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

For decades, conservationists have sought to halt the wholesale clearance of Indonesia's tropical rainforests by loggers and plantation companies. But repeated calls for sustainable forestry practices to safeguard biodiversity haven't succeeded in stopping the chain saws.

Now, help may be arriving in the shape of a carbon-trading program that would effectively pay Indonesia and other forest-rich countries not to chop down their trees. Behind the initiative is the potential monetary value – as yet unrealized – of tropical forests as vast stocks of carbon that the industrialized world can offset against greenhouse-gas emissions.

Advocates of carbon-credit trading want to put these forests into play as policymakers prepare for a major UN climate-change summit next month on the island of Bali. The summit will chart a course for a successor treaty to the Kyoto protocol on capping emissions after it expires in 2012. Given the growing consensus on the extent of manmade global warming, any future rules are likely to be much tougher.

As the UN summit's host, Indonesia is backing proposals to add credits from "avoided deforestation" to post-Kyoto rules. Currently, carbon offsets are only available for tree-planting, not preservation. But the destruction of tropical forests in Indonesia, including the draining and burning of peatland to clear land for plantation crops such as palm oil, releases so many tons of carbon that Indonesia ranks in third place behind the US and China as the top emitters of greenhouse gases, according to the World Bank. Brazil, the custodian of much of the Amazon basin, is also in the top five. The World Wildlife Fund attributes 20 percent of global carbon emissions to forest fires – more than airplanes, cars, and ships combined.

A boom in palm oil has encouraged companies to expand plantations, in part because of demand for biofuel. Indonesia is the world's largest producer of palm oil, a fact that underpins, say environmental campaigners, another superlative: the fastest rate of deforestation on the planet. Around 1.8 million hectares are cleared annually, much of it illegally for timber exports and feedstock for pulp and paper mills.

This sobering fact has drawn interest from conservationists who have watched Indonesia's forests vanish steadily despite successive donor-funded efforts to save them. They reckon that carbon trading could help slow the destruction, if conservation programs are performance-based and properly verified and implemented.

"We've been using development money to try to save the forests in Indonesia for 20 years and it's failed, let's face it. Why not try a [carbon] market mechanism?" says Frank Momberg, director of programs in Asia for Flora & Fauna International.

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.