 Now, we will hear about something called reducing emissions from deforestation and forest degradation red. It was presented at 2005 at Costa Rica and Papua New Guinea. It's a way to combat deforestation, and it's a sort of pay for results aid, and someone who knows a lot about this and have followed this for many, many years is Professor Arith Engelsen from Norway. He's a professor of economics at the Norwegian University of Life Science. Welcome. Thank you. I'm going to talk about a particular aspect of red, which is the performance space. There are a lot of other aspects that I will not have time to deal with today. And it's also in the paper that is written, I consider, more than Norwegian, and the experience of that, but it's probably not too smart to come to Sweden and brag about what Norway is doing. So I skip that part for the presentation. No, I'm highly, I'm also quite critical. What is red? And as was said here, red was launched already in 2005, but kind of officially became part of the climate change agenda in 2007 in Bali, action plan, and it defined as follows, policy approaches and positive incentives. Positive incentives means carrots, not sticks to translate. On issues related to reducing emissions from deforestation and forest degradation in developing countries. So that is red. And then comes the plus here, which basically has to do with the enhancement of forest carbon stocks. But it's a bit more here. And, you know, if you want analytical clarity, don't look for political compromises like this. But key characteristics, it's really that it is concerning the actions that we aim to reduce the greenhouse gas emissions from forest and also to enhance the sequestration of that. And this incentives and compensation element, paying for environmental services. Not necessarily textbook, but some kind of direct payment and compensation is a central element that has survived. Now, why should we do that? No, the first thing is ready speak about, here comes from IPCC report. They said it's 7.4% of the total emission from the forestry sector, but it's more or less the same tropical deforestation part of it. And we focus on cars and the transport sector. You can compare these two sectors and see it's big. So if you want to reach the two-degree target, we cannot ignore that. Stern report said it's cheap. For example, a lot can be done for less than $5 per tonne of CO2, which is cheap if you compare to other mitigation sectors. It can also be done quite quickly. It has been promised. Not saying it's easy, but it's quickly. And one illustration is the deforestation in Brazil over the last couple of decades here. And since the peak in 2004, more than 27,000 square kilometers down to less than 5,000 last year. Now, this has to do with a number of things, including falling soy and beef prices at least in this period, but also good policies. So you can't change it. Imagine doing such a reduction in fossil fuel emissions, impossible. So you can do a lot with policies. And it's not easy, but the potential, I think, for red is there. The core idea, as I said, well, I'll get to the last point here, the win-win situation, that it's large transfer. We can achieve a lot of core benefits. And it's a way of compensated conservation, that not the conservation where you're creating parks and excluding people. Well, if you do that, the idea, at least, is to compensate their users for the losses of access and use of the forest. So it's a compensated conservation. And the core idea, as we made it in a book that I was part of in 2008, is this multi-level payment for environmental services program. From aid budget, from carbon markets, you pay the countries in the form of a national red fund, for example, like the Amazon fund that you have in Brazil. And you pay down to the land users, or maybe some local government, for example, the province of Acre in Brazil, that receives funding from the Amazon fund. And in return, you get a mission reduction. This is the core idea, simple. Now what we have seen since the early red days, four or five, six years ago, is a few changes. More objectives have been added. And the plus is a very convenient. It's a diplomatic trick, if you want to have, because plus, each of us can interpret in the way so we can grow our own tree under the red canopy. Co-benefits have been added, both reflecting this interest, but also you have to deliver on, say, the poverty, the livelihoods front in order for red to be acceptable. So there are good reasons, and there are more political economic reasons for this broadening of the objectives. The second, the policies, PES is very hard, and I'm going to talk a little bit about that. So you have go to this broad, PAMs, policies and measures, another ingredient in the alphabet, soup, and two more maybe forest narrow policies, because these PAMs are sometimes tricky to bring about. The scale was very much a focus on national. That's another key characteristic. We don't want projects. We don't want to just win a few battles but losing the war, so it should be a national approach. What we have seen is really a dominance of local level projects, red pilot projects, and maybe less action at the national level. The funding was originally launched by Papua Negini and Costa Rica and Brazil and other countries as the rich countries to pay the poor. But what we have seen is also a stronger country commitment, and the Durban platform from the COP in 2011 was really a, I think, a breakthrough in the way that all countries should participate and maybe go for legally binding agreements, so stronger commitments by the countries, and funding from market to the public. So red, a key part of it is red as performance-based aid. Right now, about two-thirds of international funding is from aid budget, so we have been this, what I've termed, the edification of red. In terms of performance-based, what is surprising is that this experience from the other development aid sectors has not really been brought into the red debate for reasons that I've wondered about. One could be that it's not the same agencies really handling it. For example, in Norway, it's the Ministry of Environment in the driver's seat for red and not the Nourad or foreign affairs. So it's simple. A contract for conditional payment is made, and I quote the former Minister of Environment and Development in Norway, who wrote in his preliminary, I mean, the biography so far. I guess he will write more biographies. Politicians tend to do that. He says this, but with result-based payment, I cannot see any large risks, which is kind of an optimistic statement, and I just put some here, some of the experience that was done, particularly from the structural adjustment programs from the 80s, and Paul Collier writes, this is indeed the core of what conditionality is all about. Aid should buy policy reforms, and, fortunately, it does no such thing. Kellogg the same. Jakob Svensson, a good Swedish economist, who looked at the World Bank project and said, is there any difference in disbursement depending on how countries complied, and the answer is no. So you are accusing the World Bank of being tough on conditionality. No, they have not been. They were very lenient. Here's the challenge, and this is the budget spending pressure that Jakob and others have talked about. There is a strong pressure to spend. Why? Politicians are measured by how much they spend. Bureau bureaucrats within the organization how much they spend. How can we change this? Focus on results rather than aid volumes. But it's also to untighten it from the annual project. Maybe aid tournaments have been mentioned. Third parties to handle the money basically create a positive opportunity cost for aid funds. Not spending is a good thing. It's good to save money for an aid agent, because it has a better alternative to use somewhere else. So basically, in a bit of an economics language, create positive opportunity cost of this fund. Otherwise, these threats about performance-based is not credible. The second is to exactly the performance criteria. And you know this log framework, input activities, process, outputs, outcomes, and finally the results in terms of some impacts. And we would like to move to the right here. That's what we think is good. Now, what are the problems? First, there is a timeline between the cost of action and the payments if we are to the very right of this result chain. Measurement tends to be more challenging. One thing is to say that we have approved a policy, the moratorium of Indonesia. But to really go in, what was the change in the area? What are the emission factors? That is the emission per hectare following the land use. And you need benchmark reference levels. And you need a question of allocating the risk as you move to the right in this table. Benchmark is really the thing I worked on quite a bit on on reference levels. So how do you set that? Now, first, benchmark is very difficult because what are you trying to guess? You're trying to guess about the hypothetical world. What will the world be if we didn't implement that project? And we will never know the answer because it's an if than hypothetical thing. And it's even more difficult in red because it's both how to predict deforestation and degradation, the business as usual. But it's also a question about a fair payment. Who should share the cost of reducing it? I looked at one thing for Brazil. Norway signed an agreement in 2008 with Brazil using a baseline average of last 10 years updated every five years. This is what Norway should have paid, 8.4 billion so far if we follow this. We committed just one billion. Now, think of an alternative way of setting. Just last five years and updated every year, we should pay half. A technical issue, like a baseline, is one billion per year in a result-based system. Uncertainty and risk, I speed up a little bit. It's also something that you have to lead. Result-based tend to put a lot of the risk on the service providers and putting money behind this. I mentioned this, Brazil. Is it really credible if we sign an agreement that which over five years should give Brazil 10 billion dollars but you only have a contract for one billion? You have to put the money behind it to make it result-based. Here are the lessons learned in my last slide. First, red is not unique and we can learn a lot and I don't see a lot of learning and drawing on the experience. In fact, we have the same faith in result-based aid and conditionality as the World Bank and others had 20 years ago. It's difficult. Don't be naive and think we have solved the problem if you just sign a contract. There's a lot of devils in the details. Don't promise more than you can keep and be credible about the payments. Mechanisms to increase the opportunity cost of funds to be credible about the performance-based aid and here are some mechanisms I don't. And the last point, don't make all red aid performance-based. You need elements, I think, of fixed payments. Otherwise, it's not credible. It's like your kids, you're saying, if you're not tidying the room, you will not get no food tomorrow. That's not a credible. But if you say, you will not get ice cream tomorrow. That's credible. And it's a bit of the same here. It's the credibility. You don't want to cut it all because you want to maintain a policy dialogue and also their predictability of the countries.