculated using data
from the academic literature.26 The counterfactual activity is informed by the analysis of the current
land use activities in the two departments, which is overwhelmingly reliant on cattle production (c.
70% and 77% of the current agricultural land for Acre and Mato Grosso respectively). Direct carbon
sequestered from more productive, higher quality grazing land is assumed to be zero. Carbon
emissions avoided by saving forests from being converted to extensive pasture systems forests is
estimated based on the 2012-13 deforestation rate in the two departments which is assumed to be
0.46% based on academic literature. The model disaggregates ecosystem service values
associated with regenerated forests and natural forest values. Due to a lack of reliable data the
valuations are not disaggregated by region. The ecosystem valuation is based on academic
literature and previous business cases, where appropriate experts have inputted knowledge. These
values are applied uniformly to the land area impacted by the project.
108. Carbon valuation and discount rate. The model assesses the social value of carbon using the
BEIS’s international carbon prices series. The main results refer to the use of the central forecasted
values. The future price of carbon is uncertain and therefore sensitivity analysis has been
undertaken testing the NPV with the low and high carbon price scenario (see Annex A). In line with
the appraisal guidelines of BEIS’ ICF a 3.5% discount rate is applied to global public goods; in this
case the carbon benefits accruing from the project. All other costs and benefits are discounted at a
developing country discount rate of 10%, applicable to Brazil.
109. Leakage. A key assumption is the impact of leakage, the amount that the new agricultural activity
displaces the original activity to another area so that the negative impacts are felt there as opposed
to the project area. In this situation there are no net carbon or ecosystem benefits. REM’s overall
jurisdictional approach should minimise local leakage and national leakage, however to be
conservative a 25% leakage factor is applied in the modelling of the central scenario in line with
BEIS’ previous business cases. No further additionality discount is applied to expected results
because KfW assessment will ensure that activities represent an improvement on BAU (see section
on Efficiency above and controls described in the Commercial, Financial and Management Cases).
Modelling evidence assessment
110. Evidence base. As described in the sections above the modelling is based on multiple data sources
from Acre and Mato Grosso obtained during BEIS and KfW’s scoping mission to both States (July
2017), online statistics (particularly in the case of Acre)27, and results of research done by a well-
known local NGO.28 There are however weaknesses within this data, and the strength of the
evidence base will depend on whether investment components are implemented as foreseen. To
allow for the level of uncertainty in the evidence the modelling is deliberately conservative in the
assumptions that are made and also in the counterfactual identified.
25
Subject to ongoing negotiations 26
Amezquita et al., Carbon sequestration in pastures and silvo-pastoral systems under conservation management in four ecosystems of tropical America, 2008; Moreira et al., The potential for rubber plantations for environmental conservation in the Amazon region, 2009 27
Acre en Numeros (Acre in Numbers) available here 28
Novo Campo Programme, “Promoting sustainable cattle ranching in the Amazon; experiences developing cattle ranching with zero deforestation methods”.
funds, like FCPF-C which has an expected attributed cost per tonne of £5.66/tonne of CO2e. This
is to be expected as in these funds, according to ICF’s new attribution rule which reflects the
opportunity cost of UK investment, results are attributed based on the UK’s pro-rata share of public
finance at Fund level and not shared with all public finance downstream at the level of project
activities. In our modelling REM’s results-capped but also up-front funding approach, where a higher
share of project costs are borne by REM donors, results in a less cost-effective outcome from a UK
investment perspective as the leverage potential is lower. The public cost per tonne of the FCPF-C
– approximated by project level attribution taking into account all streams of public finance
contributing to the project level activities – at £16.8/tCO2e is more comparable to REM’s value-for-
money indicators. Nonetheless, direct comparability is complicated by the difference in the length of
time benefits that are assumed to be attributable to the UK intervention (limited to 5 years, the
length of results-based payments contracts in FCPF) and the limited comprehensiveness of the
REM modelling.
43
Commercial Case
119. The original Business case for investing in REM Colombia at the end of 2015, online here,
described the selection of the primary delivery partner (German Development Bank KfW) and its
procedures for appointing and managing downstream delivery partners in some detail. Here we
summarise the main points and update on anything that is different in the arraignments for our
increase in funding for Acre and Mato Grosso.
Selection of KfW
120. KfW is a public institution owned by the Federal Republic of Germany and its States. BEIS has
made International Climate Finance contributions to KfW before; including as the delivery vehicle for
the GET FiT programme, the NAMA Facility30 and the REM Programme in Colombia and we have
had a generally positive experience working with these initiatives though we have some
recommendations for optimising management in each case. Other contributors to KfW programmes
include the German Federal Ministry for Economic Cooperation and Development (BMZ) the Nature
Conservancy and the European Commission.
121. BEIS has not run a formal procurement competition for the delivery partner for this investment.
However, as with many ICF investments to date, we have conducted a detailed appraisal of a long
list of eight potential delivery routes. We have ensured that this appraisal is up to date to reflect the
current supplier market and context around extending the BEIS’ REM investment in 2017. We are
satisfied that the grant proposed in this Business Case is allocated, and will be managed, in
accordance with Government Grant Standards.
122. The delivery options are appraised in the original Business Case and that assessment is updated in
this Extension Business Case. The appraisals look at the fit of each option against strategic
requirements identified in the Strategic Case and critical success factors for effective management
of implementation. In these assessments KfW scores significantly higher, scoring 24.5/30 compares
to a next best options at 21.5/30, primarily because of its strategic fit. We have also overlaid onto
this a sense-check against the increasing strategic focus on delivery routes that provide strong UK
‘visibility’ and benefits associated with that e.g. enhancing the overall relationship between the UK
and recipient governments. The REM option continues to be the preferred option with this additional
lens.
123. BEIS (then DECC) engaged Deloittes to undertake a supplier review of KfW which concluded
favourably in 2013.31 The review looked in detail at KfW’s role as delivery partner for three climate
finance initiatives: GET FiT, Indonesia ERI32 and the NAMA Facility. No other review has been
needed or done since then; however KfW has more recently passed the Green Climate Fund’s
(GCF) assessment for selection as an Accredited Entity of the GCF.
124. Based on these assessments we continue to believe direct grants to KfW are an appropriate route
for implementing this investment.
Safeguards and due diligence
125. KfW’s internal policies contain rigorous procedures for checks on money laundering, illegal use,
terrorism finance and “know your client procedures”. It has agreed to adhere to IFC’s standards33 in
relation to Environmental Social and Governance (ESG) reviews. As KfW Development Bank
30 GET FiT is an initiative through which the UK seeks to improve the availability of commercial finance to help decarbonise the Ugandan power sector. The NAMA Facility is a UK and German bilateral programme funding increased quality of developing countries’ climate mitigation plans. 31 Deloitte, Supplier Review of KfW, 2013, prepared in confidence for an internal BEIS audience only 32 Indonesia ERI supports loans to small and medium sized enterprises in Indonesia 33
The IFC’s standards are recognised as the leading developmental standards and are used by CDC and other Development Financial
programmes are executed locally, grievance and redress mechanisms are operated by recipients.
REM contracts require recipient countries to implement robust systems to record and respond to
complaints from the outset of operations and to strengthen them over time.34 KfW annually presents
results of these mechanisms based on recipients’ annual reports.
126. The REM programme also contracts recipient countries to adhere to Free Prior Informed Consent
(FPIC)35 before significant decision on the use of lands and distribution of funds; as well as
UNFCCC REDD+ social and environmental safeguards.36 In addition to REM support for this work,
the German Government typically makes separate sources of finance and technical assistance. For
example, through the German Development Agency GIZ, Germany is funding programmes in
Colombia and Acre that build capacity in indigenous peoples and work to better integrate them with
REM programmes.
127. On the basis of these procedures and controls, and favourable expert assessments of them, BEIS
has satisfied itself that this investment complies with the Department’s public sector equality duty. In
addition to ‘do no harm’ controls, KfW Development Bank actively fosters gender equality through
all of its projects.
Negotiating a value-for-money contract
128. BEIS will negotiate a new contract with KfW, covering the increase in funding for Acre and Mato
Grosso. This will mostly follow the provisions negotiated for the Colombia window, which in turn
followed aspects of our earlier agreement for KfW to deliver GET FiT. BEIS Legal and Commercial
will be part of the negotiation process, and we will also use the support of external legal counsel
particularly for issues of German Law. Where appropriate our contract with KfW will require
obligations to be passed through to the State Government of Acre or Mato Grosso, the Federal
Government of Brazil and/or its delivery partners.
129. To ensure BEIS’s partnership with REM provides the best value for the Department, we are seeking
to maintain a number of procedures negotiated for our participation in the REM Programme in
Colombia, which are not in KfW ‘standard offer’. These include a confirmed post-implementation
evaluation, additional transparency requirements and provisions for the Department to exit the
agreement if implementation is poor. We will also attempt to negotiate stronger provisions for areas
where we believe management could be optimised, based on our experience of delivery in the
Colombia window, including monitoring and evaluation planning.
Lessons from Colombia partnership Potential remedy in contracts for
REM Acre and REM Mato Grosso
The “indicative” shares of results-based payments, between
the three donors to the Colombia partnership, recorded in our
contract has been quite rigidly applied and has resulted in
faster initial rates of disbursement for Norway and Germany
than would be expected on a pro-rata basis. This is mainly due
to less flexibility regarding in which years German and
Norwegian funds can be utilised. This has the potential to slow
the disbursement of UK funds.
In the contracts for Acre and Mato
Grosso we will work to agree a set
of indicative disbursement
schedules that are closer to a pro-
rata distribution.
The initial drafts of financial reports from the fiduciary in
Colombia were not of the format and quality required, leading
We will seek to ensure KfW’s
contracts with partners in Brazil
34
Based on REM contracts with Colombia 35
FPIC is the principle that a community has the right to give or withhold its consent to proposed projects that may affect the lands they customarily own, occupy or otherwise use. 36
Dec/COP19
45
to redrafting work and delays. set out clear expectations on this.
Monitoring and Evaluation arrangements for the partnership
have been put in place but without a unifying planning
document that records the approach. Some aspects of the
approach also still need to be agreed e.g. expectations for the
form and content of the end-of-programme evaluation.
We will work to ensure the
contracts are clear on what BEIS
requires in terms of the format and
timing of a Monitoring and
Evaluation Plan document.
A small number of key programme documents have been
available to KfW several weeks before KfW passed them on to
BEIS. More time for BEIS to review key documents is always
useful, especially for longer ones such as Annual Reports and
Annual Work Plans.
We will work to agree clearer
provisions that KfW should send
key documents to BEIS without
undue delay.
130. We anticipated that KfW would seek to maintain the 3% administrative fee charged to our existing
REM Programme in Colombia which is towards the lower end of the range of fees we see across
our climate finance initiatives but we have agreed a lower 2.5% fee with KfW in this case, subject to
finalisation of the last details of contracts. We do not anticipate KfW will charge any additional direct
costs, though we may negotiate a contribution to the programmes’ ex-post evaluations, to be
determined during contract negotiations. It is hard to directly compare fees like this. We will be
working to control the administrative costs of downstream delivery partners in Acre and Mato
Grosso especially (described below).
Legal considerations
131. The original Business Case looked at legal considerations in more detail and various legal
considerations are covered throughout this Extension Business Case. As described above KfW is
subject to, and follows, EU procurement rules. KfW’s primary partners are sovereign national or
local governments which are not appointed by competitive procurement. But the goods and services
KfW does procure directly are subject to these EU rules.
132. As REM funding is primarily executed by recipient governments and their delivery partners in
developing countries we assess there to be no risk of distorting EU competition with State Aid.
133. As detailed in the original Business Case we believe the investment is in line with BEIS’ spending
powers and public sector equality duty, as well as the obligations of the International Development
Act 2002. Our contracts will ensure the application of due safeguards and access to information
such as to enable BEIS to meet its obligations under the Freedom of Information Act 2004.
134. Contracts with KfW will be legally binding, in German law (and therefore will require external legal
counsel with this expertise), and based on our existing contract for funding REM’s Colombia
window. Germany are the other donor to the programmes and in practice, while decision making
arrangements are formalised in our contracts, it is likely that any decisions to be taken jointly with
Germany will be arrived at diplomatically rather than by legal means. Failures to deliver the
programme effectively could result in a legal dispute between BEIS and KfW, for which our contract
will make arrangements, but this scenario is highly unlikely as again diplomatic means would be
pursued in the first instance.
135. Drawing lessons from the progress of the REM Colombia programme we will seek to negotiate
some additional wording in contracts for REM Acre and REM Mato Grosso. We intend this to make
clearer by when a monitoring and evaluation plan for each programme will be ready, possibly
agreeing some features of those plans and how long KfW has between receiving progress reports
147. This staff member would dedicate: 50% of their time to oversight of REM Acre and REM Mato
Grosso; 40% to oversight of other BEIS climate finance programmes in Brazil including potentially
the proposed Partnerships for Forests platform (currently with Minister’s for approval) as well as
development of potential new partnerships; and 10% to embedding our work in the wider activity of
the Embassy and making a corporate contribution. This mirrors the arrangements we are putting in
place in the UK’s Embassy in Bogota for oversight of REM Colombia.
148. We are requesting approval for up to £300,00039 of International Climate Finance programme RDEL
to fund this post from 2018 to 2022 based on estimates of gross salary costs and travel expenses.
Appointment would be on the basis of rolling one-year contracts so BEIS’ initial commitment for
work in 2018 would be £60,000. This £300,000 will be additional to the £42.9m commitment of
finance to REM.
Resource and capital costs
149. REM windows will require a combination of resource (RDEL) and capital (CDEL) funding. For the
UK’s funding of the Climate Investment Funds and Green Climate Fund, DFID and DECC (now
BEIS) agreed with the Office of National Statistics that up to 10% of CDEL funds may be used to
provide grants for administrative costs and expenses of International Climate Finance initiatives.
150. For the increase in funding for REM in this Extension Business Case this up to 10% (£4.29m)
allowance will cover the £1.1m administrative fees of KfW and any additional direct costs to KfW
that may be negotiated in the contract (e.g. a contribution to an ex-post evaluation for each
programme).
151. Based on the Work Plans of the two States BEIS has made an assessment of remaining costs
across the ‘pillars’ of support REM will provide to Acre and Mato Grosso. We assess the “enabling
framework” pillars that strengthen delivery institutions and build essential systems that underpin the
programmes to be more indirect classes of intervention that are not so closely tied to changes in
land use or the creation of capital assets, therefore requiring RDEL funding.
152. We assess the pillars that focus on creating new productive systems on indigenous territories and
farms to be directly tied to changes in land use and the creation of capital assets, therefore requiring
CDEL funding. The main activities of these pillars, and where they relate to the creation of assets,
are described below:
Pillar of activity Main sub-activities CDEL or
RDEL
Indigenous peoples - Grants to help indigenous communities buy materials to establish new production systems e.g. seedlings for fruit crops
- Building these new production system assets, e.g. building fish ponds, including as part of this building process instruction on how to build them, delivered as part of agreements with specific communities that have agreed to build these new production systems
- Implementation of indigenous land management approaches: creating maps and systems of monitoring to prevent outside organisations deforesting indigenous territories
CDEL
39
This is based on posts BEIS is funding in Colombia and Mexico, accounting for circumstances in Brazil where wages and travel costs are approximately 30% higher than Colombia.
50
Forest-friendly
production
- Grants to help purchase materials and establish new production systems: rubber, exotic fruits, honey, bamboo, wild cocoa, forest oils, timber
- Building these new production system assets, e.g. planting new rubber plantations, including as part of this building process instruction on how to build them, delivered as part of agreements with specific farmers that have agreed to build these new production systems
- Grants to help purchase processing equipment for facilities that process, manufacture, package and distribute these products
- Grants to help purchase materials and restore native forests on degraded farmland
CDEL
Diversifying cattle
farms
- Grants to help purchase materials and establish new more intensive farming systems on poor-quality extensive cattle grazing farms e.g. to build cattle sheds and buy feed crop seedlings to replace grassland
- Grants to help purchase materials to establish fish ponds for fish farming in place of poor quality cattle grazing land
- Building these new production system assets, e.g. building fish ponds, including as part of this building process instruction on how to build them, delivered as part of agreements with specific farmers that have agreed to build these new production systems
CDEL
Capacity building,
essential systems &
enabling framework
Grants to help with:
- Creating and operating new Monitoring, Reporting and Verification IT systems
- Institutional capacity building, programme management and administration
- Command-and-control interventions by environmental authorities, to help stop deforestation happening
- Registering lands in a land registry
RDEL
153. Based on the proportion of funding earmarked for each pillar of the Work Plans of Acre and Mato
Grosso, and the assumptions on fees described above, the total CDEL requirement for the
extension of REM funding is £27.9m CDEL and £15m RDEL. Germany do not have restrictions on
capital or resource spend, so they will be in a position to help balance our spending if aspects of the
SISA Manager and an IT and Communications lead. A detailed list of responsibilities for each position is contained in the Operational
Manual of the programme.
57
Figure 12 – illustration of the delivery partners in Colombia, Mato Grosso and Acre partnerships
Brazil
Colombia Acre Mato Grosso
HM Government staffing
178. Staffing is discussed in the appraisal of delivery options in the Appraisal Case, the Financial Case
and the risk analysis sections below. Increasing BEIS’ REM funding will initially require an increase
of BEIS staff time of 0.875 full-time-equivalents (FTE) and 0.675 FTE from the British Embassies in
Brazil. This includes a new dedicated Embassy staff member BEIS intends to finance with ICF
programme funds from 2018 to 2022 to help oversee delivery.
How will progress and results be monitored, measured and evaluated?
179. Detailed arrangements for REM financial planning, reporting and audits are covered in the Financial
Case and covered in the original Business Case, here.
Additional reporting controls
180. KfW’s management system for REM employs the following reporting controls, as agreed in the REM
Programme in Colombia and already in KfW’s draft contract with Acre. Some of these reports will
only be provided in Portuguese as standard so BEIS will need to negotiate in contracts which
should be translated to English:
a) Half-year reports. Brief updates on programme delivery, including: implementation unit capacity,
changes to management structures, expected results including any indications of changes in
deforestation rates or leakage, social and environmental impacts, application of safeguards and
progress against the programme timetable.
b) Annual reports. Detailed updates on the same themes as the half-year reports, including
reporting of results achieved against the agreed programme logframe and updates on wider
context e.g. the national REDD+ process.
c) Emission Reduction (ER) reports. Annual reports that outline the level of greenhouse gas
emissions from deforestation in the target area, compared to the historical Forest Reference
Emission Level.
d) ER verification reports. Independent assessments of the robustness and validity of the ERs
reported in the Emission Reduction reports.
KFW
Ministry of
Environment
(MADS)
Local Fiduciary
(Fondo
Patrimonio
Natural)
Local Fiduciary
(State Secretariat of Finance)
State
Government
(State
Secretariat of
Planning)
Lead partners for executing “pillars” of the work plan: 1. Forest governance 2. Cross-sector working 3. Agri-environmental 4. Indigenous peoples 5. Enabling conditions
Lead partners for executing “pillars” of the work plan: 1. Indigenous territories 2. Forest-friendly production 3. Diversifying cattle farms 4. Forest governance &
enabling conditions
State
Government
(State
Secretariat of
Environment)
Local Fiduciary
(to be confirmed)
Lead partners for executing “pillars” of the work plan: 1. Indigenous communities 2. Forest-friendly production
e) Safeguards reports. Annual reports on the progress of safeguards development and delivery.
These cover REDD+ safeguards items agreed in relevant UNFCCC decisions and the National
REDD+ Committee of Brazil (CONAREDD+).46
f) External mid-term evaluation. Assessment of costs, social and environmental outcomes and
impacts attributable to the programme in the first half of programme implementation, especially
with reference to the logframe. This will also identify practical lessons learned from early
implementation. Terms of Reference will be agreed by KfW and partner governments in
consultation with the donors. We intend to negotiate stronger contract clauses in this area than
the previous agreement for REM Colombia; clarifying the nature of the evaluations as far as
possible, when deliverables must be finalised by and BEIS’ role in doing so.
g) Final implementation report. The partner government’s report on the delivery of the programme,
including outcomes and impacts reached, especially with reference to the Logframe, covering
the full lifetime of the programme.
h) External end of programme evaluation. An Independent evaluation of the costs, outcomes and
impacts of the initiative as well as implementation lessons. This will be made accessible to a
global audience to inform wider REDD+ initiatives.
Monitoring, evaluation and learning plan
181. ICF initiatives must put in place detailed Monitoring and Evaluation (M&E) and Learning Plans
within six months of funds being committed. BEIS will need to ensure this is prioritised building on
the high-level plan already received. Work is scheduled to finalise it in 2017. For the contract
covering our uplift in funding for Acre and Mato Grosso we intend to seek to negotiate stronger
provisions on this to help ensure the work happens sooner. We have engaged earlier this time to
ensure KfW has a clear understanding of what we would see as a suitable approach to evaluation,
and KfW have already shared our requirements with Acre and Mato Grosso so that they can be
accounted for in the contract negotiations that are ongoing between KfW and the States.
182. In an improvement from the approach in Colombia, REM will fund a knowledge expert to assist with
these processes in Acre (the potential for a similar arrangement in Mato Grosso is to be confirmed,
and something we will push for). Details of the specific role and expertise are described in the
Operational Manual.
183. KfW will agree two logframes, one with Acre and one with Mato Grosso. These results frameworks
will record objectives mainly at the aggregate level (i.e. at the sub-programme or “pillar”) rather than
project level and in some cases for the whole programme. The logframe will, however, break down
key indicators where possible e.g. the outcomes and impacts of more direct interventions can be
estimated, attributed and monitored with greater confidence. The logframes and evaluations will
also attempt to disaggregate results by gender where possible. KfW and the States have agreed to
include or provide information compatible with ICF Key Performance Indicators (KPIs), though final
agreement is yet to be secured in contracts. We will pay particular attention to securing indicators
compatible with the Theory of Change outlined in the Strategic Case.
184. Beyond the logframes the States’ global and annual Work Plans will provide a basis to identify
delivery milestones, including ‘early set up’ milestones, which enable BEIS and evaluators to test if
delivery is on track even in early stages of operations when substantial outcomes or impacts are not
expected. Logframes will be reviewed annually, with any changes clearly highlighted and explained.
KfW reserves the right to object to any modifications of the logframe indicators that the States
propose.
46
REDD+ National Commission.
59
185. BEIS reviews the progress of all ICF initiatives annually. All annual reviews are published on the
gov.uk website. KfW has agreed to input into these reviews though BEIS will be responsible for
compiling them and the assessment of performance is ultimately BEIS’ judgment.
186. As detailed above, we anticipate at least two evaluations will be conducted on each REM window
(Acre and Mato Grosso) assessing their costs, efficiency, outcomes and impacts, relevance,
sustainability and lessons learned from implementation. We intend to require evaluations conducted
at mid-term and post implementation. Based on the scale of the project and the research questions,
we estimate these evaluations would be in the midrange of ICF evaluation costs and complexity
(£175k each) but final costs would be dependent on the proposed evaluation design, questions and
methods. The costs of these evaluations will be met by the REM programme and are
accommodated in the breakdown of funding in the Financial Case. KfW and the partner
governments will be responsible for designing, procuring and managing these evaluations; but BEIS
will be consulted and in practice has good scope to influence this because of our comparative
expertise. We are seeking firmer provisions in our contracts to formalise our role.
187. As the REM programme is intended to demonstrate the rewards and lessons of REDD+ to inform
wider REDD+ initiatives, BEIS will work to ensure reviews will be disseminated and accessible to a
wide global audience. KfW’s REM team presents at key events including COPs and meetings of
other funds e.g. Green Climate Fund REDD+ workshops. Acre and Mato Grosso regularly share
lessons with other local governments from around the world, including through the Governors
Climate Task Force. In addition to activities funded by REM, BEIS could consider doing more to
help Acre share their world-leading experiences e.g. by funding a more detailed cost-benefit
analysis of the interventions they have delivered in the first phase of REM implementation. There is
a real paucity of detailed information on the costs, benefits and lessons of addressing deforestation
in the Amazon and public and private initiatives would certainly make use of such information if it
were available and publicised in an accessible format. This would be a bigger exercise than
anything currently envisaged under the REM programme and could be something BEIS looks like in
future Business Case on supporting research needs.
Lessons learned from the Colombia partnership
188. In addition to the lessons set out in the Commercial Case (which relate to contractual provisions on
disbursement rates, reporting and Monitoring and Evaluation and how they can be strengthened for
the partnerships with Acre and Mato Grosso) the following key lessons from the initial phase of
delivery in Colombia will be applied to the initiation and oversight of REM’s Brazil partnerships:
Lesson from Colombia Application to REM Acre and Mato Grosso
Working with one government department as the primary partner for the initiative can pose challenges as addressing deforestation requires the action of several ministries. Placing one in a leading role can marginalise others.
In Brazil REM will work closely with the State Governors who oversee the work of all relevant authorities at the State level. In Acre REM is building on years of successful stakeholder collaboration under the State System for Incentives and Environmental Services led by the State Secretariat of Planning.
Work Plans may need to be adapted opportunistically e.g. to front-load command-and-control efforts when pressure on forests increases. This has emerged as a strong theme in Colombia where conclusion of the peace agreement with the FARC EP has opened up areas of forests previously too dangerous for many potential agents of
This highlights the importance of: frequent planning and review processes; on-the-ground monitoring and decision-making missions; and quick and effective engagement from KfW and donors. BEIS has increased the resources dedicated to oversight of our investment in REM. This Business Case also proposes that from 2018 BEIS should finance a full-time staff member
60
deforestation to access. This also presents an opportunity to involve organisations previously occupied by combat to help with environmental programmes.
based in the UK’s Embassies in Brazil, to help oversee delivery.
There has been quick progress to identify concrete projects to finance with stakeholders on the ground in Colombia’s Amazon region, even in areas that were until very recently off limits due to conflict. This is due to the Implementation Unit prioritising recruitment of staff that already have well-established networks and experience in the region.
In both Acre and Mato Grosso the conditions for engaging local stakeholders are arguably better than in Colombia, because REM will be partnering directly with State governments that do all their work in the region, rather than federal-level ministries operating from a capital city. Acre also has the advantage of building on several years of prior delivery of REM-funded work.
What are the risks and how will they be managed?
189. Our assessment is that investing in REM, with a phase one investment in Colombia’s Amazon
Vision programme, carries high operational risk. However, given the initiative’s potential to produce
transformational impact, we judge this level of risk to be within the scope of the ICF’s risk appetite.
190. The original Business Case for BEIS investment in REM at the end of 2015, online here, analysed
risks and mitigations at some length. Below we update on just the main points of the top risks that
Business Case identified, as well as any significant changes. We do so where these existing risks
would also apply to our funding increase for Acre and Mato Grosso. We then go on to provide
analysis of new risks that would come with the funding increase.
Risks in the original Business Case
Risk description Risk Mitigations Residual
risk
Civil war impacts
implementation
Not applicable to the extension to Acre and Mato Grosso
Conclusion: This risk is medium-high after mitigation but Acre and Mato Grosso have the
ambition and capability to weather these challenges and REM has the potential to act as a source
of continuity in this difficult period.
Risk 2 Level before mitigation: medium-high Residual risk: medium
Drivers for Deforestation in Acre and/or Mato Grosso increase, reducing or slowing REM
payments, impacting delivery of the programme as a result.
Description: Deforestation in Brazil was up on previous years in 2015 when El-Niño conditions
made it easier to clear forests using fire and cuts to Federal government budgets impacted
command-and-control activities. If deforestation increases significantly, the eligibility of Acre
and/or Mato Grosso for REM payments will be reduced, negatively impacting the rate or scale of
delivery as a consequence.
Assessment: There is no certainty that deforestation will reduce in the future. There is the risk
that deforestation rates go up above the baseline used as a benchmark for REM’s results-based
payments. This has already happened in Acre in the 2015/2016 performance year due largely to
the conditions described above. However initial results for the 2016/17 performance year were
published by Brazil’s official monitoring agency in October 2017 and these indicate that
deforestation in the Brazilian Amazon declined again, by 19%, including a significant reduction in
Acre.
Mitigation: This risk is part and parcel of the performance incentive that REM seeks to create
and the chief mitigation is the overall goal of REM itself: to support ambitious partner countries to
make wholesale policy, regulatory and financial changes to address deforestation.
BEIS’s approach to determining the funding level that will be provided balances the incentives
required to drive transformational change at the scale and pace targeted by Brazil with the risk
that Acre and Mato Grosso will not fully achieve its target. BEIS has appropriate controls in draft
contracts to suspend, terminate, withdraw and redirect funding from REM’s Colombia window at
any point if delivery is significantly off course. BEIS could redirect funding to other strongly
performing REM country windows. Alternatively BEIS could withdraw and reallocate funding to
entirely different climate finance initiatives – at the proposed level of funding we believe any
reflows to DECC (now BEIS) would be manageable.
Conclusion: It is impossible to completely mitigate this risk as it is a feature of the results-based
programme design. Acre and Mato Grosso will need to follow through strongly on their ambition to
ensure they can access results-based payments and ensure success on a scale that counteracts
exogenous factors beyond the immediate control of their programmes.
Risk 4 Level before mitigation: medium-high Residual risk: medium
Responding to stakeholder grievances.
Description: stakeholders in Mato Grosso and Acre are not effectively engaged in the
programmes or have grievances because of how the programme impacts the lives of people
living in the regions.
Assessment: REM programmes deals with multiple stakeholders, including hundreds of
indigenous communities spread across vast, remote and inaccessible areas. Objections to the
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plans and interventions of REM programmes are expected. There have been isolated incidents
of violent conflict in both States, often as a result of overlapping land use claims as is common in
many tropical rainforest environments. This has the potential to undermine the credibility of the
programme in Brazil and in the UK.
Mitigation: In order to provide responses to multiple potential requests and claims, the REM
Programme will implement grievance and redress mechanisms at the State level and report on
the operation of that system. KfW will assure that international and national REDD+ standards are
complied with through regular supervision, safeguards reporting requirements, a REM-funded
implementation specialist embedded in the implementation units in Acre and Mato Grosso and
observation of the work of the programmes in-country including during monitoring missions. The
programmes are building on some world-leading local mechanisms for stakeholder participation
including Acre’s SISA platform which engages local civil society and indigenous communities in
decision making.
Conclusion: Overall REM’s requirements are a strong incentive for partner governments to
carefully consider the impacts of programmes on local stakeholders and proactively respond to
grievances. Some grievances are inevitable however and not all will be fully resolvable
i Nepstad et al., More Food, More Forests, Fewer Emissions, Better Livelihoods, 2013 ii Nepstad et al., Slowing Amazon deforestation through public policy and interventions in
beef and soy supply chains, Science, 2014 iii The Global Canopy Programme’s Forest 500 assessment of 10 leading subnational
jurisdictions (did not include Acre) gives Mato Grosso top spot ; Acre is singled out in many
assessments for example Climate Focus’s 2013 report “Acre, Brazil: Subnational Leader in
REDD+” online here iv REDDX Analysis of donor finance for leading forest nations, 2015 v This is based on the Human Development Index scores for Brazilian municipalities compared to national scores vi Global Canopy Programme, Forest 500, 2015 vii See the Governors’ Climate and Forests Task Force website here viii Global Forest Resource Assessment 2015 (FAO) p.3. online here. ix Nature Geoscience x Based on Climate Advisors’ quantification of ambitions set out in the New York Declaration on Forests, as compared to UNEP Gap figures xi FAO (2010). Global Forest Resource Assessment. Online here. xii World Bank (2008). Poverty and Forest Linkages: A Synthesis and Six Case Studies.
World Bank, Washington. Online here. xiii Millennium Ecosystem Assessment (2005). Millennium Ecosystem Assessment, 2005.
Ecosystems and Human Well-being: Biodiversity Synthesis. World Resources Institute,
Washington, DC. xiv REDD+ & post conflict, Forest Trends and Natural Capital Advisors, 2016 vi United Nations (2013). A New Global Partnership: Eradicate Poverty and Transform
Economies Through Sustainable Development: The Report of the High-Level Panel of
Eminent Persons on the Post-2015 Development Agenda. United Nations Publications,
New York, USA. xvi Kissinger et al, Drivers of Deforestation and Forest Degradation, 2012 xvii Ibid. xviii Ibid. xix Union of Concerned Scientists, Deforestation Success Stories, 2014; Nepstad et al.,
Slowing Amazon deforestation through public policy and interventions in beef and soy
supply chains, Science, 2014 xx Based on a BEIS survey of key stakeholders in 2016 xxi Nepstad et al., More Food, More Forests, Fewer Emissions, Better Livelihoods, 2013 xxii Global Canopy Programme, Forest 500, 2015 xxiii Nepstad et al., Slowing Amazon deforestation through public policy and interventions in
beef and soy supply chains, Science, 2014 xxiv The Global Canopy Programme’s Forest 500 assessment of 10 leading subnational
jurisdictions (did not include Acre) gives Mato Grosso top spot ; Acre is singled out in many
assessments for example Climate Focus’s 2013 report “Acre, Brazil: Subnational Leader in
REDD+” online here xxv Nepstad et al., Slowing Amazon deforestation through public policy and interventions in
beef and soy supply chains, Science, 2014 xxvi Global Canopy Programme, Forest 500, 2015 xxvii
REDDX Analysis of donor finance for leading forest nations, 2015 xxviii This is based on the Human Development Index scores for Brazilian municipalities compared to national scores xxix Global Canopy Programme, Forest 500, 2015 xxx See the Governors’ Climate and Forests Task Force website here xxxi Environmental Defense Fund, Ready for REDD: Acre’s State Programs for Sustainable Development and Deforestation Control, online here xxxii REM Template, drafted by SEMA for the 2017 REM scoping mission xxxiii Based on accounts received in BEIS’ scoping mission to Acre, and maps of deforestation in extractives reserves compared to other areas in Acre xxxiv The initialism in Portuguese; see PCI (http://pci.mt.gov.br/) xxxv Lee and Fishbein, Early Lessons from Jurisdictional REDD+, 2015; USAid, REDD+ Supply and Demand 2015-2025, 2015 xxxvi Lee and Fishbein, Early Lessons from Jurisdictional REDD+, 2015; Centre for Global Development, The Indonesia-Norway REDD+ Agreement: A Glass Half Full, 2015; CLUA, The Impacts of International REDD+ Finance, 2015 xxxvii Based on the most recent Annual Review of progress of the Climate Investment Funds and discussions with teams managing the UK’s investment in the FIP xxxviii BEIS’ 2017 Annual Review of progress of our investment in the BioCF xxxix BEIS’ 2017 Annual Review of progress of our investment in the FCPF xl BEIS’ 2017 Annual Review of progress of our investment in the REM Programme here
xli See the Consumer Goods Forum zero deforestation resolution here xlii See the Governors’ Climate and Forests Task Force website here