By Annawati van Paddenburg, Deputy Director/Head of Sustainable Landscapes, IPSD, GGGI
It is high time to prioritize peat! Good functioning healthy peatland ecosystems have been underrated in terms of the value they bring to mitigating climate change. The very first Global Peatlands Assessment: Smoke on Water – Countering global threats from peatlands loss and degradation launched at COP23 on November 15 aims to bring peatlands on the agenda at COP23. The Global Green Growth Institute (GGGI) has become a member to the Global Peatlands Initiative. Through the “Sustainable Landscapes” thematic area, we prioritize peatlands restoration. A focus on peatlands is crucial for inclusive continued economic development – green growth.
What are peatlands and why do we invest in them?
It’s just muddy soil, so why bother? Peat is simply plant material decaying very slowly. The waterlogged condition obstructs the influx of oxygen, constraining decomposition. It is one of nature’s most effective ways of taking carbon out of the atmosphere and storing it underground, which helps mitigate global warming. In fact, peatlands store twice as much carbon as all trees in the world’s forests—roughly 1,450 metric tons of carbon per hectare. Covering only 3 per cent of the Earth’s surface, they store over 30 percent of all soil carbon. Peatlands regulate water supply, reduce flood damage, and harbor many rare and endemic species, but when drained, which has been done to make way for forestry and agriculture – they become highly flammable and significant carbon emitters. They also become fire prone, releasing over 10 times more carbon than forest fires. We lose carbon sinks and emit a significant amount of CO2. Restoring peatlands will thus also avoid costs by reduced peat fires and ultimately loss of productivity. An earlier cost benefit analysis (extended CBA), done by GGGI, indicated that net benefits of peatlands restoration is USD 9.9bn versus USD480m if drained for mainstream forestry and agriculture.
How do we invest? GGGI’s Sustainable Landscapes approach
The question now is how do we protect and restore peatlands without hampering growth and impacting the millions of communities living in and around tropical peatlands? Government budget set aside for restoration alone won’t make the scale needed for peat restoration. What returns on investments can peatlands provide to attract investors? It’s risky business. Is there a magic bullet?
Together with the Government of Indonesia and local stakeholders, GGGI is developing solutions to restore peatlands while advancing economic activities. The recurring peat fires and ensuing haze issue has considerably impacted the Indonesian people and the broader SEA region, especially in very dry years, at least US$16 billion was estimated by the World Bank in 2015. President of Indonesia, Joko Widodo, took a bold step to established a national Peatland Restoration Agency, with a mandate to restore over 2 million hectares of degraded peatlands.
GGGI takes a landscape approach and aims to restore ecological integrity. Most lowland peatlands in Indonesia are dome shaped, are rain-water fed and function on basis of an intricate eco-hydrological balance. Any peatland management needs to cover the entire hydrological unit, not smaller! Restoring only a part of the dome while draining the rest will have no impact. In Kalimantan, we are focusing on a peat dome of around 100,000ha where we aim to build a landscape wide integrated business model with sustainable economic activities in the buffer and outer (use) zones of the peat landscape. With secured government commitment to protect and restore the core zones of peatland, this approach helps build investor confidence to channel capital towards such restoration projects.
Peat fires can be reduced by better management of peat forests, reducing toxic smoke and haze.
Investing in Paludiculture
Currently, all major commodity investments require drainage (e.g. oil palm plantations, acacia pulp-for-paper plantations) and there is practically no private capital flow for income-generating peatland restoration projects. Only a select number of commodities can be harvested on such ‘wet’ land. The production technique is known as paludiculture, using economically interesting species that are indigenous to peatlands, able to grow under wet acidic conditions. Unfortunately, risk is perceived as too high for any single investor (and for any single type of investor), as markets for paludiculture remain under developed and often overshadowed by larger traditional markets with known and well-developed value chains. The risks must be allocated to stakeholders who are in the best position to manage these risks, and that entails a blended finance approach to make such investments feasible. How do we do this?
How do we create markets, blend finance and catalyze private sector investment? An example.
To create an appropriate impact, all stakeholders need to collaborate and agree on a joint landscape-wide management and sustainable development approach. GGGI is assessing the risk-return profiles of these projects to design financial (and operational) structures which can increase participation from private investors by limiting their risk exposure. We assess suitable commodities; single crop or mixed agro-forestry, bio-based products useful to boost the bio-economy etc. In the process of building a pipeline of such commodities within the restoration project, we assess the risk/return profile of these investments and design financial and operational structures which can increase participation from private investors by limiting their risk exposure.
Gelam, a lucrative species on peat is one example. It provides timber and other products eg. charcoal, oils for pharmaceuticals/cosmetics and honey production. Gelam flowers all year round. A joint venture between investors and communities to manage market linkages and farming operations can produce and sell a range of products derived from gelam. Current prices paid for Gelam poles and sawn timber indicate that more income (and value) can be generated with better supply chain integration and market linkages. To reduce risk on investment, we need to think of scale right from the start, government plays a key role here through policy and regulation: include gelam in district and provincial land-use plans and have it recognized in FMU and village forest plans, build in incentives to nourish the markets. Producers and collectors need to build capacity in harvesting techniques, business management to establish and manage fair cooperatives and contracts with off-take companies as well as to access finance for enterprise development (e.g. boats, trucks and enterprise structures). Off-taker private companies require reliable supply and for bankability and scalability, the project needs to be centered around long term, high quality purchasing agreements. Targeting financing structures (and instruments) in the form of guarantee schemes, concessional credit lines, corporate partnerships, extension services to farmers and communities etc. are part of the solution to address risks that currently prevent high risk projects from attracting capital flows. Different financiers and investors can take on different risk allocations.
Finding solutions to restore degraded peatlands
Private sector could step up and explore these opportunities and become pioneers while government plays a key role in creating incentives to advance markets and financial institutions take on sustainable investments in their portfolio. With the right enabling environment, these projects can be bundled at jurisdictional level resulting in greater sizes of investments and enhanced private finance flows.
I believe, this economic-activity-led restoration approach could provide the much required long-term sustainability and create positive results for all. GGGI has contributed to the Smoke on Water – Countering global threats from peatlands loss and degradation Report where we highlight this very point. We need to find the right investment solutions, together. The road ahead may be steep but if we stick to it and collaborate, there is a bright light at the end of the tunnel.
GGGI support emerging and developing countries in fostering inclusive and sustainable economic growth across many sectors, and aims to drive economic growth while simultaneously meeting climate and development goals. It focuses on four global thematic areas: Energy, Cities, Water and Sanitation and Sustainable Landscapes. Forest and peatlands are covered under the Sustainable Landscapes Thematic Area.
The Global Peatlands Initiative (GPI), an effort by leading experts and institutions, hosted by UN Environment. The GPI partners, including Indonesia, Peru and the Republic of Congo collaborate to improve the conservation, restoration and sustainable management of peatlands.