U.S. Experiences with Results-Based Finance: Forest Carbon, Markets And Communities (FCMC) Program
This technical report provides an overview of the U.S. Government’s experience with results-based financing, including lessons learned domestically and abroad through foreign aid including from within the Reducing Emissions from Deforestation and Forest Degradation (REDD+) program. Results-based financing has been a prominent feature of programming within the USAID health (24 examples identified at USAID in 2011) and education sectors.
A number of challenges exist for the U.S. Government before scaling up results-based funding for REDD+. For example, results-based payments cannot usually be made indefinitely; therefore mechanisms must be put in place to consider how payments can be used as transitional finance, while also being integrated into broader low emissions development pathways that include forest conservation and enhancement. These payments, however, can be a catalyzing force to help developing countries grow their economies in a sustainable way, and because of this should be considered.
Additionally, the report outlines how the United Nations Framework Convention on Climate Change (UNFCCC) has used results-based payments for some time within bilateral agreements and government contracts to help ensure program performance. One example from the U.S. of results-based payment is the “no child left behind” program that ties federal funding to the achievement of specified performance indicators.
Excerpt from the report:
With regard to support for “phase 3 of REDD+” or the use of results-based payments, while there are examples of successful implementation of such finance mechanisms for environmental services domestically and in the health and education sectors internationally, the US Government faces some challenges to supporting results-based finance for REDD+ abroad. These challenges include:
- A lack of legislation, or legal precedent, that would provide an underpinning for supporting new, scaled up finance for mitigation abroad.
- The use of US foreign assistance precludes a pure “cash on delivery” system.
- The US Government budget is under pressure.
- It is extremely difficult for the US to pledge out-year funding.