* Borneo forest project aims to lock away vast carbon stores
* Employing and rewarding locals seen key to project success
* Investor hopes for millions of offset sales over 30 years
By David Fogarty, Climate Change Correspondent, Asia
SINGAPORE, Jan 12 (Reuters) - An Indonesian firm hopes to save an area three times the size of Singapore from logging, by enticing locals to protect the forest while potentially earning itself millions from selling carbon credits.
The key to the Katingan peat conservation project is the value of the carbon stored in the plants and the vast amount of planet-warming carbon locked away in the peat underground.
The oval-shaped 217,000 ha (542,500 acre) project nestles between two rivers in central Kalimantan on Borneo island, which has already lost about half its forest cover to logging for timber, clearing for palm oil plantations and mining.
But Jakarta-based PT Rimba Makmur Utama is betting on a global market in selling carbon offsets to investors seeking projects that preserve and rehabilitate forests, which lock away carbon dioxide in the fight against climate change.
Each offset represents a tonne of CO2-equivalent kept from being emitted and forests are among the world’s top carbon "sinks" if left intact, acting like lungs for the atmosphere.
"I‘m not going to be a hypocrite by saying this is not for the money but we have to be patient," said Dharsono Hartono, PT RMU’s president director, and a former investment banker. "It’s not going to make money right away."
Project planning began two years ago and has attracted funding from the Clinton Climate Initiative and the Norwegian Agency for Development Cooperation, or NORAD, he added.
A key challenge was determining future demand for forest carbon offsets. The United States and Australia have yet to pass domestic carbon trading laws but both, if approved, could ignite annual demand for hundreds of millions of tonnes of offsets from forest preservation projects priced from $5 to $10 a tonne.
The United Nations hopes a global scheme it supports, called reducing emissions from deforestation and degradation, or REDD, will be part of an expanded global pact to fight climate change from 2013. REDD aims to reward developing countries for saving forests through the sale of carbon credits to rich nations.
The Katingan project is one of more than a dozen REDD investments in Indonesia at various stages of development hoping a multi-billion dollar market in forest offsets will take off.
The Katingan site is different because most of it sits on a dome of peat. Emissions from degraded or burned peat land make up nearly half of Indonesia’s greenhouse gas emissions. The site also has the world’s sixth largest population of orangutans as well as rare clouded leopards.
The project has a provisional site licence and hopes to get a formal full 60-year ecosystem restoration licence by March, said project consultant Rezal Kusumaatmadja of Bali-based Starling Resources.
Such a licence carries the right to the forest’s carbon stock but bans tree cutting, requiring the investor to replant degraded areas and dam drainage canals to restore the water table.
About a third of the site’s peat swamp forest has already been logged, although more than half is still pristine.
Kusumaatmadja said the project covered long-term monitoring of the site’s carbon stock via 400 sampling plots of 50 m by 40 m. A large plant nursery would be needed to revegetate cleared or degraded areas, with dams being built, rangers employed and community development programmes created.
The project did not envisage keeping out the roughly 100,000 surrounding villagers, while about 20 percent of the revenue from carbon credit sales is earmarked for local communities, with rattan harvesting encouraged to help supplement their incomes.
Hartono hopes to sell the first carbon offsets in 2011 once the project is verified by two bodies, the Voluntary Carbon Standard and the Climate, Community and Biodiversity Alliance.
He could not say how many carbon offsets might be sold each year, but hoped they would be several million each year over the project’s 30-year life. But this depended on further studies.
Carbon stock measurements show about 170 million tonnes of CO2-equivalent locked above ground in the site’s trees and shrubs. Peat land can contain 5 to 6 times the amount of CO2 underground, giving sites like Katingan a high potential value. (Editing by Clarence Fernandez)