Nesting of REDD+ Initiatives: Manual for Policymakers Report No: AUS0002247 September 2021 © 2021 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This manual has been commissioned by the Forest Carbon Partnership Facility (FCPF)—a multidonor trust fund administered by the World Bank—to assist FCPF countries as well as other countries with the design and implementation of nested REDD+ initiatives. The views and opinions expressed in this publication are those of the authors; they do not necessarily reflect the position of the FCPF or its donors. This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Authorship This report was prepared by: Climate Focus: Charlotte Streck, Donna Lee, Javier Cano, Mercedes Fernandez, and Pablo Llopis, with contributions from David Landholm World Bank: Rama Chandra Reddy, Andres Espejo Nesting of REDD+ Initiatives: Manual for Policymakers i Contents Acknowledgements................................................................................................................................................................................................vi Acronyms...................................................................................................................................................................................................................vii Executive Summary................................................................................................................................................................................................1 Introduction: How and Why to Use This Manual......................................................................................................................................7 PART I: NESTING DESIGN.................................................................................................................................................................................. 10 1. Nesting and Its Objectives....................................................................................................................................................................... 10 1.1 Determining the Objectives of Nesting..................................................................................................................................................... 11 1.2 General Considerations in Designing a Nested System...................................................................................................................... 13 2. Nesting in the Context of REDD+ Implementation Models....................................................................................................... 15 2.1 Jurisdictional ER Program (Only), With Benefit Sharing.................................................................................................................... 16 2.2 Centralized Nested Approach...................................................................................................................................................................... 18 2.3 Decentralized Nested Approach................................................................................................................................................................. 19 2.4 Project Crediting (Only), No Jurisdictional ER Program..................................................................................................................... 20 2.5 Key Differences Between the Models....................................................................................................................................................... 21 2.6 The Reality: Mixed Approaches.................................................................................................................................................................. 26 3. Considerations for the Design of Nested Systems....................................................................................................................... 26 3.1 Capacity Constraints...................................................................................................................................................................................... 26 3.2 Landscape of REDD+ Results-Based Finance........................................................................................................................................ 28 3.3 Role of the Private Sector in REDD+ Markets........................................................................................................................................ 30 3.4 The Paris Agreement: Nationally Determined Contributions and Article 6.................................................................................. 31 PART II NESTING ELEMENTS........................................................................................................................................................................... 33 4. Carbon Accounting and MRV.................................................................................................................................................................. 33 4.1 Aligning Baselines and ER Claims............................................................................................................................................................. 33 4.2 Deciding the Scope of Nesting.................................................................................................................................................................... 35 4.3 Aligning the Estimation of GHGs................................................................................................................................................................ 37 4.4 Application of Nesting Approaches............................................................................................................................................................ 40 5. Legal Issues..................................................................................................................................................................................................... 45 5.1 General Considerations................................................................................................................................................................................. 45 5.2 Establishing Carbon Rights......................................................................................................................................................................... 45 5.3 Application to Nesting Approaches............................................................................................................................................................ 49 Nesting of REDD+ Initiatives: Manual for Policymakers ii 6. Benefit Sharing............................................................................................................................................................................................. 52 6.1 General Considerations................................................................................................................................................................................. 52 6.2 Application to Nesting Approaches............................................................................................................................................................ 53 7. Safeguards...................................................................................................................................................................................................... 54 7.1 General Considerations................................................................................................................................................................................. 54 7.2 Application to Nesting Approaches............................................................................................................................................................ 59 8. Risk Management........................................................................................................................................................................................ 60 8.1 General Considerations................................................................................................................................................................................. 60 8.2 Application to Nesting Approaches............................................................................................................................................................ 62 PART III NESTING IMPLEMENTATION......................................................................................................................................................... 69 9. Consultations on the Adoption of a Nested System............................................................................................................................. 69 9.1 General Considerations................................................................................................................................................................................. 69 9.2 Application to Nesting Approaches............................................................................................................................................................ 70 10. Institutional Requirements for Nesting............................................................................................................................................ 71 11. Regulations and Approvals...................................................................................................................................................................... 73 11.1 General Considerations................................................................................................................................................................................. 73 11.2 Application to Nesting Approaches............................................................................................................................................................ 75 12. Registries......................................................................................................................................................................................................... 77 12.1 General Considerations................................................................................................................................................................................. 77 12.2 Jurisdictional ER Program (Only), with Benefit Sharing.................................................................................................................... 80 APPENDIX A: GLOSSARY................................................................................................................................................................................... 82 APPENDIX B: INSTRUCTIONS FOR THE DECISION SUPPORT TOOL........................................................................................... 85 Readme Tab................................................................................................................................................................................................................ 86 Questions Tab............................................................................................................................................................................................................ 86 Tabs for “Jurisdictional ER program,” “Centralized Nested,” Decentralized Nested” and “Project Crediting Only.”................. 87 Nesting of REDD+ Initiatives: Manual for Policymakers iii Boxes Box 1 What Is REDD+?...............................................................................................................................................................................................7 Box 2 What Is Nesting?.......................................................................................................................................................................................... 10 Box 3 Why Do Countries Want to Develop Nested Systems?.................................................................................................................... 12 Box 4 Emerging Types of Nested Systems....................................................................................................................................................... 27 Box 5 Aligning Land Classifications.................................................................................................................................................................... 37 Box 6. Creation and Recognition of Carbon Credits...................................................................................................................................... 46 Box 7 Concepts and Definitions in Relation to Carbon Rights.................................................................................................................. 47 Box 8 Examples of How Countries Define Safeguard Requirements for a Nested System.............................................................. 58 Box 9 Integrating Early-Action Projects in a REDD+ Program................................................................................................................... 61 Box 10: Summary of Approval Requirements................................................................................................................................................. 74 Box 11 What Types of Approval Procedures Are Countries Developing?.............................................................................................. 74 Box 12 Considerations When Deciding on a Registry System ................................................................................................................. 77 Box 13: What Types of Registries are Countries Developing?.................................................................................................................. 79 Figures Figure 1 Development of REDD+...........................................................................................................................................................................1 Figure 2. The four general models of REDD+ implementation.....................................................................................................................4 Figure 3. Process Diagram: How to Use this Manual, and the Decision Support Tool..........................................................................9 Figure 4 Summary of Four Simplified Models................................................................................................................................................ 15 Figure 5 Jurisdictional ER Program (Only), with Benefit Sharing............................................................................................................ 16 Figure 6 Centralized Nested Approach............................................................................................................................................................. 18 Figure 7 Decentralized Nested Approach......................................................................................................................................................... 19 Figure 8. Project Crediting (Only)........................................................................................................................................................................ 20 Figure 9 The Key Difference between the Centralized and Decentralized Nested Models............................................................. 21 Figure 10. Hybrid Scenario A................................................................................................................................................................................ 24 Figure 11. Hybrid Scenario B................................................................................................................................................................................ 24 Figure 12 Hybrid Scenario C............................................................................................................................................................................... 25 Figure 13 Verified Carbon Unit (VCU) Issuances from 2010 to 2019...................................................................................................... 30 Figure 14 Decision-Making Process for a Jurisdictional ER Program (only), with a Benefit-Sharing Approach..................... 40 Figure 15 Centralized Nested Approach.......................................................................................................................................................... 41 Figure 16 Decision-Making Process for a Centralized Nested Approach.............................................................................................. 41 Nesting of REDD+ Initiatives: Manual for Policymakers iv Figure 17 Representation of the Decentralized Nested Approach........................................................................................................ 42 Figure 18 Decision-Making Process for a Decentralized Nested Approach.......................................................................................... 43 Figure 19 Representation of Project Crediting (only) No Jurisdictional ER Program...................................................................... 43 Figure 20 Decision-Making Process for a Project Crediting (only), No Jurisdictional ER Program............................................. 44 Figure 21. Detail of the “Readme” Tab............................................................................................................................................................... 86 Figure 22 Recommendation Box, “Questions” Tab......................................................................................................................................... 86 Figure 23. Answer Check Boxes under “Questions” Tab.............................................................................................................................. 86 Figure 24. Error Message, Recommendation Box, “Questions” Tab......................................................................................................... 87 Figure 25. Example of DST Screen When Step 1 Is Completed................................................................................................................ 87 Figure 26. Information Dashboard of Nesting Model Tabs......................................................................................................................... 88 Figure 27. Components and Distribution of the Nesting Element............................................................................................................ 88 Figure 28. Location of Checkboxes and Subject Progress Bars in Nesting Model Tabs................................................................... 88 Figure 29. Example of Timeline for a Nesting Subject................................................................................................................................. 89 Tables Table 1. Key Policy Considerations When Designing a Nested System.................................................................................................. 14 Table 2. Benefits/Risks of Jurisdictional ER Program (Only), with Benefit Sharing........................................................................... 17 Table 3. Benefits/Risks of the Centralized Nested Approach..................................................................................................................... 19 Table 4. Benefits/Risks of the Decentralized Nested Approach................................................................................................................ 20 Table 5. Benefits/Risks of the Project Crediting (Only), No Jurisdictional ER Program.................................................................. 21 Table 6. Key Differences Among REDD+ Implementation Models........................................................................................................... 23 Table 7 The Landscape of REDD+ Results-Based Finance........................................................................................................................ 29 Table 8. Options for Promoting Alignment in Baseline Setting................................................................................................................. 35 Table 9 Scope of Coverage of Forest-Related Fluxes in GHG Inventories, NDCs, and FRELs......................................................... 35 Table 10 Selecting the Carbon Accounting Scope for Nesting................................................................................................................. 36 Table 11 Options for Aligning Activity Data for Nesting.............................................................................................................................. 38 Table 12 Options for Aligning Emission Factors for Nesting...................................................................................................................... 39 Table 13 Significance of Forest Land Tenure, Carbon Rights, and Claims to ERs Under Different Models................................ 51 Table 14 Implications of Benefit Sharing for Each of the Four Models................................................................................................... 55 Table 15 Risks Inherent in the Jurisdictional-Only Approach.................................................................................................................... 63 Table 16 Risks Inherent in the Centralized Nested Approach.................................................................................................................... 65 Table 17: Risks Inherent in the Decentralized Nested Approach.............................................................................................................. 67 Table 18: Risks Inherent in the Project Crediting (Only) Approach.......................................................................................................... 68 Nesting of REDD+ Initiatives: Manual for Policymakers v Acknowledgements This manual has been commissioned by the Forest Carbon Partnership Facility (FCPF)—a multidonor trust fund administered by the World Bank—to assist FCPF countries as well as other countries with the design and implementation of nested REDD+ initiatives. This study has been conducted by an international team of authors. It involved extensive desk review of the literature as well as country strategies, legislation, and planning documents. It also involved more than two dozen interviews with government officials and national and international stakeholders during the scoping and analytical phase of the study. The draft report and proposed manual was presented in a set of five webinars, which together reached more than 100 participants. The report also went through extensive peer review and consultations. We are indebted to all those who spent their time sharing their views and helping us to improve it. We considered every single comment we received, and have done our best to reflect the full plurality of views in this final document. Where we failed, the fault is exclusively ours. Nesting of REDD+ Initiatives: Manual for Policymakers vi Acronyms AAUs Assigned Amount Units AD Avoided Deforestation AR Afforestation / Reforestation ART TREES Architecture for REDD Transactions – The REDD+ Environmental Excellence Standard BioCF-ISFL Bio Carbon Fund Initiative for Sustainable Forest Landscapes CA Corresponding Adjustment CCB Climate, Community and Biodiversity (standard) CDM Clean Development Mechanism CIFOR Center for International Forestry Research COP Conference of the Parties to the UNFCCC CORSIA Carbon Offsetting and Reduction Scheme for International Aviation DMS Data Management System DRC Democratic Republic of Congo DST Decision Support Tool EF Emission Factor EIT Economies in Transition ER Emission Reduction ERPA Emission Reduction Payment Agreement ESMF Environmental Social Management Frameworks ESP Environmental and Social Plan ETS Emissions Trading System FAO Food and Agriculture Organization of the United Nations FCPF Forest Carbon Partnership Facility FGRM Feedback and Grievance Redress Mechanism FPIC Free Prior Informed Consent FREL Forest Reference Emissions Levels GCF Green Climate Fund GHG Greenhouse gas HFLD High forest cover, low deforestation ICAO International Civil Aviation Organization Nesting of REDD+ Initiatives: Manual for Policymakers vii IFM Improved Forest Management ITMO Internationally transferred mitigation outcome IPCC Intergovernmental Panel on Climate Change JCM Joint Crediting Mechanism JI Joint Implementation JNR Jurisdictional and Nested REDD+ of the Verified Carbon Standard LEAF Lowering Emissions by Accelerating Forest finance MRV Measurement, Reporting and Verification NDC Nationally Determined Contribution NFI National Forest Inventory NFMS National Forest Monitoring System NGO Non-Governmental Organization NZ ETS New Zealand Emission Trading Scheme ODA Official Development Assistance PA Paris Agreement PES Payments for Ecosystem Services RBF Results-based Finance RED Reducing Emissions from Deforestation REDD+ Reducing emissions from deforestation and forest degradation and the role of conservation, sustainable .... management of forests and enhancement of forest carbon stocks in developing countries REM REDD Early Movers Program RENARE Registro Nacional de Reducción de Emisiones de GEI R-PP Readiness Preparation Plan SIS Safeguards Information System UNFCCC United Nations Framework Convention on Climate Change VCS Verified Carbon Standard VCU Verified Carbon Unit VER Verified Emission Reduction Nesting of REDD+ Initiatives: Manual for Policymakers viii EXECUTIVE SUMMARY Background and Objectives Tropical forest countries that seek to reduce Many countries are participating in, or hosting deforestation and participate in REDD+ are being initiatives to reduce deforestation. Since 2007, challenged to develop policies that conserve forests when REDD+ was first considered in the negotiations in the long term; create incentives for local actors of the United Nations Framework Convention for to protect forests; and align forest policies with Climate Change (UNFCCC), several initiatives for agricultural and rural development and other land- implementing REDD+ have been developed. The use policies. Developing a REDD+ implementation REDD+ activities advanced under these initiatives strategy requires consideration of government have operated at various levels, ranging from the budgetary resources as well as the various types of project level, (geographically demarcated areas within international finance that are available to support which an activity takes place), to subnational and/or REDD+. In assessing this landscape of potential country-wide programs (see Figure 1). Many countries funding sources, policymakers can determine which already have received, or are seeking, payments types of finance to access; which financing conditions for subnational and national REDD+ results. Many they can realistically achieve; and within what time of these same countries already host, or intend to frame it can be done, given national circumstances host, REDD+ projects, which are usually developed by and institutional constraints. private actors. Figure 1 Development of REDD+ REDD+ emerges in Warsaw Paris UNFCCC negotiations Framework Agreement 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Jurisdictional Launch of Countries engaging in REDD+ “readiness” First GCF First payments under results-based payments the FCPF results-based the FCPF Carbon Fund payment Projects and jurisdictional performance is not comparable: Nesting becomes a priority to implement REDD+ at scale Private standards First REDD+ for project crediting project REDD+ project issuances, access to finance rising verified 100 ER Issued (tCO2e) 50 0 2012 2013 2014 2015 2016 2017 2018 2019 Nesting of REDD+ Initiatives: Manual for Policymakers 1 The existence of REDD+ initiatives on multiple scales scope and applicability of the system. Clarity of within countries, and with access to various sources the government’s approach to integrating its forest of financing has recently been a source of challenges and climate-change policy objectives should be an for countries. Multiple accounting and reporting inherent part of designing a nested system. frameworks can represent a risk to environmental Therefore, the main target audience of this manual integrity,1 and it has often been difficult for countries is policymakers in developing country governments; to align them. Moreover, it has been challenging for but it may be also useful for public and private REDD+ them to maximize and harmonize their access to implementing agencies, and other participants and various sources of financing in order to achieve their stakeholders of REDD+ initiatives. forest and climate change goals. The most common issue that comes up with nesting Accounting and reporting emission reductions (ERs) is the integration of REDD+ projects into subnational of REDD+ initiatives on multiple scales, and access or national REDD+ programs led by country to multiple sources of financing on different scales governments. Throughout this manual the words requires a systematic approach: this is what nesting national/subnational may be used interchangeably, is. Nesting refers to aligning REDD+ implementation and they may be generically referred to as across different scales as it is reflected in the “jurisdictional.” accounting of greenhouse gas (GHG) emissions and removals; claims to emission reductions (ERs); and This manual is structured in three parts: the related legal and institutional arrangements. Setting up a nested system facilitates the resolution · Part I: Nesting Design provides guidance in of GHG accounting issues by making the necessary defining the objectives of the nesting system, adjustments to projects and programs, and requiring various approaches to REDD+ implementation, engagement among various public, private, and and other design considerations. community stakeholders. · Part II: Nesting Elements provides specific guidance on carbon accounting, measurement, The lack of updated and systematic guidance for reporting and verification (MRV), legal issues, designing a nesting system has been identified as a benefit sharing, and safeguards. challenge for countries that are piloting large-scale · Part III: Nesting Implementation provides jurisdictional REDD+ ER programs, including through guidance on practical considerations for the the World Bank’s Forest Carbon Partnership Facility implementation of a nesting system, such as (FCPF) Carbon Fund. Consultations with stakeholders institutional arrangements, regulations, and who are implementing REDD+ initiatives through registries. the Carbon Fund have expressed a strong need for guidance on the optimal approaches and procedures Part I: Nesting Design for aligning REDD+ initiatives at various geographic A well-designed nested system reflects the scales in order to enhance national ambition, ensure policies, priorities, institutional arrangements, environmental integrity, and avoid double counting of and regulatory framework that is supporting the mitigation outcomes. REDD+ implementation of a country. The main policy This manual has been created to provide guidance for objectives to be considered in designing a nested the design and implementation of nested systems. system are the national forest or climate-change Along with the accompanying Decision Support Tool targets, and the means for achieving them, including (DST) described in Appendix B, it aims to guide decision access to finance. More specifically: makers through a process of planning, identifying, and · It is important for the government to have clarity implementing efficient nested REDD+ systems. concerning its forest and climate-change policy A nested REDD+ system is at its core a national objectives before designing a nested system. policy; therefore, it should be driven by national · It is also important that governments explore policy priorities. Before designing a nested system, various pathways for achieving their forest and policymakers should decide why the country wants climate change goals; for example, which specific to develop such a system, and should have in mind policies and measures it envisages for reducing clear objectives, and a clear idea of the planned deforestation. 1 A carbon market-based mechanism has environmental integrity if the transfer of credits through that mechanism leads to the same, or lower, aggregated global emissions. Integrity is ensured through accounting that avoids double-counting (in which the same unit is used twice to offset emissions), as well as through the quality of the ER estimates (for example in regard to the baseline or reference level, additionality, permanence, uncertainty, and leakage). Nesting of REDD+ Initiatives: Manual for Policymakers 2 · Policymakers should review the landscape of Climate Fund (GCF). It may also decide to allow available finance, including the government’s crediting at various levels—project, subnational, budgetary resources. and/or national—or to limit crediting to only · Once a country has determined how climate and certain levels. Or it may decide that certain carbon finance can support their implementation REDD+ activities, such as reforestation, are more of REDD+, and which types of financing it wishes appropriate for implementation at the project to seek, it can consider how to optimize access to level, while reducing deforestation is tackled more such financing. effectively at a jurisdictional level. The decisions · Countries should also consider how REDD+ about which type of crediting, and at what levels, implementation will affect their nationally are fundamental and crucial decisions to be made in determined contributions (NDCs). Countries designing a nested system. that are hosting multiple categories of REDD+ Depending on the objectives defined, initiatives should decide the extent to which the governments should design an appropriate REDD+ ERs from forestry activities will contribute to implementation, or nesting system. Although nesting achieving their NDC targets. is sometimes defined in a narrow sense as a system After a government has determined its objectives for that aligns the accounting and reporting of ERs at a nested system, there are then three fundamental different levels, it may also reflect an integrated design decisions to consider: policy framework that implements REDD+ across various implementation and governance levels. · The degree of centralization (or decentralization) Therefore, throughout this manual, it is important to for REDD+. A centralized approach focuses on understand that reference to a nesting system, or a receiving payments for ERs at the jurisdictional nesting model, may not necessarily imply nesting in scale; carbon benefits are then distributed the narrow sense. among the beneficiaries, whether projects or local actors. A decentralized system focuses on This report presents four general models for REDD+ receiving payments at the project scale, which implementation. Although the objective of FCPF is to are then distributed among local actors. The support jurisdictional REDD+ implementation through characteristics of centralized vs. decentralized the nesting of REDD+ initiatives, this manual includes systems are summarized in Figure 2. an overview of other implementation approaches that have been observed on the ground in order to enable · Defining the role that nonstate actors (private countries to identify various paths that can be taken. entities, communities, and nongovernmental For this reason, we present an overview of REDD+ entities (NGOs) should play in the implementation models and summarize them under implementation of REDD+. Closely related to the four simplified approaches, as highlighted below and first point, the government needs to decide how explained in Section 2 and summarized in Figure 2. best to integrate nonstate entities into its REDD+ strategy, since involvement from a wide range of stakeholders will lead to more sustainable and more effective implementation. This decision will be influenced by the rights that nonstate actors are entitled to, and how the government wishes them to be incentivized—for example, through carbon finance that can be directly accessed by local actors. · Determining the most appropriate types and channels of climate and carbon finance to access. A government may decide that it wishes to encourage voluntary carbon market crediting at the project level, but also make efforts to access nonmarket payments at the jurisdictional level, for example from the Green Nesting of REDD+ Initiatives: Manual for Policymakers 3 Figure 2. The four general models of REDD+ implementation Crediting at national level Jurisdictional ER program (only) with benefit sharing Key features: • ERs credited at national scale (only) • No forest carbon project crediting • Government operates ER program and distributes benefits Nested systems Crediting at national level Crediting at national level Projects receive Crediting at project scale rewards based on ER allocation approach Centralized-nested Decentralized-nested Key features: Key features: • ERs credited up to national scale performance (only) • ERs credited at national and project scale • Projects encouraged and receive rewards based on GHG • Projects authorized to generate and market ERs performance (linked to national performance) (delinked from national performance) • Government control over ERs and distribution of carbon • Government generates ERs through public programs and on public lands benefits via an agreed ‘allocation method’ Crediting at project scale Project crediting (only), no jurisdictional ER program Key features: • ERs credited at project scale (only) • Projects are incentivized, may be regulated • No result-based finance (RBF) or sale of carbon credits by the government • Government role is regulator, not ER program manager Governments should opt for a system that is The human, institutional, and financial capacities the most appropriate for their own national of a country are essential considerations when circumstances; often this does not fall neatly into planning the design of a nested system. The any particular nesting or REDD+ model. They may centralized and decentralized nesting models require also start with one approach and evolve over time technical sophistication, and strong implementation to another model. Almost all countries choose to capacity. This is discussed in Part II, Section 3.1 t). combine their national policies with the empowerment There are also a variety of results-based finance of local actors, but they can choose different ways RBF opportunities for REDD+ programs—from of doing so. Their choices will depend on the drivers nonmarket to market-based mechanisms, and from of deforestation, the accessibility of various regions voluntary to compliance markets. In addition, there within the country, and the target populations is growing interest in how to mobilize private-sector involved. Countries may therefore simultaneously finance for REDD+, as well as increasing interest operate several different models, or create their own from companies to engage in nature-based climate “mixed” approach that best meets their national solutions, including REDD+. As countries increasingly circumstances. This is discussed in Part I, Section 2.6. consider how to access REDD+ RBF, many are also Nesting of REDD+ Initiatives: Manual for Policymakers 4 struggling to understand how these may impact their · Governments should consider whether—and if so, obligations under the Paris Agreement. These things how—to link rewards and incentives (monetary, are discussed in detail in Part I Section 3.4. nonmonetary, and carbon benefits) to ER performance. When elaborating a benefit-sharing Part II: Nesting Elements framework,2 governments should consider how to Nested REDD+ systems require institutional balance supporting national policies with creating arrangements that enable the integration of incentives for private investors and communities implementation frameworks at multiple scales in at the local level. In situations where government order to maintain the system and to manage risks. programs and institutions can effectively Nesting is also closely linked to legal issues, benefit distribute benefits, fully centralized systems could sharing, safeguards, and risk management. The be efficient. Where government institutions are in elements of nesting are highlighted below discussed in the process of evolving, supporting programs and detail in Part II of this manual. projects that can evolve into nested systems over time could be an option. However, there is a wide · Countries that engage in nested REDD+ need space in between these two extremes, in which to develop GHG accounting and reporting part of the benefit sharing arrangements could systems in order to ensure consistency among be dependent on the government, and other parts the various levels. This includes alignment of the externalized to nongovernment actors, including, MRV systems at various levels. In addition, data but not limited to, projects. management systems to ensure transparency, · National environmental and social safeguards consistency, and to avoid double counting, or are defined and implemented in line with double sales, of ERs, are essential. national laws and policies, and the Cancun · Designing a nested REDD+ system requires safeguards,3 and are applicable to all REDD+ understanding the rights of communities and activities. Consequently, in a nesting context in individuals to benefit from ecosystem services which implementation occurs at multiple scales, and ERs. Such rights, often referred to as “carbon the safeguard policies included in a national rights,” define who has “the right to benefit from legal framework should apply to jurisdictional carbon stored in a forest and/or reduced greenhouse programs as well as to nested REDD+ projects. gas emissions from forest loss or degradation.” How a government chooses to ensure that the Carbon rights should be distinguished from safeguards are applied and enforced may differ issued and tradable carbon credits: the former depending on the nested system that is chosen. describes an underlying entitlement to benefit As part of the national legal framework, national from ERs or REDD+, whereas the latter represents REDD+ safeguards must be fulfilled by any REDD+ one tonne of emissions reductions (ERs) that project or activity, and countries should clarify are traceable, tradable, and transferable, and who is involved--project developer, landowner, are issued with an identifiable serial number etc.--and how the nested projects will implement in national or international carbon registries. safeguards and report on their compliance. Engaging communities in leading or co-leading · Governments should carefully consider the risks REDD+ activities, and recognizing their rights to of the model they are considering, and define the land and its natural resources—including the strategies for managing them. For example, in a associated carbon—is aligned with the devolution centralized nested system, where jurisdictional of rights to forest resources in countries. Such ER performance poses a material risk to projects, empowerment of communities can mean, governments can guarantee certain payments depending on the legal context of the country, to affected communities. Selecting a particular that communities have the right to initiate and model or approach to REDD+ implementation can participate in initiatives, or that they are duly also cause political risks; they should be managed considered in the benefit sharing arrangements. with participatory approaches that include stakeholder engagement and dialogue. 2 Refers specifically to the arrangement by which a government institution allocates, administers, and channels benefits funded by payments for ERs to national actors. 3 The UNFCCC has agreed on a specific set of safeguards known as the “Cancun safeguards.” More information may be found here https://redd.unfccc.int/fact-sheets/safeguards.html. Nesting of REDD+ Initiatives: Manual for Policymakers 5 Part III: Nesting Implementation · Regulations and approvals facilitate the implementation of any REDD+ system. Clear Attention should be paid to the integration of rules offer REDD+ actors legal certainty. Within existing projects into a nested system. In some the context of the REDD+ regulatory framework, countries, REDD+ projects have been operating prior a country’s nesting strategy and benefit sharing to the formulation jurisdictional REDD+ programs. arrangements may need to be translated into a In such cases, the government should articulate legal act. Nested models that officially approve the steps to be followed, using a structured projects must define the requirements that process and dialogue, and a suite of measures to projects and project developers are required to be implemented over a specific period of time, with meet in order to be formally recognized by the binding agreements between stakeholders of the government. Nesting also requires adoption of projects and the national government on a transition the procedures by which projects will be nested pathway to a nested system. The details of effective in national systems. Procedures may also have implementation of nesting are highlighted below, and to address the conditions under which a project discussed in detail in Part III of the manual. can undertake “corresponding adjustments” if engaging in a transaction under Article 6 of the · Consultations are essential in the process of Paris Agreement. adopting a nesting strategy and identifying · Countries that engage in nested REDD+ may its potential benefits and co-benefits, as well need to develop GHG accounting and tracking as the potential spillover effects of REDD+ systems to ensure consistency between national, implementation. Consultations help to ensure jurisdictional, and project-level processes and the integration of local action into national results. These systems should consist, at a and subnational REDD+ implementation via minimum, of data management systems that benefit-sharing or free-standing REDD+ projects. systematically record and monitor information Participatory approaches that result in agreements to ensure transparency and consistency. Market- with local actors are key pillars of nested REDD+ based transactions (including REDD+ or other systems. carbon units) typically require use of a transaction · In order for nesting to be implemented effectively registry to allow for the unique identification and it is essential to assign clear responsibilities tracking of carbon units. However, governments among ministries and public agencies for the could rely on existing transaction registries, operations related to the nesting process. depending on the circumstances; and in some Nested REDD+ policies should be supported by cases a transaction registry might not be enduring institutional arrangements. Successful necessary. implementation of REDD+ requires policy changes and governance reforms in forestry as Nested REDD+ systems are expected to play a well as in other sectors—for example, in order major role in integrating REDD+ implementation to disburse REDD+ payments. However, weak at different levels of governance, and in engaging forest governance in most REDD+ countries various sources of finance and stakeholders to constitutes one of the main challenges for sustainably manage forests, and to enhance REDD+ implementation, carbon effectiveness, their role in climate change mitigation. Designing cost efficiency, and equity.4 What makes things effective nested systems that are suitable to national even more complex is that REDD+ is inherently a circumstances, while ensuring the environmental multilevel endeavor; there is thus a need for policy integrity of mitigation outcomes from forests, is an coherence and coordination across the various important step in scaling up climate action. This levels of governance, as well as the relevant manual provides detailed guidance in how to do just sectors, in order to make it REDD+ work. Nesting that. adds complexity to policymaking by requiring additional considerations. 4 The UNFCCC has agreed on a specific set of safeguards known as the “Cancun safeguards.” More information may be found here https://redd.unfccc.int/fact-sheets/safeguards.html. Nesting of REDD+ Initiatives: Manual for Policymakers 6 INTRODUCTION: HOW AND WHY TO USE THIS MANUAL The international policy framework that Box 1: What Is REDD+? provides incentives for REDD+ has motivated many developing country governments to review The concept of “REDD+” first emerged in 2007 their land-use policies. To reduce emissions from during the negotiations under the UN Framework deforestation and forest degradation, and to support Convention on Climate Change (UNFCCC). Then, in the role of conservation, the sustainable management 2013, in Warsaw, the Conference of the Parties (COP) of forests, and the enhancement of forest carbon to UNFCCC agreed on a set of decisions known as the stocks in developing countries, policymakers at the Warsaw Framework for REDD+,5 which encourages national and subnational scales have developed developing countries to pursue mitigation actions in strategies that seek to protect or expand forests the forest sector, and all countries to support such while promoting economic development (Box 1). In efforts, including through finance. The Warsaw some cases, governments have expressed interest Framework includes guidance for countries on how in seeking results-based finance (RBF) for reduced to develop a forest reference emission level (FREL) emissions, while in other countries preexisting as a benchmark of REDD+ performance. It also forest carbon projects, or projects that are under demonstrates how entities that are financing REDD+, development are registered under voluntary carbon including the Green Climate Fund (GCF), can apply market standards to generate tradable carbon methodological guidance that is consistent with credits. Several countries are also looking for ways COP decisions. REDD+ was conceived as a national to integrate subnational programs and projects approach for encouraging the adoption of policies into their national REDD+ strategies. Nesting is an to reduce deforestation, and accounting for ERs at approach that can be used to integrate the actions the national level. However, in view of the challenges of smaller-scale REDD+ initiatives into larger-scale of implementing a fully national approach, COP has jurisdictional (national or subnational) approaches. recognized that subnational approaches can be used as a step toward national approaches.6 In addition, many countries now host and/or encourage project- scale activities as part of their national REDD+ strategies. The term REDD+ is also used more broadly, sometimes simply to mean reducing emissions (or increasing removals) in the forest sector of developing countries. Experience has shown that countries with REDD+ projects that were implemented in order to generate carbon credits in jurisdictional ER programs have faced multiple challenges. These have been particularly severe in situations where there are mismatches in the GHG accounting of projects and jurisdictional programs; this often requires continued negotiations among the governments and implementation entities, and can be challenging for both countries and projects. Nested systems enable 5 UNFCCC Decision 15-9/CP.19. https://unfccc.int/topics/land-use/resources/warsaw-framework-for-redd-plus 6 UNFCCC Decision 2/CP.13 Annex, 7 Nesting of REDD+ Initiatives: Manual for Policymakers 7 the alignment of GHG accounting at various scales, to climate targets in the form of nationally determined promote the environmental integrity of carbon credits contributions (NDCs), which are relevant for the issued at multiple scales. The advantages of designing carbon accounting of projects and programs: this too a nested system or framework has been emphasized can be addressed by the nesting of REDD+ initiatives. during the past few years; however, there has been a The need to integrate project-level activities into lack of comprehensive guidance for designing them. national REDD+ strategies; interest in accessing This manual seeks to address that gap. multiple sources of finance; and the demands of The need for this manual emerged from the carbon accounting under the Paris Agreement have led FCPF Carbon Fund experience of piloting REDD+ to a demand from policymakers for guidance on how implementation initiatives. Consultations with to develop nested REDD+ systems that respond to a stakeholders implementing such initiatives in variety of national circumstances. subnational and national ER program jurisdictions Although the objective of FCPF is to support supported through the World Bank’s Forest Carbon jurisdictional REDD+ implementation through the Partnership Facility (FCPF)7 Carbon Fund have revealed nesting of programs and projects, this manual includes a need for guidance in aligning REDD+ initiatives an overview of other models of REDD+ implementation at various geographic scales in order to enhance that have been observed on the ground as well, in national ambition, ensure environmental integrity, order to clarify the differences between nested models and avoid the double counting of REDD+ mitigation and other models of REDD+ implementation. outcomes. The experience of the FCPF Carbon Fund has also highlighted the need to bridge significant This manual provides guidance for countries on how knowledge gaps among various stakeholders—that to align the accounting for projects with subnational is, governments, public and private implementing and national accounting procedures, as well as how entities, and participants and stakeholders of REDD+ to identify steps for integrating the mechanisms used initiatives at various levels. to access the financing needed to implement national REDD+ strategies. Together with the accompanying The purpose of this manual is to provide countries Decision Support Tool (DST), decision makers are with practical advice and guidance for developing a guided through a step-by-step process of selecting, “nested” system for REDD+ implementation. Nested planning, and implementing a nested REDD+ system. REDD+ systems present pathways for integrating subnational programs or projects into national REDD+ The manual is divided into three parts. strategies; and the nesting of REDD+ initiatives can promote the environmental integrity of carbon Part 1. Designing a Nested System guides users credits issued . Nested REDD+ initiatives can also through key issues and questions to consider when enable countries to confront deforestation and forest designing an overall nested approach. The policy degradation of various types and scales, from broad objectives likely to be considered include national public policies to site-specific activities, allowing forest or climate-change targets and the means for the intervention of public and private actors to achieving them, including access to finance. Other complement their actions. contexts critical to the design of a nested system include land (forest) tenure, and who has the right to A “nested” approach was first proposed in 2007,8 and carbon from activities that reduce the emissions from since then several publications9 have elaborated it. deforestation and forest degradation. We present four Basically, nested systems allow a country to access basic models, which offer several options for accessing multiple sources of finance—from public-sector various forms of REDD+ results-based finance RBF, climate finance to private-sector carbon finance—to including two “nested” archetypes. support REDD+ activities. The Paris Agreement has created new obligations for countries to meet their 7 The Forest Carbon Partnership Facility (FCPF) is one of the earliest multilateral initiatives to support REDD+ implementation in developing countries through two complementary funds. The Readiness Fund provides support for enhancing the technical and institutional capacity to design and implement national REDD+ strategies; promoting stakeholder engagement; implementing environmental and social safeguards; and enhancing the capacity for monitoring and reporting on REDD+ activities. The FCPF Carbon Fund extends results-based payments to developing countries for emission reductions achieved through the implementation of REDD+ ER programs. 8 Pedroni, L., Streck, C., Estrada, M. and Dutschke, M. 2007. The Nested Approach: A Flexible Mechanism to Reduce Emissions from Deforestation. CATIE, Turrialba, Costa Rica. 9 Angelsen et al. 2008. “What Is the Right Scale for REDD? National, Subnational and Nested Approaches.” CIFOR Working Paper. Pedroni, L. et al. 2009. “Creating Incentives for Avoiding Further Deforestation: The Nested Approach.” Climate Policy 9: 207–220; Cortez, R. et al 2010. A Nested Approach to REDD+: Structuring Effective and Transparent Incentive Mechanisms for REDD+ Implemen- tation at Multiple Scales. The Nature Conservancy; Chagas T. et al. 2011. Nested Approaches to REDD+: An Overview of Issues and Options. Forest Trends; Kashwan, P. and Holahan, R. 2014. “Nested Governance for Effective REDD+: Institutional and Political Arguments. International Journal of the Commons. 2014. 8 (2): 554–575; Gibbon, A. et al. 2014. Planning Guide: Integrating REDD+ Account- ing Within a Nested Approach: Lowering Emissions in Asia’s Forests.: (LEAF), USAID; Pearson, T. et al. 2016. Guidance Document: Options for Nesting REDD+ Projects. Pub City: Winrock International; Lee, D. et al. 2018. Approaches to REDD+ Nesting Lessons Learned from Country Experiences, Washington, DC: World Bank. Nesting of REDD+ Initiatives: Manual for Policymakers 8 Part 2. Elements of a Nested System elaborates Part 3. Implementation of a Nested System the specific elements needed, including MRV and describes the steps in designing and implementing a accounting systems, legal issues, benefit sharing, nested system, including consultations, the adoption and safeguards. It analyzes them, and clarifies the of a regulatory framework, and the establishment of actions and priorities that need to be considered in a registry. each of them. These elements should be considered Additionally, Appendix B provides instructions on the as illustrative, to be adapted to each country’s use of the Decision Support Tool (DST), and explains unique circumstances, taking into consideration the how it can complement the use of the manual. The requirements of various REDD+ initiatives or carbon DST helps users identify the nesting model that best standards. reflects their national circumstances, as well as the relevant elements for the model they have selected. Figure 3. Process Diagram: How to Use this Manual, and the Decision Support Tool Design the nested system Refine the elements for the selected Implement the nested system nested system, establish a timeline and monitor progress MANUAL DECISION SUPPORT TOOL DECISION SUPPORT TOOL Nesting of REDD+ Initiatives: Manual for Policymakers 9 PART I: NESTING DESIGN This part presents the main considerations that Box 2: What is Nesting? inform a government’s decision making regarding nested REDD+. There is no internationally agreed-upon definition for nesting. In fact, people often mean quite different 1. NESTING AND ITS OBJECTIVES things when using this term. Some consider nesting in the narrow context of aligning GHG “measurement, For the purpose of this manual, “nesting” refers to monitoring and reporting” of smaller-scale systems; the alignment of the accounting of greenhouse gas for example, projects with larger-scale (subnational (GHG) emission reductions and removals (ERs) from or national) systems such as those that align ER REDD+ activities across multiple scales. For example, claims by carbon projects with the GHG inventories a government may be seeking to receive results- that form the basis for nationally determined based payments, or to generate and issue carbon contributions (NDCs). Others take a broader view that credits at the jurisdictional scale, while projects (or nesting is about harmonizing the implementation smaller jurisdictions within the larger jurisdictional of REDD+ activities at multiple governance levels program) are simultaneously accounting for ERs, and and geographical scales. In the latter case, nesting are generating carbon credits. Although “nesting” can encompass, for example, national-scale ER is referred to in this narrow sense, REDD+ nesting programs that employ a benefit-sharing approach also reflects an integrated policy framework that for distributing finance received from monetizing implements REDD+ across various implementation ERs; frameworks that enable site-scale activities; or and governance levels (Box 2). For this reason, the small-scale projects that can directly generate and manual refers generically to four models of REDD issue ERs. implementation, but only calls two of the models “nested systems.” A well-designed nested system reflects the policies, priorities, rights, and regulatory framework for implementing REDD+ within a country. It promotes environmental integrity and sets a foundation for avoiding the double counting of ERs by facilitating the alignment of measurement, reporting, and verification (MRV) systems. It establishes institutional arrangements for operating and maintaining the system in order to manage the risks inherent in nesting. Nesting is also closely linked to forest policies, benefit sharing, and safeguards. All of these elements are discussed in subsequent sections of this manual. In many cases, countries are pursuing jurisdictional ER programs, while projects are simultaneously generating verified carbon credits. This has created a challenging situation for many countries, particularly where there are significant mismatches between the various GHG accounting systems. Setting up a nested system therefore often requires an adjustment of the Nesting of REDD+ Initiatives: Manual for Policymakers 10 processes for existing programs and projects; this forest and climate goals.10 There are many types can be challenging, but the sooner such a system is of international finance available to governments, developed, the smoother the transition will be. including official development assistance (ODA); loans from multilateral financial institutions; and/ 1.1 Determining the Objectives of Nesting or other types of grant financing from public, private, A nested REDD+ system is at its core a national or philanthropic sources. Climate finance, both policy; therefore, it should be driven by national investment finance and results-based finance (RBF) policy priorities. Before designing a nested system, a for REDD+, and carbon market finance are other country should decide why it wants to develop such a potential sources (see Section 3.2). In assessing the system, and should have in mind clear objectives, and landscape of potential funding sources, policymakers a clear idea of the planned scope, and applicability. can determine which types of finance are available to Some of the possible objectives for the development them; which financing conditions they can realistically of a nested system are presented below, in Box 3. achieve; and within what time frame it can be done, given their national circumstances and institutional It is helpful for a government to have clarity constraints. For example, many countries are already concerning its forest and climate-change policy receiving ODA, or have projects that are participating objectives before designing a nested system (Box in voluntary carbon markets. On the other hand, 3). These may be clearly spelled out in a national access to market-based finance at the jurisdictional REDD+ strategy; through forest sector goals level requires technical capacities, coordinated action that are communicated through another policy from multiple government ministries, and actions or legal instrument; or in the national climate- from stakeholders at several levels; thus it may take change policy and/or the country’s NDC under significant time to accomplish. the Paris Agreement. While achieving forest or climate-related policy objectives is the main goal Once a country has determined how climate and of national REDD+ strategies, other objectives that carbon finance can support implementation of influence policy decisions include poverty reduction, REDD+, and which types of financing it wishes to rural development, and food security. In addition, seek, it can consider how to optimize access to governments may be seeking to support vulnerable such finance. For example, if a government wishes communities and empower local actors. The bundle to take advantage of both project-scale voluntary of national aspirations regarding REDD+ will likely markets and RBF from the Green Climate Fund (GCF), determine the way nesting is designed. it may need to promote alignment in accounting at the project and national (or subnational) levels.11 Next the government should explore pathways for Countries that are parties to the Paris Agreement also achieving its forest and climate change goals; for need to periodically report on their climate mitigation example, which policies and measures it envisages performance, and ensure the environmental integrity for reducing deforestation. REDD+ strategies often of such achievement. Hence, it is crucial to manage include policies and measures the government issues such as leakage, permanence, additionality, may target as drivers—for example, minimizing and the carbon accounting of REDD+ activities that agricultural expansion, or illegal logging—or are being implemented at different levels. underlying causes of deforestation, such as conflicted land titles, or weak law enforcement. Some actions Engagement in market-based transactions under may require the adoption of government policies, or Article 6 of the Paris Agreement requires additional increased government enforcement of existing laws considerations. To participate in an Article 6 and policies. Other actions may require targeted transaction, a government would need to transfer ERs interventions that attempt to change the behavior and make a “corresponding adjustment” (CA) to its of those responsible for forest loss, or provide direct national GHG accounting (see Sections 3.4and 11.1). assistance to and partnership with local actors. If they wish to engage in transactions under Article 6 at the project or subnational level, there could be Policymakers need to review the landscape of a strong motivation for nesting, in order to align the available finance, including budgetary resources, MRV of projects and programs with national-scale and decide how such financing can help achieve their GHG monitoring and reporting. 10 One useful resource for evaluating and designing a REDD+ financing system is Charlotte Streck and Brian Murry’s Financing Land Use Mitigation: A Practical Guide for Policy Makers. 2015. (Winrock). 11 Countries may choose to implement REDD+ at a subnational scale as an interim step toward national implementation. Throughout the text we often refer to “national” scale with the understanding that it may also apply to subnational scales. Nesting of REDD+ Initiatives: Manual for Policymakers 11 Box 3: Why Do Countries Want to also have the strong support of local communities, or may be officially recognized as “early-action Develop Nested Systems? projects.” As such, they are critical to building Our research for this report revealed that at least national support for REDD+. 17 countries have an interest in developing nested Another common motivation for building a nested REDD+ systems. While each country is unique, and system is the mismatch between national GHG circumstances differ from country to country, there accounting and project-based crediting. Where there are several common reasons why many countries are are multiple projects within a country or jurisdiction, now interested in developing nested systems. this mismatch becomes more pronounced, and can One of the most common reasons cited by forested put into question the environmental integrity of countries is to be able to gain access to multiple the projects’ ER claims. In such cases, countries sources of financing in order to achieve their forest look for ways to promote alignment among and climate change goals. Countries see nesting projects—leveling the playing field, and promoting as a way to organize various streams of carbon “equal reward for equal effort”—and also to align finance—including voluntary markets, funds such project-level GHG monitoring with national GHG as the FCPF Carbon Fund or BioCF-ISFL, as well measurement and reporting approaches. In some as nonmarket payments through donor-funded instances, countries have privately voiced concern schemes such as GCF’s results-based payments that projects are generating voluntary carbon program, or the REDD Early Movers Program. In credits that are not backed by real ERs, and they many cases, nested systems are largely motivated hope that nesting can help improve the credibility of by the government’s desire to access REDD+ results- project crediting. based payments, while also allowing projects to Hence, following a nesting approach allows countries continue accessing private-sector finance. not only to promote the alignment of accounting Countries also often see nesting as a way to issues among projects and programs, but also to supplement the government’s capacity to establish among all REDD+ activities a streamlined implement its national REDD+ strategy through concept of key issues like permanence and support for site-based activities. In such cases, the additionality, while minimizing the risks of leakage. government recognizes that national policies are crucial for reducing deforestation, but also that projects can help to support the management of forests and protected areas, particularly when it is insufficiently funded by government programs. Some countries also see nesting as a way to avoid double counting of ERs. Most countries have not yet considered how to achieve their Paris Agreement target, and the role that Article 6 transactions may play in this. However, several governments do see nesting, in particular the alignment of GHG measurement across scales, as fundamental to future considerations on double counting. Nesting is also seen as an opportunity to increase domestic support for REDD+. By including a wide range of actors, nesting can increase broad ownership, and build REDD+ constituencies. In some cases, a country may have had positive experiences with early REDD+ projects that have generated financial flows to support the conservation or sustainable management of forests, and therefore want these flows to continue. Such projects may Nesting of REDD+ Initiatives: Manual for Policymakers 12 1.2 General Considerations in Designing a mitigation either directly (by addressing the Nested System drivers of deforestation) or indirectly (by providing incentives to local actors, including After a government has determined its objectives for private investors, to address these drivers); or a nested system, it should design the system in such whether it wants to enable the local actors or a way as to achieve those objectives to the greatest REDD+ projects to receive incentives related extent possible. There are three fundamental design to performance. If the latter is the case, the decisions: next consideration is whether local actors · Deciding the degree of centralization (or should be entitled to access carbon directly, or decentralization) for REDD+. A centralized whether incentives should be provided through approach focuses on receiving payments for government-implemented programs. ERs at the jurisdictional scale, with a benefit- sharing system to distribute carbon benefits · Determining the types and channels of climate (monetary and nonmonetary) to subnational and carbon finance to access. A government jurisdictions (states, municipalities), or nonstate may decide that it wishes to encourage voluntary actors (private actors, landowners, legal carbon market crediting at the project level, but entities, communities, private sector companies, also make efforts to access nonmarket payments or others). In a decentralized structure the at the jurisdictional level, for example from GCF. government authorizes the implementation of It may also decide to allow crediting at various projects and programs, which are then carried levels—project, subnational, and national—or out at lower scales, often with the participation it may limit crediting to only certain levels. Or of private actors to directly market and monetize it may decide that certain REDD+ activities, ERs. Decentralized systems enable direct such as reforestation, are more appropriate incentives for local actors to achieve GHG results for implementation at the project level, while without depending fully on government processes reducing deforestation is tackled more effectively to attract carbon finance investors. The at a jurisdictional level. The decisions about characteristics of centralized vs. decentralized which type of crediting, and at what levels, are systems are described in Part I Section 2. fundamental decisions to be made in designing a nested system. · Defining the role that nonstate actors (private Before conceptualizing the design of the system, the entities, communities, and nongovernmental government should contemplate a series of policy entities) should play in the implementation considerations. Several suggested questions are of REDD+. Closely related to the first point, provided in Table 1 below. In many cases, the answers the government needs to decide how best to will depend on national circumstances. In the Decision integrate nonstate entities into its REDD+ Support Tool (DST), users are asked to provide the strategy, since ownership from a wide range of responses that best, or most closely, characterize stakeholders will lead to more sustainable and the situation in their country, recognizing that more effective implementation. This decision most contexts are complex, and multiple responses is influenced by the standing and local rights may often apply; or that quite nuanced answers that such nonstate actors possess, but also may be appropriate. (See Appendix B for a detailed the extent to which the government wishes to description of the Decision Support Tool.) rely on public policy alone to achieve REDD+ Nesting of REDD+ Initiatives: Manual for Policymakers 13 Table 1. Key Policy Considerations When Designing a Nested System Key Question Explanation As a government, which REDD+ results-based payments and/or carbon crediting can provide incentives for various actor/s do you want to entities to change their behavior. Thus it is useful to consider whose behavior needs to be incentivize through results- changed. For example, in order to reduce deforestation, is it primarily government policy that is based climate, or carbon needed? Or is it perhaps private action and investment in implementing existing policies? What finance? type of finance will be most effectively deployed, or will provide the appropriate incentives to the right actors? For example, there may be a critical need to halt forest loss through land tenure reform, which requires government policies supported by ODA, or nonmarket results- based finance. Alternatively, the priority may be to provide incentives to local communities or landowners to shift away from activities that cause deforestation—and carbon finance may be seen as an opportunity to provide such incentives. In some cases, both activities may be needed; this would be one reason to consider a nested system. What climate or carbon Countries may consider the types of carbon finance they wish to access—from nonmarket finance opportunities are REDD+ results-based finance, to market-based finance, or financing from domestic, most relevant for your international, or voluntary markets. (See Section 3.2 for a discussion of various sources.) country? for accessing different Furthermore, a country may consider the scales that are the “best fit” ‌ types of finance. For example, a country may intend to access GCF REDD+ results-based finance at the national scale, while enabling local actors to engage in voluntary markets. In considering the various sources of financing, which are often unpredictable, countries should gauge the risks of depending on external sources, and understand the requirements for accessing each of them. What is the best role for the Government engagement in markets at the national scale entails the management of a government to play with country-wide ER program as well as responsibility for implementing activities, and ultimately regard to REDD+? As an ER for performance as well. In such a case, a country would have full control over ERs, including program manager, or as a the monetization and disbursement of funds. At the other end of the spectrum, a country may regulator? simply allow projects to proliferate, unattended by the government. A middle road may be for a government to regulate projects – for example, attempt to drive projects to priority areas, align MRV systems, or ensure that safeguards are applied – but empower the projects to generate the credits and access carbon finance directly. What characterizes your A country’s system of land tenure and ownership and forest governance will influence the country’s rules regarding land type of crediting that may occur within the country. For example, a country that has private and forest ownership? ownership of land and strong property rights might have some added difficulties with subnational/national models compared to countries where the forests are nearly all state- owned and managed. What is your view of In many cases, nesting is the result of existing and/or emerging voluntary forest carbon voluntary carbon projects? projects. In some instances, countries may wish to encourage projects, while in others they may not be allowed. And some countries may wish to encourage projects, but also want to regulate them—for example, to ensure that safeguard measures are applied, or to align them with jurisdictional programs. A country’s response to the above questions can help It’s important to note that decisions about nesting them choose the REDD+ implementation model that is are often limited by local circumstances and existing most suitable for its needs. The next section discusses frameworks. For instance, limitations on the existing nesting in the context of REDD+ implementation jurisdictional MRV system might limit the available models. options for nesting. Nesting of REDD+ Initiatives: Manual for Policymakers 14 2. NESTING IN THE CONTEXT OF REDD+ IMPLEMENTATION MODELS There are four simplified approaches, or models, that The word “jurisdiction” can refer to either subnational a government may adopt for REDD+ implementation. or national jurisdictions throughout this manual Based on our working definition of nesting, only the (and vice-versa). “Nesting” can refer to integrating two middle models – centralized and decentralized a subnational jurisdiction into a national framework – (shown in the blue box of Figure 4) are considered as well as integrating a project into a subnational nested systems. Countries can choose just one of the or national framework. A summary of the simplified four models, or they can use a mixture of them (see models of REDD+ implementation with nested systems Section 2.6). Or they may start with one model and is highlighted in Figure 4, followed by more detailed evolve over time to a different model. descriptions in the subsections that follow. Figure 4 Summary of Four Simplified Models Crediting at national level Jurisdictional ER program (only) with benefit sharing Key features: • ERs credited at national scale (only) • No forest carbon project crediting • Government operates ER program and distributes benefits Nested systems Crediting at national level Crediting at national level Projects receive Crediting at project scale rewards based on ER allocation approach Centralized-nested Decentralized-nested Key features: Key features: • ERs credited up to national scale performance (only) • ERs credited at national and project scale • Projects encouraged and receive rewards based on GHG • Projects authorized to generate and market ERs performance (linked to national performance) (delinked from national performance) • Government control over ERs and distribution of carbon • Government generates ERs through public programs benefits via an agreed ‘allocation method’ and on public lands Crediting at project scale Project crediting (only), no jurisdictional ER program Key features: • ERs credited at project scale (only) • Projects are incentivized, may be regulated • No RBF or sale of carbon credits by the government • Government role is regulator, not ER program manager Nesting of REDD+ Initiatives: Manual for Policymakers 15 2.1 Jurisdictional ER Program (Only), With What countries might be interested in this model? Benefit Sharing Incentives: The government is responsible for How does this model operate? implementing policies and measures to slow, halt, and reverse deforestation, and to create the necessary In this model, there is accounting for ERs only at the incentives and enabling environment to mobilize national scale. This model relies on the government’s private sector finance. Local actors obtain incentives ability to achieve ERs through government programs, through defined benefit-sharing arrangements. and to monetize the ERs generated at the Therefore, the government is the sole direct recipient jurisdictional level. Local actors receive payments of any climate or carbon finance. from the government as part of the government’s defined benefit-sharing arrangements (Figure 5). The Rights: This model is the easiest to implement in cases government has full control over the accounting and where the public sector holds full control over forest initial allocation of funds generated by the program, lands, resources, and management. It is also suitable but the benefits may be channeled through when the government relies on the enforcement of nongovernmental means below a certain level. existing laws to achieve REDD+ mitigation. Example: At the time of this report, in Ecuador, all Finance: The government wishes to support ecosystems services belong to the state; therefore jurisdictional programs through REDD+ results-based projects are not authorized to generate carbon finance (RBF); for example, finance provided by GCF credits.12 However, the country may receive payments or other bilateral arrangements, or market-based for REDD+ performance, as it has done from the GCF, crediting at the jurisdictional scale. Carbon markets and it can transfer payments to beneficiaries through are not a direct source of financing for REDD+ projects, national forest schemes such as the SocioBosque since carbon finance is received through the benefit- program. This model is similar to Brazil’s Amazon sharing arrangements of the jurisdictional program. Fund, through which the government receives What is the key challenge of this model? payments for ERs in the Amazon region, and manages a program to disburse the funds they receive to local The key challenge is the development of benefit- actors. sharing arrangements that are acceptable to constituents, and the implementation of policies that will reduce deforestation. Where Indigenous and local communities or private entities manage significant parts of the forest estate, they may hold rights, including customary or use rights, that allow them to directly claim carbon rights. Figure 5 Jurisdictional ER Program (Only), with Benefit Sharing Crediting at national level 12 Ecuador’s GCF Funding Proposal provides relevant information in Section F “Legal Arrangements”. Available at: https://www.greenclimate.fund/document/ecuador-redd-plus-rbp-results- period2014- Nesting of REDD+ Initiatives: Manual for Policymakers 16 Table 2. Benefits/Risks of Jurisdictional ER Program (Only), with Benefit Sharing Benefits Risks Gives the government full control over …but also places the full burden of achieving ERs, or creating the necessary policies to REDD+ credit (or payment) transactions… mobilize non-carbon private finance (for example, environmental fiscal instruments) on the government. A government does not need to worry …but the system does not provide strong performance incentives to local actors about “mismatches” in ER generation unless sufficient incentives are included in the benefit-sharing arrangements and with projects… guaranteed by the government. The government has the flexibility to …but in doing so it may not optimize GHG performance and contributions toward its channel REDD+ payments based on NDC. national priorities… Requires potentially few REDD+ rules… …but requires robust national capacity to implement REDD+ activities and distribute benefits. May simplify national GHG accounting… …but may risk litigation if the system does not provide proper benefits to rights holders. Nesting of REDD+ Initiatives: Manual for Policymakers 17 2.2 Centralized Nested Approach What countries might be interested in this model? How does this model operate? Incentives: REDD+ requires a combination of government and local action; however, the In this model, ERs are accounted for at the national government may wish to control international ER scale. However, because the government wishes to transactions and link them to national performance. encourage projects through incentives that are linked The main goal of nesting is to incentivize projects to to performance, it develops a system for sharing contribute to the national performance. the benefits it receives from monetizing ERs at the national scale with projects. Approved projects may Rights: This model works best for state-owned receive either payments or ERs from the government lands, including where a government has licensed out in accordance with its benefit-sharing arrangements management of parts of the forest estate. The land and ER allocation system (Figure 6). The key managers that own the carbon rights receive benefits difference with the jurisdictional ER model above is in the form of funds or ERs, as a reward for measured that projects can measure their own ER performance, GHG ERs. and can receive a share of the ERs. This model implies Finance: The government is interested in accessing that rewards for private action are dependent on REDD+ RBF provided by GCF, the FCPF Carbon Fund, national performance, unless the government is or other bilateral arrangements, or market-based willing to make up any shortfalls by compensating crediting at the national scale; and wishes to create projects. incentives for subnational programs or projects Example: The Democratic Republic of Congo (DRC)’s closely linked to measured GHG ERs. benefit-sharing arrangements for the FCPF Carbon What are the key challenges of this model? Fund provides payments for GHG performance to carbon projects, as well as the possibility for projects Generating a transparent and fair allocation of to receive a share of the ERs that are generated by incentives to projects, and devising an accepted the ER program, but are not purchased by the Carbon means of allocating payments or ERs are the main Fund. A national government can also allocate ERs or challenges of this model. Projects may not receive payments to subnational jurisdictions. For example, benefits for their share in mitigation actions if the in 2017 Brazil created a system whereby states overall jurisdiction falls short in achieving sufficient within the Amazon were provided with a share of the ERs, or the government does not distribute benefits regionally achieved ERs to monetize.13 fairly. This may undermine the incentives to change Figure 6 Centralized Nested Approach behavior at the local level for activities that are dependent on carbon finance. Crediting at national level Projects receive rewards based on ER allocation approach 13 More detailed explanations of the DRC example can be found at: https://openknowledge.worldbank.org/handle/29720/10986 Nesting of REDD+ Initiatives: Manual for Policymakers 18 Table 3. Benefits/Risks of the Centralized Nested Approach Benefits Risks Government can benefit from ERs …but remains liable for generating and allocating REDD+ benefits. generated at the project level… Local action may be incentivized through …but if projects do not receive rewards unless there is national performance, it is the ER allocation system… likely to stifle carbon-related investment. Protects government from “overselling” …but may be placing national underperformance risks on private projects. ERs beyond national performance… The government claims control over …but may risk litigation if the system does not provide proper benefits to rights carbon rights… holders (project developers, project beneficiaries). 2.3 Decentralized Nested Approach Finance: The government wishes to engage private sector finance, including direct investments into How does this model operate? REDD+, and also REDD+ results-based finance at the In this model, the crediting and monetizing of ERs national scale. . occurs at both the national and the project scale. What is the key challenge of this model? Projects can directly generate and issue tradable ERs that do not depend on national performance (Figure The development of an MRV system for projects 7). Depending on the context, the government may be that align with the national MRV, particularly required to subtract project credits when calculating where a country foresees significant crediting at their national ER claims. The government regulates the project scale (compared to national mitigation), project MRV and safeguards to promote alignment is challenging. This may require a sophisticated with national approaches. national forest monitoring system, and institutional arrangements that can regulate projects and manage Example: Colombia allows the development of REDD+ their reporting in a national registry or database. projects and programs that can directly generate ERs. In 2018, the government adopted a regulation that Figure 7 Decentralized Nested Approach defined MRV rules for projects.14 The country engages in RBF through the REDD Early Movers program and Crediting at national level GCF, but it also promotes private actions to protect forests by recognizing ERs from REDD+ projects under the national carbon tax, and future emissions trading Crediting at project scale system. What countries might be interested in this model? Incentives: REDD+ requires a combination of government and local actions; in this model, projects can access carbon credits in compliance with government rules, but without governmental intermediation. This system is designed to drive carbon finance directly to projects. Rights: This model recognizes the rights of community and private landowners to monetize carbon rights and benefit from the ERs that result from reducing deforestation on their land. 14 Resolution No. 1447, August 2018 ,1. Ministry of the Environment and Sustainable Development, Colombia Nesting of REDD+ Initiatives: Manual for Policymakers 19 Table 4. Benefits/Risks of the Decentralized Nested Approach Benefits Risks Engages private finance, including the …but requires significant technical capacity to develop MRV and carbon accounting potential to generate upfront finance to rules; the political will to adopt them; and strong institutional capacities for protect forests… processing project requests, including assessing the data and the information submitted by projects. Mobilizes local action to contribute to …but the government may face a “national underperformance” risk if project GHG forest and climate change goals… performance exceeds national GHG performance. Allows for the recognition of REDD+ and …but risks unscrupulous project developers taking advantage of communities the natural resource rights of forest unless the government adopts minimum requirements on benefit sharing, and communities and Indigenous peoples…. Note: This is the case in any scenario that involves projects). enforces safeguards. (‌ Aligns the GHG accounting of REDD+ …but requires technical capacity to manage MRV alignment at different scales, and projects with the national system a national registry or database to regulate and track project accounting. 2.4 Project Crediting (Only), No Jurisdictional Finance: The country implements national forest and ER Program REDD+ policies without receiving RBF payments. It is primarily interested in advancing private sector How does this model operate? carbon finance; it does not seek to monetize GHG In this model, crediting only occurs at the project performance at the national scale. scale (Figure 8), and the government does not intend What are the key challenges for this model? to monetize ERs at the national scale. This approach applies to countries that do not depend on national In this model, the government needs to either carbon payments to finance government programs. self-finance, or find other sources of financing for For example, the government may still be implementing its forest policies outside of the project implementing REDD+ and may want to regulate areas. If the country is only engaging voluntary projects in order to promote equity in how carbon market projects, and not expecting to monetize benefits are enjoyed; to increase the environmental national performance, the urgency to align the MRV integrity of projects; or to ensure that safeguards are systems of all projects is diminished; the government being applied. This model would allow them to may consider applying requirements to ensure the regulate projects in order to achieve such goals and/or environmental integrity of ERs generated within its to align the MRV of projects with national GHG national jurisdiction. accounting, which may be a factor if future Article 6 Figure 8. Project Crediting (Only) transactions are envisioned. Example: This model may be relevant for countries Crediting at national level Crediting at project scale that consider REDD+ projects to be a good mechanism for addressing the drivers of deforestation, since they are in line with government policies and frameworks. Crediting at project scale In this case, the government may wish to align ER claims with their national forest monitoring, but not intend to access results-based payments, or issue jurisdictional forest carbon credits. REDD+ What countries might be interested in this model? REDD+ project project Incentives: Climate and carbon finance are focused on encouraging local and private action. In this model, the government is not dependent on accessing RBF or carbon finance to support their policies. Rights: This model is most appropriate for countries with private and community forest landholdings with strong property rights. Nesting of REDD+ Initiatives: Manual for Policymakers 20 Table 5. Benefits/Risks of the Project Crediting (Only), No Jurisdictional ER Program Benefits Risks Engages private finance in protecting …but may require financial, technical, and institutional capacity, depending on the forests, and offers the potential to level of the desired regulation of projects. generate upfront interest in private sector finance in carbon offsets as a return on their investment… Is simple, with very low risk for litigation …but may result in GHG performance being limited to project areas, if the or conflicts with respect to carbon rights… government fails to implement national forest and REDD+ policies. May lead to a higher volume of ERs …but may result in impacts on environmental integrity due to overestimation of achieved per unit of area… ERs, unless rules are established in support of robust MRV. Allows for private sector partnerships …but risks project developers taking advantage of communities unless the with forest communities and Indigenous government adopts minimum requirements on benefit sharing, and enforces peoples…. safeguards. 2.5 Key Differences Between the Models and allocates ERs based on national performance (the centralized model), or whether it wishes to This section highlights several of the key differences give projects more autonomy in generating ERs between the models presented above. One key (the decentralized model). Figure 9 illustrates this difference between the two nested models is whether difference. a country wishes to develop a system that limits Figure 9 The Key Difference between the Centralized and Decentralized Nested Models Centralized-nested Decentralized-nested Set national FREL Set national FREL Allocate FREL to projects (or subnational units) Calculate results (ERs) Allocate ERs or finance from sale of X% FREL Y% FREL Z% FREL ERs to projects (or subnational units) ER or $ ER or $ ER or $ ERs ERs ERs While this difference may appear to be a simple one, it is a clearer link between successful implementation has significant implications. For example: of on-the-ground activities and the achievement of results. This creates a clearer risk-reward incentive · Responsibility for generating ERs. Both for projects, since they are driven by the potential approaches require actions by both state and for future carbon revenues. nonstate stakeholders in order to address · Access to finance. In the centralized system, deforestation and generate ERs. Both require the government controls and allocates all RBF the implementation of policies and measures to or carbon finance. This enables it to ensure that address the drivers and legal frameworks that sufficient funds are available for the support of support catalyzation of on-the-ground activities. governance reform and government policies, for However, in the decentralized nested model there Nesting of REDD+ Initiatives: Manual for Policymakers 21 example by claiming a share of the emission “overselling” credits—for example, beyond the reductions (ERs) that are generated by projects. level of national performance—the centralized Under this model, projects (or subnational model helps to avoid this eventuality. The jurisdictions) receive a portion of the share of the projects bear the greater risk, since they ERs or revenues generated at the national scale. may put in the effort to achieve ERs, but not In a decentralized model, the government can receive the full reward for their effort if there is preassign a baseline to projects, but after that underperformance across the country. The risk the projects are free to generate, issue, and sell to the government is that this may reduce the their project ERs, and the government does not incentive for private carbon-related investment. participate in these transactions. However, the In the decentralized model, the risk for the credits issued by projects need to be reported to government is that the projects may sell more ERs the national database or government registry, than the national performance. and regulations defined by the country apply. Regarding the project crediting (only) model, it is Because under this model projects are more worth noting that the same rules may be applied to autonomous, it is more attractive to private projects as in the decentralized-nested model—with sector carbon-related investment, since risks are the only difference being that the government is not contained at the project scale. (See Section 3.3 seeking payment or crediting at the jurisdictional for more information on private sector carbon scale. In this model, a government may still decide finance.) to adopt requirements for projects in order to · Risk profiles. In the centralized model, the reduce the risk of environmental integrity or to government has greater control over ER promote consistency of reported ERs with national transactions, RBF, and carbon finance. Therefore, reporting. if a government is concerned about projects Nesting of REDD+ Initiatives: Manual for Policymakers 22 Table 6. Key Differences Among REDD+ Implementation Models Jurisdictional Centralized Nested Decentralized Nested Project Crediting ER program Model Model (only), No (only) with Jurisdictional ER benefit sharing Program REDD+ strategy Yes Yes Yes Yes Measurement, Recording, Verification (MRV) Jurisdictional FREL Yes Yes Yes No Project level baseline and MRV No Yes Yes Yes Allocation of ERs to activities No Yes No No and projects Allocation of the FREL to No Yes Yes Optional activities and projects Sharing of Ability to Benefit-sharing Ability to independently Incentives to projects via… jurisdictional ERs (or $ independently generate arrangements generate ERs from them) ERs Legal Government transfers Only government Government transfers jurisdictional ERs, Right to transfer ER with transfers jurisdictional ERs, Only projects transfer projects may transfer nonstate actors (jurisdictional) projects transfer project ERs ERs (if received rather ERs ERs than share of $) Right to engage in Right to engage in Recognition of carbon rights Benefit-sharing Sharing of ERs or $ projects that generate projects that generate of via… arrangements ERs ERs Benefit Sharing By government, Projects generate and Local actors generate By government, focused on monetize ERs through and monetize ERs Benefit-sharing approach with focused on sharing sharing of $ FREL allocation (based (based on GHG projects of ERs or $ (based on (based on non-ER on GHG performance), performance), and GHG performance) metrics) and share locally share locally Benefit sharing arrangements of Direct participation Benefit sharing Benefit sharing Access to benefits by local jurisdictional program, as project proponents arrangements arrangements of communities and indigenous direct participation or as or benefit sharing of jurisdictional jurisdictional program people via… beneficiaries of benefit arrangements of program or projects sharing-arrangements of projects projects Government transfers Only government Government transfers jurisdictional ERs, Right to transfer ER with transfers jurisdictional ERs, Only projects transfer projects may transfer nonstate actors (jurisdictional) projects transfer project ERs ERs (if received rather ERs ERs than share of $) Sale of ERs support national Yes, if there are ERs Yes, if there are ERs government for, for example, Yes outside the project No outside the project areas institutional strengthening areas Risk Management Government bears the Not applicable No Yes No performance risks of projects projects bear the performance Not applicable Yes No No risk of the government Nesting of REDD+ Initiatives: Manual for Policymakers 23 2.6 The Reality: Mixed Approaches Figure 11. Hybrid Scenario B at national level Governments should opt for a system that responds to their unique national circumstances; it may not International carbon finance from companies through voluntary markets necessarily fall neatly into any particular nesting or REDD+ model. They may also start with one approach and evolve over time to another model. Almost all countries will choose to combine national policies with REDD+ the empowerment of local actors, but they can choose project different ways of doing so. Their choices will depend REDD+ on the drivers of deforestation, the accessibility of project REDD+ various regions within the country, and the target project populations involved. Countries may therefore simultaneously operate several models, or create their own “hybrid” approach that best meets their national Art 6 Non-market payment circumstances, as illustrated in the examples below projects for performance at (See Figure 10, Figure 11, Figure 12). national scale Example A: The government chooses to develop a national ER program, and in its benefit-sharing In this example, the country may combine the system provides some constituents with non- decentralized and centralized nested models. performance-based funding, while others may receive · Under voluntary crediting, the country may rewards in the form of either financing or ERs, based choose to allocate the reference level (see on GHG performance. Section 4), and assign baselines to projects in In this example, the country is combining the order to promote equity among projects, drive jurisdictional only and centralized nested models. projects to high-risk areas, and align MRV with Some actors within the country may respond better the national GHG accounting systems; but it to the provision of nonmarket finance—for example, may also allow projects to engage in voluntary local communities or Indigenous people. Others, such markets based on their performance against as private sector actors, may prefer to be rewarded the assigned baselines. based on their GHG performance. · For projects that are under Article 6 of the Paris Agreement, the country may apply Example B: The government wishes to access the centralized nested approach, in which nonmarket REDD+ results-based payments, the government allows projects to sell a participate in Article 6 transactions, and allow given volume, allocated from the national projects to participate in voluntary markets, as performance, of credits with CAs. illustrated in Figure 11. (See Section 3.4 for more on Article 6.) Example C: The country wishes to access nonmarket REDD+ results-based payments, and allow projects to Figure 10. Hybrid Scenario A participate in voluntary markets. It participates in a donor-funded program (for example, the FCPF Carbon Fund, BioCF-ISFL, or REDD Early Movers), and has also Crediting or RBP at national level developed a domestic carbon market where REDD+ credits are eligible. International carb companies through v REDD+ project Non-market payment Nesting of REDD+ Initiatives: Manual for Policymakers for performance at 24 national scale Figure 12 Hybrid Scenario C Non-market payment for performance International carbon finance from companies at national scale from GCF through voluntary markets cook stove REDD+ Forest country project project REDD+ project REDD+ project Local company buys credits (voluntary or compliance market) In this example, a country may again combine several over others. And in some countries there may be local models: companies that are interested in buying credits. · For nonmarket results-based payments, it Another critical consideration when determining the may distribute the payments to some local scale and levels of crediting is ownership of the land actors, such as vulnerable groups that require and resources, and consequent claims to participate additional financing to support sustainable in REDD+ within a country. Countries often define development, and to others based on their forest carbon rights based on the land tenure GHG performance. framework of the country: this is discussed in Section · For voluntary crediting, it may allocate the 4.4. Countries where governments control all of the forest reference emission levels (FRELs), but forest land and resources may favor the centralized allow projects to engage directly in voluntary management of carbon rights, while those with diverse markets. forest ownership and land management regimes may · For domestic crediting, there is a local tend to respect the right of landowners to engage in standard that is more flexible. Local carbon projects. Benefit- sharing arrangements should companies are encouraged to invest in consider both legal and customary rights. the country’s ecosystem protection or Finally, it is useful for a country to have a position restoration; there is no effort to align MRV on whether, and if so how, carbon finance will play with the national system, although projects a role in the country’s achievement of its NDC. As of are regulated to the extent that they must the time of this report, there remain questions about apply minimum safeguards. the role of the voluntary market and its relationship As illustrated in these examples, it is important to to a country’s accounting of its NDC (including understand the available sources of finance and corresponding adjustments). By contrast, the carbon to develop a strategy to access and optimize such offsetting and reduction scheme for international finance. For example, while GCF offers nonmarket aviation (CORSIA) has approved provisions that REDD+ payments to any developing country, most require a corresponding adjustment. Furthermore, a of them will need to find an accredited entity that country’s target—and its conditional vs. unconditional is willing to put forward a funding proposal on their pledge—may be a factor in the overall design of the behalf, which is a cumbersome process. Other sources nested system that is chosen by the government. of financing (for example, the FCPF Carbon Fund, BioCF, and bilateral deals) are only available to a limited number of countries. Similarly, international compliance markets (for example, Article 6.2 transactions) require a country-to-country agreement. Voluntary market buyers may also have requirements or preferences that tend to favor some countries Nesting of REDD+ Initiatives: Manual for Policymakers 25 3. CONSIDERATIONS FOR THE DESIGN OF NESTED SYSTEMS The human, institutional, and financial capacities of 3.1 Capacity Constraints a country are essential considerations when planning the design of a nested system. While nesting might be While policy objectives and the national legal and technically challenging, a governmental ER program policy context should be the primary factors guiding requires stronger implementation capacity (see Part the design of the nested systems, other issues may III, on implementation). There are also a variety of limit the options countries have, particularly in the REDD+ results-based finance (RBF) opportunities— near term. For example, one consideration is the from nonmarket to market-based mechanisms, and ability to measure and monitor GHGs from forests from voluntary to compliance markets. In addition, or land use. Many carbon standards require a level of there is growing interest in how to mobilize private accuracy in the estimation of emissions (or removals), sector finance for REDD+, as well as increasing or take a deduction for uncertainty. Institutional interest from companies that are engaged in nature- and technical capacity varies significantly within based solutions. As countries increasingly consider and among countries; some countries may not be how to access REDD+ RBF, many are also struggling able to accurately measure and report the GHG to understand how these may impact their obligations emissions and removals from their forest resources. under the Paris Agreement. These aspects are focused Building technical capacity is a prerequisite for the on in the sections below. development of a nested system—as well as the ability to operationalize it; therefore it requires a level of commitment from countries (Box 4). Nesting of REDD+ Initiatives: Manual for Policymakers 26 Box 4 Emerging Types of setting of baselines and/or the alignment of project monitoring with national MRV systems. One of the Nested Systems motivations for using this approach is the possibility Countries have a variety of different systems, of attracting private finance to protect and enhance based on a range of factors. When governments forest resources. follow a Jurisdictional ER Program (only) with Hybrid approaches are also emerging. For example, Benefit Sharing, the projects within such countries a couple of countries (Guatemala, Peru) are receiving may be promised a portion of the jurisdictional RBF at the national scale while also respecting the performance-based payment, but will not be allowed carbon rights of landowners. In such cases, the to issue and sell carbon credits on their own. In country allows the owners with carbon rights to “opt Ecuador, for example, only the government has the in” to the national carbon finance system, by signing power to monetize carbon rights, and environmental agreements that give the government the authority services, including carbon, are not available for to commercialize and sell ERs on their behalf. appropriation by any entity. Thus, carbon cannot be sold or traded in markets, although the government Given the complexities that arise in developing can receive payment for GHG performance. In this nested systems, some countries are taking a step- case, environmental benefits are considered a public by-step approach. They may start with a simpler good, and the government is the only entity that can approach, with the intent of phasing in a more ensure that the benefits are enjoyed collectively, or sophisticated design over time. For example, an early shared among citizens. approach may not achieve full MRV consistency, but may simply improve alignment in GHG estimation A number of approaches are also being developed at various scales. Alternatively, a country may start in which governments (for example, Cambodia and by building a decentralized system, largely in order Colombia) develop frameworks to regulate particular to enable voluntary crediting that is aligned with aspects of project-based crediting to facilitate national GHG measurement systems, but has the project activities for accessing carbon finance. ultimate goal of engaging in national results-based The core of such frameworks often relates to the payments, and/or Article 6 transactions. Nesting of REDD+ Initiatives: Manual for Policymakers 27 3.2 Landscape of REDD+ Results-Based · Domestic compliance markets: Markets are Finance created by governments and linked to regulatory systems such as emissions trading schemes or For many countries, the desire to develop a nested carbon taxes. ERs are generated or recognized system is motivated by a desire to access multiple under the rules defined by national legislation. streams of REDD+ RBF, subject to specific rules and Tradable units are tracked in registries. procedures for accessing funds. These include: · Internationally regulated markets: Markets are · Nonmarket finance: Finance is linked to ERs. created by governments through multilateral However, there is no requirement to transfer the fora, such as UNFCCC, or the International Civil rights to ERs, no issuance of a tradable carbon Aviation Organization (ICAO). ERs are tracked credit, and no need for a GHG transaction registry. in linked carbon registries. Under the Paris Some nonmarket instruments have specific Agreement, ER transactions require a country to requirements; for example, the Green Climate Fund make a “corresponding adjustment” in reporting (GCF) tries to avoid “double payment” of ERs, and their achievement of nationally determined requires countries to register REDD+ results in the contributions (NDCs). Lima REDD+ Information Hub.15 Table 7 provides examples of different types of RBF; · Voluntary markets: Carbon credits are generated the scales at which they reward GHG performance; and issued under the rules of voluntary carbon who pays for such performance; and the rules that are standards, and tradable units are tracked applied to measuring it. in registries. The market is largely driven by companies with self-imposed targets. 15 https://www.greenclimate.fund/document/terms-reference-pilot-programme-redd-results-basedpayments Nesting of REDD+ Initiatives: Manual for Policymakers 28 Table 7 The Landscape of REDD+ Results-Based Finance16 Type of Scale Who pays for Who sets the rules, and examples REDD+ performance RBF Nonmarket National or Donor Donor governments set the rules, often in agreement with developing subnational governments countries: • GCF: Use of a “scorecard,” approved by GCF Board • REDD Early Movers (REM) /bilateral: Defined by donor government(s) in partnership with the country • Amazon Fund: Defined by the Brazilian government Voluntary Project Companies Rules may be developed by governments or nongovernmental market (voluntary organizations (NGOs). There are two types of voluntary markets: targets) • Domestic: Standards specific to the host country (for example, the Thai VER standard) • International: Standards apply across countries and regions (Verified Carbon Standard (VCS), FCPF Carbon Fund) Domestic Project Companies Rules are set by government regulators, for example: compliance (obligations under market law) • Chinese certified emissions reductions • Offsets linked to Colombia’s carbon tax • Offsets linked to South Africa’s carbon tax International Project or Governments or Requirements are set by an international body such as regulated larger-scale companies markets programs •  CORSIA. Eligible programs include: • Architecture for REDD+ Transactions (ART) • Verra’s Jurisdictional and Nested REDD+ (JNR) • FCPF Carbon Fund (conditionally eligible; needs to meet additional requirements to be fully eligible) Paris Agreement “internationally transferred mitigation outcomes” (ITMOs), including: • Article 6.2 transactions, defined bilaterally between countries • Article 6.4 transactions, administered by UNFCCC It is important to note that for programs that are The multitude of available programs can create eligible to access both nonmarket and market challenges for countries that wish to access or enable mechanisms, financing from different sources can funding at various scales. For example, countries overlap. Nationally and internationally regulated participating in nonmarket, national-level REDD+ RBF markets can be linked; for example, the EU Emission through GCF or REM Early Movers are likely to use Trading System and the markets created under the different methodologies to measure GHG performance Kyoto Protocol are linked. In addition, there may be (and receive payments) than voluntary projects are. overlapping of bilateral or multilateral RBF programs, The issues related to GHG measurement mismatches or different voluntary carbon standards. are covered in Part II Section 4. 16 The FCPF Carbon Fund requires the issuance of tradeable FCPF units, which may or may not be used for offsetting purposes. For instance, Carbon Fund Tranche B buyers retransfer the ERs to the country to be used for NDC purposes (example of a nonmarket mechanism), while Tranche A buyers may use the ERs for other purposes, and countries may sell remaining FCPF units on the market. Nesting of REDD+ Initiatives: Manual for Policymakers 29 3.3 Role of the Private Sector in More recently, the private sector is increasing REDD+ Markets its engagement in nature-based certified ERs. Previously, project developers in the private The Warsaw Framework for REDD+ states that sector played a small role but had an earlier start, financing for REDD+ should come from both public implementing forest carbon projects at the local level. and private sources. To date, most REDD+ RBF They have sometimes been funded by private investors has been offered by donor governments through or companies, through the purchase of credits multilateral funds (the FCPF Carbon Fund, BioCF- generated by such projects; however, the funding was ISFL, GCF), and bilateral approaches such as REDD minimal compared to the amounts provided by donor Early Movers (REM), or government-to-government governments. Many companies have recently shown agreements. All such funds provide payment for interest in using nature-based offsets to achieve their performance at the national (or subnational) scale. climate mitigation targets. In 2019, the issuances Governments may consider multiple approaches of voluntary forest carbon credits more than tripled to mobilizing private sector finance for REDD+ compared to the annual volumes from 2010-15, as implementation, ranging from fiscal incentives shown in Figure 13). Recent research17 suggests that to carbon finance. This applies to all REDD+ the voluntary market will continue to grow, potentially implementation models. exceeding donor-based finance for REDD+. Figure 13 Verified Carbon Unit (VCU) Issuances from 2010 to 2019 80,000,000 70,000,000 60,000,000 VCUs issued (tCO2) 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Avoided deforestation (or degradation) Reforestation Improved forest management Source: VCS Project Database, accessed October 2020 17 Taskforce on Scaling Voluntary Carbon Markets, January 2021. Found at: https://www.iif.com/tsvcm Nesting of REDD+ Initiatives: Manual for Policymakers 30 It is useful to understand the various types of private At the same time, the Agreement also brings new sector actors that are involved in REDD+ carbon challenges, especially because developing countries markets. Project developers could be companies are now expected to reduce, measure, and report engaged in supporting mitigation activities to ERs–an obligation that was previously held only by generate a return. By contrast, companies with developed countries. This adds a layer of complexity a carbon footprint and climate targets might be in implementing REDD+, not only because ERs are now either (i) offtakers or buyers of carbon credits; or (ii) an asset of considerable value for both developing investors in mitigation activities who have plans to and developed countries, but also because countries receive credits, or revenue from their investment. have an obligation to ensure that the reductions are Generally, private entities are more comfortable not counted toward multiple nationally determined investing in projects than in jurisdictional programs. contributions NDCs.18 For them, the risks are easier to manage than the risks For REDD+, carbon market finance can supplement encountered in jurisdictional programs. the financing options envisioned in the Warsaw The increasing participation of the private sector Framework. Article 6 of the Paris Agreement in REDD+ markets will also drive the availability states that countries may transfer “internationally of upfront investment finance needed for the transferred mitigation outcomes (ITMOs) to allow implementation of mitigation activities. This could for ambition in their mitigation and adaptation be leveraged by countries to gain access to additional actions” (Art. 6.1, Paris Agreement). ITMOs must be sources of upfront investment finance. Investors authorized by participating countries (that is, parties need to see a clear link between the activity they are to the Paris Agreement), and should avoid “double investing in and the ERs they would receive; this is one counting,” meaning that an ER can only be used by reason why there might be more interest in investing one party to demonstrate achievement of its NDC. in project-level interventions, where attribution When in the context of REDD+ ERs are transacted of ERs is easier. Recent transactions have shown under Article 6.2 or 6.4, a corresponding adjustment that prospective buyers of REDD+ credits are also is required. Guidance on cooperative approaches, interested in investing in mitigation activities that including guidance regarding accounting and reporting generate other revenue besides carbon. processes, is being negotiated under Article 6, and guidance on the tracking of ERs is being negotiated REDD+ countries are increasingly interested in under Article 13.19 combining donor government funding with private sector investment at the project level. In a few If a government wishes to engage in Article 6 instances, countries may have carbon credits at transactions by selling forest carbon credits, it the jurisdictional level, and may still be able to find must consider how such transactions will affect private and public sector buyers, depending on the the achievement of its NDC, since any credits risks they present. But for many countries, meeting transferred to another country must be deducted the requirements of carbon market standards at from its own national accounts through the so-called the national scale may be challenging—for example, “corresponding adjustments.” These provisions are regarding issues related to carbon rights, as well as expected to align with other international market the MRV stringency required by markets. Thus, due to mechanisms, such as ICAO’s CORSIA. capacity constraints, access to private sector finance Currently there are few Article 6 pilots in the forest is unlikely at the jurisdictional scale—at least in the sector. Those that exist are under Article 6.2 of the near term—for some countries. Paris Agreement, which states that parties may define 3.4 The Paris Agreement: Nationally the conditions under which ITMOs are authorized. Determined Contributions and Article 6 Currently all such pilots in the forest sector are at the project scale. Japan’s joint crediting mechanism (JCM) The Paris Agreement opens the possibility of linking approved its first REDD+ methodology20 early in 2020, REDD+ finance to the transfer of ERs. Such transfers in an agreement between Japan and Cambodia. Mitsui can either be limited to government-to-government is funding a pilot REDD+ project that uses the JCM transactions, or linked to carbon markets. REDD+ methodology.21 Korea is also funding several REDD+ projects.22 18 For more detail see: Streck, Howard, Rajoni. 2017. Options for Enhancing REDD+ under Art. 6 of the Paris Agreement. 19 Decision 1/CP.21, para. 36. This is specified in the context of Article 6.2. However, Article 6.5 sets a similar requirement for the Article 6.4 mechanism. Countries’ views differ on whether transfers originating under Articles 6.2 and 6.4 should be subject to the same set of accounting rules. 20 https://www.jcm.go.jp/kh-jp/methodologies/97 21 https://www.mitsui.com/jp/en/topics/11241_1225795/2018.html 22 http://www.tumringredd.org/ Nesting of REDD+ Initiatives: Manual for Policymakers 31 The decision of a country to participate--or not depending on the final use of the ERs. The Paris to participate--in Article 6 transactions is closely Agreement currently does not specify requirements for linked to its NDC accounting and reporting. The Paris contexts in which nonstate actors engage in markets Agreement requires that all of its parties submit NDCs voluntarily. and periodically report on progress made toward Countries that host REDD+ projects may decide their achievement. Countries with significant forest- whether, and if so how, they will allow transactions related emissions generally include such emissions that come with corresponding adjustments, as within their NDCs. For countries that rely on REDD+ to well as whether and how they should claim ERs meet their NDCs, the potential transfer of ERs under from REDD+ for their NDCs. In the case where a Article 6 must be carefully considered. These countries country decides to allow transactions that come with may only want to transfer ITMOs and make the corresponding adjustments for either projects or corresponding adjustments if they feel comfortable programs, capacities are needed in order to include that the partnership with another government (or such transactions in a national transaction registry international entity) will generate more ERs than the (see Part III Section 12). country is being asked to transfer, or if the country expects to meet its NDC without relying on forest Countries should keep in mind the evolving landscape sector ERs. around Article 6, corresponding adjustments, and the consideration of these aspects by voluntary There is currently no agreement on the requirement carbon market players. Decisions on whether to for corresponding adjustments for transactions move forward with any of the models could create performed outside of Article 6. International offset constraints and limitations in the future. However, compliance initiatives such as CORSIA require a there is also a benefit in immediately accessing corresponding adjustment for carbon units used by available sources of finance. Countries may therefore airlines in order to meet their compliance obligations wish to consider creating flexible frameworks that will under the scheme. By contrast, some voluntary carbon be able to consider new realities and will allow easy standards foresee23 the issuance of ERs under their transition from model to model. standards with or without corresponding adjustments, 23 https://verra.org/wp-content/uploads/08/2020/Proposal-for-Scaling-Voluntary-Carbon-Markets-and-Avoiding-Double-Counting.pdf and https://www.goldstandard.org/sites/default/files/ documents/gs_guidance_correspondingadjustments_feb2021.pdf Nesting of REDD+ Initiatives: Manual for Policymakers 32 PART II NESTING ELEMENTS This part provides information on the issues that setting of baselines and forest reference emissions should be considered in the development of the levels (FRELs). Baselines form the basis for estimating nesting models presented in Part I. ERs, and in the case of REDD+, the methodologies for setting baselines can differ significantly among 4. CARBON ACCOUNTING AND MRV projects and national jurisdictional programs. This In this section, we describe the most relevant means that a “ton” of emission reduction measured by elements of measurement, reporting, and verification a project may not be the same as a ton estimated in a (MRV) that are likely to be addressed by countries national/subnational jurisdictional program. In several that are implementing REDD+ activities at multiple cases project baselines have been overestimated due scales. The setup and requirements of an MRV system to the selection of reference areas24 that could lead depend to a great extent on the model or approach the to a significant over-reporting of ERs.25 On the other country will adopt, as well as the various standards hand, national reference levels often have significant that projects or jurisdictions intend to use in order to uncertainties;26 but using conservative approaches for access carbon finance. Some of the relevant aspects establishing the reference levels reduces the risk of include: overestimation of ERs.27 · Aligning ER claims from the project to the national Countries often establish national FRELs to meet scale through baseline setting; the requirements of results-based finance (RBF) · Deciding on the scope for nesting: that is, which programs, which may also be harmonized with REDD+ activities, pools, and gases should be nationally determined contribution (NDC) baselines. included; For example, the methodological framework of the · Aligning definitions, data, and methods for Forest Carbon Partnership Facility (FCPF), and the estimating emissions. Green Climate Fund (GCF)’s REDD+ Results-Based Payments Pilot Programme require the FREL to 4.1 Aligning Baselines and ER Claims be based on average emissions during a historical reference period. Exceptions apply when a country Many countries face a significant mismatch between has a high percentage of land with high forest and low their project-level and national-scale claims of but rising deforestation (HFLD). The use of average REDD+ related GHG performance (ER claims). The emissions is considered a proxy for “business as usual” mismatch in ER claims of jurisdictions and carbon emissions since, at larger scales, near-term historical projects is more pronounced for reducing emissions emissions can be a good predictor of near-term future by deforestation (REDD) or avoided deforestation emissions. (AD) projects. In many instances, this mismatch is the main reason for countries to consider nested Projects set their performance benchmarks (that systems. The reasons for such mismatching are is, their baselines) by applying methodologies that explained by differences in scope as well as definitions are approved by the carbon standard that is used to and methodological approaches. generate carbon credits. There are two basic forest carbon project types: those for planned, and those for The most significant reason for mismatches is the unplanned deforestation.28 In both cases, the project 24 Chagas et al. 2020. A Close Look at the Quality of REDD+ Carbon Credits. https://www.climatefocus.com/publications/close-look-quality-redd-carbon-credits 25 Thales, A. P. West, Jan Börner, Erin O. Sills, Andreas Kontoleon. 2020. Overstated Carbon Emission Reductions from Voluntary REDD+ Projects in the Brazilian Amazon. Proceedings of the National Academy of Sciences, Sep 2020. 117 (39) 24188-94; DOI: 10.1073/pnas.2004334117 26 R. D. Yanai et al. 2020. “Improving Uncertainty in Forest Carbon Accounting for REDD+ Mitigation Efforts.” Environ. Res. Lett. 15 124002 (https://iopscience.iop.org/article/10.1088/1748-9326/ abb96f); Sandker et al (2021), The importance of high-quality data for REDD+ monitoring and reporting. Forests 2021, 12(`), 99. (https://www.mdpi.com/1999-4907/12/1/99/htm) 27 Espejo, Andres B.; Becerra-Leal, Maria C.; Aguilar-Amuchastegui, Naikoa. 2020. "Comparing the Environmental Integrity of Emission Reductions from REDD Programs with Renewable Energy Projects" Forests 11 (12): 1360. https://doi.org/10.3390/f11121360 28 Some standards distinguish between different types of deforestation, for example, planned and unplanned, as described in this section. More information is available at: https://www.unredd.net/ knowledge/glossary.html Nesting of REDD+ Initiatives: Manual for Policymakers 33 accounting area consists of areas of forest that FREL to smaller-scale areas such as subnational exist at the start of the project. To set baselines for units, or projects. This method ensures that the unplanned deforestation, an area that is subject “sum of the parts” (that is, the project or subnational to similar risks of deforestation is identified as a baselines) never exceeds the whole (the national FREL). reference area, and the trends observed there are Ideally, project baselines should represent business- used as a proxy of what would be likely to happen in as-usual emissions; in other words, allocations to the project area in the absence of project activities. specific sites should be based on the current level For planned deforestation, the project baselines that of threat and emissions factors (EFs) to ensure that are set are the emissions that are expected relative carbon credits represent actual additional ERs. High- to the development of a specific human activity, such risk areas (for example, forests at a high threat of as the construction of a road, the clearing of a land loss) should receive a larger allocation, and areas of concession, or some other documented, planned land- low risk a smaller allocation per unit area. Forests that use change. are not being threatened (for example, forests that are inaccessible, or are not suitable for agriculture or other The adoption of a specific nesting model will define conversion activities) would not receive any allocation how countries address baseline alignment: of the FREL. · In a model where only the government is seeking payment for ERs at the jurisdictional scale, the Finally, a government may simply assign a maximum alignment of ER claims is irrelevant. crediting level to each project. This approach may be · In a centralized nested model, project claims relevant where data used at the national level is not to ERs are based on GHG performance but are “fit for purpose” for project-scale crediting. Setting capped, since they are allocated a portion of the such caps on projects limits the volume of credits each national ERs; in this instance, the government may project can generate. This approach may be simpler wish to align the project baselines for reasons of than allocating a FREL, but may also result in project- fairness (for example, to inform allocations), or scale ERs that are not comparable to the national GHG to ensure that projects contribute to the national accounting. GHG performance accounting. · Alignment is most critical in a decentralized nested model, where multiple levels of crediting may be occurring simultaneously. · In the case where only projects are seeking payment for ERs, the government may have an interest in aligning project accounting in order to ensure that projects are contributing to the national GHG performance by providing guidance on GHG measurement methodologies. There are several ways to promote alignment in the setting of baselines One approach is to require conformity in how the baselines are set. Projects may have a variety of methods available; by limiting the number of methodologies that can be used (noting that more than one method may be required given different drivers, for example in planned and unplanned deforestation), and/or constraining how they are applied (through model inputs and data sources), the government can attempt to minimize the amount of variation in how project baselines are set. Another approach that can be used for RED (avoided deforestation) projects is to allocate the higher-scale Nesting of REDD+ Initiatives: Manual for Policymakers 34 Table 8. Options for Promoting Alignment in Baseline Setting Approach Benefits Risks Examples Promote conformity on Simple, and requires setting rules for May reduce, but likely not Australia’s Emission baseline and monitoring baseline setting. The project baselines eliminate, mismatches in Reduction Fund methodologies are defined locally and may be more claimed GHG performance accurate as a result. Set project baselines by Ensures that project baselines do not Technically challenging. VCS JNR allocating the FREL exceed the jurisdictional baseline; Project baselines are Peru provides the strongest alignment determined by national between scales. methodology. Guatemala Set maximum crediting Does not require granular data at the Project baselines are not Colombia’s level for projects national level; promotes alignment by aligned, and may result in Resolution 1447 setting an envelope for performance (and the issuance of credits that by capping projects). are not comparable. 4.2 Deciding the Scope of Nesting Under UNFCCC, countries are encouraged to report on as many categories as possible in their national One fundamental decision that a country will need to GHG inventories, particularly in places where make is which activities, pools, and gases to include emissions are significant. The Paris Agreement also in a nested system. This may lead to fewer activities encourages comprehensive target setting within being included in a nested system than in a system NDCs. In the case of REDD+, many countries submit that is measured and monitored by the national forest FRELs in order to access results-based payments. For monitoring system (NFMS), since nesting relates to this reason, countries sometimes narrow the scope of aligning project (or subnational) MRV systems with the the FREL either by selecting a subnational area, or by national accounting system and the NFMS. reducing the number of activities to be included. The There are several things to consider in making such a choice of scope (or coverage) in a FREL is often related decision. One is practical: the lack of quality data will to the requirements of the funding instrument from make some activities, pools, and gases too challenging which a country is seeking results-based payments. to nest. The other is related to the need for nesting: Various contexts for the reporting and accounting of Are there already forest carbon projects in the GHGs under UNFCCC are summarized in Table 9. country? Do they have large mismatches in the way GHGs, or ERs are estimated? Table 9 Scope of Coverage of Forest-Related Fluxes in GHG Inventories, NDCs, and FRELs29   Scope of Forest Fluxes Practical Limitations GHG inventory Anthropogenic emissions and removals National capacities, or lack of scientific methods, may limit full reporting of forest fluxes. NDC Anthropogenic emissions/removals In addition to the above limitations, some NDCs are narrower than the scope of coverage in the national GHG inventory, or are (based on GHG inventories) currently unclear. REDD+ Significant* anthropogenic forest- Countries often choose only the most significant emissions reference level related emissions/removals (for example, deforestation); many exclude degradation and (FREL) regrowth, and some FRELs are subnational in scale. *COP decision 13/CP.19 states that countries should not omit significant fluxes, but it does not define “significant.” 29 From Lee, D. and Sanz, M.J. 2017.  “UNFCCC Accounting for Forests: What’s In and What’s Out of NDCs and REDD+.” https://www.climateandlandusealliance.org/reports/forests-ndcs-redd/ Nesting of REDD+ Initiatives: Manual for Policymakers 35 As Figure 13 (in Section 3.3) shows, the vast majority of forest carbon credits issued in the marketplace are from either from AD, or RED. In general, projects that generate carbon credits based on GHG removals from afforestation/reforestation (AR), or improved forest management (IFM) activities pose fewer accounting challenges than RED. Therefore, a country may want to start by building a nested system that is focused on RED. Table 10 provides additional elements a country may want to consider when designing a nested system. Table 10 Selecting the Carbon Accounting Scope for Nesting Scope Consideration Activities In most cases, deforestation will be a priority for nesting, particularly if there are significant emissions from forest loss at the national scale and this is the focus of carbon projects. Forest degradation should be included where sufficiently robust data exists. Forest management, conservation, and enhanced removals ‌n a nested system, since few developing countries are able to (the “plus” in REDD+) have less significance i measure removals at the national scale;30 the volume of ERs (or removals) generated by projects tends to be small; and mismatches between existing projects and national accounting tend to be less significant.31 Pools Aboveground biomass will always be a significant pool and therefore should be included in a nested system. The belowground biomass pool is also often included since it can be calculated and reported using Inter- governmental Panel on Climate Change (IPCC) default values.32 The inclusion of other carbon pools—such as soil carbon, litter, dead wood, or harvested wood products—is likely limited by the robustness of national data. Gases Similar to the inclusion of specific pools, as the predominant greenhouse gas for all forest activities, CO2 will always be included in the nested system, but countries may find it challenging to include additional gases (such as N2O or CH4), due to the inability to robustly measure these gases at the national scale. Once a country decides on the scope for nesting, it Countries can either allow projects that are outside may also want to consider how to manage projects the scope of nesting to generate credits (uninhibited), that generate ERs that fall outside that scope. or they may wish to establish general guidance on For example, a country’s nested system may focus whether (and if so how) such projects may seek on RED, while permitting standalone projects that credits. For example, the government could limit the are focused on reforestation; or it may focus on standards and/or methodologies that projects can aboveground and belowground biomass pools, while use. Alternatively, it may require projects to report permitting project-level accounting focused on other the data and information they collect to the national carbon pools, such as soil carbon. This is because government in order to strengthen the NFMS. The projects, which operate at smaller scales, can often government may also develop guidelines on how monitor a range of activities, pools, and gases that are projects are to measure and monitor emissions and much harder to measure at the national scale. removals, following national protocols. 30 Lee, D., Skutsch, M. and Sandker, M. 2018.  “Challenges with Measurement and Accounting of the Plus in REDD+.” https://www.climateandlandusealliance.org/reports/plus-in-redd/ 31 Chagas et al, 2020. “A Close Look at the Quality of REDD+ Carbon Credits.” https://www.climatefocus.com/publications/close-look-quality-redd-carbon-credits 32 IPCC. 2006. Guidelines for National Greenhouse Gas Inventories. Volume 4, Chapter 4, Table 4.4. Document available at the following link: https://www.ipcc-nggip.iges.or.jp/public/2006gl/ pdf/4_Volume4/V4_04_Ch4_Forest_Land.pdf Nesting of REDD+ Initiatives: Manual for Policymakers 36 4.3 Aligning the Estimation of GHGs same higher-level strata (Box 5). This would promote consistency, while not constraining projects from When GHG estimations are being made at multiple keeping more detailed data. scales, it can be useful to reduce mismatches to the extent possible. This can promote alignment in ER claims and ensure that the efforts being made (and Box 5 Aligning Land Classifications rewarded) at smaller scales are contributing to the Countries can establish and document protocols national GHG accounts. This alignment is critical for defining the hierarchical relationships that for countries engaging in Article 6 transactions, or allow the aggregation and disaggregation of land- internationally transferred mitigation outcomes use categories and the stratification of land, in (ITMOs), as discussed in Section 3.4. particular forest types. This would enhance the One simple way to align GHG measurement is to alignment and consistency of GHG monitoring at encourage actors at all scales to use the same different scales. For example: definitions for forest and REDD+ activities. The use of Level 1: a common definition for forests can help a government Forest / Non-Forest better manage, understand, and compare the impact of the various REDD+ activities occurring within the Level 2: country: obviously, if one project considers a forest to A: Forest by Forest Type (evergreen forest, be an area with a greater than 30 percent canopy, and deciduous forest) another is defining it by using a 10 percent canopy, the B: Non-Forest by IPCC land-use categories results will not be comparable. (croplands, grasslands, settlements, wetlands, other lands) Similarly, it is helpful if all REDD+ activities that are monitoring GHG performance use the same system Level 3: for land representation. If projects all use the same A: Forest by Forest Type and Biome: mountain land classifications—for example, the same forest evergreen forest, coastal evergreen forest, etc. types (evergreen, semievergreen, deciduous) and/ B: Non-Forest by IPCC land-use categories and or classifications (primary, secondary, etc.)— then subcategories: i.e., shrublands, pastures, rice measurements across projects, and in comparison cultivation, annual crops, woody crops, etc. to the national reporting (and data generated by the NFMS), will be comparable. Other important aspects for promoting consistency Requiring consistency can promote the environmental of GHG measurement are: (i) aligning the methods integrity of ER claims within a nested system since of generating activity data; and (ii) the consistent it ensures that the “sum of the parts,” particularly application of emission factors (EFs). Projects often baselines, are equal to the whole (as discussed in use methodologies for estimating GHGs that are Section 4.1). In some countries, however, pioneering different from those used at the national scale. This projects were established before the national FREL may be due to different requirements—for example, was developed; such projects may have used different national GHG inventories are “fit for purpose” for definitions for forests or land representation systems. reporting to UNFCCC. This is different from project- In such cases, negotiations among stakeholders to scale methodologies, which are approved by standards bring such projects into a nested system over a specific developed to provide assurances about the credibility period of time should be a priority. of mitigation actions. Differences in the methodologies applied can also be a function of scale, cost, and Projects are able to collect more granular data due available resources. to their more limited geographic extent. For example, they may have more strata (more forest types or Countries should consider the approaches being used classifications) than the national data, which allows to collect the activity data from projects, programs, for more accurate estimation of emissions. In such and the national FREL, and decide on the best way to cases, it is recommended that once the higher-level achieve consistency. The most widely used methods strata are chosen, activities at the smaller scales and considerations for achieving consistency are measure and monitor GHG using, at a minimum, the described in Table 11. Aligning methods can promote strata from the national monitoring system. They consistency, but it also enables projects to support the may choose to further stratify lands, but within the improvement of NFMS and national GHG inventories. Nesting of REDD+ Initiatives: Manual for Policymakers 37 Table 11 Options for Aligning Activity Data for Nesting33 If the higher scale uses… …then the nested MRV system may consider: Pixel-based methods, i.e., based on wall- If the wall-to-wall maps are sufficiently robust,34 the project may “cookie cut”35 to-wall land use/cover change data their accounting areas and use the national maps as a basis for activity data (AD). If not, the NFMS may consider how to integrate the more accurate project- scale maps. Stratified area estimates, using a A stratified estimate will need to be derived for the project area and for the combination of reference data from remaining jurisdictional area so that there are two estimates using the same stratified samples and wall-to-wall maps, methodology. The sampling design should be adequate in terms of the achieved as described by Olofsson.36 level of precision in order to deliver accurate estimations. Systematic sampling for areas of land The systematic grid must be sufficiently intensive to adequately represent land- cover and change. use change within the project area. Alternatively, the systematic grid could be more intensive in some specific locations, such as in project areas. Results can be aggregated from projects to the national scale. 33 The options for aligning activity data for nesting have been based on the Methods and Guidance from the Global Forest Observations Initiative, which is available in the following link: https:// www.reddcompass.org/documents/184/0/GFOI-MGD-3.1_en.pdf/a3412aa7-878a-4b93-a1b7-3813c902bf27#page=150 34 There is no common agreement on the criteria used to consider a FREL “sufficiently robust” to be used in a decentralized nested approach. However, some of the considerations are related to a low level of uncertainty, and lack of significant bias, especially at the local scale; and adequate spatial resolution to be able to be used at different scales. 35 This term refers to an approach that consists of extracting the baseline of lower-level activities directly from the jurisdiction’s spatially explicit baseline. 36 Olofsson, P., Foody, G. M., Stehman, S. V., & Woodcock, C. E. 2012. “Making Better Use of Accuracy Data in Land Change Studies: Estimating Accuracy and Area, and Quantifying Uncertainty Using Stratified Estimation.” https://doi.org/10.1016/j.rse.2012.10.031 Nesting of REDD+ Initiatives: Manual for Policymakers 38 Aligning EFs is challenging, and should be analyzed Furthermore, few countries have completed on a case-by-case basis. The heterogeneity of forests more than one NFI cycle, and several have not means that there are large variations in carbon stock yet implemented one complete NFI that includes across different locations. A National Forest Inventory measurement across a national system of inventory (NFI) provides representative data on carbon content plots. In such situations, countries use data collected for different forest classes at the national scale, but from various sources and studies, which may not these data may not be representative of the same be fully representative of the actual carbon stocks forest strata at the project scale. Therefore, most of their forests. Where NFI data cannot provide REDD+ projects collect carbon stock data in the field sufficiently robust estimations of EFs at the project to estimate their own EFs. Such data must meet the scale,37 a country may wish to consider methods for accuracy requirements set by the standards. integrating carbon stock information at various scales in order to optimize coherence, representativeness, and precision in a way that allows for improvement of the national estimates (Table 12). Table 12 Options for Aligning Emission Factors for Nesting If the higher scale… …then the nested MRV system may consider… …has sufficient C stock measurements for …encouraging projects to use the national data, but at the same time allowing use by projects them to use local inventory data under well-established protocols, to ensure that EFs are reliable and are consistent with NFI data. …does not have representative C stock …requiring projects to collect their own data, but to follow consistent method- measurements for use by projects ological protocols (set by the government); and national entities to check the reliability of results. 37 For example, when the forest within a project’s accounting area has a higher level of carbon stock compared to the national average, C stock is used in the FREL for the project’s forest type. Nesting of REDD+ Initiatives: Manual for Policymakers 39 4.4 Application of Nesting Approaches sharing, for more detail). A schematic representation of a jurisdictional ER program structure is provided in One of the main reasons countries develop nested Figure 1. This approach involves three main elements: systems is to align their GHG accounting at various scales. Doing so strengthens the credibility of the ERs 1. A FREL is used as the performance benchmark at generated by both governments and projects. This the jurisdictional level. section explores the MRV systems that are needed for 2. A monitoring report, through which ERs are each model. estimated by comparing emissions reported in the Jurisdictional ER Program (only), with Benefit FREL to emissions during the monitoring period, is Sharing created. In a jurisdictional ER program with benefit sharing 3. ERs are claimed by the government, which but without ER crediting at the project level, the may monetize them through either market or purpose of the MRV system is to ensure the accurate nonmarket approaches, and then distribute measurement and accounting of ERs at the national monetary or nonmonetary benefits, using defined level. In this instance, the integration of activities benefit-sharing arrangements. into the ER program does not require activity-level MRV or carbon accounting. (See Section 6, on benefit Figure 14. Jurisdictional ER Program (only), with Benefit Sharing Monitoring Performance ERs RECIPIENT: National FREL at National Level GOVERNMENT In this model, in order to access finance, countries agreement), or of the standard38 from which they are must meet either the requirements of the funding seeking to issue ERs. This decision-making process is instrument from which they are seeking payment illustrated in Figure 14. (GCF, FCPF Carbon Fund, BioCF-ISFL, or a bilateral Figure 14 Decision-Making Process for a Jurisdictional ER Program (only), with a Benefit-Sharing Approach Generate ERs YES Has national performance YES been monitored? Monitor the performance NO Has a FREL at the Jurisdictional scale been developed? NO Develop a FREL Considerations to develop a FREL: Monitoring should REDD+ activities, pools, gases be consistent Forest definition with the FREL Land stratification Data and methods 38 The FCPF Carbon Fund Methodological Framework, Verified Carbon Standard’s Jurisdictional and Nested REDD+, or VCS JNR, the Architecture for REDD+ Transactions’ The REDD+ Environ- mental Excellency Standard, or ART-TREES. Nesting of REDD+ Initiatives: Manual for Policymakers 40 Centralized Nested Approach 3. A rule-based allocation system for sharing jurisdictional ERs, based on the GHG performance In the centralized nested approach, a sophisticated of projects (and/or programs); MRV is needed in order to reflect the GHG performance of the projects and programs that are 4. Monitoring performance at the project scale embedded in the national system. ERs are measured could include assigning baselines to projects (as at the national level; however, the government allows, discussed in Section 4.1); or encourages, MRV of ERs at the project level as 5. The distribution of benefits to projects in the form well. Projects that achieve ERs then participate in the of finance, or allocated ERs. benefit-sharing plan, as discussed in Section 6. Either monetary or nonmonetary benefits can be shared by The main distinctive feature of this approach is applying an ER allocation method that is based on the the development of an ER allocation. National GHG performance of projects. GHG performance, or ERs, are shared among the government and projects (and/or the subnational This approach involves five main elements: jurisdictions), and are distributed following rules of 1. Development of a FREL as the performance allocation that ideally result in a “fair share” of ERs benchmark at the jurisdictional level; distributed among all actors. Figure 15summarizes this approach. 2. Monitoring of performance (ERs) against the FREL (at the jurisdictional scale); Figure 15 Centralized Nested Approach Monitoring Project Performance at FREL Allocation Project Level Baseline National ERs REDD+ project 1 FREL Monitoring Performance at ERs ER Allocation ERs National Program National Level Based on GåHG performance ERs REDD+ project 2 The MRV requirements under this model include claims to ERs, the government may align land-use components at both the national and project scales. definitions and classifications, and/or data sources Since the ER allocation to projects is based on GHG and methods in estimating emissions (Section 4.3). performance, it is desirable to achieve consistency In most cases, the reference and crediting periods for between the FREL and the national ER estimation, projects and programs will need to be aligned with as well as among the MRV systems of projects (as those used in the FREL, and for the monitoring of discussed in Section 4.1). To promote harmonized national performance, as illustrated in Figure 16. Figure 16 Decision-Making Process for a Centralized Nested Approach YES ERs allocated to projects and programs is there an YES ERs can be YES Has nationalperformance ER allocation generated been monitored? method? Has a FREL Design and implement an been developed? NO ER Allocation Method* Monitor the Develop a FREL NO NO performance at the jurisdictional/national scale ER allocation based on GHG performance: Elements applied consistently: • See Section 5.2 for technical considerations • REDD+ activities, pools and gases • Clarity needed on responsibilities for • Forest definition Data and methods to estimate generating data • Land stratification GHG performance should be • Capacity to manage system should be • Data and methods consistent with the FREL considered Nesting of REDD+ Initiatives: Manual for Policymakers 41 Decentralized Nested Approach 2. Another option is to assign a “maximum mitigation potential” to projects. This approach A decentralized nested approach is designed to is included in one resolution that guides project encourage crediting at multiple scales. In this model, crediting in Colombia.40 In this instance, projects projects are provided with a share of the national set their baseline using a certification or standard FREL; they can then generate, issue, and monetize approved by the government, but they cannot credits without being tied to national ER performance. exceed an assigned maximum value, which is The main difference from the centralized nested provided by the government. approach is that only a FREL allocation is required, not an ER allocation. This approach involves four main elements: A FREL allocation system distributes portions of the 1. Development of a FREL as a performance FREL to REDD+ projects, establishing their baselines. benchmark at the jurisdictional level; Ideally, the allocation represents business-as-usual 2. A FREL allocation system; emissions. Various allocation methods are being used or tested in several countries. For example: 3. Monitoring at multiple scales; 1. One emerging method is to allocate the FREL a. REDD+ projects/programs: results are estimated to projects, using a “risk-based” method. This against the project/program baseline. method is currently proposed under VCS JNR.39 In order to create such an allocation, the government b. Jurisdictional level: results are estimated against develops a risk map, identifying areas of high the FREL. versus low threat, based on variables related 4. Issuance of ERs: Both projects and jurisdictional to deforestation and forest degradation, if it is programs are able to issue ERs. To avoid double included in the baseline. These variables might counting of ERs, a system is needed to avoid include distance to areas of past deforestation, selling more ERs than actually exist. (For example, distance to the forest edge, or accessibility (roads, some funding instruments require the government population density, slope, etc.). (Section 4.1 has to subtract project-level crediting from covered this approach in further detail.) jurisdictional results.) Figure 17 Representation of the Decentralized Nested Approach Monitoring ERs REDD+ REDD+ Performance project 1 project 1 National Allocation Monitoring FREL National Program ERs National Program Performance REDD+ REDD+ project 2 Monitoring project 2 Performance ERs Select either: • FREL allocation using risk map • Maximum mitigation potential 39 Currently there is only one standard that accommodates this type of nesting, i.e., Verra’s Jurisdictional and Nested REDD+ (JNR). 40 Art. 45, Resolution No. 1447, August 1, 2018. Ministry of the Environment and Sustainable Development, Colombia Nesting of REDD+ Initiatives: Manual for Policymakers 42 In order to build an appropriate MRV system for this Next, a FREL allocation methodology is required (see model, first the government will need to establish Section 4.1 for further details). Following this, the a FREL that is sufficiently robust for nesting; and government may need to provide guidance for project if the government wishes to issue carbon credits monitoring, to promote alignment in the methods used at the jurisdictional scale, it will need to follow the to estimate GHGs. The decision-making process for requirements of the standard that will issue, or certify, this approach is illustrated in Figure 18. such credits. Some standards, such as VCS JNR, also have requirements for the jurisdictional reference level that is allocated to projects. Figure 18 Decision-Making Process for a Decentralized Nested Approach Are there rules for Monitor the YES performance Generate monitoring ERs performance at multiple scales Is there an YES Allocation at different scales? YES Method in place? NO Is the FREL Develop Monitoring sufficiently NO rules and procedures robust Design and implement for nesting? NO Revise the an Allocation Method FREL Considerations for an Allocation Method: Considerations for monitoring rules and procedures: • If using a FREL allocation, develop risk • Consistency with the FREL and allocation method map and allocate portions to projects including definitions, stratification, data and Considerations to develop FREL for nesting: methods to estimate emissions • If using a maximum mitigation approach, • Reduce uncertainty • Adjust to the capacity and resources of projects and consider how to reward level of effort • Ensure the reliability of data and the national government • Consider options for aligning crediting methods at different scales • Consider integration of better data from projects periods at multiple scales. • Develop spatial data for risk mapping into national monitoring system Project Crediting (only), No Jurisdictional ER Program based payments at the national level as part of its REDD+ strategy. Only project crediting is anticipated Under this model, the government may not intend to in the near term. As such, projects monitor their own engage in jurisdictional crediting, or to seek results- performance and generate ERs (Figure 19). Figure 19 Representation of Project Crediting (only) No Jurisdictional ER Program Project Monitoring REDD+ ERs REDD+ Baseline Performance project 1 project 1 REDD+ REDD+ project 2 Project Monitoring project 2 ERs Baseline Performance Some governments may wish to design a system small- scale programs) for issuing credits. Such rules that aligns the ER claims of REDD+ projects with and procedures will depend on the level of alignment national GHG reporting. Such alignment can improve the government wishes to achieve. This may include the environmental integrity of ERs generated at the the use of specific standards and methodologies; project scale by ensuring that project baselines do not requirements to use national definitions of forest and/ exceed the national FREL; facilitating comparability; or REDD+ activities and land use classifications; or and promoting their contribution to the reported certain GHG estimation methodologies (see Section national GHG performance. 4.3). The government can also set rules for baseline setting (Section 4.1), and/or additional requirements, Where a government wishes to promote such such as data sharing, in order to improve the national alignment, it could establish rules for projects (or forest monitoring system and capacities. Nesting of REDD+ Initiatives: Manual for Policymakers 43 Figure 20 Decision-Making Process for a Project Crediting (only), No Jurisdictional ER Program Monitor Projects YES performance generate Are monitoring “aligned” ERs systems aligned? YES Are baselines NO Develop rules YES aligned? to align Is there a desire NO monitoring Set rules to align to align project Projects project baselines ER claims? NO generate ERs using own methods Considerations for alignment: Considerations for monitoring rules • Definition of REDD+ activities and procedures: • Forest definition • Consistency with the FREL • Land stratification • Adjust to capabilities and resources • Data and methods for AD and EF • Integration of data from projects into • Baseline setting methodology national monitoring system Nesting of REDD+ Initiatives: Manual for Policymakers 44 5. LEGAL ISSUES 5.1 General Considerations 5.2 Establishing Carbon Rights The legal, regulatory, and governance frameworks Designing a nested REDD+ system requires of a country influence its nesting architecture. The understanding the rights of communities and forest and land tenure regime, and the associated individuals to benefit from ecosystem services rights (forest ownership, management and as well as the resulting ERs. Such rights are often exploitation rights, and/or the rights of local and described as “carbon rights.” They define who has Indigenous communities), as well as the governance “the right to benefit from sequestered carbon and/ of forest resources, and the status of private property or reduced greenhouse gas emissions.”43 There is no rights in any given country, will influence its options universal definition of carbon rights, and establishing for REDD+ design and nesting. Legal and regulatory the right to ERs (as well as the related benefits) frameworks, including those adopted in the context in REDD+ requires a careful evaluation of national of REDD+, can help to clarify “carbon rights” and the laws and regulatory frameworks. Broadly speaking, procedures for approval and registration of REDD+ carbon rights can derive either from ownership of the projects (see Section 11). land and forest resources and/or from an activity that reduces emissions or enhances removals (known as an To date, no REDD+ credits have been issued to ecosystem service). They can be clarified by formal national governments, and few governments law or regulations (climate change laws, ministerial have adopted laws or regulations that clarify the decrees, etc.) or, in the absence of a law or regulation, transactions of REDD+ credits.41 Currently, project- by contract. Carbon rights can lead to the right to level forest carbon transactions happen largely commercialize ERs, or to participate in REDD+ benefit in the context of voluntary carbon markets that sharing (see Section 6). establish carbon rights based on general laws; the forest and land resource ownership systems; and the Carbon rights should be distinguished from issued contributions that local stakeholders make toward and tradable carbon credits. Carbon credits are reducing GHG emissions and enhancing removals. defined units: generally, they represent one tonne of Sovereign transactions that involve the transfer of emissions reductions (ERs) that are traceable and verified ERs are only being piloted under the FCPF tradable (see Box 6). They are issued in national or Carbon Fund, and in such cases the verified ERs are international carbon registries, and are identifiable defined in contracts, such as the FCPF Emission through a serial number. Carbon rights, by contrast, Reduction Payment Agreements (ERPAs) (including describe an underlying entitlement to benefit from ERs under their General Conditions).42 or REDD+. They are not a defined or tradable asset. 41 For example, Fiji’s draft climate change law, Mozambique’s REDD+ decree, and Madagascar’s draft REDD+ decree. 42 See General Conditions Applicable to Emission Reductions Payment Agreements, November 2014, found at: https://www.forestcarbonpartnership.org/system/files/documents/FCPF%20 ERPA_General%20Conditions_November%201%202014_0.pdf 43 Knox, A. et al. (2012). Forest Carbon Rights Guidebook: A Tool for Framing Legal Rights to Carbon Benefits Generated through REDD+ Programming. Nesting of REDD+ Initiatives: Manual for Policymakers 45 Box 6. Creation and Recognition of Establishing Carbon Rights Carbon Credits Carbon rights justify participation in REDD+ projects and benefit sharing for publicly managed REDD+ Carbon credits, or ERs, are created and recognized programs. While agreements between the government or defined by laws or regulations, private carbon and international partners can establish rights standards, or contracts. Each of these contexts refers under international public or private law, carbon to different functions. rights depend on the national legal system (See Box Carbon credits under international law: 7 Concepts and Definitions). Governments that have agreed to transfer ERs to international partners must - Can be traded under Article 6 of the Paris ensure that those obligations are consistent with Agreement (see Section 3.4) as ITMOs (Art. 6.2) or national laws. Of course governments do have the as ERs (Art. 6.4); ability to alter the national legal order by adopting - May allow for offsetting under international additional laws, or clarifying their laws through sectoral ER schemes such as ICAO’s market-based regulation, but those laws and regulations have to mechanism, CORSIA. recognize the constitutional order of a country, and Carbon credits under national (or subnational) law: ensure alignment and consistency with generally applicable legal principles. - Enable compliance with national regulation in places where forest owners are obliged to reduce So far, few tropical forest countries have adopted emissions, such as in the New Zealand emission formal legislation that defines ERs, or that clarifies trading system;44 carbon rights, or participatory rights under REDD+. - Enable cost-effective compliance with cap-and- Such laws, where they exist, tend to define these trade systems through offsetting ERs generated rights in relation to the rights to the land or forest, by projects that comply with offset protocols or the participation in conservation activities. In defined by the government regulator. For the absence of a formal law that provides such example, the Colombia carbon tax law allows clarification, these are the two most important carbon credits, including REDD+ credits, to be indicators of carbon rights: used against the carbon tax; and California’s cap- · Rights to the land, forest, or trees, which can and-trade system allows regulated entities to use imply full ownership, usufruct, or management domestic forest credits.45 rights under statuary, customary, or traditional Carbon credits under private standards: legal systems, including the rights of Indigenous peoples and local communities. - Enable private entities to purchase carbon · Control of the activity that leads to reduced credits with the assurance of their environmental emissions or increased removals, that is, the integrity (Verra, Gold Standards, and others communities or households, farms, or legal entities that certify ERs for use in the voluntary carbon that invest in activities that generate ERs. market). Carbon credits under contracts: - Enable parties to engage in bilaterally defined transactions. (For example, under FCPF’s ERPAs, carbon credits define the ecosystem service rendered and paid for under the agreement); - The transacted ERs can be issued as a carbon credit in a registry, or they may remain a nontradable service between the contractual parties. 44 Details on New Zealand’s emission trading can be accessed under https://www.climatechange.govt.nz/emissions-trading-scheme/about/ (last accessed on 1November 1, 2020). 45 See California Air Resources Board, “How Do I Buy, Sell, and Trade Compliance Instruments?” 2012. Available at http://www.arb.ca.gov/cc/capandtrade/guidance/chapter5.pdf (last accessed on 25 December 2015), and the Centre for Climate and Energy Solutions. “California Cap and Trade Brief.” no date given, available www.c2es.org/us-states-regions/key-legislation/califor- nia-cap-trade#Details (last accessed on 1 November 2020). Nesting of REDD+ Initiatives: Manual for Policymakers 46 Box 7 Concepts and Definitions in generated by REDD+ activities and holds the exclusive right to commercialize such rights.48 Relation to Carbon Rights In other countries, private forest holdings, or A carbon right is a justified claim to the benefit various customary, traditional, or statutory land obtained from reduced GHG emissions and/or rights exist that may make it harder to centralize sequestered carbon. all forest carbon rights within the government. For GHG emission reductions and removals (ERs) refers to example, Guatemala clarifies in their Law-Decree a tonne of CO2e greenhouse gas, measured against the 7-2013 (Climate Change Law) that “the rights, title reference level or baseline that has been either avoided and negotiations of the carbon emission reduction (emission reduction) or sequestered (removed). It is units” belong to project developers and those with often defined with reference to a carbon standard. a title to manage the land.49 This opens the door for private carbon market projects in Guatemala, and Right and title to ERs refers to rights defined on the limits the government’s ability to take a centralized basis of a contract (for example, FCPF’s ERPA), or a approach to nesting, which requires either entering law (for example, local emission trading legislation) into arrangements with such rights holders in order to that assigns a transferable right to an ER . transfer ownership of the ERs, or having the authority Carbon credit refers to an ER that has been created to market and monetize them on behalf of the rights (issued) according to the rules of a carbon standard, holder, in return for some kind of compensation and that is tradable and traceable in a GHG registry. (benefit-sharing mechanisms, or other means). The claim to forest carbon rights by the government in Benefits refer to monetary and/or nonmonetary countries with strong private property systems, and support received for the participation in forest carbon without any aforementioned arrangement with the projects or a jurisdictional ER program. Participation rights holder may result in an expropriation for which in benefit-sharing arrangements might be based, governments may have to compensate the original among other things, on the holding of carbon rights to rights holders, if the government’s claim of carbon the generated ERs. credits limits the exercise of private property.50 The Right to Land and Its Associated Carbon In its recent Forest Code, the Republic of Congo clarified that carbon rights follow from the type of The ownership status of forest areas influences the forest land tenure where the activity takes place.51 design of a nested system: In public forests, carbon rights are assigned to the In many developing countries, forest resources state or other local public entities, while in community are deemed to be the property of the state, which forests the ERs generated are either solely or jointly affords governments wide latitude for asserting owned by the local community and/or by Indigenous some rights and denying others, particularly when peoples. The Forest Code also stipulates that the new economic opportunities surface. For example, in content of carbon rights covers both the right to the Democratic Republic of Congo (DRC) all forests generate carbon credits and the right to commercialize are owned by the state, and the national government them.52 passed a “Homologation Decree” in 2018 that asserts In some countries carbon rights may be embroiled that it has the primary right to all forest-related in land conflicts. Weak recognition of tenure ERs. However, these rights can be transferred to rights, failure to conduct meaningful stakeholder private project developers through a “certificate consultations, and growing demand for land have led d’homologation.”46 In similar fashion, Mozambique to an increase in land conflicts. This has resulted in considers all forest-related ERs to reside with the growing danger for communities and those defending national government, though they can be transferred their forest and land rights. Contestable land titles, to project developers.47 Madagascar has gone a step overlapping tenure regimes, and land grabbing can further by proposing in a draft REDD+ decree (not yet lead to violence, illegality, and marginal livelihoods in formally adopted) that the government owns all ERs many developing countries. In this context, clarifying 46 Arrêté ministériel No 047/CAB/MIN/EDD/AAN/MML/05/2018 du 9 mai 2018 fixant la procédure d'homologation des projets REDD+ 47 Government of Mozambique. Regulamento Para Programas e Projectos Inerentes à Redução de Emissões Por Desmatamento e Degradação Florestal de Carbono (REDD+). 2018. Maputo, Mozambique. 48 Government of Madagascar. Draft Benefit Sharing Plan, ER Program Atiala Atsinanana; FCPF Benefit Sharing Plan Version 2.0; Antananarivo, Madagascar, 2020. 49 Article 22 (2), Decreto 7-2013, Congreso de la República de Guatemala, Ley Marco para regular la reducción de la vulnerabilidad, la adaptación obligatoria ante los efectos del cambio climático y la mitigación de gases de efecto invernadero. 50 The power of the state to claim private property for public use is sometimes referred to as eminent domain, land acquisition, compulsory purchase, resumption, or expropriation. 51 Art. 179 and ss. Loi n° 33-2020 du 8 juillet 2020 portant code forestier at https://www.sgg.cg/JO/2020/congo-jo-2020-04-sp.pdf 52 Art. 179 Loi N. 33-2020 portant code forestier de la République du Congo « Le droit de générer les crédits carbon et de les commercialiser est reconnu aux personnes physiques ou morales ». Nesting of REDD+ Initiatives: Manual for Policymakers 47 the right to participate in REDD+ carbon crediting, or a jurisdictional ER program (only) with benefit in a REDD+ jurisdictional ER program and its related sharing, or to design a centralized nested benefit-sharing mechanisms by way of meaningful approach. stakeholder consultations, is essential in order to · Countries with state forests, but laws that strengthen the rights of Indigenous peoples and forest authorize private actors or communities communities, and their long struggle to assert their to manage them may want to implement land and resource rights. This can prevent having centralized-nested and/or decentralized- the question of who has the right to benefit from nested approaches. For countries that have REDD+ from becoming a proxy for unresolved and national procedures in place for (i) allocating contested rights to land and the associated economic the management of state forests to private opportunities. parties (through licenses or concessions); or (ii) recognizing ancestral land rights to local or Nesting can help to implement REDD+ in countries Indigenous communities, with the state as the that are in the process of decentralizing forest original holder of rights to ERs, a nested approach governance. In many countries, forest policy has may be the most fitting. evolved in recent years toward decentralization of forest governance and the recognition of rights Implementation and Control of the Activity in favor of local and/or Indigenous communities and/or regional and local governments. REDD+ Control of the activities that lead to forest-related implementation should be consistent with such efforts. emission reductions or removals by stewards of Allowing project REDD+ activities to be led or co-led the forest can also lead to legitimate claims to by local communities, and recognizing their rights monetize ERs or to participate in benefit sharing. to the land and its natural resources—including the For example, Peru regulates carbon rights through associated carbon rights—is aligned with this trend in the legislation of ecosystem services. Their legislation forest devolution in many developing countries. Such defines contributors to the environmental service empowerment of communities can, depending on the as those that (i) contribute to the conservation, legal context of the country, mean that communities recovery, and sustainable use of the sources of the have the right to initiate and participate in projects, ecosystem services (“activity factor”) through the or that they are duly considered in the related benefit- implementation of technically viable actions; and/or sharing mechanisms. (ii) can demonstrate certain types of forest tenure, such as owner, possessor, concessionaire, or holder of The forest tenure regime may influence the definition assignment in use (“tenure factor”).53 In other words, of rights to ERs as well as the type of REDD+ both land tenure and control of the activity play a role implementation model that is developed. in the assignment of carbon rights. · For countries that recognize community or Carbon rights that are related to the control of an private rights in forest land, management, or activity can accrue to a community, a municipality, resources, a decentralized nested system may or a government agency. Project developers or be an appropriate approach for honoring such investors often claim a secondary, transferred carbon rights. Countries with a forest tenure regime right due to their role in financing and monetizing that recognizes a diversified typology of forest the ERs flowing from a project. Communities and ownership, such as public property (state, individuals can transfer the right to monetize ERs municipal, protected areas) and private property in return for their participation in benefit-sharing (individuals or Indigenous/ local communities’ arrangements. In the case of REDD+ projects, lands), typically recognize that carbon rights there are usually several entities that cooperate belong to the forest landowners or managers. in implementing the activities that lead to the · Countries in which forest resources are environmental service of ERs. In such cases, the attributed to the state by constitution or law, rights to ERs are often defined in contracts agreed and the state retains the right to manage and/ upon among the parties involved in the ER-generating or has established by law that all carbon rights activities. rest with the state may choose to implement 53 Art. 7. Reglamento de la Ley N° 30215, Ley de Mecanismos de Retribución por Servicios Ecosistémicos. Nesting of REDD+ Initiatives: Manual for Policymakers 48 Governments need to assess the rights of individuals land and resource rights, and claim the right to and communities when deciding how to create centralize the management of REDD+ benefits on incentives and integrate projects into national the basis of a law. However, depending on the legal ER programs. National REDD+ programs involve a context, those with the rights to forest land and large number of actors. There may be many rights resources may demand compensation. On the other holders, and there may be many rights affected. hand, governments may implement a decentralized Further compounding this challenge is the fact that in approach within state-owned lands by passing laws many countries land tenure is frequently contested; that authorize private entities to implement projects there is a general lack of forest land cadasters; within such lands. and customary rights may conflict with statutory In the absence of laws and regulations that centralize rights.54 In such cases, governments may want to all of the rights to managing REDD+, the public conduct consultations and develop participatory entities or communities and individuals that own benefit-sharing systems that recognize the rights or manage the land may have default claims to of communities and individuals to receive carbon ERs. Governments may adopt laws that authorize or benefits for the ecosystem services of their activities. restrict the development of projects in certain areas Alternatively, they can integrate community-led of the country (for example, for religious or sanctuary projects into nested REDD+ systems. forest areas, or isolated Indigenous communities’ Table 13 (in Section 5.3) provides examples of areas), and that encourage them in other parts of different types of forest land ownership and the likely the forest. They can also regulate carbon projects associated carbon rights. on private and community lands by requiring the registration of projects and the reporting of ERs (and 5.3 Application to Nesting Approaches potentially taxing their sales). Finally, governments This section describes various nesting approaches can recognize private rights to carbon and still involve as they apply to forest and land tenure regimes and private entities in the benefit-sharing programs of a carbon rights. These are summarized below in Table 13. REDD+ (nonmarket), results-based payment scheme. Generally, centralized models tend to work better in Regardless of the design choices a government makes, situations where public forests are owned, controlled, the existing rights regime influences the particular and managed by the state, while the existence of direction or form that REDD+ implementation takes. private and community rights over forests and forest Several options follow. resources favors decentralized models. However, public ownership of forests, and control over their Jurisdictional ER Program (only), with Benefit management does not prevent the implementation Sharing of a decentralized system; and a centralized system could be implemented even where there is a diversity This approach is easiest to implement in countries of forest land ownership, with strong private property where the national government makes all relevant rights. For example, the government might make land-use decisions and manages all or most of the contractual arrangements with rights holders in which country’s forests. In cases where forest resources the rights holders assign their ownership rights to the are state assets, the government claims senior (or government, or authorize the government to market original) rights to the associated carbon. In such and monetize ERs on their behalf in return for some cases, REDD+ projects cannot claim a right to benefit form of compensation. from REDD+ activities, and do not hold carbon rights, unless the government passes a law authorizing such The elaboration of nested REDD+ systems is very activities and transferring the carbon rights. In this context-specific, and often reflects complex model, REDD+ activities are implemented through preexisting tenure and rights systems. For example, public programs that seek to influence actors through many countries have a mixture of state-owned public monetary or nonmonetary incentives. The and private lands. A country with strong private actors do not directly engage in ER transactions, but rights over forest land and resources can choose to they can be included in the benefit-sharing mechanism implement a centralized approach over public lands of a country, and can receive payments in the context while recognizing the right to private initiatives on of incentive programs that the government might nonstate lands. Or it can choose to restrict preexisting create (See Section 6 on benefit sharing). 54 Streck, C. (2015). In the Market Current Developments in Carbon & Climate Law: Forest Carbon Rights - Shedding Light on a Muddy Concept. Carbon & Climate Law Review (CCLR), 2015(4), 342–347. Nesting of REDD+ Initiatives: Manual for Policymakers 49 In most countries, even if forest resources or lands generated ERs. When a REDD+ project transitions into are publicly owned, there are legal constructs this model, it could negatively impact its performance. through which rights are granted, especially to local Related risks of performance are covered in more communities or Indigenous peoples. In such cases, detail in Section 8. this model would have to recognize the devolution of rights to such communities, and either clarify Decentralized Nested Approach through law or regulations that the communities The decentralized nested approach is adequate are authorized to develop projects, or ensure their where there are strong private property rights inclusion in the benefit-sharing mechanism. and there is mixed ownership of land and forest resources. Under this approach, the government Centralized Nested Approach claims the carbon rights associated with public lands, The centralized nested approach is adequate in and private owners or communities claim the rights countries where the state owns the forest resources, derived from their recognized forest and land areas. but wishes to create direct ER performance Communities and individuals are also free to engage in incentives on public lands. In this case the state REDD+ projects and to generate ERs. The government recognizes the right of land managers within public recognizes the right of private entities to benefit from lands (such as individuals and communities delegated activities implemented on their land, including the by law to manage public forest land through marketing and commercialization of ERs. As under concessions, licenses, or national agreements) to the centralized nested approach, the government benefit from REDD+. The government authorizes may choose to impose additional requirements, such such actors to benefit from a share of ER payments, as applying project safeguards derived from national ERs, and/or the right to generate a specified volume safeguards, accounting standards, or reporting of ERs based on the ER allocation (apportioning obligations. national-scale REDD+ performance). It may choose to impose additional requirements, such as applying Project Crediting (only), No Jurisdictional ER Program project safeguards derived from national safeguards, When the government does not wish to benefit accounting standards, or reporting obligations. directly from results-based finance (RBF) or carbon A government can extend the centralized nested finance, it can still recognize the rights of private approach to private lands. Where land managers entities to benefit from ERs. Under this approach, in private lands have recognized carbon rights, the the government recognizes (and encourages) the government may need to enter into contractual development of projects. It can regulate these arrangements that recognize their right to receive projects, and mandate the use of allocated baselines a share of ER payments or ERs in return for and safeguards. It can also require the projects to authorization to use and receive payments for report their ERs to the government. Nesting of REDD+ Initiatives: Manual for Policymakers 50 Table 13 Significance of Forest Land Tenure, Carbon Rights, and Claims to ERs Under Different Models Type of Forest Land Carbon Rights and Claims to ERs Likely Nested Tenure / Natural Resource Model Regime State controls forest land, · Carbon rights rest with the state, and the state claims Jurisdictional ER resources, and management the benefits from ERs. Program (only) · Only the state engages in the commercialization and management of ERs. State controls forest land · Carbon rights rest with the state. Centralized Nested with licensed management by · The state engages in RBF or carbon finance. communities and private entities · The right to benefit from ERs is transferred by the state to the‌ private entities and communities that manage forest resources‌. Recognition of a variety of · Carbon rights rest both with the state and with Decentralized Nested property types and diverse land nonstate (private community) entities. management systems · The state can engage in RBF or carbon finance. · Nonstate actors are entitled to market and monetize ERs. Nonstate entities (communities, · Carbon rights rest both with the state and nonstate Project Crediting (only) private entities) control large parts (private community) entities. of the forest land · Nonstate actors control a significant percentage of land and forest resources. · The state does not market and monetize ERs. · Nonstate actors are entitled to market and monetize ERs. Nesting of REDD+ Initiatives: Manual for Policymakers 51 6. BENEFIT SHARING 6.1 General Considerations Furthermore, countries that are experimenting with different benefit-sharing arrangements at the project In the context of REDD+, benefit sharing refers to the and program levels will find it challenging to scale sharing of benefits that accrue from results-based them up to the national level if they are not supported and carbon finance from programs and projects. by consistent policy and benefit-sharing principles. Governments and private entities that benefit from results-based finance (RBF), or that sell emission Incentives and Benefit-Sharing Frameworks reductions (ERs) allocate a portion of the proceeds from these transactions to private and community Governments might want to consider whether, and if actors. Such benefits can be either monetary or so how, to link rewards and incentives (benefits) to nonmonetary, and governments can distribute them ER performance. When elaborating a benefit-sharing as part of their defined benefit sharing arrangements. framework, governments have to balance the need In addition, they can allocate the right to monetize to finance national policies with creating local-level ERs. The Forest Carbon Partnership Facility (FCPF) has incentives for private investors and communities. published a guidance for countries on how to develop They are faced with the challenge of evaluating where, fair and effective benefit sharing arrangements,55 and how, and by whom deforestation can be reduced. has collected good practices in benefit sharing.56 This implies making decisions about how to reward those who are actively contributing to it. Generating When engaging in REDD+ implementation, ERs requires participatory consultations with the policymakers have to decide where and how stakeholders who are eligible for benefit sharing. communities and individuals will benefit from the Considerations of, for example, the historic and monetary and/or nonmonetary incentives of REDD+. cultural aspects of Indigenous communities may also Effective allocation of incentives is essential in order be needed. A government might also decide to use to create an effective REDD+ system and to achieve REDD+ benefits to contribute to harmonized regional sustainable results. Carbon rights are important development, by guaranteeing minimum percentages considerations when designing a benefit-sharing of benefits to regions. For these reasons, participatory system. However, benefit-sharing arrangements consultations are essential in the decision making can calibrate carbon rights – and the related legal and design of a benefit-sharing framework. They constructs -- such as land or tree ownership, help to create stakeholder support and ownership customary or ancestral rights, and the ability to for the REDD+ initiatives, clarify roles, and provide relate to ecosystem services against notions of equity an understanding of the types of monetary and and fairness in the discussion of carbon rights and nonmonetary incentives to be shared with the the ensuing benefit-sharing decisions. Stakeholder beneficiaries. consultations and participatory decisions are essential in creating a stable benefit-sharing system. There are multiple ways to structure benefit sharing. The distribution of monetary and nonmonetary Countries should consider developing a benefit- benefits by the government is the most common way sharing framework that can apply to all REDD+ to distribute benefits in the context of jurisdictional projects and programs, and enable them to develop REDD+. Nested REDD+ offers the additional option of specific benefit-sharing arrangements. Many providing direct incentives through the authorization countries are operating multiple REDD+ programs and integration of project-level carbon finance into —such as the FCPF Carbon Fund and the Green a REDD+ system. Governments will also have to put Climate Fund (GCF)—as well as various bilateral into place the institutional and policy frameworks donor-supported programs and voluntary market that are required to implement the benefit-sharing projects. They may want to consider applying one instruments and to disburse payments. Some consistent approach rather than making ad hoc countries may already have such policies and decisions regarding benefit sharing in response institutional frameworks in place; for example, there to each source of financing. Having different, and may be a functioning national payment-for-ecosystem sometimes conflicting, policy decisions with respect (PES) services system that could be used for the to the interpretation of carbon rights, and allocating implementation of REDD+ benefit sharing. benefits and risks differently, can create confusion. 55 https://www.forestcarbonpartnership.org/bio-carbon/en/bd-bs-mechanism.html Note: These are currently being used for benefit sharing of first payments from the FCPF Carbon Fund, so they still need to be tested. 56 https://openknowledge.worldbank.org/handle/10986/32765) Nesting of REDD+ Initiatives: Manual for Policymakers 52 Governments may decide to establish incentives to closely tied to GHG performance metrics. Similarly, protect forests in the form of either ex ante finance an ER allocation approach in which actors or projects or ex post rewards.57 In the case of ex ante finance, and programs at the smaller scales receive only a they can provide upfront financing to actors in order portion of the higher-scale reward will be weaker to change behavior and contribute to ERs, with the than an approach in which projects and programs can expectation that REDD+ results-based finance (RBF) generate ERs, and thus receive carbon finance directly, will retroactively compensate the government for without being limited by the higher-scale jurisdictional such expenses, and/or enable an increase in ambition performance. over time. In the case of ex post finance, a system Benefit sharing also applies to REDD+ projects is set up to provide incentives linked to REDD+ in which project benefits or ERs are required to performance. In this case, there are additional options be shared with local actors. Carbon standards with regard to how closely such rewards are linked require projects to share benefits with local actors. to greenhouse gas (GHG) performance metrics, and Governments may supplement this guidance by whether nested projects are paid per generated ERs defining benefit-sharing criteria for REDD+ projects. achieved, or they receive an allocation of ERs based on the GHG performance at the national or subnational 6.2 Application to Nesting Approaches level. Countries could also combine ex ante finance to support national actors in the initial stages of When a government sees forest carbon projects implementing REDD+ RBF, with ex post rewards in as critical to achieving their ERs, projects should subsequent phases of REDD+ RBF implementation. be rewarded commensurate with their GHG contribution; that is, in proportion to how much A government benefit-sharing framework should they have reduced emissions from deforestation. also consider rewarding the stewards of forests Depending on their experience with PES services and and ecosystems, such as Indigenous peoples and existing institutions, this can usually be achieved local communities. A country can decide to assign more easily under either a centralized or decentralized ER benefits to certain categories of actors, for nesting system. Where governments have programs example Indigenous peoples or local communities, and institutions in place that can assign benefits, independently of their contribution to forest centralized systems may offer an efficient and conservation, for reasons of equity or poverty effective solution. Where institutions are absent or reduction. Such is the case in the Democratic Republic weak, authorizing projects in decentralized systems of Congo (DRC), where there are fixed percentages of provides an alternative to government programs. The benefits allocated to Indigenous communities under direct allocation of benefits based on ERs may not be the benefit-sharing plan adopted in the context of economically and institutionally feasible for smaller the FCPF ER program. Indigenous peoples that hold projects. In situations where the measurement of GHG ancestral rights over the land and have a long history performance is too cumbersome under centralized as stewards of forests have often had a history of systems, proxies such as trees planted or hectares being marginalized. REDD+ benefit sharing offers an conserved can be used to assess performance. opportunity to reward them for their role as guardians of the forests. Governments will also have to invest The allocation of incentives for projects under in conservation efforts to avoid future deforestation any nested system does not preclude having frontiers. In such cases—where considerations other benefit-sharing arrangements with various beyond GHG performance are considered—nested stakeholders, including Indigenous peoples and local forest carbon projects may receive fewer benefits communities, municipalities, or other local actors. (whether in terms of ERs or funding) than they could Project-based benefit sharing describes only one potentially secure if they were to market all their ERs element of a REDD+ benefit-sharing framework. independently. Jurisdictional ER Program (only), with Benefit There is a continuum regarding how closely, or Sharing directly, incentives are tied to the generation of In the centralized approach, benefit sharing is ERs. For example, in the case of ex ante finance, the managed and/or regulated by the government. link is weak, since the incentives are provided before Therefore, the efficacy of the distribution of benefits GHG performance is known. In the case of ex post falls on the government and its ability to maintain rewards, the link is obviously stronger if rewards are 57 For more detail, and a discussion of ex-ante vs. ex-post rewards, see D. Lee et al. 2018. Approaches to REDD+ Nesting Lessons Learned from Country Experiences. The World Bank. https:// openknowledge.worldbank.org/handle/10986/29720 Nesting of REDD+ Initiatives: Manual for Policymakers 53 the benefit-sharing arrangements. The government programs in return for a share of the ERs. Systems monetizes ERs and uses the resulting proceeds to where projects depend on the government to generate finance its REDD+ program, thus initially exercising ERs carry a high burden of risk for projects, and are full control over REDD+ finance. This usually thus likely to be of limited appeal for private investors includes allocating benefits to the communities, or project developers. private actors, etc. who are implementing REDD+ If the centralized nested approach is distributing activities on the ground, and covering government financing, one important decision is how the expenses such as operational costs. Under the fully government will channel such benefits to projects. centralized approach, government-led benefit-sharing This could be done via government-controlled funds, arrangements may foresee the allocation of incentives dedicated funds, or direct payments from supporters based on project-level monitoring of indicators of national REDD+ programs to nested projects. The related to performance. Nongovernmental means use of dedicated funds could help to remove the risk (for example, NGOs, or the private sector) may also of default in payments. Similarly, the use of tested be used to channel benefits to local actors. However, institutions could avoid delays in payments that might they may use ex post payments to create domestic affect the financial viability of REDD+ projects. incentives linked to environmental performance through payments for ecosystem services, or other Decentralized Nested Approach metrics. The decentralized nested approach does not require Centralized Nested Approach the inclusion of projects as part of a government- run benefit-sharing arrangement, since projects can The centralized nested approach also relies on the directly monetize ERs. Under this model, government government to manage benefit sharing. In this model, agencies—for example, park authorities, communities, the government rewards projects with monetary, NGOs, and private-sector entities—can all develop nonmonetary, or carbon benefits based on their GHG and participate in carbon projects, either alone or in performance. Private entities can develop projects, but cooperation with each other. The decisions regarding they are unable to autonomously monetize ERs unless benefit sharing in the context of these projects is done the government allows them to do so. This model is in accordance with carbon standards, and project dependent on the government’s ability to effectively agreements. Governments may require reports on implement benefit-sharing arrangements, whether it project performance, and may consolidate their is managing and distributing financing, or ERs. measurement, reporting, and verification (MRV) and Governments that choose a centralized nested accounting systems, but REDD+ projects are not system should define a method for allocating the dependent on the government to pass on the benefits distribution of ERs as part of the benefit-sharing to them. Projects can independently take decisions framework. They could focus on particular regions, on when, how, and for what price to market ERs. encourage particular stakeholders to participate, or The government would not be able to sell the ERs emphasize the protection of important ecosystems generated by projects, and would have to deduct (for water, biodiversity, or other reasons). In doing so, the project ERs from the national accounting when they should avoid the creation of perverse incentives; seeking carbon or results-based finance. for example, rewarding areas where emissions have Under a decentralized benefit-sharing system, happened in the past, and undermining those areas incentives for projects are delinked from the where the forest has been conserved or sustainably performance of government programs. Governments managed. As previously noted, it is important to are uniquely placed to generate ERs over the long term involve relevant stakeholders in the decision-making through policy and governance reforms, while projects process, and to promote equity and fairness in the are well placed to support specific conservation allocation approach. efforts; for example, to provide support for measures The allocation system will determine the level of targeting deforestation hotspots. Some governments incentive for achieving GHG performance. The may require projects to contribute a share of their ERs, allocation of benefits will follow an agreed-upon “ER or their proceeds, to government-led programs or local allocation method,” as discussed in Section 4.4. This communities as part of the project’s benefit-sharing method may include a full reward for private efforts, strategy, but projects retain the right to participate or it may require projects to support government directly in private carbon markets. This model creates Nesting of REDD+ Initiatives: Manual for Policymakers 54 a strong link between project GHG performance and benefit-sharing arrangements in accordance with rewards, and is more attractive to private carbon the requirements of national regulation or carbon investors. standards. The government may seek to align the MRV systems of projects with national reporting, Project Crediting (only), No Jurisdictional ER Program and it can provide guidance to projects on how to share carbon benefits; however, the benefits flow only Under this model, the government does not generate from the project to local actors—for example, from or directly receive rewards for ERs; consequently, a project operator or developer to local communities there is no need for a benefit-sharing framework or landowners. This approach provides incentives for at the national level. Projects generate credits projects; where government action is required, it must and can monetize them; they also put into place occur in the absence of carbon finance. Table 14 Implications of Benefit Sharing for Each of the Four Models Government control over how Carbon incentives for local Relevant nesting benefits are shared nonstate actors (communities, model individuals, local public agencies) Very strong, since the government is the Incentives are not based on the actual ERs Jurisdictional ER program body monetizing and managing the funds generated (they can be based on proxies to (only), with benefit sharing received from ERs performance) and are received through benefit- sharing arrangements. Strong, since government manages the Incentives are based on ERs generated by Centralized ‌Nested allocation of ERs projects. Rewards (payments and ERs) hinge on overall performance of the national program. Moderate, as projects can directly Incentives are based on ERs generated and Decentralized ‌Nested monetize ERs and share them with local monetized directly by projects. Projects have actors their own benefit-sharing arrangements. They might have to comply with national guidance on benefit sharing in order to protect local communities and Indigenous peoples. Moderate, since government does not ERs are generated and monetized directly by Project-‌Crediting (only), directly receive benefits from ERs (but is projects, and projects have their own benefit- no jurisdictional ER enabling its political constituents to do so) sharing arrangements. They might have to program comply with national guidance on benefit sharing in order to protect local communities and Indigenous peoples. Nesting of REDD+ Initiatives: Manual for Policymakers 55 7 . SAFEGUARDS 7.1 General Considerations At COP-17, held in Durban in 2011, the parties to UNFCCC agreed that the relevant safeguard provisions The Cancun (COP-16) Conference adopted safeguard adopted at COP-16 would be applicable regardless guidelines for REDD+. To address the concerns and of the source or type of financing.59 The Warsaw risks that REDD+ implementation could generate, Framework for REDD+ complements the Cancun and to further promote the multiple benefits of safeguards with requirements that countries need REDD+, in 2010 UNFCCC’s parties agreed to seven to provide a summary of information on safeguard social and environmental safeguards for REDD+. implementation via their national communications, or These safeguards address the risks associated with communication channels agreed to by the Conference implementing REDD+, and aim to enhance its positive of the Parties, or, on a voluntary basis, via the web impacts by promoting and supporting the following platform on the UNFCCC website.60 safeguards:58 Safeguards are implemented in keeping with national i. Actions complement, or are consistent with, laws and policies. Over the last few years, many the objectives of national forest programs countries have made progress in the implementation and relevant international conventions and of safeguards and safeguard information systems agreements; (SIS).61 UNFCCC does not offer any methodological ii. There are transparent and effective national guidance on how to implement the Cancun safeguards forest governance structures, taking into and put into place an SIS. Countries are free to account national legislation and sovereignty; choose how they will interpret the safeguards in the iii. Respect for the knowledge and rights of context of their own legal systems, as well as how indigenous peoples and members of local they will implement them, and operationalize the SIS.62 communities is demonstrated by taking into However, countries should consider carefully from account relevant international obligations, which entities, if any, they would seek ER payments, national circumstances and laws, and noting and ensure that they develop safeguard systems that that the United Nations General Assembly has would be satisfactory to the entities. For example, if adopted the United Nations Declaration on the a country intends to become involved in REDD+ under Rights of Indigenous Peoples; either the Forest Carbon Partnership Facility (FCPF) or iv. The full and effective participation of relevant the UN-REDD program, it should follow the safeguards stakeholders, in particular indigenous peoples guidance contained in the Readiness Preparation and local communities, is included in the actions Proposal (R-PP).63 referred to in paragraphs 70 and 72 of this [COP 16] decision; Although countries have some flexibility in how they v. Actions are consistent with the conservation of choose to implement international requirements on natural forests and biological diversity, ensuring safeguards, development of a safeguards framework that the actions referred to in paragraph 70 of for an ER project or program would typically involve this decision are not used for the conversion the following steps: of natural forests, but are instead used to 1. Assessment of key social and environmental risks incentivize the FCCC/CP/2010/7/Add.1 27 and potential impacts (both positive and negative) protection and conservation of natural forests of REDD+ strategy options; likely implementation and their ecosystem services, and to enhance arrangements; and stakeholders. Such assessment other social and environmental benefits; during consultations with stakeholders and vi. Actions to address the risks of reversals are preparation of the REDD+ strategy would be taken; extremely valuable during the preparation of the vii. Actions to reduce the displacement of emissions REDD+ strategy itself, and the climate finance are included.” plans. The completed assessment should be publicly disclosed. 58 Decision 1, UNFCCC COP 16, Appendix 1, Paragraph 2 at https://unfccc.int/resource/docs/2010/cop16/eng/07a01.pdf 59 Decision 2/CP.17 Paragraph 63 and 64. 60 60 Decision 12/CP.19 at https://unfccc.int/resource/docs/2013/cop19/eng/10a01.pdf#page=33 61 Safeguards Country Resources Hub - UN-REDD Programme Collaborative Online Workspace 62 Decision 2/CP 17 states that SIS should be implemented “taking into account national circumstances and respective capabilities, ... recognising national sovereignty and legislation, and relevant international obligations and agreements ...”....”. 63 https://www.forestcarbonpartnership.org/requirements-and-templates#temp-read5 Nesting of REDD+ Initiatives: Manual for Policymakers 56 2. Based on the risks and impacts identified in the To facilitate REDD+ safeguards compliance, countries assessment, key stakeholders develop a program/ should clarify who is involved—project developer, project-specific framework. The Environmental landowner, etc.—and how the nested projects and Social Management Framework (ESMF), or will implement safeguards and report on their a similar safeguards risk management plan can compliance. They also have to regulate the periodicity, be used to set forth a relevant policy and legal the content of the information, safeguard indicators, framework for the management of safeguards and the authority to which the information needs issues; the risk avoidance, minimization, and to be provided, as specified in the ESMF or a similar mitigation measures that will be implemented; national document. Safeguard compliance templates measures to enhance positive social and can streamline and facilitate this reporting. The environmental impacts; definition of institutional information provided by nested projects helps the roles and responsibilities; monitoring country demonstrate how its social and environmental arrangements; budget required and source(s) safeguards are being addressed and respected through of funding; a feedback and grievance redress the REDD+ safeguards information they report on mechanism (FGRM); and the plan for ongoing under SIS. When projects are integrated into national stakeholder consultations. REDD+ national programs such as the FCPF Carbon 3. Monitor safeguards implementation, including Fund, satisfactory safeguards compliance in line with taking into account feedback from the FGRM. the World Bank’s policies and standards is required in order to receive payments. Other facilities and donors National environmental and social safeguards are might also have specific safeguard standards that applicable to all REDD+ activities. Consequently, in need to be fulfilled by beneficiary governments, and a nesting context, where implementation is occurring the projects integrated into the national programs. at multiple scales, this means that safeguard policies should apply to national programs as well as to nested The private sector may also impose safeguard REDD+ projects. How a government chooses to ensure requirements on carbon projects, or credits— that safeguards are applied and enforced may differ for example, some require climate, community, depending on the type of nested system chosen. But biodiversity (CCB) certification. In such cases, as part of the national legal framework, national projects may already be compliant with national REDD+ safeguards must be fulfilled by any REDD+ requirements. Countries could accept certification project or activity. under such standards as proof of fulfillment of the national safeguards. Where projects are CCB- Most governments have defined criteria and certified, the information provided and audits requirements that translate the UNFCCC Cancun undertaken under the standard can inform the safeguards64 to fit their national programs. If SIS. Site-specific information allows for effective a country wishes to align safeguard application identification, management, and monitoring of social at multiple levels of REDD+ implementation, this and environmental risks and benefits.65 Project-level may require interpreting and adjusting safeguard REDD+ information will have to be integrated into the requirements according to the national regulatory SIS, which provides publicly available information on framework so that they can apply to site- how safeguards are being addressed across all types scale or project-level activities (see Box 8). The of REDD+ implementation activities. The national operationalizing of safeguards is not easy, though. The FGRM will also have to be able to record and address national institutions that are in charge of the SIS face project-level complaints. the challenge of collecting different types of safeguard information from the various institutions and actors involved. Therefore the SIS should be able to consolidate information from national and subnational entities, as well as projects. 64 Decision 1.CP16, Appendix I. Check also: https://www.unredd.net/knowledge/redd-plus-technical-issues/safeguards.html 65 REDD SES, IUCN. 2015. Considerations for Countries on Using Information from Nested Projects for REDD+ Safeguards Information Systems. Nesting of REDD+ Initiatives: Manual for Policymakers 57 Box 8 Examples of How Countries Define Safeguard Requirements for a Nested System Few countries offer specifications concerning the · In Peru, an analysis of the ESMFs of ongoing fulfillment of safeguard requirements by projects projects and the ER program framework will be in their REDD+ legislation, although many of them carried out in order to identify gaps that need to have adopted national frameworks such as ESMF be filled.73 and FGRM to accommodate the requirements of the · Colombia submitted the first summary of multinational initiatives in which they participate.66 information on safeguards to UNFCCC in 2017. This submission sheds some light on Several examples are provided here to illustrate the requirements applied to the activities the range of requirements currently considered by that seek to be nested. Under Colombian countries, in addition to the requirements of the nesting legislation, REDD+ projects must REDD+ initiatives they are part of: report information regarding compliance · The Democratic Republic of Congo (DRC) with environmental and social safeguards in simply specifies that in the preparation and the national ER registry, especially regarding implementation of the REDD+ investment, the project participants; conditions of ownership project developer is required to comply with and land tenure in the area of intervention; socioenvironmental safeguards in accordance consent of the owners, possessors, or occupants with the regulations in force.67 of the properties in which the initiative will · Madagascar intends to use differentiated be implemented; and compatibility with land indicators to gather safeguards information at management and planning instruments.74 the national, subnational, and local levels.68 Its · Mexico provides a good example of coordination recent Advanced Benefit Sharing Plan stipulates between national and federal states in the that safeguards instruments will be applicable to development and implementation of safeguards. any REDD+ activity that receives carbon benefits.69 The country submitted its first summary of A future decree will detail the specific safeguard information on the implementation of the Cancun requirements concerning any REDD+ activity safeguards to UNFCCC in 2017. Safeguards are implemented in Madagascar. implemented and monitored jointly at the federal · In Mozambique, the national REDD+ regulation and state levels. Most of the Mexican states merely mentions that REDD+ projects and have developed legislation in relevant areas such programs need to respect environmental and as forest governance, financial and distribution social safeguards.70 However, the country has benefit mechanisms, Indigenous peoples’ rights, elaborated its ESMF in the context of their REDD+ and development stakeholders’ participation in Strategy.71 decision-making. Mexican federal states are also · Guatemala has analyzed the compliance of in charge of preparing state safeguard plans that existing REDD+ initiatives registered under will be linked to the national SIS. voluntary carbon standards with World Bank FCPF requirements and Cancun safeguard requirements.72 Yet there are no general guidelines on how REDD+ initiatives should fulfill national safeguards; however, the country has already elaborated its ESMF. 66 For a list of countries participating in the FCPF Carbon Fund that have already advanced ESMF see, http//:www.forestcarbonpartnership.org/safeguards. 67 Art. 24, 9 mai 2018. – Arrêté ministériel n° 047/CAB/MIN/EDD/AAN/MML/05/2018 fixant la procédure d’homologation des investissements REDD+ en République démocratique du Congo (J.O.RDC., 1er juillet 2018, n° 13, col. 58). 68 Yasin Mahadi Salah et al. “Jurisdictional Approaches to REDD+ in Africa: Emerging Lessons.” Yasin Mahadi Salah, UN-REDD Program, March 2019. 69 Advanced Benefit Sharing Plan: The Atiala-Atsinanana Emission Reduction Program. January 2020. 70 Art. 18 of Decreto n.º 23/2018, Regulamento para Programas e Projectos Inerentes à Redução de Emissões por Desmatamento e Degradação Florestal Conservação e Aumento de Reservas de Carbono (REDD+). 71 http://documents1.worldbank.org/curated/es/970171484819513642/pdf/SFG2885-EA-P160033-Box402875B-PUBLIC-disclosed-1-18-17.pdf 72 Guatemala National Program for the Reduction and Removal of Emissions, November 2019. 73 Reducing emissions from San Martin and Ucayali in the Peruvian Amazon, Peru, June 2019. 74 Resolution No. 1447, August 1, 2018. Ministry of the Environment and Sustainable Development, Colombia Nesting of REDD+ Initiatives: Manual for Policymakers 58 7.2 Application to Nesting Approaches (for example, within a biodiversity hotspot). The government can define reporting requirements and Jurisdictional ER Program (only), with Benefit specific templates for safeguard compliance, with Sharing practical indicators that can be easily measured and reported, and can require proof of compliance. Where Under this model, the country defines national private projects are certified under a private standard, safeguards but does not need to formulate specific the auditors of such projects should be required safeguards for integrated private projects. The to check for compliance with national safeguards. government is responsible for implementing and However, such private certification would not remove enforcing nationally defined safeguards, as well the obligation of the government to also check for as ensuring that safeguards are followed by all compliance with national safeguards and/or to enforce subnational and local-scale actors that have access the national safeguard system. to REDD+ benefits. While this approach limits the adoption of safeguards to a set of national REDD+ The government may also recognize existing implementation standards, their implementation can safeguard systems as fulfilling all national be more challenging, since the government is fully requirements. It could, for example, recognize responsible for adherence to the safeguards across the certain approved safeguard-related certifications entire country. (for example, CCB), or multilateral operational rules (for example, World Bank safeguards75) as meeting Project-Crediting (only), No Jurisdictional the requirements of national safeguards systems. Program Subnational jurisdictions may also develop their Under this model, the government needs to formulate own safeguards policy to complement the national its own safeguard requirements for private and framework, as is the case in Mexico. community-led projects. The government can Centralized Nested and Decentralized Nested Models distinguish between different safeguard requirements depending on the type of project, the involvement The centralized and decentralized nested models must of various stakeholders (for example, Indigenous regulate and apply both jurisdictional and project communities), and the location of the project safeguard requirements, as described in Section 7.1. 75 World Bank. Environmental and Social Framework. 2017. Nesting of REDD+ Initiatives: Manual for Policymakers 59 8. RISK MANAGEMENT 8.1 General Considerations And if projects generate fewer ERs than they previously predicted, it may reduce the funding Different models of REDD+ implementation carry that governments can access. different risks. Nesting is generally considered · Legal/regulatory risk: Private actors may claim a strategy for reducing risks. By integrating damages from the government, for example, projects into larger accounting and implementation by initiating legal action if their rights to frameworks, they can be better aligned with public commercialize ERs are impinged on due to the policies; and by harmonizing measurement, reporting, implementation of nesting. Existing projects and verification (MRV) and baselines, the risk of may lose (or reduce) their right to monetize GHG emission reduction (ER) inflation and/or undetected performance once regulated in a jurisdictional- leakage (displacement) is greatly reduced, provided only or centralized nested system. Risks for that the national systems are conservative and well projects also arise if the government does not managed. However, the linking of projects and national follow through on decisions and agreements programs creates its own set of risks. These risks made within the nested system, particularly include: regarding the sharing of benefits, whether they are · ER performance: If the government and private monetary, nonmonetary, or carbon benefits. projects and programs perform well, they will · Political risk: Nesting can either reduce or all receive the full reward for their actions, compound the risk of social conflict and political regardless of whether nesting happens via the support for the government REDD+ strategy. benefit sharing, centralized, decentralized, or Where nested systems empower local actors, a mere project-crediting model. However, there nesting can increase the real and perceived are risks that can arise in nested systems, for fairness of REDD+ implementation. Where local example: actors do not participate in national programs, o Underperformance risk. This can occur if this may compromise national ER systems. one party (whether the government or a · Environmental integrity risk. Nesting can address project) has poor REDD+ performance, while the risk of ER inflation and double counting, the other performs well. The situation where mitigating the risk to environmental integrity. one party “underperforms” is closely related Centralized approaches assign more powers to the to the challenges of managing leakage and government, and allow public actors to control the permanence in nested systems, including process of generating, and in some cases monetizing, decisions on who is responsible (and liable) for ERs. However, these models may have higher them. legal risks for the government, particularly if the o Nationally Determined Contribution (NDC) establishment of a centralized system impinges on the compliance risk. Where the transfer of rights of constituents to benefit from forest carbon ER results is linked to a corresponding performance. There are also greater risks to projects adjustment, this may affect a country’s ability in a centralized system, since the benefits are tied to to achieve its NDC. If the country is required to national GHG performance. subtract the ER claims by projects or programs within its borders—for example, if projects and Decentralized systems, where actors operate more programs are allowed to sell their credits with independently from each other, tend to have lower a corresponding adjustment, the government risks of conflict and default. However, if the drivers of will need to take this transfer into account in deforestation in a country can only be tackled largely their efforts to meet their NDCs. through changes to government policies, a system · Financial risks: Another type of risk is that of focused on project-scale activities may not achieve as payment default; this risk is not unique to nesting, many ERs overall, and the country’s achievement of its but there can be potentially compounded payment NDC may consequently suffer. risks to parties in a nested/linked system. For A government should carefully consider the risks of example, if a buyer fails to honor its agreements the model it has chosen, and define strategies for with a government, this could impact projects managing them. For example, in a centralized system, linked to the government benefit-sharing system. where national ER performance risk is particularly Nesting of REDD+ Initiatives: Manual for Policymakers 60 relevant for projects, governments can guarantee in the context of REDD+ activities and projects. It certain payments to affected communities, even in is particularly important that attention be paid to cases where it falls short in accessing international the integration of existing projects into national ER finance. Political risks can be managed by employing a programs. participatory approach, and empowering communities Box 9 Integrating Early-Action Projects in a REDD+ Program In order to integrate existing projects into a national ER program, a process may be needed to transition project and/or subnational activities from their “stand-alone” status to the nested system. In many cases, REDD+ projects have already been operating prior to the formulation of a jurisdictional program. When a country sets up a nested system, those projects will be affected. A well-implemented national ER program may improve the situation of projects, since they are then embedded in a comprehensive suite of mitigation measures, which helps them to gain credibility and possibly access to additional funding. However, the financials of early-action projects can also suffer from nesting. For example, nesting can change a project’s baseline, thus changing its ability to access finance (see Section 4 on MRV). If a project loses income through nesting, it may petition the government or even claim legal damages, depending on national laws. In addition, local and Indigenous communities involved in early-action projects can suffer from discontinued funding if the integration of projects into the nesting system affects the assumptions about benefit distribution that these communities considered when initially accepting participation in the project. These “early action risks” can result in protest or complaints by private developers and participating communities, which can make the implementation of REDD+ difficult. Integrating existing projects into such a system may be achieved over a fixed period through agreements among projects, and with the national government, on how to regulate such a transition. In the next section we explain in more depth how different models result in a different set of risks. We also try to clarify where the risk lands (whether on the government, or on projects), and offer potential mitigation measures for each risk. Nesting of REDD+ Initiatives: Manual for Policymakers 61 8.2 Application to Nesting Approaches In a jurisdictional-only approach, a country might carry the risk that national stakeholders may Jurisdictional ER Program (only), with Benefit claim a legal right or take legal action if they are Sharing not authorized to engage in projects and/or be considered in the country’s REDD+ benefit-sharing Under this model, the government carries full arrangements. This risk depends on the rights that responsibility for REDD+ performance, and is also local stakeholders are entitled to under the national solely responsible for generating and monetizing legal system, based on land and forest resource ERs. As such, it carries the ER performance risk ownership, or the right to manage and benefit from as well as the default risk if a partner fails to pay forest lands. There is also the risk that existing for ERs that have been achieved. Considering that early-action projects may claim damages if they are currently most contractual partners are multilateral not integrated into a government REDD+ system. organizations such as the World Bank, or donor Depending on the credit rating of a REDD+ country, countries such as Norway and Germany, which have local actors may worry that the government will not high credit ratings, such default risk is limited. Since honor an agreement to pass on nonmarket results- the government does not recognize project crediting, based finance (RBF), or carbon finance received for the ER underperformance of projects and programs, national GHG performance. Since such agreements or NDC compliance risk due to transactions by are often executed between international donors and projects, does not pose concerns for the government. the host country bilaterally, it is essential that the However, an additional risk relates to the capacity country has a functioning and accessible feedback and of national institutions to channel the payments grievance redress mechanism (FGRM). This is helpful received to local actors. This risk does not relate in making RBF partners aware of potential problems, to the absence of finance, but to the efficiency of which may also lead to a default provision under the procedures by which national institutions transfer agreement between the government and the donor: for funds to such actors. example, in the case of FCPF Carbon Fund ERPAs. Nesting of REDD+ Initiatives: Manual for Policymakers 62 Table 15 Risks Inherent in the Jurisdictional-Only Approach Type of risk National Project* Specific Risks and Mitigation Measures Risk Risk ER performance REDD+ performance depends on effective implementation of government policies and measures. Effective implementation rewards local activities through benefit sharing, but may take time if institutions are weak and √ policies nascent. Leakage is captured in national accounting, and the government program is responsible for the permanence of the ERs. There is no NDC compliance risk. Financial risk Payment and default risk are fully assumed by the government, and can √ be mitigated by promoting various streams of finance to support a REDD+ strategy beyond carbon finance. Local actors who are implementing the activities may face a risk that the government ‌ will fail to channel benefits to them under a benefit-sharing mechanism. Such risk can be mitigated by developing accountability √ mechanisms implemented by the institutions in charge of disbursing benefits and implementing the REDD+ strategy. An FGRM is also an essential risk-mitigating measure. Legal and Early-action projects may face risks if the government decides to close off regulatory risks options for such projects to operate. To manage this risk, the government √ may assume responsibility for and compensate project proponents, while also taking over the responsibilities toward communities. Where private actors have the right to independently develop REDD+ projects and commercialize ERs, the government must take measures to √ compensate those actors for the loss of such rights based on laws or rules that apply when the government takes (that is, expropriates) such rights. Political risk There is a risk of social unrest if the benefit sharing is considered unfair, or is not implemented; the legal, social, and political rights of actors should √ √ be included in the development and implementation of benefit-sharing arrangements to mitigate such risks. Environmental The risk of double counting is reduced, since only the national ER program integrity risk is claiming ERs. Risk of environmental integrity could occur if the √ methods overestimate the ERs; this risk can be reduced by using accurate methodologies. *In this instance, “project” refers to local actors engaged in activities with the expectation of participating in a benefit-sharing program. Nesting of REDD+ Initiatives: Manual for Policymakers 63 Centralized Nested Approach impose liabilities on the projects for leakage and other reversals that occur due to their activities. Under the centralized nested approach, the government is still responsible for national REDD+ Private actors may claim participation in REDD+. performance, but it relies in part on projects to As in the jurisdictional-only approach, it is essential contribute to it; at the same time, projects depend that the government consider preexisting rights and on overall national performance to receive their legally relevant expectations when it develops its monetary, nonmonetary, or carbon benefits. In other benefit-sharing system and defines the allocation words, the lack of performance by a national program of ERs to projects. The risk is particularly prominent may impact the ability of projects to receive their in relation to the integration of early-action own “rewards.” This can have serious implications projects into the national program, especially in for the viability of projects, and can also impact the cases where such integration results in monetary local communities and smallholders who are the losses by private projects. If projects are forced to ultimate beneficiaries. This exposure to host country default under investment treaties, the litigation performance risk may discourage projects from can extend to international project partners. This participating in a centralized nested approach, unless risk can be addressed by participatory design of the the government accepts liability for such risk on ER program, and the inclusion of grace periods and behalf of the projects. However, the government takes “grandfathering” arrangements. a risk if project performance is poor; it may need to Nesting of REDD+ Initiatives: Manual for Policymakers 64 Table 16 Risks Inherent in the Centralized Nested Approach Type of National Project Specific Risks and Mitigation Measures Risk Risk Risk ER The government depends in part on projects to generate ERs. This makes the Performance government dependent on private performance. If projects fail to perform and the country fails to achieve the planned results, it may not be able to access the full amount of RBF or carbon finance, or it may not achieve its NDC. Mitigation measures include: · Conservatively assessing the contributions that projects will be able to make to national performance, and ensuring that ERs are also generated by public √ programs. · Withdrawing or suspending “nested” project authorizations and approvals. · Reducing the allocated quotas to nonperforming projects, and reassigning them to performing projects. The creation of a buffer fund to compensate for performance failures (whether due to leakage or reversals) is another way to mitigate ER underperformance, but an agreed-upon system would be needed in order to decide on how contributions to the buffer are made, and how any liability for underperformance will be handled. If the government does not perform, projects may not receive their rewards—this has the effect of discouraging private investment into site-based activities. Projects may also face risks if the government changes the overall FREL or ER allocation method under which projects must nest. A government could mitigate this risk by: · Creating a buffer pool of ERs, or a fund to compensate for performance failures in years of poor performance. · Authorizing projects to market ERs in case of a failure to generate ERs at the √ national scale—in other words, the option to fall back to the decentralized approach in cases where projects are (still) registered with a voluntary carbon market standard. · Providing a guarantee to projects to purchase a minimum volume of credits at a given price, independently from national performance, and the country accessing RBF or carbon finance. · Some combination of the above. Financial Risk Payment and default risks are assumed by the government; however, in the case of √ √ a default by the buyer, the government may authorize projects to directly market their ERs. Projects may face a risk that the government will not channel benefits to actors under the benefit-sharing mechanism. Such risk can be mitigated by: · Holding in trust a part or all of the international RBF and carbon finance available for disbursement against project or program performance. √ · Agreeing with donors that funds will be transferred directly to nested projects, following preestablished procedures. · As above, a fallback option could be that projects may issue and monetize their ERs directly if there is a government failure. Nesting of REDD+ Initiatives: Manual for Policymakers 65 Legal and Early-action projects may be at risk when a nested system is implemented. This can Regulatory be mitigated by: Risks · Engaging with projects to find an acceptable solution for both sides. · Negotiating a “transition” of such projects into the national program. √ “Grandparenting” agreements should be contractually confirmed between early-action projects and the government, and could include a time limitation for existing projects, and a cut-off date for full integration into the national program. Transition periods are also defined under existing private standards, such as VCS’s JNR. International or domestic private actors may claim damages from the government, especially if the government constrains their ability to monetize ERs, or if it monetizes ERs that belong to private actors. This can be mitigated by: · Continuous consultations with projects, including international partners. √ · Agreeing on a transition period, and measures that delink the ability of projects to access rewards for GHG performance, at least partly, from national REDD+ performance. · Adopting a clear and transparent nesting policy. · Avoiding claiming ERs where governments do not hold land and management rights. (This is addressed under FCPF, and private standards such as JNR). Political Risk Social unrest may occur if benefit sharing or the allocation of ERs, or the way they are implemented, is considered unfair. This can be mitigated by: · Including existing and future project proponents and local communities in the √ √ design of benefit sharing and nesting agreements. · Ensuring the monitoring, compliance, and impact of benefit-sharing arrangements. · Establishing an FGRM, or facilitating access to the courts. Environmental The risk of double counting is reduced, since ERs generated by the sum of REDD+ Integrity Risk projects cannot exceed those generated at the national level. Risk of environmental √ integrity could occur if the methods overestimate ERs (but this can be reduced if accurate methodologies are used); or if the method used to allocate ERs to REDD+ projects is not accurate. Decentralized Nested Approach reducing the country’s overall default risk through diversification. This makes this model resilient to Under the decentralized nested approach, projects the default of one buyer, but also increases the are sheltered from host country performance complexities, and requires greater institutional risks because credits can be marketed even if the capacities. country (or jurisdiction) as a whole underperforms. This is why this approach is attractive to the private Projects may face risks due to an uncertain sector. However, such an approach may come regulatory environment, particularly where with reputational risks for projects if the country governments are prone to frequent review, updating, consistently fails to reduce emissions, and leakage and changing of the rules for REDD+ projects. Drastic risks are high. The decentralized approach does reduce changes in the rules can create instability that can litigation risks for the government, since landowners seriously damage or affect a project’s viability. Legal and communities—those who may claim the rights to certainty also helps to maintain a stable nesting forest carbon—are not constrained in their ability to approach. While governments have legitimate grounds generate, issue, and monetize ERs. for reviewing and updating the key rules that permit the nesting REDD+ system to evolve and improve This model requires effort and commitment in order based on new information (for example, to update to be successfully managed. Potentially, it can MRV requirements), drastic rule changes that lead engage the greatest number of streams of finance; for to the adoption of different nesting approaches can example, the potential of multiple streams of private cause serious damage to the viability of projects and financing. Government and project proponents can affect their legitimate expectations. separately manage the market and payment risks, Nesting of REDD+ Initiatives: Manual for Policymakers 66 Table 17: Risks Inherent in the Decentralized Nested Approach Type of National Project Specific Risks and Mitigation Measures Risk Risk Risk ER The government may put its ability to claim ERs in certain contexts at risk if Performance projects perform well, but areas outside the project perform poorly. For example, it may not achieve its NDC, or may not be able to access results-based payments if project performance exceeds national performance. This can be mitigated by: √ · Ensuring that there are robust government efforts to achieve REDD+ performance outside project areas. · Allowing corresponding adjustments to project credits only after estimating the countrywide performance. · Defining a robust FREL allocation methodology. Projects may face reputational or credibility risks if the overall national performance is poor and leakage risks are high. This can be mitigated by: · Designing activities for reducing leakage, and communicating why the project has reduced emissions even if the country’s emissions are not reduced. Projects may also face risks if the government changes the overall FREL under which √ they must nest (see Section 4 on MRVs for more detail). This can be mitigated by: · Providing predictability to the extent possible, on when and how the FREL and the allocation will take place, in clearly stated nesting rules; and establishing a calendar for future amendments of FREL. · Defining buffers to enable compensation for this risk, similar to mitigating the risk of nonpermanence. Financial Risk Payment and default risk are assumed by the corresponding actors: that is, the √ √ government at the jurisdictional level, and projects at their specific scales. Both have direct access to market ERs. Legal and Early-action projects may be at risk when a nested system is implemented. This can Regulatory be mitigated by: Risks · Negotiating a transition of such projects into the nested program. “Grandparenting” agreements should be contractually confirmed between early-action projects and the government, and could include a time limitation √ for existing projects, and a cut-off date for full integration into the nested program. (This may also be addressed by private standards). Government changes to nesting rules can put projects at risk. This risk can be mitigated by: · Adopting a clear set of predictable rules and procedures for changing such rules in the future, and allowing for “grandparenting” if the rules are changed. International or domestic private actors may claim damages from the government, in particular if the proportion of the FREL allocated to the projects reduces its capacity to perform. This can be mitigated by: √ · Agreements with projects, an agreed-upon transition period, and measures that delink the ability of projects to access rewards for GHG performance. · Adopting clear and stable nesting rules. · Avoiding claiming ERs where governments do not have the right to do so. Political Risk Social unrest may occur if the allocation of FREL, or its implementation, is considered unfair. This can be mitigated by: √ √ · Including existing and future project proponents and local communities in the design of nesting agreements. Environmental The risk of double counting could occur, since the sum of the parts could be Integrity ‌Risk more than the total. Overestimation of ERs could occur if carbon accounting methodologies at the REDD+ project level or the ER program level are not accurate, √ √ or consistent. This can be mitigated by: · Defining an accurate FREL allocation methodology. · Defining accurate and standardized carbon accounting methodologies and monitoring to be applicable to all levels. Nesting of REDD+ Initiatives: Manual for Policymakers 67 Project Crediting (Only), No Jurisdictional Program that are moving toward nested approaches. However, if projects are insufficient for achieving national Under the project crediting (only) approach, the REDD+ goals, it will likely require the government government does not seek payment for jurisdictional to take action without itself accessing RBF. It may performance, but it encourages and regulates projects receive other sources of international support for in the context of its national REDD+ strategy. This implementing its REDD+ strategy, however, such as approach may constitute a starting point for countries climate finance or development assistance. Table 18: Risks Inherent in the Project Crediting (Only) Approach National Project Type of Risk Specific Risks and Mitigation Measures Risk Risk The government does not participate in crediting programs. It does not run any risk of conflict with international or local partners. However, it remains responsible for achieving REDD+ results and meeting its NDC targets. Where the projects’ transfer of ERs involves corresponding adjustments, this could represent a risk to achieving √ its NDC targets, especially if the ER performance of projects is overestimated. This ER Performance may be mitigated by: · Designing a system that aligns ER claims of REDD+ projects with national GHG reporting. Projects are responsible for their own performance, including for the management √ of leakage and reversals. There is no link to government performance. Only relevant for projects. The project must manage crediting and monetizing of Financial Risk √ ERs via private contracts as well as default risks. Legal and The government is liable for adopting and enforcing clear and transparent project Regulatory √ rules, and running a smooth authorization system, in particular where project Risks transfer of ERs involves corresponding adjustments. · There is no national benefit-sharing program that could result in conflict. Projects have their own benefit-sharing systems. Social unrest may occur if the benefit-sharing arrangements are perceived as being unfair, or if they Political Risk √ √ are not adequately implemented. Governments can define safeguards and demand Free Prior Informed Consent (FPIC) for project benefit-sharing systems. The risk of double counting could occur if there is a geographical overlap between projects or their leakage belts. Risk of overestimation of ERs could occur if carbon accounting methodologies at the REDD+ project level are not accurate. This can be Environmental mitigated by: √ √ Integrity Risk · Defining accurate and standardized carbon accounting methodologies for projects, including for the management of leakage. Nesting of REDD+ Initiatives: Manual for Policymakers 68 PART III NESTING IMPLEMENTATION This part summarizes the administrative steps that · Complications for early-action projects. need to be taken to implement nested REDD+. Addressing the nesting of early-action REDD+ projects is a difficult task. These projects were 9. CONSULTATIONS ON THE developed under voluntary carbon standards. ADOPTION OF A NESTED SYSTEM They are often quite advanced in terms of their implementation, and project developers have 9.1 General Considerations performance and payment expectations that Negotiation, consensus-building, and agreements on might be frustrated when their project is nested the specific features of nesting are key to achieving according to national rules. Furthermore, while a smooth and efficient nesting approach. However, in some countries early-action projects enjoy stakeholder consultations on nesting may present the full support of governments, in others they features that render them particularly complex. For have been developed without consulting with the example: government and are therefore eyed suspiciously by the government. · A high level of technicality. Discussions about nesting often focus on technical aspects such as · Challenges in the timing of consultations. One compatibility between existing voluntary project common challenge is how to engage stakeholders baselines and the national FREL, the development in various ways during the national REDD+ of jurisdictional baselines, or the allocation of process, and how to determine the ways in which a FREL to projects. These issues will need to various types of stakeholder engagement are most be incorporated into the technical and policy useful in the design and implementation process. nesting guidelines. This level of technicality adds Early engagement of existing private REDD+ complexity to consultations, and may result in few projects and their beneficiaries in discussions with of the actors having a full understanding of the country officials builds trust and enables a mutual issues under discussion. understanding of each other’s expectations and interests. The consultation process in nesting · Deficiency in the understanding of nesting at has often proven to be long and inefficient. This is the political level. Determining a nesting strategy often due to early consultations that are focused is a highly political and strategic challenge for on issues such as the distribution of benefits or a government. In many cases, policymakers the implications of the national FREL for projects. are insufficiently acquainted with the details of Unless the government has a strategic plan on REDD+, and nesting issues are too complex for how to achieve benefits, consultations on benefit nonexperts to grasp. For example, the relevance sharing may create false expectations and lead of nesting for a country’s NDC is not always to future frustration. Consultations should follow obvious. Furthermore, there is often a gap between a clearly communicated time plan. For example, the level of understanding that REDD+ project before allocation methods are discussed or criteria developers and public officials have. This gap often are defined for benefit distribution, it is useful for affects the quality of national discussions on a government to gather data and test scenarios. nesting, and can produce delays in the adoption of decisions that must be taken by government on · Sensitive social contexts. In some cases, the most appropriate nesting strategy to use. stakeholders do not take part in consultations because participating in them could represent a Nesting of REDD+ Initiatives: Manual for Policymakers 69 risk in their immediate or near future. For example, of the funds; and their impact on the financing of local constituents may not be willing to provide existing policies, or those that will be established to their views in a public meeting in which authorities foster a reduction in deforestation and to support are present if they are afraid of reprisal. conservation. In this model, where the state exercises full control over REDD+ resources, and where one Safeguard compliance is also part of a participatory of the main risks is the misuse of such resources, approach to REDD+, which demands fair and transparency about and understanding of the accessible consultations. Ill-conceived REDD+ processes and channels of REDD+ fund disbursement programs and projects could harm communities, are most likely to be the main purposes for public relevant stakeholders and beneficiaries, and generate consultations. Consultations should also take place in perverse outcomes. When activities are rushed, those areas of the country where REDD+ activities are there is often a failure to consult and obtain consent being implemented. from relevant stakeholders. Stakeholder nesting consultations should be carefully designed, taking Projetct Crediting (Only), No Jurisdictional Program into consideration the historic and cultural contexts of countries. Within a REDD+ nesting framework, the Under the project crediting (only) approach, consultation process needs to include several levels: consultations take place mainly within REDD+ projects, to discuss issues such as the requirements · Private projects and their stakeholders, including related to safeguards and benefit sharing. The potential beneficiaries. government may also wish to promote consistency across REDD+ projects, for example by imposing · Decentralized entities (provinces, municipalities, certain measurement, recording and verification regions), and their stakeholders. (MRV) rules that also align with the national methods · The national REDD+ program and its stakeholders. for estimating GHGs. The government should consult with project or program developers about At each of the above levels, the consultation process the impact of any new MRV rules, or the feasibility is essential in order to identify potential benefits and of implementing safeguards, benefit-sharing co-benefits, as well as the potential spillover effects arrangements, or other requirements. of REDD+ programs and measures. Consultations are also essential for establishing a safeguard information Centralized and Decentralized Nested Approaches system (SIS) and a feedback and grievance redress mechanism (FGRM). Countries with existing donor- In both the centralized and decentralized nested supported economic incentive schemes or other approaches, a fair and inclusive consultation geographically bound forest-related economic process is of the essence. Consultation regarding activities, such as forest community concessions or nested models should take place both at the national payment-for-ecosystem services (PES) systems, can level and directly with REDD+ projects and their build on existing experiences with consultations. stakeholders. They should begin with discussion of the overall objectives and design of the nested 9.2 Application to Nesting Approaches system. They should also involve the ultimate beneficiaries—communities, small farmers, private Jurisdictional ER Program (Only), with Benefit owners—and should clarify the implications of the Sharing nested system for the programs and projects in which Public consultations involving all REDD+ stakeholders they participate. Nesting consultations serve not take place at the national level, as well as in the only to guarantee the establishment of an approach areas where REDD+ programs are being implemented. that respects all rights and justified interests, but REDD+ consultation should operate similarly to also to educate all stakeholders about the purposes, consultations undertaken for other public policy objectives, and procedures of REDD+ and nesting. programs. Because it is the government that controls Consultations should include technical discussions the entire flow of REDD+ funds that the country on FREL data and its use. Data used by REDD+ can receive, consultations should focus on ensuring projects to make ER claims should be agreed upon. an understanding of their overall use; the possible These early consultations should be led by the creation of a national REDD+ fund and how it will be technical agencies and institutions in charge of controlled; the geographic and social distribution REDD+ policies, and they should share their results Nesting of REDD+ Initiatives: Manual for Policymakers 70 directly with project developers and investors. At this sharing, and safeguards provides additional certainty early stage of consultations, the purpose should be to REDD+ projects. to obtain an agreement on existing data, as well as to identify gaps and understand the various nesting 10. INSTITUTIONAL options and their implications for REDD+ projects or REQUIREMENTS FOR NESTING programs. In order for nesting to be implemented effectively, Once the discussions on technical data are it is essential to assign clear responsibilities complete, consultations may begin on any necessary among ministries and public agencies for the “allocation” system. In the case of the centralized operations related to the nesting process. Successful nested approach, this will be focused on the approach implementation of REDD+ requires policy changes to ER allocation, whereas for a decentralized nested and governance reforms, in forestry as well as in system the focus may be on the allocation of FRELs. other sectors—for example, to disburse REDD+ For nested projects, it is important to understand payments. However, weak forest governance in the assumptions and criteria guiding the allocation most of the REDD+ countries constitutes one of the methods, since they determine how benefits will flow main challenges for REDD+ implementation, carbon to projects. Discussions may also include the risks of effectiveness, cost efficiency, and equity.76 What underperformance (as discussed in Section 8.2). makes things even more complex is that REDD+ is inherently a multilevel endeavor; there is thus a Particular attention should be paid to finding a robust need for policy coherence and coordination across compromise on how to nest early-action projects, the various levels of governance, as well as the including by allowing for a transition period and for relevant sectors in order to make it work. Nesting grandparenting existing transactions. The technical adds complexity to policymaking by requiring design of the allocation system should be led by additional considerations regarding the integration technical experts and public officials. However, it of the various levels of MRV and carbon accounting, should also involve the decision makers who will the grandparenting of early projects, and/or the have to make the final decisions on the national management of risks. nesting strategy, based on a full understanding of the implications of the various options. The participation Nested REDD+ policies should therefore be supported of stakeholders in the development of allocation by enduring institutional arrangements. methods at an early stage will promote confidence in the system. Institutional Assessment and the Allocation of Responsibilities Project Crediting (Only), No Jurisdictional Program Institutions define who has the power to make Under the project crediting (only) approach, decisions and who will have access to REDD+ consultations take place mainly within REDD+ benefits. These benefits may flow, for example, projects, to discuss issues such as the requirements from international sources to national budgets, and related to safeguards and benefit sharing. The from there to various stakeholders. Thus, nested government may also wish to promote consistency approaches require procedures that allow for the flow across REDD+ projects, for example to impose of funds, the collection and analysis of information, certain MRV rules that also align with the national and a way to link the national system to international methods for estimating GHGs. The government should reporting obligations. In all nested models, institutions consult with project or program developers about are needed to manage the technical, financial, the impact of any new MRV rules, or the feasibility administrative, and supervisory aspects of REDD+ of implementing safeguards, benefit-sharing finance. The architecture that forms the nested arrangements, or other requirements. Similarly, REDD+ system can build on existing institutions or create new projects should maintain a dialogue with government ones. officials in order to be informed about, as well as to Institutional coordination for the implementation inform, the national requirements. The establishment of nesting frameworks implies (i) an assessment of of national procedures for consulting with project institutional needs; (ii) an assignment of regulatory developers and other stakeholders concerning and oversight responsibilities; (iii) the creation of new amendments to legislation relative to MRV, benefit 76 Korhonen-Kurki, K., Brockhaus, M., Bushley, B., Babon, A., Gebara, M. F., Kengoum, F., et al. (2016). Coordination and Cross-Sectoral Integration in REDD+: Experiences from Seven Countries. Climate and Development 8 (5): 458–71. Nesting of REDD+ Initiatives: Manual for Policymakers 71 institutional arrangements where needed; and (iv) the forest governance often slow the implementation staffing and resourcing of institutions. of effective REDD+ frameworks. If countries opt for nesting in this context, they may permit projects Institutional Requirements: MRV and Accounting to proceed while the national frameworks are being finalized so that early GHG gains can be achieved. In Nested MRV should be embedded into national forest this situation, it may be advisable to define minimum monitoring, which includes data collection for REDD+, benefit-sharing criteria for projects, and enact a as well as other domestic needs and international simplified interim approval process that ensures that reporting commitments, such as UNFCCC or the Food projects can transition into a fully nested system once and Agricultural Organization of the United Nations the national systems are established. (FAO) Forest Resource Assessment. Additional institutional arrangements may be needed in order to Under a jurisdictional ER program (only), with manage the MRV and carbon accounting requirements benefit sharing and centralized nested approaches, of a nested system. A government may need to governments need to establish or appoint estimate emissions, establish baselines, and monitor institutions to allocate and disburse both monetary REDD+ results—in some nested models, at multiple and nonmonetary carbon benefits to projects. In the scales. case of a centralized nested approach, the allocation of such benefits is contingent on projects having There are some specific elements in the centralized successfully reduced their GHG emissions. Some nested, decentralized nested, and project-crediting countries may have experience with payment-for- (only) approaches that must also be considered in ecosystem services (PES) and/or contractual models making institutional arrangements. For example, for distributing and assigning benefits that might under both the centralized and decentralized nested be useful in the context of nesting. Other countries models, allocation systems—whether emission may have funds that are experienced in dispersing reduction (ER) or forest reference emissions levels cash benefits for specific purposes (for example, in (FREL)—must be designed and implemented. Data extractive industries) that can be used to support and information will be generated at multiple nested REDD+. Payments can either follow a budget scales, from the project level to the national level. or a trust fund approach. Under a budget approach, To integrate, manage, and ensure the quality of this payments to projects should be structured through data and information, the government may need to national budgets while avoiding extra-budgetary have a quality data management system. It may also funds or earmarking. A trust fund approach, in seize the opportunity to improve information in an contrast, ring-fences funds and may be useful where integrated way, which would benefit both project- donors and recipients want to make sure that benefits scale and national-scale MRV systems. Governments for projects are safeguarded. (See Section 7.2 on risk should consider the institutional arrangements management.) and responsibilities that are needed to make the nested system operational. When assigning nesting Governments should execute contracts for early- responsibilities, the government should take into action projects that define the allocation of benefits consideration which of their national institutions have and their conditions. Individually negotiated the capacities needed to implement the tasks, and agreements may allow the inclusion of early REDD+ then estimate the technical capacity gaps that will projects in the first phase of nesting. Agreements need to be covered. between national authorities and projects can be a solid foundation that provides legal certainty Institutional Requirements: Benefit Sharing to project developers regarding the conditions for Many forest countries suffer from limited accessing payments under a nesting system. administrative/technical capacity, which hinders Under a decentralized nested or project-crediting the quick implementation of an effective, efficient, (only) model, projects are not included in the benefit- and equitable REDD+ program. In most cases, these sharing arrangements of the government. However, countries do not have specific legislative frameworks governments may require projects to meet regulatory that are adapted to regulating the allocation or demands: for example, reporting requirements on distribution of REDD+ benefits and finance. While MRV-related data and information; requirements on many countries have already started to implement disbursing REDD+ benefits to guarantee that local REDD+ policies, the scarcity of resources and weak and Indigenous communities have access to them; or Nesting of REDD+ Initiatives: Manual for Policymakers 72 specific requirements related to the implementation Authorities can create an information platform and can and reporting of data on the distribution of benefits to engage in outreach activities to ensure that projects be incorporated in the safeguard information system. are aware of safeguards requirements. It can also help Such regulation requires additional government projects provide relevant information to the SIS by capacity, and a dedicated institutional structure in developing templates to facilitate effective use of the order to enforce such rules. project information, setting up reporting procedures, and establishing quality control mechanisms. Institutional Requirements: Safeguards Institutional Requirements: Registries Institutions play a role in ensuring the fair and effective design and implementation of the REDD+ Nested systems require a data management system, safeguard approach, with respect to national and in some cases an additional transaction registry safeguard policies and procedures, as well as the (see Section 9). REDD+ data management may safeguard information system (SIS). Countries that be linked to GHG recording and tracking systems have existing policies and regulations and REDD+ that are set up for other sectors. But registries safeguards, including the specifications necessary for in existing GHG trading and transaction systems the nesting of projects and programs, should build on follow different institutional models. While some their existing frameworks. This includes regulations regulators have assigned the registry to a government for the protection and consideration of ecosystem agency—generally the agency that is in charge of functions, forests, and biodiversity, as well as those environmental issues—others have mandated a range that provide social protection, participation, and of independent and reliable third parties. empowerment to the people. REDD+ safeguards Countries can also decide to outsource registry also require systems for collecting and reporting functions. The World Bank is offering such services the information that the country will need to report to REDD+ countries through its transaction registry under the SIS. However, the country’s systems and platform. During a transitional period, projects institutions will need to be carefully assessed in order could also use the accredited registries of voluntary to determine how well they meet the requirements of standards, and issue credits under those standards. the chosen nesting approach. Then, once a national (or subnational) trading Under the centralized model, nesting does not registry is in place, the accredited registries under demand additional safeguard requirements beyond the voluntary standard could either be linked to or those established in the context of national REDD+ integrated into the national registry. implementation. This includes any procedures adopted to meet the requirements for particular donors and funding streams. Donors may also require the establishment of new institutional requirements, 11. REGULATIONS AND such as a feedback and grievance redress mechanism APPROVALS (FGRM). Under the project-crediting-only approach, 11.1 General Considerations such adjustments are not necessary, and the safeguard requirements for projects follow the existing Regulations and approvals facilitate the national safeguard policies and procedures, or the implementation of any REDD+ system. Clear rules requirements of the carbon standard certifications offer REDD+ actors legal certainty. Within the context they seek. of the REDD+ regulatory framework, a country’s nesting strategy and benefit-sharing arrangements Both the centralized and decentralized nested models may need to be translated into a legal act. Nested require the involvement of actors at multiple levels models that officially approve projects must define who will develop and implement the nested projects. the requirements that projects and project developers The national safeguards are government policies that are required to meet in order to be formally recognized apply to all REDD+ national activities. In the context of by the government. Nesting also requires adoption such safeguards, a government might wish to provide of the procedures by which projects will be nested in details on how nested projects and programs can national systems. Once there is more clarity under fulfill national safeguard policies. It may also clarify Article 6 of the Paris Agreement, procedures will also which authorities are in charge of enforcing such rules. have to cover the reporting necessary to undertake Nested projects should also be reported under the SIS. corresponding adjustments, to the extent they apply. Nesting of REDD+ Initiatives: Manual for Policymakers 73 REDD+ Regulation Box 10: Summary of Approval Requirements Nested REDD+ is inherently a multilevel endeavor; Government tasks concerning the eligibility of projects thus, there is a need for policy coherence and and programs, as well as the continued compliance of coordination across the various levels of governance nested activities include: and agencies in order for it to work. Nesting brings another level into an already complex international, · Defining ex ante criteria (including definitions and national, and subnational sphere of decision making. protocols) that projects and programs must meet A country may need legislative changes in order to in order to qualify for nesting; provide the necessary legal endorsement and capacity · Defining ongoing MRV and safeguards to administer REDD+-related activities and funds. requirements for projects and programs; Even in cases where the government does not decide to authorize carbon projects as part of the country’s · Allocation of baselines; REDD+ strategy, it will have to establish the legal basis · Adopting and disseminating the approved for implementation of the benefit-sharing and registry eligibility and compliance rules; arrangements, and consultation requirements. · Ensuring a swift approval process and continued Project and Program Approvals enforcement of rules; A regulation that officially approves projects and · Defining the rules for transitioning early-action programs could establish the purpose for nesting. projects into a nested system; Such a regulation can provide clarity for potential project developers on the objectives that the · Coordinating with various agencies to ensure full government is pursuing in recognizing projects as complementarity and consistency of the rules with part of its REDD+ strategy—for example, facilitating other environmental and social regulations. nonstate engagement in REDD+, empowering By June 2021, few countries had presented project communities, mobilizing investment for the forest approval procedures for nesting (see Box 11). sector, supporting the achievement of the country’s Countries that do not yet have project approval nationally determined contribution (NDC), and so procedures in place but are preparing its drafting can on—and define how projects can apply for inclusion draw on experiences such as the clean development in the program. Such a regulation should include the mechanism (CDM) approval procedures. While REDD+ types of projects and actors that can be authorized requires material provisions that differ from CDM, to nest projects or programs; the conditions for doing particularly regarding MRV and benefit allocation, the so, including the technical specifications concerning basic procedures of project approval are similar. baselines; and the criteria a project must comply with in order to remain in the program; for example, Box 11 What Types of Approval Procedures measurement, reporting, and verification (MRV) and Are Countries Developing? safeguard requirements. One of the most comprehensive legal frameworks Approval procedures link projects, MRV, and benefit- for nesting is in Colombia; it has been used as an sharing arrangements. Such procedures can be used as example of transparency and recognition for REDD+ a tool for translating the benefit-sharing arrangements projects.77 The Colombian regulation applies to all into the regulatory context of the country. Depending individuals or legal entities, public or private, that on the nesting approach, this may include the allocation intend to register their GHG mitigation initiative in of credits or funding to projects, or the authorization order to participate in results-based finance (RBF) or to commercialize project ERs, possibly up to a defined similar compensations, as well as those who intend cap. They may also implement the risk management to register in order to demonstrate mitigation results approaches of the government (see Section 7.2); define within the framework of compliance. The regulation the consequences of jurisdictional underperformance applies to all types of ER activities, but contains for REDD+ projects; and instruct projects on the use specific and detailed provisions on REDD+ programs of an approved registry. They also include procedures and projects.78 It offers very precise guidelines on regarding the authority in charge, deadlines, appeals, the nesting of REDD+ programs; REDD+ projects; the and so on. (See Box 10). overlapping of REDD+ programs and projects; and the 77 Resolution NO. 1447 August 1st, 2018 on National mitigation action monitoring, reporting and verification system mentioned in article 175 of Act 1753 of 2015. 78 Art. 28. and ss. Ibid. Nesting of REDD+ Initiatives: Manual for Policymakers 74 procedures for excluding REDD+ projects from REDD+ to CAs in cases where the government, corporate programs, as well as provisions that are applicable investors, or standards require them. to the registration of ongoing REDD+ projects. For Corresponding adjustments may eventually this last case, the regulation includes grandparenting become relevant to all nested REDD+ models. If the provisions that are applicable to existing REDD+ government enters into an Article 6.2 Paris Agreement projects, by which the state determines the GHG transaction with a partner country, CAs will need mitigation potential for the period from January 2016 to be made to reflect ERs authorized for use toward to December 2019.79 another party’s NDC. In this case, REDD+ projects can Countries like the Democratic Republic of Congo form part of such a collaborative approach, and can (DRC) and Mozambique have also adopted REDD+ demand CAs. In the case of the decentralized nested legislation that includes partial procedures on the or project-crediting (only) approach, CAs might be nesting of programs and projects, albeit with less necessary under certain circumstances, but this is detail than Colombia’s.80 Mozambique’s legislation still under discussion (see Section 3.4 for more detail.) sets out in considerable detail the requirements that In such cases the country may want to promote must be observed by holders of state-issued licenses alignment in the ER transactions under Article 6 and to carry out REDD+ projects in the country, and the NDC accounting, and record their transactions in the validity of those licenses. Rules also establish that data management system or transaction registry. the boundaries of REDD+ projects have to align with This will require significant capacities, resources, and the boundaries of municipalities.81 In the Democratic procedures; however, few of the requirements will be Republic of Congo (DRC) REDD+ regulation procedures, specific to nested REDD+. the country has specified very general guidelines for 11.2 Application to Nesting Approaches the approval of REDD+ and projects.82 Jurisdictional ER Program Only NDCs and Corresponding Adjustments Under a jurisdictional-only crediting approach, For most developing countries with significant in which the government centralizes the design, forests, REDD+ is part of their strategy for meeting implementation, and monetization of REDD+, the their NDCs. Where the transfer of ERs in the form of government has to implement the benefit- sharing an International Transferable Mitigation Outcome arrangements through one, or several, regulatory (ITMO) under Article 6.2 or 6.4 of the Paris Agreement acts. The government is not required to adopt occurs, a corresponding adjustment (CA) is necessary. procedures for projects. However, it has to establish Parties account for these transfers in order to the legal basis for the arrangements, that is how ensure the avoidance of double counting.83 It is not carbon finance will be distributed among national entirely clear yet which metrics CAs will use, nor is institutions and national actors. Within that the basis for accounting clear; that is, against which regulation it should also establish timelines, the parameters they will be accounted. Another open areas to be financed, and the eventual conditions for question is whether CAs should occur at the end of access to financing as part of the benefit-sharing the parties’ implementation periods, or continuously arrangements. throughout the duration of the project. In general, at the time of writing this report, CAs remain poorly Centralized or Decentralized Nesting Approaches understood. REDD+ regulation should define the conditions, However, governments will have to keep in mind that rights, and obligations of nested projects and a new reporting framework may need to be created programs. Approval procedures need to contain at for the purposes of consolidating the various streams a minimum (i) the actors and projects authorized to of information and reporting to UNFCCC, including nest projects or programs; (ii) the conditions for doing for CAs. Some nested projects may also demand so, including any technical specifications concerning or require CAs outside of Article 6 transactions, baselines and other MRV aspects; safeguards for example in the context of CORSIA. Under some compliance; benefit sharing by projects; and any circumstances, countries and corporations may agree definition of liabilities that could be incurred by the 79 Art. 40 and 41. Ibid. 80 Decreto n.º 23/2018 de 3 de Maio: Regulamento para Programas e Projectos Inerentes à Redução de Emissões por Desmatamento e Degradação Florestal de Carbono (REDD+). 81 Art. 19 of Decreto n.º 23/2018 de 3 de Maio: Regulamento para Programas e Projectos Inerentes à Redução de Emissões por Desmatamento e Degradação Florestal de Carbono (REDD+) refers to the prohibition of nesting projects within existing programs in certain cases but it is not clear in its scope and does not offer neat criteria. 82 9 mai 2018. – Arrêté Ministériel n° 047/CAB/MIN/EDD/AAN/MML/05/2018 fixant la procédure d’homologation des investissements REDD+ en République Démocratique du Congo. 83 paragraph 36, Decision 1/CP.21 Nesting of REDD+ Initiatives: Manual for Policymakers 75 government or the REDD+ projects and programs; (iii) unilaterally and can monetize them, the government in the case of centralized nesting, the implications may adopt program rules intended to regulate such of underperformance; (iv) the conditions applicable projects. Such rules could align project ER claims to existing REDD+ initiatives and the eventual with the national MRV system and national reporting transitional period; (v) the conditions for the opening requirements. In such cases, the government should of private accounts in the national registry, if such a also establish procedures indicating the obligations registry exists (or the authorization to use external projects have with respect to MRV. A country may also registries); (vi) rules regarding the involvement of pass regulations for safeguard application or benefit- carbon-rights holders (communities and Indigenous sharing rules to ensure that affected communities are peoples); and (vii) the procedures for approvals (the provided with a fair share of proceeds from carbon authority in charge, deadlines, appeals or contesting sales. Along with this, the country should approve of national nesting decisions, etc.). the procedures for projects to access the national transaction registry if it opts for the creation of one; Project Crediting (Only), No Jurisdictional Program and the opening of private accounts or, alternately, reporting requirements into a data management Although project crediting (only) recognizes that system if applicable. REDD+ projects can generate carbon credits Nesting of REDD+ Initiatives: Manual for Policymakers 76 12. REGISTRIES Box 12 Considerations When Deciding on a Registry System 12.1 General Considerations A country that is contemplating a nested REDD+ Countries that engage in nested REDD+ may need approach needs to consider the following questions to develop GHG accounting and tracking systems to regarding the accounting and tracking of carbon ensure consistency between national, jurisdictional, credits: and project-level processes and results. These systems would consist, at a minimum, of data · Does the country need a full transaction registry, management systems that systematically record or would a data management system, potentially and monitor information to ensure transparency and with a link to existing voluntary carbon market consistency, and in some instances to avoid the double registries or other international carbon registries counting or double sale of ERs. (like the carbon registry under the FCPF Carbon Fund) be sufficient? If countries seek to engage in market-based transactions (including REDD+ or other forest · Does the country already have a GHG registry for carbon units), they will need a registry to allow for nonforest sectors? If so, is expanding this registry the unique identification and tracking of carbon to include REDD+ units a preferred option? units.  Such registries are important in order to · Does the country foresee including the accounts track transactions between different accounts within of public or private nonstate actors (subnational, one registry, as well as between different national or private, or not-for-profit entities) in a national international registries. The government will also have trading system? to establish protocols to ensure the “conversion” of · Does the country have the institutional carbon credits into fungible units, or, alternatively, to capabilities for operating a transaction registry, allow for units to be traded within the same system.   including the necessary security provisions and In some cases, a government will not need to develop protocols? If not, are there operational third-party a transaction registry. Governments can engage systems that could provide registry services? in results-based finance (RBF) without generating · Does the country foresee any type of internal transferable carbon credits. In addition, voluntary carbon market in which carbon units (forestry or carbon credits can be tracked in third-party registries; others) will be eligible as offsets? for example, Verra operates a registry for verified carbon units generated under its Verified Carbon · Which government institution is best suited to Standard (VCS) program. In such cases, a national maintaining and operating a data management emissions trading registry is not needed; a simple system, or transaction registry? data management system is sufficient to fulfill the · Which legal provisions will be necessary in order requirements of a nested system that is comprised of to establish a data management system or national nonmarket payment for results, combined with transaction registry? voluntary carbon crediting. · What risks need to be considered and managed? Box 12 summarizes the main questions policymakers · Will there be enough ER transactions in the should consider when making decisions about the country to justify the costs of setting up and development of a registry or data management operating a transaction registry? system. Nesting of REDD+ Initiatives: Manual for Policymakers 77 Data Management Systems and Transaction to make corresponding adjustments. Under the Registries Paris Agreement, the use of international transfers toward NDCs is voluntary, and must be “authorized by The complexity of data management, accounting, participating Parties.” The approval of Article 6 rules and tracking systems depends on the number is expected to provide more clarity on carbon market of accounting levels there are in the national transactions. implementation of REDD+, and which of these levels are linked to carbon markets.84 Carbon accounting Registries are not specific to REDD+, and many and incentive allocation frameworks are a central countries are in the process of establishing component of REDD+ mitigation programs, and in transaction registries for other sectors. Where such structuring these frameworks decisions need to be registries already exist, or are being developed, it is made about how to reach the REDD+ objectives in not necessary to establish a separate REDD+ registry. a timely, economically efficient, and socially and Rather, the existing registry can simply be expanded environmentally sustainable manner. Establishing to include REDD+ units. This ensures the efficient use accounting frameworks at the project and program of institutional capacities, promotes the harmonized levels may form part of the public system of benefit use of security protocols, and, most importantly, sharing, or it can help to facilitate direct private sector facilitates the consistent accounting and tracking of investments into voluntary carbon market projects. carbon units. This is particularly important in cases where a country already has a carbon trading system Nested REDD+ requires the consolidation of data that covers the forest sector (see Box 13 below). from projects and programs at both the subnational The registry will need to manage the risks of and national levels, and checking their compliance permanence, project or program leakage, and/ with nesting rules. The government will also have or national underperformance. Such risks can be to consolidate MRV information, and apply fair managed, for example, with buffer accounts through and transparent program rules that handle the which a portion of the ERs are held to cover the risk of overlapping programs or projects that are responsible reversal (as is done in the FCPF Carbon Fund and the for maintaining the environmental integrity of the Verified Carbon Standard (VCS) of the Jurisdictional ERs claimed. Such approaches could deduct the and Nested REDD+ (JNR). The national registry can ERs that are earned by lower-level programs from a adopt procedures that enable the application of buffer national total; cap the ERs that lower-level programs accounts. It would have to establish and manage such can claim; or exclude areas covered by subnational accounts at the entity or project level, or pool them programs or projects from the national accounting.  across all registered projects and programs: a pooled While the participation in public results-based buffer provides additional assurance that risks at the finance (RBF) programs will not require the project or program level can be managed. establishment of full registry capacities, the Managing registry systems requires significant nesting of projects adds a layer of complexity to capabilities. Countries may consider approaching carbon tracking and accounting that may require entities such as the World Bank, or private operators additional data management. A data management that offer registry solutions. These solutions can be system can fulfill several program and project- tailored to a country’s specific registry needs, and can level tracking functions, such as collecting basic help ensure compliance with the necessary security information about project-level activities or protocols. For example, a country might not need a subnational programs, and recording applicable fully elaborated transaction registry, but may want to safeguards and technical requirements, land-use be able to transfer carbon credits to market buyers in rights, distribution of benefits, or other information.  a safe environment. In this case outsourced solutions It may evolve over time as REDD+ continues to develop may be adequate, and can help the government avoid and be implemented. Tracking systems can be created the effort and expense of establishing its own national at the subnational level instead of, or in addition to the registry. The outsourcing of registry functions can national level.   also be considered as a temporary solution until the Registries that help manage Article 6, or CORSIA country has set up its own national registry. units, would have to link to NDC accounting in order 84 For a general overview of registry options, see “Partnership for Market Readiness; Forest Carbon Partnership Facility.” 2016. Emissions Trading Registries: Guidance on Regulation, Development and Administration. Washington DC: World Bank. available at http://hdl.handle.net/10986/25142 Nesting of REDD+ Initiatives: Manual for Policymakers 78 Box 13: What Types of Registries are · Guatemala is developing a regulation, in accordance with their Climate Change Law Countries Developing? Framework89 and their National REDD+ Registry The type of registry and/or database system that a resolution,90 that focuses on the development of country needs depends on the REDD+ implementation a national database management system; it does approach selected by the country. Several examples not intend to create a transaction registry. are provided below: · Peru intends to create both a database system and a transaction registry (the National · New Zealand issues carbon units for avoided Mitigation Measures Registry), which will be deforestation, to be traded under the New linked to the Registry of Retribution Mechanisms Zealand Emissions Trading System (NZ ETS). It for Ecosystem Services with respect to carbon operates a full transaction registry that is linked sequestration and storage. Their registry to the Kyoto Protocol registry under UNFCCC via will recognize ERs from international carbon the International Transaction Log.85 standards, and their conversion to national · Colombia allows the use of forest offsets under carbon credits, for the purpose of international its carbon tax program. It launched its National transfers or NDC compliance, and will be Register of GHG Emissions Reductions (Registro implemented by IHS Markit.91 Nacional de Reducción de Emisiones de Gases Efecto Invernadero, or RENARE) in September The technical, operational, and financial requirements 2020.86 This register consolidates carbon for operating a transaction registry have led most project information and accounts for ERs from countries participating in the FCPF Carbon Fund to registered projects all in one place. Operated choose not to develop an internal transaction registry, through a web-based platform, RENARE defines and to use instead, at least in the first phase, the the national MRV system that is applicable to all transaction registry that is being designed by the mitigation activities in the country.87 Colombia World Bank. This registry could become the standard requires REDD+ projects to have a mechanism for registry to be used in the long term; it is open to both managing the risk of the nonpermanence of ERs; it countries and other entities, that is, to buyers and does not include a pooled buffer in its system. sellers, outside the FCPF Carbon Fund.92 · Mozambique’s REDD+ regulation states that it intends to develop a REDD+ transaction registry or, if the national transaction registry is not in operation at the time of the relevant transaction, the country could approve an alternate ER transaction registry approved by the government. The country’s transaction registry has not yet been operationalized. The Mozambique regulation stipulates the creation of single accounts per project and program, and requires the establishment of single-buffer accounts (there is no intention of having a pooled buffer).88 85 https://www.epa.govt.nz/industry-areas/emissions-trading-scheme/the-emissions-trading-register/ 86 https://www.minambiente.gov.co/index.php/noticias-minambiente/4497-renare-plataforma-para-registrar-reducciones-gases-efecto-invernadero 87 http://renare.siac.gov.co/GPY-web/#/ingresar 88 Art 27 and ss. Decree n.º 23/2018, Regulation for the Implementation of Projects Inherent to the Reduction of Emissions from Deforestation and Forest Degradation, Conservation and Increase of Carbon Stocks. 89 Additional Final Rule, 4, Law N.30754 -2018, Climate Change Law Framework. 90 Ministerial Resolution No. 197-2016. Ministry of Environment. 91 ER Program: Reducing Emissions from San Martin and Ucayali in the Peruvian Amazon. Peru, June 2019. 92 The FCPF Carbon Fund is currently preparing the User Guidelines, Business Plan, and Operational Guidelines. These documents have not been analyzed in the preparation of the present document. Nesting of REDD+ Initiatives: Manual for Policymakers 79 12.2 Jurisdictional ER Program (Only), with a third-party registry, combined with a national Benefit Sharing data management system, to fulfill this obligation. Since this approach allows the direct marketing of The jurisdictional-only crediting approach requires ERs by private entities, the registry requirements only a simple accounting system. In this model, the are more stringent. The government needs to keep government accounts for ERs at the national level, and track of government and project GHG performance may decide to issue carbon credits and transfer them (at a minimum with a data management system), to international accounts. The state is the sole owner while private entities can hold their own accounts for of ERs; the primary recipient of results-based finance tracking and commercializing ERs. If nested projects (RBF) and carbon finance; and it retains the right to sell ERs into carbon markets, the transaction registry generate and market ERs. For countries that wish needs to record such transactions—but this can be to participate in markets, Annex I registries, which done by a third-party registry. exclude the clean development mechanism (CDM)/ Joint Implementation (JI) functionality, may serve as Under a decentralized nested approach, the tracking a model. of units may require the ability to recognize, hold, and convert various units. Private sector accounts If a country only anticipates participating will need to be integrated (nested) into the national in nonmarket RBF, it may only need a data or subnational REDD+ framework. This requires management system. Because there are few significant administrative capacity and resources, technical and financial requirements for operating and should be done only after a careful cost- such an accounting system, in this case the country benefit analysis. Augmenting the number of market would not need a transaction registry. A simple participants greatly increases the cost and complexity data management system would help to keep track of monitoring and verifying ER activities, and tracking of ERs, and would be likely to generally satisfy the ownership and use of forest carbon credits. REDD+ donor demands for RBF. Such a system could also countries will need to determine whether they can incorporate details about the programs and activities feasibly develop this capacity, and if so, the extent implemented at the national, subnational, or site- to which the benefits of private sector involvement specific levels, as well as information concerning the outweigh the added transaction costs. The integration types of activities implemented, the areas they cover, of private accounts into a national tracking system the number of beneficiaries, and the types of benefits (whether a data management system or a registry) they receive, as well as the status of activities under also calls for enhanced security and data protection. implementation. Such a system could complement the safeguard information system (SIS) as a transparency The government may also outsource some or all information tool. functionalities of the registry to other registries or registry providers. As mentioned above, credits can be Centralized Nested Approach issued to the accredited registries of standards that are used by projects or jurisdictional programs. Thus, Under the centralized nested approach, at a a country can start with just a data management minimum, a data management system with the system, which can evolve into a more sophisticated functionality for tracking ER performance at the transaction registry over time. Once a national (or project level is needed. The registry will not need to subnational) transaction registry is in place, the feature accounts for private sector project proponents accredited voluntary standard registries could either if they implement REDD+ but they are not issued be linked with, or integrated into, the national registry. forest carbon credits. However, information about the performance achieved by specific entities—based on Project Crediting (Only), No Jurisdictional Program the criteria of the ER allocation system—should be recorded. The data in the data management system In cases where only projects are generating tradable would provide the basis for the distribution of benefits ERs, if private projects sell ERs under Article 6.2 to approved projects. or Article 6.4 of the Paris Agreement to foreign buyers, or if they are authorized to generate ERs Decentralized Nested Approach with corresponding adjustments, at a minimum, a data management system is needed. The government The decentralized nested approach requires a must be able to receive and process the information transaction registry, although a country may use necessary to make corresponding adjustments and to Nesting of REDD+ Initiatives: Manual for Policymakers 80 ensure robust NDC accounting. Under a decentralized associated accounts. The government can recognize approach, a country might also want to adopt a the registries of approved carbon standards, and/ system for tracking information on its various REDD+ or can establish its own transaction registry and initiatives and projects, and for compiling information authorize private entities to open an account in about project transactions. it. This may be an option if the country already operates a transaction registry for other sectors, or Private entity transactions of carbon credits also if it integrates REDD+ projects in a national carbon need access to a transaction registry and to its market. Table 12 Types of Registries Linked to Various Nesting Models Nesting Description Country Registry Implications Model Examples The government Ecuador, where · A simple, single-account system where the national Jurisdictional-crediting (only) records ERs at the forest carbon government is the sole owner of forest carbon credits. national level. It may credits are only · Few technical and financial needs for operating the account issue carbon credits issued at the system. and transfer them to national level. · Where forest carbon credits are transferred to international international accounts. sovereign buyers, a link to the registries of buyer countries might be useful. · A data management system can incorporate additional information, such as benefit-sharing implementation. The government DRC, Mozambique, · Nested projects have specific accounts for recording Centralized- nested model records ERs at the Brazil (sharing of performance (as input to ER allocation). national level. It also ERs with states) · Where forest carbon credits are transferred to international records the data sovereign buyers, a link to the registries of buyer countries necessary to operate might be useful. the ER allocation to · Transactions from nested projects that participate in selling projects/programs. ER to voluntary markets can be tracked. National and REDD+ Cambodia, · A transaction registry with private accounts is needed Decentralized-nested model project ERs need to be Colombia where ERs are being transacted in markets. tracked. · Countries can allow REDD+ projects to be registered under third-party registries. Once a national transaction registry is in place, the registries are linked, or integrated into the national registry. · The functioning of a transaction registry requires technical and financial capacities. This can either be established within the country, or it can be outsourced. Only projects New Zealand · A transaction registry is required for transactions of private Project-crediting (only) commercialize ERs, entities; a third-party registry can be used for voluntary which requires tracking markets. · A national registry is needed in the context of a national carbon accounting standard or market. · The government can also operate a data management system to record information about national projects and their GHG performance. Nesting of REDD+ Initiatives: Manual for Policymakers 81 APPENDIX A: GLOSSARY As a complementary resource, please consider the Forest Carbon Partnership Facility (FCPF) Glossary of Terms (April 2020), which can be accessed here. Annex I Countries: A term used under UNFCCC; it includes the industrialized countries that were members of OECD (the Organisation for Economic Co-operation and Development) in 1992, plus countries with economies in transition (the EIT Parties), including the Russian Federation, the Baltic States, and several Central and Eastern European States. Article 6 Transactions: The transfer of ERs in the form of International Transferable Mitigation Outcomes (ITMOs) under Article 6.2 (collaborative approaches) or Article 6.4 (mechanism to support sustainable development) of the Paris Agreement. Article 6 Projects: Projects that serve to pilot Article 6.2 of the Paris Agreement, and that require a corresponding adjustment (CA) in order to be allocated to projects from national performance. These are pilots in anticipation of meeting the requirements of Article 6. Examples include pilot projects promoted by Japan in Cambodia and Switzerland in Peru. Benefits: Monetary and/or nonmonetary support received for participation in forest carbon projects, or a jurisdictional ER program. Benefit sharing: Refers specifically to the arrangement by which a government institution allocates, administers, and channels benefits funded by payments for emission reductions to national actors. Carbon credit: An ER that has been created according to the rules of a private or public carbon standard and is issued, tradable, and traceable, in a GHG registry. Carbon finance: A subcategory of result-based finance (RBF) that involves the issuance of tradable carbon credits. Carbon rights: The rights of communities and individuals to forest-related ERs. When used in the context of REDD+, carbon rights are mostly understood as the right to benefit from ERs or to participate in a REDD+ benefit- sharing system. Carbon unit: Carbon credits, emissions allowances, or any other unit linked to GHG markets that is issued, tradable, and traceable in a GHG registry. Compliance carbon market : A regulated market that by law holds entities accountable for their GHG emissions. The regulatory regime that covers the compliance market can be set up at the national, regional, or international levels. Corresponding adjustment (CA): An accounting adjustment made to reflect the use of ITMOs toward an NDC under Article 4 of the Paris Agreement or other international system, such as ICAO’s CORSIA. Crediting: The accounting of ERs against a forest reference emission level (FREL), or project baseline. Data management system (DMS:) A system that systematically records and monitors project, program, and transaction information to ensure transparency and consistency. Nesting of REDD+ Initiatives: Manual for Policymakers 82 Deforestation: The conversion of forest land to other land uses. Domestic compliance market: GHG emissions trading systems established in the national context with the goal of reducing GHG emissions. Double counting: Under the Paris Agreement, this refers to the accounting of a GHG emission reduction or removal toward more than one nationally determined contribution (NDC). Emission reduction (ER) program: A program under which a government is seeking to claim GHG ERs at a jurisdictional scale, and access financial rewards for such a program. ER programs—for example under the FCPF Carbon Fund, ART TREES, and VCS JNR—have a set of requirements that must be met in order to be considered as a jurisdictional program. Environmental integrity: A carbon market-based mechanism has environmental integrity if the transfer of credits through that mechanism leads to the same, or lower, aggregated global emissions. Integrity is ensured through accounting that avoids double-counting (that is, using the same unit twice to offset emissions), as well as through the quality of the ER baseline or reference level estimates, additionality, permanence, uncertainty, and leakage. Greenhouse gas (GHG) emission reductions and removals (ERs) refers to a tonne of greenhouse gas expressed in CO2e measured against a reference level or baseline that has been avoided (emission reduction) or sequestered (removal), often defined with reference to a carbon standard. In this report, we focus on forest-related ERs in relation to avoided deforestation (AD) and REDD+. Forest degradation: Reduction in the capacity of a forest to produce ecosystem services such as carbon storage as a result of anthropogenic activities. Forest reference emission level (FREL): A benchmark for emissions from deforestation and forest degradation (REDD only). Incentives: Government-set, market-based incentives to reduce GHG emissions and implement REDD+ activities. International transferred mitigation outcome (ITMO): Emissions reductions and removals through a cooperative approach under Article 6.2 of the Paris Agreement, which involves the international transfer of mitigation outcomes authorized for use toward an NDC; or mitigation outcomes authorized by a participating party for use under an international system other than for achievement of its NDC, such as ICAO’s CORSIA. Jurisdictional: A governance level that covers an administrative area for which public authorities can take decisions (for example, the national or federal level, subnational states, regions, counties or departments, municipalities, and/or communities). Nesting: The coordinated and harmonized implementation of REDD+ programs and activities at multiple accounting scales and governance levels within a country. Nationally determined contribution (NDC): The pledge made by a party to the Paris Agreement, communicated to the UNFCCC Secretariat, to take climate action. REDD+ The international policy framework that provides incentives for reduced emissions from deforestation and forest degradation, and promotes the role of conservation, the sustainable management of forests, and enhancement of forest carbon stocks in developing countries (REDD+). Program or REDD+ program: Policies and activities that generate forest-related ERs. Project or REDD+ project: A forest carbon project-level activity that is accredited, or that is seeking accreditation under a carbon accounting standard. Results-based finance (RBF): Payments for results (mostly in the form of ERs), which may or may not involve the issuance of tradable carbon credits. Nesting of REDD+ Initiatives: Manual for Policymakers 83 Right and title to ERs: Rights defined on the basis of a contract (for example, the FCPF ERPA) or a law (for example, local emission-trading legislation) that assigns a transferable right to an ER. Safeguards: Measures to prevent and mitigate harm to people and the environment, and to increase benefits for them in the context of REDD+ activities. Subnational: A region within a country that has its own system of governance, such as a province, state, or municipality. Transaction registry: An online database that issues, records, transfers, and tracks the carbon units that are exchanged within carbon finance market mechanisms. Voluntary carbon market: Transactions in ERs and carbon credits that are not generated or acquired with the intention of surrendering them into a regulated carbon market. Nesting of REDD+ Initiatives: Manual for Policymakers 84 APPENDIX B: INSTRUCTIONS FOR THE DECISION SUPPORT TOOL This appendix shows decision makers how to use the accompanying Decision Support Tool (DST) for nesting REDD+ initiatives at various scales. The Decision Support Tool (DST) that accompanies this manual is intended to assist countries in identifying gaps that may exist in the implementation of their REDD model or nesting system. Identification of these gaps may serve as the basis for a roadmap with concrete actions to take toward definition of the country’s nested system. Two categories of countries are expected to use this tool: · Countries with no prior experience with REDD+ nesting initiatives. The information presented in this manual can be used to identify various approaches to the nesting of REDD+ initiatives, specific to the country’s context; and to identify gaps that will need to be overcome in designing the system. · Countries with experience in implementing REDD+ nesting initiatives could use the manual to review their progress, with a view toward identifying gaps or strengthening design elements in order to scale up implementation. The DST guides users through the following steps: Step 1: Helps the user understand broadly which nesting model is most desirable for a given country, and whether a centralized, decentralized, or nested model is best. This is achieved through six simple questions that help to identify the country’s objectives vis-à-vis nesting. Step 2: Based on the answers to the questions in Step 1, the country selects the model that it wishes to evaluate. They then evaluate their level of progress toward, or completion of a set of actions conducive to the development of all the important elements to consider for a nesting system. The tool is based in MS Excel, and has been organized under five different tabs. All users will have to use the tabs named “Readme” and “Questions.” The answers to the Questions tab will serve to identify the nesting model that is most appropriate for a given country. To achieve this, the user needs to provide an answer to each of the six questions presented. Once all of the questions have been answered, based on the responses received, the DST will provide a recommendation on the most appropriate nesting model. The remaining tabs, (“Jurisdictional ER program,” “Centralized Nested,” Decentralized Nested,” and “Project Crediting Only”) describe the elements of each REDD+ implementation model, as well as which actions are needed in order to implement the relevant model. The elements cover all of the issues necessary to establish the recommended nested system (MRV, carbon rights, benefit sharing, consultations, safeguards, and institutional elements), as well as registry and regulatory issues. As users check the boxes of the tasks that have been completed, the progress made toward the various elements is automatically updated in a dashboard at the top of the tab, providing graphic information about the country’s degree of development toward a desired REDD+ implementation model. 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This tab The main Figure has 21. purpose Detail a blue of the button labeled Readme of "Readme" the “Start Tab the tab is tool.” to provide Clicking information this button thatthe will initiate will help the user completion complete of Step thethe 1. The “Start DST. This tab Figure tool has a 21. blue Detail button” has of button the been labeled "Readme" highlighted “Start a red the Tab with tool circle .” Clicking in Figure 21. this button will initiate the completion of Step 1. The “Start the tool button” has been highlighted with a red circle in Figure 21. Figure 21. Detail of the “Readme” Tab Figure 21. Detail of the "Readme" Tab Questions Tab Questions Tab The “Questions” tab aims to guide the user in selecting the most appropriate nesting model according to Questions various Tabcircumstances. To do so, the DST displays in its recommendation box the most suitable national The “Questions” tab aims to guide the user in selecting the most appropriate nesting model according to Questions ofvarious the four nesting The “Questions” Tab models. The recommendation circumstances. national tab To user aims to guide the do so, appears the DST in selecting the as a message displays colored in red.box in its recommendation most appropriate (Figure the most nesting model according 22). suitable to various of the four national nesting models. circumstances. To doThe recommendation so, the appears DST displays in its as a message recommendation colored box the in red. most suitable (Figure of the four22). Figure The 22 Recommendation “Questions” tab aims Box, to "Questions" guide the userTab in selecting the most appropriate nesting model according to nesting models. The recommendation appears as a message colored in red. (Figure 22). Figure national various circumstances. 22 Recommendation Box,To DST displays in its recommendation box the most suitable do so, theTab "Questions" Figure 22 Recommendation Box, «Questions» Tab of the four nesting models. The recommendation appears as a message colored in red. (Figure 22). Figure 22 Recommendation Box, "Questions" Tab To enable the DST to provide a recommendation, the user needs to answer six questions. Only one answer per question can be selected, and all six questions must be answered. To select an answer, the To boxTo enable the enable the situated DST DST to the toto provide right provide of a recommendation, a recommendation, each possible answer the the user needs touser needs be toneeds answer ticked. answer tosix (Figure 23.)six questions. questions. Onlyper Only one answer one question can be selected, and all six questions must be answered. To select an answer, the box situated to the the answer per question can be selected, and all six questions must be answered. To select an answer, box situated right Figure of each 23. to Answer the possibleright Check of each answer Boxes needspossible to "Questions" under answer be ticked. needs (Figure Tab 23.) to be ticked. (Figure 23.) enable To Figure the 23. DSTCheck Answer to provide Boxes a recommendation, under “Questions” the user needs to answer six questions. Only one Tab Tab Figure 23. Answer Check Boxes under "Questions" answer per question can be selected, and all six questions must be answered. To select an answer, the box situated to the right of each possible answer needs to be ticked. (Figure 23.) Step 1: Select your model Please respond to the following questions by marking only one box, reflecting what is closest to your situation: Figure 23. Answer Check Boxes Back to under "Questions" Tab Start Step 1: Select your model Back to Please respond to the following questions by marking only one box, reflecting what is closest to your situation: Start Questions Manual Answer I Select Answer II Select #1: Who should benefit from REDD+ Questions StepManual Section 1: Select 1.2 your who The government modelwill implement Answer I the key Both the government and local actors, but the Select government is best fit to Answer II payments distribute Select Back tofinance? actions to slow, halt and reverse deforestation Please respond to the following questions by marking only one box, reflecting andwhat closest to isbenefits other to your situation: local actors Start Both the government and local actors, but the #1: Who should benefit from REDD+ The government who will implement the key Section 1.2 government is best fit to distribute payments finance? actions to slow, halt and reverse deforestation and other benefits to local actors Questions Manual Answer I Select Answer II Select Both the government and local actors, but the #1: Who should benefit from REDD+ The government who will implement the key Section 1.2 government is best fit to distribute payments finance? actions to slow, halt and reverse deforestation and other benefits to local actors Nesting of REDD+ Initiatives: Manual for Policymakers 86 If more than one answer is ticked for the same question, the user receives an error message, as shown in more24. Figure If than one answer is ticked for the same question, the user receives an error message, as shown in Figure 24. than If more24. Figure one answer Error is ticked Message, for the same question, Recommendation the user receives Box, "Questions" Tab an error message, as shown in Figure 24. Figure ErrorMessage, 24. Error Figure 24. Message, Recommendation Recommendation Box, Box, "Questions" Tab Tab «Questions» As can As beseen can be seen above, above,Step 1 can Step be completed 1 can once the be completed onceuser has the provided user only one answer has provided only one to each answerof the six of to each questions. six questions. the can As At this stage, be seen above, the At this DST stage, Step suggests the be 1 can DST the most appropriate suggestsonce completed the most model for appropriate the user the combination model has provided for the only of circumstances onecombination answer to each of of reflected in the six questions. At this stage, the DST suggests the most appropriate model for the combination of can circumstances the answers. reflected By in clicking the the blue answers. buttons By clicking that theare highlighted blue buttons in a thatred arecircle in Figure highlighted 25, in a the red user circle in proceed to circumstances Step Figure 25, the user 2 under can proceed reflected the selected nesting2 under to Step By in the answers. model. clickingIf the thethe user needs selected to nesting blue buttons go back that to model. the “Readme” If the user needs are highlighted tab, he in a red or she tocircle go backin can to thepress the “Readme” button “Back tab, he orto Start” she cansituated press on the the top button left “Backcorner to Sof the tart” screen: situated this on Figure 25, the user can proceed to Step 2 under the selected nesting model. If the user needs to go backbutton the top is highlighted left corner in of a the purple screen: to this in circle the “Readme” Figure button is25. tab, highlighted he or she can in a purple press the circle button in Figure “Back to 25. Start” situated on the top left corner of the screen: this Figure 25. buttonof Example isDST highlighted in a purple Screen When circle Step 1 Is in Figure 25. Completed. Figure 25. Example of DST Screen When Step 1 Is Completed. Figure 25. Example of DST Screen When Step 1 Is Completed. Tabs for “Jurisdictional ER program,” “Centralized Nested,” Decentralized Nested” and “Project Crediting Only.” After completing Step 1, the user will complete Step 2 for each of the tabs dedicated to one of the four specific nesting models, (hereinafter referred to as the model tabs). The REDD+ implementation model tabs present a schematic representation of the nesting model selected, as seen in the red circles in Figure 26. In this representation, the main features of the selected models are summarized. On the top right part of the screen, the bar graph presents information on the progress achieved toward implementation of the selected model, which is highlighted in a yellow circle. The progress graph Nesting of REDD+ Initiatives: Manual for Policymakers 87 progress achieved toward implementation of the selected model, which is highlighted in a yellow circle. The progress graph gets automatically updated as the user advances toward the completion of Step 2. The progress graph gets automatically updated as the user advances toward the completion of Step 2. The user can consult the instructions to progress toward Step 2 on the top side of the screen, which is The user can consult the instructions to progress toward Step 2 on the top side of the screen, which is highlighted by a green circle. The user can go back to the Readme tab by clicking on the blue button, highlighted by a green circle. The user can go back to the Readme tab by clicking on the blue button, highlighted gets in purple. automatically updated as the user advances toward the completion of Step 2. The user can consult the highlighted in purple. instructions to progress toward Step 2 on the top side of the screen, which is highlighted by a green circle. The Figure user can 26. Information goInformation Dashboard Readme tab back to the Dashboard of by Nesting clicking Model on the Tabs blue button, highlighted in purple. Figure 26. of Nesting Model Tabs Figure 26. Information Dashboard of Nesting Model Tabs To Tocomplete completeStep 2, the Step user 2, the considers user whether considers the country whether has successfully the country concluded has successfully the tasks concluded theassociated tasks To complete Step 2, the user considers whether the country has successfully concluded the tasks with the elements associated that with the are considered elements relevant that are for therelevant considered establishment for theof a particular nesting establishment system (MRV, of a particular nesting associated with the elements that are considered relevant for the establishment of a particular nesting systemregimes, forestry (MRV, forestry regimes, carbon rights, carbon benefit rights, sharing, benefit sharing, consultations, consultations, safeguards, safeguards, institutional elements,institutional and registry system (MRV, forestry regimes, carbon rights, benefit sharing, consultations, safeguards, institutional elements, and and regulatory registry issues). As and regulatory shown in Figureissues). 27, each As shown element isin Figure 27, reflected in a each element separate is reflected section, with tasks in to a be elements, and registry and regulatory issues). As shown in Figure 27, each element is reflected in a separate section, with tasks to be completed, relevant elements and considerations, and the completed, relevant elements and considerations, and the chapter of the nesting guidance in which the issue chapter of is separate section, with tasks to be completed, relevant elements and considerations, and the chapter of the nesting guidance in which the issue is discussed. discussed. the nesting guidance in which the issue is discussed. Figure Figure27. 27.Components Componentsand Distribution and of of Distribution the Nesting the Element Nesting Element Figure 27. Components and Distribution of the Nesting Element To reflect the successful completion of a task, the user can tick the boxes located under the checklist reflectthe Toreflect To successful thesuccessful completion completion of task, a task, the user ticktick cancan the the boxes located under the checklist column that can be found in each ofof a the the nesting user elements, as boxes shown located in the redunder the checklist highlighted column that circles in column can that can be found in each of the nesting elements, as shown in the red highlighted circles in be found in each Figure 28. The progress achieved by the country toward each nesting subject can be consultedprogress of the nesting elements, as shown in the red highlighted circles in Figure 28. The in the Figure 28. achieved byThe progress the country achieved by the country toward each nesting subject can be consulted in the of horizontal graph at thetoward bottom each nesting of each subject nesting can be subject consulted section, in the highlightedhorizontal in green graph at in circles the bottom Figure 28. horizontal graph at the bottom of each nesting subject section, each nesting subject section, highlighted in green circles in Figure 28. highlighted in green circles in Figure 28. Figure 28. Location of Checkboxes and Subject Progress Bars in Nesting Model Tabs Figure28. Figure 28. Location Locationof Checkboxes ofCheckboxes and and Subject Subject Progress Progress Bars Bars in Nesting in Nesting Model Model Tabs Tabs To allow the user to efficiently manage the resources considered necessary for the completion of Step 2, the DST provides a timeline that describes the usual starting points and duration of tasks associated with each subject. Nesting This timeline of REDD+ Initiatives: informative only in a very general sense; it does not take into account the 88 isPolicymakers Manual for To allow the user to efficiently manage the resources considered necessary for the completion of Step 2, the DST provides a timeline that describes the usual starting points and duration of tasks associated with To allow each the user subject. to efficiently This timeline ismanage the resources informative only in considered necessary a very general sense;for it the completion does not take of Step into 2, the DST account the provides a timeline particularities and that describes national the usual starting circumstances points of any of and duration the users. of tasks A graphic associated description of with each subject. the timeline is This timeline provided is informative in Figure 29. only in a very general sense; it does not take into account the particularities and national circumstances of any of the users. A graphic description of the timeline is provided in Figure 29. Figure 29. Example of Timeline for a Nesting Subject Figure 29. Example of Timeline for a Nesting Subject Nesting of REDD+ Initiatives: Manual for Policymakers 89 Nesting of REDD+ Initiatives: Manual for Policymakers 90 www.forestcarbonpartnership.org