Determining Incremental Costs in GEF Projects Sub-regional Workshop for GEF Focal Points in Asia 15-16 May 2008, Manila The Council requested the Secretariat to organize a orientation for new Council Members and Alternates in conjunction with Council meetings.   Introduction of the new Council Members & Alternates.

Results from evaluation of GEF Office of Evaluation Council Request Presentation outline The GEF Instrument Results from evaluation of GEF Office of Evaluation Council Request Proposed Operational Guidelines

GEF Instrument & Incremental Cost The GEF Instrument states that “the GEF… shall operate for the purpose of providing new and additional grant and concessional funding to meet the agreed incremental costs of measures to achieve agreed global environmental benefits” in the GEF focal areas. Preamble – GEF Instrument p.9 and paragraph 1 The GEF was established in the World Bank as a pilot program in 1991 It was established in part to respond to the financial implications which were expected to result from the global conventions (UNFCC and UNCBD) which were under negotiation at the time. The GEF provided a potential means to support the CBD and UNFCC and to assist in financing efforts to address the underlying causes of global environmental degradation. At the UN Conference on Environment and Development- better known as the Earth Summit - Agenda 21 was adopted and a work program was agreed upon in which the role of the GEF was recognized A number of participants called for the GEF to be restructured to fully respond to the needs of the conventions. A central premise in the international agreement to establish the GEF was that it would not became a new international institution, but rather rely for project development and implementation on three IAs. .The restructuring negotiations resulted in the GEF Instrument in March 1994. The GEF Instrument is ____ 75 governments were parties to the Instrument which was approved by the governing bodies of the three IAs - – Hence, the first partnerships were formed. The Instrument established the GEF Trust Fund and the first replenishment was from 1994 to 1997 The second replenishment was from 1998 – 2002, The third replenishment was from 2002 –2006 The GEF Secretariat will begin negotiations for the next replenishment early next year with a view to finalizing replenishment for GEF 4 by 2006.

GEF Project Structure Type of Costs Source of Funding Outcomes directly creating GEB GEF and non-GEF Incremental costs Increment related to GEB Outcomes creating both, GEB and national benefits Negotiation Outcomes directly creating National Benefits Business-as -Usual related to National Benefits Costs associated with the ‘Business-as-Usual” Non-GEF

GEF Evaluation Office GEF/ME/C.30/2, Evaluation of Incremental Cost Assessment (December 2006) - Results The principle of incremental funding is alive and well in GEF projects There remains weak understanding and much confusion about incremental cost concepts and procedures Most project documents register low quality and compliance when measured against GEF requirements for incremental cost assessment and reporting As currently applied, incremental cost assessment and reporting do not add value to project design, documentation and implementation Although all levels of the environment are interconnected, the GEF focuses specifically on those aspects that can be characterized as global. GEF is a Co-financier A key to understanding the GEF, and to assessing whether a project is eligible for GEF support, is the fact that the GEF co-finances projects--it does not finance them. All GEF projects bring together multiple partners and multiple sources of funding to achieve their aims. While GEF funding does not replace traditional development funding, it provides “new and additional” funds to address global environmental issues. Commitments by multiple partners increases the chances for attaining permanent results.

Council Request Council requested to address these issues, moving towards a more pragmatic, simplified, strategic and cost-effective approach to determine the incremental costs of GEF projects.

Simplifies the process of negotiating incremental costs Proposed Approach Consists of five steps Simplifies the process of negotiating incremental costs Clarifies definitions Links incremental cost analysis to results-based management GEF project cycle

Proposed Operational Guidelines STEP 1: Determination of the environmental problem, threat, or barrier, and the “business-as-usual” scenario (or: What would happen without the GEF?); STEP 2: Identification of the global environmental benefits and fit with GEF focal area strategic objectives and programs: STEP 3: Provision of the incremental reasoning and GEF’s role, STEP 4: Development of the result framework of the intervention; STEP 5: Negotiation of the role of co-financing The Global Environmental Focal Areas The environment has innumerable dimensions, but to address problems plaguing the environment, scientists and policymakers divide them into aspects that are primarily local, national, regional, and global in nature. Although these aspects are all interrelated, the GEF focuses on challenges that are global in scope: Biodiversity (loss of Biological Diversity) Climate Change International Waters (degradation of the Oceans and large bodies of fresh water shared by more than one country) Ozone Depletion Land Degradation

5 Step Incremental Cost Analysis At PIF approval At CEO endorsement During Implementation and at Completion STEP 1: Analysis of “Business as Usual” Scenario Overview of environmental problems and ongoing programs, policies, and political commitments What would happen without the GEF? Detailed problem/threat/barrier analysis; detailed analysis and quantification of the ongoing projects and programs (foundational and catalytic interventions) How would the proposed project outcomes be affected if GEF would not invest? Reporting on GEBs in annual project implementation review (PIR) and final terminal evaluation (TE) using the indicators and tracking tools for each focal area STEP 2: Analysis of Global Environmental Benefits and Strategic Fit Identification of the type of GEB, and general understanding of the expected loss in GEB without GEF support; identification of the Focal Area Strategic Program Indicators, definitions and tracking tools for the relevant GEB; Confirmation of how the project will address Focal Area Strategic Program objectives and outcomes STEP 3: Incremental cost reasoning and GEF role Simple narrative of the main reasoning and estimate of the costs associated with the expected GEB (indicative amount) One-page narrative explaining the distinction between GEF increment and underlying project Agreement on the incremental costs Reporting in PIR on disbursement of GEF funds according to incremental reasoning, and lessons learnt for future projects STEP 4: Determination of Result-based Framework Vision and goal of project. Main outcomes expected Detailed logical framework matrix, including relevant indicators, risks and assumptions Reporting on achievement of objective and outcomes of project through PIR, Mid-Term Evaluation (MTE) and TE. STEP 5: Role of Cofinance Simple narrative of the main reasoning, expected sources of cofinance Elaborate on the feasibility of the future project without GEF investment. Identification of source, amount and type of cofinance. Identification of cofinancing sources and amounts that will pay for GEB. Outcome-based budget table showing GEF and cofinance by outcome. Reporting in PIR, MTE and TE on amount of co-finance leveraged.