Kalimantan Forests and Climate Partnership (KFCP) Design ...

Outcome-based: payments commensurate with GHG emissions reductions, initially as a proxy
for a future forest carbon market but later may be based on tradeable credits in a real market.
Incentives aimed at policy change should target appropriate agencies and levels of government. For
example, districts could be provided with incentives for land-use and development planning that
reduces deforestation and forest degradation (an approach being taken by the KfW REDD program in
West and East Kalimantan). Incentives aimed at changing economic drivers could target government,
the private sector (such as through tax policy), or both. An example in the context of the KFCP is
investment in sustainable agriculture within the EMRP area to stabilise land use and draw pressure
away from forests on deep peat, as proposed in the EMRP Master Plan.
Establishment of a Trust Fund
While in theory payments could be distributed directly from the IAFCP (e.g., out of the Australian aid
program‘s consolidated fund) to actors involved in reducing emissions, in practice it would be
preferable to designate a separate financial instrument in which payments from Australia (and
potentially other donors) could be deposited, and then disbursed for KFCP incentive payments
according to agreed procedures. Holding the funds in a trust fund would have the advantage of
providing a strong signal to governments and communities that emission reductions would be paid for.
IAFCP could partially capitalise the trust fund upfront (say for the estimated costs of the first two years
of operation), and then make periodic replenishments subject to agreed benchmarks. Independent
governance of the trust fund could help ensure that if disputes arose about entitlements to receive funds,
they could be resolved in a transparent and fair way. Options for funds are discussed further in the
IFCA study on REDD Payment Mechanisms.
The development and testing of payment mechanisms will be based on the principles below and follow
the described process.
Principles
Payment mechanisms must provide sufficient incentive for forest users, managers, and policymakers
to reduce emissions and to maintain emission reductions in the longer term.
Payments must be equitably and transparently distributed to those who have contributed to
emissions reductions but ensure that within household benefiting women have access and a
significant degree of control of these funds. Affected communities must be directly engaged in
the design and testing of the mechanisms, ensuring that the needs of women and vulnerable
groups are adequately addressed.
The KFCP should anticipate and as far as possible avoid creating perverse incentives.
Collective payments should be tested in addition to individual payments.
REDD interventions should ―do no harm‖ insofar as members of affected communities must not
be made worse off by incentives and, if possible, should benefit from them. The link between
REDD and poverty reduction should be explored, and the social impact of REDD demonstration
activities must be quantified (see Component 1).
Emission estimates linked to payments will be results-based, transparent, verifiable and able to be
estimated consistently over time. Payments should be linked to tangible, visible outcomes (―line
of sight‖).
Mechanisms must conform to the GoI legal framework and administrative procedures, including
REDD regulations as they evolve.
Mechanisms must be designed to meet the verification needs of carbon markets.
Mechanisms must be as simple as possible (but not simpler) to reduce transaction costs and to
facilitate supervision. Their development can be simplified by building up complex mechanisms
from constituent components, where possible using existing institutions and systems (―off-theshelf
parts‖).
The role of verifying contributions to emissions reductions and quantifying payments to specific
groups and individuals must be separated from the role of making payments in order to ensure
greater accountability and transparency.
KALIMANTAN FORESTS AND CLIMATE PARTNERSHIP (KFCP) DESIGN DOCUMENT 37