In new take on carbon-trading, Indonesia may get paid to save trees

An environmental summit in Bali next month will probe incentives for countries to preserve forests.

from the November 14, 2007 edition

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One factor is the potential sums at stake. By preserving carbon-rich forests, Indonesia could expect to collect credits worth between $400 million and $2 billion annually, depending on carbon prices, according to the World Bank. By comparison, Indonesia has received an average $50 million a year in aid for forest conservation since the 1980s, according to the European Union.

Such rewards can convince landowners that it makes more sense to preserve forest, or develop mixed-use projects, than chop it down, says Joe Leitmann, the World Bank's environment coordinator for Indonesia. "We never had enough before to compete with the opportunity costs [of forest conversion]," he says. "This is the first chance to mobilize sufficient funds to compete."

The World Bank recently started a $200 million "avoided deforestation" pilot project for Indonesia and other rain-forest-rich countries in the Asia, Latin America, and the Congo River basin. The Forest Carbon Partnership Facility is designed to create a market for such credits. Local governments in Indonesia, including the governor of Papua, a vast province blanketed in virgin forests, have already shown interest in joining the scheme.

But making the concept work will depend on a solid set of rules and finding buyers of carbon credits who are willing to take a risk, say conservationists and carbon-trade experts. One sticking point is deciding a national baseline for annual emissions from forests, so that future cuts can be measured. Another is the risk that conservation efforts in one province will simply drive logging companies to another province.

For countries such as Indonesia, another potential hazard is how to share the proceeds of any carbon-credit windfall with local people who rely on forestry employment. By monopolizing the spoils, local authorities may undermine conservation efforts by encouraging illegal tree cutting and sowing conflict within communities.

"The benefits of carbon trading need to get down to local stakeholders so that they benefit from forest protection and are not suffering from it," says Mark Johnson, managing director of Carbon Pool, a private company that arranged an avoided-deforestation project in Queensland, Australia. The 2006 project, one of the world's first, set aside 300,000 acres of farmland. The resulting carbon credits were sold to multinational mining company Rio Tinto. Carbon Pool is now looking for potential projects in Indonesia, starting in Papua Province.

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