The United Nations’ carbon trading market will soon be open for business. Approved at the UN climate conference in Baku, Azerbaijan, last month, the market will give the United Nations its first stamp of approval for large-scale trading of carbon credits between countries. The aim is to help kick-start a multi-trillion-dollar global carbon economy that would allow industrialized countries to meet their emissions targets under the 2015 Paris Agreement by paying other countries to protect and restore carbon-rich forests or peatlands.
Topping the credit sales list is Indonesia, where newly elected populist president Prabowo Subianto is reportedly planning to generate billions of dollars in revenue through multilateral deals to sell credits generated from his country’s vast rainforests.
But within days of being signed in Baku after nearly a decade of negotiations, the Paris Agreement Trading Mechanism is being criticized as riddled with loopholes. Critics say the new trading market, which is expected to launch as early as next year, is open to the same poor carbon accounting and blatant fraud that has plagued recent “voluntary” deals between companies, and to double-counting of credits that make a mockery of global efforts to cut emissions.
There is “no timeline for compliance or monitoring of the rules,” a critic of the UN’s new carbon trading system said.
“There are no real consequences for countries if they don’t comply with the rules,” according to an early analysis by the research organization Carbon Market Watch. Kate Dooley, a carbon accounting expert at the University of Melbourne in Australia, said there are “no timelines for compliance or monitoring of the rules” that govern the trade between countries, noting that countries can choose to keep much of the information about such agreements secret. She believes Indonesia is likely to engage in broad multilateral government-to-government deals that avoid U.N. oversight as an “easy way to trade large volumes of credits.”
The Southeast Asian giant is home to the third-largest area of tropical rainforest and more than a third of one of the world’s largest carbon stores, peatlands. And in September, a climate adviser to President Prabowo unveiled plans to raise up to $65 billion by 2028 from selling carbon credits accumulated from restoring and protecting its forests and peatlands—developing what the government calls a “recovery economy.”
Prabowo’s planned economic recovery has two main elements. The first is to capture more carbon in Indonesia’s ecosystems by building on the efforts of his predecessor Joko Widodo to restore lost peatlands.
Indonesia’s peatlands are estimated to store 57 billion tons of carbon, equivalent to nearly two years of global emissions from fossil fuels and industry. But that number has been reduced as farmers and loggers exploit peat to grow palm oil plantations and industrial forests. As peat dries, it oxidizes, releasing carbon into the air and becoming increasingly vulnerable to fires, which in recent years have contributed more than a fifth of Indonesia’s carbon emissions. To mitigate the risk, after major fires in 2015, Widodo established a program to rewet millions of acres of logged peatlands. Prabowo is expected to expand the program.
The second element is to capture carbon by protecting the country’s remaining natural forests. The current symbol of this is the Katingan Mentaya carbon offset project—said to be the world’s largest—which conserves about 370,000 acres of swamp forest in Central Kalimantan on the island of Borneo, home to about 3,500 orangutans.
Developed by Indonesian startup Rimba Makmur Utama with technical support from Netherlands-based NGO Wetlands Worldwide, the project has been running for a decade and claims to sell an average of 7.5 million tonnes of carbon credits annually to major corporations looking to offset their pollution and improve their environmental reputations, including Shell, Volkswagen, EasyJet and Southeast Asian ride-hailing service Seize.
One study found that only 25 percent of carbon credits representing avoided deforestation yielded “real” emissions reductions.
In addition to paying for conservation, income from credit sales has supported economic development for more than 40,000 Dayak people living in the surrounding buffer zone. It has funded fish ponds and the cultivation of sustainable cash crops such as peanuts, coconuts and cashews. Many of the products are sold online by local Datak entrepreneurs.
Wetlands Worldwide calls the Katingan Mentaya project “a prime example of private-sector-led collaboration for sustainable peatland development.” But regardless of the social and ecological benefits, there are serious concerns about the integrity of the carbon credits sold to sustain those benefits—particularly the “baseline scenarios” used to calculate the carbon gain and therefore the number of credits that can be sold.
The Katingan Mentaya project claims that, without its intervention, the forest within the project boundaries would be completely cleared and the peatland underneath would be depleted to make way for industrial timber plantations. But will that really happen?
This scenario may have been plausible when the project was first proposed nearly two decades ago. At the time, the Indonesian government was still pushing for agricultural development in the forest. But independent analysts have concluded that such large-scale logging is extremely unlikely today, especially in peatlands.
Greenpeace found that there had been no such large-scale deforestation in Central Kalimantan’s other peat forests. And since 2011, before the project began selling credits, successive governments had maintained a moratorium on new permits for deforestation or peat mining. So the project area has long been legally prohibited from such development, meaning the project’s carbon credits do not reflect actual carbon gains.
These doubts about carbon accounting highlight a global problem with the poorly regulated credit market that is being sold to companies looking to offset their emissions. Environmentalists have long said that carbon benefits—and the sales of credits they enable—have been overblown by unrealistic baseline scenarios. And recent research has borne out their skepticism. An international study published in Nature last month found that only 25 percent of carbon credits sold as proxies for avoided deforestation have resulted in “real” emissions reductions.
Some of the biggest criticism has focused on claims certified by Washington, D.C.-based Verra, the world’s largest operator of verification standards, whose clients include Katingan Mentaya. One analysis found that as many as 90 percent of Verra’s certifications were “worthless.” In response to the scandal, Verra has undertaken a comprehensive review of its methodologies.
The second concern is the possibility of double counting of carbon emissions. Indonesia is again a prime example of a global problem.
There are serious questions about the effectiveness of rewetting previously drained peatlands in Indonesia.
The Indonesian government says the carbon “savings” from its restoration activities will be enough to meet most of its commitments, known as Nationally Determined Contributions (NDCs), under the Paris climate agreement. But those profits have typically been sold as carbon credits to international corporations, and under new UN carbon trading rules, they could theoretically also show up in bilateral deals with other governments to meet their NDCs—thus counting twice or even three times. “Under this version of the carbon market, anything is possible,” Dooley said.
Rimba Makmur Utama founder and CEO Dharsono Hartono acknowledged the problem in an interview published last year. “There is an unresolved issue around double counting, where the same activities are counted under carbon credits and NDC requirements,” he said. If left unaddressed, double counting could derail global initiatives to achieve net zero emissions.
A third concern about Indonesia’s carbon ambitions relates to its groundbreaking global program to rewet previously depleted peatlands. The government says it has so far restored about 9 million acres, an area larger than Maryland, largely by blocking drainage channels to raise the water table in the peat. In theory, this should curb carbon emissions. But there are serious questions about the effectiveness of rewetting in practice.
The Indonesian Peatland Restoration Agency’s criteria for successful rewetting require that the water table be raised to within 40 centimeters (16 inches) of the surface. But this partial rewetting would not be enough to halt emissions, as the top layer of peat would remain dry and continue to release carbon, said Hans Joosten, a peatland expert at the University of Greifswald in Germany. In a study for the Ramsar Convention on Wetlands, he called the 40-centimeter target a “compromise” that would allow for the continued cultivation of crops such as coffee, coconuts, bananas, rubber and even oil palm.
But even this limited rewetting ambition has not been reliably achieved. An analysis of Indonesian government data by Gecko Enterprise, a London-based nonprofit environmental investigation service, found that at times, only 1.2 million acres (13 percent of the total “reclaimed” area) met the threshold, with the lowest success rate during dry periods, when the risk of forest fires is greatest.
A study published last August by Nisa Novita, an Indonesian forest researcher now at The Nature Conservancy, found that rewetting oil palm plantations, where natural peat vegetation cannot regenerate, only reduced emissions by about a third.
“There are a lot of companies trying to get into the carbon market, but not all of them are committed to environmental and social goals.”
Daniel Murdiyarso and colleagues at the Center for International Forestry Research in Bogor, Indonesia, concluded in a study published earlier this year that the Indonesian government’s current methods for estimating ongoing emissions from regenerated peatlands are poor and do not comply with guidelines set by the Intergovernmental Panel on Climate Change. The default assumption that there are no emissions after regeneration is incorrect, they wrote, with “significant implications for greenhouse gas accounting.”
These findings, though specific to Indonesia, have important global implications, as many countries plan to restore peatlands as part of their efforts to reduce carbon emissions. Joosten estimates that 120 million acres of depleted peatlands need to be restored globally to help meet climate targets under the Paris Agreement, half of them by 2030. But it is clear that more research and much better data are needed to build confidence that governments can deliver on their carbon promises from peatland restoration in the future.
Optimists warn against making perfect the enemy of good. British forest researcher Dominick Spracklen of the University of Leeds, who has studied the economic costs and benefits of protecting Indonesia’s forests, is impressed with the country’s restoration initiatives so far. True, he agrees, there can be problems with carbon accounting and establishing appropriate baselines. “But sometimes I think we set the bar too high: If policies and actions don’t stop every fire or stop every deforestation, they’re considered failures. But policies can have an impact on reducing deforestation and emissions.” Indonesia’s deforestation rate has fallen by more than 60 percent since 2011.
Others, however, are skeptical about the new Prabowo government’s commitment to the recovery agenda. “I’m not optimistic,” said a Jakarta-based international expert who spoke on condition of anonymity. “Prabowo’s campaign was funded by the extractive industries and their people are prominent in his cabinet. It’s true that there are many players in Indonesia trying to get into the carbon market, but not all of them are committed to environmental and social goals.”
For many of these players, critics say, developing a recovery economy—also known as a “bioeconomy,” which respects the rights of indigenous people—means more intensive exploitation of the country’s forests, rather than protecting them. One of Indonesia’s fastest-growing bioeconomy activities involves replacing natural forests with monocultures to supply a booming domestic and foreign market for wood pellets to burn in former coal-fired power plants. The ecological impact of this business is potentially huge, and its carbon footprint could be larger than that of burning coal if trees are not replaced with new forests.
Indonesia’s carbon offset miscalculations may be just the beginning of trouble. But they could escalate into full-blown carbon fraud. And if these mistakes are repeated in other countries, they could seriously undermine the world’s efforts to combat climate change.
The danger now is that the lax carbon trading rules in place in Baku—with their secrecy and lack of oversight or enforcement—increase this risk. These rules “risk creating conditions for cowboy carbon markets at a time when the world needs a sheriff,” said Khaled Diab of Carbon Market Watch.
This article is the second in a series on global efforts to promote a green economy that protects biodiversity and the rights of traditional rural communities.