Innovative financing for peatland restoration in indonesia

Abstract

Indonesia harbors the largest area of tropical peatland globally, with a total area of approximately 15 million hectares (Mha) and store about 45–65 GtC which is strategically important for controlling global climate change. However, Indonesia’s peatland experiences an alarming rate of degradation in recent decades due to anthropogenic activities such as logging, conversion to industrial timber and agriculture, fires, and drainage associated with these land use changes. Peatland degradation imposes socio-economic, environmental consequences, and health costs to the country. In order to reverse the peatlands degradation pace, President Joko Widodo enacted a Presidential Regulation Number 1 of 2016 concerning the establishment of Peatland Restoration Agency or Badan Restorasi Gambut (BRG). The newly ad hoc governmental agency is tasked to coordinate and facilitate stakeholders in implementing peatlands restoration of 2.0 Mha target in seven provinces up to 2020. The 2.0 Mha target is then revised and updated based on certain criteria to a new target of 2.49 Mha. Of the 2.49 Mha target, about 1.40 Mha is located within private concessionaire licensed areas; meanwhile, the remaining 1.09 Mha is allocated in non-private licensed areas. A substantial budget is needed to achieve restoration target aforementioned. The currently available funding from both state budget and bilateral donor countries remains inadequate to fill in the funding needed, which is an estimate of total US$ 1.70 billion for the whole 2.49 Mha target. Hence, strategic and innovative funding sources need to be created and tapped in order to address the funding gap. This chapter aims to present business cases for peatland restoration and to propose a potential innovative financial instrument to finance the restoration activities in Indonesia. The creation of an investment instrument is necessary by means of structuring a peat bond where a combination of cash and carbon asset returns can be gained by investors.