Carbon Finance and Forest Tenure: Updates from IndonesiaCarbon Finance and Forest Tenure: Updates from IndonesiaConference on New Challenges for land Policy and Administration

February 14-15, 2008

The World Bank, Washington DC

Mario BoccucciSenior Climate Change Specialist (Forestry) - EASRE

World Bank, Sustainable Development Department, East Asia and Pacific Region Mboccucci@worldbank.org

OutlineOutline

• Climate Change and ForestsClimate Change and Forests

• REDD - a mechanism for the futureREDD - a mechanism for the future

• FCPF - a new World Bank instrumentFCPF - a new World Bank instrument

• Indonesia - REDDIndonesia - REDD

• Indonesia - forestry, tenure and governanceIndonesia - forestry, tenure and governance

• Emerging issues in the REDD-Tenure nexusEmerging issues in the REDD-Tenure nexus

• Challenges and lessons learntChallenges and lessons learnt

Climate Change and Forests - WhyClimate Change and Forests - Why

• Climate Change 101: GHG; temperature; sources; mitigation; adaptation; Climate Change Convention; Kyoto protocol; cap and trade

• There is more carbon in forests than in the atmosphere; when forests are cut carbon is released: 20% of global carbon emissions; 84% of Indonesia’s emissions

• Carbon emissions have to be reduced NOW … so why not start from an “easy” source of carbon emissions

• Stern Report: reduce deforestation most economic-effective approach in the short term

• Impact also other environmental services, poverty reduction, economic growth

REDD – a mechanism for the futureREDD – a mechanism for the future

• REDD = Reducing Emissions from Deforestation and Forest Degradation in Developing Countries

• Countries able to reduce deforestation against an agreed future estimate would be compensated for the amount of resulting ER

• A country will have to determine how much forest it would loose in a BAU situation, then measure actual forest loss and sell the difference; non binding

• REDD was excluded from CDM; only A/R but high transaction costs and limited impact

• Order of magnitude for Indonesia: deforestation: 1 – 2 Mha/yr; potential total value 0.5 to 2B$/yr; global; market could reach $15B/yr

• Forest carbon payments as “missing incentive” for forest governance reforms and SFM

• Indonesia hosted COP13, and the resulting Bali Roadmap adopted a resolution on REDD. It is happening!

10,000 $10 b

Private Sector Funding

Public Sector Funding

The Forest Carbon Partnership FacilityThe Forest Carbon Partnership Facility

• WB experience with piloting carbon markets: Prototype Carbon Fund (1999), BioCarbon Fund (2004); and experience in the forestry sector,

• Building on this experience the bank has been working on the establishment of a FCPF with a target of $300M

• Objective is to get countries ready for a forest carbon market, to test approaches, incentives systems, institutional arrangements, payments mechanisms; help setting the stage for a system of positive incentives post-2012

• Two mechanisms: “readiness” for capacity building; carbon finance for piloting performance-based payments

• The FCPF was officially launched in Bali last December by Mr Zoellick; Initial pledges at $165M from 10 donor countries and TNC; 32 tropical countries expressed an interest

Indonesia REDD - ContextIndonesia REDD - Context

• Indonesia’s forests are among the most diverse, extensive and valuable in the world.

• Economic development, poverty reduction, environmental services

• Annual deforestation peaked at 2M ha, 600M ton C

• Large emitter of GHG (80% LULUCF)

• Potential unprecedented incentives for sector reforms

• Increasingly leading the REDD global discussions

Indonesia REDD – Carbon ProfileIndonesia REDD – Carbon Profile

Indonesia a significant emitter due to forestry and land use change

Source: PT P.E.A.C.E., 2007 compiled from IEA’s 2005 annual statistics, US EPA 2006, and Houghton 2003. If EU included, Indonesia stands 4th. Estimate subject to uncertainty.

Energy emissions lower, but growing fast

Annual Emissions from Deforestation (538 MtCO2)

Conservation Areas1%

Protection Forest4%

Production Forest (excl. pulp plantations)

42%

Conversion Forest3%

HTI Pulpwood Plantations14%

Oil Palm Plantations17%

Other19%

Planned losses (Conversion, Palm and Timber Plantations, Production) are high relative to unplanned or unauthorized losses

CO2 $ Baseline Strategy Monitoring Market Distribution

1 2 3 4 5

Reduce deforestation

Indonesia REDD – Value ChainIndonesia REDD – Value Chain

Governance

Indonesia REDD- Integrated SystemIndonesia REDD- Integrated System

• No one element of this value chain can stand alone.

• A readiness system without reduced deforestation will not generate funds

• Reducing deforestation without a readiness system in place to turn this into a commodity will not generate funds

• Without a system to effectively distribute REDD revenues, reduced deforestation and degradation will not occur

• Without addressing the underlying governance and tenure issues affecting the sector, reduced deforestation controlled leakage and permanence will not be achieved

• An ambitious set of objectives … a phased approach

Indonesia REDD InitiativeIndonesia REDD Initiative• June 07 GOI request Bank assistance to prepare for REDD and

present in Bali a paper on how REDD could work; July 07 Bank AAA-TA approved a support package covering Methodology, Strategy and Constituency building;

• Analysis: 9 studies on methodology (baseline, monitoring, transaction and revenue sharing) and strategies for cost effective reduction of deforestation in five different land uses;

• Teams include a Core Group of leading international and Indonesian experts; Counterpart MoFr Experts and broader Reference Group with relevant NGOs, private sector, other agencies and international organization;

• Consultations: to involve key stakeholders in other GOI agencies, NGOs, private sector, and at sub-national; level. Workshops took place in Jakarta, Papua, Aceh Kalimantan and Sumatra.

• Within the bank we close engagement of Forestry Anchor (Strategy), ENVCF (Methodology), LEGEN, PREM, EASRE

Indonesia REDD Initiative – AnalysisIndonesia REDD Initiative – AnalysisBaseline• Historic vs modeling• National, sub national, project

Monitoring • Definition of deforestation and degradation• Area change and carbon measurement• Accuracy and reliability

Strategy• 5 Land use changes covering key drivers of deforestations • Past deforestation and predicted deforestation• Interventions to reduce deforestation and opportunity costs

Market and revenue sharing• Buyers and Sellers• Registry and legal framework• Payment distribution institutional and legal arrangements and governance measures• Equity and incentives

Governance• Forest Sector Law Enforcement and Governance:• Systemic Governance• Safeguarding carbon transaction

Indonesia Forest Tenure – HighlightsIndonesia Forest Tenure – Highlights

• What is the situation: 70% of land classified as forest estate, less than 15% gazzetted, 37M ha deforested, disempowerment of IP of customary rights …

• How did it get there: evolution of the legal framework (constitution; Agrarian Law, Basic Forestry Law; Forestry Act; Decentralization Law); the forest zonation process (TGHK, RTRWP, Paduserasi); the licensing system; a highly functional system …

• Why did it get there: a governance perspective – state capture and administrative corruption;

• Forest resources are not contributing as they should to poverty reduction

• Disagreement over control of forest lands conflict and uncertainty

• Is there hope? Many argue for a wider rationalization of forest land uses, control, and ownership TAP MPR (2001); PP6 (2007), MFP2 …

Forest, Population & PovertyForest, Population & Poverty DistributionDistribution

• 50-60 M live in forest “estate:” ~ 25% of Indonesians• ~ 20% of these are poor; ~ 80% are in areas with no tree cover• Poor in forest cover: low in #s: 3-6 M; high in prevalence: 22% vs 17% for all• Most smallholder growers are not living in forest estate with good tree cover• Subsistence livelihoods in forests: could be ~ 1 million families

Indonesia Forest Area, Pop'n & PovertyYr 2000 Data, M. Boccucci & K. D. Muliastra (2005)

0

20

40

60

80

100

120

140

160

180

200

220

Area (M ha) Pop'n (Millions) Pop'n in Poverty

Mill

ions

Non Forest Estate

Forest "Estate" -Tree Cover

Forest "Estate" -No Tree Cover

Indonesia Forest Area, Pop'n & PovertyYr 2000 Data, M. Boccucci & K. D. Muliastra (2005)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Area (M ha) Pop'n (Millions) Pop'n in Poverty

Sha

res

of T

otal

Non Forest Estate

Forest "Estate" -Tree CoverForest "Estate" -No Tree Cover

Kaw asan Indonesia

Land Area : 185,682,531 ha

Forest and Non Forest Cover 2000

C onserva tion3 ,629 ,400 ha

P roduction43 ,395 ,344 ha

P rotection5 ,832 ,725 ha

C onversion10 ,307 ,694 ha

P roduction17 ,568 ,706 ha

O utside K awasanH utan

44 ,061 ,850 ha

P rotection24 ,811 ,225 ha

C onserva tion14 ,638 ,925 ha

C onversion12 ,068 ,331 ha

O utside K awasanH utan

9 ,368 ,331 ha

23%

13%

8%

6%

24%

9%

6%

3%2%

5%

Kawasan Hutan

94,913,825 ha

Kawasan Hutan

37,338,525 ha

ForestNon

ForestPlantation

Plantation 1,972,168 ha

1,753,001 ha

Note:Kawasan Hutan = Forest Estate

Emerging issues in the REDD-Tenure nexusEmerging issues in the REDD-Tenure nexus

• Legitimate level for a BAU reference level (what is the deforestation entitlement of a those who have legitimate claim to land): the historic vs modeled approach has important ripercussions

• How to determine the reduction strategy … and the importance of secure rights to deliver it and increase permanence

• How to distribute the carbon compensations (so that they reach the resource owner to offset their opportunity costs and compensate for the environmental; service they provided)

• Need of intensive consultations and participation in the development of the REDD system

Challenges and LLChallenges and LL• Still the same old game …REDD does not change the nature at the issues at stake. It

provides additional incentives and leverage to tackle serious forest reforms; it provides an entry point to engage in a constructive discussion and scale up a policy dialogue that has been otherwise stagnating

• The people the people the people …. Constituencies, participation and prior and informed consent are crucial. A “culture shift” will not be simple; Empowered “Champions” will be crucial’

• Move from rhetoric to action … identify strategic priorities, and use achievements on these as a measure of real progress and commitment;

• Time is of the essence … REDD failed already in 1998 as it was deemed to difficult. Havinf met the “Bali Test” the next deadlines are in 2009 and 2012 … + deforestation is running fast;

• Government (multi-agency); Civil Society; Private Sector …it’s a complex problem; requires concerted reactions.

• Tenure issues cannot be resolved in isolation from the broader governance challenges

• “To maintain the status quo … we need to attempt to change everything” … take a phased approach; need to agree and have convergence of a realistic but strategic number of priorities (for example: CB timber plantations on deforested lands)

• Starting from Spatial Planning (land use mapping and social survey to determine claims, uses opportunity and risks …)

• Identify quick wins: such as deforested areas which are prone to “rationalization”; with proper tenure they could contribute to the REDD strategy; also build on positive experience

• Forestry in Indonesia at a tipping point: there are still a lot of risks…but never before did we have this level of leverage and champions. Potential is there to move from boutique interventions to major policy reforms