STRATEGY BRIEF:

REDUCING CARBON EMISSIONS FROM THE

OIL PALM SECTOR IN INDONESIA

The area of land occupied by oil palm plantations in Indonesia increased 35 fold since 1967 to occupy an estimated 6 million ha in 2005. Most of this expansion has occurred in the six provinces of Riau, South Sumatra, North Sumatra, West Kalimantan, Jambi and Central Kalimantan.

The sector has become a valuable source of foreign exchange, revenue and employment because oil palm plantations are profitable in Indonesia. A single hectare of oil palm can result in a Net Present Value (NPV) of around $3,388 over a 25 year period in the benchmark region of Aceh, North Sumatra, Riau and West Kalimantan. The NPV is reduced to $2,650 if oil palm plantations are established in Papua. While it costs more to plant oil palm on peat soils, well managed peat soils can produce higher yields than mineral soils and result in a NPV of around $4,265 per hectare over a 25 year period.

However, oil palm expansion is a source of concern because an estimated 70% of the total oil palm area has resulted in the conversion of natural tropical forest. This means that as much as 715MtC[1] was released into the atmosphere between 1982 and 2005 as a direct result of forest conversion for oil palm. The amount of carbon which has been emitted from peat degradation in this time is not known, however, plantations are increasingly being planted on peat soils because mineral soils are becoming scarce in some regions. Permits have been granted for 491,046 ha of peatland in Kalimantan and 97,870 ha of peat land in Riau. If all of these plantations have been realized, up to X tonnes of carbon per year is being emitted into the atmosphere[AC1].

Oil palm plantations have indirectly resulted in further deforestation and carbon emissions because they often displace local people who migrate to forested areas to practice swidden agriculture. Oil palm developments are also used as a front to gain access to timber resources.

The oil palm sector should therefore be targeted for Indonesia’s efforts to reduce carbon emissions resulting from the conversion of forest and peat lands (REDD) through the adoption of a new post Kyoto mechanism.

Economic analysis has revealed that the estimated cost of avoiding deforestation for conversion to oil palm on mineral soils is competitive with current prices of CO2 and estimated to be in the order of $4-$15/ha, while the opportunity cost lost from not being able to establish oil palm plantations on peat soils ranges between $1-2.3[AC2].

Now is a particularly important time in history to consider interventions that can reduce the impact of Indonesia’s oil palm sector on atmospheric emissions of carbon. Indonesiais likely to more than double its area of oil palm by a further 7-8 million ha to meet projected demand for CPO of 41 million tonnes by 2020. Most of this growth is expected to occur first in Sumatra because this island has the best climate and soil conditions; but Kalimantan and Papua are also identified as locations for expansion.

This objective is moving rapidly to realization. Permits have already been issued for 7.5 million ha of land in West Kalimantan, East Kalimantan, South Kalimantan, Riau and Papua alone. X ha of this land is forested and X ha of this land is peatland[AC3]. If all of this land was actually converted to oil palm up to X MtC could be released into the atmosphere.

It is possible that a total of 20 million ha of land has been allocated for oil palm development throughout Indonesia. If oil palm was actually planted on all of this land, CPO production would exceed demand and result in economic consequences. There is a need to review the national plan for oil palm to take into account the social, economic and ecological implications of its spatial allocation.

Interventions to avoid deforestation and mitigate climate change

A number of options can be pursued to rationalize the industry, optimize economic returns and reduce its impact on carbon emissions.

1. Review the permit allocation process for oil palm developments. The National Land Agency (BPN) should review all of the permits that have been issued to oil palm companies and assess whether companies should be allowed to proceed with obtaining a land use permit (HGU). This process should consider a range of factors including:

  • the location of the concession (i.e. is it located on forested lands or peatlands).
  • overlapping land uses (i.e. logging, mining and industrial timber concessions).
  • the proximity of the concession to a CPO processing mill.
  • land and climate suitability.
  • infrastructure needs; and
  • the applicants finances.

2. Reallocate forest and peatlands for carbon storage. Forested lands and peat lands previously slated for oil palm developments should be re-allocated for carbon storage. A moratorium on allocating further forests and peatlands for oil palm plantations should then be implemented

3. Review spatial plans to optimize degraded lands. Available degraded lands for viable oil palm plantation developments should be identified to allow the oil palm industry to expand without causing significant carbon emissions. Indonesia has around 23.2 million ha of degraded lands and only 7-9 million ha is needed to ensure that Indonesia can meet its oil palm production target by 2020.

4. Increase yields of smallholder plantations.Assistance can potentially be mobilized to help smallholders to optimize land and increase yields. Smallholders tend to require more land than private estates to produce 3.5 tonnes of CPO per hectare. Poor smallholder yields are attributed to difficulties in obtaining good quality seedlings, incorrect plantation management and lack of sufficient capital to purchase fertilizers, pesticides and herbicides.

5. Replant over-mature plantations. A similar strategy can be deployed to replant over-mature oil palm plantations. This strategy will ensure that land already dedicated to oil palm is re-used to produce profitable and high-yielding productive plantations.

Other interventions that can mitigate climate change are:

1. Provide support for zero burning. Oil palm plantations continue to use fire to clear land because it is cheaper than zero burning. Fire expedites the release of carbon stored in peatlands into the atmosphere and should be avoided.

2. Improve water management in existing plantations lying on peatlands. Peatlands need to be managed to maintain a water table at 0.5-0.7m from the soil surface to prevent depletion of the peat soil and the release of carbon into the atmosphere.

3. Reduce chemical inputs. Oil palm companies need to reduce the use of fertilizers, herbicides and pesticides, which release potent greenhouse gases (carbon dioxide, nitrous oxide and methane) into the atmosphere[2]. Chemical inputs can be reduced if oil palm companies return organic waste to the soil to improve soil fertility and apply integrated pest management to reduce the need for pesticides.

Post UNFCCC COP 13 ideas

The following activities would assist in preparing Indonesia and the oil palm industry for the implementation of REDD after 2012.

  • Collect and improve spatial data on existing and proposed concession boundaries, community lands, forest cover, peat lands, rainfall and soils. This is necessary because spatial data is incomplete, out-of-date and unreliable and thus unable to be used to base sound decisions on.
  • In-depth spatial analysis and community mapping to accurately identify unoccupied degraded lands that are suitable for oil palm developments.
  • Review permits and spatial plans in at least four provinces (Riau, West Kalimantan, East Kalimantan and Papua) to relocate oil palm plantations to more suitable and unoccupied degraded lands.
  • Test the possibility of allocating REDD payments to companies for revenues lost from not being able to realize plantations on forest and peatlands if their location permits were revoked during a permit review process.
  • Test the possibility of mobilizing REDD payments to:
  • improve the yields of smallholder plantations.
  • assist with replanting programs.
  • support zero burning.
  • improve water management in existing plantations lying on peatlands.
  • encourage companies to return organic waste to the soil; and
  • apply integrated pest management.

1

[1] This is based on the assumption that oil palm plantations have replaced secondary forests which contain around 176 Mg of carbon per hectare.

[2] Nitrogen based fertilizers (such as ammonium nitrate, ammonium sulphate and urea) are particularly potent from a climate change point of view as one kilogram of nitrous oxide (N2O) has an equivalent impact to 310 kilograms of CO2.

[AC1]We are awaiting estimates of how much peat is degraded per year and how much carbon is emitted per year from the methodology group to make this calculation.

[AC2]We need some data from the methodology group to be certain about these figures.

[AC3]Still working on this.