Indonesia Delays Forest-Carbon Rules

David Fogarty, PlanetArk 20 Jan 09;

SINGAPORE - Indonesia has delayed releasing complete regulations on using carbon credits to protect rainforests, preferring to fine-tune rules that could earn the country billions of dollars and curb the pace of climate change.

A report sponsored by the World Bank and Britain's Department for International Development says up to 84 percent of Indonesia's carbon emissions come from deforestation, forest fires and peatland degradation.

The rules, believed to be the first of their type, have been through numerous drafts over the past year to govern a surge of investment in projects that aim to save millions of hectares of forest in return for tradable carbon credits.

The World Bank says there are now nearly two dozen Indonesian forest-carbon projects under various stages of development under the U.N.-backed scheme called REDD, or reduced emissions from deforestation and degradation.

But the Ministry of Forestry has not finalized all the rules on how to share revenue from forest-carbon projects or how to link the various layers of government and has ordered a review.

Investors had hoped the minister would sign all the rules in December. Instead, the ministry issued a set of preliminary regulations covering demonstration activities, and also created a working group on climate change.

"We are still discussing how to differentiate between private investment and public investment," said Wandojo Siswanto, a senior adviser to the forestry minister.

"For example, if a private company wants to sell its REDD credits, where does the money go? To the local government, to the provincial government, the federal government?" he told Reuters.

The brief, preliminary rules were signed on December 11.

"Demonstration projects are an investment designed to show how you can reduce carbon emissions by managing forest land, such as reducing deforestation, preventing forest fires, restoring degraded forests," said Josef Leitmann, Environment and Disaster Management Coordinator at the World Bank in Jakarta.

The government, holders of a license to use timber-forest products, private forest owners and traditional forest managers can conduct these projects, which have to be approved by the ministry, said Luke Devine of Baker & McKenzie's member firm Hadiputranto, Hadinoto & Partners, in Jakarta.

The ministry has yet to formally sign the remainder of the regulations, which in earlier drafts enshrined the creation of a REDD commission that will review and approve projects. Sorting out how to share revenues from projects has been passed to the finance ministry, which will issue a separate decree.

The Indonesia Forest Climate Alliance estimates that REDD revenues could range between $500 million and $2 billion annually.

The ministry is also finessing which type of forests are suitable for REDD projects, methods to monitor the forests to ensure they remain standing and how to verify CO2 reductions.

"There are 20 different REDD demonstration projects at various stages of development around the country. The market is clearly responding," said Leitmann.

"There is also a legitimate concern by the government, which doesn't want a lot projects going ahead by unscrupulous developers that, should they backfire, will pollute the market and reduce the image of Indonesia in the market."

A present, most REDD projects are conducted by the voluntary carbon market and the credits are bought, for example, by corporates seeking to offset their emissions. Offsets are usually priced between $4 and $10 a tonne of CO2 saved.

But the United Nations wants to include REDD in the next phase of the Kyoto climate pact from 2013, meaning REDD credits could greatly expand the U.N.'s existing carbon credit scheme and drive large-scale forest protection in developing nations.

A key part of REDD is to ensure local communities get a substantial share of the revenue as an incentive to keep the forests standing and to provide alternative livelihoods.

"The regulations need to be clear as to the roles of the various levels of government," said Devine.

"There has been a theme of central government control running through the various drafts to date, requiring all projects to be approved by central government bodies before being licensed as REDD projects," he told Reuters.

He said there also needed to be clarity on the sharing of REDD benefits between developers and government and also how the government's share is further distributed.

Global environmental group WWF backed the need for the rules but said they should also tackle the drivers of deforestation.

"Drivers of deforestation can come the forestry sector, it can come from agriculture, plantations, mining and infrastructure," said Fitrian Ardiansyah, WWF's program director for climate and energy in Indonesia.

(Editing by Michael Urquhart)