Friday, July 2, 2010

Norwegian Agreement Offers the Best Deal for Indonesia’s Forests

Last month, Norway and Indonesia signed a $1 billion deal aimed at reducing greenhouse gas emissions caused by deforestation in Indonesia. The deal contained two critical elements which, if undertaken with coordination, care and the right spirit, could be game-changing.

The first is a two-year moratorium on new licenses for conversion of natural forests and peatlands. The second is an intention to use degraded lands to accommodate the expansion of the palm oil industry.

Since much of the land under palm oil cultivation was once forested, a natural question is just how suitable degraded lands will be for crop expansion.

If the goal is expansion of a sustainable palm oil industry, we need to find land that is not only biophysically degraded (e.g. deforested and unlikely to recover) but also ask whether the land is economically viable for palm oil (in terms of location and soil type), whether a new plantation is acceptable and beneficial to the local people, and whether the land is legally available.

Making such land legally available (i.e. zoning for palm oil) is a factor the government can control.

With approximately 75 percent of the nation’s land legally tied up as centrally controlled “forest estate” (despite much of it now being empty of trees with little prospect of natural recovery), the Ministry of Forestry could demonstrate its commitment to sustainability by setting aside degraded areas of forest estates for agricultural use.

A positive first step is the commitment within the Norwegian agreement to set up a national database of degraded lands.

At the same time, a national database of “carbon rich” areas — like peatland — and “high conservation value” areas should be established to identify areas that should be off-limits to agricultural production of any sort.

Such planning would guarantee that future licenses for palm oil expansion were granted only on degraded lands, leaving carbon-rich areas for carbon offset revenue.

To reduce greenhouse gas emissions from land use and achieve Indonesia’s 26 percent reduction target (or 41 percent with international assistance such as Norway’s), national plans will need to be communicated effectively to the private sector and regional and district governments.

They will require incentives and, in some cases, compensation, rather than just more regulations.

Another concern is the fact that the moratorium on issuing licenses to convert peatland and natural forests only starts in 2011. Why so late?

Several days after the Norway signing, Forestry Minister Zulkifli Hasan said the moratorium was “not because of the compensation from Norway, but because we want to manage our forests. Since I was appointed minister, I have not signed a single permit for companies to convert natural forests or peatlands.”

Great spirit. So why can’t the moratorium start today?

Further questions concern those licenses issued before the agreement and before the minister’s November appointment.

Companies holding such licenses have a legal right to convert what in the future will be considered off-limit areas. But allowing them to would be inconsistent with the spirit of this agreement.

Companies should be given an option and/or compensation to swap such areas for acceptable degraded areas.

There is no reason for plantation companies to object to accepting concessions on degraded land in the future, at least not from a productivity point of view.

Work by the World Wildlife Fund shows that management systems and fertilizer influence yield much more than previous land use.

But many companies have invested time and money in securing licenses and creating land banks for future expansion, and would resist the transparency required by a system allowing them to surrender this area and swap it for an equivalent site.

The industry has grown rapidly over the past 20 years, and transparency has not been not the norm. Yet demonstrating reduced emissions at a national level requires it.

Regarding such swaps, however, the coordinating minister for economic affairs, Hatta Rajasa, has said that he will not revoke existing forestry licenses from palm oil firms.

“We want to keep to our targets of 40 million tons of crude palm oil,” he said. “We will not take away the existing licenses.” The spirit of this is business as usual.

If the Norwegian deal is to succeed, greatly improved consistency, clarity and coordination between different parts of government will be required — both horizontally (between government departments) and vertically (between Jakarta, the regions and the districts).

This is not the first time that such coordination has been deemed “essential.” Can it work now, when it has failed in the past? Two factors suggest that it can.

The first is the strong requirement for an independent monitoring, reporting and verification body in the Norwegian deal that reports directly to the president.

Second, Norway is a customer, and the customer is king. Norway has granted Indonesia $100 million to build the systems that will produce the service the Norwegians want to buy: reduced greenhouse gas emissions, as verified independently.

And they have a further $900 million set aside to buy these services if Indonesia can supply them.

And we should not forget that Indonesia is a willing seller. If you don’t like the price, the customer or the terms of the deal, don’t sell.

But in this case, the customer desires to pay for precisely what Indonesia wants for its forests, palm oil industry and people — conservation, growth and prosperity.

With the right spirit, this could prove to be a mutually beneficial deal.

Moray McLeish is the manager of the World Resource Institute’s Project Potico (Palm Oil, Timber and Carbon Offsets), a project that is designed to prevent deforestation in Indonesia by diverting planned palm oil plantations from forests to degraded land.

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