Mario Boccucci Senior Climate Change Specialist (Forestry) - EASRE

1. Carbon Finance and Forest Tenure: Updates from IndonesiaConference on New Challenges for land Policy and AdministrationFebruary 14-15, 2008The World Bank, Washington DC Mario Boccucci Senior Climate Change Specialist (Forestry) - EASRE World Bank, Sustainable Development Department, East Asia and Pacific Region Mboccucci@worldbank.org

2. Outline • Climate Change and Forests • REDD - a mechanism for the future • FCPF - a new World Bank instrument • Indonesia - REDD • Indonesia - forestry, tenure and governance • Emerging issues in the REDD-Tenure nexus • Challenges and lessons learnt

3. Climate Change and Forests - Why • Climate Change 101: GHG; temperature; sources; mitigation; adaptation; Climate Change Convention; Kyoto protocol; cap and trade • There is more carbon in forests than in the atmosphere; when forests are cut carbon is released: 20% of global carbon emissions; 84% of Indonesia’s emissions • Carbon emissions have to be reduced NOW … so why not start from an “easy” source of carbon emissions • Stern Report: reduce deforestation most economic-effective approach in the short term • Impact also other environmental services, poverty reduction, economic growth

4. REDD – a mechanism for the future • REDD = Reducing Emissions from Deforestation and Forest Degradation in Developing Countries • Countries able to reduce deforestation against an agreed future estimate would be compensated for the amount of resulting ER • A country will have to determine how much forest it would loose in a BAU situation, then measure actual forest loss and sell the difference; non binding • REDD was excluded from CDM; only A/R but high transaction costs and limited impact • Order of magnitude for Indonesia: deforestation: 1 – 2 Mha/yr; potential total value 0.5 to 2B$/yr; global; market could reach $15B/yr • Forest carbon payments as “missing incentive” for forest governance reforms and SFM • Indonesia hosted COP13, and the resulting Bali Roadmap adopted a resolution on REDD. It is happening!

5. Private Sector Funding $10 b 10,000 Public Sector Funding

6. The Forest Carbon Partnership Facility • WB experience with piloting carbon markets: Prototype Carbon Fund (1999), BioCarbon Fund (2004); and experience in the forestry sector, • Building on this experience the bank has been working on the establishment of a FCPF with a target of $300M • Objective is to get countries ready for a forest carbon market, to test approaches, incentives systems, institutional arrangements, payments mechanisms; help setting the stage for a system of positive incentives post-2012 • Two mechanisms: “readiness” for capacity building; carbon finance for piloting performance-based payments • The FCPF was officially launched in Bali last December by Mr Zoellick; Initial pledges at $165M from 10 donor countries and TNC; 32 tropical countries expressed an interest

7. Indonesia REDD - Context • Indonesia’s forests are among the most diverse, extensive and valuable in the world. • Economic development, poverty reduction, environmental services • Annual deforestation peaked at 2M ha, 600M ton C • Large emitter of GHG (80% LULUCF) • Potential unprecedented incentives for sector reforms • Increasingly leading the REDD global discussions

8. Indonesia REDD – Carbon Profile

10. Planned losses (Conversion, Palm and Timber Plantations, Production) are high relative to unplanned or unauthorized losses

11. Indonesia REDD – Value Chain $ CO2 1 2 3 4 5 Baseline Strategy Monitoring Market Distribution Reduce deforestation Governance

12. Indonesia REDD- Integrated System • No one element of this value chain can stand alone. • A readiness system without reduced deforestation will not generate funds • Reducing deforestation without a readiness system in place to turn this into a commodity will not generate funds • Without a system to effectively distribute REDD revenues, reduced deforestation and degradation will not occur • Without addressing the underlying governance and tenure issues affecting the sector, reduced deforestation controlled leakage and permanence will not be achieved • An ambitious set of objectives … a phased approach

13. Indonesia REDD Initiative • June 07 GOI request Bank assistance to prepare for REDD and present in Bali a paper on how REDD could work; July 07 Bank AAA-TA approved a support package covering Methodology, Strategy and Constituency building; • Analysis: 9 studies on methodology (baseline, monitoring, transaction and revenue sharing) and strategies for cost effective reduction of deforestation in five different land uses; • Teams include a Core Group of leading international and Indonesian experts; Counterpart MoFr Experts and broader Reference Group with relevant NGOs, private sector, other agencies and international organization; • Consultations: to involve key stakeholders in other GOI agencies, NGOs, private sector, and at sub-national; level. Workshops took place in Jakarta, Papua, Aceh Kalimantan and Sumatra. • Within the bank we close engagement of Forestry Anchor (Strategy), ENVCF (Methodology), LEGEN, PREM, EASRE

14. Indonesia REDD Initiative – Analysis Baseline • Historic vs modeling • National, sub national, project Monitoring • Definition of deforestation and degradation • Area change and carbon measurement • Accuracy and reliability Strategy • 5 Land use changes covering key drivers of deforestations • Past deforestation and predicted deforestation • Interventions to reduce deforestation and opportunity costs Market and revenue sharing • Buyers and Sellers • Registry and legal framework • Payment distribution institutional and legal arrangements and governance measures • Equity and incentives Governance • Forest Sector Law Enforcement and Governance: • Systemic Governance • Safeguarding carbon transaction

15. Indonesia Forest Tenure – Highlights • What is the situation: 70% of land classified as forest estate, less than 15% gazzetted, 37M ha deforested, disempowerment of IP of customary rights … • How did it get there: evolution of the legal framework (constitution; Agrarian Law, Basic Forestry Law; Forestry Act; Decentralization Law); the forest zonation process (TGHK, RTRWP, Paduserasi); the licensing system; a highly functional system … • Why did it get there: a governance perspective – state capture and administrative corruption; • Forest resources are not contributing as they should to poverty reduction • Disagreement over control of forest lands  conflict and uncertainty • Is there hope? Many argue for a wider rationalization of forest land uses, control, and ownership TAP MPR (2001); PP6 (2007), MFP2 …

16. Forest, Population & PovertyDistribution • 50-60 M live in forest “estate:” ~ 25% of Indonesians • ~ 20% of these are poor; ~ 80% are in areas with no tree cover • Poor in forest cover: low in #s: 3-6 M; high in prevalence: 22% vs 17% for all • Most smallholder growers are not living in forest estate with good tree cover • Subsistence livelihoods in forests: could be ~ 1 million families

18. Emerging issues in the REDD-Tenure nexus • Legitimate level for a BAU reference level (what is the deforestation entitlement of a those who have legitimate claim to land): the historic vs modeled approach has important ripercussions • How to determine the reduction strategy … and the importance of secure rights to deliver it and increase permanence • How to distribute the carbon compensations (so that they reach the resource owner to offset their opportunity costs and compensate for the environmental; service they provided) • Need of intensive consultations and participation in the development of the REDD system

19. Challenges and LL • Still the same old game …REDD does not change the nature at the issues at stake. It provides additional incentives and leverage to tackle serious forest reforms; it provides an entry point to engage in a constructive discussion and scale up a policy dialogue that has been otherwise stagnating • The people the people the people …. Constituencies, participation and prior and informed consent are crucial. A “culture shift” will not be simple; Empowered “Champions” will be crucial’ • Move from rhetoric to action … identify strategic priorities, and use achievements on these as a measure of real progress and commitment; • Time is of the essence … REDD failed already in 1998 as it was deemed to difficult. Havinf met the “Bali Test” the next deadlines are in 2009 and 2012 … + deforestation is running fast; • Government (multi-agency); Civil Society; Private Sector …it’s a complex problem; requires concerted reactions. • Tenure issues cannot be resolved in isolation from the broader governance challenges • “To maintain the status quo … we need to attempt to change everything” … take a phased approach; need to agree and have convergence of a realistic but strategic number of priorities (for example: CB timber plantations on deforested lands) • Starting from Spatial Planning (land use mapping and social survey to determine claims, uses opportunity and risks …) • Identify quick wins: such asdeforested areas which are prone to “rationalization”; with proper tenure they could contribute to the REDD strategy; also build on positive experience • Forestry in Indonesia at a tipping point: there are still a lot of risks…but never before did we have this level of leverage and champions. Potential is there to move from boutique interventions to major policy reforms