260
A. P. Sari et al.
Green Bonds as a Mechanism to Fulfill Indonesia’s NDC
and Traded Under Article 6 at the Same Time
There has been an intense discussion on how Indonesia fulfills its NDC (unconditional and conditional commitments) while at the same time participating in Article
6 mechanisms. There is an estimate that the unit cost per hectare of restoring peatlands is approximately US$1600; meanwhile, the expected potential revenue per
hectare generated from implementing emission reduction activities is about US$3100
(assuming US$5/ton CO 2 ) over a period of 25 years. A substantial amount of carbon
income (say 60%) generated from emission reductions can be kept by the government in the form of “levy,” while the remaining can be given to the investors for their
return.
Innovative Financing Through Compensation for Past
Deforestation
Many commodity sustainability standard certification bodies such as the Roundtable
for Sustainable Palm Oil (RSPO) and the Forest Stewardship Council (FSC) require
companies with past deforestation histories to compensate their deforestation debts
by conserving or restoring other forest areas, using certain formulas. These compensation formulas can be calculated based on hectarage or based on the financial values
of the deforestation liabilities.
RSPO has recently strengthened its zero-deforestation standard. The de facto
industry standard for sustainable palm oil adopted a standard—principles, and
criteria—that is more robust and consistent with the “no deforestation, peat, or
exploitation” (NDPE) principle. The previous standard bans companies from cutting
primary forests, but still allows cutting of secondary forests and planting in peatlands
that are less than 3 m depth. In the new standard, however, there is a total ban for
cutting secondary as well as primary forests and no planting is allowed in peatlands
of any depth (e.g. Jong 2018b).
In addition to applying tougher zero-deforestation standards, RSPO allows for
those certified companies to compensate for their past deforestation. RSPO-certified
palm oil companies need to address land clearance and plantation development undertaken since November 2005 without prior High Conservation Value (HSC) assessment by complying with the Remediation and Compensation Procedure (RaCP). The
procedure requires palm oil plantation companies to first disclose any new development that was carried out without due HCV assessment, calculate the environmental
liabilities through a Land Use Change Analysis (LUCA), and undertake onsite or
offsite remediation for the affected sites or with affected parties. Compensation liabilities, accounted in a hectare, are determined utilizing a matrix that combines HCVs
(through vegetation coefficients as proxies), the land clearance period, membership status, and areas requiring remediation (e.g. RSPO (undated)). In other words,
A. P. Sari et al.
Green Bonds as a Mechanism to Fulfill Indonesia’s NDC
and Traded Under Article 6 at the Same Time
There has been an intense discussion on how Indonesia fulfills its NDC (unconditional and conditional commitments) while at the same time participating in Article
6 mechanisms. There is an estimate that the unit cost per hectare of restoring peatlands is approximately US$1600; meanwhile, the expected potential revenue per
hectare generated from implementing emission reduction activities is about US$3100
(assuming US$5/ton CO 2 ) over a period of 25 years. A substantial amount of carbon
income (say 60%) generated from emission reductions can be kept by the government in the form of “levy,” while the remaining can be given to the investors for their
return.
Innovative Financing Through Compensation for Past
Deforestation
Many commodity sustainability standard certification bodies such as the Roundtable
for Sustainable Palm Oil (RSPO) and the Forest Stewardship Council (FSC) require
companies with past deforestation histories to compensate their deforestation debts
by conserving or restoring other forest areas, using certain formulas. These compensation formulas can be calculated based on hectarage or based on the financial values
of the deforestation liabilities.
RSPO has recently strengthened its zero-deforestation standard. The de facto
industry standard for sustainable palm oil adopted a standard—principles, and
criteria—that is more robust and consistent with the “no deforestation, peat, or
exploitation” (NDPE) principle. The previous standard bans companies from cutting
primary forests, but still allows cutting of secondary forests and planting in peatlands
that are less than 3 m depth. In the new standard, however, there is a total ban for
cutting secondary as well as primary forests and no planting is allowed in peatlands
of any depth (e.g. Jong 2018b).
In addition to applying tougher zero-deforestation standards, RSPO allows for
those certified companies to compensate for their past deforestation. RSPO-certified
palm oil companies need to address land clearance and plantation development undertaken since November 2005 without prior High Conservation Value (HSC) assessment by complying with the Remediation and Compensation Procedure (RaCP). The
procedure requires palm oil plantation companies to first disclose any new development that was carried out without due HCV assessment, calculate the environmental
liabilities through a Land Use Change Analysis (LUCA), and undertake onsite or
offsite remediation for the affected sites or with affected parties. Compensation liabilities, accounted in a hectare, are determined utilizing a matrix that combines HCVs
(through vegetation coefficients as proxies), the land clearance period, membership status, and areas requiring remediation (e.g. RSPO (undated)). In other words,