Oil Palm Sustainability

PPI Agri Briefs

2009-04-22T10:18:00.000-07:00

PPI Winter 2001, No. 4

USING PHOSPHORUS AND POTASSIUM SOIL TEST RESULTS

What can you do with soil test information? Once you have spent the time collecting samples and getting them analyzed, it’s important to make full use of the results. Soil testing can be used for:

Identifying yield-limiting factors
Determining nutrient recommendation
Estimating the probability of getting a crop response to added nutrient
Evaluating how well a nutrient management program is performing
Estimating how much potassium or phosphorus must be added to increase soil test levels by a certain amount

Soil tests drastically improve nutrient management. They can show where situations exist that limit crop yield and quality. It is important to look at more than one result at a time. Too often, the requirements of each nutrient are examined in isolation. This ignores interactions. For instance, soils that are too acid or too basic can limit the availability of phosphorus and potassium. Lighter textured soils are not able to hold as much phosphorus or potassium as heavier soils. Get to know such relationships and consider each result in the context of the others. Combine this approach with good records of management practices to get the most from soil test results.

Soil tests can help you manage risk. Crops grown on low testing soils have a greater chance of responding to fertilization in the year of application. They also run the risk of not yielding as much as crops grown on higher testing soils. In some situations soil tests are not as good at determining when a crop response will occur. For instance, banding potassium in ridge-till and no-till soils may produce responses even under higher testing soils. Starter fertilizers can also provide benefits at higher soil tests. Know the research in your area to identify such situations.

Testing soil regularly provides critical information. Tracking how soil test levels have changed over time is one of the best ways of evaluating your fertility program. If your objective was to build soil test levels, you can see if you have accomplished it and how long it took you. You can also get a sense for the variability in soil test levels over time. Can you find some trends or is there just too much scatter in the data? If there is a lot of variability, are you managing nutrients in a way to address this uncertainty? Remember, that for any analysis of data over time, more frequent sampling provides a much clearer picture of what has been happening. If you sample once every four years, at the end of 12 years you only have three points to look at – barely enough to see any trend at all. If you’re worried about how much more frequent sampling will cost, think of the costs of not knowing how your nutrient management program is performing.

Historical soil test data can refine your nutrient management program. Knowing how soil test levels have been changing can be combined with knowledge of nutrient use and the quantity of nutrients removed by harvested crop portions. The total amount of phosphorus or potassium removed by crops can be subtracted from the total amount applied. This gives you net additions or subtractions for each interval between soil sampling. Dividing this net by the change in soil test level provides an estimate of how much phosphorus or potassium must be applied or removed to change the soil test by 1 part per million or pound per acre, whatever the case may be.

Soil testing is an essential part of nutrient management planning. Be sure to make full use of the information it provides.

—TSM—

For more information, contact Dr. T. Scott Murrell, Northcentral Director, PPI, 3579 Commonwealth Road, Woodbury, MN 55125. Phone: (651) 264-1936. E-mail: smurrell@ppi-far.org

Getting to Know More about Soil Testing

2009-03-25T05:17:00.000-07:00

Soil Testing

Getting to Know More about Soil Testing

(A link to the IPNI site with more information)

Soil testing is dynamic. That is, it changes as new crop production technologies are developed. As preparations are made to take soil samples this spring in support of the development of nutrient management plans, those involved might feel the need to ‘brush up’ on the various aspects of soil testing.

Institute agronomists and their colleagues have prepared numerous papers, articles and other publications dealing with soil testing. A selection of them is listed below. Simply click on the title or titles that interest you. For further reading on soil testing, go to our home page, click on ‘Advanced Search’, type in ‘Soil Testing’, and click on the search button.

SOIL ANALYSIS TERMS

2009-03-25T05:11:00.000-07:00

SOIL ANALYSIS TERMS

Soil pH
The soil pH measures active soil acidity or alkalinity. A pH of 7.0 is neutral. Values lower than 7.0 are acid; values higher are alkaline. Usually the most desirable pH range for mineral soils is 6.0 to 7.0 and for organic soils 5.0 to 5.5. The soil pH is the value that should be maintained in the pH range most desirable for the crop to be grown.

Buffer pH
This is an index value used for determining the amount of lime to apply on acid soils to bring the pH to the desired pH for the crop to be grown. The lower the buffer pH reading the higher the lime requirement.

Phosphorus
The phosphorus test measures that phosphorus that should be available to the plant. The optimum level will vary with crop, yield and soil conditions, but for most field crops a medium to optimum rating is adequate. For soils with pH above 7.3 the sodium bicarbonate test will determine the available P.

Potassium
This test measures available potassium. The optimum level will vary with crop, yield, soil type, soil physical condition, and other soil related factors. Generally higher levels of potassium are needed on soils high in clay and organic matter versus soils, which are sandy and low in organic matter. Optimum levels for light-colored, coarse-textured soils may range from 90 to 125 ppm (180 to 250 lbs/ac). On dark-colored heavy-textured soils levels ranging from 125 to 200 ppm (250 to 400 lbs/ac) may be required.

Calcium
Primarily soil type, drainage, liming and cropping practices affect the levels of calcium found in the soil. Calcium is closely related to soil pH. Calcium deficiencies are rare when soil pH is adequate. The level for calcium will vary with soil type, but optimum ranges are normally in the 65% to 75% cation saturation range.

Magnesium
The same factors, which affect calcium levels in the soil, also influence magnesium levels except magnesium deficiencies are more common. Adequate magnesium levels range from 30 to 70 ppm (60 to 140 lbs/ac). The cation saturation for magnesium should be 10 to 15%.

Sulphur
The soil test measures sulfate-sulfur. This is a readily available form preferred by most plants. Soil test levels should be maintained in the optimum range. It's important that other soil factors, including organic matter content, soil texture and drainage be taken into consideration when interpreting sulfur soil test and predicting crop response.

Boron
The readily soluble boron is extracted from the soil. Boron will most likely be deficient in sandy soils, low in organic matter with adequate rainfall. Soil pH, organic matter level and texture should be considered in interpreting the boron test, as well as the crop to be grown.

Copper
Copper is most likely to be deficient on low organic matter sandy soils, or organic soils. The crop to be grown, soil texture, and organic matter should be considered when interpreting copper tests. A rating of medium to optimum should be maintained.

Iron
Soil pH is a very important factor in interpreting iron tests. In addition, crops vary a great deal in sensitivity to iron deficiency. Normally a medium level would be adequate for most soils. If iron is needed it would be best applied foliar.

Manganese Soil
pH is especially important in interpreting manganese test levels. In addition, soil organic matter, crop and yield levels must be considered. Manganese will work best if applied foliar or banded in the soil.

Zinc
Other factors, which should be considered in interpreting the zinc test, include available phosphorus, pH, and crop and yield level. For crops that have a good response to zinc, the soil test level should be optimum.

Sodium
Sodium is not an essential plant nutrient but is usually considered in light of its effect on the physical condition of the soil. Soils high in exchangeable sodium may cause adverse physical and chemical conditions to develop in the soil. These conditions may prevent the growth of plants. Reclamation of these soils involves the replacement of the exchangeable sodium by calcium and the removal by leaching.

Soluble Salts
Excessive concentration of various salts may develop in soils. This may be a natural occurrence or it may result from irrigation, excessive fertilization or contamination from various chemicals or industrial wastes. One effect of high soil salt concentration is to produce water stress in a crop to where plants may wilt or even die. The effect of salinity is negligible if the reading is less than 1.0 mmhos/cm. Readings greater than 1.0 mmhos/cm may affect salt sensitive plants and readings greater than 2.0 mmhos/cm may require the planting of salt tolerant plants.

Organic Matter and ENR (Estimated Nitrogen Release)
Percent organic matter is a measurement of the amount of plant and animal residue in the soil. The color of the soil is usually closely related to its organic matter content, with darker soils being higher in organic matter. The organic matter serves as a reserve for many essential nutrients, especially nitrogen. During the growing season, a part of this reserve nitrogen is made available to the plant through bacterial activity. The ENR is an estimate of the amount of nitrogen (lbs/acre) that will be released over the season. In addition to organic matter level, this figure may be influenced by seasonal variation in weather conditions as well as soil physical conditions.

N03-N (Nitrate Nitrogen)
Nitrate nitrogen is a measure of the nitrogen available to the plant in nitrate form. In high rainfall areas, sandy soil types and areas with warm winters, this measurement may be of limited value except at planting or side dress time. In the areas with lower rainfall, the nitrate test may be very beneficial.

Cation Exchange Capacity (CEC)
Cation exchange capacity measures the soil's ability to hold nutrients such as calcium, magnesium, and potassium, as well as other positively charged ions such as sodium and hydrogen. The CEC of a soil is dependent upon the amounts and types of clay minerals and organic matter present. The common expression for CEC is in terms of milliequivalents per 100 grams (meq/100g) of soil. The CEC of soil can range from less than 5 to 35 meq/100g for agricultural type soils. Soils with high CEC will generally have higher levels of clay and organic matter. For example, one would expect soil with a silty clay loam texture to have a considerably higher CEC than a sandy loam soil. Although high CEC soils can hold more nutrients, it doesn't necessarily mean that they are more productive. Much depends on good soil management.

Cation Saturation
Cation saturation refers to the proportion of the CEC occupied by a given cation (an ion with a positive charge such as calcium, magnesium or potassium). The percentage saturation for each of the cations will usually be within the following ranges:

Calcium: 40 to 80 percent
Magnesium: 10 to 40 percent
Potassium: 1 to 5 percent

Forests losing battle against plantations

2008-11-01T03:42:00.000-07:00

Forests losing battle against plantations

National News - October 30, 2008

Adianto P. Simamora, The Jakarta Post, Jakarta

Massive forest conversions, rising demand for timber and infrastructure projects are the main causes for Indonesia's world-leading rate of deforestation, a new study has found.

The study by the Indonesian Forest Watch (FWI) categorically blamed deforestation on forest conversions into palm oil plantations conducted by big companies.

"We find palm oil companies prefer to convert forest areas rather than utilize idle land for their expansion as they get extra incentives from trees in the cleared forests," said Wirendro Sumargo, FWI coordinator for public campaign and policy dialogue, on Tuesday.

The field study was conducted in Central Kalimantan and Riau and Papua.

It said Central Kalimantan was seeing the fastest rate of conversion of forest area into palm oil plantations.

"In the last 17 years, the rate of forest conversion to palm oil plantations increased by 400 times to 461,992 hectares (per year) in 2007 from only 1,163 hectares (per year) in 1991," the study said, quoting data from the Central Kalimantan administration.

"Our finding shows that about 816,000 hectares of forest (there) was cleared for palm oil plantations in 2006."

He said 14 percent of the 3 million hectares of peatland in the province had been converted into palm oil plantations.

In Riau, the local administration allocated 38.5 percent of its total forest area for conversion into plantations.

"As of 2006, there were 2.7 million hectares of plantations, including 1.5 million hectares of palm oil plantations," he said.

Wirendro said that out of the 550,000 hectares of forests felled for plantations in Papua, 480,000 hectares had been allocated for growing palm oil.

The Forestry Ministry has said total palm oil plantations increased to 6.1 million hectares in 2006 from 1.1 million hectares in 1990.

The ministry has claimed the rate of deforestation between 1987 and 1997 remained constant at 1.8 million hectares per year before spiking to 2.8 million hectares per year by 2000 mainly because of severe forest fires.

However, between 2000 and 2006, the rate fell to 1.08 million hectares per year, it added.

The Indonesian Forest Watch has said the deforestation rate stood at 1.9 million hectares per year from 1989 to 2003.

The Guinness Book of World Records puts Indonesia as the country with the highest rate of deforestation on the planet, citing a rate equivalent to 300 soccer fields per hour.

Wirendro said another factor contributing to the acceleration of forest deforestation was the rising demand for timber due to the low supply of raw materials from industrial forests managed by pulp and paper firms in the country.

"The capacity of paper industries increased sharply from one million tons in 1987 to 11 million tons in 2007, while the capacity of pulp companies also rose from 0.5 million tons to 6.5 million tons over the same period," he said.

"But, the industries could only supply about 50 percent of the needed raw materials. We believe the companies also take timber from outside their concessions, including production forests (to offset the shortages)."

Wirendro said wood product industries, which bought wood from illegal and illegal sources, could be the main driver of deforestation in Indonesia.

There are currently seven pulp and paper companies operating in the country.

The study said the previous government's transmigration programs had also contributed to deforestation.

In Riau, 773,331 hectares of forest were converted into transmigration areas, while the Papua administration cut down 375,203 hectares of forest to make way for resettlement zones.

Are biofuels a sustainable solution to climate change?

2008-11-01T03:31:00.000-07:00

Friday, December 14, 2007 05:21:26 PM

Are biofuels a sustainable solution to climate change?

Many countries at this year’s climate change conference – including China, the European Union countries, and the U.S. – have set targets for the use of biofuels to reduce their greenhouse gas emissions.

Biofuels are liquid fuels made from animal or plant matter. Burning them to power vehicles can result in fewer emissions per unit of energy than using petroleum fuels. Their production may also promote rural development and national energy security.

Biofuels may not in fact be a sustainable solution to climate change. Depending on the plants used to make the fuel, the production process, and the policy frameworks of governments, biofuels may lead to rising food prices, soil degradation, loss of biodiversity, increased rural poverty, and greater GHG emissions due to deforestation.

The U.S. is the world’s second largest producer of biofuels, and this is mostly ethanol made from corn. The enthusiasm of the Government for corn ethanol arguably has little to do with its environmental benefits, and much more to do with reducing dependence on oil imports, and reducing government subsidies paid to corn farmers.

An increase in demand for corn because of new domestic targets for ethanol has driven up the price and in turn leads to the government saving some US$6billion in subsidies to corn farmers.

These economic benefits of corn ethanol to the United States economy are what drive its growth. But it has negative consequences elsewhere. As demand for corn as a fuel rises, so too does its price. In late 2006 prices of corn jumped by 65 percent, effecting both global corn prices and the price of other foods such as soy beans which are used to substitute for corn in animal feed. These shifts in production, demand and price for U.S. corn have significant implications for food security in food importing countries.

These impacts on food prices need to be set against the modest reductions in GHG emissions from corn ethanol. At present ethanol can only be mixed with gasoline in quantities of up to 10 percent (described as E10) without engine modification. Given ethanol provides less power to an engine than gasoline, more fuel is required to travel the same distance. Therefore studies indicate using E10 may actually result in a net increase in emissions.

The development of palm oil biodiesel in Indonesia provides another example where biofuels may have significant negative impacts. The aggregate economic benefits of palm oil biodiesel seem good. The Government aims to create millions of jobs and $1.3 billion worth of exports by 2010 through new palm oil plantations and value-added exports. Recent regional development plans have designated 20 million hectares for oil palm plantations, mainly in Sumatra, Kalimantan, Sulawesi and West Papua.

The areas suitable for oil palm cultivation in Indonesia overlap significantly with the areas of lowland tropical rainforest, which are home to more than 6 percent of the world’s plant species, 6 percent of mammal species, 7 percent of reptile and amphibian species, 10 percent of bird species, and 15 percent of the world’s fish species. An expansion of plantations into these areas would mean the loss of large amounts of biodiversity.

Clearing rainforests that grow in peat spoils for new palm oil plantations would also mean a huge release of emissions. These emissions would be many times larger than those saved by the burning of biodiesel instead of conventional diesel. Already a quarter of the plantations in Indonesia are on peat soils, and most of the new expansion is likely to be in these areas.

The establishment of palm oil plantations in Indonesia has also often involved the forced displacement of communities, and this can result in violent conflict, assault, torture, murder, and the destruction of property.

The growth in employment from new plantations may not mean an improvement in livelihoods as local people have little choice but to become palm oil labourers when the forests surrounding their village are occupied by plantations.

The increasing international demand for palm oil as a fuel and as a substitute for corn as an animal feed has meant palm oil producers in Indonesia can earn more from exports than from domestic sales. For this reason local palm oil prices have increased by a third in recent times.

These examples illustrate that many biofuels may be good for business, but are not a sustainable solution to greenhouse gas emissions from the transport sector. They result in an increase in greenhouse gas emissions and an increase in poverty and food insecurity in many parts of the world.

There are many more efficient and effective means for reducing emissions from transport that do not present significant risks to people and the environment. Alternatives include reducing the weight of vehicles and the size of engines, increasing the efficiency and fuel economy of vehicles, increasing fuel prices, improved urban planning to encourage walking, cycling, and the use of public transport.

Josie Lee and Jon Barnett, Jakarta. Josie Lee and Jon Barnett are environmental professors at Melbourne University

Is peat swamp worth more than palm oil plantations?

2008-10-11T06:37:00.000-07:00

Is peat swamp worth more than palm oil plantations?
Rhett A. Butler, mongabay.com
July 16, 2007 [Jakarta Post version published Aug 22]

Jump to the results

Could peat swamp be worth more intact for their carbon value than palm oil plantations for their oil? Quick analysis suggests yes, though binding limits on emissions will be needed to trigger the largest ever flow of money from the industrialized world to developing countries. At stake: the bulk of the world's biodiversity.

In recent months there has been a lot of talk about the use of carbon credits to help offset greenhouse gas emissions. There has also been discussion about the ecological damage being wrought by biofuels, which has encouraged-oil palm plantations in the biodiverse rainforests of Indonesia. It turns out the two are closely linked. When forest is cleared and peat swamps are drained for the establishment of oil-palm plantations, large amounts of carbon dioxide are released into the atmosphere. In Indonesia so much CO2 is released from these processes that Wetlands International, a Dutch NGO, estimates that in some years Indonesia may produce 8 percent of global emissions. The U.N. agrees.

So why aren't palm-oil plantations simply banned in Indonesia? Well, beyond the fact that it would be unethical and illegal, palm-oil plantations are immensely profitable in areas where there is little other meaningful economic activity. At the current price of $750 per metric ton of palm oil, a mature oil-palm plantation can generate more than $3,000 per hectare for a large landholder. Internal rates of return can top 25 percent a year over 25 years, a remarkable rate for a simple agricultural commodity, even one that is the world's most productive oilseed.

Chart showing annual palm oil production by Malaysia and Indonesia from 1964-2006. Click to enlarge.

Given this profitability, oil-palm plantations in Indonesia have expanded from 600,000 hectares in 1985 to more than 6 million hectares by early 2007, and are expected to reach 10 million hectares by 2010. In those 22 years Indonesian palm-oil production has increased from 157,000 metric tons to 16.4 million metric tons, while exports have jumped from 126,000 metric tons to 12 million metric tons.

So what's the alternative? Is there anything that could make Indonesian business abandon this steady source of income by offering an even more attractive stream of income? The answer may be surprising. Preserving forest and peat swamp that would otherwise be converted and collecting the resulting recurrent revenue provided by the carbon offset market may be more lucrative for landowners in some areas.

Peat swamps

While most people think of peat swamps as little more than a breeding ground for disease-carrying insects and threatening wildlife, leaving it as is could be quite profitable for landowners under carbon finance initiatives for the simple reason that peat swamps store massive amounts of carbon.

Peatlands, formed by organic deposits comprised of partially decayed plant matter that accumulates over hundreds of years, cover more than 400 million hectares of land worldwide. Most of these exist in permafrost in the far north, though some are found in the lowlands of tropical Asia, especially in the swampy forests of Indonesia and Malaysia. Peatlands are giant reservoirs of carbon, storing around 2,000,000 million tons of carbon dioxide globally. Southeast Asian peatlands alone lock up 42,000 million tons of carbon, according to Wetlands International. However, when peatlands are drained, cut, or burned this stored carbon is released into the atmosphere, contributing to climate warming.

Chart showing annual palm oil production and exports for Indonesia from 1964-2006. Click to enlarge.

Each year hundreds of thousands of hectares of peatlands are drained and cleared for oil-palm and timber plantations. Generally, developers dig a canal to drain the land, extract valuable timber, then clear the vegetation using fire. In dry years these fires can burn for months, contributing to the "haze" that regularly plagues Southeast Asia. Fires in peatlands are especially persistent, since they can smolder underground for years even after surface fires are extinguished by monsoon rains.

While burning releases enormous amounts of carbon dioxide, merely draining peatlands also contributes to global warming—upon exposure to air, peat rapidly oxidizes, decomposes, and releases carbon dioxide. Further carbon—about 70 percent of emissions—is released when peatlands are burned. Wetlands International estimates that production of one metric ton of palm oil will result in an average emission of 20 tons of carbon dioxide from peat decomposition alone, not including emissions resulting from production or combustion.

Beyond contributing to climate change, destruction of peatlands in Indonesia puts local populations at greater risk of flooding. Peatlands are a natural means of flood control, acting like a sponge to absorb large amounts of rainfall and runoff, while reducing the threat of erosion.

The opportunity

When peatlands are degraded and trees are cut, greenhouse gases are released into the atmosphere. "Avoided deforestation" is the concept in which countries are paid to prevent deforestation that would otherwise occur. Funds come from industrialized countries seeking to meet emissions commitments under international agreements like the Kyoto Protocol. Policymakers and environmentalists alike find the idea attractive because it could help fight climate change at a low cost while improving living standards for some of the world's poorest people, safeguarding biodiversity, and preserving other ecosystem services. A number of prominent conservation biologists and development agencies, including the World Bank and the U.N., have already endorsed the idea, which may be one of the most cost-effective ways to slow climate change.

In Indonesia the concept offers an alternative to the current single-minded pursuit of oil-palm plantation expansion, a trend that increasingly ties Indonesia's economy to the price of a single commodity. By shifting toward "avoided deforestation" carbon credits, Indonesia can diversify its economy, improve returns, and reduce risk without depleting its resource base.

An illustration

To illustrate the potential, compare the net present value (NPV) of a standard 1,000-hectare oil-palm plantation to a 1,000-hectare peat swamp preserved for its carbon value. Bear in mind that small-holder plantations are considerably less profitable than large ones, with higher transactions costs, and therefore would present an even more compelling case for leaving ecosystems intact for carbon credits.

Palm oil plantation

Start-up costs. Oil-palm plantations have considerable up-front costs for land-clearing, preparing irrigation systems, and planting. Start-up costs for a plantation may range from $500 to more than $3,000 per hectare. According to information provided by the Oil Palm Research Institute (IOPRI) via the World Agroforestry Centre (ICRAF), the cost of replanting of 1 hectare of oil palm is $2222. The cost for new plantation development is $2555 per hectare. Note that this estimate excludes the value of timber. In natural forest, the establish of oil palm plantations is sometimes a cover for logging. In fact, according to a paper by Lesley Potter of Australian National University, only 303,000 hectares of the 2 million hectares of land in East Kalimantan reserved for oil-palm development had been planted by 2004, while an estimated 3.1 million hectares of forest was cleared under the guise of plantation development. Nevertheless, for the purpose of this example, a start-up cost of $2555 per hectare, or $2.55 million for 1000 hectares, was used.

Yield. While oil palm is the most productive oilseed in the world, trees do not start producing oil-rich fruit until after at least 30 months [A new variety may shorten this to 24 months). Fruit grows in clusters that may weigh 40-50 kilograms, enough to produce 10 kilograms of oil once mature. During the first years of fruit production, yield is only a fraction of that of a mature plant. According to the Oil Palm Research Institute (IOPRI), after four years, each hectare yields 12-15 metric tons (Mt) of oilseed, or 2.6-3.3 Mt of crude palm oil worth roughly $1950-2475 at current market prices (though the landowner would recieve a lower price for his oil) but before expenses which generally run 20-30 of revenue. At peak production, after eight or nine years years, each hectare may yield from 26-31 Mt of oilseed (depending on land suitability), or 5.7-7 Mt of palm oil in efficient plantions. Under less suitable conditions yields ay be up to a third lower. While oil palms can live longer than 150 years and exceed 80 feet in the wild, cultivated palms are generally clear cut or poisoned once they are about 25 years old when they stand around 30 feet tall. Beyond 30 feet, harvesting fruit clusters is a challenge. Therefore oil-palm plantations have a useful life of around 25 years, after which they are cleared. In Malaysia, where operations are generally efficient, oil palm plantations can be reestablished after clearing. On government-run estates and community plantations in some parts of Indonesia, land is often abandoned following clearing due to poor agricultural practices.

Yield over the 25-year lifetime of an oil palm plantation in Indonesia. Figures courtesy of Oil Palm Research Institute (IOPRI) via the World Agroforestry Centre (ICRAF).

Chart by Rhett A. Butler.

Production costs and net income. Fruit clusters are harvested by hand, usually by hired laborers. In Malaysia, much of palm-oil harvesting is done by foreign workers, often Indonesians. In Indonesia, poor farmers, often waiting for their own meager (2-3 hectare) plantations to mature, provide the labor. They may earn $2.50 per day for their efforts. It is generally accepted that large oil palm plantations break even from a net present value standpoint in year 7 or 8. Small plantations take longer. For the purpose of this example, all costs other than plantation start-up costs were excluded.

Discount and interest rates. For the purpose of these examples, 16 percent was used as the discount/cost of capital rate and interest rate. While discount rates generally fall between 10 and 20 percent, interest rates can be higher in rural Indonesia, especially for small landholders who are known to become trapped in debt-bondage schemes by financiers and large-landowners. Under the first scenarios, the $2.55 million loan is accompanied by a line-of-credit to finance interest on interest for the first four years, until there is net income.

Peat swamp preserved for carbon value

Rainforest clearing for an oil palm plantation in Borneo. Seen from above and at ground level. Photos by Rhett A. Butler.

The peat swamp preserved for its carbon value does not have appreciable start-up costs relative to the oil-palm plantation. While there may be costs associated with surveying and demarcating the land, they are quite small in comparison. For the purpose of this example, it is assumed that the peat swamp stores 250 Mt more carbon than would otherwise be stored it if were drained and converted for oil palm. Some peat forest—forest that grows on peatlands—can store more than 500 Mt of carbon per hectare. Even non-peat forest can store upwards of 400 Mt of carbon per hectare (i.e., in northern parts of the Amazon basin). For the scenarios it was assumed that the development of the plantation would result in a peat swamp drainage that would result in CO2 emissions of 86 Mte per hectare or carbon emissions of 27 Mt/ha/yr per year. Initial forest clearing was assumed to release 100 Mt of carbon.

In the scenarios, carbon credits are assigned various values, based on real-world market values for 2006. At the low end ($3.50) is the average price of "voluntary emissions reductions" (VER) credits on the Chicago Climate Exchange (CCX) in 20006. Note that though credits are voluntary in the United States, they have value. At the high end ($22.12) is the average 2006 price for the EU ETS Trading Scheme. Also included is the average 2006 price ($18.60) across all 5 established offset mechanisms (EU ETS Trading Scheme, Primary Clean Development Mechanism, Secondary Clean Development Mechanism, Joint Implementation, New South Wales). The World Bank and Stern Report put values of carbon damage even higher. Phase II of the Emissions Trading System (ETS), Europe's system for trading carbon credits, will impose a $130 penalty (€100) per ton for non-compliance among firms.

Results

Net present value (NPV) of 1000-ha (2500-acre) peat swamp vs oil palm plantation. Chart shows the effect of palm oil at various prices and various carbon trading schemes. Assumptions: 15% discount/10% interest rate; Year 1: 100 tons of C/ha, 27 tons of C/ha (=100 tCO2e/ha) in years thereafter; medium average palm oil yield of 5.3 tons per hectare per year over the 25 year period.

Calculations and charts by Rhett A. Butler.

The graphs show that under some conditions, preserving peat swamps for carbon offsets is an attractive proposition relative to converting land for oil-palm plantations. Maintaining peat swamp as a productive ecosystem also has the potential to offer other financial benefits to land-holders, especially if compensation programs for ecosystem services, including watershed protection and biodiversity preservation, come to fruition. Further, intact peatland can offer opportunities for low-impact ecotourism activities, like bird-watching and wildlife spotting, and provide option value—that is, having these ecosystems intact leaves landowners with more options on how to make best use of the land than they would have had if they had already had cleared it.

Tropical deforestation rates from 2000-2005, ranked in decending order by the highest amount of average annual forest loss for 25 countries based on data from the U.N. Food and Agriculture Organization (FAO). Image by Rhett A. Butler, click to enlarge

Carbon finance is not limited to peatlands or Indonesia. Compensation for forest preservation is at least applicable to any tropical country where forest is being cleared, resulting in greenhouse gas emissions. With more than 13 million hectares of forest per year being cleared, releasing around 20 percent of global greenhouse gas emissions, the opportunity is tremendous. Indonesia alone lost 1.9 million hectares of forest per year between 2000 and 2005, but even a small country like the Solomon Islands could see immediate benefits under the establishment of a global framework on "avoided deforestation."

Conclusion

Climate change presents serious risks to Indonesia, including drought, flood, and sea-level rise. However proposed mechanisms for addressing climate change, notably carbon credits, offer an unparalleled economic opportunity for the country. It's time for Indonesia and other countries that will bear the brunt of climate change to reap some of the rewards of their valuable ecosystems.

Note:

This model is simplistic and does not factor in opportunity costs, options values, price volatility risk, taxes on CO2 emissions, or ecosystem services values.

Logging income is excluded from this model. In many forest areas, logging income from initial clearing is used to fund oil palm plantation establishment. Please see the model below for a comparison of the cost replanting an oil palm plantation.