Carbon trading under the Kyoto Protocol will benefit Indonesia's forests
Merrilyn Wasson
On February 28 and 29, forty Indonesian and
international experts on climate change met in Bogor to discuss the
implications of carbon trading for Indonesia's forests. Led by
Assistant Environment Minister, Pak Aca Sugandhy and scientific
advisor, Professor Daniel Murdiyarso, the theme of the meeting was the
potential impact of Clean Development Mechanism investment in the
forest sector. There was consensus on the potential value of carbon
trading through the Clean Development Mechanism (CDM). But there was
considerable debate on how the CDM could or should operate in practice,
in the current climate of reform in Indonesia's forests.
One fundamental issue had to be
addressed first at the Bogor consultation. Should Indonesia's
ecologically sensitive and economically valuable forest sector, with
its troubled history of deforestation, tenure uncertainty and timber
companies with a reputation for corruption, be part of the growing
global market in carbon emission reductions?
The CDM is set up by Article 12 of the Kyoto Protocol. It enables
industrial nations to help meet their greenhouse emission reduction
targets by investing in emission reduction projects in developing
nations. These investments must meet three essential criteria: they
must result in measurable emission reductions, the investment must
promote sustainable development, and it must benefit the host
developing nation.
Investment in forests and other land-based carbon 'sinks' has the
additional benefit of actually reducing the amount of carbon in the
atmosphere. Article 3 of the Kyoto Protocol has the effect of limiting
investment in forest sinks to projects which promote reforestation, or
the 'afforestation' of land that has historically been used for other
purposes.
Given these criteria, and the fact that CDM investment is Foreign
Direct Investment which does not increase national debt, as well as the
fact that deforestation in Indonesia has now reached an estimated 1.6
million hectares annually, CDM investment in reforestation seems highly
desirable.
Controversy
Unfortunately, in the international negotiations on climate change and
the Kyoto Protocol, controversy still surrounds the inclusion of
forestry projects as recipients of CDM investment in developing
nations. Political and economic tensions between the industrial or
Annex I nations complicate this debate. As a result, the 'reality
check' of tropical deforestation tends to be ignored.
Tropical deforestation accounts for 28% of all greenhouse gas emissions
annually. That's 2.2 gigatonnes of carbon. According to the
calculations of Indonesia's international expert on greenhouse
emissions, Professor Daniel Murdiyarso, the 1997/8 trans-boundary haze
crisis from forest fires added another gigatonne of carbon to the
atmosphere.
Given these figures,
international opposition to investment in CDM projects in tropical
forests borders on the absurd. Indeed, opposition to the inclusion of
carbon emission reductions in tropical forests would be absurd but for
one factor. There is genuine concern among some international and
Indonesian NGOs dedicated to the protection of forest ecosystems, that
investment in CDM projects might lead to the unintended outcome of
increased deforestation. How real is this possibility?
The year 2000 is the official start for banking carbon credits from CDM
projects. It coincides with an ongoing process of political and
economic reform in the forest sector in Indonesia. Reform has so far
encompassed revelations about the extent of timber corporation
indebtedness, as well as customary (adat) claims over forest land held
by the state. In the future it will result in the decentralisation of
forest resource allocation to the provinces. To add to the complexity,
the day after the Bogor consultation ended, hot spots from fires in
Sumatra's Riau and Jambi provinces were located by monitors in
Singapore.
Against this background, can CDM
investment in Indonesia's forest sector be a mechanism for reform, or
will it be another drain on forest resources? Specifically,
Will it slow or increase the rate of deforestation of natural forest?
Will CDM projects improve the sustainable production of timber products?
Can CDM investment support more equitable access to forest resources for all socio-economic groups?
How will the Indonesian economy benefit?
Investment must be restricted to reforestation or rehabilitation of
degraded forests, or to plantations established on land used
historically for other purposes. CDM reforestation and rehabilitation
projects must satisfy the criteria of sustainable forest management,
ensuring soil conservation and the protection of water quality. It may
also be possible to invest in protected forests if it can be
demonstrated that they are in danger of deforestation. So far so good,
and there is more.
To make sure that all three criteria for CDM projects are fulfilled, an
international examination board will be set up to verify the 'credit
worthiness' of each project. In addition, the host nation has the final
control over investment guidelines and can prevent or abort projects
which do not adhere to national guidelines and the criteria of Article
12 of the Kyoto Protocol.
No system is immune from human ingenuity to produce socially
undesirable outcomes. But this double check on CDM projects at both the
national and international level will comprise a new development in the
monitoring of forest resource use.
There is another consideration. Far too much money has been invested in
Indonesia's pulp, paper and plywood industry. This is a critical
problem. It is a major cause of deforestation and, possibly, social
unrest. Concentrating investment instead in sustainable reforestation
and rehabilitation is a partial solution to the reconstruction of the
forestry industry after the crony capitalism of the New Order regime.
Equitable
Can CDM investment support more equitable access to forest resources
for all socio-economic groups? The investor from an Annex I nation can
only strike a CDM project contract with the owner or concession holder
of the land or forest sector to be reforested, afforested or protected.
But the presence of a CDM project need not retard a change of ownership
envisaged by advocates of more equitable forest access, so long as the
Indonesian government acts as guarantor for the continuation of the
project. This solution is in harmony with the people-based concept of
forest ownership under Indonesia's constitution, and enables the CDM
project to continue while still allowing for changes in 'ownership' of
the project area.
The willingness of the Indonesian government to act as guarantor is
essential, as the credit worthiness of some sink investments may
require a period of time longer than the current concession tenure.
How will the Indonesian economy benefit? Obviously, payment will be
made for the tonnes of carbon absorbed from the atmosphere by the
trees, or prevented from entering the atmosphere. This can either be
made to a central fund, like the existing Reforestation Fund (Dana
Reboisasi), for redistribution to other economic priorities, or it can
be kept by the host community or company
A CDM project will not have a monopoly on forest use. The distribution
of other profits from the harvesting and sale of timber products is
likely to be a matter for negotiation between investor and host, taking
into account the transaction and establishment costs and risks
associated with the CDM project.
Perhaps the greatest economic benefit will come from the contribution
of reforestation and sustainable forestry to the environment. For
example, the government has estimated that loss of fisheries costs the
country US$4 billion per annum. Mangrove reforestation restores fish
breeding habitats, controls land-based pollution and protects other
fish habitats like sea grasses and coral reefs. This is one example of
an ecological benefit from reforestation which has direct economic
benefits. And there is the benefit of additional employment.
Like every nation, Indonesia is vulnerable to the adverse impacts of
climate change. And like every nation, Indonesia makes a contribution
to the problem, especially when land-clearing fires burn out of
control. Yes, there are risks associated with CDM investment in the
forest sector. But the benefits effortlessly eclipse them.
Merrilyn Wasson (wasson@rsbs.anu.edu.au)
is a researcher in the biological sciences at the Australian National
University in Canberra. She attended the Bogor consultation.
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