Forestry and Poverty Project Newsletter – Issue 16, October 2010

Indonesia’s Moratorium Issue

More details of Indonesia’s forest moratorium were supposed to be finalized on the sidelines of the UN General Assembly meeting in New York on September 22, yet nothing seemed to emerge from either side on the agreement.

The apparent absence of any progress in negotiations follows the release of three new reports from the DNPI, Indonesia’s peak climate change body.

The three reports cover the provinces widely touted to be the subject of the moratoria – Jambi, Central Kalimantan and East Kalimantan. They attempt to quantify the cost of carbon reductions in the three provinces, using the widely-cited McKinsey carbon cost-curve.

The McKinsey curve has come under fire from a number of economists, including the US-based CRAI. In particular, CRAI points out that the McKinsey work focuses on theoretical and not practical realities, and ignores implementation difficulties – in a US and Australian context.

These criticisms could not be more pertinent than for a country like Indonesia.

Any person who has worked in Indonesia – whether in the development, conservation, agriculture or resource extraction sectors – has experienced its difficult operating conditions.  At the heart of most, if not all, of these problems is land tenure. Apparently McKinsey thinks solving Indonesia’s tenure problems is a snap.

The DNPI notes that effective land allocation is “extremely challenging,” but treats harmonization of tenure arrangements across jurisdictions and consolidation of land titling data as though it is something that can be achieved easily and quickly.

In 1994, AusAID – the Australian aid agency – spent $170 million for the commencement of a 25-year land titling project in Indonesia. There are between 70 and 80 million land titles in Indonesia on non-forested land. Less than 20 per cent of these have been formally registered. This figure does not begin to take into account the large proportion of land that has been informally claimed in forested and rural areas.

A World Bank’s case study on Indonesian land tenure noted that in rural areas evidence of ownership is “virtually impossible” to obtain. Moreover, even when a legitimate land transaction has taken place, a claim can arise at any time and must be defended with some claims persisting for periods of up to 25 years. It also notes that extra-legal occupation of land – which has been common in Indonesia for generations – cannot be remedied with time. In other words, if state land has been occupied by families of farmers, there is no avenue for the land to be titled to them.

This is the environment that McKinsey has managed to gloss over. Worse, it’s the territory that the Norwegian Government is about to walk into. What they are attempting to solve is not a climate problem: it’s a legal and social problem that remains mired in the overlapping regulations of national, provincial and local governments, as well as three occasionally contradictory sets of national lawmaking at legislative, presidential and ministerial levels.

We wish them the best of luck.

The Good and Bad of ‘Low Carbon Growth’ In Indonesia

The new DNPI reports for Central and East Kalimantan deserve some praise for plainly seeing the obvious place where low-cost carbon emissions can be made: forest fires. But some of its other recommendations for forestry in Indonesia miss the mark.

Much of the basic work for forest fire prevention in Indonesia has already been undertaken through bodies such as the United Nations International Strategy for Disaster Reduction (UNISDR) and think tanks such as the Global Fire Monitoring Centre. Moreover, there is a strong incentive for the private sector to participate in fire management strategies, particularly in agriculture, forestry and mining.

At the same time, some of the report’s recommendations appear to be positive, but are essentially meaningless.

For example, the paper recommends the establishment of a pulp mill in Kalimantan with a capacity of 2.6 million tons per annum. This is a sensible idea; there are a number of acacia and eucalyptus plantations in Kalimantan, and when managed properly provide a landscape for orang-utan populations.

Furthermore, the report recommends that the mill be established with International Finance Corporation (IFC) money. The report reasons that IFC finance will provide suitable environmental safeguards for its establishment.

This is significant. The IFC uses World Bank safeguard procedures for loans. These safeguards recommend the use of Forest Stewardship Council (FSC) certification in forest management for any operation that might involve forest harvesting.

Of course, FSC certification for Indonesian plantation forests is close to impossible – as has been discovered by the country’s two largest forest operators.

Moreover, IFC finance is open to high levels of abuse by NGOs, who are able to stall financing using IFC’s bureaucratic procedures. Wilmar, a large palm plantation, experienced a small supply chain difficulty that had nothing to do with its plantations in 2007. This escalated into a full review of World Bank policies on palm oil. The same leverage points would be present on any pulp project in Indonesia – which is why most forest operators in Indonesia go to the private sector for finance.

IPCC May Have Overestimated Carbon Stock In Forests

A study by the Carnegie Institution for Science has revealed that the IPCC may have overestimated the carbon stock in forests by almost one third.

The study, which was undertaken using a combination of satellite imagery, airborne laser technology and on-ground plot surveys, found large variances in carbon stock in forests in close proximity to each other.

The IPCC baseline estimates of carbon stock for the studied forest in Peru is 587 million metric tons of carbon. The results of the Carnegie study indicated that the carbon storage is more likely to be 395 million metric tons – one third less than IPCC estimates.

The study found that where the local geology is up to 60 million years old, the vegetation retains about 25 per cent less carbon than the vegetation found on geologically younger, more fertile surfaces

This project was undertaken to provide better information for carbon accounting for proposed REDD projects.  However, the outcomes is that this study significantly undermines the idea that REDD payments for the carbon retained in forests can adequately compensate for foregone revenue from developing new agricultural land.

This study should lead to the reconsideration of the often-repeated and often-disproved claims that forest clearing leads to up to 20 per cent of global carbon emissions.

The study also provides an indication of what revisions must be made in the upcoming IPCC report for it to be a credible synthesis of up-to-date scientific knowledge.

Brazilian Deforestation Falls By Almost Half

The Instituto Nacional de Pesquisas Espaciais (INPE), Brazil’s remote-sensing agency, and the Brazilian Government have release a preliminary satellite survey that indicates deforestation in the Amazon forest declined by 47.5 per cent over the past year.

According to news reports, this is the largest decrease since data was first recorded in 1988.

Greg Asner, a forest expert from Stanford University (see our previous post on his work in Peruvian forests here) has stated that this is likely to be part of a strong trend – not just an outlying piece of data.

Asner and other scientists have put the drop down to global recession. There is some stock in this. Food oil prices have dropped from the stellar highs of 2008 but are on their way back up. Soybean exports from Brazil are forecast to drop in 2010, but global production is projected to increase by 22 per cent this year. Brazilian production alone is headed for a 13 per cent increase according to the FAO.

Brazilian beef prices are also being buoyed by robust domestic consumption (historically the industry’s biggest market), and prices are set to rise after declines in 2008 and 2009. This contrasts with the US market, where prices have been flat for a number of years according to FAO data.

But if it is domestic Brazilian consumption that ultimately drives expansion of agriculture, and this is to feed a population that is growing in number and wealth, what will aggressive Western activists such as Greenpeace – who launched an ugly campaign against the cattle industry early this year – do about it? Will they tell Brazil’s farmers they should grow carbon instead?

US Paper Producers Rejoice at Duties Ruling

The US Commerce department ruled that paper from China and Indonesia will now be subject to duties. According to Commerce, producers in both nations receive ‘unfair’ subsidies.

Commerce also states that duties will be as high as 178 per cent for China, and 20 per cent for Indonesia.

The ruling impacts what is a relatively small segment of the US market – making it all the more surprising that this case has received so much attention.

Trade between the US and China on coated paper is just USD260 million in a market worth close to USD2 billion. Much of US coated paper comes from Germany, Sweden and Korea. According to industry commentators at RISI, all of these exporters will inevitably express more interest in the US market as prices inevitably rise.

The original petitioners for the case sought duties in response to Chinese and Indonesian policies regarding electricity prices, stumpage prices and debt forgiveness. Perhaps the Chinese and Indonesian authorities should look more closely at the black liquor credits given to US paper producers – one estimate puts the total black liquor bill at USD30 billion.

The decision also raises prospects of duties being levied on Chinese paper in Europe, where an investigation into subsidies for Chinese paper makers is currently underway.

However, one hurdle remains. The International Trade Commission is yet to hand down its injury finding, which is the final say on the matter. This is scheduled for November.

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