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  • 1. Climate ChangeClimate Change and Forests:Conceptual Framework for Implementinga Carbon Registry Linked to FMUs in IndonesiaByAndrea TuttleJuly 2008
  • 2. CLIMATE CHANGE AND FORESTS: CONCEPTUAL FRAMEWORK FOR IMPLEMENTING A CARBON REGISTRY LINKED TO FMUs IN INDONESIA Andrea Tuttle July 15, 2008Prepared for GTZ SMCPPN 05.2206.0-001.00Principal Advisor: Georg BuchholzBldg, Bl. VII, Fl. 6 Jln. Jend. Gatot SubrotoJakarta 10270 IndonesiaTel: +62 (0)21 5720214 ACKNOWLEDGEMENTSThe author thanks all who assisted this consultancy and gave their time and insight inproductive discussions.Special thanks are extended to HE H.M.S. Kaban, Minister of Forestry and his highlyregarded colleagues Dr. Ir. Yetti Rusli, M.Sc., Ir. Wandoyo Siswanto, M.Sc., Ir. WahjudiWardojo, M.Sc., Dr. Nurmasripatin, Ir. Yuyu Rahayu, M.Sc., Dr. Hadi Daryanto, Dr. AgusSarsito, Dr. Agus Justianto, Ir. Basoeki Karyaatmadja, M.Sc., Dr. Hermawan, Ir. Soetrisno,MM., Ir. Trijoko Mulyo MM., Ir. Chaerudin Mangkudisastra, M.Sc., Dr. Wardoyo, Ir. ListyaKusumawardhani, M.Sc., Dr. Tony Soehartono, Dr. Wilistra Dani.Warm thanks are also extended to my GTZ project counterpart, Ms. Yani Septiani for herexcellent assistance in scheduling meetings and technical research, Mr. Dadah for his alwaysfriendly administrative support, and Mr. Georg Buchholz, Principal Advisor, for continuingthe GTZ tradition of competence, project guidance and warm hospitality. 1
  • 3. TABLE OF CONTENTS PageAcknowledgements 1Abbreviations 3Executive Summary and Key Recommendations 41. Introduction 62. Purpose and Methods of this Consultancy 73. Basic Forest Carbon Concepts 8 3.1 Forest Carbon Vocabulary 8 3.2 Potential Forest Carbon Projects in Indonesia: Matching Projects and Markets 10 3.2.1 REDD issues of "forest degradation" 18 3.2.2 The Voluntary Market 184. Administering forest carbon credits: Protocols and Registries 19 4.1 Protocols 20 4.1.1 Example: The California Forest Protocols 21 4.1.2 Example: The Van Eck and Garcia River Forest Projects 23 4.2 Registries 23 4.2.1 Example: The California Climate Action Registry (CCAR) 24 4.2.2 Registry Components 25 4.2.3 Expanding CCAR -- "The Climate Registry" 255. The Role of the Forest Management Unit (FMU) in Climate Activities 276. Putting the Pieces Together 297. Conclusions 33RECOMMENDATIONS and INDONESIAS CHALLENGES:Indonesias Challenge #1: Matching Projects to Markets 19Indonesias Challenge #2: What Protocols to Accept for Forest Carbon Projects? 24Indonesias Challenge #3: Developing a Forest Carbon Registry 26Indonesias Challenge #4: Incorporate the FMU in Forest-Climate Activities 29Indonesias Challenge #5: Developing a Road Map for Implementation 32ANNEX I Table of Contents, California Forest Protocols: Forest Projects 34TABLES and FIGURESTable 1 Forest carbon additionality by Forest Type 11Table 2 Potential Forest Carbon Options for Indonesia by Market Type 17Figure 1 Role of the FMU in Forest Carbon Activities 28Figure 2 Forest Carbon Program Components 30REFERENCES and WEBPAGES 36 2
  • 4. ABBREVIATIONSAFOLU Agriculture, Forestry and Other Land UseBAU Business as UsualCARB California Air Resources BoardCCAR California Climate Action RegistryCCBS Climate, Community, Biodiversity StandardCDM Clean Development MechanismCFS CarbonFix StandardCOP Conference of the PartiesCO2e Carbon Dioxide equivalentFMU Forest Management UnitGHG Greenhouse GasGTZ German Agency for Technical CooperationIPCC Intergovernmental Panel on Climate ChangeLULUCF Land Use, Land Use Change and ForestryMoF Ministry of Forestry, IndonesiaREDD Reduced Emissions from Deforestation and DegradationSBSTA Subsidiary Body for Scientific and Technological AdviceSCMP Strengthening the Management Capacities in the Ministry of ForestrySFM Sustainable Forest ManagementUNFCCC United Nations Framework Convention on Climate ChangeVCS Voluntary Carbon StandardWRI/WBCSD World Resources Institute/World Business Council for Sustainable Development 3
  • 5. Executive Summary and Key RecommendationsThe U.N. climate conference of 2007 turned a spotlight on tropical forests. Ten years afteradoption of the Kyoto Protocol, the Bali Conference of the Parties (COP-13) " ... affirmed the urgent need to take further meaningful action to reduce emissions from deforestation and forest degradation ...".Indonesia lies at the heart of international attention. It has been identified as the worlds third-largest emitter of greenhouse gases when deforestation and degradation of its rich and diversetropical forests and peatland areas are included. Numerous government-to-governmentproposals are emerging under the context of REDD (Reduced Emissions from Deforestationand Degradation), a proposed UNFCCC mechanism to compensate tropical nations foravoiding forest loss. Donor nations are pledging substantial contributions to fund "top-down"readiness and implementation programs, and non-governmental and investor groups areproposing "bottom-up" forest projects for conservation purposes and investment inmarketable carbon credits.A sense of urgency underlies efforts to develop REDD methods and stem forest loss,especially in light of negotiations towards a 2012 successor-agreement to the Kyoto Protocol.Indonesia has offered to serve as an early-action testing ground for development of REDDmethodologies. However, Indonesia also correctly recognizes the need to protect its interestsand decide wisely on the best course of action for its forests and forest governance in light ofbroader national development policies. During the current international uncertainty regardingfuture market structure and carbon prices, Indonesia is justified in not committing too muchof its forest potential too soon.Indonesia should, however, use this period to establish the institutional capacity to manage,track and otherwise administer forest carbon activities. The market value of a forest carboncredit lies primarily in its credibility. Bogus tons undermine confidence in offsets generallyand destroy market value. The accounting matters -- thus strong institutions should beestablished to instill market confidence in Indonesian forestry carbon credits.This report proposes some institutional decisions and administrative structure needed inIndonesia to manage the burgeoning number of forest-climate projects and programs whichare already being proposed for the current voluntary market, and in anticipation of a post-Kyoto structure. Examples are provided from the State of California which has been apioneer in developing a climate registry, adopting forest protocols, and approving projectsthat now successfully sell forest-carbon credits on the Voluntary market.Key Recommendations include: 1. Legal and Equity Aspects: Establish the legal rights and authorities to forest carbon credits generated from Indonesian forest lands, and establish an equitable system for allocating revenues that reflects proportional impact on the livelihoods of those affected by carbon projects. 2. Acceptable Protocols: Determine which Protocol standards will be acceptable for forest-carbon projects. Select from existing international standards to the extent possible to ensure compatibility with existing carbon trading markets. 3. Recognized Registries: Initiate a basic Forest Carbon Registry now to capture information on forest projects currently being submitted. Establish the Registry to 4
  • 6. record projects as they are proposed; the protocols applied; project sponsors and buyers of credits; forest carbon credits generated; and their vintage, sale and retirement. Indonesia may also wish to designate established, off-shore Registries for its forest credits, but should retain project tracking capacity.4. Administrative structure: Accelerate implementation of an administrative structure for forest-carbon activities, identifying responsibilities at the local, provincial and national level.5. Incorporate the FMU: Build forest-climate activities into the Forest Management Unit (FMU) from the outset. Establish pilot FMUs soon to begin developing and testing methods. Build capacity for the FMU to serve as the "point of contact" for identifying potential sites for carbon projects and providing consistent advice to project promoters. Ensure that carbon projects complement Sustainable Forest Management goals.6. Consolidate forest carbon data and monitoring: Over time, link "bottom-up" forest project data with "top-down" REDD carbon estimates for more comprehensive monitoring and calibration of total sinks and emissions.7. Forest Management Protocol for Dipterocarps: Consider a project in cooperation with other tropical forest countries or organizations to develop a protocol for additionality in managed (production), natural, mixed dipterocarp forests.8. Promote Indonesian Priorities: During negotiations with project sponsors on REDD and forest-carbon investment projects, make clear the interests of Indonesia pertaining to other national priorities for poverty alleviation, sustainability and governance in the forest sector. 5
  • 7. CLIMATE CHANGE AND FORESTS: CONCEPTUAL FRAMEWORK FOR IMPLEMENTING A CARBON REGISTRY LINKED TO FMUS IN INDONESIA Andrea Tuttle GTZ-SMCP July 15, 20081. INTRODUCTIONThe U.N. climate conference of 2007 turned a spotlight on tropical forests. Ten years afteradoption of the Kyoto Protocol, the Bali Conference of the Parties (COP-13) " ... affirmed theurgent need to take further meaningful action to reduce emissions from deforestation andforest degradation1 ...".Known as REDD (Reduced Emissions from Deforestation and Degradation), the programemerging from Bali brings developing and developed nations together to design methods andpayment systems to avoid continued loss of tropical forests. A key outcome was launch of a$300 million fund2 by the World Bank to build capacity and test performance-based paymentsin countries willing to participate. A sense of urgency drives the effort so REDD mechanismscan be included in a post-2012 Kyoto successor agreement.As host to over 180 nations and 10,000 attendees, Indonesia received special attention. Whendeforestation and degradation from the 1990s are counted, Indonesia ranks as the worldsthird-largest greenhouse gas emitter. Prior to the conference, a consortium of forestresearchers and interest groups examined options for Indonesias participation in REDD3. Aset of benefits was identified for optimizing the existing potential of Indonesias forests,revitalizing its forest industries and building a national framework for implementation.Supported by this work, Indonesian President Susilo Bambang Yudhoyono came to Balioffering Indonesia as a testing ground for REDD pilot activities and early action.However, a sense of cautious realism also characterizes the Indonesian position. Emergingfrom a difficult history of forest exploitation, the nations forest policy is now undergoingmajor structural reform and decentralization4. Top priority is given to improving governancethroughout the forest organization, placing responsibility on local forest districts and bringinglocal communities into decision-making. Numerous proposals for forest-climate projectsfrom donors, non-governmental organizations and brokers are scrutinized to ensure theproject will not divert attention from governance building. Bad experience with unfilledpromises in the past brings a healthy note of caution to the current "gold rush" of enthusiasmfor REDD proposals and forest carbon credits. In the volatile market of emissions trading,officials are understandably hesitant to commit too much of Indonesias forest potential too1 UN Breakthrough on climate change reached in Bali, Dec. 15, 2007 The World Bank Carbon Finance Unit: Forest Carbon Partnership Facility (FCPF) IFCA, 2007. REDDI: Summary for Policy Makers4 Ministry of Forestry, 2006. Strategic Plan of the Ministry of Forestry 2005-2009 (Revised). Jakarta, and MoF,2007. A road map for the Revitalization of Indonesias Forest Industry. 6
  • 8. soon, for too low a price and for too long a period -- even while recognizing the need to startsomewhere and serve as an early-action testing ground for REDD methods.Within this backdrop the German Agency for Technical Cooperation (GTZ) and theIndonesian Ministry of Forestry (MoF) have embarked on a program to strengthen the processof forest sector reform. The project, "Strengthening the Management Capacities in theMinistry of Forestry" (SMCP), aims to improve sustainable management of forest resourcesin provinces and districts.A key component involves accelerated development of Forest Management Units (FMUs)throughout the country. FMUs are spatial units of forest landscape designed as the basicentity for attaining sustainable forest management (SFM) through effective administration offorest conservation, protection and production. Consultation with stakeholders over the lastseveral years has identified a set of decisions and capacity building needed before FMUs canbecome fully implemented. A set of potential FMUs are now being evaluated to serve as pilotareas for developing methods and a workable organizational structure.2. PURPOSE AND METHODS OF THIS CONSULTANCYThis consultancy was designed to bring basic information on forest carbon accounting into theearly stages of FMU formulation. The intent is to better inform possible climate-relatedfunctions of FMUs within a larger national climate program.The consultancy took place from 02 June to 15 July 2008, with 24 days based in the GTZoffices at the Ministry of Forestry, Jakarta. Methods consisted of document review andinterviews with MoF officials. Discussions were held with individuals responsible for forestplanning and production, FMU development, climate negotiations, policy development andresearch. Two presentations of findings were made at the end of the consultancy, one to theMinister of Forestry, HE H.M.S. Kaban and an inner group of Ministry officials, and a secondto a larger group of governmental, non-governmental and donor country representatives.The basis for the work stemmed from experience of this consultant in California with thedevelopment of a statewide greenhouse gas Registry, the adoption of Forest Protocols, and theimplementation of a verified forest carbon project selling credits to the Voluntary Market. TheState of California has been a pioneer in driving climate policy and institutions within theUnited States, and many of the "lessons-learned" provide a useful framework forconsideration by the Ministry of Forestry.Specific tasks of the consultancy were to address: 1. Institutional options for hosting a national (forest) carbon registry 2. Elements of a Forest Protocol 3. Structure of a Forest Carbon Registry 4. Role of Forest Management Units for tracking and reporting REDD activities 5. Road Map for Implementation 6. Donor participation in activities connected to a national registry and tracking system for carbon credits 7. Presentation and Report.The products of the consultancy consist of this report and Annexes, including the power pointpresentation addressing the core elements of each task. 7
  • 9. 3. BASIC FOREST CARBON CONCEPTS3.1 Forest Carbon VocabularyThe signing of the UN Framework Convention on Climate Change (UNFCCC) in 1992launched a series of scientific and technical committees to advise decision makers on optionsfor mitigation and adaptation to climate change. The forest sector was addressed through the"Land Use, Land Use Change and Forestry" (LULUCF) process which developed many of thebasic concepts and vocabulary of forest carbon accounting.Greenhouse gas accounting methods, including forest sinks, have been refined over the 15years of annual national emissions reporting required of Parties to UNFCCC, and throughdesign of forest project criteria under the Clean Development Mechanism. Furtherinformation on the LULUCF can be found in UNFCCC web pages5. Forest-Carbon Basics 1. Forests play a dual role in capturing atmospheric CO2 through photosynthesis, and emitting CO2 through loss of forests to other uses, respiration, wildfire, and decay of biomass and wood products. 2. As a commodity in a trading market, forest carbon is measured as stock change (tonsCO2e), not rate of sequestration. 3. Elements of a marketable Forest Carbon Credit: What is the Commodity? a Ton of Carbon (CO2e) How is the Ton Created? Additional carbon storage above a "Business as Usual" Baseline (or, avoided forest loss that would otherwise have occurred) How is the Ton Defined? Formal Protocols How is the Ton Tracked? A greenhouse gas Registry How is the Ton Sold? Through Compliance Markets and Voluntary MarketsAt its simplest, a forest carbon credit represents removal of carbon from the atmosphere andstorage in the form of biomass (e.g. wood and long-lived wood products) in quantities largerthan would otherwise occur under "business as usual" (BAU) practices. The fundamentalconcept of "...doing something different for the benefit of the climate" underlies the creationof the credit. Also known as "additionality", the credit represents an affirmative action to storemore carbon from the atmosphere than the baseline carbon cycle through such practices as: • Reforestation: Planting trees on areas that formerly supported forests but have been deforested for some period of time (i.e., not just replanting following normal harvest); • Afforestation: Planting trees in areas where forests are not the natural vegetative cover;5 UNFCCC LULUCF: 8
  • 10. • Forest Management: Adding carbon storage within existing forest stands where current stocks are below the potential carbon storage capacity for the site6. o Reduced carbon stock is a common condition in many industrially-managed lands where rotation length is designed to move wood efficiently to the wood product pool. Additionality can be achieved through activities that build carbon stock within the forest such as reducing harvest rate below growth rate, increasing rotation length, substituting tree species of higher carbon density, and managing for larger reserve areas, e.g. wildlife habitat, watercourse buffers and late seral conditions (bigger, older trees).7 o Degraded natural stands are usually below site capacity. Carbon credits may be generated from activities that store additional carbon through affirmative rehabilitation and restoration of forest conditions. • Avoiding Deforestation: Credits may also be generated by avoiding loss of forests that would otherwise be converted to other uses, thereby retaining existing stored forest carbon stock and ongoing photosynthesis. This concept underlies REDD. • Improved Utilization of Wood Residues and Waste from harvest and milling operations: Substandard or damaged logs left in the forest during harvest operations can be more fully utilized for short-term carbon storage in small-log wood products or conversion to fuels (e.g. pellets, charcoal), providing local employment and some carbon value as substitutes for fossil fuel use8.International forest accounting conventions are clear that "the mere presence of carbonstocks" does not qualify for credits or additionality.9The creation of a forest carbon credit for use in a trading market must address at least fiveelements:6 An upper limit of carbon storage on a site is set by climatic, biotic, topographic and soil variables, butmany managed forests are maintained below inherent limits. Above-ground carbon storage can beincreased by various forest management techniques (e.g. Bunker et al (2005)).7 The opposite situation of overstocked stands due to fire suppression -- resulting in too many stems peracre that would have burned under more natural fire regimes -- presents a different strategy for carbonmanagement. Carbon accounting here attains gains via reduction of wildfire risk and utilization ofcellulosic fuels as offsets for fossil fuels.8 E.g. ITTO, 20079 E.g., Marrakesh Accords and Declaration (2001) COP-7. 9
  • 11. KEY CONCEPTS IN FOREST CARBON ACCOUNTING: "What will we do differently for the benefit of the climate?"Baseline What the atmosphere sees now: The carbon cycle now and projected into the future under "Business as Usual" forest management activities (or, in the case of avoided deforestation, the expected trend line of forestland conversion to other uses).Additionality What the atmosphere will see as a result of a climate project: The additional carbon storage resulting from forest management activities additional to "Business as Usual". In the case of avoided deforestation, less forest loss than expected.Leakage Offsite impacts leading to increased emissions; e.g. shifting of harvest or deforestation to another place that cancels out the gains of the sequestration project.Permanence Ensuring that the net stored forest carbon remains stored over time. The stored forest ton offsets a ton of fossil fuel GHG emitted to the atmosphere. A 100 year standard has been commonly applied for offsetting an emitted ton.Verification Independent, 3rd party certification of methods, measurements and reporting3.2 Potential Forest Carbon Projects in Indonesia: Matching Projects and MarketsThe initial phase of this consultancy developed a list of potential forest carbon projects thatmight be relevant to Indonesia. Table 1 lists projects according to forest type, condition andtarget market. Options are divided into "forest protection" and "forest management"categories, with plantations as a subgroup. Opinions expressed during MoF interviews arenoted regarding the acceptability of various projects in light of other national priorities for theforest sector.Table 2 selects the projects of highest interest from Table 1 and examines them according totheir relative attractiveness to 1) a Voluntary Carbon Market and 2) a future REDDcompliance market. The analysis is not definitive since REDD definitions of "deforestation"and "degradation" are not yet finalized, pending the result of pilot studies and negotiations.The definitions will, however, be important to Indonesias participation in REDD. 10
  • 12. Table 1 POTENTIAL for FOREST CARBON PROJECTS in INDONESIA by FOREST TYPEKey: Kyoto Protocol Mechanisms: CDM/A = CDM Afforestation CDM/R = CDM Reforestation Under Negotiation: RED = Avoided Deforestation REDD = Avoided Degradation Voluntary Market: IFM = Improved Forest Management per VCS10; includes SFM, RIL, extended rotations et alI. PROTECTION OPTIONS FOR CARBON PURPOSES BASELINE BASELINE FOREST ACTIVITY MARKET ACCEPTANCE VIEWS FOREST TYPE FOREST CONDITION for CARBON PURPOSE and OPPORTUNITY11 and OPEN QUESTIONS12PRODUCTION ( HP) and PLANNED CONVERSION (HK) Low Country interest per MoF interviews:NATURAL Production Forests and Re-designate HP and HK to High market interest Re-designation conflicts with state goals:FOREST Planned Conversion forests in “Conservation/Protection” in rainforest protection • "Planned Conversion" forests already any condition (KK, HL) status and avoid designated for economic development and(Peat soils receive deforestation • RED (pending negotiations population growthspecial attention13) and definitions) • "Production Forests" already planned for plantation and natural forest production • Voluntary Market • Carbon gain in "Conservation" areas depends upon enforcement against illegal logging. Planned Conversion Delay Conversion date of Low: Difficult to demonstrate Low market acceptance because area will still planned conversion additionality and permanence in convert. Temporary credits, (e.g. tCERs) have carbon accounting. low market value.10 Voluntary Carbon Standard Program Guidelines (2007) Vol. 2: VCS Secretariat. Available at Assumes VCS standard or above for projects targeting the voluntary market.12 Views collected from discussions during consultancy. The MoF position on REDD awaits outcome of Pilot Project and international negotiations on REDD definitions13 Peat Soil Forests of all conditions should be flagged as a key target due to high GHG emissions from soil disturbance and drainage. Soil carbon pools must be included inemission and sink calculations. Voluntary Market interest in peat soil projects. 11
  • 13. II. MANAGEMENT OPTIONS FOR CARBON PURPOSES BASELINE BASELINE FOREST ACTIVITY MARKET ACCEPTANCE VIEWS FOREST TYPE FOREST CONDITION for CARBON PURPOSE and OPPORTUNITY and OPEN QUESTIONSPRODUCTION ( HP) NATURAL FORESTNATURAL General Convert from conventional Ongoing improvement now per MoF:FOREST logging to SFM and RIL • REDD: Eligibility for REDD (IFM Activity 1) still under discussion - Mandatory RPI certification of concessionaires with independent certifiers is steadily improving • RIL= Improved timber • Voluntary Market: Good practices on the ground. harvesting practices; interest in FSC Certification reduce damage to standing and performance improvement - Requirements for SFM and RIL are already forest (e.g. directional under SFM and RIL included in existing MoF business licenses and felling; protect young crop are enforceable trees; vine cutting; reduce soil compaction, reduce - A carbon market could incentivize compliance skid trails and logging roads) Issue – pending REDD definitions: Does enforcement of existing license qualify as • SFM= Improvements in avoided degradation (or is this domestic forest planning, inventory responsibility)? control, harvest timing etc. • Utilize Forest Certification (e.g. FSC) or other performance approaches to improve concession management • Utilize IUPJL license1414 IUPJL License: Business License for Environmental Services Utilization. 12
  • 14. BASELINE BASELINE FOREST ACTIVITY MARKET ACCEPTANCE VIEWS FOREST TYPE FOREST CONDITION for CARBON PURPOSE and OPPORTUNITY and OPEN QUESTIONSNATURAL Degraded, General Ecosystem Restoration Good C market interest: High Potential for C Project:FOREST Restore and Rehabilitate especially if bundled with degraded forests ecosystem and community co- Forest Ecosystem Restoration offers clear case(contd) benefits for carbon project Utilize: IUPHHK Ecosystem Restoration License 15 • Voluntary Market: Good Good market interest in restoration projects interest Existing IUPJL offers mechanism for carbon • REDD: "Avoided projects Degradation" (pending definitions) Natural forest, general Enrichment planting with Enrichment planting in natural Enrichment planting generally has good good quality seedlings, forests may have good market potential interplanted within degraded acceptance natural forest to enhance MoF supports SILIN for potential C projects future forest stocking Unclear if SILIN will be Research needed to demonstrate net C accepted by Voluntary Market additionality of the technique SILIN: some debate on net C stock increase due to clearing of strips of natural forest for seedbed. Stand below natural carbon Lengthen Rotations to build • Voluntary Market: Good Low interest by MoF per interviews: capacity; SFM and RIL carbon stock, e.g. interest • Increased rotation conflicts with wood practices already in place • Extend 25yr. to 35 yr production goals and supply to mills rotation for certain species; (see: California Forest Protocol) Cut ½ growth. Manage above Concern re: illegal logging of large trees in TPTI baseline. carbon project area15 IUPHHK: Business License for Ecosystem Restoration. 13
  • 15. BASELINE BASELINE FOREST ACTIVITY MARKET ACCEPTANCE VIEWS FOREST TYPE FOREST CONDITION for CARBON PURPOSE and OPPORTUNITY and OPEN QUESTIONS All forest types, degraded Reforest and tend • CDM/R Low support in MoF for CDM/AR: before 31 Dec., 1989 CDM costs discourage projects Many lands do not meet CDM/R definition PLANTATION CONVERSION and MANAGEMENTNatural Forest Degraded Establish new plantation MoF interested in the potential, especially for with best practices: pulp and paper plantations.or REDD: Possible REDDCritical Lands Non-forest grass and shrub. • Protect HCVF High eligibility; awaits definitions Little potential for natural Conservation Value Forests forest re-growth • Watercourse buffers above Voluntary Market: generally legal requirements prefers natural forest projects • Avoid deep peat soils, etc - Possible interest if plantation C gain? Needs life-cycle project is bundled with natural carbon accounting to forest component, ecosystem and demonstrate additionality. community co-benefits. • Compare plantation vs. equal investment in restoration of natural forest • Include C emissions from site prep, fertilizer, plantation tending, transport etc.Natural Forest, any Entire concession area Delay clearing of blocks until Delay provides some Query from MoF whether this would be ancondition cleared in anticipation of phase ready for planting conservation co-benefits for option. Low potential as a stand-alone carbon phased plantation plantation project. project, but a good component in a bundled development Market interest low: project. Temporary C credits (eg. tCERs). have low market interest. Additionality and permanence issues 14
  • 16. BASELINE BASELINE FOREST ACTIVITY MARKET ACCEPTANCE VIEWS FOREST TYPE FOREST CONDITION for CARBON PURPOSE and OPPORTUNITY and OPEN QUESTIONSExisting Plantation Short Rotation class: Extend rotation age of • REDD: Uncertain eligibility MoF: Could consider. 5-7 yrs (Pulp & Paper evenly-aged managed forests Plantations) (IFM Activity 3) • Voluntary Market: Possible Medium Rotation 15-20 yrs Move plantation up one or two interest if plantation project is rotation classes: Manage for bundled with natural forest Long Rotation: 25-35 yrs larger standing C stock and element, ecosystem and longer-lived wood products, community co-benefits e.g.: • Increase rotation age • Manage for bigger trees and structural timber • Convert to Multi-Story CanopyCritical Lands Out of forest cover 50+ year Afforest and tend • CDM/A MoF Low interest: Project costs a deterrentCONSERVATION KKPROTECTED Forest subject to illegal Enforcement, Surveillance, REDD: Uncertain eligibility Unclear: Already in "Protected" status.PARKS logging Prosecution Issue: should actions against illegal logging be REDD eligible, or is that domestic obligation? Unclear: Already in "Protected" status. Degraded, Low stocking, Park Restoration: Voluntary Market: Potential Invasive species due to Carbon stock increase through interest Issue: : "But for" carbon incentives, illegal practices enrichment planting, thinning, rehabilitation would not be undertaken , vs. Why removal of invasives, offer credit for poor park protection? restoration of natural species mix, enhance tree size 15
  • 17. BASELINE BASELINE FOREST ACTIVITY MARKET ACCEPTANCE VIEWSFOREST TYPE FOREST CONDITION for CARBON PURPOSE and OPPORTUNITY and OPEN QUESTIONSPROTECTION HLWATERSHED No harvest activity As per KK: Carbon potential • Possible for future As per KK: Already Protected statusPROTECTION same as Protected Parks Environmental Services Market (PES) for water, biodiversity values possible, but market not yet well developed • Utilize IUPJL license 16
  • 18. Table 2 POTENTIAL FOREST CARBON OPTIONS for INDONESIA by MARKET TYPE VOLUNTARY MARKET INTEREST POTENTIAL REDD FINANCING MoF HIGH LOW Possible REDD projects pending negotiations and definitions:INTERESTper interviews Still to be determined are definitions for the forest management HIGH IUPJL License and IUPHHK Ecosystem New Plantation development activities that will be eligible as "Avoided Degradation". See options, Restoration within Production Forests - Low interest in plantations by e.g., in IFCA, 200816 -Designated Carbon purpose Voluntary Market buyers17 - Improvements in SFM and RIL implementation, and in -Unclear carbon additionality of Concession Management plantations on a life-cycle basis Apply Performance measures and/or forest certification UNCLEAR Voluntary C Projects on Existing Concessions - Plantation relocation: Oil Palm, Paper and Pulp - Proposals by private project developers Relocate plantations planned for forest and peatlands to lands directly to local governments to reduce or already degraded. modify harvest; Require Plantation Accountability for carbon emissions - Issues of Carbon credit rights, licenses, revenue sharing - Lengthen Rotations in Plantations and Natural Forests to build C stocks Increase forest carbon stocking towards natural capacity; produceMODERATE Re-designate "Conversion" and CDM/A; CDM/R High project costs larger logs and longer-lived wood products or LOW "Production" forests to "Conservation" and eligible land a deterrent or "Protection" - Ecosystem restoration within Conservation/Protection Forests High C gain potential. Q: will repairing illegal activity and enforcement within protection areas be eligible for REDD? Lengthen Rotations in natural production forests to build C stocks - Enrichment Planting in Natural Forests: Good interest in concept; Uncertain if clearing required for SILIN technique will provide net carbon gain. - Support "Zero Burning" programs (e.g. IFCA)16 IFCA, 2008. REDDI: Reduced Emissions from Deforestation and Degradation in Indonesia. Indonesia Forest Climate Alliance. Summary for Policy Makers17 See K.Hamilton et al. (2008) State of the Voluntary Carbon Markets 2008 . VERs for Afforestation/reforestation - native restoration=42%; Avoided deforestation=28% ;Afforestation/reforestation - plantation/monoculture=13% 17
  • 19. 3.2.1 REDD issues of "forest degradation": The ultimate goal of forest carbon projects isto grow and retain stored carbon as a climate benefit. Therefore, efforts should be rewardedthat move forest management from practices that cause "degradation" to practices thatpromote "sustainability". However, the definition of "avoided degradation" is a matter ofjudgment when issues of enforcement and timing (i.e. pre- and post- some baseline year) areconsidered.Many tropical countries – including Indonesia – already have statutes and regulationsincluded in concession licenses that require sustainable forest management. But, for a host ofreasons, the standards have not been well enforced. The question arises whether REDDshould reward enforcement of existing law or whether this is simply a domestic obligationthat should be occurring anyway. Similarly, should improved implementation of SFM andReduced Impact Logging practices by loggers on the ground be eligible for REDD whentraining and certification programs have already been initiated, or are those efforts now"business as usual" and not creditable? REDD has been pejoratively labeled by some as"paying the bad guys", and the issue of denying rewards to countries that were alreadystarting to reduce degradation is one of the difficult questions now on the REDD table.Tables 1 and 2 indicate that these dilemmas affect some project determinations in Indonesia.3.2.2 The Voluntary Market: Although REDD may not yet be ready for a regulatorymarket, the Voluntary Market for forest projects is well underway. Throughout the tropicsnon-governmental organizations and project developers are exploring opportunities to bundle"good forestry" activities into projects that appeal to the rapidly expanding market of greenminded voluntary purchasers who are interested in "saving rainforests" and promoting theirbusiness or personal lifestyle as carbon neutral18.Since 2005 the Voluntary market for forest projects has blossomed, filling a vacuum left by adearth of forest projects on the Compliance market. The Compliance market has been notablyresistant to forest projects with only one successful CDM Afforestation/Reforestation projectapproved to date19 and the European Union Emissions Trading System (EU ETS) excludingforest projects entirely. On the Voluntary side, at least 65 million tonnes of carbon creditswere transacted in 2007 with a value of $331 million, and a $4 billion voluntary offset marketis projected by 2012.20,21 The charismatic quality of "green" forest projects that portrayenvironmental benefits of preserving tropical forest ecosystems, protection of wildlife,restoration of watersheds and support of indigenous livelihoods adds to the special appeal offorest projects to a voluntary buyer.However, the emergence of a hodge-podge of offset products being offered to an unregulated,"wild west" voluntary market has caused alarm among market traders and environmentalinterests. Forests are complicated and accounting principles are not well understood by non-specialists. Concern that phony tons would destroy market value and confidence in offsetproducts (and lead to total exclusion of forest offsets in cap and trade schemes) has led toseveral independent efforts to develop standards for evaluating voluntary projects.The most prominent voluntary forest standards are the AFOLU Voluntary Carbon Standard(VCS), the Climate, Community & Biodiversity Standard (CCBS), the CarbonFix Standard18 Hamilton et al (2007) note that "...contrary to expectations, anticipation of future regulation did notappear to be the main motivation for (voluntary) purchases..." p. 6.19 Only one CDM A/R project in Guangxi, China has to date received registration through the CDMreview process. See: See VCS July, 2008 announcement regarding selection of carbon registries and projected value ofvoluntary carbon market Ecosystem Marketplace, 2007, 2008 State of the Voluntary Carbon Markets Vol 3, No. 4. April 18
  • 20. (CFS) and the Plan Vivo System. The State of California has also adopted voluntary rigorousForest Protocols through a regulatory process, and the first forest projects are nowsuccessfully offering credits to the Voluntary market. These standards vary in their treatmentof additionality, co-benefits, permanence, risk and frequency of verification22, but in generalserve their intended purpose of increasing transparency and setting a minimum bar againstwhich forest projects can be evaluated.Indonesias Challenge #1: MATCHING PROJECTS TO MARKETSCarbon prices are caught in a swirl of uncertainty in the lead-up to a post-2012 climateagreement. Undecided definitions of REDD, the potential for U.S. participation in a cap andtrade market, questions about the fate of voluntary markets when compliance markets changeafter 2012, and concern how large quantities of forest credits from tropical nations might affectmarket price -- all raise questions whether to sell carbon now or wait. Indonesia is wise tocarefully consider its own interests during this period of transition.Indonesias entry into early-action projects should carefully weigh risk and benefit. Projectsshould • have a clear purpose of furthering method development • strengthen Indonesias competence in project design and oversight • not commit too much too soon.Both REDD and Voluntary target markets offer opportunities and different learningpossibilities.As a general principle, credits best hold their value when the accounting standards for the tonare rigorous and transparent, and when the projects also provide strong social and environmentalco-benefits.4. ADMINISTERING FOREST CARBON CREDITS: Protocols and RegistriesAlthough the concept of a "forest carbon credit" may seem novel, in fact it can be viewed assimply a new type of forest product which landowners can add to their product line if it meetstheir management objectives. In essence, forest carbon is a "product that leaves more treesvertical than horizontal", since stock change above "business as usual" usually involvesrebuilding depleted carbon stocks in forests to a level closer to site capacity. Familiar typesof regulatory standards apply to forest carbon comparable to any other forest product,including systems for licensing and taxation. Once the commodity of "forest carbon" isdefined and legal rights established, then familiar financial, insurance and market mechanismscan be applied.Two functions necessary to administer forest carbon credits involve the definition and thetracking of the credit. • "Protocol" is a generic term used to describe a body of rules and procedures for defining a ton of forest carbon which can be offered to an emissions trading market. • "Registry" is the term used to describe a formal repository for recording the creation and retirement of forest carbon credits so they can be independently verified and tracked, and are not double counted or double sold.22 Merger and Williams (2008) provide a comparison of voluntary forest project offset standards. 19
  • 21. 4.1 PROTOCOLSProtocols for forest carbon received their early impetus in the development of LULUCFconventions adopted for use in UNFCCC and CDM procedures. For example: • The quantitative methods for reporting forest sinks in national GHG emission inventories are published in IPCC guidelines and "Good Practice Guidance for LULUCF"23 • The methods for generating "Certified Emission Reduction" credits under the CDM mechanism for Afforestation and Reforestation projects are published by the CDM Executive Board24; • REDD standards to address deforestation and forest degradation are currently under development25.As noted, independent standards to evaluate forest projects for the Voluntary Market havealso been developed outside the UNFCCC process, (e.g. VCS, CCBS, California). Similarly,the Offset Quality Initiative has recently released comprehensive guidance for the quality andeffectiveness of offsets to be used in regulatory cap-and-trade systems.26As a group these can be loosely categorized as different types of "forest carbon protocols"that prescribe the standards for defining and reporting a ton of forest carbon. KEY COMPONENTS OF A FOREST PROTOCOL 1. Define the Reporting Entity: Geographic Boundaries, scope of reported emissions . 2. Establish a "Business as Usual" Baseline based on modeled projection of BAU management practices 3. Define Acceptable Methods: - Quantifying Biological Carbon Stock, Emissions - Required and Optional Carbon Pools; - Inventory Methods: Sample plots, live trees, standing dead biomass, lying dead wood, wood products - Minimum confidence in Estimates - Accepted Models to establish baseline 4. Additionality: Additional stored carbon stock resulting from changes in forest management for purpose of climate mitigation 5. Permanence: Ensuring the carbon stock remains stored to offset the ton of emitted GHG. 6. Leakage: Whole entity reporting; Estimates and Discount factors for Market leakage 7. Verification: Define process for certification of Verifiers and Reporting Process23 See Good Practice Guidance LULUCF: E.g. E.g. SBSTA agenda, June 2008 Offset Quality Initiative, 2008. 20
  • 22. 4.1.1 Example: The California Forest ProtocolsThe State of California has adopted a set of Forest Protocols to fill a gap not included in theUNFCCC and Kyoto conventions. Increasing loss of privately-owned forest land, coupledwith "under-filled carbon banks" in many managed forests presented an opportunity todevelop protocols for managed, natural forests. The emerging value of forest carbon offered apotential new revenue stream to assist forest landowners in staying on their lands.At the direction of state legislation27, the California Climate Action Registry (CCAR)embarked on a 4 year process of stakeholder meetings and hearings to develop the CaliforniaForest Protocols. The Protocols were adopted by the CCAR Board of Directors in 2006, andagain by the California Air Resources Board (CARB) in 2007 as a Voluntary, Discrete EarlyAction pursuant to the broad mandate of the "California Global Warming Solutions Act of2006" (AB 32) 28.The California Protocols set a high standard of forest carbon accounting. The key elementsaddress Baseline, Additionality, Permanence, Leakage and Verification, and are coupled withrigorous sampling requirements for prescribed carbon pools29. Each has stringent definitionsthat give high credibility to the forest ton. The Forest Protocols consist of three componentscovering different aspects of reporting: Forest Sector (Entity-wide reporting), Forest Projects,and Forest Certifiers (i.e. verification procedures). Three types of Forest Projects arecurrently recognized: Additionality from 1) Changes in Forest Management; 2) Reforestation;and 3) Avoided Deforestation30.The structure of CCAR reporting is derived from model standards developed by the WorldResources Institute and the World Business Council for Sustainable Development(WRI/WBCSD)31. These standards were prepared in response to an early call from businessand environmental interests for a common reporting framework that would standardize the"ton" across international reporting and trading systems.Stakeholder process: The process for developing the California protocols was conducted byCCAR as required by the protocol legislation32. Representatives from academic and technicalfields, forest consultants, industrial and non-industrial landowners, the California Departmentof Forestry and Fire Protection, State Resources Agency, and environmental, land trust andother stakeholder groups were invited to participate in meetings to develop technicalstandards for the protocol. Because the concept of additionality in managed natural forestsrepresented "new thinking" outside of Kyoto and CDM, new measures had to be adoptedutilizing mechanisms familiar in California. Public hearings before the CCAR Board ofDirectors were held to obtain public comment on the draft protocols, and a final vote to adoptwas held in 2006.27 Senate Bill 812 (2002) Sher. AB 32 (2006) Nunez, Pavley. See Forest Protocols at: >Tools > Forest Protocols30 The "Avoided Deforestation" protocol pre-dates the REDD concept and applies a method based onavoidance of development (i.e. forest land conversion) that would otherwise be permitted under localzoning and land use law.31 ‘A Corporate Accounting and Reporting Standard’ (2004), ‘The GHG Protocol for ProjectAccounting’ (2005), The Land Use, Land-Use Change, and Forestry Guidance for GHG ProjectAccounting (2006) are available at: SB 812, op.cit. 21
  • 23. California forest protocol mechanisms33:• Baseline: "Business as usual" is defined as legal but aggressive harvest compliant with the California Forest Practice Act and Forest Practice Rules34. Growth and yield models allow a projection of forest carbon stock over a 100-year period under a BAU scenario, assuming adherence to prescriptive rules addressing wood sustainability, clearcut size and adjacency, fish and wildlife protection, erosion controls etc.• Additionality: a) Forest management: Stock change resulting from practices that store more forest carbon than the BAU projection, modeled over a 100-year projection starting from current inventory; b) Reforestation: Stock change resulting from tree planting on areas capable of supporting forests, but out of forest production for 10 years or more; c) Avoided deforestation: Defined as "avoided carbon loss" from foregone development otherwise authorized under current General Plan and Zoning ordinances (i.e. pursuant to state and county land use law). A project testing these methods is now being designed.• Leakage: Within-entity leakage is eliminated by requiring entity-wide emission reporting (per Forest Sector protocol). Market leakage is addressed by applying a discount factor and justification.• Permanence: Permanence of net stored carbon stock was defined by the legislative requirement for a "Working Forest Conservation Easement" (WFCE) to be placed on the land supporting the forest project. Easements are legal contracts between willing buyers and sellers that legally remove development (conversion) rights from the site. Continuance of forest management is encouraged according to the terms of a WFCE easement. Lowered property taxes are a result of the easement, reflecting the lower appraised value of the parcel. Sellers are typically land owners wishing to keep their land in resource use to pass on to their heirs, without escalating pressure to subdivide caused by rising tax appraisal based on "highest and best use" (i.e. development value). Buyers are typically non-profit land trust organizations or state agencies that hold and administer the easement for conservation purposes, pursuant to state and federal tax laws35. This approach to permanence is now challenged as too restrictive, appealing only to a narrow class of landowners. The restrictive standards were politically required at the time of protocol development in order to provide tight environmental control and ensure avoided deforestation was as permanent as possible. Now with experience, and in light of new permanence approaches proposed in other voluntary schemes (e.g. risk based insurance, reserve pools, buffer accounts), CCAR has convened a new stakeholder process to examine other alternatives. Less certain standards for permanence, however, will be reflected in discounted carbon prices, relative to the risk to the offset purchaser.• Verification: Credentialing of third-party verifiers, and procedures for verifying methods, forest inventory plots and additionality calculations are largely patterned after standards for verifiers of "green labeling" forest certification schemes.33 For further details refer to the Forest Protocols, op.cit. http://www.climateregistry.org34 The California Forest Practice Act and Rules are available at: See, e.g. "The Pacific Forest Trust ", www., and "The Land Trust Alliance", 22
  • 24. Annex I provides the "Table of Contents" for the California Forest Project protocols toillustrate the range of topics that should be addressed within a Protocol.4.1.2 Examples: The Van Eck and Garcia River Forest ProjectsTwo forest projects have been CCAR-certified to date and are currently selling forest carboncredits to the Voluntary Market. The Van Eck project, managed by the Pacific Forest Truston behalf of an institutional land owner, has served as a demonstration project to illustrate allphases of project development including testing of protocol methods, project design,verification, project approval by CCAR and targeting of sales to different market sectors.Details of both projects are found in websites of CCAR and the project developers36. The keypoints to note are: • The Additionality standards for natural, managed forests have been accepted by the voluntary market, as reflected by the willingness of a range of buyer classes to purchase the credits at asking prices considered high at the time ($10-15 USD/ton CO2e); • A full range of buyer classes is represented by the two projects, including an international carbon asset broker, a major public gas and electric utility, retail businesses, prominent individuals, and website sale to individuals. • Additional forest projects are currently in the design phase, including one that will pioneer testing of the "avoided deforestation" component of the protocols. • As noted, some components of the California protocols are state-specific, e.g. o reference to state forest practice regulation for modeling the baseline business as usual management o use of a "Working Forest Conservation Easement" to address Permanence, Other approaches are offered by other voluntary and compliance protocols.4.2 REGISTRIESA Greenhouse Gas Registry is a formal repository for recording GHG emissions andemissions reductions. A Registry serves the purposes of: • recording a baseline level of emissions from which emissions reductions can be measured over time; • developing consistent GHG reporting standards and tools for measuring, monitoring and third-party verification of GHG emissions; • tracking the certification of emission reduction credits, maturing of their vintage (i.e year in which the reduction actually takes place), and their sale and retirement when applied as an offset.A key function of a Registry is to instill confidence in the credibility of the carbon credit.Registries must maintain high internal standards and establish a reputation of independencefrom political influence. Establishing a registry outside of a governmental structure wouldbolster market confidence, for example if incorporated as a non-profit, non-governmentalorganization.36 The Van Eck Project: www.; The Garcia River Forest: especially the Reference documents at the end of the Public Reports for "Van Eck Foundation" and"The Conservation Fund" found at: . 23
  • 25. Indonesias Challenge #2: WHAT PROTOCOLS TO ACCEPT FOR FOREST CARBONPROJECTS?Standards for defining a ton of carbon are coalescing after 15 years of technical developmentand field application. LULUCF standards already establish core concepts for baseline,additionality, permanence, leakage and verification. Voluntary standards are maturing aroundsimilar principles.Recommendations: • Apply existing conventions: To ensure forest carbon credits generated by Indonesian projects are readily acceptable in international trading markets, it is recommended that Indonesia not re-invent the wheel. To some degree Indonesia can adapt existing standards to the Indonesian context, but should be cautious in creating entirely new standards for project types that already have developed protocols. • Consider a dipterocarp protocol: To fill the gap in Kyoto for additionality in managed, natural forests (i.e. production forests of native species), Indonesia may wish to consider a pilot project that develops methods for managed, dipterocarp forests, to be offered to the Voluntary market. These could be developed in cooperation with tropical forest organizations or countries that might share interest in such a protocol. • Be rigorous: As a general principle, protocol standards that provide the most rigorous accounting legitimacy to the forest carbon ton, and that offer a robust set of social and environmental co-benefits will best serve both sellers and buyers in the long run.4.2.1 Example: The California Climate Action Registry (CCAR)The California Climate Action Registry was formed in 2001 through legislation37 requestedby corporate officials from major utility and business interests who were investing in energyefficiency projects and wished to establish their GHG emissions baseline in anticipation ofpossible future regulation.The Registry was initiated as a public-private corporation with state funding for start-up costs,and now has transitioned to a non-governmental, non-profit corporation supported bymembership and service fees. Members of the Board of Directors are drawn from a mix ofbusiness, advocacy group and public sector representatives. CCAR currently has over 300members representing international corporations, government agencies, cities and counties,universities and environmental organizations who publicly report their GHG emissionsaccording to Registry protocols.Although legislation cannot bind future Legislatures, provisions in the CCAR statute and AB3238 offer strong intent language that Registry members will receive appropriate considerationfor their voluntary early emission reductions in the event of future state, federal orinternational GHG regulation.37 SB1771 (Sher, 2000); SB527 (Sher, 2001).38 AB 32 "California Global Warming Solutions Act" op.cit. 24
  • 26. 4.2.2 Registry ComponentsCCAR provides 4 core services: • "CARROT" (Climate Action Registry Reporting Online Tool) - an on-line reporting system for members to annually report GHG emissions and reductions. • A "Public Report" system for public access to emission reports and supporting documents on voluntary projects; • A "Climate Action Reserve" to track generation and retirement of credits from Voluntary projects. Forest carbon credits are tracked by reporting year, vintage (i.e. calendar year in which the reduction actually took place) and serial number for each ton. • Protocol development, standardization of methods and "think-tank" activities on emission reporting and regulation.The reader is referred to the webpages of CCAR39 for further information.4.2.3 Expanding CCAR -- "The Climate Registry"The high reputation established by CCAR for developing credible, accurate, and consistentGHG reporting standards has led to the creation of a new multi-state registry (includingCanadian and Mexican members) based on the California model. "The Climate Registry"(TCR)40 is structured to accept both mandatory and voluntary emissions reporting and has justlaunched its on-line reporting tool, "CRIS" (Climate Registry Information System).As TCR takes an expanded role in anticipation of mandatory GHG reporting, CCAR issolidifying its role for the Voluntary market, tracking projects and developing protocols fornew project types.39 California Climate Action Registry (CCAR): "The Climate Registry" 25
  • 27. Indonesias Challenge #3: DEVELOPING A FOREST CARBON REGISTRYThe international attention to deforestation and degradation in Indonesia means the country willbe the target of forest carbon proposals from many types of promoters.As proposed by REDD, the "top-down" tracking of national deforestation through GIS andremote sensing monitoring systems, such as the proposed FRIS, will produce a set of data onnational land-use change. At the other end of the scale, on-the-ground forest carbon projects arealready being proposed in forested provinces -- each with different sponsors, methods forestablishing additionality, verification standards, commitments by buyers for the credits and soon.The potential for confusion in keeping track of numerous, and perhaps competing, forestprojects and credits from different developers is high. It will also be difficult to mesh a top-down national estimate of forest carbon derived from satellite and GIS data with a cumulativeestimate of carbon tons generated from individual projects on the ground. Theoretically theestimates should line up, but sampling methods, carbon conversion values, forest regrowth notassociated with carbon projects and confidence limits will lead to inherent discrepancies.Recommendation: Establish (or designate) a centralized GHG Registry for forest-carbonprojectsIt is recommended that Indonesia 1) Establish a centralized GHG Registry for forest projects occurring within the country, at leastat a basic level for keeping track of projects and credits as they are proposed and as they mature;2) Optionally, also designate one or more specific, already-established registries for recordingcredits generated from Indonesian forests.Credits should be numbered and tracked as they are generated and retired. Lack of such controlopens the potential for error, abuse, double counting and possible double sales.Institutional options for housing a Registry within Indonesia should be considered – e.g. within • A governmental agency such as the Ministry of Forestry, Ministry of Environment or other national climate agency, or • A newly-created, independent non-governmental entity to provide additional independence and transparency. As noted, independent institutions provide higher investor confidence in the credit.Alternatively, Indonesia could require that projects be registered in an off-shore registry. Thisraises several issues that should be considered: • Does the outside registry have competence to review projects that were developed to meet Indonesian and international standards and norms? • Will Indonesia have the opportunity for comment regarding decision-making of a foreign registry to ensure that country concerns are considered?In any case, the Ministry of Forestry should develop internal staff capacity to: • Process, evaluate and track projects as they are proposed and developed. • Provide consistent advice to Project Proponents. • Conform regulations for forest carbon with other forest administration systems ( e.g. license, legal rights, taxation) etc. 26
  • 28. 5. THE ROLE OF THE FOREST MANAGEMENT UNIT (FMU) IN CLIMATEACTIVITIESIndonesian forest policy calls for the accelerated development of Forest Management Unitsthroughout the country to help achieve sustainable forest management. When implemented,FMUs will serve as a geographical unit for organizing forest resource management across thecomplexity of governmental levels, forest enterprises and local communities.The Indonesian-German SMCP project has been engaged with MoF and stakeholders toidentify institutional hurdles that slow the development of FMUs and the capacities needed tomove them forward, especially at the district level. Several consultancies have supported theMinistry of Forestry pilot FMU sites process, and numerous SMCP references are availableregarding Forest Management Units41.Among the several potential purposes of FMUs foreseen by the Ministry are "...managementof forests to mitigate global climate change" and " attract investments and promoteemployment activities"42,43.This places the FMU in a prime position as an administrative unit for coordinating local forestcarbon projects and linking projects with national REDD accounting. Figure 1 indicatesproposed roles for FMUs in forest carbon projects.41 E.g. Albrecht (2005); Albrecht and Schaefer (2007).42 "Question & Answer: Forest Management Units (FMU)". FMU Document Series No. 03 ForestryPlanning Agency.43 “KPH shall have the duties and functions ..e)…to open investment opportunity to support theachievement of forest management objectives…” (PP6 , Ch. II, Art.9 ) 27
  • 29. Figure 1 PROPOSED ROLE for the FMU in FOREST CARBON PROJECTSThe FMU (KPH) should serve as the point-of-contact for forest carbonactivities within the spatial boundary of the unit.The FMU would serve several important roles: • Linkage between the national REDD program and local forest carbon activities on-the-ground • Identify Forest Carbon Opportunities within the FMU: e.g. “KPH shall have the duties and functions e)…to open investment opportunity to support the achievement of forest management objectives…” (per PP6 , Ch. II, Art.9) • Provide technical guidance to Project Developers regarding project standards, requirements and reporting procedures • Assist in data-input to the on-line National Forest Carbon Registry • Monitor forest carbon projects within the FMU • Assist in coordinating donor activities to avoid duplication and overlap • Future potential: In conjunction with SFM Management activities and expanding national REDD program: - Improve spatial data on concession boundaries, community lands, forest cover, peat lands, rainfall, soils etc. - Improve Carbon estimates by forest type, land-use activity Data sources: - Improved national REDD GIS coverage - Carbon reporting by Concessionaires in Compartment Registers and Annual Plan reports, in conjunction with inventory and harvest activities - Annual carbon reporting by Project Developers to National Registry 28
  • 30. In the case that the FMU is implemented as a district-based management unit, it also coulddeliver services to the non-forest area (APL), thereby the FMU is fully in line with district-based approaches to REDD.Indonesias Challenge #4: INCORPORATE THE FMU IN FOREST-CLIMATEACTIVITIESAs an administrative unit with strong knowledge of local conditions, stakeholders, forest status,concession operations and regulatory standards, the Forest Management Unit has the potential toplay a critical role in ensuring the legitimacy and effectiveness of forest carbon projects.Recommendation: • Build climate functions into the basic tasks of the FMU from the outset • Ensure that Carbon projects complement SFM goals • Provide Forestry and Carbon Technical Assistance to Project Developers - Assist in pre-identifying opportunities for forest carbon projects - Provide consistent information on project standards and requirements - Assist in and confirm that projects are entered into the project Registry • Utilize FMU local knowledge and administrative structure to strengthen REDD ground- truthing, and feed information upward for REDD aggregation6. PUTTING THE PIECES TOGETHERThe focus on tropical nations to curb forest loss means Indonesia has an opportunity to takeadvantage of programs that will serve the countrys interest in strengthening its forestinstitutions. Climate goals and incentive systems – whether for REDD or a Voluntary Market-- will in many cases reinforce the Ministry of Forestrys mission to vest larger responsibilityin local districts, build power-sharing institutions and develop technical capacity throughoutthe forest organization.It is emphasized that credibility and transparency must be a core value of forest carbonactivities. Skepticism and international resistance to forest offsets will only be reinforced ifempty forest credits enter the system, and will jeopardize the eligibility of offsets in allinternational markets.Figure 2 outlines the primary administrative components needed to underpin high-valueIndonesian forest carbon credits. These include 1) an overarching administrative structureincorporating elements from the local to national level, 2) decisions on acceptable protocolstandards; 3) designation of an acceptable carbon registry or registries44, 4) decisionsregarding legal rights to carbon generated from forest lands and equitable paymentdistribution among vested parties, and 5) consistent technical assistance and coordination.44 E.g., see rationale by Voluntary Carbon Standard in selecting acceptable registries for VCS credits,based on security, verifiability, traceability and custody to provide long-term certainty for the market . 29
  • 31. Figure 2 ELEMENTS NEEDED for ADMINISTERING FOREST CARBON PROJECTS in INDONESIAA. Primary program responsibilities: NATIONAL REDD PROGRAM LOCAL CARBON PROJECTS NATIONAL G-G LEVEL: "Top-down" function FMU LEVEL: "Bottom-up" function.1. Establish national deforestation baseline Focal point for tracking forest carbon activities within the spatial unit of the FMU2. Track and report national REDD ‘Avoided • Link national REDD program and Emissions’ via GIS and other monitoring local forest carbon activities • Identify Forest Carbon3. Receive REDD payments for performance Opportunities4. Participate in distribution of REDD • Provide technical guidance to payments to local level Project Developers • Assist in data input to National Forest Carbon Registry • Monitor projectsB. Needed components of a Forest Carbon program: COMPONENT National Level Forest Management Unit45 (FMU = KPH)ADMINISTRATIVE The structure of a National Climate The FMU administrative structure is toSTRUCTURE Program is now under development in be divided into national, provincial and collaboration with stakeholders and district/city responsibilities, as government entities. determined in collaboration with stakeholders and government entities. For forest carbon purposes it should incorporate: • Ministry of Forestry • National level coordination • Integrate with Province, District, Village and Company activitiesPROTOCOLS 1. Eligible REDD activities and FMU: Will provide technical assistance accounting methods are still to be to Project developers regarding= Rules for determined in international negotiations accepted protocol standards andMeasuring and proceduresReporting GHG 2. National protocols for forest carbonEmissions and projects, if adopted, should be based onReductions international GHG reporting standards to ensure compatibility with established"..what defines the trading marketston?" Key components: Criteria for Project Boundary and Entity, Baseline, Additionality, Permanence, Leakage, Verification, Emissions and sinks. 45 FMU = the smallest management unit on a certain forest area for conducting forest management activities, looking at efficiency and effectiveness of forest management within one watershed or one ecosystem unit. It is based on main functions and is to be managed sustainably. 30
  • 32. COMPONENT National Level Forest Management Unit45 (FMU = KPH)REGISTRY= Repository for 1. Establish a "National Forest Carbon Assist Project developers in dataRecording and Registry" under the authority of either a preparation and input to the NationalTracking GHG governmental entity or independent, Forest Carbon RegistryEmissions and Sinks non-profit corporationover time Administer the process for tracking"...who keeps track REDD and Voluntary Market Forestof the ton?" Carbon projects: • Accept applications for projectsProvides proposed by developersaccountability, • Record C Tons when Verified andtransparency and Registeredcredibility. • Display Public Reports of Registered TonsPrevents: • Record Sale and Retirement of C Double counting credits Double sales To the extent feasible, correlate project tracking with national level, top-down GIS REDD tracking of land use change.LEGAL RIGHTS and National regulations required to define Rights to carbon are a legal matterAUTHORITIES over rights to carbon credits on lands subject that should be addressed at thethe CARBON to governmental jurisdiction. national, not local level.CREDIT Define, e.g., rights of sellers, rights of buyers; matters of licenses, fees and taxes The FMU will act in an advisoryTECHNICAL Capacity building needed within Ministry capacity toASSISTANCE and of Forestry and all levels of forest • Identify potential forest carbonCOORDINATION administration to respond to growing project sites within the FMU attention to forest carbon activities. • Offer technical assistance • Respond to project consultants, verifiers and donor groups to avoid duplication and fill gaps. 31
  • 33. Indonesias Challenge #5: DEVELOPING A ROAD MAP FOR IMPLEMENTATIONREDD is accelerating the pace of forest carbon activities in tropical countries. Indonesiashould put administrative systems in place quickly, even in a basic form, to keep track offorest-carbon projects as they are proposed, approved and implemented.Recommendation: The Ministry of Forestry should develop an implementation plan --either as an internal task or in coordination with other national climate entities – to address:1. Legal and Equity Aspects: Make legal determinations establishing the rights and authorities to forest carbon credits generated from Indonesian forest land. Determinations should address legal and equity aspects of: - The entitlement to, and distribution of carbon rights among local communities, concession holders and the national government; - Benefit sharing of revenues from forest carbon credits through a payment system that recognizes the proportional burdens of those whose livelihoods are affected by implementation of the forest carbon projects.2. Acceptable Protocols: Develop criteria to specify the types of forest carbon proposals that Indonesia will accept, including Protocol standards that will be recognized. Take advantage of recommendations from work already performed (e.g. REDDI (IFCA, 2007)).3. Recognized Registries: Establish a basic Registry to record projects as they are proposed, the standards applied, the sponsors and buyers of credits, and forest carbon credits as they are generated, and their disposition. Optionally, designate off-shore, established Registries eligible for Indonesian forest projects.4. Administrative structure: Begin developing an overarching administrative structure for managing all forest-carbon activities, and identify responsibilities at the local, provincial and national level. This should include capacity to link national-scale REDD programs with local projects.5. Incorporate the FMU: Build forest-climate activities into the FMU from the outset. Establish pilot FMUs soon to develop and test methods.6. Consolidate forest carbon data and monitoring: Over time, link "bottom-up" forest project data with "top-down" REDD carbon estimates for more comprehensive monitoring and calibration of total sinks and emissions.7. Forest Management Protocol for dipterocarps: Consider a project in cooperation with other tropical forest countries or organizations to develop a protocol for additionality in managed (production), natural, mixed dipterocarp forests.8. Promote Indonesian Priorities: During negotiations with project sponsors on REDD and forest-carbon investment projects, make clear the interests of Indonesia pertaining to national priorities for poverty alleviation, sustainability and governance in the forest sector. 32
  • 34. VII. CONCLUSIONSThe world is evaluating all possible tools for addressing global climate change. While focusmust remain on reducing emissions from fossil fuels, forests also offer substantialcontributions – assuming their complexity is recognized and addressed legitimately.The past 15 years of international and sub-national work has developed conventions formeasuring the dual role of forests as sinks and sources of emissions. Indonesia can now joinas a contributor of ideas and forest capacity. Financial and technical opportunities are beingoffered that can concurrently strengthen governance of the forest sector, provide a newmanagement focus, and potentially new sources of revenue.Of key importance is maintaining a high standard of credibility and transparency of the forest-carbon credit. Developing an administrative structure to support credibility will ensure thatcredits from Indonesias forests are respected on the international stage and retain high valueon trading markets. 33
  • 35. ANNEX I: Example Table of Contents for the California Forest Project Protocol Version 2.1, September 2007 California Climate Action Registry >Tools > Forest Protocols 34
  • 36. 35
  • 37. REFERENCES and WEBPAGES (current as of July 10, 2008)Albrecht, Jorg. 2005. Advisory Services for Support of the FMU Establishment Process in Indonesia: FactFinding Mission. Complementary Project. GTZ SMCP PN 2005.2206.0-001.00Albrecht, J. 2006. Project Interventions and impact analysis in the light of changing framework conditions(1997-2006). Volume I. GTZ SMCP PN 2005.2206.0-001.00Albrecht, Jorg and C. Schaefer. 2007. Advisory Services for Support of the FMU Establishment Process inIndonesia: Report of Field Mission to Kalimantan Nov. 2007 and Recommendations. Climate Change.GTZ SMCP PN 2005.2206.0-001.00Albrecht, J. 2008. Advisory Services for Support of the FMU System Establishment Process in Indonesia.April 08 – Mission. GTZ SMCP PN 2005.2206.0-001.00Bunker, D., F. DeClerck, J. Bradford, R.Colwell, I. Perfecto, O. Phillips, M. Sankaran, S. Naeeml. 2005.Species loss and aboveground carbon storage in a tropical forest. Science 310: 5750, pp. 1029 – 1031.California Air Resources Board (CARB). Climate Action Registry (CCAR). www.climateregistry.orgCalifornia Forest Protocols (CCAR). Tools, ProtocolsCarbonFix Standard., Community and Biodiversity Alliance. Marketplace. 2008. "VCS selects 4 registries". July 14.www.ecosystemmarketplace.comForest Planning Agency, 2007. Question & Answer: Forest Management Units (FMU). FMU DocumentSeries No. 03.Hamilton, K. R. Bayon, G.Turner, D. Higgins. 2007. State of the Voluntary Carbon Market 2007: PickingUp Steam. New Carbon Finance and Ecosystem Marketplace. Available at:, K, M. Sjardin, T. Marcello, G. Xu. 2008. Forging a Frontier: State of the Voluntary CarbonMarket 2008. A report by Ecosystem Marketplace & New Carbon Finance. May. Available at: 2008. REDDI: Reduced Emissions from Deforestation and Degradation in Indonesia. IndonesiaForest Climate Alliance. Summary for Policy Makers 2008. Indonesian submission on reducing emissions from deforestation in developing countries.Paper No. 6. Indonesia. Submittal to UNFCCC SBSTA, Bonn. June._______. 2007. Government Regulation of the Republic of Indonesia No.6 Yr.2007 on Forest Arrangementand Preparation of Forest Management Plan, and forest utilization. Paragraph 12, Article 49-58 Term ofForest Utilization at Production Forest License. IUPJL license 36
  • 38. ITTO. 2007. Challenges for sustainable tropical timber industry: utilization of wood residues and waste.International Conference on Wood-based Bioenergy. Hannover, Germany. Hwan Ok Ma, ProjectsManager. Kusumawardhani, 2007. Policy on ecosystem restoration in Indonesias natural production forest.Presentation at COP-13, Bali., E. and A. Williams. 2008. Comparison of Carbon Offset Standards for Climate ForestationProjects participating in the Voluntary Carbon Market. University of Canterbury, New Zealand. May.Available at: of Forestry. 2007. A Road Map for the Revitalization of Indonesias Forest Industry. The ForestIndustry Revitalization In-House Experts Working Group.Ministry of Forestry. xxxx. FMU System and Climate Change in Indonesia. Pamphlet.Ministry of Forestry. 1997. Selective Cutting and Replanting (TPTI). Appendix 11. Handbook of IndonesiaForestry.Patlis, J.M. 2002. Ministry of Forestry moves forward on new regulation.Forest Initiatives Newsletter No. 11.Piris-Cabezas, P. and N. Keohane. 2008. Reducing Emissions from Deforestation and Degradation inDeveloping Countries (REDD): Implications for the Carbon Market. Environmental Defense Fund Whitepaper, 28 May. New York., David. 2008. Designing a U.S. Greenhouse Gas Emissions Registry. World Resources Institute,Climate and Energy Policy Series. February. M. A. 2007. Scoping Study on SMCP Activities in East Kalimantan. Final Report. Samarinda.GTZ SMCP PN 2005.2206.0-001.00.Subekti, Alfan 2008. Scoping Study REDD activities in Kalimantan. GTZ IndonsesiaContract No: 83-17246.The Conservation Fund (Garcia Forest Project) www. conservationfund.orgThe Pacific Forest Trust (Van Eck project). www.pacificforest.orgVoluntary Carbon Standard. Resources Institute/World Business Council for Sustainable Development (WRI/WBCSD). 2006.The Land Use, Land-Use Change, and Forestry Guidance for GHG Project Accounting. Available at: 37
  • 39. Strengthening the Management Capacties inthe Ministry of Forestry (GTZ-SMCP)Manggala Wanabakti BuildingBlock VII 6th FloorJl. Gatot Subroto, SenayanJAKARTA 10270T: +62 - (0)21— 572 0214 / 572 0212F: +62- (0)21– 5720193E: