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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.

HP: Has anyone ever calculated with enough clarity and reality whether leakage is a small percentage of the total or if it’s actually bigger than the total?

SZ: You mean some projects could be creating more leakage than their emission reductions?

HP: Let’s take a district and say you apply regulations to it to curb deforestation, and let’s say there is a company there that’s globally connected. They still need that palm oil, so they move to the next district. So you prevented what you conserved, and what you have been able to capture and you don’t put into your policy. If that is less than half, then actually you are negative because of the leakage.

SZ: Isn’t that the argument for improved forest management (IFM) over REDD?

HP: You’re mixing business agenda with operational agenda, because the sustainable forest management, selective harvest, and all those things pertain to the primary forest. That is good and it has to be done, but it doesn't necessarily have a connection to the carbon business. It will have an impact, but if you say you are doing selective harvest to get REDD, The selective harvest is difficult enough.

SZBut isn't the argument that because selective harvest is so difficult, you need REDD to make it viable?
HP: You’re talking about delta – the marginal improvement in the economy. Right?

SZ: Right.

HP: You can say that, but you’d have to do a study to see if it’s worthwhile. The approach that Norway is doing with us is they definitely want to have an impact at the jurisdictional level, and they want it to be wall-to-wall. That’s the umbrella, and what happens under that umbrella is Indonesia’s business. Emission reduction is a result of a lot of work that needs to be done at the jurisdictional level. If there is leakage between provinces, that is my responsibility. And because of that, I will prevent the leakage across provinces. I may need to create regulations that will disallow that leakage. And the way to do that is to talk to the governor of the province and say, “Hey, Governor, I’m talking about wall-to-wall of your province, so you manage the leakage within your province across districts. This is your target, and you manage the leakage within your district.”

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 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 if 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.

SZ: What sort of support?

HP: I’ll stick with Rimba Raya, since they are the ones you are asking about. I spoke with them, and asked what their license was like, and they said 60 years, so then I asked how long their business plan ran, and they again said 60 years: the first 30 was investment, and the second 30 were return. My suggestion was to get cash-flow positive for the first 30 years…by tapping into public funds and the domestic market as a sort of hedge. I suggest they reach out to companies like Pertamina, the domestic oil company, which will need to hedge its carbon risk. Then after 30 years, Rimba Raya can become an international market.

I’m being intentionally simplistic, but that’s the concept for companies like Rimba Raya.

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