Singapore: In the far north of Indonesia’s Sumatra island lies a vast stretch of forest brimming with orangutans and rare Sumatran tigers and elephants.
In a quirk of fate, a decades-long insurgency in Aceh province prevented illegal loggers from stripping the place bare.
Apart from its wildlife and timber, though, the forest is rich in another resource: the carbon locked up in the soil and very trees coveted by loggers—legal and illegal.
Keen to earn money from the forest, called the Ulu Masen ecosystem, the government of Aceh province joined a leading conservation group and the financial market to save it. In return, the province is set to earn millions of dollars through the sale of carbon credits to investors, with a portion of the cash flowing to local communities to encourage them to halt illegal logging and pay for alternative livelihoods. Money from the initial sale of credits for this project is expected to flow in the coming months.
“I strongly believe there should be a market for carbon credits and forests. It’s about the only mechanism that could provide local incentives,” said Frank Momberg, project director for Fauna and Flora International, the non-governmental organization at the heart of the Ulu Masen forest conservation project.
The model is being studied and repeated across Indonesia and other tropical developing nations as the world turns to saving the remaining rainforests in the battle against climate change.
The UN-based scheme, called reduced emissions from deforestation and degradation, or Redd, could be worth tens of billions of dollars a year for developing nations, with rich nations buying forest credits to meet mandated emissions curbs. With so much money at stake, banks and carbon trading firms are ramping up their interest.
But much has to be sorted out, such as how to ensure the forests aren’t cut, how to measure the amount of carbon saved over time, the best method to trade Redd credits and how to ensure local communities get a fair share of the money. Satellite monitoring as well as developing national carbon accounting systems will be key, and so too will be avoiding “leakage” in which preventing deforestation in one area causes logging to occur in another.
Some conservation groups also fear rich nations will merely buy up vast amounts of Redd credits to meet their emission targets while doing little to clean up their own industries. Europe also fears a flood of cheap Redd credits could overwhelm its existing emissions trading scheme, depressing offset prices.
“For us the main point, from a trading stand-point, where Redd projects are difficult is on their permanence,” said Trevor Sikorski, director of commodities research for Barclays Capital in London.
Forests soak up vast amounts of carbon dioxide, acting like lungs for the planet. But clearing and burning them is contributing to about 20% of all mankind’s carbon emissions that are warming the planet. The UN aims to incorporate Redd into the next phase of the Kyoto Protocol from 2013.