Indonesia’s Foray Into Carbon Trading Ripe for Fraud: Experts

Fidelis E Satriastanti Jakarta Globe 18 Aug 10;

Indonesia. Ambitious plans to harness Indonesia’s millions of hectares of forest to offset carbon emissions could give rise to a new strain of corruption and financial fraud unless managed properly, experts warn.

The projects, which fall under the Reducing Emissions from Deforestation and Forest Degradation (REDD) program, are being viewed as a golden opportunity to cash in on the nascent carbon trade.

Despite stalled negotiations to reach a universally binding deal to fight climate change, REDD projects are flourishing, not only here but in developing countries around the world. Indonesia recently secured a $1 billion deal with Norway for a series of REDD Plus ventures, which aside from reducing emissions, are designed to improve biodiversity, carbon enhancement and sustainable forest management.

“The central point that I’ve tried to make is that REDD poses an unavoidable paradox,” said Christopher Barr, a forest policy expert at consultancy Woods and Wayside International, which is based in Texas.

“Large amounts of money are being mobilized to slow deforestation and forest degradation — up to $28 billion per year to bring about a 50 percent reduction in forest-based emissions globally,” Barr said.

“However, a significant portion of these funds will be channeled to countries that have long histories of weak forest management and poor administration of public fiscal resources.”

Ten of 19 countries taking part in UN-mandated REDD schemes also feature in the top third of the list of most corrupt countries in the world, according to Transparency International data from 2008. This includes Indonesia.

“Clearly there’s a need to strengthen financial governance mechanisms to ensure that the funds are not lost to corruption and fraud,” Barr said. He added that new forms of corruption and financial fraud would emerge as REDD payment schemes were introduced.

Barr also warned that some project developers were likely to manipulate data in their proposals to secure funds for projects that should not qualify for REDD payments.

“Through bribery or political pressure, verification bodies may also persuaded to ‘verify’ artificially high levels of carbon benefits for projects associated with state elites,” Barr said.

Indonesia is expected to generate REDD Plus revenue of up to $765 million a year for a 5 percent reduction in carbon dioxide emissions from deforestation, and up to $4.5 billion for a 30 percent cut.

The Indonesia-Norway deal inked in May promises $200 million for the establishment of special institutions for financing and monitoring REDD Plus schemes, as well as for a two-year moratorium on issuing logging concessions in conservation and peat forests.

The remaining $800 million will be disbursed once Indonesia begins showing proven emissions reductions.

Agus Purnomo, the presidential adviser for climate change, said the government had already formed a team to select an institution to manage the financing of REDD projects, but that it still needed Norway’s approval. The two sides are currently discussing the issue.

“The Norwegians want to know how we’re executing the program, and we want to know whether the money will be disbursed or not,” Agus said.

He added that Kuntoro Mangkusubroto, the former head of the Aceh post-tsunami reconstruction agency, may oversee these REDD bodies, but that final plans were still being drawn up by the State Palace.

Agus said the two countries had yet to reach agreement on the final set-up of the body that would oversee REDD financing.

“Norway wants it to be handled by an international financial institution, such as the World Bank, while we want it to be managed by our own institutions,” he said.

Agus said the body would have two basic functions: ensuring the money was spent judiciously and that indigenous rights were upheld.