12 Innovative Financing for Peatland Restoration in Indonesia
257
As revealed in a study in the Sebangau area in Central Kalimantan—used for
an example—for every million ha of successful rewetting of peatlands, it is estimated about 25 (23.7–27.11) M t CO 2 per year emissions mitigated, or about 25
ton CO 2 per ha (Jeanicke et al. 2010).
6 Additional activities such as re-vegetation
of degraded peatlands will add additional reductions. As such, assuming that the
emission reductions can be capitalized at, say, US$5 per ton of carbon dioxide,
assuming that rewetting one million ha of peatlands will result in a potential income
of US$125 million (IDR1.8 trillion) per year, or US$3.1 billion (IDR44 trillion) in
the course of 25 years. This is about US$125 (IDR 1.8 million) per ha per year or
about US$3,100 (IDR44 million) per ha over the course of 25 years. This amount is
clearly more than sufficient to finance the peat restoration for the one million ha of
the non-concessionaire peatlands under the BRG mandate.
The Case for Peat Bonds
In 2018, the first-ever issued green “sukuk” in the world, issued by the Indonesian
government, was greatly oversubscribed by almost 2.5 times (Dunkley 2018). It
raised US$3 billion (about IDR42 trillion), US$1.25 billion of 5-year tenor with a
3.75% coupon, and US$1.75 billion of 10-year tenor with 4.4% coupon. Sukuk is a
form of bond financing that is in compliance with Islamic Shariah’s non-interest debt.
Proceeds from the green sukuk would be allocated for renewable energy projects,
sustainable land use, green tourism, and waste management (e.g. CBI 2018a).
The use of proceeds from the issuance of the green sukuk would be used to
finance various projects as follows: IDR501 billion (US$34.5 million) green projects
such as flood management, urban drainage management, and coastal conservation
under the Ministry of Public Works and Housing; IDR165 billion (US$11.4 million)
of supporting facilities for railways under the Ministry of Transportation; and the
remaining are for projects under the Ministries of Agriculture, and Energy and
Mineral Resources. Interestingly enough, there are no significant environmental
projects, including those for peat restoration, mentioned.
7
Worldwide, green bonds have become an attractive instrument to finance environmental (“green”) projects, and the amount continues to grow over time. There
were more than US$167 billion of green bonds issued in 2018, up by 3% from
about US$162 billion in 2017. The slowdown from the 84% year-on-year growth
development and environmental integrity,” whereas Article 6.5 stipulates that “Emission reductions resulting from the mechanism referred to in paragraph 4 of this Article shall not be used to
demonstrate achievement of the host Party’s nationally determined contribution if used by another
Party to demonstrate achievement of its nationally determined contribution.” These Articles and
others under Article 6 practically establish a global emissions trading mechanism under the Paris
Agreement.
6 The study cites a figure of 1.4–1.6 Mt CO 2 for an area of 590 ha. This figure is then extrapolated
for one million ha.
7 The Minister of Finance, Sri Mulyani Indrawati, was quoted as saying in (e.g. Alika 2018).
257
As revealed in a study in the Sebangau area in Central Kalimantan—used for
an example—for every million ha of successful rewetting of peatlands, it is estimated about 25 (23.7–27.11) M t CO 2 per year emissions mitigated, or about 25
ton CO 2 per ha (Jeanicke et al. 2010).
6 Additional activities such as re-vegetation
of degraded peatlands will add additional reductions. As such, assuming that the
emission reductions can be capitalized at, say, US$5 per ton of carbon dioxide,
assuming that rewetting one million ha of peatlands will result in a potential income
of US$125 million (IDR1.8 trillion) per year, or US$3.1 billion (IDR44 trillion) in
the course of 25 years. This is about US$125 (IDR 1.8 million) per ha per year or
about US$3,100 (IDR44 million) per ha over the course of 25 years. This amount is
clearly more than sufficient to finance the peat restoration for the one million ha of
the non-concessionaire peatlands under the BRG mandate.
The Case for Peat Bonds
In 2018, the first-ever issued green “sukuk” in the world, issued by the Indonesian
government, was greatly oversubscribed by almost 2.5 times (Dunkley 2018). It
raised US$3 billion (about IDR42 trillion), US$1.25 billion of 5-year tenor with a
3.75% coupon, and US$1.75 billion of 10-year tenor with 4.4% coupon. Sukuk is a
form of bond financing that is in compliance with Islamic Shariah’s non-interest debt.
Proceeds from the green sukuk would be allocated for renewable energy projects,
sustainable land use, green tourism, and waste management (e.g. CBI 2018a).
The use of proceeds from the issuance of the green sukuk would be used to
finance various projects as follows: IDR501 billion (US$34.5 million) green projects
such as flood management, urban drainage management, and coastal conservation
under the Ministry of Public Works and Housing; IDR165 billion (US$11.4 million)
of supporting facilities for railways under the Ministry of Transportation; and the
remaining are for projects under the Ministries of Agriculture, and Energy and
Mineral Resources. Interestingly enough, there are no significant environmental
projects, including those for peat restoration, mentioned.
7
Worldwide, green bonds have become an attractive instrument to finance environmental (“green”) projects, and the amount continues to grow over time. There
were more than US$167 billion of green bonds issued in 2018, up by 3% from
about US$162 billion in 2017. The slowdown from the 84% year-on-year growth
development and environmental integrity,” whereas Article 6.5 stipulates that “Emission reductions resulting from the mechanism referred to in paragraph 4 of this Article shall not be used to
demonstrate achievement of the host Party’s nationally determined contribution if used by another
Party to demonstrate achievement of its nationally determined contribution.” These Articles and
others under Article 6 practically establish a global emissions trading mechanism under the Paris
Agreement.
6 The study cites a figure of 1.4–1.6 Mt CO 2 for an area of 590 ha. This figure is then extrapolated
for one million ha.
7 The Minister of Finance, Sri Mulyani Indrawati, was quoted as saying in (e.g. Alika 2018).