Thursday, 5 February 2009

A Well of Potential Waiting to Be Tapped

Jennifer Blake The Jakarta Globe 5th February 2008

A Well of Potential Waiting to Be Tapped

Chainsaws buzz and birds fly squawking from their nests. Dull booms resound across the forest as old growth trees fall crashing to the forest floor. This is the sound of the logging trade, as integral a part of forests in Indonesia as the ancient trees that make loggers their fortunes. It seems unimaginable that a decade or two might see chainsaws fall silent, birds return to their nests and endangered orangutans begin to flourish in their natural habitat.

Yet these can be the forests of the future if Indonesia wakes up to the potential it has as a carbon sink for the developed world — potential that is wasting away as deforestation in this country occurs at a rate faster than anywhere else in the Global South.

It has long been clear that an environmental imperative alone will not stem the advancing tide of forest destruction in Indonesia or anywhere else. Logging has been too lucrative for too long, and traditionally, countries have had to exploit their natural resources for economic gain. But the emergence of a global carbon market could soon provide enormous economic incentives for forest protection, and change the way the world looks at trees.

The new carbon trading market is already estimated to be worth $100 billion a year. It can only expand in coming decades, as the number of available credits decrease and demand soars. With 120 million hectares of forest, Indonesia is better placed than most of the world to reap the potential rewards that carbon trading has to offer. Provided, of course, it stops cutting down the trees.

How do you convince the estimated one billion people who rely on forests for their income that a moratorium on logging would benefit them? In the long war between environmentalists and others, this is one battle where the numbers speak for themselves.

Cutting down enough trees to produce one ton of carbon earns Indonesia approximately $5. If the same number of trees are preserved and sold for carbon credits, they can earn approximately $30. The World Bank estimates that preserving forests for use as carbon sinks can earn for Indonesia between $400 million and $2 billion from the sale of carbon credits. The potential is incredible.

Indonesia is better placed than most to reap the potential rewards. Provided it stops cutting down the trees.

For those who are less mathematically inclined, you can look at the world’s forests as a large pie. Indonesia has a very large slice, which it has been nibbling away at for a while. With no reason to stop, it can eat the whole thing or sell portions of what remains to the highest bidder in the very hungry West. It will have to stop nibbling but it can be rich for doing so.

Carbon trading is already an important part of environmental policy in the West. While it seems absurd that a nation with Indonesia’s environmental credentials (deforestation in Indonesia accounts for one-fifth of total global carbon emissions each year) can alleviate the environmental obligations of developed countries, such is the logic of the Kyoto Protocol. Indonesia’s status as a developing country allows it to escape carbon caps, while countries like Australia are desperate to offload excess emissions to the tune of millions of dollars.

The proof is in the pudding. Australia was the first country to sign to a forest-carbon partnership with Indonesia, where Australia has promised 10 million Australian dollars ($6.46 million) to build Indonesia’s capacity for forest carbon accounting and monitoring. In layman’s terms, Australia is funding the development of a carbon industry in Indonesia – with a view to the eventual use of Indonesian forests as a carbon sink for Australia’s excessive emissions.

In a global market already crowded with Japanese and European buyers, Australia is exploiting neighbourly ties with Indonesia to secure a stake in the country’s sought-after forests.

Is it possible that in the face of such economic motivation the constant drone of chainsaws can fall silent in the great forests of this land? And if they do, who can expect to reap the rewards? In a nation of 240 million people — 60 million of which live on forestland and are poor — can carbon trading provide a quick route out of poverty?

The short answer is no. Carbon credits can only be sold by landowners. Much of Indonesia’s forests are national parks, so profits from their sale will fill state coffers. Perhaps rewards will flow on to Indonesia’s people in terms of expanding health care and education budgets, but that remains to be seen.

Corrupt and irresponsible forestry companies have already swindled many local landowners out of their property, and can now on-sell it for carbon credits. The harsh reality is that the vast majority of carbon trading profits can flow straight into overseas accounts, as foreign firms reap the rewards of their unethically acquired forest land. And while the primary business is the trading of credits, carbon trading has a secondary tier of money-making potential. The financial services that monitor and log carbon-rich forest regions will play an important role in the booming industry.

It is no secret that Jakarta’s financial services sector does not have the capacity to act as a hub for a local carbon trading system. The legwork will likely take place overseas and Sydney is already gunning for a slice of the pie, with the New South Wales government last year announcing a new task force to establish Sydney as the regional center for carbon trade. Where profits from carbon ventures in Indonesia end up lining the pockets of Sydney’s financial executives, the benefits of carbon trading with the developed world becomes a lot less clear for Indonesia.

The environmental rewards of preserving forests cannot be contested. Whether the economic rewards can supersede the profits the logging industry offers in the short term remains to be seen. The future of Indonesia’s forests hangs on how the Indonesian government handles the opportunities the global carbon trade will provide in the immediate future.

Carbon trading is already a multibillion-dollar industry and will likely change the face of trade between nations over the next two decades. Will Indonesia be prepared to face up to the forestry industry and capitalize on the potential of preservation? And apart from the orangutans, who will reap the rewards?

Jennifer Blake is an intern at the Jakarta Globe.