Can This Indonesian Official Execute The Largest Voluntary Land-Swap In History?

We all use palm oil every day, and nearly half the world’s supply comes from Indonesia – with devastating results for the country’s forests and the global climate. The country has also embarked on a massive and unappreciated effort to save its peat forests, and Heru Prasetyo is leading that effort. We caught up to him at his office in Jakarta.

16 May 2014 | JAKARTA | Heru Prasetyo may have the toughest job in climate change. The former Indonesian Director for PT Accenture, he became the inaugural head of Indonesia’s new REDD+ Management Agency in December. That means he’s charged with developing a national regulatory regime for Reducing greenhouse gas Emissions from Deforestation and forest Degradation, plus other changes in land-use (REDD+), and that translates into a complete restructuring of the country’s forestry sector, which in turn requires a complete restructuring of the country’s agricultural economy.

It’s an economy that the country built on palm oil. It did so with the blessing of a world that gobbles up palm oil by the boatload to make cookies, creams, and soaps. Consumers around the world cheered as Indonesia became the world’s leading producer of the stuff, but environmentalists jeered at the impact that achievement had on the country’s forests – many of which grow in peat bogs, which store massive amounts of planet-warming carbon.

President Susilo Bambang Yudhoyono imposed a moratorium on new palm oil concessions in 2009, but that didn’t effect concessions already in place – most of which had been granted by local authorities over whom the president has little control. That leaves millions of hectares of forest slated for conversion to palm oil plantation, and Prasetyo is charged with leveraging an uncertain and relatively small trickle of REDD+ finance to redirect a sector that brings in tens of billions of dollars per year, and he must do so as Yudhoyono’s time in office draws to a close.

A core strategy for achieving that redirect is to persuade companies that have already received concessions to develop palm plantations on peat forest to instead shift their operations to degraded land – a task comparable to asking the corn farmers of the American Midwest to move their crops en masse to the apple orchards of the Northeast.

Indonesian environmental non-profit PT Serasi Kelola Alam (SEKALA) got a taste of the enormity of the challenge in 2009. Working with the World Resources Institute (WRI), SEKALA took a deep dive into the use of land on the Indonesian part of Borneo, known locally as Kalimantan. They found that 8.6 million hectares of Kalimantan’s forested land was legally available for conversion to palm oil – and that an almost too-good-to-be-true nine million hectares of degraded land was physically suitable for palm oil development.

After an intense search, they found a palm-oil developer willing to abandon its concessions on forestland if SEKALA and WRI could find them suitable degraded land to move to. They also found an indigenous farming community willing to negotiate a swap – but when they tried to execute it, they ended up with a lesson on the stifling power of bureaucratic inertia.

Prasetyo will be tackling that inertia and the endemic corruption that comes with it, as well as illegal logging and a convoluted mishmash of maps and concessions going back to the days of Dutch rule before World War II.

We had an opportunity to sit down with Pak Heru at his office in Jakarta, and in a wide-ranging interview he spoke frankly about the challenges of lining policies on the ground up with REDD+ financing from abroad, and of scaling that financing up to a meaningful level.

This interview has been edited for space.
Click here to read the full, unedited version – which includes
detailed insight into some of the more technical aspects of REDD.

Steve Zwick: Is there a way to summarize in a few sentences your national REDD strategy?

Heru Prasetyo: Well, I can summarize our objective – which is what I believe to be the single greatest challenge we face and it’s this: the bulk of our land is peat forest, and the emission factor for peat is eight times that of regular forests. That’s the big problem we have now: so many of our peat forests are slated for conversion to palm oil, and people have made investments based on those concessions. We can’t just negate those, because investors need to know they can trust us not to change the rules in the middle of the game. Also, we’ve spent 50 years developing this economy, and if we simply stop producing palm oil, we will be taking a massive economic hit, and production will just go elsewhere. So we have to engineer a land-swap. This means identifying degraded land that could be used for palm oil and trying to see if there is a way to persuade the people who have palm-oil concessions to switch over. But switching means you lose any initial income from logging, and maybe it means you go from a contiguous piece of land to fragmented properties. On top of that, the degraded land has claims on it, too. I see REDD+ as a tool for helping us execute this land swap, but it’s not easy.

SZ: You’ve said that a landscape approach to REDD+ is the only way to go, and that means accounting for the human drivers of deforestation on that land and the ecosystem services flowing from it. How do you plan to apply this approach in a world where the only real, measurable output is carbon?

HP: The challenge is making sure that the national and global REDD+ mechanisms can be transposed into actions on the ground that address the drivers of deforestation locally. Only then can you have an effective REDD+ mechanism.

Read how the Brazilian state of Acre is dealing with this same issue.

SZ: When I speak to people in forestry ministries of other countries, they say it’s too complicated to incorporate site-specific reference levels in a national strategy. In fact, that’s one reason they say we won’t see nesting of voluntary projects in a national strategy.

HP: I’d argue that you must incorporate site-specific reference levels in a national strategy, but you also have to recognize that these reference levels won’t mean anything if you don’t meet your national targets.

SZ: So, you’re in favor of nesting as long as we can account for leakage?

HP: Can you really account for leakage?

SZ: Voluntary projects account for leakage. They don’t eliminate it, but they measure it. I always thought the idea was that leakage would gradually be reduced as we scale up to national-level accounting and emission targets.

To learn more about Pak Heru’s views on leakage, read the interview in its entirety.

HP: We can only control leakage in a jurisdiction, but not in a company, because if we stop a company from deforesting in Indonesia and that the company goes to Africa, it’s outside my control. We have to agree with the funder that this is my limit of responsibility. But if I tell them I’m going to only “sell” offsets from Kalimantan, then they can say, “If there is leakage in East Kalimantan, then this will be on the bill.” That’s how I see how we will be able to control leakage. But if you start nest by nest, then the leakage will be uncontrollable. Then you’ve made use of formula and this and that, but it’s not curing the reality

SZ: Where would that leave a project like Rimba Raya?

HP: Rimba Raya is not alone. It’s not even the first ecosystem restoration project. That was Hutan Harapan (Harapan Rainforest), and now you’ve got Rimba Makmur Utama, which is a REDD project like Rimba Raya, and others will follow. All of these projects have something to offer. In fact, I’d argue that ecosystem restoration on degraded land is the driver of REDD+. People keep saying that corporations are bad and drive deforestation, but in these cases, you have corporations driving restoration. These are the kind of companies we want to support.

SZ: Our research shows there is a huge oversupply of REDD credits, and that translates into a huge risk of these environmental benefits being lost of companies don’t sell credits. Many are hoping they can sell their credits into the public system. Is that a possibility?

HP: That is something that may be necessary, but not because of oversupply. Instead, it’s because of the immaturity of the market, and that’s were there may be a role for government. Let me explain. I was called by CIFOR to give a speech in front of a big audience, and I got a question from the floor: “Do you think there is a market related to this carbon thing?”

I asked, “Is there a market for oil and gas?”

Everybody was like, “Definitely! The world is moving because of oil.”

I then asked how long crude oil had stayed in the ground before it was exploited, and the answer was, “It was always there.”

True, but not until science drove the utilization of that crude oil did we have an economic value. The value wasn’t inherent in the oil, it was inherent in our recognition of what it meant for us. The question now is: can that also apply for carbon?

SZ: Or solar…

HP: Exactly. With solar, the government had to provide early support, and with REDD that may be necessary, too.

In the full interview, Pak Heru also discussed the need to
stimulate domestic demand for offsets from individual projects.

SZ: But what would make you step in as a government? I mean, based on what I know, the voluntary market is quite rigorous, and your Deputy, Agus Sari, says that Indonesia could become a buyer of offsets from the voluntary carbon market.

Read more about Sari’s proposal here.

HP: We would never support a project just to support it, but we might support an ecosystem restoration project if it were a flagship program.

SZ: So, if it’s something that can be replicated across the country, then it makes sense?

HP: Yes, because that’s the hard part. Proof of concept is easy; proof of replicability is difficult. Because RR and RMU are using ecosystem restoration, it’s something that can be used. I’d like to see if this can be replicated in mangroves. I’d ask CIFOR to do the research.

SZ: Palm oil is getting a lot of attention now internationally. Will that help your efforts to implement a REDD+ strategy?

HP: This is all so complex. Solving one small problem is not solving the problem at all. In fact, it even creates other problems. We are trying now to resolve the issue of licenses, but suddenly we have this cry because Europe and America are imposing a higher tariff on palm oil, so the nationalistic spirit kicks in. It’s all complicated and interrelated. It may solve one problem, then creates another that’s more difficult to solve.

We have to have patience and persistence, and think in terms of interconnected landscapes.

SZ: I’m still not completely clear on what the landscape approach means here…

HP: It means looking at everything – at the big picture, at the flows – the flows of goods, flows of money, flows of people, and flows of technology.

On the goods front, you have various derivative of palm oil: refined and raw, and biofuel.

On the money front, you have massive investments and incentives – do you invest in the giant kilns? Maybe, but then what do you do if India puts an import duty on refined oil but not on raw oil, which is what they do. They can incentivize us based on their import duties. A big factory draws on palm oil from a lot of land. This raises the question of who invests and who benefits? The rich? And it doesn’t end there. You can have speculators in New York who make money by speculating on the rupiah.

On the people front, you have engineers and other experienced workers, and when an experienced oil company worker goes to Liberia, just to take one example, the profile of Liberia changes.

Related to this is the flow of technology, of knowledge – the way of doing things. If the technology for getting better palm oil seed gets imported to Indonesia at a price, then productivity won’t go up as fast as it should, and that impacts the forests, because we’re using more land. So, why not make this technology free, or at least import it at cost?

Looking at this big picture is the landscape approach.

SZ: Is it even possible to take all of that into account?

HP: Some people say if you want to solve the simpler problem, you solve the complex one first.

SZ: You mentioned supporting projects that are replicable because of their value as pilots, and I’ve always felt the voluntary markets had a lot of lessons for the compliance markets. Those lessons seem to be making their way into state and regional cap-and-trade programs, but I don’t get the feeling they’re getting into the UNFCCC.

HP: You have to understand that the UNFCCC is large and complex. Some people are working to bring those lessons into it, but the overall structure is so balkanized that it’s almost impossible. Right now, all of this thinking is happening in silos, and it has been ever since the first Earth Summit in 1992, when we created different conventions for biodiversity and climate change – and also for desertification, which everyone forgets about.

SZ: So, you think we should unify the three conventions?

HP: I do, but these silos are everywhere. We see them in Indonesia, where different authorities have control over different parts of the landscape. It’s a global problem.

SZ: We see that in the United States, where our regulatory system divides forests from wetlands and wetlands from navigable waters, even though they are all part of one ecosystem. We do have mitigation banking for habitat and wetlands, but then carbon comes along and creates this one measurable output that is so incredibly fungible. Everything seems to gravitate towards it.

HP: Then you put that to the power of the number of countries, which is 190, and you see the challenge of creating a global system based on landscapes thinking.

SZ: So, how do we fix it?

HP: Globally, I don’t think the current system is salvageable. Whenever one country talks of something as benign as exploring synergies between the conventions, another country kills it, and even within the UNFCCC alone, we’ve seen how long it took to reach this agreement in Warsaw that everyone is so proud of.

Heru Prasetyo addressing delegates to 2014 climate talks in Warsaw

Heru Prasetyo addressing delegates
to 2014 climate talks in Warsaw

SZ: You don’t think the Warsaw Rule Book has any value?

HP: I’m not saying it has no value. In fact, the progress made by the UNFCCC in Warsaw for REDD+ was a necessary and long-overdue step. I’m just saying it’s not a great achievement, because we should have gotten here years ago. But now that we have the Rule Book, we can begin to see things happening at the national level, at the local level, and multi-bilaterally.

SZ: What’s “multi-bilateral”?

HP: In Indonesia, we … have a very complex dynamic [involving 30 kinds of peat on 250 land systems]. This is very different from Brazil, because there you can connect deforestation with emission reductions in almost all cases.

Because of local variability, I don’t think we’re going to find global common ground on all of these issues. But we do have common ground with Norway and the United Kingdom, and I think we’ll find that we’re in agreement with Germany and the United States as well. If just these countries agree on a set of parameters based on Indonesia, then maybe they can be expanded to other countries that don’t have the land mass that we do and aren’t able to move ahead as quickly as we do.

In the full interview, Pak Heru offers
more detail on the variability of Indonesia’s land.

SZ: So, Indonesia leads the way?

Indonesia and Brazil are leading the way among forest countries in terms of creating multi-bilateral partnerships, but we’re not leading just because we want to. It’s simply a fact that we have what it takes to make this multi-bilateral usable as a reference for others.

Of course, Norway will be a hub, and afterwards Indonesia and Brazil, and maybe a few other satellite multi-bilaterals connecting with Guyana, connecting with Costa Rica, and it becomes big – and it’s the only way.

SZ: So you think the idea of a UNFCCC-style, top-down, global apparatus is just a dream?

HP: No, I think it’s what we’ll evolve into once we achieve critical mass. Out of the 75 countries that are members of the REDD-plus Partnership, of which 50 are actually forested countries, you get maybe 60% of the total forest coverage. Working with that multi-bilateral, you can move to a multilateral much easier than starting from zero and forming a multilateral.

SZ: How has your partnership with Norway made this possible?

HP: That’s what made it possible for us to look at REDD+ from the ground up – from the river, the street, the forest – and to say, “OK, what is the situation?” And what we’re finding is that the situation is no less complex than it is globally, but at least it’s all under our governing structure. So, we created a National REDD+ Strategy, and we’re feeding our findings into the international community.

SZ: What complexities on the ground surprised you the most?

HP: We knew that we’d have a lot of issues with tenure. That’s a problem we inherited from the Dutch, and then we made worse ourselves. So, we knew that, but the biggest surprise was that our institutions were not prepared for doing what needs to be done to make REDD+ work. But then we also found this benefit: that the reforms we needed to make for REDD+ were reforms that would have knock-on benefits across the agriculture sector. So, we’re using REDD+ to align our institutions and straighten out all of our tenure issues.

The next complexity was there are a lot of things locally that don’t fit the UN paradigm – or, rather, things that the UN seems to assume are there, but that aren’t.

SZ: Can you provide some examples?

HP: There was nothing about maps, and nothing about regulation – which is understandable, because the UN and other organizations don’t want to be seen as interfering with a country’s sovereignty. I’ve been looking at other countries, and one of the realizations when you go into the budgeting system of any country is that you don’t have an account called “REDD”. Some countries don’t even have climate change in their charge of account, so how can you, as a bureaucrat using the terms you have as a country, apply REDD+ when nothing is recognized as that in your budget?

I understand why international organizations don’t want to dictate this stuff, but the reality on the ground is that you need these things. Otherwise, a country can say, “I’m ready,” but I’d argue that they’re not ready, because the most important questions weren’t asked. So we need to tailor that, based on what is needed on the ground and how it’s connected to the global, higher-level issues.

SZ: Is there one take-home that you can offer other countries? One lesson you’ve learned that you think will save them a lot of time?

HP: Yes, and it’s the one question everyone is asking when they decide to create a REDD Strategy: Do you employ government introspection or multi-stakeholder consultation? Consultation is messy, but I’d argue that you go the consultation route, and you look honestly at who can provide that capacity – not only the government but also NGOs, who have been frozen out of the UNFCCC process, except as observers.

This alone changes everything, because it makes you question your premises. It makes you ask: “Can we do the institution-building in the current paradigm?” The governing paradigm that everyone approaches agriculture on is basically exploitative; it’s basically looking at natural assets as either natural resources or protected areas. It makes you think along the lines of, “This is the one that I can cut in order to get development. This is something I can sell instead of nurture.” So, the question of who you involve becomes: “What kind of paradigm do you want to meet the needs of your people, and does REDD+ offer a new component that makes that paradigm doable?” You won’t get an answer to that if you leave this up to just one of your administrative silos.

SZ: Everyone is talking about your One Map Initiative, which is designed to take all of these different land-use and concession maps that different ministries have and combine them into one. Is this part of the paradigm shift?

HP: It’s more an example of how you can’t really draw sharp lines between these activities. The One Map Initiative is certainly related to how people relate to the land, but it’s really something we consider more strategy than paradigm-shifting. Without the One Map, we can’t really do anything, because we need a common database to proceed.

SZ: Will this map be used to develop your reference levels?

HP: Yes, but that’s also one of the issues that is proving difficult. We can easily come up with a national reference level based on historic rates of deforestation, but that won’t work locally, because of the different competing forces converging on that land. But what are those forces?

Right now, the Ministry of Industry has one classification for our land, and the Ministry of Agriculture has another, while the Ministry of Forestry has another. Then you have different conflicting concessions and licenses on the land, some overlapping, and each with a different expiration date. Sometimes, the rights to a piece of property aren’t even recorded by government, but by a mortgage company or a bank. We have to review all of these, and we also have to determine which of those concessions were given through corrupt practices – which opens up a whole other set of questions that we haven’t dealt with yet.

Then you have the data, which is what the REDD+ finance usually wants to see, but first you have to determine what you want to measure. Do you want to measure deforestation or emissions? The questions are endless: “Do you want to identify what is primary forest and what is secondary forest? How do you measure that?” Those are the metrics side, and metrics, together with the data and the map, are all part of the strategy initiative.

SZ: And this is all something that you think every country will have to go through?

HP: They can try to bypass some of it, but they will then find they don’t have the data they want. We realized early on that if we don’t have the data that we want, then we will not be able come up with a trusted system, and that actually is the hinge of all market mechanisms. Market mechanisms are built on trust.

Whether you are talking about a financial market, a commodity market, or a futures market, you need trust. If you’re underlying isn’t trustworthy, how can you proceed? So from the national perspective, building trust will be the agenda. From the global perspective, the agenda will be the competing tasks of harmonizing to create a holistic approach and addressing the local issues. Those are two big issues here.

SZ: I see the issues philosophically, but I don’t see how you’re going to get from A to Z in practical terms – how you’re going to finance it.

HP: There is a way to scale up using REDD-based “payments for performance” instead of offsets. I propose that we can make early payments that are delineated in tons of reductions but aren’t offsets. Here’s an example:

Let’s say I want to get started in REDD+, and I have one hectare that we know sequesters at least 1000 tons, but it could be as much as 10,000 tons, because it’s peatland. And let’s say the price that I can receive is between $5 and $20 per ton. So, the least I can get is $5,000 and the most I can get is $200,000.

Now, I could negotiate and try to get the most possible, or I can prime the pump and take a lower amount. Or I could do a hybrid: accept the lowest amount, but leave the door open to more. Which makes more sense to you?

SZ: I’d say the third option – because 10% of something is better than 100% of nothing…

HP: Well, it’s lower than 10% in this example, but there is an option for more. Still, you’re right: the lowest amount is the path of least resistance, and it primes the pump. Then you have your bilateral connections for public funds, but there is a condition: that the early payments are not offsets.

SZ: So, the country making the payment can pay you based on the amount of carbon you sequester, but they can’t write it off their own emissions.

HP: Right.

In the full interview, Pak Heru offers more details
into how he believes readiness payments can lay
the groundwork for an offsetting regime.

SZ: When should the payments be business-to-business, and when should they be government-to-government?

HP: That depends on a lot of factors. A lot of the B2B could be internal – remember, we are hoping to grow our economy over this period as well – so we could see offsets coming from within the country. This goes back to our earlier discussion about Rimba Raya.

To answer your question, we have to consider that our objective in connecting climate change with development is to make sure the land is being used in the most judicial way, the most fair way, and the most sustainable way. All discussion has to flow from that. But we first have to identify the kid of fund that’s paying into this. If it’s the public fund – and we can include the Soros Foundation or the Gates Foundation or even Corporate Funds beyond CSR – those that are for public good instead of private benefit need to be treated as pubic goods. They should not be offsets.

Let’s look at the Norwegian money – and we can apply this thinking to the BioCarbon Fund and the FCPF or FIP as well – this is REDD Readiness money. This is the transformation phase that comes before payment for results. Everyone agrees on this, but they don’t agree on what “readiness” means.

In the full interview, Pak Heru offers more detail
into which funds he believe are appropriate for
readiness and which for offsetting.

SZ: As I understand it, Indonesia has set a target of 26% below a business-as-usual scenario by 2020 with or without international support, and by 41% if you do get international support, but I’m not clear on how you determine the reference level.

HP: Our aim is to grow continuously by at least 5.5% GDP wise, and that means you have to have a lot of infrastructure built. That becomes: “Should I build roads or should I build railways?” Those kinds of real development questions come into the picture during the transformation stage, and it’s based on the condition on the ground. Then if I want to grow by 5.5%, what is my main source of income? Export? Export of what? Palm oil? Pulp and paper? Coal? Suddenly you look into the plan that’s going to effect emissions, and that needs to be factored into your emission levels as business as usual. Now, that is the emission level I want to reduce by 41% from, but I don’t want to reduce the speed of my growth. So you need to prepare the development plan that’s continuously giving us growth at the same time it’s protecting the environment and providing social equity. That’s the whole work of a government – besides dealing with insurance and the salary of teachers. (laughs)

This is big time in terms of creating the reference emission level and going back and saying, “Sorry, you don’t build that road there – build it somewhere else.” That is the second stage of funding, and it has to be agreed with the funder, where you say, “This is how we measure it,” because that’s how bilateral works. It’s much easier than compulsory things. Having that, you then start working to reduce emissions. And emissions are not a central government work. It is a local government work. So, people talk about nesting and sub-national and investing – these are all nice words, but from my perspective that is how it has to be framed.

Steve Zwick is Managing Editor of Ecosystem Marketplace. He can be reached at [email protected].

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About This Series

We all use palm oil every day, and nearly half the world’s supply comes from Indonesia – with devastating results for the country’s forests and the global climate. Fixing it is no easy matter, and in Palm Oil vs The Peatland Forest, we examine efforts underway to shift palm oil development from forests to degraded land – an act that requires nothing short of a complete restructuring of Indonesia’s rural economy. We begin by speaking with Heru Prasetyo, the man charged with overseeing this massive land-swap. Then we go small – and follow one conservation project in Borneo as it struggles to get off the ground, which brings us into the highest levels of Indonesian government and the challenges of creating sustainable supply chains in the face of global demand.

Part One:
Can This Indonesian Official Execute The Largest Voluntary Land-Swap In History? We speak with Heru Prasetyo, the man charged with developing a national regulatory regime for Reducing greenhouse gas Emissions from Deforestation and forest Degradation, plus other changes in land-use (REDD+).

Part Two: The Primatologist And The Entrepreneur We learn how palm oil development threatens Borneo’s Seruyan Forest, and we meet the primatologist and the entrepreneur intent on saving it.

Part Three: Todd Lemons: Ecosystem Entrepreneur We meet Todd Lemons and learn how he became acquainted with forest carbon — learning in the process a bit about forest carbon ourselves.

Part Four: Wrestling With Orangutans: The Genesis Of The Rimba-Raya REDD Project We listen in on the first face-to-face meeting between Birute Galdikas and Todd Lemons, and learn what drove them to form their historic partnership.

Part Five: Rimba Raya Takes Shape We follow Birute Galdikas as she navigates Indonesia’s political structures and Todd Lemons as he reaches out to businesses and scientists to lay the groundwork of what became the Rimba Raya REDD project. Meanwhile, we learn of steps that President Susilo Bambang Yudhoyono is taking to meet the challenge on the national level.

Part Six: The Challenge of Sustainable Palm Oil We examine the demand side of the equation and learn why past efforts to promote sustainable palm-oil development have failed. We then learn how current efforts differ from those of the past, and see how they dovetail with Indonesia’s efforts to execute the largest land-swap in history.

Part Seven: The Land Swap We conclude by wrapping up the various strings and seeing how they all converge in the government’s REDD+ Agency. We take stock of the agency’s efforts to-date, and examine the challenges that lie ahead.