Indonesia’s Carbon Trading: Business for Environment
In 2019, President Jokowi was glancing up to the potential of carbon trading. When the cabinet inauguration happened, he gave Siti Nurbaya Bakar, Minister of Environment and Forestry, specific carbon trading instruction. Carbon trading is a method of buying and selling permits and credits to emit carbon dioxide. It is usually compensation for industries in the developed countries that produce carbon dioxide causing environmental damages. This compensation is given to the countries with carbon-absorbing forests. As a tropical country, Indonesia holds the most significant carbon-forestry conservation area globally. It is called the Katingan Mentaya Project, initiated by Dharsono Hartono.
Katingan Mentara Project
Dharsono Hartono, CEO of PT Rimba Makmur Utama (RMU), has a forest in Kalimantan, an area 2 times larger than New York. He bought the right to use the site for 60 years, on condition that he had to protect the forest stays pure. Dharsono is a former financial consultant. He has worked for multinational companies such as JP Morgan, handling merger acquisition, debt management, and capital raising. Dharsono believes that tropical forests have a higher value than real estate. He also believes that carbon finance can combat climate change.
“We used to say we wanted to save forests, but in reality is that in the last 20 years, most of the tropical forests have disappeared, used for oil palm plantations. We need to find a new model where we keep the tropical forest and make a profit.”
Therefore the Katingan Mentara Project was initiated.
Katingan Mentaya Project is the biggest ecology restoration project in the world using the carbon trading scheme. This carbon trading business appeals to well-known corporations who want to redeem their actions. For example, Shell has a campaign, in every 1 cent of customer’s fuel purchase will be donated to the Katingan Project. Besides that, there is also an automotive company, like Volkswagen, that is also PT RMU’s client.
According to Deutsche Welle’s article, Indonesian forests could absorb 7,5 gigatons of carbon dioxide. About 10 percent of the carbon credit in the world is from Indonesia. With nearly 36 million hectares of Indonesian forest, the number will reach 142 billion USD if sold on the carbon market.
Carbon Trading Schemes
It all started in 1997 when the Kyoto Protocol was established. Before the Protocol, the rights to pollute were all free, yet it became exclusive and limited after that. The Protocol called for countries to reduce their greenhouse gas emissions to 5% below the 1990 levels between 2008–2012, an aim that was sadly never reached. The United States withdrew from the Kyoto Protocol and subsequently adopted other countries as well. As part of its strategy to meet the 5% global greenhouse gas emissions reduction target, the Kyoto Protocol created carbon credits types where each carbon credit represents one tonne of CO2-equivalent. That credit is converted into a form secure certificate then be evenly distributed to all corporations. But this set of rules allowed corporations to dispose of emission exceeds the barrier.
There are three ways for a company to offset its carbon credit. The first one is Cap and Trade. This carbon offset allows a company to add more of its certificate to pollute from other companies that do not use theirs. The second one is called Clean Development Mechanism. It is a method of doing environment-friendly projects in developing countries, for example, building a wind power generation in India or a solar power plant in China. As the outcome of this help, corporations will receive a certificate to cover the offset. The third scheme is called REDD+, in which corporations invested funds will be used to prevent deforestation in carbon-producing countries. Corporations that are succeeding in protecting the forests will receive additional carbon credit.
Challenge for the Business
Carbon trading business in Indonesia is not as easy as it seemed. The first most significant challenge is the cycle of forest-fire happens in Indonesia. In 2015–2020, forest-fire spread to the conservation area of the Katingan Mentaya Project. The company’s audit report mentions that the impact of the fire reached 9.000 hectares in 2015. Another issue is a territorial dispute. There’s a latent issue experienced by PT RMU which is, a land dispute with the locals. The locals claimed that the land they occupied is customary land dividing the locals’ area and PT RMU itself.
Also, these challenges can be a combined problem. The east side of the conservation area was directly adjacent to the palm oil area owned by PT Persada Era Agro (PEAK). PT PEAK made canal networks to drain the water in the area purposely. These canals effect making the peatlands dry. So when long summer came in 2015 and 2019, the fire happened. Almost more than 7.000 hectares of the forest burnt in 2015 began in the fire that initially spread from the palm oil area of PT PEAK.
Palm Oil vs. Dharsono
How come PT PEAK could’ve gotten a permit from the Ministry of Environment and Forestry? In 2008, the consent of ecosystem restoration proposed by Dharsono was hardly approved by the government. Up until a video of Harisson Ford scolding the Minister of Forestry, Zulkifli Hasan, went viral. A month after Ford’s visit to Indonesia, quickly, the permission was approved by Zulkifli. Yet, a gaffe emerged. The land restoration consent that was initially proposed 200 thousand hectares was being cut a half. Some parts that were sought by PT RMU had already been given to PT PEAK for the palm oil business. Since the mid of 2012, the Ministry of Environment and Forestry has opened the door for PT PEAK. In December 2013, Zulkifli Hasan also signed the permission to release the forest to PT PEAK.
Integral Part of the Movement
The external problem afflicting PT RMU will have implications on decreasing the carbon buyers’ trust with Indonesia. However, the Katingan Mentaya Project has significantly boosted carbon offset projects created by other organizations. For instance, CarbonEthics, a not-for-profit organization, aims to decelerate the climate crisis through climate education and blue carbon ecosystem conservation. It is promoting carbon offset in the marine ecosystem and advancing social impact into its coastal community partners.
Carbon offsetting can be a valuable way for those inevitable emissions to mitigate climate change. But it is crucial to be careful in investing in carbon offsetting projects, so the money goes towards programs that do not lead to further environmental destruction.