Indonesia - Forest Carbon Trust Fund Program Project : Indonesia - Forest Carbon Trust Fund Program Project

Page 1 INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC5770 Date ISDS Prepared/Updated: 12/15/2010 I. BASIC INFORMATION A. Basic Project Data Country: Indonesia Project ID: P120619 Project Name: Indonesia Forest Carbon Trust Fund Program Task Team Leader: Juan Martinez Estimated Appraisal Date: Estimated Board Date: March 1, 2010 Managing Unit: EASIS Lending Instrument: Technical Assistance Loan Sector: Forestry (80%);General agriculture, fishing and forestry sector (20%) Theme: Climate change (80%);Environmental policies and institutions (10%);Other environment and natural resources management (10%) SPF Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 0.00 Trust Funds 6.84 6.84 B. Project Objectives [from section 2 of PCN] The trust fund's development objective is to develop good practice for financing incentive payments to reduce deforestation and forest degradation to prevent further carbon emissions from this source. This would initially be done for sustainable practices at different stages of the design and implementation of the KFCP (Kalimantan Forest and Climate Partnership), through payment distribution mechanisms to be designed as an activity under the KFCP. Outcomes will include reduced greenhouse gas emissions from the KFCP site, lessons and a working model for the effective management and conservation of tropical peat forests, with potential application throughout Indonesia's extensive peat lands, and co-benefits in the form of livelihood options, biodiversity conservation, reduced health impacts and economic losses from smoke, and clarified land tenure and property rights for local communities. C. Project Description [from section 3 of PCN] The Governments of Indonesia and Australia are cooperating through the Indonesia-Australia Forest Carbon Partnership (IAFCP) to test and demonstrate approaches to Reducing Emissions from Deforestation and Forest Degradation (REDD). One component of the IAFCP is the Kalimantan Forests and Climate Partnership (KFCP), a four-year learning activity in which Page 2 technical, scientific, and institutional innovations are tested, refined, and communicated to add to the body of REDD knowledge and experience. The activity is financed by a A$ 30 million grant provided and implemented by AusAID, which will be supplemented by a proposed A$ 8.4 million stand-alone trust fund also financed by AusAID but administered by the World Bank as a financial intermediary. The Bank- administered trust fund will channel incentive payments to individuals and organizations participating in the KFCP's emissions reduction strategies and activities. Activities to be Financed. Investments for readiness and incentives to encourage sustainable practices would be financed primarily through grants to Indonesia-based partners and institutions. Incentives will take two forms: - Input-based: immediate remuneration or other direct benefits linked to adopting and implementing interventions, such as building check weirs, planting trees, or eliminating fire use on peat soils. - Performance-based: This will include two types: (i) Output based: annual payments for sustaining interventions so as to achieve the desired results, such as maintaining check weirs to ensure desired water table levels are maintained, protecting forest from encroachment, or reducing the incidence and extent of fire; and (ii) Outcome-based: payments commensurate with greenhouse gas emissions reductions, initially as a proxy for a future forest carbon market but possibly later based on tradable credits in a real carbon market. The first two types of payments (input and output-based) are more conventional and can be undertaken using standard systems. During the earliest stages of the project, incentive payments will be exclusively input-based, and relate to the activities required to support the stabilization and rehabilitation of the KFCP site. This includes the construction of check weirs to block drainage canals that were constructed by the Mega Rice Project in the late 1990s which are draining the area, and heightening the risk of fire; reforestation activities; livelihood interventions; and fire management activities. Some investment and readiness costs associated with these interventions will also be financed through the trust fund. As the KFCP advances, incentive payments will become increasingly tied to performance against certain indicators, such as maintenance of check weirs, maintenance of reforested land, and reduced incidence of fire. Once the project is sufficiently advanced, payments will be set on an outcome basis so that they will be commensurate with verified reductions in greenhouse gas emissions. However, it is expected to take some time to prepare for outcome-based payments around the KFCP site, so the initial focus of the trust fund will be on input-based and output-based incentives. Triggers for three types of incentive payments will be elaborated in line with the KFCP monitoring and evaluation framework and the design of project payment distribution mechanisms. Moreover, the activities under the KFCP will consist of: - Blocking canals to raise the water table and re-wet the peat. The canal blocking will use locally available materials, such as compacted peat overburden from the canal banks, burnt trees salvaged for bracing, and replanting with seedlings and saplings from the forest. The KFCP has Page 3 analyzed different options and cost implications for building more than 360 barriers and small palisade dams in different configurations. No access roads will be constructed to transport the construction materials. - Conserving and protecting the largely intact, but mostly logged-over forest area in Block E from illegal logging and fires. - Reestablishing tree cover in highly degraded areas by encouraging natural regeneration and replanting. This will help raise soil moisture levels and humidity, thus further reducing fire risk, especially in dry years. An area of approximately 27,500 hectares will require complete replanting using the principle that the key to a successful program is to replant with species adjusted to the present circumstances, and so to assist the development of forest cover along a line of succession. - Introducing livelihood interventions and incentives to adopt sustainable agricultural options or other productive activities equally accessible by women and men that do not involve illegal logging or require drainage or burning in peatlands. - Creating systems and conducting studies to capture and communicate knowledge about reducing emissions from deforestation and degradation of forests and peatlands. - Establishing a local GHG emissions measurement and monitoring program that feeds into the national Forest Resource Information and Carbon Accounting Systems. - Developing local capacity for managing REDD+ activities. - Documenting the positive and negative social and economic impacts of the REDD+ demonstration on participating communities, especially focusing on the results of KFCP's community-targeted interventions that include an emphasise on gender fairness. - Demonstrating how to effectively manage and conserve tropical peat swamp forests based on state-of-the-art scientific knowledge, with the potential to apply these techniques throughout Indonesia's extensive peatlands. - Producing co-benefits in terms of providing livelihood options and cash payments for REDD+ services to target villages, conserving biodiversity, reducing health impacts and economic losses from haze and smoke, and clarifying the land tenure and property rights of communities, thereby providing a basis for economic security while reducing the threat of conflict. - Contributing to strengthening Indonesia's REDD+-enabling environment by identifying policy options, clarifying institutional responsibilities and capacity-building requirements, and outlining options for the socialization of REDD+ and related issues. D. Project location (if known) The KFCP will be implemented within a single peat dome of approximately 120,000 ha in the northern part of the Ex-Mega Rice Project (EMRP) area in Central Kalimantan. The northern half of the dome is covered by relatively intact peat swamp forest. The southern part of the area is heavily degraded. Canals constructed to support the Mega Rice Project and secondary canals, constructed by the local residents and other resource users for other purposes, are steadily draining the area, resulting in the ongoing oxidation of peat, increasing fire risk in the area and related greenhouse gas emissions. The project site is sparsely populated, with approximately 20,000 mostly Dayak Ngaju residents living in 14 villages along the banks of the Kapuas River (outside the project site). The deforestation of large areas of land since 1996 has greatly reduced livelihood opportunities in the area. E. Borrower