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 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.