THE BLOG
08/30/2009 05:12 am ET | Updated May 25, 2011

Put the Brakes on the Bank: Carbon Finance in Indonesia

Co-authored by Rebecca Harris

Though the World Bank is consistently entangled in a game of tug-of-war with competing interests, accountability, human rights and development outcomes must never be sacrificed in the name of expediency. That said, the Bank's current struggle within its Forest Carbon Partnership Facility (FCPF) illustrates the difficulty of building a solid programmatic foundation that incorporates civil society concerns and feedback as well as the views of recipient and donor governments.

As the FCPF considers whether or not to advance Indonesia's proposal for readiness funds, the integrity of the program is threatened by political pressure to move the process as quickly as possible in anticipation of a potentially enormous market for forest carbon. Though the $3.6 million that will ultimately be available to assist Indonesia in reducing greenhouse gas emissions from deforestation and degradation (REDD) is small relative to the size of the other funding for REDD, it is symbolically important to the long term credibility of the Bank's carbon finance programs. To give Indonesia a green light to advance to the next stage in the FCPF process when Indonesia's proposal has received substantial criticism from both civil society and an independent review panel would be a fatal mistake.

The Forest Carbon Partnership Facility (FCPF) came into being in June 2008. The FCPF aims to fund country-led forest sector reform by assigning value to standing forests in order to discourage deforestation and reduce emissions.

The FCPF has the double imperative of building capacity for reducing greenhouse gas emissions from deforestation and forest degradation in developing countries in tropical and subtropical regions and piloting a program of performance-based incentive payments in select countries in preparation for a future global REDD carbon market.

Theoretically, the FCPF may be an innovative approach to forest preservation though in practice, it is not without substantial imperfections, as illustrated by the controversy surrounding Indonesia's readiness proposal.

This month, the governing body of the FCPF, known as the Participants Committee, will convene by email to determine whether or not to advance the Readiness Preparation Proposal (R-PP) submitted by the Indonesian government to the FCPF. Advancement of the proposal will move Indonesia one step closer to the receipt of $3.6 million in FCPF funds to support "readiness" activities.

While funding to reduce deforestation and its associated emissions in developing countries is certainly a positive development, pushing a flawed country plan through the approval process in the name of expediency is not.

In June 2009, numerous deficiencies in Indonesia's Readiness Preparation Proposal (R-PP) were identified by a variety of actors -- an independent expert panel, the World Bank, the Participants Committee and several civil society organizations. Given the heightened and widespread concern, the decision to advance Indonesia's R-PP should not be handled virtually but rather should be tabled until the next Participants Committee meeting in October 2009.

Both an independent review and an assessment completed by Bank staff highlight a number of concerns with Indonesia's R-PP -- incomplete identification of the drivers of deforestation and failure to recognize the rights of indigenous peoples to name a few. Perhaps most importantly, a number of civil society organizations oppose advancement of Indonesia's R-PP due to concerns over human rights, land tenure, and governance. Last spring, networks of Indonesian NGOs submitted letters to Indonesia's Ministry of Environment and to the FCPF Management Team expressing grave concern over the R-PP's lack of attention to systemic violations of indigenous rights, lack of participation and meaningful consultation with the forest peoples in the design stage, outstanding land tenure disputes, and failure to address drivers of deforestation that exist outside of the forest sector. On July 19, the Indonesian Forum on Climate Justice submitted a letter to the FCPF participants, specifically requesting that the decision on Indonesia's R-PP be delayed until October.

If the aforementioned is not reason enough to postpone the advancement of Indonesia's R-PP, one must consider the governance argument for doing so. Because Indonesia is not among the first group of 20 countries in line to receive readiness funds from the FCPF, the Participants Committee will be required to make a special exception in order to advance their R-PP at this time. This breach of protocol could thrust the Facility into a budget shortfall of roughly U.S. $6 million, violating the Facility's commitment to fiscal responsibility while setting a dangerous precedent.

The Participants Committee advanced the R-PPs of Panama and Guyana, despite numerous concerns raised by the Technical Advisory Panels, civil society, and even some members countries of the Participants Committee, indicating a willingness to succumb to moderate political pressure to expedite the FCPF process in spite of poor quality R-PPs. Approving Indonesia's R-PP, identified as most problematic by a wide range of actors, will send a clear message to civil society that the FCPF is willing to sacrifice its own standards in the name of expediency.