Published: Jul 30, 2007

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.


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.


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 ( is a researcher in the biological sciences at the Australian National University in Canberra. She attended the Bogor consultation.

Inside Indonesia 62: Apr - Jun 2000