Indonesia has formally applied to the World Bank’s Forest Carbon Partnership Facility, a sort-of precursor of the REDD scheme. Launched at the Bali negotiations in December 2007 its objectives are:

• To build capacity for REDD in developing countries; and
• To create and test a series of incentive schemes.

Although Indonesia did not participate in the initial round of funding (totalling $82 million), the Government of Indonesia has decided now is the time to get involved. And there are plenty of good reasons too: $350 million on the table; only two other countries – Guyana and Panama – applying so far; the presence of 20 pilot REDD projects in the country; and the development of the eagerly awaited REDD rules. However two aspects of the submission raise some questions.

Blaming the poor

In the submission it suggests that “the main drivers are extensive forest harvesting by pulp, paper and palm oil firms, expansion into rainforests and peat land by agriculture and forest plantations as well as encroachment by low-income communities into forest lands.” It therefore equates the behaviour of local level cultivators with the huge commercial interests of the timber and palm oil interests. This is problematic because the Indonesian Government has a history of blaming local cultivators for actions that at best, they contributed only partially to. For example, with the fires of 1997-98, local villagers were deemed culpable despite the fact that there was little evidence to prove such an assertion. Indeed current research suggests that these fires come from a variety of sources and that due consideration must be given to local cultivators.

There must be concern that any new funds flowing into Indonesia will be first used against the indigenous users rather than the commercial interests. What safeguards will be put in place to prevent such abuses remain to be seen.

OK: Why did they open up the peat lands?

The submission also provides an analysis into how much the scheme would have to pay to prevent such deforestation. While failing to mention the cost for clearing virgin tropical rainforest, it does provide figures for degraded forest and peat land. To deter palm oil plantations on degraded land would take a pricing of $21.54 (27 Euros) a tonne while for peat lands it would only need to be priced at $4.19 (5.25 Euros) a tonne. Therefore any deforestation scheme based on the current depressed price of carbon (10.83 Euros as of 6^th March) would not deter plantations on degraded land, but would on peat lands. It has also been suggested that Indonesia losses a potential $1 billion a year in opening up the peat lands for agriculture through carbon loss.

It has been suggested that the reasons for the decree are twofold: the upcoming Indonesian elections and the need for money in the light of the global financial crisis. Given the timing of this submission, barely two weeks after the decree I would suggest a third possibility: to ‘encourage’ a pay-out from the Carbon Partnership Facility. By announcing the decree before the submission and then attaching a ‘price tag’ in the submission, the Government of Indonesia is effectively setting a price for this decree to be set aside. And given that it is below the current price of carbon, it can be viewed as a ‘bargain’.

Is this far-fetched? Only time will tell…

The biofuels debate is once again taking the stage, as the more sustainable second generation microalgae based fuels get ready to stamp out the unmitigated disaster presented by the first generation biofuels crops.

The debate is widely acknowledged, among other things biofuels crops such as palm oil and rapeseed, are accused of driving up global food prices, and accelerating deforestation in places like Indonesia and Malaysia. First generation biofuels crops compete for land and freshwater also required by food crops, and the economic incentives for growing such cash crops drive many farmers to switch food crops for such cash crops. Monbiot highlights further political issues, and increases in nitrous oxide – a highly damaging GHG.

However, biofuels developed from microalgae are being hailed as the more sustainable, and highly efficient alternative. Chisti highlights that microalgae are photosynthetic microorganism that convert sunlight, water and carbon dioxide into algal biomass. These oil-rich algae can be converted into biodiesel using existing technologies.  

Microalgae can be grown in wastewater, seawater or non-arable lands so don’t compete for freshwater and land required for maintaining food supplies. Algae has the potential to deliver as much as 6-10 times the energy yield per hectare compared to palm oil; and presents a sustainable alternative to oil use in transport, presenting up to an 80% saving on the current fossil fuel.

Whilst extensive research into algae biofuels was initiated by the US Department for Energy (DoE) in 1980s-1990s in the form of the Aquatic Species Programme, it was soon halted as the price of oil dropped again. However, recent concerns over climate change have rejuvenated interest in R&D to commercialise this technology on a large scale. The Carbon Trust launched the Algae Biofuels Challenge last year, to fund R&D in algae derived transport fuels, with a vision to commercialise their use by 2020. They expect to spend between £20-30m to address upstream technical challenges and develop low cost, high-productivity production systems at scale. 

Many microalgae biofuels plants already exist, with some clustering in the US. However, UK-based Holin Energy confirmed its intentions to build a large-scale microalgae bioreactor this week too. The World’s first Algae Biofuels Summit will be held in San Francisco later this month bringing together experts in this technology to address the industry challenges and take a global lead on commercializing algae biofuels – particularly their application in the transport sector.

Malaysian Palm Oil Futures up to August 2008. Indonesian Palm Oil futures have followed suit and have continued the decline into 2009

Last week the Indonesian government announced the creation of new palm oil plantations on peat lands, causing dismay in the environmental sector. As reported in my blog last week, suggested reasons fall into two camps: firstly it gives the palm oil plantation owners something in an election year and secondly the global recession, thereby providing employment and much needed currency.

Indeed this recession has led to a collapse in commodity prices in general, and palm oil prices in particular, hitting Indonesia hard. While increasing production could partially offset this fall, it would eventually lead to a glut in palm oil and a complete collapse in palm oil futures, similar to coffee in the 1990s. However Indonesia has moved to control the price of palm oil raising the spectre of a palm oil equivalent of OPEC – or OPOEC (Organisation of Palm Oil Exporting countries).

Indonesia, together with Malaysia, controls 85 per cent of the world’s crude palm oil (CPO) output and 40 per cent of the natural rubber production so any agreement to protect the price of palm oil will have global repercussions. However there is another factor in Indonesia and Malaysia agreeing to co-operate with each other: the demand by many importing countries (mostly Europe and the United States) to have Crude Palm Oil (CPO) imports subscribe to the Roundtable on Sustainable Palm Oil (RSPO) standard. At present only one Indonesian plantation meets these standards so in future a potentially paradoxical situation could occur: the price of palm oil will skyrocket because of the non-tariff environmental restrictions on palm oil, yet Indonesia will not benefit because of the lack of accredited plantations.

Therefore Indonesia and Malaysia have agreed a number of measures primarily aimed at boosting domestic demand. These include:

<!–[if !supportLists]–>· <!–[endif]–>Replacing and replanting palm oil plants more than 25 years old thereby reducing supply;

<!–[if !supportLists]–>· <!–[endif]–>Mutual investment in each other’s countries;

<!–[if !supportLists]–>· <!–[endif]–>Joint lobbying of importing countries;

<!–[if !supportLists]–>· <!–[endif]–>Carrying out a bio-fuel program and increasing the amount of CPO in fossil fuels for both public transportation and industrial consumption from 1 per cent and 2.5 per cent to 2.5 and 5 per cent respectively.

Given, for example, Europe’s requirement for at least 10% of the fuel used in transport will be biofuels by 2020, it will be interesting to see what happens first: a ‘rush’ by Indonesian palm oil plantations to get accreditation or a relaxation of environmental standards in the importing countries. By trying to boost domestic consumption however, Indonesia is creating an ‘artificial’, captive market for its products meaning more land will be converted to palm oil production in the future.

As President Yudhoyono was first greeting and then demanding leadership from visiting US secretary of State Hillary Rodham Clinton on climate change, the old saying ‘those in glass houses shouldn’t throw stones’ comes to mind. In particular two recent events do not bode well for the future, namely the re-emergence of the forest fire problem and the decree to use peat lands as palm oil plantations.

Forest Fires

Forest fires are one of the main reasons that Indonesia is the third largest carbon dioxide emitter in the world. Beyond that, it also creates tensions with Indonesia’s neighbours: for example in 1997-8, the forest fires blanketed the whole of SE Asia causing health problems and economic damage. Faced with these issues the Indonesian government has made routine pledges to prevent the situation ever arising again. For example the National Action Plan for Climate Change promises to reduce forest fire hot spots by 50% in 2009. Unfortunately this year, severe fires have already been detected in Riau, Sumatra, resulting in haze over Pekanbaru, the provincial capital. Two factors suggest that this problem will only get worse, not better:

1. El Nino/ La Nina effect: This is a southern hemisphere oscillation that has a large effect on the weather across the globe. As a general rule La Nina brings heavy rain to Indonesia while El Nino conditions are associated with drought. So far this year has been La Nina: nonetheless there have still been hundreds of fires. However these conditions are likely to end in April, with El Nino starting either later this year or next year, resulting in a significantly drier climate, which of course encourages fires.
2. Lack of government supervision: despite government promises to stop the building of commercial sites of forested lands, the recent fires have been directly linked to forest clearance for palm oil plantations. While independent programmes exist to help control burning on the local, subsistence level, there appears to be no such effort in the commercial field.

Peat Land conversion

Peat lands are crucial carbon sinks, trapping CO2 that would otherwise be released into the atmosphere. Greenpeace estimating that Indonesia’s peat lands contain 37.8 billion tonnes. In order to grow palm oil on peat lands, it must be first cleared then drained thereby releasing the trapped CO2 into the atmosphere. Furthermore this practice increases significantly the chances of fires: a report by Wetlands International in 2006 concluded that in this entire process, Indonesia emits 6.5 times the CO2 it does by burning fossil fuels.

Despite this, the government announced new plans to open up peat lands for conversion to commercial palm oil plantations. The agriculture and environmental ministries tried to assure environmentalists that the process will be strictly regulated, will recapture all the carbon lost in the conversion process and that the plantations will not be opened on peat land more than 3 meters deep.

Such claims have led to anger among activists: for example Yuyun Indradi of Greenpeace states “the government needs to protect the remaining peatlands and forests if we are to slow down climate change and protect the livelihoods of forest-dependent communities and biodiversity.” This is also a slap in the face of campaigners who have been pushing for the utilization of degraded land for palm oil plantations (last week’s blog dealt with this issue) rather than forests. It seems that the government has ignored these pleas.

So why? The first reason involves economics and the global recession. Gatot Irianto, from the Agriculture Ministry, admits as much when he said “we still need land for oil palm plantations. We must be honest: the sector has been the main driver for the people’s economy”. The second deals with domestic politics and the upcoming general elections. As Bustar Maitar of Greenpeace accuses “with the general elections coming up, the Agriculture Ministry’s plan is fishy, because it seems like an attempt to satisfy the country’s powerful paper and palm oil industries at the expense of the environment.”

Overall this has been a bad week for Indonesia who once again seems to put short-term economic interests above those of the health of its people and the global climate. By pursuing such dubious policies, it puts at risk Indonesia’s participation in future REDD projects. While it is important to demand action from leading Developed countries like the US, it must also show commitment at home to take action. So far it is failing.

The connections between climate change, deforestation and the growth of palm oil plantations are pretty clear. What to do is another thing. While it is easy enough to demand that the Indonesian government stop creating palm oil plantations this is an unrealistic objective. Caught between a rapidly increasing fiscal account deficit and its stated development goals, palm oil production is, like it or not, here to stay.

There are signs however that changes is afoot. To increase revenue, the Indonesian government would like to expand exports of palm oil to new markets, with Eastern Europe particularly targeted for expansion. However this runs into a major problem: from 2010, the EU will require biofuels to achieve a net carbon dioxide saving over oil of 35%. At present only one out of 300 listed producers do this, primarily because of the huge amount of carbon released into the atmosphere when clearing land away.

Furthermore, echoing one of the conclusions of the Economy and Environment Program for South East Asia (EEPSEA) report, fears about increases in floods and landslides due to deforestation have led the State of the Environment to instruct local administrations to cancel plans to convert natural forest into commercial areas. While putting the emphasis for action on the local administrations Masnellyarti Hilman, from the environment ministry, states that ‘It is time for local administrations to think in the long term rather than simply focus on the economic benefits of the short term, because the threat of natural disasters will most likely increase with climate change in the future’.

A solution? Use degraded land

This has the potential to not only help Indonesia’s economy but provide jobs and potential carbon offsets. Project POTICO (Palm Oil, Timber & Carbon Offsets) aims to rehabilitate 1.25 million acres of degraded land into palm plantations over three years. Created by the WRI (World Resources Institute) and NewPage Corporation, this new scheme was formed partially in response to changes in the US Lacey Act banning the use of paper from illegally harvested trees.

The link between illegal logging and palm oil plantation creation is primarily economic: as it takes four years from planting to generating an income from oil production, the revenue from the cleared timber helps offset costs. POTICO aims to counter this by creating up to three potential revenue streams:

• potential carbon offsets under REDD;
• a sustainable palm oil certification scheme to generate long-term cash flows;
• timber certification whereby oil palm companies with current timber concessions, are paid not to use the timber concessions until the palm oil plantation starts commercial production.

The potential for this is huge: Indonesia has 15-20 million hectares of degraded land. As Jonathan Lash commented “Project POTICO will relieve pressure on Indonesia’s virgin tropical rainforests, reduce greenhouse gas emissions from forest clearing, and prevent the loss of biodiversity in forests slated for conversion to oil palm plantations.”  While hurdles remain to be overcome, especially in how to demarcate degraded land from rainforest, this project suggests a way where palm oil production can increase while reducing greenhouse emissions and stopping deforestation.

A recent report from the Economy and Environment Program for South East Asia (EEPSEA) makes grim reading for anyone concerned about the effects of climate change in South East Asia generally and Indonesia in particular. Combining hazard maps for five climate-related risks (tropical cyclones, floods, landslides, droughts, and sea level rise) with population density and adaptive capacity data, major points of alarm include:

• Climatic ‘hotspots’ in western and eastern parts of Java (see figure 1.);
• Java is one of least ecologically protected areas in South East Asia, primarily because it is the most densely populated island in the region;
• Adaptive capacity to climate change higher than Laos and Cambodia but lower than Malaysia, Thailand and Vietnam;
• Parts of western Java and western Sumatra are extremely vulnerable to climate change;
• Jakarta is the most vulnerable area in the whole of South East Asia.

These alarming findings confirm an earlier Environmental Ministry report declaring that sea-level rise could put parts of Jakarta permanently under water, including the international airport. Given these disturbing conclusions what can be done?

Tackle Primary Causes: Deforestation

Well it is always good to try and tackle the causes of climate change. One of the key contributors is rapid deforestation, with Indonesia experiencing a ‘boom’ primarily in palm oil cultivation. Perceived incorrectly as a clean bio-fuel, palm oil plantations not only destroy the natural habitat of vulnerable species like the Sumatran tiger and Orangutans, but also adversely affect the local population through land loss. Indeed, altogether deforestation pumps over 2.6 billon tonnes of CO2 into the atmosphere, making Indonesia the third biggest source of CO2 in the world.

Reality Bites

This is exactly what the REDD scheme is all about, making money available to prevent deforestation. However as reported in my last blog there has been confusion who will control the inflow of money from donors as well as the disbursements to various sectors. Two further factors suggest government inaction is the way forward. Firstly, the price of palm oil has risen by 70% in the last year making it an integral part of the Indonesian economy. There are plans also to create a palm oil exchange market in Indonesia suggesting that palm oil will be become more important, not less, with time.

Secondly, the Indonesian government has delayed releasing rules aimed at governing the billions of dollars of investment expected to flow into the country in return for carbon credits. Expected in December, these rules were meant to decide who benefits from the selling of REDD credits as well as which forests would be suitable for the scheme. An integral part of REDD is to share the benefits with the local populace which is only to be applauded. But given that it has now been put out for review with no new deadline for release, concern is rising that REDD implementation is stalling in Indonesia and even if implemented will benefit central government over local people.