East Kalimantan Environmentally Sustainable Development Strategy

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56 Exhibit 34 Investment loans for the mills could be routed through the IFC or other organization with established safeguard procedures. Timing the development of the pulp and paper mill to begin construction only after sustainable plantations have been planted is another measure. Even choosing an appropriate location will help; as transportation is a major cost driver for a pulp and paper mill, locating any expansion in an area of degraded lands will make nearby timber plantations the preferred source from a commercial perspective. At current market prices, additional 2 million t of pulp will result in revenues of 1.5 billion USD annually and provide significant job opportunities Prices for hardwood pulp show increasing price trends again Price development of hardwood pulp USD/t 1,100 1,000 900 800 700 600 500 400 300 2003 2004 2005 2006 2007 2008 SOURCE: RISI; Analytical cornerstone; APRIL; team analysis W. Europe USA 2009 2010 Employment in potential pulp industry Thousand people DRAFT 2002 • Wood pellets: Wood pellets for bioenergy production is a rapidly growing market in Europe and other developed markets. Opportunities exist also in domestically, especially for Indonesia’s increasing number of small-scale decentralized power plants. Given sustainable sources of wood supply (residue from logging operations and saw mills or dedicated biomass plantations) and a location close to a nearby pulp mill, which would enable synergies from wood logistics and excess steam and electricity, wood pellets are competitive even for export to Europe. A sizeable plant with a capacity of 200,000 tons could yield revenues of approximately USD 20 to 25 million at current market prices with a return on investment (ROI) between 16 and 22 percent. 25 10 15 Pulp mills 60 30 30 Plantations PRELIMINARY Pulp mills and associated plantations provide significant employment 85 40 45 low range high range Total employment • High-value furniture production: Moving downstream into high-value furniture production is an option for small to mid-scale plywood or veneer producers as it does not require the massive investments of the pulp and paper industry, which is based on large production volumes. Both international and domestic market opportunities exist, but complex logistics make local markets more attractive from a profit basis. Overall, East Kalimantan is well positioned to develop its forestry industry with several downstream opportunities. Achieving high yields and utilizing wood resources better would enable East Kalimantan to provide the basis required to attract investments into the forestry industry. However, we will work to ensure that any changes to the forestry sector are based on sustainability. If a sufficient supply from sustainable sources cannot be achieved, we will not pursue expansion of
57 downstream manufacturing as it would result in further deforestation and forest degradation, as has happened in other provinces. Required Policies and Institutions Several critical enablers are needed to implement the identified initiatives for reducing emissions and increasing GDP in the forestry sector. Four critical enablers have been identified. These include a new spatial planning approach, regulatory changes and enforcement, capacity-building to successfully implement sustainable forestry practices, and implementation of a reliable and up-to-date monitoring, reporting and verification system, which would be supported by the new forest management units. Spatial planning: The existing spatial planning approach of East Kalimantan does not take into account climate change or ecological criteria. For example, forested areas are allocated to non-forestry use (Areal Penggunaan Lain, APL), while large areas of degraded land within the forest estate (kawasan hutan) are officially designated (and therefore managed) as permanent forest areas. Going forward, a broader spatial planning approach is required that incorporates environmental, economic, and social factors. The main goal for the new spatial planning approach should be to identify degraded areas (including the size of the area, soil type, suitability for different land uses, land ownership, and current land use) outside and inside the forest estate. This will enable the prioritized use of degraded land for economic development. The permanent forest estate should comprise actual remaining forests. Spatial planning consequently has to happen in much closer cooperation between the local planning agency (Bappeda), the Indonesian Ministry of Forestry, and local communities. Regulatory changes: Current legislation regulating harvesting practices in Indonesia does not support sustainable forest management as it only focuses on volumes of merchantable timber and doesn’t address the overall felling and skidding process. To be able to enforce RIL those regulations have to be broadened to consider the complete harvesting process. A new regulation published in 2009 by the Ministry of Forestry is trying to address sustainability, however the regulation is vague and not strong enough to enforce RIL. In addition, current regulations prohibit the felling of smaller trees for commercial purposes, i.e., those below 50 cm diameter at breast height (dbh). Changing those regulations would allow thinning, which can help focus the forest’s future growth on the most valuable trees by providing enough light and space to foster natural regeneration. If properly done, thinning and improved natural regeneration result in higher growth rates and therefore better carbon sequestration. However, thinning and other intensive silvicultural treatments result in a loss of biodiversity as they focus on a small number of high valuable tree species and not necessarily on biodiversity. In the long term we need to seriously consider a complete replacement of logging in natural forests by sustainable timber plantations. DRAFT Law enforcement: Illegal logging – in the form of large-scale forest conversions into plantations without legal permits, logging levels exceeding the target given by the Ministry of Forestry, and illegal smallholder activities – remains rampant in East Kalimantan and is leading to high levels of deforestation and forest degradation. In order to better enforce the law, we need to employ additional forest rangers for the newly established forest management units (KPH), and ensure strict and visible consequences for illegal action, e.g., high fines and long jail terms. Monitoring, reporting, and verification (MRV): All of the above efforts should be supported by an MRV system to assess the emission reduction efforts and to measure, report, and verify the impact of those efforts to a nationwide MRV system. In order to reduce transaction costs and increase the likelihood of carbon reduction projects attracting international carbon market payments for verified emission reductions, it is critical that the provincial government incorporates methodologies that have already been independently verified, are in line with national government regulation, and allow the establishment of a province-wide approach that includes local communities. Local communities could play a key role in ground-truthing satellite images in the field, which would also create additional jobs and increase income in local communities.
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East Kalimantan Environmentally Sus
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3 East Kalimantan Environmentally S
Page 5 and 6: 5 Contents Preface 7 Acknowledgemen
Page 7 and 8: 7 Preface A broad global consensus
Page 9 and 10: 9 Acknowledgements The DNPI and the
Page 11 and 12: 11 Executive summary East Kalimanta
Page 13 and 14: 13 1. The development of coal-bed m
Page 15 and 16: DRAFT 15
Page 17 and 18: 17 Kaltim Green Program The Governm
Page 19 and 20: 19 1. The context for East Kalimant
Page 21 and 22: 21 This resource development pathwa
Page 23 and 24: 23 Both Berau and Malinau are large
Page 25 and 26: 25 In the BAU scenario, CO 2 e emis
Page 27 and 28: 27 TOP 5 ABATEMENT INITIATIVES Top
Page 29 and 30: 29 Kalimantan’s shift to a climat
Page 31 and 32: 31 The sector’s 57 MtCO2e of net
Page 33 and 34: 33 Outside of the sector’s need f
Page 35 and 36: 35 The greatest expansion is expect
Page 37 and 38: 37 improving water management in on
Page 39 and 40: 39 Including financial transfers fo
Page 41 and 42: 41 after the identified abatement m
Page 43 and 44: 43 The Case of Oil Palm Permits and
Page 45 and 46: 45 Emissions from the forestry sect
Page 47 and 48: 47 across Kalimantan in 1997 and 19
Page 49 and 50: 49 Utilizing concession buyout sche
Page 51 and 52: 51 Pilot Projects Pilot projects ha
Page 53 and 54: 53 GDP Potential The economic decli
Page 55: 55 Downstream manufacturing would i
Page 59 and 60: 59 Swidden agricultural practiced b
Page 61 and 62: 61 Although East Kalimantan has far
Page 63 and 64: 63 Reaching average national yields
Page 65 and 66: 65 farmers . We have identified sev
Page 67 and 68: 67 Many mining operations are locat
Page 69 and 70: 69 Unlike timber or oil palm planta
Page 71 and 72: 71 exploration and production conce
Page 73 and 74: 73 The Economic Opportunity of Post
Page 75 and 76: 75 Entering downstream value chain
Page 77 and 78: 77 Current Context The oil and gas
Page 79 and 80: 79 granted in 2008-2009 and contain
Page 81 and 82: 81 Emission from flaring is declini
Page 83 and 84: 83 Satellite images can help monito
Page 85 and 86: 85 Under business as usual, relativ
Page 87 and 88: 87 BERAU Berau is the third largest
Page 89 and 90: 89 350,000 ha of Kutai Timur is cat
Page 91 and 92: 91 substantial natural resource ext
Page 93 and 94: 93 Borneo conservation area as well
Page 95 and 96: 95 agricultural processing. As Pena
Page 97 and 98: 97 Range of climate related risks t
Page 99 and 100: 99 predict increased precipitation
Page 101 and 102: 101 In addition to the refinery and
Page 103 and 104: 103 The greatest economic risks fro
Page 105 and 106: 105 change issues. In December 2009
Page 107 and 108:
107 Proposed BFCP governance and ma
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109 the lack of a strong system, th
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111 Carbon Accounting, Standards, a
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113 EXAMPLE INITIATIVES REQUIRING C
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115 for example, includes represent
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DRAFT 117
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119 Sources • 2010, Kesiapan Kali
Page 121 and 122:
121 • Badan Perijinan Dan Penanam
Page 123 and 124:
123 • Daniel Murdiyarso et al, Me
Page 125 and 126:
125 • Marcus Colchester et al, Pr
Page 127 and 128:
127 • Yosep Ruslim et al, STUDY O
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East Kalimantan Environmentally Sustainable Development Strategy

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