Saturday, 12 July 2008

ANALYSIS-Indonesia aims to balance coal and forests

ANALYSIS-Indonesia aims to balance coal and forests

Mon Jul 7, 2008 11:03am BST

By Jackie Cowhig

LONDON, July 7 (Reuters) - Indonesia, the world's number one coal exporter and a major greenhouse gas emitter, is struggling with conflicting green and growth aims.

It wants to increase coal-fired electricity generation by over 40 percent in the next decade, cut emissions and preserve rainforests at the same time. Analysts doubt it can manage all three.

"Indonesia is not in a position to be reducing greenhouse emissions at all," said Brian Ricketts, coal analyst at the Paris-based International Energy Agency.

"Their coal-fired power plant construction programme is already under way and Indonesia is quickly expanding coal production to be able to supply its own growing domestic demand and exports," he said.

Indonesia's energy-related CO2 emissions must rise because, according to government figures, its coal consumption is going to at least quadruple to 90-100 million tonnes a year by 2017.

The world's fourth-most populous country, with 226 million people spread across 17,500 islands, needs a substantial growth in electricity production to fuel economic growth.

But while poised to boost its own emissions, in addition to exporting its own polluting coal, Indonesia is attempting to add a new income stream as a high earner of carbon credits if it agrees to be paid to preserve its forests.
But it may not be able to keep all its lucrative juggling balls in the air, especially as demand builds to exploit more coal deposits in the jungles of the Kalimantan region in Borneo.

Until its coal-fired power initiative takes effect, Indonesia is a leading polluter due to deforestation, peatland degradation and forest fires, a World Bank report said.

Environmentalists say that if these activities are taken into account it ranks as the world's number three emitter of greenhouse gases. Deforestation accounts for 20 percent of man-made carbon emissions.

"Indonesia emits a rather modest 380 million tonnes CO2 a year from fossil fuels, the serious emissions are the ones from logging, burning and drainage of peatswamp forests: 2 billion tonnes a year CO2," conservation group Wetlands International said.

If the Reduced Emissions From Deforestation in Developing Countries (REDD) initiative agreed at last December's climate talks in Bali goes ahead, Indonesia could earn tens of billions of dollars annually.

This would be a strong revenue stream in addition to perhaps $50 billion a year from coal exports in years to come.

Indonesian coal production will double by 2017 to at least 400 million tonnes, most of which will be exported.

It earned around $10 billion from coal exports in 2007, producers said, and will earn tens of billions of dollars annually in decades to come. Coal prices have doubled during the past six months.

Producers say Indonesia should be able to double its coal output without destroying much forest.

"If you fly over Kalimantan it's clear how much forest has already gone. The new thermal coal reserves to be developed are almost all in or near existing mining areas," one major Indonesian producer said.

That journey shows very little rainforest -- almost all has been replaced by bright green palm oil plantations for biodiesel and rice paddies.

The roads which run straight from the mines to the rivers to move coal have had a minimal impact.

Large-scale timber logging cleared much of Kalimantan's rainforests years ago.

"Coal mining areas are relatively small in Indonesia. Logging has already removed forest areas the size of Wales," the IEA's Ricketts said.

But global hunger for metallurgical or coking coal for steel production may threaten the untouched forest in central Kalimantan.

Hard coking coal prices are around $400 a tonne, double a year-ago's levels, and some buyers say they cannot find it at any price.

"Central Kalimantan contains mostly metallurgical coal reserves and some thermal. It's got huge logistical problems and costs associated with getting the coal out for shipment and I'd tend to think if it could be done, it would have been done by now," another large Indonesian producer said.

However, Indian coal end-users and traders said they were looking to invest in Indonesian coking coal and thermal coal mines in central Kalimantan and elsewhere