An eight-year effort by Indonesia to protect its remaining forests contributed just 4 per cent of its emissions reduction target, yet still yielded carbon savings worth far more than it was paid under a deal with Norway.
That’s the finding from a new study, which calls for better carbon pricing and financing at the global level that more fairly reflects the global benefits of mitigating climate change from reducing deforestation.
In 2011, then-President Susilo Bambang Yudhoyono instituted a moratorium on the clearing of primary forest and peatlands that hadn’t yet been allocated for plantation or logging concessions. The move was aimed at slowing the conversion of these forest types for palm oil, pulpwood and timber, which together are responsible for almost half of the country’s forest loss.
The moratorium was also part of Indonesia’s commitment under a deal signed with the Norwegian government in 2010, in which the latter pledged to pay $1 billion if the former could successfully slow its emissions from deforestation and land use change.
But between 2011 and 2018, the forest-clearing moratorium was largely ineffective, the study says: during that period, it managed to prevent just 150,089 hectares (370,878 acres) of deforestation in dryland forests covered by the moratorium compared to dryland forest outside of the eligible area. Avoided deforestation in peatlands during the same period were effectively null, it found.
In all, the study authors said, moratorium areas retained an average of 0.65 per cent higher forest cover compared to non-moratorium areas. The total avoided deforestation as a result of the moratorium during the 2011-2018 period resulted in a reduction of up to 86.9 million tonnes of carbon dioxide equivalent (CO2e).
Study co-author Ben Groom, the Dragon Capital Chair in Biodiversity Economics at the University of Exeter Business School, UK, called this figure “a small dent” in Indonesia’s overall commitment to mitigate climate change. In context, it represents just 4 per cent of the 29 per cent emissions reduction target by 2030 that Indonesia has committed to in its nationally determined contribution (NDC) to the Paris climate agreement.
“This is a problem because in Indonesia around 65 per cent of emissions are from forest areas, so the forest sector is a very important place to stop emissions coming from if they’re going to meet their NDC commitments for the Paris Agreement,” Groom said.
Yet even this relatively small reduction only earned Indonesia a fraction of what it should have gotten from Norway.
Under the deal, Indonesia should have earned $5 for each ton of CO2e it reduced through preventing deforestation, the same carbon price that Brazil gets under a similar agreement with Norway. That means the 86.9 million tonnes CO2e in avoided emissions that it achieved from 2011-2018 should have been worth $434.5 million.
But the only payout announced to date by Norway under the $1 billion scheme was in 2019, when it agreed to pay Indonesia $56.2 million for preventing the estimated emission of 11.23 million tonnes CO2e from avoided deforestation in 2017.
“We find that Norway should probably been paying a lot more because the impact starts much earlier,” Groom said. “From 2013 we estimate some modest but statistically significant changes, yet the payment was only calculated for 2017, with no proper counterfactual.”
With its $56.2 million, Norway effectively bought emissions reductions at a rate of less than $1 per ton. And while this represents value for money from Norway’s perspective, it could easily be seen as unfair from Indonesia’s perspective, the researchers said.
Groom noted that that carbon prices in other jurisdictions are much higher, such as the $50 per ton used by the U.S. government and $125 per ton used by the state of New York. And there’s a case to be made, he added, that prices should be higher still if the global benefits of mitigating climate change are accounted for — up to $200 per ton of CO2e.
“So while Norway got a good deal, and cost-effective carbon policy is important, it wasn’t necessarily fair from an Indonesian perspective not to get a greater share of the global benefits,” Groom said.
This, he said, might have contributed to Indonesia’s decision to terminate its agreement with Norway in September 2021. The Indonesian government cited delays in payment that were agreed by both parties as the reason for ending the agreement. It accused Norway of holding up payments by making fresh demands, such as requesting Indonesia show documentation for how the money would be spent and other operational details.
Money to keep trees standing
Besides the money required to protect its forests, such as for patrols, there’s also a significant opportunity cost to Indonesia since clearing forests for agriculture might yield greater financial returns than what donor countries offer to keep the trees standing. A fair carbon price would be one that at least covers this opportunity cost of using the forest for its most profitable, alternative use, which in Indonesia’s case is oil palm cultivation.
The researchers said they did some back-of-the-envelope calculations, based on palm oil profits and aboveground carbon stocks taken from published literature, and came up with a low-end estimate of around $120-130 per ton of CO2e for a fair carbon price for Indonesia.
A 2020 study estimates the average opportunity cost in Indonesia for avoiding oil palm-based deforestation is $24.42 per ton of CO2e — lower than Groom and his colleagues’ estimate, but still higher than what Norway promised or delivered.
Groom and colleagues said Indonesia’s remaining forests should be viewed as natural capital stocks with high global values.
“Indeed the loss of these forests would not only be catastrophic for the global climate but would also contribute significantly to the ongoing mass extinction event,” they said.
“Indonesia’s tropical forests remain of critical importance for the global climate and biodiversity,” they added.
In addition to Norway, the Green Climate Fund (GCF), the financing arm of the U.N. Framework Convention on Climate Change (UNFCCC), also agreed to pay Indonesia $103.8 million for 20.3 million tonnes of avoided emissions between 2014 and 2016.
This represents the GCF’s biggest payout to any country to date. But if Norway also paid for Indonesia’s emission reductions before 2017, this could overlap with the GCF’s payments, effectively double-counting the same carbon savings.
“We are aware of concerns in the GCF about double-counting when they considered Indonesia’s emissions reductions prior to 2017,” the researchers said. “However, these two initiatives are quite different.”
The GCF isn’t paying Indonesia for any particular policy, but for any reductions associated with the whole of Indonesia’s forest estate, regardless of policies. Meanwhile, Norway was originally going to be paying for Indonesia’s moratorium on forest concessions, which doesn’t cover the whole of the country’s forest estate.
“Norway entered into a bilateral arrangement with Indonesia in 2010, and the moratorium started in 2011,” the researchers said. “The moratorium has been operating since 2011 until 2021 without interruption, and hence it could be argued that Norway ought to be paying for any emissions reductions that have taken place during this period.”
Yet even the combined payments from the GCF and Norway would only amount to $160 million — less than half of the estimated $434.5 million worth of emission reductions that Indonesia achieved from 2011-2018.
‘Much steeper emissions reductions needed’
Arief Wijaya, the climate and forests senior manager of the World Resources Institute (WRI) Indonesia, a think tank, said Indonesia should preserve its forests regardless of any promises of payment from outside.
“Don’t you think it’s the responsibility of our government to keep our forests standing?” he told Mongabay. “Incentive [from other countries] is a bonus. When the agreement between Indonesia and Norway failed, it doesn’t mean that our government should just leave [the forests unprotected] just because there’s no money from Norway.”
But that doesn’t mean the country should bear all the costs of protecting its forests on its own.
“There’s no way Indonesia could bear all the costs with its current economic condition that has been hit by the Covid-19 pandemic,” Arief said.
A 2019 study estimated it would take at least $20 per ton of CO2e to dramatically slow deforestation, and Indonesia estimates that around $5.5 billion is required between 2018 and 2030 to curb emissions from its forest sector and meet its emissions reduction goals.
Groom’s team agreed: “Much steeper emissions reductions are clearly needed to reach the NDC targets, but the cost of these reductions is unlikely to be met by a single country or initiative,” they said.
But for now, financing to keep forests standing is dwarfed by the money to be made from exploiting deforested land, such as large-scale agriculture, mining and other commercial activities. Land-use change, principally that involving deforestation and agricultural conversion, received just 2 per cent of global climate-related investments in 2019-2020, according to the Climate Policy Initiative.
That means tropical forest countries like Indonesia need to seek out initiatives that allow them to negotiate a higher price, Groom’s team said. They cited the example of LEAF (Lowering Emissions by Accelerating Forest finance), a private-public coalition established in 2021 to mobilize at least $1 billion for area-based tropical forest conservation.
“With the ending of the Indonesia-Norway partnership, Indonesia could negotiate a higher price with, for example, an initiative like LEAF, which is offering a minimum of US$10 per ton of CO2eq,” the researchers said.
There also needs to be a more accurate measurement for emissions reductions, the researchers said, such as the one they used in their study. By contrast, the reduction estimated by Indonesia and approved by Norway was measured against a historical baseline, which was established from political negotiations and thus was subject to biases. This may have skewed the final measurement and doesn’t meet the “results-based” requirement that the agreement called for.
The researchers said it’s critical that any methodology used to calculate results-based payments is based on scientific principles and methodologies. In this case, it means measuring results against a scenario in which the policy does not exist, known as the counterfactual.
“Otherwise the calculation of such payments might be based on reductions in deforestation that happen for some other reason, such as commodity price changes, or even by chance, rather than due to the actual policy,” the researchers said.
Engaging smallholders to protect forests
Besides greater mobilization of finance, better implementation of Indonesia’s forest moratorium is also important, the researchers added. They said the small impact of the moratorium, as seen in the result of their study, indicates limited compliance of the policy. Therefore, bolstering local monitoring and enforcement capabilities in future avoided deforestation initiatives is important, they said.
These future initiatives could also be expanded to engage local forest users not originally targeted by the moratorium, such as smallholders involved in logging and oil palm cultivation. These smallholders contributed one-fifth of Indonesia’s forest loss between 2001 and 2016.
A 2020 study found that a cash transfer program for smallholders was just as successful as dedicated conservation programs in reducing deforestation, despite not being designed to benefit the environment.
Lastly, a greater commitment from the global community to fund forest protection is important, the researchers said. This could be achieved by having a global climate agreement with a cap on emissions, for instance.
“It would also enable more effective coordination in terms of how this funding is to be used,” the researchers said. “Most deforestation in poorer countries is driven by commodity production, which, in turn, is driven by demand that often originates in richer countries.
“In the end, consumers will need not only to face but also pay the ‘true cost’ of their consumption of commodities that drive forest loss,” they said. “How this cost is paid is a discussion for another time but clearly area-based initiatives, such as the moratorium, have a role to play, alongside supply-chain initiatives.”
This story was published with permission from Mongabay.com.
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