Indonesia halts carbon project verification process over legal concerns

The Indonesian Ministry of Environment and Forestry has ordered a halt to the validation process of carbon projects located in the country's Sumatra and Kalimantan regions claiming that their verification processes are not aligned with Indonesian law, the government said.

On April 11, the ministry's Sustainable Forest Management issued a statement saying that the decision was in response to a validation report posted on Verra's website related to the Riau Ecosystem Restoration carbon project, a private-sector initiative for the restoration and conservation of ecologically important areas in Indonesia's Kampar Peninsula and Padang Island in Sumatra.

The restoration project is run by the Singaporean-based paper manufacturer APRIL with support from the non-governmental organizations BIDARA, Fauna & Flora International and Laskar Alam. Together, the organizations are responsible for more than 370,000 acres of peat swamp forest for a 60-year period.

But government officials are now intervening in the project's effort to be certified by Verra, an international registry that issues tradable carbon credits to certified carbon reduction projects.

Agus Justianto, director general of the Sustainable Forest Management, said he ordered the companies to discontinue the validation process in March, explaining that the companies unilaterally claimed that the project documents complied with Indonesian law without consulting the agency.

"We have carried out an evaluation and our position is that the substance of the RER carbon project report is still not in accordance with the applicable laws and regulations," he said in a statement, adding that the project needs to adhere to forestry regulations within Presidential Regulation No. 98, a 2021 law passed by the president ahead of the COP26 Conference in Glasgow.

Justianto said his agency is charged with thoroughly and consistently evaluating every step of carbon-related projects to prevent double counting.

"If Indonesia misses its [nationally determined contributions] target due to double counting, it will cause both us and the world enormous difficulties," he said. "It would mean that efforts to maintain the earth's temperature are being manipulated. Under Indonesian law, taking something from the country's forests by violating the rules is illegal. If we play around with this and take it lightly, it could lead to disaster."

He did not indicate if or when the validation process may resume.

The assessed price of nature-based carbon credits -- a basket assessment that reflects credit prices issued by forestry, farming, and land management projects -- was $11.40/mt of CO2e as of April 14, according to S&P Global Commodity Insights. The price has been steadily climbing since it fell from a January peak of $16/mt.

Lack of clarity

Presidential Regulation No. 98 of 2021 created tools the government can use to meet its climate goals, like setting up emissions caps, a carbon tax and a national carbon registry called the SRN PPI. But the implementation of this law has created uncertainty for carbon project developers.

Some market participants are seeking clarification over which types of projects will require permission from the government. Others have signaled concern over how the law might impact developer and buyer confidence.

The Riau Ecosystem Restoration is not the only project that has been snagged by regulatory delays. South Pole, a global developer of carbon projects, said earlier this month that its verification process had been placed on hold as Verra clarified the new regulation with the Indonesian government.

"The only thing that project developers, such as South Pole, are encouraged to do is to report the project status and credits in the SRN. Once the regulation is clear, voluntary carbon projects should be able to move ahead again," said South Pole.