Indonesia’s Katingan REDD project sells carbon credits to Shell. But that doesn’t mean the forest is protected. It’s threatened by land conflicts, fires and a palm oil plantation

Dec 12, 2019

The Katingan Peatland Restoration and Conservation Project covers an area of about 150,000 hectares in Central Kalimantan, Indonesia. The project was created in 2007 by an Indonesian company called PT Rimba Makmur Utama. The director of the company is Dharsono Hartono.

Hartono studied at Cornell University, and worked in real estate at JP Morgan. In 2007, Rezal Kusumaatmadja, a friend of his from Cornell, told Hartono about the possibility of making money out of protecting rainforest. In 2016, Hartono told PRI,

“Suddenly my JP Morgan head blipped and said, ‘This is just like real estate. If you manage it properly, there will be value, there will be appreciation, you can make money out of it.’”

Together, they set up PT Rimba Makmur Utama and the Katingan project. Kusumaatmadja is Chief Operating Officer of the company. The project today is a partnership between PT Rimba Makmur Utama, Wetlands International, Puter Foundation, and Permian Global (more on Permian Global later).

Hartono had hoped to be selling carbon credits within two years. But the Ministry of Forestry only approved the Ecosystem Restoration Concession in October 2013 – and even then the concession covered about 100,000 hectares, around half of the area the company had applied for. Three years later, the Department for Environment and Forestry approved a second concession covering almost 50,000 hectares.

In November 2016, the project was verified and validated under the Verified Carbon Standard (VCS) and the Climate, Community and Biodiversity Alliance (CCBA). Hartono told PRI,

“It has almost been nine years and we are still not making revenue. If I would have known that this was going to be this complex, I would have walked away.”

The first carbon credits from the project were issued in May 2017, ten years after the project started. Two recent announcements suggest that the project could at last make some money:

In April 2019, Shell announced that it would spend US$300 million on natural climate solutions to offset emissions from people using Shell petrol and diesel in the Netherlands. One of the projects that Shell buys carbon credits from is the Katingan project.

In September 2019, Volkswagen announced that it would buy carbon offsets from the Katingan project.

REDD: “Totally absurd”

Recently, Daphné Dupont-Nivet, a Dutch journalist with Investico, and Indonesian journalists, Gabriel Wahyu Titiyoga from Tempo and Aqwam Fiazmi Hanifan from Narasi, took a closer look at the Katingan project. Dupont-Nivet’s articles (in Dutch) are available in the Dutch newspapers Trouw, and De Groene Amsterdammer, and on the Investico website. Indonesian articles are due to be published soon.

The journalists studied reports about the project, spoke to scientists, conservationists, project developers, and certifiers, and with the help of experts they analysed satellite images of the concession area.

Dupont-Nivet spoke to Hilda Stroot, biodiversity programme director at Greenpeace. Stroot is critical of REDD:

“We are ten years ahead and have to conclude that we are not going beyond the obstacles…. It just doesn’t work. It is hard to be in favour of this. We see so many mistakes on this file.”

Mucahid Bayrak, a geographer at the National Taiwan Normal University has been researching the impact of forest protection schemes on local communities and has visited offset projects in Vietnam. “REDD+ will go down in history as a totally absurd project,” he says.

Esther Turnhout, a professor at Wageningen University, published an overview study of REDD in 2016. She is also critical of REDD:

“The scientific literature clearly shows that it is not an effective mechanism. The calculation methods are very complex and often impossible, the system is based on problematic assumptions and works unfairly. And it does not contribute to the reduction of CO₂.”

One of the key problems with REDD is permanence. The emissions from Shell’s or Volkswagen’s drivers immediately go into the atmosphere where they help contribute to the climate crisis. Part of that CO₂ will stay in the atmosphere for centuries.

As Alain Karsenty, a researcher at the Centre for International Cooperation in Agricultural Research for Development (CIRAD), pointed out recently, to offset emissions from fossil fuels, forests would have to remain standing forever. Karsenty writes that, “In fact, a complete neutralisation of emissions would require almost perpetual storage. But who can provide such a guarantee?”

And even in this theoretical best case scenario, there is no reduction in emissions.

Fires and Katingan: “The burnt area is huge”

This year, the forest fires in Indonesia have been the worst since 2015, when they cost the country US$16 billion and 500,000 people suffered respiratory ailments. In 2015, more than 9,000 hectares of the Katingan project area burned down.

The October 2016 project monitoring report includes a map of the areas burned in 2015:

This year, most of the Katingan project area has not gone up in flames Dupont-Nivet finds. She and experts in Brazil, Indonesia, USA and the Netherlands look at downloaded data from NASA’s Fire Information for Resource Management System (Firms).

But in the area around the reserve they find more than one thousand hotspots and 179 hotspots inside the project boundary.

Landsat photos from the end of October 2019 reveal dark brown “fire scars” inside the project area, covering a total of 1,900 hectares.

The Indonesian journalists Titiyoga and Hanifan travel to the project area. “The burnt area is huge,” Titiyoga says. “I walked about two miles and still can’t see the end of the fire scar.”

“This year was one of the worst burning years in five years. I expect we have lost millions of dollars,” Hartono tells Dupont-Nivet.

Land conflict

The Indonesian journalists found dozens of agricultural plots inside the project area. A handmade wooden board reads, “This area is controlled by the Dayak”. The individual plots are marked wooden signs with the names of villagers. They set fire to the forest so that they could grow vegetables and rice on the land.

Hanifan describes the southern border as consisting of, “Charred peaty soil and tree stumps, with wooden signs placed every few metres with names of villagers.”

The conflict over land in the area of the project goes back many years. In 2014, the governor of Central Kalimantan agreed that every Dayak family would be allowed five hectares of land to cultivate. But the exact location of the land was not agreed.

In 2016, PRI reported a conflict over land tenure in the project area:

The Katingan Project manages the land. The government owns it.
But some residents in the surrounding towns have long considered portions of it theirs in a traditional land tenure system. The combination of new conservation laws and the presence of the Katingan Project has cut people off from what they consider to be their land.
“Now I can’t do anything with my land,” says a man named Masdansyah, who lives in a riverside village built on stilts and boardwalks.

The Katingan project has not evicted the Dayak villagers, “to avoid a fight,” Dupont-Nivet writes. “The reserve prefers to keep the peace and opts for cooperation with the local population,” Hartono tells her.

There are about 40,000 people living in 34 villages around the project area. Five hundred villagers have been trained as firefighters under the project.

The project offered local communities 100 million rupiah (about US$10,000) a year for training and educational projects, aimed at getting them to work the land without using fire or chemicals. Four villages refused, saying the money was not enough.

A large oil palm plantation is to the east of the project area. The journalists also saw burned trees there. In 2015, Hartono told Mongabay that the concession should never have been awarded to the palm oil company, PT Persada Era Agro Kencana, because planting oil palm will involve draining the peat. The concession should have been prohibited under the moratorium agreed between Indonesia and Norway in 2011.

Hartono told Mongabay that,

“The impact of their land clearing will be very detrimental to us, because it’s one ecosystem. If they open land in a massive way, it will interfere with what we’re doing.
“In the short term, the impact will not be severe. But in the long term, the peat dome in the region will be affected, and there is potential for wildfire.”

Katingan’s counterfactual baseline

In order to issue carbon credits, REDD project developers have to create a story about how bad deforestation would have been in the absence of the project.

“The more deforestation they predict in their baseline, the greater the CO₂ gain they can claim and the more credits they can sell,” World Rainforest Movement’s Jutta Kill points out. “The entire revenue model is based on a story about the future that they themselves have devised.”

In the case of the Katingan project, the project description explains that,

The Katingan Project conserves a vast ecosystem of mostly intact peat swamp forest which would have been converted to industrial acacia plantations in the absence of the project.

Shell states that it will only buy carbon credits “that have been independently verified under recognised norms and standards”. The Katingan project is verified by Verra (previously called VCS).

When Dupont-Nivet asks Verra about the problem of the fires this year in the Katingan project area, Naomi Swickard, head of market development at Verra, explains that a percentage of the credits are held back, as a buffer for credits lost elsewhere.

“It’s like risk insurance. The project pays a ‘premium’, which goes into a buffer pool and which is again managed by us, the insurer.”

Dupont-Nivet asks whether Shell’s carbon credits will remain valid even if all of Shell’s “climate forest” goes up in smoke? “Correct,” Swickard replies. “We have done extensive analyses with scenarios and models to ensure robustness.”

“The companies that sell the credits may have insurance, the atmosphere does not,” WRM’s Jutta Kill responds. In well over a decade REDD has failed to reduce either the concentration of CO₂ in the atmosphere, or the rate of deforestation.

Kill says,

“I often hear that this system is better than nothing, but it’s worse than nothing. Companies present it as a first step and we applaud. But this is how we give them a license to keep extracting oil from the ground. Consumers continue to fly, continue to buy unnecessary items.”

Permian Global and the Luxembourg tax haven

In 2013, PT Rimba Makmur Utama entered into a partnership with a UK registered company called Permian Global, “to ensure the long-term financing” of the Katingan Project. Permian Global’s job is selling carbon credits and raising finance.

Gerry Elias, a managing partner at Permian Global tells Dupont-Nivet about satellite monitoring, and fire fighting in Indonesia. Unfortunately, he doesn’t go into detail about the corporate structure of Permian Global. Dupont-Nivet describes Permian Global as a “British company [that] develops projects for CO₂ storage in rain forests”. Which is true, as far as it goes.

But Permian Global is a little more complicated than that.

There are three companies registered in the UK with the words Permian Global in their names:

Permian Global Research Limited was registered as Permian Limited in January 2007. The name changed to Permian Capital Limited in April 2010, and to Permian Global Research Limited in February 2012. The company’s first director was Stephen Rumsey, an investment manager who worked at Barclays and Merrill Lynch before setting up his own company, European Credit Management Ltd.
Permian Global Advisers LLP was registered as Permian Investment Management LLP in May 2010. The name changed to Permian Global Advisers LLP in February 2012. Stephen Rumsey and David Moss are directors of the company. Moss is a corporate finance lawyer, who was previously a partner at Kingsley Napley.
Permian Global Finance Indonesia Limited was registered in June 2018. Stephen Rumsey is the sole director.

While all these companies have an address in London, that’s not where most of the financial action takes place.

On its website the company explains that the Permian Global Fund (the “Master Fund”) is domiciled in Luxembourg. “The Master Fund and respective feeders are intended to provide non-retail investors with an interest in a diverse portfolio of Permian Global projects.”

Permian Global has set up four companies in Luxembourg: Permian Global General Partner S.à r.l. (registered 2 February 2015); Permian Global Holdings S.à r.l. (registered 5 January 2017); Permian Global Management S.à r.l. (registered 16 February 2015); and Permian Global S.C.A, SICAV-SIF (registered 16 February 2015).

PHOTO credits: Narasi / SaveOurBorneo.