Taking action in the provinces
Published: Jul 18, 2011

Silvia Irawan

Talking through carbon markets in Papua
Silvia Irawan

In the new decentralised Indonesia, the power to protect the environment to a large extent, and for better and for worse, rests with local governments. Although authority over forestry is still vested with the national government, local government leaders face pressures from their constituents to convert the forests for oil palm and other productive purposes. Rural constituents want to lift themselves out of poverty, local governments need the revenues forest industries produce, and many officials are deeply enmeshed in the corruption that surrounds the timber and oil palm industries.

Yet there is also a new trend at the local level. Enlightened local leaders can see that carbon trading provides an alternative approach that can both enrich local people and governments and preserve the environment. In Papua and Riau, there are hopeful signs that local leaders are willing to take advantage of the new opportunities. Papua, home to the last frontier of intact primary forests in Indonesia, has been leading the way for some years. But even in Riau, which seemed to be a recalcitrant holdout and remains a massive deforestation zone, there is a new interest in carbon trading. But the national government and the carbon traders need to act fast before disillusionment sets in.

Ripping up the forests in Riau

Riau province in Sumatra is one of the richest regions in natural resources in Indonesia. There is a famous saying there: ‘under the ground Riau is blessed with oil, above ground it is rich with oil palm.’ For many decades, Riau’s rich oil fields have made the province one of the main contributors to Indonesia’s national coffers, but since the 1990s it has also been a major centre of Indonesia’s oil palm boom. Riau currently has the highest deforestation rate in Indonesia. The total loss of Riau’s forests between 1982 and 2007 is estimated at around 4.2 million hectares or approximately 65 per cent of its original forest cover.

While revenue from oil is mostly retained by the central government, oil palm is important for local communities. The national government has supported smallholding farmers to grow oil palm, seeing the crop as a major vehicle for rural development. According to one recent study, earnings from oil palm contribute as much as 63 per cent of smallholder household incomes in Sumatra, making it a mainstay of the rural economy. Not surprisingly, when land is scarce, local communities often prefer deforestation to conservation. Gaining access to new lands is important for their dream of escaping from poverty.

Besides oil palm expansion, another major cause of deforestation in Riau is timber plantations that supply raw materials to the pulp and paper industry. Two giant pulp and paper companies operating in Riau, Asia Pulp and Paper and Riau Andalan Pulp and Paper, create many jobs for local people. The expansion of timber plantations, however, has come at the expense of natural forests. Timber plantations take up areas that were formerly wild forest, and the companies often seek to obtain cheap timber from forest-clearing activities.

This combination has made Riau local government officials amongst the least sympathetic to conservation in the country. During a field visit I made to Riau in December 2009, local officials repeatedly told me that they needed to put local people’s needs first, and hence had no reason to stop deforestation.

Government stakeholders at every level also obtain benefits from activities such as oil palm and timber plantations in the form of taxes, fees and shared-revenue. District governments can obtain as much as US$49-110 per hectare from logging activities in natural forests over the course of 30 years; conversion of natural forests for oil palm plantation can generate US$282-436 per hectare. Such revenue is important for financing routine expenditures and providing basic public services to local people. However, it is also well known that local government officials often gain other informal benefits – in the form of bribery and financial support during election campaigns – from providing support to oil palm and timber companies.

Due to its high rate of deforestation, Riau has been a target of major campaigns by environmental NGOs. During my late 2009 field visit, almost all local officials I interviewed tried to avoid the topic of deforestation. The visit took place only a few days after a Greenpeace protest, where some activists chained themselves to cranes at a paper mill owned by Asia Pulp and Paper. One top official in Riau told me dismissively that ‘to increase people welfare, we need to allow local communities to plant oil palm. We understand the interest of developed countries that want us to conserve forests. We also know how NGOs are influencing those countries. However let’s put it simply: if our people can eat, only then will they be concerned about the environment.’

Papua goes green?

A visit to Papua in March 2010 painted a completely different picture. When I met local officials there, they were very excited to talk about conservation. Consistently, local officials indicated their pride in the leadership of Governor Barnabas Suebu, and his commitment to the conservation cause. Mr. Suebu was named a ‘Hero of the Environment’ in 2007 by Time magazine for his role in pursuing forest conservation in Papua.

Since taking office in 2006, Governor Suebu has recommended that no new logging concessions be granted to timber companies in Papua. The provincial government has also indicated it wants to designate around 60 per cent of the total lands of the province as conservation areas. This figure far exceeds the national standard where each region is expected to set aside a minimum of 30 per cent of its land for conservation.

Suebu’s commitment to pursue conservation, however, will come at the expense of local revenue generation. Papuan government revenue from the forestry sector is quite significant as a proportion of total revenue generated from taxes, fees and shared-revenues. Commercial logging activities can contribute as much as 10 to 50 per cent of the total revenue from natural resources (including mining) in some districts. Fortunately, the government is now benefitting from new special autonomy funds as a result of special status granted to Papua in 2001. These funds now make up a major portion of the local budget and as a result are easing pressures on forests, at least for the time being.

At the same time, the pressure of land use change is still generally low when compared to Riau. Most members of Papuan indigenous communities live within forests and highly value their forest environments. Forest encroachments for timber and coal have occurred in several locations, but overall the magnitude is much less than in Riau or comparable provinces such as those in Kalimantan.

Local officials are therefore keen to designate some potentially productive lands as conservation areas. In return for preserving carbon stocks in this way, they hope that they will be compensated for the lost revenues they might otherwise gain from alternative land use activities such as commercial logging and oil palm plantations. Since 2007, the governor has been at the forefront of the effort to develop a carbon market in Indonesia, and has communicated with a number of carbon developers to generate carbon credits from conservation in Papua.

For instance, in 2008, the Governor signed a Memorandum of Understanding with New Forests, an Australian firm specialising in environmental markets, to deliver carbon credits to the voluntary market. When signing the agreement, according to the New Forests website, the Governor said ‘I hope this approach can provide a new development path for the forests and people of the Province of Papua.’

One reason why Papua is relatively advantaged in the race to develop a carbon market is that, although forest zones are currently under the control of the Ministry of Forestry at the national level, the Papuan provincial government has a strong bargaining position due to its special autonomy status. Unlike in other provinces, local officials can insist that national government officials sit together with them in the decision making process about land use change. This is a contrast to Riau, which like most local governments in Indonesia, is less privileged. Officials here feel they have little power over forest management, as they are only the implementer of national government policies.

Waiting for REDD

Even so, a little over one year after my first visit to Riau, the situation has changed and local government officials are coming round to the idea that conversation can be beneficial. Their change of heart is in large part due to the massive coverage of REDD (Reducing Emissions from Deforestation and Forest Degradation) in the media. The REDD framework is now being negotiated by parties to the United Nations’ Climate Change Convention, with the goal of generating financial flows to compensate actions that reduce deforestation and forest degradation in developing countries.

Local officials in provinces like Riau, who were very skeptical one year ago, have now realised that conservation can also generate revenue, similar to other productive activities. A top local official mentioned that the governor is now interested in pursuing conservation because of an understanding of the financial benefits. Riau has proposed a number of locations for a potential pilot project under the recent Letter of Intent between Indonesia and Norway, which will disburse a total of one billion US dollars for REDD activities in Indonesia.

In Papua, by contrast, local officials have been positive for longer, but some have now started questioning whether REDD will ever materialise. Despite numerous donors having poured millions of dollars into Indonesia for REDD activities, none of the money has trickled down to Papua, a region that has been waiting since 2007 to generate carbon credits from conservation.

Despite numerous donors having poured millions of dollars into Indonesia for REDD activities, none of the money has trickled down to Papua, a region that has been waiting since 2007 to generate carbon credits from conservation.

The long wait, however, does not seem that it will end soon. The REDD task force established by the president in September 2010 has not yet delivered on its mandate to prepare an institutional arrangement for REDD implementation and to establish a national REDD body (which is due to occur in June 2011). Two months before the deadline, less than five per cent of the total sum of US$30 million provided to support the task force has been spent.

While national government officials are preoccupied with dialogue, talks and frameworks, local governments officials are stuck with dealing with the ever-increasing pressures on forests within their administrative boundaries. Should the trend of deforestation persist, all of the remaining natural forests located outside conservation areas in Riau will disappear completely in 10 to 15 years. In Papua, several national initiatives, such as a planned integrated food and energy production zone in Merauke, will use up extensive forestlands.

With all the uncertainty at the national level, it is quite possible that local governments’ excitement about REDD and conservation will fade away and deforestation will continue as usual.

Silvia Irawan (silvia.irawan@gmail.com) is a PhD candidate in Environmental Management and Development at the Australian National University. She is now completing her thesis on intergovernmental fiscal transfer for conservation using the REDD revenue distribution as her case study.

Inside Indonesia 105: Jul-Sep 2011