in Indonesia

Oil palm plantations replacing forests in Kalimantan

A paper published this week in Nature Climate Change confirms that the expansion of oil palm plantations in Indonesia has come largely at the expense of the country’s forests. Between 1990 and 2010, 90% of oil palm plantations in Kalimantan were established on forested land (47% intact, 22% logged, 21% agroforests).

By the end of 2010, oil palm plantations in Kalimantan covered more than 3.1 million hectares, out of a total of about 7.65 million hectares of oil palm plantations in Indonesia. The study, led by Yale and Stanford University researchers, “Carbon emissions from forest conversion by Kalimantan oil palm plantations”, uses

“Landsat satellite analyses to discern multiple land covers, coupled with above- and below-ground carbon accounting, [to] develop the first high-resolution carbon flux estimates from Kalimantan plantations.”

But the report doesn’t only look at past emissions from palm oil plantations. The Indonesian government has plans to expand palm oil production massively. Even worse, many of the concessions for this expansion have already been allocated. The study found that 79% of allocated leases in Kalimantan “remain undeveloped”.

Between 1990 and 2000 carbon emissions from conversion to oil palm plantations totalled 0.09  gigatons of carbon. Between 2000 and 2010, this figure increased dramatically, to 0.32 gigatons of carbon. Conversion of the undeveloped leases to oil palm plantations would result in the emission of 1.52 gigatons of carbon between 2010 and 2020.

The project leader of the study, Lisa Curran said in a press release from Stanford University that,

“These plantation leases are an unprecedented ‘grand-scale experiment’ replacing forests with exotic palm monocultures. We may see tipping points in forest conversion where critical biophysical functions are disrupted, leaving the region increasingly vulnerable to droughts, fires and floods.”

In September this year, there were 868 hotspots in Central Kalimantan and visibility in Palangkaraya was down to 15 metres. In early October, the Ministry of Forestry’s “Indofire” website showed extent of the problem:

Indofire - Kalimantan

Central Kalimantan is, of course, the pilot REDD province under the Indonesia-Norway US$1 billion REDD deal. The moratorium on forest concessions under the Indonesia-Norway REDD deal does not apply to existing concessions.

The Nature Climate Change study looks at the possibility of REDD “displacing” oil palm plantations by comparing how much the government could get from palm oil taxes with the gross revenues from carbon credits generated by avoided emissions. The authors look at two scenarios: Peatland protection, where peatland within oil palm leases cannot be converted; and Forest protection, where intact or logged forest would be protected (but not agroforest areas). The authors look at the carbon emissions from land clearing using fire and plantation establishment without fire. (The authors point out that existing regulations that prohibit using fire to clear lands for plantation establishment are not enforced.)

The results are pretty devastating for proponents of REDD as a carbon trading mechanism. Assuming a 15% tax on palm oil exports, revenue from oil palm concessions is US$10,000 per hectare. The authors then assume a carbon price of US$10 per ton of CO2. Here’s what they found (click on the image for a larger version):

oil palm tax vs REDD credits

Only under the peat protection scenario, assuming that fire would have been used to clear the land (illegally), does the income from REDD carbon credits exceed the export tax on palm oil. Nevertheless, the authors manage to conclude that,

Under certain market conditions and land management practices, REDD+ initiatives aimed at mitigating these emissions may generate national government revenues similar to oil palm export revenues.

Here are some of the gaping flaws in this analysis:

  • The authors compare gross income from REDD carbon credits against export tax on palm oil. A fairer comparison would surely be tax on REDD carbon credits against export tax on palm oil. The authors do not consider the profits made by oil palm companies. There is no attempt to calculate any of the costs of setting up a REDD project or the large percentage of the money that intermediaries would pocket. The authors also do not consider allowing a percentage of the money from REDD carbon credits to go to the communities living in and around the forest.
  • The export tax on palm oil in Indonesia in October 2012 is 13.5%, down from 15% earlier this year. It’s likely to fall further as the price of crude palm oil is currently low.
  • The price of UN offsets is nowhere near US$10. In September 2012, analysts at Barclays put out a report titled “CDM RIP” (Clean Development Mechanism Rest In Peace). Barclays’ analysts do not expect the price to increase to more than US$4. Ever.

The study in Nature Climate Change provides important data about the greenhouse gas emissions released from the establishment of oil palm plantations and raises the problem of already allocated concessions that could massively increase these emissions. However, the authors’ assumptions that generating REDD carbon credits may help address these problems are pure fantasy.

PHOTO credit: Greenpeace – In a new oil-palm plantation near Sungaihantu, in South Kalimantan, the skeleton of a tree is the last relic of the rainforest that once was.

Leave a Reply

  1. What can the forest offer which will prevent the continued use and expansion of oil palm products. This is the fundamental question? 3.1/52 million hectares is 6% of the land in Kalimantan; or about 10% the forested area. If doubled to 12% which by the industry itself this was be 20% of the forested area! Emissions/smissions…that is always a questionable argument.

    What is not ever questioned really is the actual natural capital value of forests in comparisons to oil palm. It is similar to the argument concerning energy; fossil/fuels to renewables….It depends on your philosophy for survival or consumption.

    How much will consumers pay for forests as against Palm Oil which is part of 25% of your cereal and plant oils in your larder. The choice is quite simple. And naturally the local communities should make this choice, once fully educated with those who consume the products….but first the consumers have to know the facts before being hoodwinked into giving their money to a product with dubious health, social (for the local communities) and ecological effects…..Natural rainforests are the harbinger for evolution and other factors of utility products which could be valued (let alone the carbon et al) at an insuperable price level….

    Think on the fundamentals as much as the emission levels, the latter follows the former…

  2. Eager for posts. Our REDD assessment was crude, admittedly. Yet meant to mirror real decisions by government because they do not pay directly for REDD project development nor reap benefits of oil palm concessions unless they own one..or many of these holdings. Some of the Presidential candidates do own many.

  3. @Lisa M Curran (#2) – Thanks for the comment. I think your paper provided an excellent analysis of the problem of oil palm plantations over the past two decades and destruction that will take place over the next decade, if the existing leases are converted.

    The section on REDD raises some serious issues. I don’t think that REDD, as it is currently developing (i.e. as a carbon trading mechanism), is going to be anything like enough to stop the palm oil industry. The Indonesia-Norway moratorium doesn’t look at existing concessions and the potential profits from REDD carbon credits don’t come close to competing with the profits from oil palm plantations. In their 2010 paper, Persson and Azar argue that a price on carbon may not be enough, even if the price of carbon is high, because this is likely to increase the price of biofuels (including palm oil).

    The Indonesian government has already handed out the oil palm concessions in Kalimantan. Isn’t it the companies that now control these concessions that need paying off rather than (or as well as) the government? And what are the implications of this? What mechanism is available to prevent these companies from using the money to set up plantations somewhere else?

  4. Would it not be both feasible and much cheaper to demonstrate that certain concessions have been improperly allocated? The concessionaire would be ten obliged both to forfeit the concession (without compensation) and to compensate adversely affected local peoples (and the state). A few successful high profile cases might suffice to oblige end-user countries to respect the law in producing countries (not only Indonesia). Moral hazard would not be a factor in this approach.

    In contrast to the wood-based products market, end-user countries do not have legislation obliging relevant enterprises to carry out due diligence in order to avoid the placement of illegal products on the market for palm oil. Prospects for introducing such legislation would improve only if that reciprocal legislation concerning wood-based products is implemented much more rigorously than hitherto in the USA or seems likely across the EU.

  5. Thanks for the insightful comments. I did not want any REDD $ or assessments to be included in this analyses. But alas, my grad student Kim Carlson and reviewers felt we should. I often presented net costs and benefits in talks but wouldn’t want to publish these – folks then did Butler Koh – using the same back of the envelope study from Sumatra really doesn’t reflect the actual complex realities of the industry on the ground. Many assume the industry and their practices respond to “the rule of law” but, after 30 years in Kalimantan I am rather discouraged by outsiders who feel the industry responds to the same pressures as companies do elsewhere. For example, none of the concessions located on peat are even ‘legal’. What we wanted to stress was the total expansion of oil palm throughout the lowlands on forested lands. ~ 60% of deforestation is caused directly by oil palm. The core debates are the definition of “degraded” lands – lands sourced by plantations. With 35% of lowlands now leased to oil palm, the sheer dominance of the industry – transition from logging to oil palm was facilitated and subsidized by tax breaks, gov subsidies, transmigration labor, direct foreign investment etc. Why are any of these leases awarded under Suharto even legal???
    These companies are making incredible amounts of $$ and pass the risk on. Working in the wood-based industry for decades, I have witnessed similar manipulation of policies and performance by these companies. They clear protected forests, form industry roundtables and fiddle while Rome burns. Yet, all the changes we made to the wood-based industries, buyers such as Home Depot, Lacey Act etc. even certification. Ivan Ussach and I pushed this in 1989, then the Indonesians debated LEI – their own standard system for about 20 years!!! A handful of companies were certified by 2000 from ~525! In the big picture, the industry still over-exploited the forest base, collapsed, bailed out by taxpayers, IMF and facilitated rampant ‘illegal’ logging and then reconfigured their oligarchies into agribusiness. These land banks coupled with mills and integrated processing from FFB to cooking oil even violate anti-monopoly laws under KADIN. That said, a suite of the big conglomerates were found to be price fixing and fined in 2009. I am more concerned with how local communities are treated – lands usurped and then enclosed – without any effective means to contest and dispute practices. Then blamed for fires and deforestation. The major issue is how much oil palm is sufficient and who benefits, who loses and who controls etc.? Re REDD, I constantly see contradictions – letting the Ag sector expand and convert while others say in the forestry sector and smallholder farmers are not to convert other areas of forest? Originally back at COP 9 we promoted REDD, yet in some regions, countries etc. subnational arenas such as the State of Acre this may work well. For Indonesia, they are receiving tons of $$ again subsidizing activities while another sector continues to convert lands as fast as they can before any international pressure closes market opportunities in 2015 2020. RSPO can certify as long as primary forest peat or HVCF is not converted after 2005. So far, 4% of oil palm production in Kalimantan….

  6. Also, I do not condone REDD payments to timber companies or plantations to compensate for **not** logging or clearing lands for plantations. Yes, they would simply move to Myanmar/Burma, Liberia, Cambodia or just facilitate a race to the best conditions for inexpensive suitable land with sufficient and compliant labor. And a government that would protect their capital investments. Look at the FELDA IPO! Again, where REDD would work would be for smallholders – if we could insure $$ would actually be received and in a timely manner – with specific projects. Lastly, I believe oil palm could be an ideal crop for smallholders if terms and arrangements could be worked out equitably in a decent arrangement for capital inputs, fair deals re lands and prices received at gate or mill.