A benefit sharing mechanism is the system(s) or channel(s) through which monetary and/or non-monetary benefits are distributed. This mechanism can support the timeliness of sharing of benefits as well as the credibility, trust, financial soundness, and acceptability of the benefit sharing process.
When developing benefit sharing arrangements, programs can review existing benefit sharing mechanisms and processes in the country or jurisdiction, including their legal and institutional frameworks. This process is particularly valuable because such existing mechanisms may be used for benefit sharing under the emission reductions program, foster trust and transparency for the benefit sharing process, and/or illuminate lessons that could be learned from. Examples of such relevant mechanisms include, but are not limited to, existing PES schemes, conservation funds, REDD+ projects, jurisdictional results-based finance programs (including bilateral programs), reforestation funds, and others.
Regardless of the benefit sharing mechanism and approaches identified, it is good practice to consider the most effective and low-cost way to reach beneficiaries. Consideration should also be given to the timeline for benefit distribution given results are paid for ex-post and the flow of monetary and non-monetary benefits through the benefit sharing mechanism is likely to require time after the payment is made.
Specifically, decision making, funds flow, and reporting processes are critical for the operation of the benefit sharing mechanism. Disclosure of this information and inclusion of key stakeholder groups, including marginalized groups, in these processes can increase transparency and trust in the emission reductions program. For example, some programs identify a multi-stakeholder platform or committee to review proposals for and reports on the use of monetary and non-monetary benefits.
The following information related to institutional arrangements and governance is useful to document and communicate:
Ability to transfer funds to relevant beneficiaries and the distribution channels required to do so, including any gaps to be addressed.
Institution(s) responsible for benefit sharing, including those that will receive the results-based finance and to which institutions it will be distributed, including their capacities and related gaps.
Institutional arrangements for decision making, funds flow, and reporting related to benefit sharing, including selection criteria for governance structures and their make-up and responsibilities.
Costs of implementing benefit sharing arrangements, including those related to consultations, communications,vestablishing systems to distribute benefits, financial management procedures, responding to grievances, and monitoring implementation.
Timelines for benefit sharing, taking into account the anticipated timing of emission reductions generation, emission reductions verification, and results-based payments, as well as any risks to these timelines.
Benefit sharing should be grounded in a clear legal framework to support and enable the necessary agreements and collaboration.
Some flexibility in the legal and institutional arrangements is needed—for example, defining them through regulations rather than laws—to be able to make adjustments in beneficiaries, benefits, institutional composition, and activities over time such that the program can respond to lessons learned and changes in context.
Substantial technical and administrative capacity is needed to administer benefit sharing in a way that effectively and equitably distributes resources. Partnerships with nongovernmental organizations (NGOs), private sector actors, and others to provide services and build capacity can be helpful to improve efficiency and effectiveness while also benefiting from local knowledge and presence.
It is often most efficient and effective to capitalize on existing institutions if they have the legitimacy, capacity, and thematic relevance to the program—strengthening these where necessary—given that new laws and institutions require significant time, resources, and political will; otherwise, establishing new institutions may be more appropriate.
Significant up-front financial resources are often required to cover the many costs associated with designing and initiating a program—conducting adequate stakeholder input, documenting baselines, establishing new institutions, implementing activities—before results-based payments can be made.
Transparency around financial management, including regular audits, can build trust and participation in the program, but they can also increase overall operating costs. Adopting a simple approach to calculating, monitoring, and delivering benefit transfers helps enable wider public understanding.
Transaction costs should be assessed, both to reduce them where possible and to adequately budget for them so as to not undermine project efficiency and effectiveness.
Benefit sharing mechanisms should have clear, accessible, impartial, culturally appropriate, easy-to-understand grievance and redress mechanisms that operate in a timely manner.
Challenges delivering benefits to beneficiaries with relatively lower capacity
Madagascar’s Makira Project helps local communities overcome literacy barriers to improve access to incentives for sustainable forest management.
In Madagascar, many of the communities around the Makira Project are in isolated areas (some are up to three days’ walk from the nearest transport) and over half of the heads of households are illiterate. Although Tany Meva, the entity charged with managing and disbursing funds, originally requested detailed and costed proposals for non-monetary benefits, many community management associations (VOIs) sent brief descriptions for their proposed use of the community funds.
To overcome this barrier, Tany Meva staff visited villages to help communities develop a full project proposal by establishing project feasibility and estimating costs. In some cases, communities were able to get support from someone with a higher education level to prepare a project dossier, which led to their project being prioritized.
Tany Meva typically provides advances to communities to implement planned activities, and based on technical and financial reports, a second installment can be requested. Alternatively, Tany Meva would purchase the materials and organize their transport to the communities. This led to significant backlog and delays in delivery of benefits. In some cases, agreed incentive payments for patrols were not made for up to six months, which reduced community motivation to protect the forest and led to complaints from the communities.
Different types of service providers supporting benefit sharing
Ecuador’s Socio Bosque Program establishes cooperatives with civil society to boost program effectiveness.
In Ecuador, the Socio Bosque Program (SBP) has collaborated with the Ministry of Environment to establish cooperative alliances with civil society organizations. These alliances support local families and communities interested in participating in the SBP by providing information on the program and preparing documentation for applications. In several cases, additional activities are implemented, such as training forest rangers, support on financial planning and management, or investment in compatible productive activities such as agroforestry or ecotourism.
Private sector partnerships help landowners gain better access to finance from Australia’s Emissions Reductions Fund.
In Australia, a new type of private sector actor has emerged to provide administrative services as a “carbon service provider” to support the development of projects and enable landowners to access finance from the Emissions Reductions Fund (ERF). In order to participate in the ERF, project proponents must develop detailed documentation explaining how they will deliver emission reductions using approved methodologies and how they have the legal right to undertake the project, both of which are relatively complex to demonstrate. Therefore, service providers can help with preparing reports, conducting monitoring, organizing audits, and submitting reports.
Improving transparency while reducing transaction costs
Electronic payment systems enable beneficiaries to more efficiently benefit from Vietnam’s Payments for Forest Environmental Services program.
Beneficiaries in Vietnam’s Payment for Forest Environmental Services (PFES) program are spread across the country with payments disbursed to village funds, household groups (of up to 20 families), cooperatives, and individual households, making the disbursement of payments a substantial task. The program was originally designed with electronic payments used only for groups; however, with an increasing number of people online and with access to electronic banking, an electronic payments system to individual households is being piloted. This development was requested by ministries to improve transparency of financial management between provincial funds and beneficiaries. As an added benefit, the pilots of this electronic system have demonstrated reduced transaction costs.
Inclusion of indigenous peoples, women, and marginalized and/or vulnerable groups
Indonesia’s Katingan Mentaya project reduces barriers to the participation of vulnerable and marginalized groups in the preparation and implementation of the project.
The Katingan Mentaya project in Indonesia strives to reduce barriers limiting the participation of indigenous peoples and vulnerable and marginalized groups in the preparation and implementation of the project. This has involved three strategies:
Nepal’s community-based forestry program requires women and other marginalized groups have equitable access to decision making.
The Community-Based Forestry Program in Nepal mandates that each Community Forest User Group’s management committee is made up of 50 percent women and also has proportionate representation from other marginalized groups (indigenous peoples, minority ethnic groups, poor, and/or socially marginalized groups), along with promoting regular communication and public auditing and hearings. Community Forest User Groups are required to allocate at least 35 percent of their income for poverty alleviation specifically focused on socially marginalized groups, indigenous peoples, and women.
