Does Money Grow on Trees Opportunities and Challenges in the Forestry CDM in Indonesia

1
Does Money Grow on Trees?Opportunities and
Challenges in the Forestry CDM in Indonesia

• Agus P. SariPelangiHelsinki, January 7 8, 2003

2
Outline

• Forest condition in Indonesia
• Forestry as CDM project
• Case studies in Indonesia
• Potential for forestry CDM in Indonesia?
• Whats Next?

3
Forest condition in Indonesia

• Rapid deforestation
• 1984 1998 1.6 ha/yr
• 1998 now 2 2.4 ha/yr
• By 1997, Indonesia had lost three quarters of its
  primary forest
• About half of the remaining is currently severely
  threatened
• The 1998 Reform exacerbates the destruction.

4
The pre-reform era (pre-1997)

• From 1967 (the beginning of Suhartos New Order),
  60 million ha of forestland have been distributed
  to be exploited, resulting almost five-fold of
  log production.
• By the end of 1980 Indonesia was the largest
  plywood exporter with production capacity of over
  12 million m3.
• Then, it supplied 70 percent of the world market
  and generated 3.5 billion revenues per year.

5
The political economy of forest

• Then President Suharto used forest as political
  bribery.
• Collusion and corruption concentrate markets over
  few cronies.
• Forestry industry is grossly concentrated.
• Top 10 groups of companies controlled half of
  total. Barito Pacific, the largest of all,
  controlled 68 out of about 600 concessions, or
  about 6 million ha.
• Economic rent is also concentrated The
  government captured only about 17 percent
  nationally, between 25 33 percent in East
  Kalimantan, and 15 27 percent according to
  recent estimates by Finance Ministry.

6
Economic crisis and post-reform

• Rupiah was devalued to only about 15 percent its
  original value.
• Debt repayment of about 220 billion.
• Prices increased, three-digit inflation
• Unemployment soared.
• Poverty increased from about 10 percent to 25
  40 percent.
• International Monetary Fund (IMF) came to the
  rescue with conditionalities.
• But IMF liberalization recipe contributes to
  exploitation of natural resources including
  forests.

7
Forestry sector reform

• Inexistent in the original draft of the Letter of
  Intent to the IMF.
• But later, several forestry and
  environment-related conditions were included.
• Believed to dismantle monopoly by cronies.
• The public reacted favorably.
• But the government implemented only reluctantly.

8
Forestry reform continued

• Liberalization continued with full support from
  the civil society.
• Commitments from the top management

9
Eight commitments

• Moratorium of primary forest conversion.
• Closing down heavily-indebted industries.
• End illegal logging.
• Restructuring of the wood processing industry.
• Revaluation of forest resources.
• Making reforestation program in line with
  industrial capacity.
• Decentralization in forestry industry.
• Development of national forestry program.

10
Plus four

• Forest fire prevention.
• Rearrangement of tenurial rights.
• Inventory of forest resources.
• Improvement of forest management system.
• But none has been materialized

11
Current forestry issues in Indonesia

• Forest fires
• Illegal logging
• Tenurial and regulatory conflicts
• Pressures from mining companies
• Classic problems
• Globalization
• Decentralization

12
Decentralization

• A slippery path to democracy.
• Local governments obsession to accumulate local
  incomes.
• Conservation is considered a burden to local
  governments
• All expenses, no incomes
• Pressures to exploit or develop to create
  incomes.
• Capacity to manage resources is low.
• Bad governance corruption.

13
Forests and global markets

• Most of the forest products are exported.
• Downstream industries are foreign companies.
• Few international efforts to address forestry
  issues in Indonesia
• ITTO, EU, Japan, US Ecolabel.
• IMF Conditionalities.

14
Multilateral environmental agreements

• Forest Principles.
• Biodiversity Convention.
• Most utilized in Indonesia
• Climate Convention and Kyoto Protocol.
• Underutilized

15
Climate Change

• Temperature increased due to accumulation of
  greenhouse gases in the atmosphere.
• These gases are trapping heat from the sun in the
  atmosphere.
• 30 billion tons of carbon dioxide.
• About 8 billion tons from forestry activities.

16
From Science to Policy

• 1992, Climate Convention was signed in Rio.
• 1995, COP1 in Berlin the Berlin Mandate.
• 1997, COP3 in Kyoto the Kyoto Protocol.
• 2000, COP6 in Den Haag.
• 2001, COP7 in Marrakech the Marrakech Accords

17
Climate Convention and Kyoto Protocol

• Conventions objective to stabilize
  concentration at a level that prevents dangerous
  interference to the climate system.
• Kyoto Protocols target to reduce emissions of
  greenhouse gases by 5 percent from 1990 levels by
  2008 - 2012

18
CDM and Flexibility Mechanisms

• Targets can be achieved individually or jointly.
• Emissions Trading (Art. 17)
• Joint Implementation (Art. 6)
• Clean Development Mechanism (Art. 12)
• Reduce emissions were its cheap

19
CDM

• The only mechanism that can involve developing
  countries.
• Requires Executive Board to operate.
• Can start in 2000
• Poses levy for administrative costs and for
  adaptation.
• Does not mention forestry explicitly.

20
Major decisions in Marrakech (COP7)

• Fungibility that credits are interchangeable
  among mechanisms.
• RMU Removal Unit was created.
• Banking is permitted. Credit from CDM or JI is
  limited to 2.5 percent of initial assigned
  amount.
• Unilateral CDM is allowed.
• CDM Executive Board established and elected.
• Usage of forestry credit is limited to 1 percent
  of assigned amount in 1990.
• Further decisions on forestry CDM are deferred to
  COP9, this year (2003).

21
Remaining issues

• The extent of removals.
• (Carbon) accounting.
• Leakage.
• Permanence.
• Potential for perverse incentives.

22
Other remaining concerns

• Distribution of benefits.
• Reward bad forestry companies.
• Impacts on local communities.
• Impacts on biodiversity with monoculture
  plantations.
• How the project supports sustainable development
  of the host country.

23
Climate change in Indonesia

• About 800 MT annual emissions.
• 550 MT from deforestation.
• 250 MT from energy and industrial activities.
• Signed and ratified the Convention.
• Signed the Kyoto Protocol and in the process of
  ratification.
• Institutional arrangements for policy development
  and for CDM authority are being established.
• Led by the Ministry of Environment.
• One of the most advanced in Asia.

24
Case studies on forestry CDM in Indonesia
global-local interplay

• Jambi
• West Kalimantan
• Central Sulawesi

25
The role of government

• Government remains the strongest player.
• Pre-reform
• Forestry office of the provincial government.
• Provincial office of the Forest Department.
• Post reform
• Forestry office of the district government
• Bupati (District Head)
• Unstable

26
Problems due to the changes

• Conflict of authority between the old- and
  new-players in the government (post-power
  syndrome).
• Unruly decrees from the bupatis (district heads).
• Overlapping permitted areas.

27
More problems

• Big players (companies) went under even
  state-owned ones.
• Reforestation fund is still collected and managed
  centrally by the national government (issue of
  distribution of funds).
• The local governments used the Timber Utilization
  Permit as local levy.

28
The role of the civil society

• NGOs are effective watchdogs
• Notably the Forest Saviors Forum of Jambi, but
  was dissolved due to conflicts among its members.
• Tribal and local communities are far behind.

29
Constraints

• Tenurial and regulatory conflicts continue to be
  the largest underlying causes of destruction.
• Largest problems land clearing (including
  burning) and illegal mining.
• Forest fires and illegal logging continue to be
  problematic.
• Corrupt officials involved in illegal logging
  exacerbates the problems.
• Limited resources pose additional challenges.
• Reforestation programs are constrained and
  limited.
• Back to the traditional law.

30
Example Taitukong Agreement in West Kalimantan

• Mandor Reserve has to be saved.
• Traditional law and punishment for trespassers.
• Traditional law supported by government and
  protected by security officers.
• Establishment of multistakeholder team.
• No bribery.
• Local governments to be consistent.
• Stringent law enforcement.
• Punishment for corrupt officials.

31
Plantation?

• The existence of plantation is considered
  detrimental to the community.
• Negative views instigated public education
  campaign by state-owned companies, with no avail.
• While the community is forbidden to encroach, it
  has been more rampant in the last 10 years.

32
Potential for CDM in Indonesia?

• Among the three areas studied, Central Sulawesi
  is the only place that can potentially be
  developed.
• Large critical land.
• Minimal conflict.
• Supportive government.
• But information about climate change and CDM is
  not widely available or understood.

33
Whats Next?

• Objective information dissemination.
• More research is needed to generate information
  to understand the issue.
• Public education.
• Local language, local context.
• Capacity building.
• To develop and monitor projects
• Small scale, locally-managed CDM projects.

34
What next?

• Address the underlying causes of forest
  destruction and degradation.
• Tenurial and regulatory conflicts.
• Corruption.
• Over-demand.
• Reduce risks.