Reducing carbon emissions from Indonesia’s peat lands Interim Report of a Multi-Disciplinary Study

1. BAPPENAS REPUBLIC OF INDONESIA Reducing carbon emissions from Indonesia’s peat lands Interim Report of a Multi-Disciplinary Study Presented at Wetlands International Side Event 11 December 2009 COP 15, Copenhagen, Denmark

2. THE STUDY • The objective of this analysis is to assess the potential for reducing emissions from the country’s peat lands. • The analysis assesses • the present extent, land use and land cover of Indonesia’s peat lands, • the magnitude of current peat land emissions, • the possible carbon abatement potentials under the three different policy scenarios, • the economic costs and benefits of specific policy options and actions to reduce emissions, and • the potential application of national and international policy instruments to achieve GHG emission reductions in Indonesia’s peat land.

3. INDONESIA’S PEAT LANDS Indonesia has around 21 million hectares of peat. Peat more than 3m thick (around 8million hectares) is protected by law. In 2006, more than 55% of peat land was forested. Other peat land covers include cropland (14%) and shrub/grassland (20%) Almost ¼ of Indonesia’s peatland is protected/conserved. About 3.3 million of this is still forested. As of 2006, forestry & plantation licences on peat = 5.6 million hectares. Agriculture, plantation timber & plantation crops cover more than 3 million hectares of land for development. Although protected by law, more than 2.5million hectares of peat land over 3m deep is allocated for development.

4. THE EMISSIONS OF PEAT LANDS Indonesia has an average annual net emission of 903 Mt CO2 yr-1 between 2000 and 2006 This estimate is based on: • Estimates of emissions from oxidation of 220 Mt CO2/yr using land use and land cover data from 2000-2006 and previously published emissions factors. • Loss of Above-Ground Biomass of 210 Mt CO2/yr based on past rates of deforestation and carbon stock in peat swamp forests. • Fire emissions estimate of 470 Mt CO2/y, based on published data and the Second National Communication. The majority of the peat emissions result from uncontrolled burning (contributing 46% of total emissions), peat oxidation (25%) and biomass removal (24%) with the main source regions being Sumatra (44%) and Kalimantan (40%).

5. THE ECONOMICS of PEAT LAND Peat land areas contribute to the national economy principally through the forestry, plantations and agriculture sectors: • Plantations & forestry sectors contributed 3% (USD12.6 billion) [2007] • Oil palm plantation sector contributed 0.85% of GDP & 3 million jobs. But highly carbon intensive: • Peat land contributes approx USD1.06billion (or 0.26%) of Indonesia’s total GDP yet accounts for almost 50% of emissions. • Carbon intensity of the 7 “peat provinces” (90% of Indonesia’s peat) is 22.1 kg of CO2 / US dollar of GRDP.

6. MITIGATION POTENTIAL The BAU scenario assumes all peat areas currently allocated to companies are developed with fire emissions continuing based on historical emissions, which provides an estimated increase in emissions to 1,387 Mt CO2 yr-1 by 2025. The potential emissions under each of three main policy measures are estimated and compared to the BAU scenario Up to 92 % reduction on BAU is possible by 2025 through: Legal compliance and best management practices in existing land under production - 338 Mt CO2 or 24 % reduction Peat land rehabilitation and prevention of uncontrolled fires - 430 Mt CO2 or 31 % reduction Revision of land allocation, forest conservation and land swaps that direct future development away from peat land - 513 Mt CO2 or 37 % reduction

7. MITIGATION POTENTIAL

8. THE ECONOMIC OUTLOOK Preliminary analysis of the opportunity costs of protecting unlicensed peat, and shifting future development onto mineral soil: There is a net positive benefit on GDP, and to a lesser extent on tax revenues and local revenues In terms of macro impact, unlikely to involve opportunity cost due to availability of land at national level. But an opportunity cost still exists at the local level, especially in districts with little alternative land available. Here, the cost will need to be borne by carbon revenue

9. NET POSITIVE BENEFIT OF REVISING LAND ALLOCATION, PERMITS

10. (1) Implementing Best Practices in Oil Palm on Peat Comparison of a standard ‘business as usual’ model with a ‘best practice’ model: Improving yields and financial performance reduces pressure to open up new peat land. The average regional GDP (GRDP) produced by a best practice plantation is more than double that produced on a BAU plantation. If 500,000 hectares of peat land plantations are upgraded to best practice management, a further 500,000 hectares would not need to be converted. The costs of “best practice” are $1,405 per hectare (discounted at 15%). But the benefit is worth $4,626 – a return on investment of over 22%. THE BUSINESS OUTLOOK

11. (2) Land Swaps from Peat Land to Mineral Soils Assessment of the economic viability of shifting planned plantations to degraded mineral soils: Net land available for oil palm expansion on degraded mineral soils is 8 million ha. Sufficient to cover planned increase in palm oil production up to 2020. Assuming a best practice management, degraded land offers superior rates of return (18.6%) than either unforested (11.3%) or forested peat land (12.9%). A strong case to review and consider revised business models such as enhanced community-business partnership models or innovative community-based plantation models. A key success factor for working on degraded mineral land will be Free, Prior and Informed Consent (FPIC) for the participation of local communities and farmers as business partners. THE BUSINESS OUTLOOK

12. The current policy, institutional and legal environment regarding peat land management in Indonesia is currently under review Policies are already in place to regulate peat-land management including limits on developing peat > 3 metres deep, zero burning, and water management But to reduce emissions at scale, there is still a need for: A more effective institutional framework for peat and lowland, e.g. to address overlapping mandates A performance-based framework to promote best practice A national strategy, plan and finance for peat land rehabilitation and fire prevention in degraded peat lands A comprehensive review of spatial planning e.g.to assess scope for shifting future development onto mineral soil A review of experience on land swaps and the potential to scale up experience from pilots to a national scale policy and program The development of peat land carbon policies and their articulation at the international level ENABLING LAWS AND INSITUTIONS

13. ACKNOWLEDGEMENTS: This study is commissioned and led by the Indonesian National Development Planning Agency (BAPPENAS), with the support of experts from the Ministry of Forestry, the Ministry of Agriculture, the Bogor Agricultural Institute (IPB), and the Indonesian Centre for Environmental Law (ICEL). The UK Department for International Development and the Netherlands Ministry for Development Cooperation have provided co-funding.

14. Thank you Directorate of Forestry and Water Resources Conservation kehutanan@bappenas.go.id