As we saw last week the Memorandum of Understanding (MOU) between the Government of Guyana and the Government of the Kingdom of Norway provides for two sets of conditional payments by Norway. First, US$30 million is to be paid this year (2010) to support the Guyana REDD + Investment Fund. Secondly, up to US$250 million is to be paid by 2015 based on certain conditions being met by Guyana. I shall comment on these conditionalities in the agreement later.
For now it is important for readers to appreciate that the REDD programme is part of the United Nations Framework Convention on Climate Change (UNFCC), which is the global mechanism designed to provide cooperative solutions to the problems posed by climate change and global warming. A part of this framework is the Reduced Emissions from Deforestation and Degradation (REDD) programme. REDD-plus extends the programme to incorporate “avoided deforestation.” As readers should know by now the LCDS is based on leaving Guyana’s pristine forests standing that is, its “avoided deforestation.”
Instead of challenging the promised payment of such a paltry sum over six years for so much control of Guyana’s pristine forests; and rallying national support against this pittance the President unfortunately, to say the least, boasted that this sum “is more than the combined loans and grants Guyana receives on an annual basis from the World Bank, the Inter-American Development Bank and the European Union.”
I will not spend time commenting on this negotiating miscalculation or how phoney this comparison is. Christopher Ram has already exposed the latter in his November 15 Business Page by drawing attention to the absurdity of comparing an annual payment with an amount arrived at after adding up projected annual payments over six years. It is worth spending time, however, comparing Norway’s promised payments to 2015 with those projected in the LCDS in order to arrive at some idea of the financing gap that the Draft LCDS as proposed now faces.
In the LCDS the value of Guyana’s forest to the rest of the world in terms of measurable environmental services is given as US$40 billion. This is converted to the equivalent of an annual annuity payment to Guyana by the rest of the world of US$580 million. This estimate has been provided by the McKinsey Group, Consultants to the Government of Guyana. Based on this sum the Second Draft of the LCDS now available strategises its future implementation over four distinct periods of time.
Four phases
The first phase (Phase 1) was scheduled to have been completed last year. In 2009 the LCDS was expected to receive interim payments to facilitate its launch, garner broad international support for the LCDS, and to find financing for an internationally-accepted forest monitoring, reporting and verification (MRV) system. Some of this funding was planned to be received through the World Bank, but most was expected to come from Norway. No specific sum was indicated however, in the Draft LCDS.
Phase2 covers the period 2010-2015. The financial support expected is given as US$60 million initially, rising to between US$230 – US$350 million.
This is about 40-60 per cent of the estimated economic value to the nation of US$580 million. These payments are made to avoid deforestation in Guyana, to invest in the low-carbon economy, to build capacity and promote the development of human capital.
Phase 3 covers the period 2013-20. Financial support grows from the peak of Phase 2 (US$230 – US$350 million) to arrive at the estimated economic value for the nation of US$580 million. These funds will continue to cover all that is intended for Phase 2, and provide for climate change adaptation measures as well.
Finally, Phase 4 covers the period 2020 onwards. The financial support expected in this phase is planned to be above US$580 million as the value of Guyana’s forests is considered as likely to be re-estimated in the future.
Based on these figures the financing gap to 2015 is considerable. For Year 1 (2010), I estimate the financing gap to be US$30 million. For 2011-15, I conservatively estimate the gap to be between US$180 – US$300 million annually. For the whole period to 2015 therefore, the financing gap would fall between US$970 million and US$1.5 billion dollars.
As estimated here the financing gap is the difference between commitments of financial support on offer from Norway, and those given in the Second Draft of the LCDS as an indicative plan of payments to Guyana for implementing the LCDS.
To be sure, the LCDS is premised on multi-country support so the financing gap should be provided by countries other than Norway. What is of particular concern to me is that Norway’s offer of financial support for the LCDS is not nearly as much as the value of earnings from economic activities generated in our forests, which the LCDS could potentially threaten. These include earnings from logging, non-traditional forest products (tourism, wildlife, seeds, nuts, medicines, dyes, herbs barks, etc), as well as value produced from mining.
Too big to fail
For example in a recent study I have completed for the Guyana Gold and Diamond Miners Association (GGDMA) entitled ‘Too Big to Fail: A Scoping Study of The Small and Medium Scale Gold and Diamond Mining Industry in Guyana,’ I indicated that by this year (2010) the small and medium-scale sector could be contributing about one-third of Guyana’s total export earnings. Indeed over the recent six-year period 2003-2008, export earnings from this sub-sector were in excess of one billion US dollars (US$1 billion).
The financial mechanism provided for in the MOU is based on the prior establishment in Guyana of a REDD-plus Investment Fund (GRIF). T
his fund will be run by a reputable international organisation. The fund is also expected to be a multi-contributor financial mechanism. It will be designed to channel funds from all potential contributors to the LCDS, not only Norway. As stated in the Joint Concept Note attached to the MOU financing is focused on two sets of activities.
One of these is the implementation of the LCDS. And, the other is capacity building to improve REDD-plus efforts. The level of support for both is performance-based and reliant on capacity-building. The former is based on several “enabling activities,” which include consultation, organisational building and strengthening, transparency, accountability, oversight and improved governance of Guyana’s forests and REDD-plus funding. The latter depends on universally approved performance indicators related to the reduction of greenhouse gas emissions. As I shall indicate later the Joint Concept Note specifies seven enabling activities and, also goes into some detail the REDD-plus performance indicators, which would have to be met before financial support is forthcoming.