Results-Based Financing (RBF) is a concept comprising a range of public policy instruments, whereby incentives, rewards, or subsidies are linked to the verified
delivery of pre-defined results. The CSI team has developed a RBF framework for promoting clean stoves.
Past stove programs have followed public procurement procedures, meaning that public entities have been responsible for making stove technical specifications and identifying eligible service providers, delivery methods, and end users to receive subsidized stoves. Payments have been made against the stoves purchased and associated delivery service. Under the RBF approach, public entities would specify the intended results, verification methods, and associated subsidies, and payments would be made to the service provider against verified delivery of the stoves and their operational performance.
The RBF approach focuses on results that the public sector cares about and rewards the private-sector suppliers who can deliver them. Investment and performance risks shift from the public to the private sector. In turn, private-sector suppliers have the flexibility to innovate in designing, producing, and
selling defined clean stoves that are eligible for targeted incentives.This flexibility is vital to stoves market development since stoves must fit local conditions, including customary cooking practices, affordability, and availability of local resources and after-sales service. The success of stove suppliers depends on
understanding such local conditions.
The RBF framework developed under EAP CSI includes three key building blocks—(1) defined clean stoves,(2) results-based incentives, and (3) a monitoring and verification (M&V) system—supported by two pillars—(1) institutional strengthening and capacitybuilding and (2) awareness-raising campaigns. The details of the framework can be found in the 4-pager brief note which is available under the knowledge resources and the following link: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/12/05/000386194_20121205041308/Rendered/PDF/…
Although the concept seems straightforward, how to operationalize the RBF framework could be challenging:
- How to define and measure the results that link to the disbursement of payment to the private sectors?
- Are the private sector willing to take the pre-financing risks? Are they able to get pre-financing at all?
- How to define subsidies level? Are they sustainable? Will they support or kill the private sector?
- How to balance the verification costs and precision of verification? What's the budget for verification costs? What's the tolerance level for errors?
- What's the good way to channel the subsidies? Goverment direct payment? Through a commercial financial institution? to the private sector, or to the end users?
The development of the clean stove industry in China has been largely depending on the government subsidies program. The RBF approach has been recently piloted in two villages, under China CSI program. Has it made any difference compared to the traditional approach? Indonesia has completed the detailed design of the RBF pilot program, under the Indonesia CSI program. As part of the RBF pilot, a call for stove technology was launched in Feb, 2014 and call for private participation in the pilot program will be launched soon. What are the considerations for the design? Mongolia is already using the approach through the ongoing Ulannbaatar Clean Air project. What are the experiences so far? Lao PDR is also exploring the RBF approach with particular focus on health impacts. Will it be a promising way to scale up? GERES has implemented the largest carbon financed (one type of RBF) improved cookstove project in Cambodia. What are lessons learned?