Indonesian Government bets on REDD

Building on a proposal to develop a REDD+ funding mechanism for Indonesia’s ground-breaking REDD+ Agency, the government may actually enter the voluntary carbon market to purchase REDD offsets.

Agus Sari, chair of the Working Group on Funding Instruments for the Presidential Task Force on REDD+, proposed in 2013 the creation of an interim financing mechanism called Financing REDD+ in Indonesia, also known as FREDDI, that would act as a “fund of funds” administered under the REDD+ Agency to support forest conservation.

Sari says the REDD Agency can act as an intermediary between domestic and international carbon markets. “Here in Indonesia, we want to reduce our domestic emissions by 41% by 2020, and in REDD terms that could mean about 1 billion tons of emission-reductions by 2020,” he says.

Sari said the agency can also securitize domestic carbon offsets and package them for international sale. “We would not only buy and sell like traditional dealers, but we could package them so that we buy insecure credits and we sell secure credits, and that increases the value quite considerably,” he says.

Sari also argues that the Indonesian government could offer offset buyers a degree of certainty that they may not currently enjoy when purchasing offsets directly from private projects. “If I buy from multiple projects in such a way that if one dies I have 200 others that survive, then any buyer will look at us as a secure intermediary.

“Because of that,” Sari continues, “buyers will be willing to pay the higher price from us, which means we can buy at a higher price, and because we can buy at a higher price, we can enlarge our portfolio.  Because we enlarge our portfolio, we are even more secure, and that means the buyer will be even more willing to buy at a higher price. That’s the virtuous cycle that we’re looking for.”

The government’s intervention may be critical. Southeast Asia has more than 27 million hectares of forested peatland, and peat releases devastating amounts of methane and carbon when drained or burned. Approximately 80% of the world’s peat land is in Indonesia, and much of it is slated to be converted to palm oil plantations, thanks to land-use concessions granted well before the decidedly green President Susilo Bambang Yudhoyono took office a decade ago.

The Indonesian government is implementing a detailed strategy to harness finance from the carbon markets that will enable it to shift such concessions from forested areas to degraded lands. The country is also seeing a proliferation of smaller, private conservation efforts such as the Rimba Raya “REDD” Project, which has rescued 47,000 hectares of forested peatland from imminent demise.

 

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