Contents

Part 1: Introduction 05

Part 2: Palm Oil and its Competitors: Market Realities 08

Palm Oil and its Competitors: Market Realities 09

1. The evolution of the areas planted to grain and oil crops worldwide

2. The growth in the areas under grain and oil crops worldwide

3. The growth in the areas under the four main oil crops worldwide

4. Patterns of land ownership for different oil crops

5. A comparison of yields of oil crops per hectare

6. The land requirements to meet the demand for vegetable oils to 2025

7. Other aspects of the choice between oil palm and other oil crops

Conclusions 14

Part 3: Setting the Context 15

The HCS+ Narrative 16

Section 1: Climate Change, Deforestation and the Palm Oil 17 Industry

Section 2: Addressing Poverty, Protecting Forests: Managing the 24 Trade-Offs

Part 4: Independent Report from the Technical Committee 29 Extended Summary

Section 1: The Conceptual Basis for HCS+ Methodology 30

Section 2: The Role of Mapping and Remote Sensing in HCS+ 32 Methodology

2.1 Mapping above-ground carbon

2.2 Mapping vegetation and land use in the concession and adjacent areas using high-resolution optical satellite data

2.3 Mapping peatlands and other organic soils Part 4: Independent Report from the Technical Committee 29 Extended Summary

Section 3: HCS+ Methodology for Estimating Carbon Stocks and 33 Achieving Carbon Neutral Development

3.1 Forests and carbon

3.2 Defining carbon thresholds

3.3 Applying the carbon thresholds

3.4 Achieving carbon neutral development

Section 4: Ensuring Positive Socio-Economic Outcomes 36

Section 5: The HCS+ Socio-Economic Methodology 36

Section 6: Implementing HCS+ to Support the Sustainable 38 Development of Oil Palm

Section 7: Convergence with the HCS Approach 40

Section 8: Key Conclusions and Recommendations 40

Part 5: Sustainable Palm Oil Manifesto Signatories’ Response to the 43 High Carbon Stock Science Study

Part 6: Convergence with the HCS Approach 47 Part 1: Introduction Part 1: Introduction

Introduction

Context: The palm oil industry The Sustainable Palm Oil Manifesto proposes to enhance the RSPO Principles and Criteria (P&Cs) with three specific The palm oil industry provides jobs and livelihoods to millions objectives: of people, and makes a major contribution to the economies of many countries, particularly Indonesia and Malaysia. • To build traceable and transparent supply chains; However, the industry is not without its controversies. • To accelerate the journey to ‘no deforestation’ through The oil palm itself thrives in the tropics, about 10 degrees the conservation of High Carbon Stock forests and the North and South of the Equator, which is exactly the same protection of peat areas regardless of depth; and zone where the world’s tropical rainforests are found. In the past, many oil palm plantations were established on • To increase the focus on driving beneficial economic agriculture land that was cleared a long time ago, while others change, and to ensure a positive social impact on people were established at the expense of rainforest and peatlands. and communities. The felling of trees and the draining of peatlands to establish new plantations has resulted in huge amounts of carbon To meet the objectives of the Sustainable Palm Oil Manifesto, dioxide being released into the atmosphere, accelerating the Signatories have made the following commitments: climate change. Unsustainable practices by some players in the palm oil industry have also impacted local communities, No deforestation depriving them of their lands and livelihoods. • No development of High Conservation Value (HCV) Over the last decade or more, many palm oil companies have areas and areas classified as HCS forests once defined; taken significant steps to reduce their environmental and social impacts. Stringent industry regulations and responsible • In the interim, fully implement RSPO Criterion 7.8; business best practices provide lasting solutions to these • Commit to zero burning; problems. • Progressively reduce GHG emissions; and Palm oil is one of the few vegetable oils in the market with • Adhere to all relevant national legislations and RSPO a crop-specific sustainable certification standard, managed Principles & Criteria, or equivalent certification. through the Roundtable on Sustainable Palm Oil (RSPO). The RSPO is a global, multi-stakeholder initiative that aims to Protect peat areas promote the sustainable production and use of sustainable palm oil products. • No new development on peat lands, regardless of depth; In recent years, many companies have deepened their commitment to sustainable palm oil through pledges to • Commit to applying Best Management Practices in eliminate deforestation from their supply chains. To achieve existing plantations on peat lands; and this, companies have committed to move away from • Rehabilitate unsuitable replanting areas for alternative converting forests which are high in carbon, or sourcing from uses. companies that do so. Drive positive socio-economic impact for people and communities About the Sustainable Palm Oil Manifesto • Respect and support the Universal Declaration of The Sustainable Palm Oil Manifesto is a high-level initiative Human Rights; signed up to by a group of leading businesses in the palm oil industry. Its principal purpose is to set higher standards • Recognise the rights of all workers, including contract, for sustainability across the supply chain. It is an important temporary and migrant workers; step that the key players in the industry have taken, to set • Facilitate the inclusion of smallholders into the supply the direction for sustainable agriculture. The current group chain; of Signatories are Apical, Asian Agri, Cargill, IOI Corporation Berhad, Kuala Lumpur Kepong Berhad, Musim Mas Group, • Respect land tenure rights; Sime Darby Plantation and Unilever. • Respect the rights of indigenous and local communities; and • Transparently work with all parties to resolve verifiable complaints and conflicts.

06 High Carbon Stock Science Study Part 1: Introduction

About the High Carbon Stock Science Study The fully independent HCS Science Study commenced on November 2014, and concluded in December 2015. The High Carbon Stock (HCS) Science Study is one of the key commitments in the Sustainable Palm Oil Manifesto. The For purposes of clarification, the total output from this study has a geographical focus on Southeast Asia and West initiative comprises: and Central Africa, and it provides: 1. The Overview Report • Carbon thresholds to define HCS forests. These This includes two context-setting papers (from Jonathon forests should not be converted because they contain Porritt and James Fry), the Extended Summary of the high carbon stocks, as well as other important forest Technical Committee’s Independent Report, and the response values that may not have been included in the High from the Signatories to the Sustainable Palm Oil Manifesto to Conservation Value (HCV) initiative, which focuses only that Report. on HCVs of ‘outstanding’ value; • Guidance on how to make reliable estimates of carbon 2. The Independent Report from the Technical Committee emissions from land conversion, and how to achieve This is made up of the full length Report itself, an Executive carbon neutral development; and Summary, and the case study conducted in Gabon. • Guidance on how to enhance the protection of human rights and to generate socio-economic benefits. 3. Research Reports The 17 commissioned research reports have all been The following chapters elaborate further on these three areas. published separately.

Who we are

A Steering Committee, independently co-chaired by Founder Director of Forum for the Future, Sir Jonathon Porritt, and former Chief Research Scientist from Australia’s Commonwealth Scientific and Industrial Research Organisation (CSIRO), Dr John Raison, was established to oversee the HCS Science Study.

Members of the Steering Committee represent key players in the palm oil value chain which includes the Signatories to the Sustainable Palm Oil Manifesto, as well as Wilmar. They are joined by independent economic advisor for the agribusiness sector, Dr James Fry, Chairman of LMC International, who lends his expertise in international commodities to the process.

Observers to this process include the Roundtable on Sustainable Palm Oil (RSPO), IDH, The Sustainable Trade Initiative, Neste, Olam, the Malaysian Palm Oil Board (MPOB), the Indonesian Palm Oil Association (GAPKI), Global Environment Centre (GEC), Proforest, the Indonesian Oil Palm Research Institute (IOPRI) and the Zoological Society of London (ZSL), who all actively contribute to ensuring a transparent, objective and holistic approach.

The Study itself was designed and overseen by a Technical Committee, chaired by Dr John Raison, and made up of Dr Jerome Chave, Dr Hans Joosten, Dr Florian Siegert, Peter Navratil, Dr Ruth DeFries, Dr Philippa Atkinson, and Goh Kah Joo.

50 scientific experts were involved in 17 different projects commissioned as part of the Study. They provided global experience in the estimation of changes in soil and biomass carbon stocks, the use of remote sensing to support estimation of greenhouse gas (GHG) fluxes, and assessment of the socio-economic impacts of new plantation development. Together, their work has been reported as a set of independent and publicly available reports, and has fed into the development of the Synthesis Report.

High Carbon Stock Science Study 07 Part 2: Palm Oil and its Competitors Market realities

James Fry LMC International Part 2: Palm oil and its competitors Market realities

Palm Oil and its Competitors: Market Realities

1. The evolution of the areas planted to grain Diagram 1: Total areas under grain and oil crops, 1981-2013. and oil crops worldwide 760760 310310

This paper analyses the pressures upon agricultural land, 740740 290290 Oil Area, Crop million hectares in general, and the land planted to the two most important Oil Crop Area, million hectares groups of arable crops, grains and oilseeds, in particular. It will 720720 270270 reveal that the area planted to oil crops has grown steadily 700700 250250 for decades, even before the emergence of biofuel demand. The largest area under these crops and the greatest absolute 680680 230230 increases in areas occurred in soybeans, notably in South 660660 210210

America. Rapeseed and sunflower recorded the second and million hectares Area, Grain 640640 190190

third largest areas, and second and third largest absolute hectares million Grain Area, increases in areas, with oil palm in last place among the four 620620 170170 main oil crops in terms of area and area growth. 600600 150150 1981 1985 1989 1993 1997 2001 2005 2009 2013 Grains Oil CropsCrops 2. The growth in the areas under grain and oil crops worldwide

Diagram 2: Average yield growth of grains and oil crops First, however, the paper will set the scene by describing worldwide. the contrast between the trends in grain and oil crop areas worldwide, using data from the UN FAO and USDA. 2.25%

2.00%

1.75% • Diagram 1 reveals that the total area planted to grains decreased by almost 10% between 1981 1.50% and 2002, as their average yields grew faster 1.25% than demand. The lost area has been brought 1.00% back into grain cultivation in the period since 2002. 0.75%

0.50% • From 1981 to 2013, the oil crop area rose % Annual yields worldwide growth 0.25% almost uninterruptedly. By coincidence, from % Annual growth in yields worldwide 0.25% 1981 to 2002, the increase in oilseed areas 0.00% exactly matched the decline in grain areas. This 1981-2001 2001-2013 1981-2013 Grains Oil Crops Total meant that rising world demand for the two classes of crops occupying the largest overall areas was satisfied for 20 years without any increase in the total area farmed. 3. The growth in the areas under the four main oil crops worldwide • It should be noted that the fall in the total grains area until 2002 was not due to better Focusing upon the trends within the oil crop sector, which yield growth for grains than that of the oil includes oil palm, one observes that palm accounts for only a crops. Diagram 2 demonstrates that yield small proportion of the overall area. Diagram 3 describes the growth for oil crops has actually been higher growth in crop areas, while Diagram 4 compares the annual than that for grains since 1981. Since 2002, growth in areas over recent decades. Soybeans dominate the the situation has been transformed. The growth in oil crop areas, with rapeseed in second place, well combined areas under these two classes behind. of crops have expanded by over 10 million hectares a year. This outcome may appear to be inconsistent with the evidence in Diagram 5 that the growth in world demand for oils has outstripped that for oilseed meals, with both growing slightly faster than world GDP. The divergence in growth rates of oils and meals is most evident after 2002, which was when biofuel demand for oils started to emerge on a large scale.

High Carbon Stock Science Study 09 Part 2: Palm oil and its competitors Market realities

• The apparent inconsistency between higher demand growth for oil than meals, and much higher area increases for annual oilseed crops than for oil palm, arises because, as Diagram 6 indicates, soybeans, when processed, produce over 80% meal, and rapeseed and sunflower produce around 60% of their processed output as meal.

• Only oil palm, with only 13% of its output as meal (from palm kernel meal), is viewed as a true oil crop, with the meal a minor by-product. The surge in biofuel output created higher demand for oils, without a corresponding rise in the demand for meals.

• This does not mean that the biofuel demand was met mainly from palm oil. Instead, as other oils were diverted to biofuel use, palm oil filed the gap left in supplies of food oils.

• The main reason for the relatively small area of the palm sector is its high yields of oil per hectare. Diagram 7 reveals that whereas oil palm, on average, yields almost 3.5 tonnes of oil per hectare worldwide, soybeans yield under 0.5 tonnes of oil per hectare.

• Diagram 8 illustrates this advantage of oil palm in another way, by comparing the number of hectares of each oil crop needed, on average, to yield one tonne of oil.

Diagram 3: Worldwide areas under oil crops, 1981-2013. Diagram 4: Annual growth in areas under oil crops, 1981-2013.

120120 4.04.0

3.53.5 100100 3.03.0

8080 2.52.5

2.0 6060 2.0

Million hectares Million 1.51.5

Million hectares Million 4040 1.01.0

2020 0.50.5 Annual area change, million hectares change, area Annual Annual area change, million hectares 0.00.0 00 1961 19711971 19811981 19911991 20012001 20112011 -0.5-0.5 Soybeans Sunflower Rapeseed Oil Palmpalm 1981-19911981-1991 1991-2001 2001-20112001-2011 2011-20132011-2013 Soybean Rapeseed Sunflower Oil Palm

Diagram 5: World GDP, vegetable oil and oilseed meal Diagram 6: Oil and meal composition of leading oil crops. production, 1972-2014.

350 175175 100% Oil (million tonnes) and GDP (as index)

Oil (million tonnes) and GDP tonnes)index) (as and Oil (million 90% 300 150150 80%

250 125125 70%

60% 200 100100 50% 150 7575 40%

100 5050 30% 20%

25 Oil and protein meal shares in output 50 25 in output meal shares and protein Oil Meal (million tonnes,soymeal equivalent) tonnes,soymeal (million Meal 10% Meal (million tonnes, soymeal equivalent) 0 00 0% 1972 1978 19841984 19901990 19961996 20022002 20082008 20142014 SoybeanSoybean RapeseedRapeseed SunflowerSunflower Oil palm Meals Oils Real WorldWorld GDP, GDP, as as Index Index Oil content Meal content

10 High Carbon Stock Science Study Part 2: Palm oil and its competitors Market realities

4. Patterns of land ownership for different oil crops Diagram 7: World average oil and meal yields per hectare of leading oil crops. The different oil crops differ significantly, both across crops and across countries within the same crop, in their patterns 3.5 of land ownership. The smallholder share of oil palm areas 3.0 in Malaysia and Indonesia is in the region of 40-45%. In Thailand, the world’s third largest palm oil producer, there are 2.5 very few estates, and therefore the share of oil palm areas farmed by smallholders is over 90%. The same is true of 2.0 Africa, if wild groves of palms scattered throughout the region 1.5 are included in the area. 1.0 Oilseeds harvested annually (unlike the oil palm) are almost

Average world yields, tonnes per hectare per yields, tonnes world Average 0.5 entirely grown on family-owned farms, on which the oil Averageworld yields,per tonnes hectare crops are cultivated in a rotation system, where oil crops are 0.0 followed by grains on the same plot of land to prevent a build- Soybean Rapeseed SunflowerSunflower Oil palm up of pests and diseases. Most family owned farms are very Oil yield Meal yield small by the standards of palm plantations, but some sizeable, highly mechanised family farms are emerging in oil crops in countries where land ownership laws make it possible for Diagram 8: World average hectares per tonne of oil and meal individuals to own large blocks of land. Therefore, farms of of leading oil crops. over 1,000 hectares in size are starting to be found in parts 2.25 of western Brazil, the US and Canada, and also in Ukraine and 2.25 Russia. 2.00

1.75 These contrasting patterns of land ownership inevitably affect the socio-economic impact of oil crop farming. On plantations, 1.50 profits accrue to the estate owner, who often also owns the 1.25 mill that processes the crop. On smallholdings, the farmer/ 1.00 owner benefits directly from the profitability of the crop. Therefore, at times of good returns to oil crops, the benefits 0.75 accrue to families, rather than large corporations. 0.50 Hectares/tonne of product, world average world product, of Hectares/tonne Hectares/tonne product, of world average 0.25

5. A comparison of yields of oil crops per hectare 0.00 SoybeanSoybean RapeseedRapeseedRapeseed SunflowerSunflower OilOil palmpalm Oil Meal Diagrams 7 and 8 compare average world yields of oil crops. Being a global figure, oil palm yields (of crude palm oil plus palm kernel oil output per hectare) are reduced by the low productivity of areas in Africa, which is caused by very low Diagram 9: Extrapolating past trends in the growth in global input use on wild groves, poor variety selection and a long areas under oil crops to 2025. dry season. Low yields inevitably affect socio-economic 150150 assessments of palm projects in Africa. 135135

120120 6. The land requirements to meet the demand for 105105 vegetable oils to 2025 9090 In this section, an analysis is presented of the implications for 7575 land use of projections of oil crop output to 2025. First, the hectares Million 6060 Million hectares Million impact is depicted in Diagram 9 of extrapolating past trends in 4545 oil crop areas, assuming simply a continuation of past demand 3030 and yield growth rates. 1515

00 2013 2015 20172017 2019 20212021 20232023 20252025 Soybeans Sunflower RapeseedRapeseed Oil palmPalm

High Carbon Stock Science Study 11 Part 2: Palm oil and its competitors Market realities

Diagram 10: Implications if palm oil output remained at 2013 levels and soybeans alone supplied the oil that would • On past trends, 73 million hectares of oil crops otherwise have been supplied as palm oil. would be added. 36 million would be soybeans,

22 million rapeseed, 11 million oil palm, and 4 240 million hectares sunflower.

200 • Diagrams 10-12 illustrate the implications for the area that would need to be brought into 160 cultivation at actual 2013 yields to meet rising oil demand if no increase occurred in the palm area, 120 keeping it at 17 million hectares, rather than 28

Million hectares Million 80 million on trend. hectares Million

• If all the forgone palm oil were replaced with 40 soybean oil, an additional 85 million hectares of soybeans would be needed, on top of the 00 20132013 20152015 20172017 20192019 20212021 20232023 20252025 36 million simply following trend. This implies a Soybean trend trend Without extra oil palmpalm ExtraExtra area neededneeded soybean area of 232 million hectares in 2025, up from 111 million in 2013.

• If, instead, rapeseed oil replaced the lost palm oil, Diagram 11: Implications if palm oil output remained at an additional 50 million hectares of rapeseeds 2013 levels and rapeseeds alone supplied the oil that would would be needed, on top of the 22 million simply otherwise have been supplied as palm oil. following trend. The area of rapeseed in 2025 would be 109 million hectares, three times the 36 110110 million in 2013. 100100 9090 • If sunflower alone filled the gap, an additional 57 8080 million hectares of sunflowers would be needed, 7070 on top of the 4 million, following past trends. The 6060 total sunflower area in 2025 would be 87 million 5050 Million hectares Million hectares in 2025, almost 3 ½ times the 26 million 4040 Million hectares Million in 2013. 3030

2020 • Neither the rapeseed nor sunflower area growth 1010 figures are at all achievable. Quite apart from 00 the availability of suitable land, an insuperable 2013 20152015 20172017 20192019 2021 20232023 20252025 constraint is the limit upon replanting these crops Rapeseed trend trend Without extraextra oil palm Extra area neededneeded too frequently in a crop rotation to avoid pests and diseases. Diagram 12: Implications if palm oil output remained at • The soybean area growth is less absurd, though 2013 levels and sunflower alone supplied the oil that would selling 363 million tonnes of co-product soymeal otherwise have been supplied as palm oil. on top of normal growth would not be easy. (A separate paper looking at this issue can be found 9090 on LMC International’s website www.lmc.co.uk.) 8080

7070

6060

5050

4040

3030 Million hectares Million Million hectares Million

2020

1010

00 20132013 2015 2017 2019 2021 20232023 20252025 Sunflower trendtrend Without extra oil palm Extra areaarea neededneeded

12 High Carbon Stock Science Study Part 2: Palm oil and its competitors Market realities

7. Other aspects of the choice between oil palm and Diagram 13: Hours of work produce one tonne of vegetable other oil crops oil in the late 2000s.

Mention has been made earlier of the agronomic constraints 9090 upon the farmers’ ability to expand the areas planted to 8080 rapeseed and sunflower crops in the regions that currently 7070 grow these crops. These crops have to be grown in rotations with other crops to limit the build-up of pests and diseases. 6060 5050

Expanding their planted areas would therefore require 4040 production to move to areas that are either less suitable for 30 their cultivation or where other crops enjoy a comparative 30

Hours of work per tonne of oil of tonne per work of Hours 2020 advantage. It is not possible to know the environmental Hours perof oil tonnework of impact of moving to such areas, but what is certain is that 1010 significant areas would need to be added if oil palm is to 00 be avoided. The environmental impact per hectare would USAUSA ArgentineArgentine ArgentineArgentine UK MalaysianMalaysian IndonesianIndonesian consequently have to be multiplied by a large factor when SoybeanSoybean SoybeanSoybean SunflowerSunflower RapeseedRapeseed OilOil Palm Palm Oil Palm making the comparison with the impact from increasing oil palm areas to achieve the same output of oils. This is a mixed blessing; the high labour intensity of oil palm A further point to note when making comparisons between production generates sizeable socio-economic benefits crops grown in different locations is that land with a low through the creation of employment in rural areas. Against carbon stock may not be economically viable if planted to oil this, rising wages in the main regions of oil palm production crops. Low rainfall or poor soils may be the reason for the low threaten the long term competitiveness of palm oil carbon stock, and the yields obtainable from oil palm might production, unless significant breakthroughs can be made in also be low. If so, not only may such land be unattractive mechanisation. to oil palm farmers, but also the low yields would require larger areas to be planted to produce a given level of output, thereby increasing the total carbon stock of converted land, expressed per tonne of palm oil.

An important consideration in a few important end-use markets for palm oil, such as Europe, is consumers’ attitude towards genetically modified (GM) crops. One clear benefit for GM crop producers is that the two GM oilseed crops, soybeans and rapeseed, have enjoyed a significant reduction in input use and production costs Set against this is he hostility of end-users in places such as Europe to the purchase of food products containing oils made from GM crops.

As a result of this hostility, very little soybean or imported rapeseed oil (both obtained from GM crops) is used in food in Europe. This favours the use of palm oil, since EU consumers are not ready to increase their imports of the next two most important sources of vegetable oils.

Meanwhile, in the background, the ease of increasing mechanisation in the cultivation of annual oilseed crops contrasts with the difficulty of mechanising oil palm harvesting. This has resulted in a very sharp contrast between oil palm and other oilseeds in their annual output of vegetable oil per full year (2,000 hours) of labour time in the period.

Diagram 13 compares the number of hours of work needed to produce one tonne of oil for different crops and countries in 2006-2008. Although less than 20% of the output from crushing soybeans is oil, farmers and crushers in the US needed only a total of 4.1 hours of labour to produce one tonne of soybean oil, while Malaysian palm producers had to work for 62.0 hours and Indonesian producers for 88.4 hours.

High Carbon Stock Science Study 13 Part 2: Palm oil and its competitors Market realities

Conclusions

• The demand for oils since 2000 has consistently grown so strongly that, despite yield increases, more land (around 5 million hectares) has been planted to oil crops each year.

• Soybeans have accounted for much of the largest increase in areas of the four main oil crops. Currently, they account for 59% of the total area, followed by rapeseed (19%), and sunflower (13%), with oil palm in last place, occupying only 9% of the total area.

• Extrapolation of past trends would still leave palm occupying less land than the other three crops in 2025. Total 2013-2025 increases in area would be 36 million hectares for soybean, 22 million for rapeseed, 4 million for sunflower, and 11 million for oil palm.

• If, instead, oil palm areas and output are fixed at 2013 levels, the others would have to make exceptional increases in their areas to replace the missing palm product output. An indication of the task in the absence of actions to limit demand for oils is that:

>> If the lost palm output were to be made up solely from extra soybeans, the soybean area would have to rise from 111 million hectares in 2013 to 232 million in 2025. >> If rapeseeds fill the breach, its area would have to rise from 36 to 109 million hectares. >> For sunflower on its own, the area would have to rise from 26 to 87 million hectares.

• The least unrealistic option agronomically would be to turn to soybeans, if the extra meal could be sold without slashing farmers’ prices. However, the evidence from South America is that major soybean expansion would cause significant environmental impacts.

• Oil palm cannot be viewed in isolation in this context. If oil palm areas are not developed to continue to meet a major share of the projected growth in world vegetable oil demand, there would be a significant environmental impact caused by the increased areas that would have to be planted to annual oil crops.

14 High Carbon Stock Science Study Part 3: Setting the Context

Jonathon Porritt

Jonathon Porritt is the Co-Chair of the Steering Committee for the High Carbon Stock Science Study. He is a Founder Director of Forum for the Future, which has an ongoing partnership with Sime Darby, one of the largest palm oil companies in the world, and is the independent Sustainability Advisor to the Board of Sime Darby.

This paper has been consulted on with members of both the Steering Committee and the Technical Committee, as well as a wide range of experts. Final accountability for the contents of this section of the Report rests entirely with the author. Part 3: Setting the Context

The HCS+ Narrative

We are recommending that a new development model for the palm oil industry should be phased in over the next three years based on:

• The full and rigorous implementation of existing standards (RSPO etc) and processes (e.g. Free Prior and Informed Consent);

• A stronger Social Contract to share the value created by companies more equitably with local communities, employees and smallholders;

• A carbon neutral approach to all new oil palm development after application of a strict threshold defining High Carbon Stock forest;

• A clear commitment to multi-stakeholder planning, and more transparent governance processes based on consistent Monitoring, Reporting and Verification; and

• The active and ongoing protection of all forest set-asides, either HCV forest or HCS forest; within an integrated sustainable development framework.

In other words, HCS+ is all about a development model that minimises deforestation through equitable, transparent, conflict-free and carbon neutral oil palm development.

16 High Carbon Stock Science Study Part 3: Setting the Context

Section 1: Climate Change, Deforestation and the Palm Oil Industry

In September this year, the UN General Assembly signed The High Carbon Stock Science Study is about the balance of off on a set of Sustainable Development Goals (SDGs), to the economic, social and environmental issues as they relate take forward the progress achieved through the Millennium to the palm oil industry. More particularly, it’s about reducing Development Goals between 2000 and 2015. Of the 17 the emission of greenhouse gases from the conversion of Global Goals, ten are directly relevant to this Study: forested land to oil palm (and the impact of that land use change both on the climate and on the ecosystem services Goal 1: End poverty in all its forms everywhere that forests provide), and ensuring the most favourable social and economic benefits that the industry can generate. This is Goal 2: End hunger, achieve food security and improved a challenging area in which there are no easy answers. nutrition and promote sustainable agriculture The primary focus of this Study is on the future expansion Goal 3: Ensure healthy lives and promote well-being for all at of the industry. But to arrive at a set of practical, consensus- all ages based recommendations, it has obviously been necessary to review the evidence available both about the industry’s record Goal 8: Promote inclusive and sustainable economic growth, (in terms of that balancing act referred to above) and its employment and decent work for all current performance.

Goal 9: Build resilient infrastructure, promote sustainable Historically, over a period of roughly 50 years, considerable industrialisation and foster innovation wealth has been created through the conversion to oil palm of millions of hectares of rainforest in both Malaysia and Goal 10: Reduce inequality within and among countries Indonesia. The relative prosperity of both countries today is due in no small part to this industry. Goal 12: Ensure sustainable consumption and production patterns But it came at a cost – as the industry itself recognises – both in terms of the significant environmental impact of those Goal 13: Take urgent action to combat climate change and its millions of hectares in Malaysia and Indonesia being cleared impacts for development, and in terms of some indisputably negative impacts on local communities and indigenous people. Goal 15: Sustainably manage forests, combat desertification, halt and reverse land degradation, halt biodiversity Such an ambiguous record is uncomfortable, but little loss is served by ignoring the dark side, from an historical perspective, of an industry that is understandably proud of Goal 17: Revitalise the global partnership for sustainable the massive contribution it has made to the economic success development of both nations. And pretty much the same picture emerges in all other countries where the palm oil industry has played a At the heart of the SDGs initiative is the idea that all such significant role. goals need to be pursued in an integrated and mutually reinforcing way. Ideally, there should be no trade-offs; work The most dramatic period of growth for oil palm occurred done on delivering one Goal should not be achieved at the between 1990 and 2010. According to the Food and expense of progress on any of the other Goals. (Raison et al, Agriculture Organization, the area under oil palm increased 2015.1) from around six million hectares to just over 16 million hectares during that time, primarily in Indonesia and Malaysia. The palm oil industry today is as familiar with that idea of sustainable development as any industry in the world, starting This was also a period of accelerating deforestation. However, with the operations of Felda in Malaysia back in the 1960s, defining the relationship between the two (ie what percentage and over the years, a huge amount of research has been done of the deforestation in those two countries was caused on improving both the environmental and social performance by new oil palm plantations) is much harder than might be of the industry. More recently, it’s had reason to ramp up imagined. There doesn’t seem to be a clear consensus on those endeavours as a consequence of responding to the tide the data for oil palm hectarage, levels of deforestation, and of controversy in which it’s been engulfed for the last 15 years associated CO2 emissions. In all cases, researchers concede or more. that quality and accuracy of data are lacking.

1 Raison, John, et al, ‘HCS+: A New Pathway to Sustainable Oil Palm Development’ (2015)

High Carbon Stock Science Study 17 Part 3: Setting the Context

A study done for the Roundtable on Sustainable Palm Oil’s (RSPO’s) Greenhouse Gas Working Group in 2013 (by Gunarso et al2) looked at the 9.7 million hectares of new oil palm The palm oil industry today development in Indonesia, Malaysia and Papua New Guinea, between 1990 and 2010, and estimated that 36.5% of that • Around 20% (amounting to around 11.75 million area came from the conversion of forest, another 36.5% from tonnes) of global palm oil production originates land already in agricultural use, and 17.9% from grassland. with Members of the RSPO. As of August 2015, These are obviously significant figures, but what that amounts that equated to around 2.65 million hectares of to is approximately 180,000 hectares of forest converted certified oil palm, which is roughly 16% of the into oil palm every year, a relatively small percentage of the total of 16 million hectares in production. Only estimated 8.5 million hectares of forest lost every year through half of that 20% is actually sold as Certified deforestation and degradation. (See Page 20.) Sustainable Palm Oil.

Another study looking at drivers of deforestation in Indonesia • A further 5% of global palm oil is certified under between 2000 and 2010 showed that oil palm accounted the ISPO (the Indonesian Sustainable Palm Oil for roughly one million hectares (around 23%) out of the 4.7 initiative). million hectares lost – with the rest accounted for by logging and conversion to plantation forestry (Abood et al 2014). On • Much of the campaigning work around the other hand, another well-known study done by Stanford sustainable palm oil has been focussed on and Yale Universities (published in Nature3) assessed the loss those companies involved in the RSPO and attributable to new oil palm plantations in Indonesia at that the ISPO. But that still leaves around 75% of time at around 57%! global production that is not covered by any certification scheme. It’s this kind of uncertainty in the historical data that makes it so difficult to establish a consensus position. Estimates of the • Total global production in 2014 amounted total annual contribution of the palm oil industry to emissions to 59.3 million tonnes. Around 75% of that of greenhouse gases are also notoriously elusive. Even those is traded internationally, and the rest is used that are stated with some degree of confidence (as in the for domestic consumption, primarily for food claim from the Malaysian Palm Oil Council that the industry production and the manufacture of soaps and contributed just 0.08% of global greenhouse gas emissions in cosmetics. Only a small percentage is currently 20104) have proved difficult to substantiate. used for biofuels, but many commentators believe that figure could increase significantly But one thing is clear: this is an industry that started out on over the next few years. a journey of reform more than 15 years ago. The RSPO was formed in 2004, and has made significant progress since then • Of the area under oil palm in Indonesia and in negotiating a wide range of improved practices through the Malaysia, approximately 60% is plantation, while adoption of its certification scheme. The work that’s been done 40% belongs to smallholders either linked to on defining High Carbon Stock forests through this Study, those plantations or producing independently. and through other initiatives (including the High Carbon Stock It’s more or less the same in Papua New Guinea, Approach and the RSPO’s own Emission Reduction Working while countries like Thailand and Nigeria have Group) builds on those foundations; it would be impossible much higher percentages of smallholders. to make substantive progress on the HCS challenge without all the work that has already been done on the RSPO’s certification process itself, on the identification and protection of areas of High Conservation Value (HCV), and on the use of There is no doubt that the palm oil industry has been subject Environmental and Social Impact Assessments (ESIAs) and the to unparalleled scrutiny during this time. Many involved in Free Prior and Informed Consent (FPIC) methodology. the industry itself see this as disproportionate, and often ask why it is that many of their competitors (other vegetable oils, and particularly the soybean industry) merit so much less attention. Campaigners see the focus on the industry as entirely appropriate given the level of tropical deforestation for which it is held responsible.

2 Gunarso, P, et al, ‘Oil Palm and Land Use Change in Indonesia, Malaysia and Papua New Guinea’, Report for the Technical Panels of the 2nd Greenhouse Gas Working Group of the Roundtable on Sustainable Palm Oil (2013) 3 Carlson, K M et al, ‘Carbon Emissions from Forest Conversion by Kalimantan Oil Palm Plantations, Nature Climate Change 3, 283-287 (2013) http://www.nature.com/nclimate/journal/v3/n3/full/nclimate1702.html [Accessed 9 Nov 2015]. 4 Basiron, Tan Sri Datuk Dr Yusof, Malaysian Palm Oil Council, ‘Countering Misperceptions of Malaysian Palm Oil: Where Are We Headed? http://www.mpoc.org.my/upload/P10_Reach_and_Remind_Countering_Misconceptions_Palm_Oil.pdf [Accessed 9 Nov 2015].

18 High Carbon Stock Science Study Part 3: Setting the Context

One thing is for sure: the industry is now in a far better place So does that necessarily mean that more and more forested to meet the kind of sustainability challenges (on carbon, land will need to be cleared to meet that demand? Two biodiversity, human rights, community engagement and so on) alternatives to further clearance are seen to be preferable. that all agricultural crops will have to meet in the near future. First, developing new plantations on already degraded land. There is near-universal consensus that this should indeed - Getting itself ‘fit for the future’ has therefore never been more wherever feasible - be the top priority. However, industry important to the industry. As the chapter that follows from representatives point out that the figures given for degraded James Fry makes clear, demand for palm oil and its derivatives land (in Indonesia, in particular) can be very misleading, in is still growing, particularly in China and India. Given changes that a far smaller percentage of that land would actually be in the global food economy (with per capita consumption of available for cost-effective development. And much of it is vegetable oil - including use of biofuels - at around 60 kg also less attractive to large palm oil companies because of the in the US and Europe, but just 26 kg in China, and 17 kg in complexity of community land claims and disputes. India5), few analysts believe that this trend is likely to abate any time soon. We should not shy away from that kind of reflection. Part of the ‘economic bottom line’ in any sustainable development They are also keen to point out that there are important framework is the need for private sector enterprises to be sustainability benefits in being able to meet that demand able to generate profit over the period of any investment. using palm oil rather than any of its principal competitors. In If the return on the investment made in any project is terms of tonnes of oil produced per hectare, oil palm produces inadequate (because of reduced yields from poor quality land, around 3.5 tonnes in comparison to soybean oil at around for instance, or because of a shortage of labour or continuing 0.5 tonnes per hectare, sunflower oil at 0.6 tonnes, and conflicts with local communities) then it’s more than likely that rapeseed (or canola) at 0.75 tonnes. (In other words, oil palm the investment won’t be made at all. productivity is seven times that of the soy bean, six times that of sunflower, and five times that of rapeseed.) From a land use The second alternative is to increase yields on existing perspective, this is hugely significant. As James Fry points out, land already developed for oil palm. This can be achieved if there was no growth at all in the amount of land used for oil in a number of ways: enabling smallholders to increase palm, with output fixed at current levels: their productivity, which is often very low; establishing new smallholder and out-grower schemes; improving the ‘The others would have to use exceptional increases in quality of agronomy on existing plantations; and achieving their areas to replace missing palm oil product output. further improvements in the basic oil palm genome. All of If the lost palm output were to be made up solely from these options need applied attention from both private extra soybeans, the soybean area would have to rise from sector players and governments; given that such schemes 111 million hectares in 2013 to 232 million in 2025. will inevitably entail significant additional costs, it will be If rapeseed fills the breach, its area would have to rise impossible for the industry to bear those costs on its own. from 36 to 109 million hectares. For sunflower on its It is encouraging that there is now a lot of effort being own, the area would have to rise from 26 to 87 to million devoted to exploring new kinds of partnerships and hectares.’6 financial models.

This is an important perspective that is insufficiently For all those reasons, most people acknowledge that there recognised in many of the debates about food security. As will need to be some new planting on land that is currently land becomes more and more scarce, and competition for under forest cover. The question then - the principal question access to that land becomes ever fiercer, it’s clearly a priority of interest to this independent Science Study - is this: is to meet that growing demand for vegetable oils as efficiently it possible to justify any further deforestation in order to as possible, with the lowest possible emissions of greenhouse increase total palm oil production and simultaneously to gases, using as little land as is necessary. Suppress the use of achieve sustainable development in fragile, impoverished palm oil in favour of its significantly less efficient competitors, parts of the world? and the indirect sustainability impacts may turn out to be much worse than the impacts of sourcing that palm oil in a There are many who give an unequivocal ‘no’ in answer to genuinely sustainable way. that question. ‘Zero deforestation’ is the rallying call that captures the essence of that position. A number of the It may well be, at some point in the not too distant future, biggest oil palm companies in the world have already adopted that innovative advances in biotechnology will provide cost- some kind of ‘no deforestation’ pledge (either through effective substitutes for palm oil and all other vegetable oils, the Indonesian Palm Oil Pledge or the Sustainable Palm and this is something the industry is starting to wake up to. Oil Manfesto), though the wording is carefully nuanced to But the projected growth over the next decade or so will still distinguish between ‘zero deforestation’ and ‘no deforestation need to be met by more conventional land-based production. of High Conservation Value or High Carbon Stock areas’.

5 Fry, James, ‘Palm Oil and its Competitors: Market Realities’ (2015) 6 Fry, James, Ibid.

High Carbon Stock Science Study 19 Part 3: Setting the Context

Just to add to the confusion, some of the biggest users of But things are very different today. The emission of palm oil have adopted a slightly different position through greenhouse gases from continuing peatland drainage and the Consumer Goods Forum, committing to ‘zero net deforestation (as well as the equally problematic degradation deforestation’ by 2020 - a position that is obviously easier to of forests) makes such a significant contribution to today’s reconcile with the kind of carbon neutral approach advocated worsening climate change crisis that it should be completely in our Study than with a ‘zero deforestation’ position. unacceptable for any kind of business-as-usual approach to continue. According to a report from the US Congressional All in all, commitments of one kind or another theoretically Budget Office in 20128, 12% of global greenhouse gas cover around 90% of internationally-traded palm oil - up from emissions come from the destruction of forests for agriculture, around 5% two years ago. This demonstrates both the impact primarily in developing tropical nations. of NGO campaigns and the clear intent of leading players in the industry to play their part in helping to reduce levels of According to the Prince of Wales’s International Sustainability deforestation, notwithstanding the difficulties faced by those Unit, that figure of 12% may be a significant under-estimate: companies in translating these commitments into real change on the ground. ‘Tropical deforestation remains a major driver of global warming, emitting 0.8-0.9 Gigatonnes of Carbon (GtC) Even ten years ago, such commitments would have been seen annually, equating to 8% of global carbon emissions. Less as highly improbable. Historically, there’s no country on Earth widely recognised, tropical forest degradation accounts that hasn’t cut down some part of its forests for agricultural, for a further 0.6-1.5 GtC per annum, equating to a range industrial or infrastructure development, and nations with of 6% to 14% of all anthropogenic carbon releases. In significant rainforest reserves have been understandably aggregate, the two sources may account for 14% to 21% indignant about being told what they could and what of all carbon emissions, perhaps higher still when tropical they couldn’t do with their forests by countries that have peatlands and mangroves are included.’9 ruthlessly exploited their own forests to promote economic development at some earlier point in their history. This kind of disturbing picture is widely recognised by all countries with significant rainforest resources, and many have already made important commitments to play their part in this global effort. Brazil has succeeded in reducing forest loss by around two-thirds over the last ten years; with the support of The state of the world’s tropical forests Norway and Germany, Peru recently committed itself to end deforestation by 2021. • Tropical forests once covered 3.6 billion hectares, making up half of all the world’s But the challenge now is as much about degradation as it forests. A third of that has already been lost as is about outright forest clearance. Much of the continuing a result of deforestation. degradation of the Indonesian rainforest, for instance, is driven by continuing poverty. The World Bank estimates that • Of the remaining area, only about 24% (600 there are still 32 million Indonesians living below the poverty million hectares) is in a mature and relatively line of US$1 a day, despite significant economic progress over undisturbed state. 30% is degraded, and 46% the last 15 years. And for many of those people, there’s little is in a fragmented state. alternative but to provide for their needs as best they can by using the forests in which they live for slash-and-burn farming • At the overall level, the annual area of tropical or small-scale oil palm development. This has been the biggest forest lost every year remains very significant, cause of the thousands of fires in parts of Indonesia that at around 8.5 million hectares. caused such devastating problems earlier in the year.

• Between 2000 and 2012, commercial This kind of ‘poverty-induced encroachment’ remains a agriculture was identified as the driver of massive issue. Even those forests that have been ‘set aside’ as around 70% of all tropical deforestation. areas of High Conservation Value by big oil palm developers remain highly vulnerable to such encroachment; there’s little (All statistics from ‘Tropical Forests: a Review’ from if any incentive for companies to act as guardians of those the Prince of Wales’s International Sustainability forests even within their own concession areas, let alone Unit, April 20157) outside them. Any new proposals for genuinely sustainable oil palm development in the future have to include workable solutions to that problem - and that’s exactly what we believe can be achieved by ensuring that all new developments are ‘carbon neutral’ - delivering ‘net zero emissions’ if not net zero deforestation.

7 The Prince of Wales’s International Sustainability Unit, ‘Tropical Forests: a Review’, (April 2015) http://www.pcfisu.org/wp-content/uploads/2015/04/Princes-Charities-International-Sustainability-Unit-Tropical-Forests-A-Review.pdf [Accessed 9 Nov 2015]. 8 https://www.cbo.gov/publication/426876 [Accessed 9 Nov 2015]. 9 The Prince of Wales’s International Sustainability Unit, ibid.

20 High Carbon Stock Science Study Part 3: Setting the Context

Against that kind of backdrop, the difference between ‘zero In August 2015, the Consumer Goods Forum brought out deforestation’ and ‘zero net deforestation’ may not seem all its own Sustainable Palm Oil Sourcing Guidelines to support that important at first glance. But it’s crucial to the current companies in the work that they’re doing to achieve ‘zero net debate. WWF has highlighted a number of potential problems deforestation’ by 2020. arising from a narrow and over-strict application of ‘zero deforestation’: ‘The Consumer Goods Forum follows the WWF definition of zero net deforestation. ‘Zero net • An exclusive focus on halting forest conversion might deforestation’ can be distinguished from ‘zero mean less attention is paid to redressing harm caused by deforestation’, which means no deforestation anywhere. past forest conversion (e.g. resolving social conflicts and It acknowledges that some forest loss could be offset compensating for past violations of customary land rights; by forest restoration. Zero net deforestation is not restoration or compensatory conservation actions). synonymous with a total prohibition on forest clearing. Rather it leaves room for change in the configuration of • Risk-averse, responsible companies could withdraw the land-use mosaic, provided the net quantity, quality from high forest loss regions, allowing the entry of less and carbon density of forests is maintained. It recognises responsible actors prepared to operate without adequate that, in some circumstances, conversion of forests in one forest safeguards to supply less discerning markets. site may contribute to the sustainable development and conservation of the wider landscape. However, zero net • An exclusive focus on deforestation might mean that deforestation is not achieved through the conversion of less attention is paid to forest degradation and forest primary or natural forests into fast growing plantations. management practices to prevent degradation. Such conversion would count as deforestation in assessing progress against the target.’ • A wasteful investment in new stakeholder platforms, standards and verification systems could occur if As ever, the devil is in the definitional detail. There is deforestation-free initiatives by-pass, rather than build overwhelming agreement about the need for a complete on, credible certification standards and their systems halt to the conversion of primary (or ‘old growth’) forests, for stakeholder participation, auditing, chain of custody, and of secondary regenerating forests that have reached a control of claims and handling of grievances. mature state. But what is meant by ‘natural forests’ in the above Guideline? Unfortunately, the whole debate about It’s also clear that ‘zero deforestation’ has been interpreted deforestation has been dogged by such inexactitudes, and by many key players in both Indonesia and Malaysia as ‘zero this is one area where the Technical Committee has set out development’. The recent establishment of the Council of to determine far more rigorous thresholds regarding the Palm Oil Producing Countries (CPOPC) by the Indonesian and difference between High Carbon Stock and Low Carbon Malaysian Governments demonstrates how significant such Stock, based on the level of net greenhouse gas emissions concerns have become in both countries. (See Part 2.) from biomass and soils that would result from their conversion to oil palm plantations. The Council’s remit is primarily to improve cooperation between big growers in both countries, to help stabilise prices This context is critical. The Signatories to the Sustainable Palm and to promote the industry in key export markets. But it Oil Manifesto include growers, processors, traders and users also wants to persuade those companies in both countries of palm oil, who chose to set up this Science Study specifically to re-think their ‘no deforestation’ pledges (as articulated, to address one of its principal commitments: ‘to accelerate for instance, in the Indonesian Palm Oil Pledge (IPOP) and the journey to “no deforestation” through the conservation of in the Sustainable Palm Oil Manifesto), partly because of the High Carbon Stock (HCS) and High Conservation Value (HCV) damaging impact of these pledges on smaller companies and areas, and no new development on peat, regardless of depth.’ on the millions of smallholders across the region who are not able to comply with the obligations currently laid upon them, It has required a substantive investment in the work of 50 and partly because of the impact of these ‘no deforestation’ scientists (brought together in the 17 Consultants’ Reports pledges on their economic development strategies. that are presented as an Appendix to the Independent Report itself) to drill down into what is, after all, one relatively small If anything, the stand-off between the proponents of a ‘zero part of the relatively huge story about accelerating climate deforestation’ approach (primarily within the western NGO change. The starting-point has, of course, been to understand community) and the more pro-development voices inside the impact from the emission of greenhouse gases caused the industry itself has become even more pronounced over by the conversion of rainforest to oil palm. But that has to be the last couple of years. In between, all sorts of ‘mediating seen as part of the bigger story about the global production initiatives’, including the Roundtable on Sustainable Palm Oil of edible oils, seen as part of the bigger story of food security and the Consumer Goods Forum, are still trying to broker and the competition for land, seen as part of the bigger story some kind of shared understanding. about the total contribution of agriculture to the emission of greenhouse gases, which in turn must be seen as part of the bigger story about total greenhouse gas emissions from all sectors.

High Carbon Stock Science Study 21 Part 3: Setting the Context

The relatively small contribution of the palm oil industry use policies, and is moving towards a ‘zero net emissions’ to that bigger picture is no reason to ‘go soft’ on the approach. A number of Indonesian provinces are now actively campaign to minimise deforestation from further oil palm exploring what such an approach would mean, from a much development. But it should encourage people living in more integrated land use perspective. (See Page 27 in relatively affluent countries in the rich world, with some Section 2.) of the highest per capita carbon footprints in the world, to think less censoriously about people living in significantly less Integration has been a preoccupation of all those involved affluent countries, with some of the lowest per capita carbon in this Study from the start: integration of environmental, footprints in the world. And to think even less censoriously economic, social and governance issues; integration with about people living in the world’s poorest countries, with next existing tools and methodologies (HCV, ESIAs, FPIC etc); and to no carbon footprint at all, who are intent on converting integration with other initiatives seeking to resolve some of some of their still extensive forests into various agricultural these complex issues, particularly the HCS Approach. crops – including oil palm. On the ground, poverty will continue to drive continuing degradation of forests until the Discussions have been ongoing between representatives of needs of local communities are properly met. the High Carbon Stock Approach and the Steering Committee for this Study since its inception, and there is now a very That’s why the recommendations from the Technical engaged process under way to secure as full a convergence Committee (see box on Page 23) have not gone down the ‘no as possible between the two methodologies. (For further deforestation’ line, but are located unapologetically within a details of this convergence process, see the final chapter of ‘zero net emissions’ (or ‘no net loss’) framework. In fact, as this Overview Report.) Responsibility for securing that kind they say: of convergence must now pass to those at the forefront of these discussions - in the RSPO, in the High Carbon Stock “Neither the HCS Approach** nor our own HCS+ Approach, amongst the Signatories of the Sustainable Palm Oil methodology completely prevents deforestation (as Manifesto, through the Consumer Goods Forum, and so on. in ‘zero deforestation), but they both aim to reduce it significantly. Experience over the last 20 years has taught The reality is that this Study is just the latest step in a complex us that no amount of high-level declarations will protect process, not some kind of ‘done deal’. And that’s hardly forests on the ground unless and until local people and surprising. Ultimately, many of these issues will have to be communities can see their own economic interests and resolved by governments, incorporating today’s emerging historic entitlements are better met through forests being consensus about High Carbon Stock forests into national set aside and protected for the long term, rather than cut legislation. It is clear that ignoring this all-important role down for short-term gain.”10 of government has not helped in seeking solutions on the ground regarding HCS forests. Framing the challenge in terms of ‘zero net emissions’ rather than ‘zero deforestation’ is certainly timely. The all-important Progressive palm oil companies, the Roundtable on Conference on Climate Change in Paris, in December this Sustainable Palm Oil, other private sector parties, international year, is seeking to secure agreement from countries on NGOs and consumer campaigns in the rich world, have achieving an appropriate timetable for a ‘zero net emissions all succeeded in forcing the pace over the last few years. economy’. Ultimately, all sectors of the economy will need But what is now so urgently needed is leadership from to demonstrate their ability to deliver continuing prosperity the governments of all those countries where the palm oil within that overarching constraint; for the oil palm industry to industry is a major player. Without unambiguous legislative be the first to demonstrate such intent within the agricultural foundations, and a determination to enforce whatever sector would be a strikingly impressive commitment. regulations are put in place, it’s difficult to see how the palm oil industry will ever be free of the kind of controversies that It must also be clear to everyone involved in this debate that have flared up so frequently over the last decade or so. the only way to protect the world’s remaining rainforests is for relevant nation states (or regional/provincial jurisdications) to The Tropical Forest Alliance 2020 (a public-private legislate for such an outcome. However good their intentions partnership) was set up specifically to help broker may be, voluntary ‘no deforestation’ commitments signed jurisdictional approaches to reducing tropical deforestation up to by progressive non-state actors, from both the private relating to key agricultural commodities – including palm oil. sector and civil society, will only ever have a limited impact. We hope it will now take forward its work on palm oil (in both Indonesia and West Africa) fully informed by the methodology In a country like Indonesia, that means reconciling continuing and recommendations emerging from this Science Study. efforts to address rural poverty with the need to minimise deforestation – primarily through changes in land use policy. Indonesia has recently merged two ministries (Environment and Forestry) as a signal of intent in amending current land

** The HCS Approach is the name used for a multi-stakeholder initiative set up to promote the use of a ‘no deforestation’ methodology first developed by Greenpeace, The Forest Trust and Golden Agri Resources (GAR) in 2012. This methodology permits the clearing of small patches of forest as part of a more integrated land use approach.

10 Raison, John, et al, ibid.

22 High Carbon Stock Science Study Part 3: Setting the Context

In the same way, we hope that the Consumer Goods The principal conclusion of our HCS Study is that it is Forum will now work with both the HCS Approach and the perfectly possible to minimise deforestation, through carbon Signatories to the Sustainable Palm Oil Manifesto to align the neutral oil palm development, and to protect areas of High recommendations of this Study with its own commitment to Conservation Value, in ways which simultaneously generate ‘zero net deforestation’. Consumers in Europe and the US are good returns for private sector interests, and enhanced interested both in the environment and climate change, and in economic wellbeing for smallholders and local communities the wellbeing of those involved in the supply chains of critical alike. That should be the new vision for all those intent on commodities such as oil palm. securing a viable, genuinely sustainable future for the oil palm industry. Such initiatives mark an important stage in the history of what has been, by any standards, a hugely successful industry. In essence, this Study is all about a new business model for an industry that has generated extraordinary wealth over the Recommendations from the Technical last 50 years – but at too high a price environmentally, and Committee with too inconsistent a record in terms of ‘sharing the value’ with employees, smallholders and local communities. That old • For large companies and associated smallholders, model (with the industry often mired in controversy, driven the following elements of HCS+ should be from one shock-horror NGO exposé to the next) has had its implemented immediately for new oil palm day, as more and more companies seek to meet higher social plantation developments: and environmental standards across their entire operation. >> Protect High Carbon Stock forests, and high It’s that understanding which gave rise to the Sustainable carbon stock organic soils, using the thresholds Palm Oil Manifesto, the Signatories to which have already provided; adapted to the expectations of its customers and stakeholders to a degree that is insufficiently recognised by many >> Protect High Conservation Value forests and commentators. Those Signatories to the Manifesto have other riparian set-asides; also made a commitment on behalf of all those involved in their supply chains, including all suppliers to their mills and >> Achieve carbon neutral development; refineries. >> Make stronger efforts to promote positive The industry now has the opportunity, over the next few socio-economic outcomes, and to measure years, to go those extra miles, to help move the whole and report effectiveness. industry (including all the smallholders involved in it) on to a genuinely sustainable basis, and thereby secure future • Within three years, the full HCS+ methodology prosperity both for the producer nations and for all those should be refined and fully implemented, directly involved in the palm oil supply chain, particularly at facilitated by learnings from comprehensive the community level. The goal, obviously, is to ensure that the field studies evaluating the HCS+ methodology fruits of this extraordinary crop can go on delivering significant in diverse forest systems in differing countries. economic benefits, across a wide range of economic sectors, These trials should explore mechanisms to bring indefinitely into the future. independent smallholders within the HCS+ sustainable development framework. In effect, that will entail the practical implementation on the ground of the same high-level Sustainable Development Goals • Government support will be critical to achieving that world leaders signed off on in New York in September this. Making the protection of HCS forests a 2015, ensuring what has often been referred to as ‘equitable requirement for certification under the RSPO, access to sustainable development’. and as a part of a purchasing policy for large companies, will also be important steps. For countries like Indonesia, Malaysia and Papua New Guinea, the oil palm industry has already played a critical • The HCS+ methodology focusses on concession- part in securing economic development, and many other level development, but governmental planning of countries (particularly in West and Central Africa and in South land use at a larger spatial scale would produce America) are looking to the oil palm as part of their own ‘right greater overall benefits. This involves establishing to development’. But all future oil palm development will conservation and development goals at much need to be done on a very different basis, with a far stricter larger scales, and then allocating and managing adherence to existing standards already promoted through land to achieve those objectives. Governments the Roundtable on Sustainable Palm Oil (particularly FPIC and (or relevant state/provincial jurisdictions) must participatory mapping), and a readiness on the part of leading lead such planning, which will be guided by companies to share the wealth generated by well-managed national priorities and goals, by working with all oil palm plantations more equitably with those most directly relevant stakeholders, including business, NGOs affected by the physical presence of those plantations. In and communities. effect, what that means is a new Social Contract between developers, employees and local communities, properly (See Page 42 of the Extended Summary that encoded within national jurisdictions. follows.)

High Carbon Stock Science Study 23 Part 3: Setting the Context

Section 2: Addressing Poverty, Protecting Forests: Managing the Trade-Offs

In producing its Independent Report, the Technical Committee Many of those rural poor in Indonesia are oil palm has been acutely aware of the challenges referred to in Part 1. smallholders – roughly four million of them. As Rizal Ramli, Its recommendations have emerged from consideration of Indonesia’s Coordinating Minister for the new Council of Palm many different factors, taking full account both of critical Oil Producing Countries (CPOPC), said back in October: ecological issues (biodiversity, protection of water quality, soil fertility and so on) as well as a wide range of socio-economic “Despite contributing 40% to the world’s palm oil concerns, both at the macro level (as they relate to national production, smallholders lack the capacity to meet and regional prosperity) and the micro level, in terms of local standards set out in existing sustainability conventions, communities and indigenous people. It’s only possible to and thus their inclusion has been greatly limited. As the come up with meaningful recommendations on carbon (as in global consumer market raises its demand for sustainable defining exactly what is meant by High Carbon Stock forests) products, the exclusion of these smallholders from the if they’re part of a much broader approach to sustainable global production chain will only continue to rise. CPOPC palm oil in the round, taking into account social, economic and will aim to provide a more encompassing sustainability governance issues. model for smallholders. It must be emphasised that the better integration of smallholders within the global A huge amount of work has gone into those socio-economic production chain will not lower internationally accepted issues, and the resulting HCS+ methodology is largely sustainability standards. On the contrary, the new based on insights from the various consultancy reports convention will seek to provide smallholders with better commissioned as part of the overall Study: guidance on how to implement the industry’s best production practices.” • Atkinson, P. ‘Palm oil in Liberia: Missed opportunities and second chances’. This provides a powerful reminder of just how important it is to pursue wholly legitimate concerns about deforestation • Ayodele, T., et al. ‘Nigeria: A smallholder case study’. within a wider socio-economic context. The vast majority of the tens of thousands of fires that caused the horrendous • Colchester, M., et al. ‘Respecting rights and securing haze of pollution earlier in the year were not lit by large palm livelihoods in conserving ‘High Carbon Stock’ forests’. oil companies, but either by individuals and communities, many of which are still facing severe economic hardship. • Gillespie, P. & Harjanthi, R. S. ‘Indonesian oil palm smallholders and High Carbon Stock: Considerations to We’ve taken on board that challenge (of improving socio- avoid errors of the past’. economic outcomes for local communities and smallholders) as a critical part of the Study. Over and above what is already • Kasryno, F. ‘The economic impacts of palm oil in Indonesia’. required through the RSPO’s New Planting Procedures and the FPIC methodology, we believe companies should be • Khor, Y.L., et al. ‘The Felda case study’. thinking in terms of a new ‘social contract’:

• Suksuwan, S., et al. ‘Overview of existing regulatory “The HCS+ methodology recommends that transparent mechanisms and relevant actors’. negotiations leading to a mutually agreed social contract should become part of standard operating procedure • Zen, Z., et al. ‘High Carbon Stock (HCS) and the socio- for all companies where this is not already the case. This economics of palm oil: Towards improving the sustainability will ensure that social infrastructure provision becomes of the palm oil sector in Indonesia’. a more predictable aspect of company engagement with communities, which can be audited and is not dependent It matters enormously that the rights and interests of local on the differential abilities of communities to negotiate communities and of smallholders are positioned at the heart effectively. These social contracts should ideally cover of efforts to reduce and eventually eliminate the current all aspects of the relationship between companies and levels of deforestation. As explained in Part 1, that makes communities, including the terms of attached smallholder it an imperative in a country like Indonesia to reconcile the arrangements and any assistance to independent Government’s continuing efforts to address rural poverty with smallholders, as well as the terms of community access its stated intention of minimising deforestation and prohibiting to environmental set-asides and their role in the any new agricultural development (for oil palm, rubber or management of these.”11 forestry) on peatland. This is obviously not a business-as-usual approach in comparison to conventional oil palm development. Big companies today need to ‘renegotiate their licence to operate’, both with local communities and smallholders, and with 11 Raison, John, et al, ibid.

24 High Carbon Stock Science Study Part 3: Setting the Context

governments and regulators. There will of course be additional 18 times the benefit of the same $1 for someone earning $10. costs associated with this kind of ‘value share’ strategy, but the business case for accepting a higher cost base lies in the “The great appeal of this approach is that it may be prospect of conflict-free, genuinely equitable and sustainable applied during the impact assessment of any project. palm oil being available to serve both international and As well as prior carbon stock, it should be possible domestic markets, indefinitely into the future. to esimate accurately the number of workers and the increase in their average incomes that will emerge from The Technical Committee has recommended that a new the project. The same applies to the revenues generated business model of this kind should be captured, in part, for the government via taxes and for plantation owners, through a Palm Oil Welfare Index (POWI): as well as for suppliers of inputs such as fertiliser. The same methodology applies directly to smallholders, whose “The POWI includes four outcome measures of welfare: incomes are the profits they earn on their oil palm plots.”14 income generated from oil palm concessions; food security; access to clean water; and access to social Dr Fry was keen to see if this kind of approach might allow for infrastructure facilitated by the company (health facilities, some kind of ‘trade-off’ between emissions from conversion schools, and electricity). These four measures are of forest to oil palm, on the one hand, and welfare gains on combined into a single metric. Data need to be collected the other. In other words, depending on demonstrating more to establish a baseline prior to oil palm development, and substantive welfare benefits, could the threshold for defining then collected periodically thereafter (every few years) HCS forest be set at a higher level? using consistent methods in order to monitor welfare changes effectively.”12 “Maybe the best way in which to understand this is to suppose that there are two alternative projects, each with (See Page 36 of the Extended Summary that follows.) an identical loss of carbon stock per hectare. Imagine that one of these projects is in an extremely poor area, where There is one further socio-economic consideration arising the boost to incomes and standard of living is universally from the implementation of the HCS+ methodology – and acknowledged to be very worthwhile, while the other that concerns the socio-economics of forest protection. is in a more prosperous region, with fewer clear, socio- Forest protection will inevitably incur significant ongoing economic benefits from the project. It seems certain that, costs (especially when there are large set-asides to support given the choice, everyone will favour the first project. carbon neutral development), but will also provide significant Will it be reasonable for an HCS+ methodology to take no livelihood opportunities, including employment for local account whatsoever of the extra socio-economic benefits, communities. I shall address some of the funding implications and assert that there is no amount of welfare gain that of this a little later. could compensate for the loss of even one tonne of carbon stock? Most people’s answer to that We were all aware that the Palm Oil Welfare Index is only question would almost certainly be ‘no’.”15 one way to measure socio-economic outcomes for local communities and smallholders. One alternative measure, for It has to be said that members of our Technical Committee instance, that provides ready-made estimates of poverty, were not persuaded by this alternative approach, primarily on broken down to the provincial level, is the Oxford Poverty and the grounds that there was no sufficiently rigorous mechanism Human Development Initiative. Its Multidimensional Poverty for consistently assessing this kind of trade-off. Moreover, Index (MPI) uses ten different indicators which can then be there could be no a priori guarantee that any new oil palm used to assess the ‘before and after’ outcomes. development would end up delivering the socio-economic benefits that were hoped for. Beyond that is the whole discipline of traditional welfare economics, which could be used to evaluate the socio- They felt it would, however, be useful for assessing the best economic impact of oil palm development. The Steering locations for new oil palm development, once it had been Committee overseeing the Study was fortunate enough established that all those locations could be developed whilst to include Dr James Fry, of LMC International, author of still staying within the 75 tonne threshold. It obviously makes the preceding chapter in this Overview Report. He drew good sense to locate oil palm development where its welfare colleagues’ attention to a highly regarded paper by Layard, impacts can be maximised. Marraz and Nickel13, using data from over 50 countries from 1972 to 2005, which estimated the best way to compare the For those who are interested in these crucial socio-economic welfare gains (or ‘marginal utility’, in economics terminology) concerns, Dr Fry has produced for the Steering Committee from raising incomes for different beneficiaries. Applying a very detailed paper, ‘Socio-Economic Considerations their conclusions, it emerges that an extra $1 for someone in HCS+’. In shaping that approach, Dr Fry engaged with on a subsistence daily income of just $1 has eight times the welfare benefit of an extra $1 for someone earning $5, and

12 Raison, John, et al, ibid. 13 Layard, R., Mayraz, G., and Nickell, S.J., ‘The Marginal Utility of Income’ – revised version SOEPPapers on Multidisciplinary Panel Data Research, Deutsches Institut für Wirtschaftsforschung. Berlin, April 2008 http://www.diw.de/soeppapers 14 Fry, James. ‘Socio-Economic Considerations in HCS+’ 15 Fry, James, ibid.

High Carbon Stock Science Study 25 Part 3: Setting the Context

all the major growers on the Steering Committee, via a And what ‘done in the right way’ means, in essence, is the formal questionnaire, to provide data in order to calculate following: prospective socio-economic benefits from new plantations versus their impact in terms of deforestation and loss of • Strengthening the auditing process and metrics to ensure carbon stock. That paper can be found on the LMC website strict compliance with a threshold of 75 tonnes of carbon (www.lmc.co.uk) or the High Carbon Stock Study’s own per hectare; website (http://www.carbonstockstudy.com/resource-centre/key- documents). • Use of carbon mapping techniques that can reliably distinguish between forest above and below that threshold; For many people concerned primarily about putting an end to all deforestation just as fast as possible, much of this may • An obligation to ensure that all new developments are seem somewhat irrelevant. But it remains the critical concern carbon neutral (ie with ‘zero net emissions’ over the for countries still confronted by signficant challenges in terms concession area as a whole, or between concession areas of rural poverty, and is particularly critical in densely forested managed by the same company); countries (such as Gabon, Liberia and elsewhere in West and Central Africa) or certain regions in Indonesia. • Strict compliance with the RSPO’s existing requirements, including participatory mapping and Free Prior and The principal case study undertaken by the Technical Informed Consent; Committee was in Gabon, a country which still has more than 85% of its land in forest, and has ambitious plans to • An unambiguous commitment to sharing more equitably address food security and rural poverty issues through a the value created through efficient oil palm plantations, programme of agricultural diversification, including up to with employees, smallholders and local communities; and 500,000 hectares of oil palm. (Reference to case study in the Independent Report.) • A commitment to monitor all socio-economic interventions through the new Palm Oil Welfare Index (POWI). In Liberia (which still has around 45% of its land under forest cover) the need for rural development is even more This represents an extraordinarily demanding set of compelling, after years of devastating civil war and a slow obligations for even the biggest palm oil companies today. As economic recovery cruelly cut short by the recent Ebola the Steering Committee has commented in its response to the outbreak – which has still not been finally eliminated. Independent Report from the Technical Committee:

Having seen for myself the poverty in both these countries, “We believe that the proposed HCS threshold of 75 I would argue that their right to use some of their forested tonnes of above-ground carbon per hectare, which rules land for agricultural development (including some oil palm) out any conversion of forest above that threshold, will is indisputable. In Gabon, there may be some prospect for make new oil palm developments very challenging in alternative economic strategies (including eco-tourism), but in many parts of the world. However, we also understand Liberia the options are distressingly few and far between. In the scientific analysis that supports this figure.” both these countries (and in other very poor, densely forested countries or regions), a strict ‘zero deforestation’ approach Moreover, the Steering Committee goes on to remind seems both inhumane and potentially ‘colonialist’ in its overall people that “one of the three Pillars of sustainable oil palm approach. development highlighted by the HCS+ Study is economic viability. Practical implementation of HCS+ requires As we discovered in the course of our Study, no-one has yet verification of its cost-effectiveness through testing and field come up with a convincing answer to these issues in densely trials in varying environments and landscapes.” forested countries. As part of the convergence process, both the Signatories to the Sustainable Palm Oil Manifesto At a time of very low prices for palm oil, this emphasis on (as ‘owners’ of the Science Study and the resulting HCS+ cost effectiveness is entirely reasonable. It will indeed need methodology) and representatives of the HCS Approach will to be tested to ensure that palm oil companies will be able be carrying out further work in this area. to finance the recommended HCS+ methodologies (carbon neutral development, the Palm Oil Welfare Index (POWI), The Technical Committee recognises that further work needs the protection of set-aside forests from further encroachment, to be done to tailor the HCS+ methodology for countries and so on) on top of their existing obligations under the with high forest cover. Although it does not reference any RSPO’s New Planting Procedures. Smaller companies will find specific trade-off as such, the recommendation of a slightly that very difficult, and smallholders will find it impossible. higher threshold for defining High Carbon Stock (set at Even big companies will struggle to take on the kind of forest 75 tonnes of carbon per hectare, which would permit the protection obligations (as entailed in the carbon neutral conversion of some young regenerating forest) is a de facto approach) on an indefinite basis. acknowledgement that this minimised level of deforestation can indeed be justified by the potential socio-economic All of which points to the need for some additional source benefits that will accrue from new oil palm developments of funding from the international community to make done in the right way. this aspect of the HCS+ methodology viable. The well- established rationale for this remains strong: if developing

26 High Carbon Stock Science Study Part 3: Setting the Context

and emerging countries are no longer able to convert their This is particularly relevant in Indonesia. The haze arising from forests into agricultural crops, in order to avoid the emission the worst ever ‘burning season’ this year has re-focussed of greenhouse gases and to protect biodiversity, then attention on how best to work with communities and wealthier countries should be prepared to ‘compensate’ them smallholders to restrict this kind of horrendous economic, proportionately for the ‘profits forgone’ by keeping the carbon environmental and health-related damage. The Indonesian locked up in the forests rather than causing it to be released President has repeated his strong intent to stop further by converting to agricultural crops. development on peatland, but his principal concern is still to improve the economic wellbeing of Indonesian’s four million That was the thinking behind REDD – Reducing Emissions smallholders and other farmers. from Deforestation and Degradation – and its successor programme, REDD+. But after many years of often very His Government is also keen to persuade large palm oil circular discussions and negotiations, the whole REDD+ companies to do much more to help smallholders – not mechanism is now at risk: just the ‘attached’ smallholders they are already responsible for, but independent smallholders in the vicinity of their “The early vision that REDD+ would deliver large- plantations. At the most recent session of the Roundtable scale compensation to those developing nations that on Sustainable Palm Oil in Kuala Lumpur in November, Sime succeed in reducing their greenhouse gas emissions Darby committed to support all independent smallholders up from deforestation and forest degradation must to five kilometres from the boundaries of their concession be re-examined. After six years of negotiations and areas in Indonesia – in effect, to create fire-safe zones by experimentation, the compensation mechanism has helping them clear their land mechanically rather than by not materialised at scale. Many of the political leaders burning. It is hoped that other big companies in Indonesia will from both developing and industrialised nations who now follow suit. made courageous and politically risky decisions to put REDD+ into practice are frustrated by the lack of deeper But there’s now a growing consensus that more permanent financial commitments to REDD+. Indigenous peoples solutions can best be implemented at the provincial level. and traditional forest communities have participated in There are a number of Indonesian provinces already numerous dialogues on REDD+, but tangible benefits for committed to more integrated land use strategies – such as their communities are virtually non-existent. Farmers and South Sumatra’s new Spatial Plan – in which any new oil palm livestock producers have seen few or no benefits for the development will have the highest social and environmental steps they’ve taken to forgo deforestation and reduce conditions ‘baked in’ from the start. Central Kalimantan has their emissions.”16 been designated as a REDD+ pilot province, adopting the target of reducing deforestation by 41% by 2020 – in line This frustration led to the idea of establishing REDD+ with Indonesia’s overall national target. Other initiatives are schemes at the jurisdictional level – state, provincial or under way in Aceh, East Kalimantan, West Kalimantan, Riau regional – aimed at improving the livelihoods of indigenous and Papua – the latter being the focus of particular attention and other low-income rural groups, whilst reducing emissions as one of the poorest and most densely forested provinces of of greenhouse gases and conserving biodiversity, soils, Indonesia. water and other ‘ecosystem services’. The essence of this approach is that it’s unequivocally about responsible economic The Malaysian state of Sabah wants to go even further, development – or ‘low-emission rural development’: pursuing a strategy to ensure that all palm oil from its plantations and smallholders can be exported as Certified “Low-emission rural development must be defined Sustainable Palm Oil under the RSPO’s rules. broadly if it is to garner deep, durable political support. It should include the steep reductions in deforestation and There are many organisations now intent on supporting these forest degradation that are the focus of REDD+. But it approaches, including national governments like the USA and should also improve rural livelihoods, create jobs, improve Norway, and various UN agencies. The UNDP is particularly services, increase market access and investment, and well placed to play an influential role in Indonesia through protect and restore natural capital. All of these aspects its Sustainable Palm Oil (SPO) initiative. This aims to develop of rural development are within reach in many tropical national and provincial capacity to promote and scale up nations.”17 sustainable palm oil by strengthening smallholder farmers, supporting policy reform, and reducing deforestation through For me, this is the missing element in a lot of the debate public-private partnerships. And I’ve already mentioned the about REDD+. Too narrow a focus on reducing deforestation important work of the Tropical Forest Alliance (see Page 22 in (in terms of hectares of forest lost) has ignored the Part 1). uncomfortable reality that forest (even forest that has been formally designated and set aside as High Conservation Value We believe that all these jurisdictional approaches open the or High Carbon Stock) will continue to be degraded through way for the kind of conflict-free, carbon neutral oil palm constant encroachment – unless such schemes simultaneously development which the Technical Committee’s Independent deliver economic development for communities and the Report is advocating. The focus of the HCS+ methodology rural poor. In other words, the emphasis now should be on (at concession level) is on ‘zero net emissions’, with a much Reducing Emissions from Deforestation and Degradation stronger emphasis on enhanced socio-economic outcomes through Low Emissions Rural Development.

16 Nepstad, D., et al, ‘Re-framing REDD+’, Amazon Environmental Research Institute, 2012. [email protected] 17 Nepstad, D., et al, ibid.

High Carbon Stock Science Study 27 Part 3: Setting the Context

for communities and smallholders. But carbon neutral land uses clear forests for swidden agriculture”), its practical development of this kind depends entirely on the areas of recommendations are very much in line with those of the forest that are set aside (as both High Conservation Value HCS+ methodology: and High Carbon Stock) being properly protected and actively managed on an indefinite basis – and that’s where “Our definition focusses on zero net emissions from jurisdictional REDD+ schemes will need to be established. deforestation across a jurisdiction. Each jurisdiction has different levels of deforestation and government capacity, Similar approaches are now being actively advocated by so the exact definition of ‘zero deforestation’ should organisations such as Conservation International, and a be adapted to the context of the jurisdiction, following number of projects are already in place under the auspices common guidelines based on REDD+ methodological of a Norwegian programme funding Jurisdicational REDD+ frameworks and existing public and private commitments. approaches in Costa Rica, Brazil, the Democratic Republic of Jurisdictions should account for both deforestation Congo and Peru. and degradation, as well as conservation of forest carbon stocks, sustainable management of forests, and Peru is pioneering a number of jurisdictional REDD+ schemes, enhancement of forest carbon stocks.”19 including: Finally, the Consumer Goods Forum is also getting involved • The Madre de Dios scheme has successfully protected in these jurisdictional approaches. Having committed around 100,000 hectares of critical rainforest since 2009. back in 2010 to achieving ‘zero net deforestation’ in their The success of the scheme has depended on cooperation supply chains by 2020, it’s struggled to provide sufficiently with local communities most directly affected; more than robust guidelines to its members on operationalising this 400 people are now directly employed through the project, commitment. (See Page 21 in Part 1.) In a new initiative,20 receiving training in forest management, safety and social a coalition of some of the most influential members of CGF issues – all funded by carbon credits purchased through is now re-emphasising the critical role of governments: “We the voluntary carbon market under the Verified Carbon know that the next stage in the journey to tackle deforestation Standard. is to create solutions at a jurisdictional (whole landscape) level to manage the many causes of forest loss together rather than • the Alto Mayo Protected Forest (AMPF), in the San Martin through individual, isolated initiatives.” And in a move that will region, was the world’s first verified REDD+ project in a certainly encourage initiatives like those referred to above in formally protected area. The AMPF was being seriously Sabah, or Central Kalimantan and South Sumatra: encroached on by illegal loggers and migrants, but also by local coffee farmers desperate for new land. A host “We come together to signal our individual commitment of conservation agreements (brokered by Conservation as companies to prioritise our commodity sourcing International) have ensured that local communities receive from areas that have designed and are implementing technical assistance, efficient cookstoves and access to jurisdictional forest and climate initiatives. This will bring other services in return for their commitment to manage together the power of global agricultural supply chains and the land properly and to protect the forest. Since 2012, strong government commitment to reduce greenhouse this project has avoided emissions of more than 3 million gas emissions from forests and other landscapes while advancing economic development. This ‘Produce and tonnes of CO2. Protect’ approach represents a significant new kind of There is a growing sense of confidence in Indonesia that these public-private partnership in addition to and supportive jurisdictional approaches could break the log-jam in accessing of our current commitments to net zero deforestation. the $1bn committed by Norway as part of its commitment It reflects our commitment to reduce or eliminate to REDD+ initiatives. Most REDD+ schemes to date have deforestation from our supply chains, while benefitting failed to incorporate farmers and other parties involved in from strong government commitments, significant public forest degradation, and have done little to address often investment, and lower-risk sourcing.” contradictory agricultural laws. In a way, this confirms what is now clear to all: lasting solutions In a new paper (‘Zero Deforestation Zones: The Case for to the controversies still surrounding the palm oil industry Linking Deforestation-Free Supply Chain Initiatives and need to be driven by governments, operationalised at the Jurisdictional REDD+’ 18), the Environmental Defense Fund jurisdictional level, supported by private sector interests both in the United States has emphasised the importance of within and beyond the industry itself, and be based on the “leveraging synergies between Jurisdictional REDD+, private twin imperatives of minimising emissions of greenhouse gases sector initiatives, and governmental laws and regulations. from deforestation and degradation while simultaneously Companies would source commodities that meet their improving conditions for millions of the rural poor in key deforestation commitments from jurisdictions implementing countries. REDD+ programmes, government monitoring systems, and functioning private sector initiatives.” We firmly believe that the HCS+ methodology, developed by the Science Study’s Technical Committee over the last 18 Whilst I may differ with the use of the terminology of ‘Zero months, and strongly supported by the Signatories to the Deforestation Zones’ (on the grounds of both impracticality Sustainable Palm Oil Manifesto, will become a critical part of and inconsistency: “Even indigenous groups with sustainable helping to deliver those solutions over the next few years.

18 Meyer, C., and Miller, D. ‘Zero Deforestation Zones: The Case for Linking Deforestation-Free Supply Chain Initiatives and Jurisdictional REDD+’ in Journal for Sustainable Forestry, Volume 34, Issue 6-7, (2015) http://www.tandfonline.com/doi/abs/10.1080/10549811.2015.1036886 [Accessed 23 Nov 15]. 19 Meyer, C., and Miller, D., ibid. 20 Produce and Protect Statement (Dec 2015) http://tfa2020.org/wp-content/uploads/2015/12/01122015-_Produce-Protect-CGF-statement.pdf [Accessed 1 Dec 15].

28 High Carbon Stock Science Study Part 4: Independent Report from the Technical Committee Extended Summary

John Raison1 (Chair), Philippa Atkinson2, Jerome Chave3, Ruth DeFries4, Goh Kah Joo5, Hans Joosten6, Peter Navratil7, and Florian Siegert8

1. The Mullion Group, Canberra (former Chief Research Scientist, Australian Commonwealth Scientific & Industrial Research Organisation).

2. Independent author, consultant and researcher specialising in Liberia and the West-African sub-region. Based in Singapore.

3. Université Paul Sabatier, Toulouse.

4. Columbia University, New York.

5. Applied Agricultural Resources Sdn Bhd, Malaysia.

6. Greifswald Mire Centre, University of Greifswald, Greifswald.

7. Remote Sensing Solutions GmbH, Munich.

8. Ludwig-Maximilians-Universität München, Munich. Part 4: Independent Report from the Technical Committee Extended Summary

Section 1: The Conceptual Basis for HCS+ Methodology

One of the major questions facing us all is this: how can The HCS+ methodology places a strong emphasis on we reduce and eventually eliminate tropical deforestation, constraining carbon emissions within a framework that while also addressing the need to end chronic poverty and protects important forests but also supports sustainable respond to a growing demand for vegetable oils that has led development, including through the conversion of some some countries to turn to crops such as oil palm, through forests to oil palm plantations. The ‘HCS’ in the name the conversion of forested areas? We believe the HCS+ relates to the focus on carbon emissions. The ‘+’ indicates methodology outlined in this report takes us a significant step opportunities for improved livelihoods by allowing some level closer to resolving this question. of responsible conversion of forests to oil palm plantations.

Over the next decades, tropical forest land will come under HCS+ provides a process for the integration of HCS increased pressure from the expansion of oil palm and other considerations with HCV, FPIC and other important inputs crops. There has been strong growth in the oil palm sector to support the sustainable development of new oil palm during the last decade and this is expected to continue.1 plantations. Integration is achieved using a comprehensive Improvements in productivity, especially by smallholders, multi-stakeholder process to determine the acceptable will go some way to meet this new demand. But there will location and magnitude of future land conversion to oil palm inevitably be pressure for new planting, even if some of this (Figure 5). In the HCS+ methodology, reliable estimates of can be met by planting on already degraded land. carbon stocks are critical, because these are used both to define High Carbon Stock forests and to underpin planning It is vital that any land conversion is done sustainably – that is, for carbon neutral development. that it produces genuine economic and social benefits while avoiding unacceptable environmental damage. Done well, HCS+ sets out three requirements or ‘Pillars’ needed for oil the conversion to oil palm of tropical forests with low-carbon palm development to be considered sustainable. These three stock can contribute significantly to sustainable development. Pillars must be constructed independently, without trade-offs Done poorly, it leads to adverse social outcomes such as loss between them: of rights and livelihoods. It can also cause loss of biodiversity, damage to soil and water, and large emissions of greenhouse Pillar 1: Land conversion for oil palm plantations must gases. maintain critical ecosystem services. Tropical forests provide multiple ecosystem services. At the This Study builds on other work aimed at improving the global scale, tropical forests and soils help regulate climate. sustainability of palm oil production, primarily through the When land is converted to oil palm plantations, carbon Roundtable on Sustainable Palm Oil (RSPO). This voluntarily stored in biomass and in soils is released to the atmosphere implemented certification process includes High Conservation as a greenhouse gas. Tropical forests also harbour more Value (HCV) assessments; ensuring the Free, Prior and biodiversity than any other terrestrial ecosystem. At the local Informed Consent (FPIC) of local communities; and other scale, tropical forests produce many other benefits. These social and environmental impact assessments. benefits include protection of watersheds from erosion, and support for plants and animals that provide food security and Our Study concentrates on concession level processes, livelihoods for local communities. but within the context of the larger landscape, and has a geographical focus on Southeast Asia and West and Central Pillar 2: Oil palm development must ensure socio-economic Africa. benefits for local communities. The HCS+ methodology provides criteria to identify forests Carefully planned and executed oil palm development and soils that should not be converted to oil palm – thereby can benefit local communities by providing access to safeguarding ecosystem services. Areas that do not match employment and services. It can also contribute to economic these criteria can be converted. However, HCS+ proposes development at the regional and national scale. Conversely, that, at the concession level, carbon losses from conversion inappropriately planned and executed oil palm development should be balanced by carbon gains, to achieve carbon can violate human rights by displacing local people without neutrality across the concession as a whole. compensation or consent, and by creating food insecurity in local communities as a result of severing access to traditional food sources. The HCS+ methodology allows Pillars 1 and 2 to be achieved simultaneously – and without net carbon emissions – through carefully planned and executed oil palm development.

1 Fry, J. ‘Palm Oil and its competitors: Market realities. Available as part of the Overview Report of the High Carbon Stock Science Study. (2015)

30 High Carbon Stock Science Study Part 4: Independent Report from the Technical Committee Extended Summary

PROTECT HUMAN RIGHTS THRESHOLDS ENSURE PROTECT CARBON NEUTRALITY SOCIO- ECOSYSTEM ECONOMIC SERVICES BENEFITS

IMPROVE WELFARE (INCOME, FOOD SECURITY, SOCIAL ACHIEVE INFRASTRUCTURE) ECONOMIC VIABILITY

Figure 1: The three Pillars of the HCS+ methodology that underpin the sustainable production of palm oil. They must be constructed independently, without trade-offs between them. The blue boxes summarise major components/mechanisms of the HCS+ methodology – cost-effective implementation of these will contribute to economic viability.

Pillar 3: Oil palm development must be economically viable. Specifically, HCS+ provides: The economic viability of oil palm concessions is highly • Carbon thresholds to define High Carbon Stock forests dependent on maintaining low production costs and obtaining and High Carbon Stock soils. These lands should not be high yields. Only if both are achieved can reasonable revenues converted because they contain not only High Carbon and profits be produced. Therefore the HCS+ methodology Stocks but also other important forest values that may not proposed for Pillars 1 and 2 must be practical and cost- be covered by the covered by HCV assessments2, which effective. It must, for example, take account of the increased focuses only on HCVs of ‘outstanding’ value. production costs (resulting from, for example, additional management or lower yields) that may result from prioritising • Guidance on how to make reliable estimates of carbon land conversion in locations with poor soils, or on degraded emissions from land conversion, and how to achieve land, or in areas with seasonally dry climates. carbon neutral development. Adherence to the HCS+ methodology has the potential to • Guidance on how to enhance the protection of human produce many economic benefits for palm oil producers: rights and how to ensure positive socio-economic benefits. • Access to markets that demand more stringent practices All this, together with other inputs, can be integrated through for the production of sustainable palm oil; the participation of multiple stakeholders to produce robust land-use and land management plans. • A stable workforce for supporting services such as land clearing, construction work, planting, logistic support and the management of plantations and forest set-asides;

• Improved relations with local communities, which can reduce conflicts over land and facilitate operations.

2 A high conservation value area (HCVA) is an area that contains one or more High Conservation Values (HCVs). HCVs are biological, ecological, social or cultural values considered outstandingly significant or critically important, at the national, regional or global level. A HCV assesment is a process to identify, manage and monitor HCVAs.

High Carbon Stock Science Study 31 Part 4: Independent Report from the Technical Committee Extended Summary

Section 2: The Role of Mapping and Remote Sensing in HCS+ Methodology

The HCS+ methodology uses remote sensing for three 2.2 Mapping vegetation and land use in the purposes: concession and adjacent areas using high-resolution optical satellite data • Mapping above-ground carbon using airborne LiDAR3 (supported by forest inventory); Information about the land surrounding a planned concession provides important context to guide decisions within the • Mapping vegetation and land use in a concession and concession boundary. There are various types of remote adjacent areas using high resolution optical satellite data; sensing technology that could be used to map the areas and adjacent to the concession. Best cost-effectiveness is currently reached by using high resolution sensors such • Mapping peatlands and other organic soils using remote as RapidEye or new SPOT, in combination with medium sensing data. resolution data from Landsat or Sentinel, supplemented with GIS data. RapidEye data costs between US$1-2 per square kilometre. Landsat data is free. 2.1 Mapping above-ground carbon

To identify High Carbon Stock forests, we recommend a 2.3 Mapping peatlands and other organic soils combination of airborne LiDAR and forest inventory (where data is gathered on the ground). Tropical peatlands are difficult to access, making field mapping problematic. However, remote sensing, in combination with Airborne LiDAR is used to make high-resolution, continuous available map information and targeted ground sampling, gives maps of above-ground carbon. This methodology is robust a good balance between comprehensiveness and accuracy. and non-controversial and allows reliable identification of Remote sensing and existing data allow a preliminary the size and location and carbon content of forest ‘patches’ - detection of major tracts of peatlands/organic soils. These small forest fragments - a critical issue for the delineation of findings must then be validated through ground sampling. HCS forests and the design of new oil palm plantations. Both steps require the involvement of experienced landscape and peatland ecologists. Accurate carbon-mapping using LiDAR can only be achieved if the LiDAR output is carefully calibrated using on-the-ground Where climate is concerned, there is no threshold above forest inventory data with respect to tree heights, trunk which emissions become relevant, and below which they are diameters and wood density. Using LiDAR alongside selected no longer relevant. All emissions, big and small, contribute forest inventory plots is the most cost-effective way to to the build-up of greenhouses gases in the atmosphere. produce detailed spatial information on above-ground carbon The determination of a carbon threshold can therefore not with the accuracy necessary to identify High Carbon Stock be based only on climate considerations, but must build on forests (Figure 2). general and widely accepted notions of what constitutes ‘a significant forest’. This includes not just its carbon stock, but At the concession scale (5,000–100,000 ha), full area LiDAR also its ecosystem services and biodiversity. coverage costs US$5-15 per hectare depending on the remoteness, size, accessibility and complexity of the area. The per hectare costs drop with the size of the area. The costs would be borne by the concession holders. For supported smallholders, the costs should be integrated into existing support schemes. For independent smallholders, new financial support schemes would have to be developed - for example, through HCS+ smallholder co-operatives or through existing certification schemes such as RSPO.

3 LiDAR: Light Detection and Ranging - remote sensing technology measuring distance by illuminating the target with a laser and analysing the reflected light.

32 High Carbon Stock Science Study Part 4: Independent Report from the Technical Committee Extended Summary

Figure 2: How LiDAR can be used to identify High Carbon Stock forest at the concession level. a) Aerial image of a tropical forest canopy. b) Enlargement of the area shown by the red rectangle in (a) allows individual tree crowns to be identified. c) LiDAR is used to measure tree height and crown diameter of individual trees. d) Using the correlation between vegetation height and structural metrics, and biomass data collected in the field, above-ground carbon can be estimated.

Section 3: HCS+ Methodology for Estimating Carbon Stocks and Achieving Carbon Neutral Development

3.1 Forests and carbon Biomass carbon Forest biomass is made up of living and dead trees. This Carbon in forests is stored in biomass and in soil. The amounts biomass stores a large amount of carbon - 50% of its dry of carbon can be large, but can rapidly decrease following weight is carbon, and forest biomass can store up to several disturbance from deforestation, logging, fire, or drainage of hundred tonnes of carbon per hectare. Forest biomass has organic soils. The loss of forest carbon stocks contributes to two components – above-ground and below-ground. The carbon emissions (mainly as carbon dioxide, CO ) which in 2 larger component (about 75%) is above ground - tree trunks, turn contributes to climate change. branches, leaves. The rest is below ground – coarse and fine roots (about 25%). Woody debris (mainly dead and fallen trees and branches, as well as the remnants of logging) can make up a significant amount of the biomass. As forests grow, both above-ground and below-ground biomass increases. When forests are cleared the biomass oxidises and the carbon it contains is released to the atmosphere as carbon dioxide.

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Soil carbon stores of carbon globally: old-growth forests; managed forests still growing after selective logging; and secondary forests Carbon in soil is the other principal stock of carbon in forests. more than 30 years old. Any deforestation of HCS forests will Soils vary greatly in their carbon stocks. A hectare of sandy contribute substantially to global greenhouse gas emissions. mineral soil can contain less than 100 tonnes of carbon, while These forests should not be converted to oil palm. the same area of deep peat can contain many thousands of tonnes of carbon. Conversion to oil palm on carbon-poor Soil carbon threshold soil will produce relatively low emissions. Carbon losses from In addition to above-ground carbon, soil carbon also has mineral soils4 take place slowly after conversion - unless the to be taken into account. This applies particularly to peaty conversion involves substantial earthworks and movement (highly organic) soils. Peatlands are the most significant carbon of soil. But draining peat and other organic soils can produce stores we have. Although they cover only 3% of the land area, large losses of carbon - annual emissions of between 10 and they contain more carbon in their peat soils than the entire 20 tonnes of carbon per hectare can result. Peat fires can also forest biomass of the world. A tropical peatland, for example, cause significant losses of carbon in a very short time, as well contains on average ten times more carbon per hectare than a as contributing to major environmental and health impacts via rainforest on mineral soil. The carbon remains conserved only the production of ‘haze. when the peat is permanently saturated with water. Draining peat and other highly organic soils leads to very high carbon Calculating net carbon losses and gains dioxide emissions. When calculating the net loss of carbon caused by converting forest to oil palm planting, the relevant baseline for Per hectare, typical tropical peatland has a carbon stock of comparison is what would have happened to the land without about 6 tonnes of carbon per cm of peat depth. This means conversion. Thus, it is not just carbon losses from the existing that the equivalent of our above-ground carbon threshold biomass that have to be taken into account. The future carbon of 75 tonnes of carbon per hectare would be reached with sequestration that is foregone by removing the forest also a peat depth of only about 12.5 cm. Other organic soils (i.e. has to be accounted for, or alternatively the future carbon soils with more than 12-20 % of organic carbon by weight) losses that would result from uncontrolled degradation if the may hold substantial mineral material, but do not contain less forest were not converted to oil palm. That said, conversion carbon than pure peats. When mixed with clay, the carbon can itself bring compensating gains as the newly developing density of organic soils does not go below that of the lightest oil palms themselves sequester carbon. When cleared land or pure peats (about 2 tonnes of carbon per cm depth). When grassland is converted, the gain in carbon stock in the oil palm mixed with sand, the carbon density is never below the typical biomass over the 25-year crop cycle may exceed the losses of value for peat of 6 tonnes of carbon per cm depth. carbon from the converted land. Tropical organic soils thus mostly surpass the 75 tonnes threshold with an organic soil layer of more than 12.5 cm 3.2 Defining carbon thresholds thick and always surpass that threshold with an organic layer of more than 37.5 cm thick. Carbon thresholds are central to the HCS+ methodology. These thresholds are set according to the amount (tonnes) of Forests with soil carbon stocks above the 75 tonnes threshold carbon estimated to exist per hectare of land. The thresholds are defined as HCS forests. With this threshold, all peat are used to identify land and forest that must be protected would be protected irrespective of its exact definition. We and land and forest that can be converted. The HCS+ recommend the protection of all soils with an organic layer of methodology uses two thresholds, one for above-ground more than 15 cm in depth as a precaution to ensure that the carbon, and the other for soil carbon. We have set both soil carbon threshold is never exceeded. thresholds at the same level: 75 tonnes of carbon per hectare.

3.3 Applying the carbon thresholds Above-ground carbon threshold Applying the thresholds proposed above will achieve the To define the above-ground carbon threshold, as our main following key objectives: metric used is above-ground biomass carbon. This metric does not include deadwood carbon on the forest floor and • No clearing of Old-Growth forests, forests regrowing after therefore does not represent the total above-ground carbon selective harvesting, and secondary forests where above- stock. We use biomass carbon because of the difficulty of ground carbon is more than 75 tonnes per hectare; assessing levels of deadwood carbon using remote sensing. In any case, including deadwood carbon in the accounting of • No development on organic soils (peat and other) where above-ground carbon would only make a significant difference the organic layer exceeds 15 cm in depth; in logged forests, and these tend to be above our threshold of • Enable well planned development by conversion of some 75 tonnes of above-ground carbon per hectare. We have set forests with above-ground carbon of less than 75 tonnes per this threshold guided by a global overview5 and we use the hectare, provided that development is carbon neutral; and above-ground carbon threshold to define High Carbon Stock • Encourage development on low carbon lands - currently (HCS) forests. These include the largest natural above-ground unused, already cleared or degraded lands where these are suitable for oil palm. 4 That is, soils containing mostly inorganic matter. 5 See Part 2 of this Study for details.

34 High Carbon Stock Science Study Part 4: Independent Report from the Technical Committee Extended Summary

To make application of the thresholds as simple as possible, into account. The broad concept is illustrated in Figure 3, and we are proposing that they are applied sequentially. First, detailed examples are provided in a Case Study (see Part 3 of the above ground carbon is assessed. If this is less than the this report). This carbon neutral concept is complementary to threshold then the soil carbon is also assessed. Areas that the application of the carbon thresholds. exceed either threshold are defined as High Carbon Stock forests and should not be converted to oil palm. In order to achieve carbon neutral development at the concession level, the concession is mapped into small units. Applying these two thresholds sequentially, together with For each unit, we compute the carbon debit or credit (caused the requirement for carbon neutral development, will by changes in biomass and soils) that would result from the concentrate new oil palm development on lands with lower unit being either converted or set aside. This information is carbon stocks, including already cleared or degraded land. then used to guide planning for carbon neutral development. We do not recommend varying the HCS+ thresholds for different countries/regions. Heavily forested regions and If there is not enough land within a concession to compensate landscapes contain more opportunities to set aside forests fully for carbon losses from forest conversion, a commitment to compensate for higher site-specific losses of carbon as to protect forests outside the concession could be taken into a result of conversion. In regions where most land is HCS, account. However, this would apply only to forests managed regional planning by governments should determine how best by the same company and in the same biogeographic to achieve conservation and development goals while still region – and only if those forests would otherwise not be striving to maintain carbon neutrality. This is a complex area protected. In such cases, concession owners will carry a legal that requires further analysis. liability to maintain carbon neutrality if concessions are sold or converted to other uses. A carbon neutral approach that includes protection of set aside forests requires periodic 3.4 Achieving carbon neutral development monitoring to verify the accumulation of carbon stocks (with the first assessment forming part of certification audits Complementary to the application of the carbon thresholds to verify that the concession is HCS+ compliant). Further is the concept of carbon neutrality. A carbon neutral oil monitoring is required to check that protected forests are palm concession produces zero net carbon emissions to the accumulating carbon as predicted and that carbon stocks are atmosphere. Within a single concession, carbon losses from maintained after the 25 year rotation. forest conversion can be balanced against ongoing carbon sequestration in protected set-aside forests, as well as in oil palm plantations on low carbon stock lands. Where relevant, avoided emissions from peatland rewetting can also be taken

Figure 3: Schematic diagram illustrating carbon neutral development of oil palm at the concession level. The relative size of the three zones will vary markedly depending on the characteristics of each concession being developed – in many cases protected forests will dominate. HCV, HCS, and other non-HCS forests are set-aside and actively protected so as to help achieve carbon neutrality. Small patches of HCS forest and peat may also occur within the amber zone.

High Carbon Stock Science Study 35 Part 4: Independent Report from the Technical Committee Extended Summary

Section 4: Ensuring Positive Socio-Economic Outcomes

Positive socio-economic outcomes are a critical foundation for With the current expansion of oil palm into some of the sustainable development, along with protection of ecosystem poorest countries in the world in West and Central Africa, services. The HCS+ methodology provides flexibility to enable a more explicit focus on rights and welfare is now required the objectives of protecting ecosystem services and generating to ensure that the full potential of palm oil to contribute to positive socio-economic outcomes to be met at the same time. local and national development is met, and that any negative impacts are minimised. This focus must involve much better The oil palm sector has generated substantial development in monitoring and auditing of the implementation of existing Malaysia and Indonesia through the creation of employment, industry standards established to protect human rights tax and export revenues and economic linkages. Smallholders and promote socio-economic benefits, and more precise have been an important part of this process, benefiting from measurement of welfare outcomes. the access to capital, new technologies and markets that the plantation sector has provided. However, this positive broader picture needs to be balanced against the more variable outcomes that have sometimes been experienced at local levels. These have included the loss of land without the Free, Prior and Informed Consent (FPIC) of local communities, as well as low wages, unacceptable working conditions, localised environmental damage and flawed smallholder schemes. Our case studies of Indonesia, Malaysia, Nigeria, Liberia and Cameroon analyse aspects of these positive and negative outcomes.

Section 5: The HCS+ Socio-Economic Methodology

The objective of the HCS+ socio-economic methodology is Standardised procedures for the establishment of fair smallholder to provide the information necessary to enable companies models and the provision of social infrastructure. Companies to meet their commitments to protect human rights and to should negotiate social contracts with communities that generate socio-economic benefits through their operations. establish fair terms for attached small-holders, and set The proposed methodology consists of mechanisms for out commitments for the provision or support of social improved implementation of existing standards by using infrastructure such as education and health facilities. These concrete criteria to assess adherence, and methods for the may also include assistance to independent smallholders measurement of the impacts of companies’ operations on with improved technologies and market access, as well community welfare - a new Palm Oil Welfare Index (POWI) as plans for community access to and management of is proposed for this. The HCS+ socio-economic methodology environmental set-asides. can be summarised thus: A procedure to monitor the socio-economic outcomes of oil Clear, measurable and objective criteria to verify adherence palm development for local communities. Companies should to existing human rights and welfare standards. Such criteria use established methods such as those included in the should build on existing mechanisms and provide the basis new Palm Oil Welfare Index to monitor aspects of welfare for expanded monitoring and auditing processes. including food security, income, and access to clean water and social infrastructure. These methods provide an objective An auditing process dedicated to socio-economic objectives. information-base for planning and management to ensure Dedicated socio-economic auditing should be carried out that socio-economic benefits are maximised and any negative prior to land conversion (as well as subsequently) in order impacts minimised. to ensure that FPIC processes have been fully respected and that livelihood set-asides are adequate for local community needs.

36 High Carbon Stock Science Study Part 4: Independent Report from the Technical Committee Extended Summary

Table 1: Possible criteria for socio-economic outcomes addressed in existing standards.

Stage of oil palm development for Topic Outcome Possible criteria for verification verification

Labour Fair wages Records of wages; confirmation of wages Periodic monitoring after concession with employees. established Freedom of Records of meetings; confidential interviews association with employees. No child/forced labour Records of the age and status of employees.

Participatory Participatory process Multiple lines of evidence to verify Prior to land conversion; Process to identify set asides participatory process based on village periodic monitoring after plantation for livelihoods and meetings, household surveys, individual established.to verify access to set asides. cultural sites interviews with a cross-section of community members, and visits to Representation for set-asides. local communities Informed consent from local communities to relinquish land Process for grievances Evidence of procedure; interviews with Periodic monitoring after concession employees to assess awareness of process. established.

Social infrastructure Standard operating procedure in companies Prior to land clearing as part of a to identify and fulfil community needs. Memorandum of Understanding (MOU) with community and periodic monitoring subsequently. Application of POWI to measure welfare Establish base line prior to clearing, and impacts of social infrastructure interventions. periodic measurement subsequently.

Inclusion of Fair smallholder Programmes for technology sharing with Prior to clearing to identify plans; periodic smallholders models smallholders to help obtain certification and monitoring. improve yields; surveys of smallholders.

Methods to monitor socio-economic outcomes from oil facilitated by the company (health facilities, schools, and palm development electricity). These four attributes can be combined into a single metric using the following method: Quantitative measures of socio-economic outcomes for local communities are needed to monitor progress, to inform auditing of outcomes and to adapt management approaches where necessary. We propose a practical approach to measure welfare gains and losses to local communities from where x = percentage of households with attribute oil palm development, using a new measure, the Palm Oil i and n is the number of metrics Welfare Index (POWI).

The POWI includes four outcome measures of welfare: The marginal change in welfare is the difference in the POWI income generated from oil palm concessions; food security; over time. access to clean water; and access to social infrastructure

Table 2: Attributes for inclusion in the Palm Oil Welfare Index (POWI).

Attribute Survey component Score Metric for POWI

Income from oil palm Does a member of your household 1 = yes, 0 = no Percentage of households with concession earn income from the oil palm income from oil palm concession concession?

Food security Food Consumption Score following 1 = acceptable, Percentage of households with WFP methodology 0 = borderline, 0= poor acceptable food consumption

High Carbon Stock Science Study 37 Part 4: Independent Report from the Technical Committee Extended Summary

Attribute Survey component Score Metric for POWI

Access to clean water How long does it take to collect 1 = <30 minutes, Percentage of households within facilitated by company enough clean water for your family 0 = >30 minutes 30 minutes collection time for from the closest source? sufficient amount of clean water

Access to social How long does it take to walk to 1 = <1 hour and yes to Percentage of households within infrastructure facilitated the nearest health care facility? Are second question, one hour to adequate health by company (each of the 3 health care workers and medicines 0 = >1 hour or no to second facility facilitated by company attributes comprises 1/3 of available at the nearest health care question social infrastructure score) facility?

How long does it take to walk to 1 = < 1 hour and yes to Percentage of households within the nearest school? Is the nearest second question, one hour to adequate school school equipped with teachers and 0 = >1 hour or no to second facilitated by company educational materials? question

Does your village have access to 1 = yes to both questions, Percentage of households with electricity and/or lighting? Do you 0 = no to either question useful electricity and/or lighting use this electricity and lighting? facilitated by company

Section 6: Implementing HCS+ to Support the Sustainable Development of Oil Palm

Sustainable development must always take into account the the other specified inputs. The HCS+ integrated planning social, economic and environmental Pillars. At the highest approach described below would replace and extend the level, land use decisions are affected by drivers that reflect current Social & Environmental Impact Assessment (SEIA) global, national and local-level factors (Figure 4). process.

HCS+ focuses on improving concession-scale decisions, Concession-level plans should fit within a larger-scale as summarised in Figure 5 below. In order to generate landscape planning framework, with strong linkages between appropriate local land development options, HCV and HCS+ national, regional and concession-level plans as shown in assessments should be integrated with FPIC processes and Figure 6. Such planning is the responsibility of governments, and will thus be guided by national priorities and goals, as well as by input from all relevant stakeholders. NATIONAL LEVEL

Governmental socio-economic goals, forest conservation and emissions reduction targets and legal frameworks. CONCESSION LEVEL

An Integrated Assesment leading GLOBAL LEVEL to a range of development options. LAND Key inputs to the assessment are FPIC, International environmental & DEVELOPMENT HCV, HCS, land capability socio-economic DECISION for oil palm, and broad regional imperatives and goals. goals for social development and environmental protection.

COMPANY LEVEL

People, Planet, Profit.

Figure 4: Multi-scale inputs into land development decisions.

38 High Carbon Stock Science Study Part 4: Independent Report from the Technical Committee Extended Summary

KEY STEPS IN IMPLEMENTING A HCS+ METHODOLOGY BIODIVERSITY SOCIO-ECONOMIC CONSIDERATIONS CARBON CONSIDERATIONS CONSIDERATIONS Initiate Free, Prior and Informed Consent (FPIC) processes Map estimated biomass carbon distribution and soil types across Map HCV and HCS the concession based on remote forest areas Map land use and areas used for local sensing and field surveys livelihoods using participatory mapping within and adjacent to concession

Multi-stakeholder Multi-stakeholder process to identify process to identify areas Apply HCS thresholds and rules to needs for social needed for food security define patches for protection or infrastructure/ and other livelihoods of development development local communities

Map areas of land not available for conversion based on: carbon thresholds, HCV, and FPIC that determines local community use INTEGRATED PLANNING

Estimate andmap potential carbon fluxes (soil + biomass) that would result from oil palm conversion in available land

Map options for achieving carbon neutral development

Provide maps and plans for improved welfare as input to FPIC and multi-stakeholder negotiations

Agreed land development plan

Implementation plan -Clear goals for socio-economic and environment considerations -Detailed procedures for how to achieve these goals

Figure 5: Summary of key steps in implementing HCS+ to support the sustainable development of new oil palm plantations. A detailed description of each step is provided in Part 2 of this report.

National-level plans (reflect broad government policies and goals, such as targets for GHG emissions, forest cover, and socio-economic development goals)

Regional-level plans (consider regional context and reflect the regional contribution to national goals)

Concession (estate) - level plans (specify design and management of plantation estates consistent with sustainability principles)

Figure 6: How HCS+, which focuses on concession-level planning, fits into broader land use planning.

High Carbon Stock Science Study 39 Part 4: Independent Report from the Technical Committee Extended Summary

Section 7: Convergence with the HCS Approach

The HCS Approach was originally proposed by Greenpeace/ the HCS Approach and the HCS+ methodology support the The Forest Trust/Golden Agri Resources. protection of primary forests, as well as forests subjected to previous moderate levels of logging disturbance, and This approach used an approximation of carbon stock as older secondary forests. They also agree that low-carbon a basis for defining forest, and the loss of carbon stock as scrub landscapes and open land should be priorities for any a basis for defining deforestation. In April 2015, the HCS proposed new development. Approach Toolkit was released which no longer specifies carbon ranges but uses the same vegetation stratification The HCS Approach and HCS+ have different approaches to to identify ‘viable’ forest which is then prioritised for dealing with young regenerating forest. The HCS Approach conservation. proposes that such forests should be protected, whereas under HCS+ forests with less than 75 tonnes above-ground While the HCS Approach focuses more on conserving forests, carbon are potentially available for development. Both and the HCS+ methodology focuses more on sustainable methodologies apply FPIC, community land use mapping and development, the methods and outcomes may be sufficiently HCV assessments to those forests, but the HCS Approach complementary to allow convergence. Discussions underway specifies a decision tree to assess and conserve forest values. indicate that there is common ground in application of the Much can be learned by undertaking a series of well-designed patch analysis concepts developed by the HCS Approach, field trials where the two HCS methodologies are applied side and in the use of LiDAR. There is also agreement on the need by side. Discussions are currently underway to make progress for rigorous implementation of HCV and FPIC, and robust towards convergence via such a process. support for the rights and needs of local communities. Both

Section 8: Key Conclusions and Recommendations

1. Demand for oil palm is likely to increase and play a 2. The HCS+ strategy is a new, integrated approach to significant role in the agricultural development of the sustainable development of oil palm plantations. tropical countries with suitable climates and soils. The method is built on three Pillars: maintaining critical Expansion of oil palm plantations is likely to increase ecosystem services; ensuring socio-economic benefits into the future given the projected global increase in for local communities; and enabling economically viable demand for vegetable oils, and the fact that oil palm is development. All three must be achieved for oil palm vastly more efficient in terms of oil yield per unit land development to be sustainable, and there should be area than alternative crops such as soy. This will increase no trade-offs between the three Pillars. The HCS+ pressure for further conversion of land, including forests. methodology achieves this by protecting important It is therefore crucial, as demonstrated in this Study, that forests for their carbon and other values; by obtaining all new developments are well-planned and rigorously carbon neutrality at the concession-level; and by allowing implemented, in order to secure the significant potential well-planned conversion of some forest land to generate long-term benefits at the local and national level. verified, equitable and conflict-free socio-economic benefits for local communities. Our methodology may When oil palm development involves conversion of also have application in dealing with similar development tropical forests or organic soils, ecosystem services challenges for other crops in the tropics. are negatively affected. While in many cases oil palm development has contributed to improvements in socio- economic conditions for local communities, in others, food security and human rights have been negatively affected. Sustainable oil palm development requires that both critical ecosystem services are protected and that local communities benefit.

40 High Carbon Stock Science Study Part 4: Independent Report from the Technical Committee Extended Summary

3. The HCS+ methodology adopts existing approaches for Communities themselves should play a central role set-asides to protect High Conservation Value forests, in this management process in order to promote its organic soils, and land to satisfy the livelihoods of local effectiveness and provide them with further livelihood communities. But it is not a strict ‘No Deforestation’ opportunities. approach. • HCS+ seeks to ensure that set-aside forests are Based on the potential of the oil palm industry effectively protected for the long-term. This effective to contribute to sustainable development if local protection of HCV and HCS forests (including communities benefit, HCS+ allows development of peatlands) and the carbon neutrality of any conversion low carbon stock land provided that conversion is are the best guarantee that losses of forest values by carbon neutral across a company’s concessions in a deforestation and forest degradation are avoided over biogeographic region. time. Thus, loss of some non-HCS forest to enable responsible development, may well result in much Neither the HCS Approach nor the HCS+ methodology better overall forest conservation outcomes in the completely prevents deforestation (as in ‘zero long run. deforestation’), but they both aim to reduce it significantly. HCS+ ensures no deforestation of HCV and HCS (as • It addresses the often neglected but significant issue defined in this study) forests. Experience over the last of carbon in organic soils. 20 years has taught us that no amount of high-level declarations will protect forests on the ground unless and • It allows verification by independent parties. until local people and communities can see that their own economic interests and historic entitlements are better served through forests being set aside and protected for 5. Achieving socio-economic benefits from oil palm the long-term rather than cut down for short-term gain. development requires clarity over standards, and We maintain that some level of responsible development, measurable criteria to assess outcomes. This approach coupled with a strong role for both companies and local should apply to existing human rights standards and to communities in the protection and management of set- social contracts between companies and communities. aside forests is the best way to ensure the long-term protection of tropical forests in many countries. To ensure that the positive impacts of oil palm development are strengthened, existing human rights standards need to be implemented more effectively, 4. The HCS+ methodology for carbon neutral with better auditing and monitoring of adherence using development has the following benefits: measureable criteria. Companies need to develop transparent social contracts with communities which • It provides an additional mechanism to protect set out the roles and responsibilities of each including important forests beyond the constraint imposed social infrastructure provision and employment creation by HCS+ thresholds. by the company. The development of a tool to measure various aspects of community welfare, in the form of the • It facilitates the planning process by presenting Palm Oil Welfare Index (POWI) will allow companies to for discussion various land development options assess outcomes in relation to their commitments. This in an objective way. Within given constraints, it will provide clear evidence of positive impacts and inform allows flexibility in the allocation of land within a adaptation where necessary. concession (or across concessions). In this way it can accommodate nationally and locally differing conditions and opportunities. It also challenges 6. Under carbon neutral development, the socio-economic the concession holder to explore and benefit from implications of the need to protect large areas of set- production-relevant ecosystem services (such as aside forests need to be further explored. carbon storage, water supply) derived from set-aside areas. In addition to the socio-economic outcomes of the traditional oil palm operation, implementation of • It allows local communities to use set-asides for carbon neutral development, which creates a requirement livelihood needs (such as hunting and harvesting to protect large areas of set-aside forests, also has of non-wood forest products), as long as carbon considerable socio-economic implications. Although objectives are met. protection will bring additional costs, where development is carbon-positive or generates biodiversity benefits there • It makes the protection of all forest set-asides (HCS, may be opportunities to build linkages to attract external HCV, riparian and others) a direct, binding, and on- resourcing and to achieve better overall outcomes. There going responsibility of the concession holder. This are also opportunities to boost local livelihoods as a provides a critical mechanism for ensuring the long- result of community involvement in the management term protection of set-aside forests that currently of set-asides, with the creation of ‘green’ employment does not exist. Currently, in many cases, HCV and - helping to magnify the positive impacts of existing HCS forests are identified but then not included operations. within the concession boundary, meaning that the developer takes no responsibility for preventing future deforestation or forest degradation in these areas.

High Carbon Stock Science Study 41 Part 4: Independent Report from the Technical Committee Extended Summary

7. For large companies and associated smallholders, the than repeating land-use planning exercises in many following elements of HCS+ should be implemented concessions across the landscape. Rather it involves immediately for new oil palm plantation developments: establishing conservation and development goals at much larger scales, and then allocating and managing land to • Protect HCS forests, and HCS organic soils using the achieve those objectives. This approach will enable new thresholds provided; plantation developments to be allocated to areas where environmental impact can be reduced, and where positive • Protect HCV forests and other riparian set-asides; socio-economic benefits can be high. • Plan for carbon neutral development; and Governments (or relevant state/provincial jurisdictions) must lead such planning, which will be guided by • Robustly adhere to existing standards, and make national priorities and goals, by working with all relevant stronger efforts to promote positive socio-economic stakeholders including business, NGOs and communities. outcomes and to measure and report effectiveness. A recent study in Kalimantan showed that by relocating the development of new oil palm plantations to low carbon lands, GHG emissions could be reduced by 8. For large companies and their attached smallholders, 55-60% with very little impact on oil palm profitability. the full HCS+ methodology should be refined and fully Several significant pilot studies testing the application of implemented for new oil palm plantation developments a landscape approach to improving the sustainability of within 3 years, and sooner if possible. oil palm are currently underway in Indonesia. To achieve this will require comprehensive field studies evaluating the HCS+ methodology in diverse forest Landscape planning would also help to deal with the systems in differing countries. These field studies vexed issue of degraded land. We currently have limited should include several in Indonesia, one in Malaysia, knowledge of the area of this land, or of its availability and at least one in West/Central Africa. These trials and suitability for growing oil palm at commercial levels of should also explore mechanisms to bring independent productivity. smallholders within the HCS+ sustainable development framework. The learnings from the field studies should be incorporated into a ‘Toolkit’ for use by those developing 11. The HCS+ method could be merged with the HCS new oil palm plantations. Approach to provide clear and consistent guidance for companies and governments. While the HCS Approach focuses more on conserving 9. The conservation of HCS forests within new oil palm forests, and the HCS+ methodology focuses more on estates will inevitably increase pressure to convert sustainable development, the methods and outcomes forests in other places: may be sufficiently complementary to allow convergence This is a form of ‘leakage’6, and may also involve of the two. The HCS Approach and the HCS+ clearance to establish other less efficient oil-producing methodology are convergent in many respects, although crops (such as rapeseed, sunflower or soybean) if the the Approach is cross-sectoral and HCS+ is only for oil expansion of oil palm is curtailed. It is unlikely that all palm. Planning is currently underway for joint trials of leakage can be avoided, but to help reduce leakage, the two methodologies in diverse forest environments, it will be necessary to achieve wide-scale adoption of and the experience and findings from that exercise will HCS+ and the effective protection of HCS+ forests that be valuable in facilitating further refinement that could are set aside. Government support will be critical to hopefully lead to a single HCS methodology for future achieving this. Making the protection of HCS+ forests a use by the oil palm sector. Such a methodology would requirement for certification under the RSPO, and as a sensibly be governed by the RSPO. part of the purchasing policies of large companies, will also be important steps.

10. The HCS+ methodology focuses on concession-level development, but governmental planning of land-use at a larger spatial scale would produce greater overall benefits. Landscape-level plans to identify areas suitable for sustainable oil palm development are required. This requires a more comprehensive approach to land use planning decisions (see Figures 5 and 6). It is much more

6 Carbon leakage: When policy to reduce emissions in one area results in increased emissions elsewhere.

42 High Carbon Stock Science Study Part 5: Sustainable Palm Oil Manifesto Signatories’ Response to the High Carbon Stock Science Study Part 5: Sustainable Palm Oil Manifesto Signatories’ Response to the High Carbon Stock Science Study

Sustainable Palm Oil Manifesto Signatories’ Response to the High Carbon Stock Science Study

Introduction The HCS+ methodology proposed in the Report seeks to identify forests for protection based on potential GHG The Sustainable Palm Oil Manifesto (the Manifesto) outlines emissions from land-use change, as well as other important the commitment of eight companies (Apical, Asian Agri, ecological values. This will protect important biodiversity Cargill, IOI Corporation Berhad, Kuala Lumpur Kepong and also limit climate change impacts from new oil palm Berhad, Musim Mas Group, Sime Darby Plantation and developments. We see the HCS+ methodology being used Unilever) to ensure sustainability in the entire palm oil supply together with HCV assessments and FPIC plus socio- chain. Specifically, to build on the Roundtable on Sustainable economic considerations, as a core suite of tools for more Palm Oil’s (RSPO) Principles & Criteria by: sustainable land use planning outcomes.

1. Building traceable and transparent supply chains; In particular, we view the findings outlined below as a positive step towards sustainable oil palm development, but 2. Accelerating the journey to no deforestation through the importantly also takes into account the needs of impoverished conservation of High Carbon Stock (HCS) forests and the communities. protection of peat areas regardless of depth; and 1. Recommendation on the use of remote sensing, especially 3. Driving beneficial economic change and ensuring positive airborne LiDAR1, as a reliable and accurate method of social impact for people and communities. determining and monitoring carbon stocks.

The Manifesto Signatories recognised that there was a need 2. Carbon neutral development as a guiding principle for to buttress existing technical knowledge on the measurement future developments, which includes exploring the merits of carbon stock, and for HCS thresholds to take into account of using patch analysis in fragmented landscapes. the socio-economic development needs of fragile economies and impoverished communities. Collectively, the Signatories 3. Stronger and more effective implementation of the and Wilmar agreed to fund the High Carbon Stock Science FPIC procedure to ensure the rights and needs of local Study (the Study), and established a Steering Committee to communities. oversee the process while an independent committee of technical experts undertook a comprehensive programme 4. Recommendation on methods to measure and monitor of work, which covered the estimation of changes in soil socio economic outcomes due to oil palm development. and biomass carbon stocks, the use of remote sensing to The aim is to provide information that will improve the support estimation of greenhouse gas (GHG) fluxes, and planning and management of new developments, ensure assessment of the socio-economic impacts of new plantation positive socio economic benefits accrue, and minimise development. conflict with local communities.

As Signatories, we are pleased to receive this Report and 5. The study provides a framework for integrating multiple are now focused on the next phase of the journey – to trial key inputs for decision making in any new development. and implement the findings to ensure practical and equitable outcomes for all stakeholders, especially the indigenous and We think the HCS+ methodology has many synergies with rural poor in developing countries. existing standards and frameworks, especially those that have identified HCS as a key issue to be addressed, but currently lack the mechanisms to do so. Examples would include the A step forward for sustainable palm oil production RSPO and HCV framework. If HCS+ could reside within the ambit of existing sustainability standards, it would simplify Responsible oil palm development currently employs two key implementation, increase cost effectiveness and provide forest conservation tools. High Conservation Value (HCV) access to a wider stakeholder base beyond the Signatories assessments identify forests with significant biodiversity, to the Manifesto. valuable ecosystem services, cultural significance, and that are essential for community livelihoods, while Free, Prior and Informed Consent (FPIC) ensures respect for customary rights to forests, and recognises the critical role of forests for the provision of basic necessities for local communities.

1 LiDAR: Light Detection and Ranging - remote sensing technology measuring distance by illuminating the target with a laser and analysing the reflected light.

44 High Carbon Stock Science Study Part 5: Sustainable Palm Oil Manifesto Signatories’ Response to the High Carbon Stock Science Study

Discussions are ongoing to identify the best way to integrate iv. Gathering all the key inputs needed for decision HCS+ with existing standards, and we will continue to making in a new development. For carbon neutrality contribute to these discussions with the aim of streamlining to work, accurate monitoring and verification of data the various processes. Meanwhile, Reducing Emissions from on the ground is required. Measuring baseline poverty Deforestation and Forest Degradation plus Conservation levels and welfare increments using robust tools are (REDD+) and voluntary carbon mechanisms could provide also key to ensuring accurate projections of equity the much needed incentive and funding for companies and developmental gains. There is an urgent need wishing to implement HCS+ within their development areas. to develop the capacity of assessors to meet the Many of these mechanisms are still at their early stages, and requirements of HCS+. Also, HCS+ works in tandem more work needs to done to determine areas of convergence. with other developmental processes such as Social and Environmental Impact Assessments (SEIAs), and there While HCS+ was initially developed for the oil palm industry are opportunities to integrate HCS+ into the various and its related standards, the methodology is robust enough processes to reduce duplication and resources required. to be applicable to other agri-commodities and sustainable land use planning as a whole. When proven to be practical v. Incentives to protect steady-state forests. In certain and effective, HCS+ could be extended to other crops to landscapes, intact and near-intact forests have reached enhance their sustainability. Efforts are also underway to a state of dynamic equilibrium in terms of C-stock, engage relevant stakeholders to explore the wider adoption whereby no net carbon losses or gains occur. Therefore, of HCS+. relying on new growth alone to realise carbon credits may not be feasible. Sufficient incentives should be provided to encourage the private sector as well as local Things to Consider communities, especially smallholders, to also safeguard forests which have reached a steady state. For example, i. Highly forested landscapes and implementation of carbon credits for these sites could also be taken into HCS+ in these landscapes. The proposed carbon account during the planning stage under the carbon neutral approach in HCS+ appears to work well in neutral approach. This will encourage growers to protect fragmented landscapes where there are significant these HCS lands which may otherwise be vulnerable opportunities to balance between forest protection and to illegal logging, encroachment and deforestation, and loss of carbon due to forest conversion. However, HCS+ provide a way forward in balancing conservation with the currently provides little guidance on how to implement economic viability for sustainable development. HCS+ in a practical manner in highly forested landscapes, especially in areas where most of the land is categorised as HCS. We understand that this issue is not unique to Next Steps this Study and that other approaches have established specific working groups to explore the implementation This Report outlines useful guidance to delineate HCS forests of HCS in highly forested landscapes. The aim is to and minimise contributions to climate change from new oil develop a solution that would address both the needs palm developments. To ensure that HCS+ is practical and of the environment, as well as, the development needs robust, the steps and recommendations outlined in the report of local and indigenous people living in highly forested need to be tested in the field, refined and expanded on. The landscapes. Manifesto Signatories commit to:

One of the recommendations of HCS+ is to rely i. Identify suitable locations for field trials of HCS+ in on regional planning by governments to determine differing countries and landscapes. Each signatory will conservation and development goals in the context of prepare a roadmap for implementation and a clear time- carbon neutrality. We recognise this can be a challenge bound plan to trial HCS+ within its own organisation, or in many countries where governments lack capacity to in collaboration with other organisations. Each signatory develop and enforce such plans. is free to adopt a reasonable time-frame to enable field testing to be conducted. Signatories will publish their ii. HCS thresholds. We believe that the proposed HCS time-bound plans and file regular progress reports. threshold 75 tonnes of aboveground carbon per hectare which rules out any conversion of forest above that ii. Joint trials of both the HCS+ and HCS Approach threshold, will make new oil palm developments very methodologies in their areas of operations to compare challenging in many parts of the world. However, we conservation and developmental outcomes, as well as also understand the scientific analysis that supports this practicality of implementation. These trials will inform figure. On the proposed time average value of 30 tonnes further discussions on the complementarity, and support of carbon per hectare for oil palm over a 25-year rotation convergence of the two methodologies. period, we will continue to keep this figure under review, in light of new research that is still ongoing. iii. Cost effectiveness of HCS+. One of the three pillars of sustainable oil palm development highlighted by HCS+ is economic viability. Practical implementation of HCS+ requires verification of its cost effectiveness through testing and field trials in varying environments and landscapes.

High Carbon Stock Science Study 45 Part 5: Sustainable Palm Oil Manifesto Signatories’ Response to the High Carbon Stock Science Study

iii. Commission further work with developmental economists iii. Strengthening the socio-economic recommendations. and experts to strengthen the Palm Oil Welfare Index We contend that the socio economic component is the (POWI) method proposed by HCS+, including the review most challenging aspect of the HCS Science Study. The and potential incorporation of other socio economic original objective of the Study was to develop guidance approaches (such as a multi-dimensional poverty on addressing the trade-off between carbon and socio assessment and marginal utility gain measure) for trial economic benefits. HCS+ proposes to strengthen the socio-economic studies. implementation of existing standards, recommends actions to ensure greater socio economic benefits, and iv. Increase engagements with key stakeholders including the monitoring of socio-economic outcomes of oil palm governments, NGOs, palm oil users and manufacturers, development for local communities. Several metrics and producer associations to provide critical feedback to and verifiers have been proposed, such as the POWI, fine-tune HCS+. and we agree with the Report’s authors that more work is required before these recommendations can be v. Develop a HCS+ toolkit to provide more detailed implemented on a wider scale. guidance for practitioners, once HCS+ has been refined with inputs from field trials and multi-stakeholder Applying welfare economics to new oil palm engagements. developments is a novel idea, and there are no formalised processes to predict or quantify the welfare gains in vi. Establish a secretariat to administer further work for any new development, unlike more well-established the HCS+ study, and a website for Signatories of the environmental metrics. Several other measures of Sustainable Palm Oil Manifesto. poverty, such as the Multi-Dimensional Poverty Index by the Oxford Poverty and Human Development Initiative, The key areas we will examine in our field trials are as follows: and the UN Human Development Index, could provide additional input to the process, and be merged with i. Remote sensing alternatives to LiDAR for smaller POWI to improve its robustness. We will examine the players. The HCS+ methodology proposes using airborne socio economic recommendations in our field trials, and LiDAR as the preferred remote sensing tool. We agree work with developmental economists and experts to fine- that LiDAR is the most accurate means of mapping tune the approach. above-ground carbon stocks, to provide spatial planning on the landscape level. However, we also recognise The Malaysian Palm Oil Board (MPOB) and the Indonesian that the cost of airborne LiDAR may be prohibitive to Oil Palm Research Institute (IOPRI) have been involved in other key players such as smallholders and independent the HCS Science Study as observers to Steering Committee growers. To encourage widespread uptake of HCS+ by meetings. We will continue to engage these and other smaller players, we commit to trial alternative remote research institutions, and identify opportunities to leverage sensing approaches that could be more affordable, but their knowledge and expertise for the HCS+ field trials. Such provide similar outcomes to LiDAR. This work will build collaborations would provide a way forward for robust field upon the findings of Consulting Study 7 and 9 of the testing, but also capacity building at the local level for future HCS Science Study on “Review of global literature on HCS+ practitioners and specialists. the application of remote sensing for delineation and stratification of tropical forest ecosystems” and “Synthesis of the state of the art of aboveground biomass estimation using remote sensing”, respectively.

ii. Field trials in different countries and landscapes. We agree with the Technical Committee’s recommendation that HCS+ requires further testing in different countries and landscapes where there are varying ecological and socio-economic consequences. In particular, the carbon neutral approach is a new concept, requiring further validation and refinement. Learnings from field trials in various areas especially in Indonesia and African countries will inform discussions on the challenges, risks and benefits associated with HCS+, and provide primary data that will assist in the refinement of the methodology. Trials will also provide an opportunity to collaborate with the HCS Approach, through joint and concurrent testing of both methodologies at selected sites.

46 High Carbon Stock Science Study Part 6: Convergence with the HCS Approach Part 6: Convergence with the HCS Approach

Convergence with the HCS Approach

As alluded to at many different points in the preceding 2. The HCS Approach sections, some inevitable confusion has arisen from the fact This Approach was originally proposed by Greenpeace, that there are two major initiatives looking at this whole The Forest Trust and Golden Agri Resources in 2012. question of High Carbon Stock: It uses an approximation of carbon stock as a basis for 1. The High Carbon Stock Science Study defining forest, and the loss of carbon stock as a basis for As explained in the Introduction, this was set up by the defining deforestation. The initial approach is summarised in signatories to the Sustainable Palm Oil Manifesto, and has the figure below, where a threshold of about 40 tonnes of been underway for the last 15 months. carbon per hectare (with a range of between 25 to 70 tonnes per hectare) was used to define High Carbon Stock forests In its final Report, it has recommended the adoption of and thus set a constraint on forest available for conversion a new methodology (the HCS+ methodology) for taking to oil palm. forward new oil palm developments in forested areas. (You can find a summary of all the different aspects of the HCS+ methodology on Page 29.)

Figure 7: High Carbon Stock (HCS) forest stratification in tropical forests, adapted from the HCS Approach1, Golden Agri-Resources and SMART2, and Greenpeace3.

1 HCS Approach. The High Carbon Stock Approach: ‘No Deforestation’ in Practice. (2014) http://www.greenpeace.org/international/Global/international/briefings/ forests/2014/HCS%20Approach_Breifer_March2014.pdf [Accessed 15 Jun 2015]. 2 Golden Agri-Resources and SMART. High Carbon Stock Study Report – Defining and identifying High Carbon Stock forest areas for possible conservation. Published by Golden Agri-Resources and SMART, in collaboration with The Forest Trust and Greenpeace. (2012). pp. 45. 3 Greenpeace. Identifying High Carbon Stock (HCS) Forest for Protection: Towards defining natural forests and degraded lands (formerly forest) in the tropics. (2012). http://www.smart-tbk.com/pdfs/misc/HCS%20Briefer%20FINAL%20with%20graphic%20Eng%20REVISED.pdf [Accessed 30 Nov 2015].

48 High Carbon Stock Science Study Part 6: Convergence with the HCS Approach

Further work was then carried out on the original proposal, provided that carbon neutrality can be achieved. and in April 2015, the HCS Approach Toolkit was released. In the Toolkit, carbon changes are not specified, but the same We also agree on the need to trial these respective vegetation stratification is used. Its primary objective is still methodologies. Much will be learned about differences in to identify forests that should be conserved, but the method conservation and development outcomes in diverse forest also takes account of the needs of local communities environments by undertaking a series of well-designed field (by implementing FPIC) as part of the land development trials where the two HCS methodologies are applied side decision-making process. All vegetation that is not ‘scrub’ or by side. This would also provide valuable experience on the grassland is considered forest that is worth conserving. practicalities of implementation and on the challenges, risks These areas are then subject to an analysis of their likely and benefits of applying the carbon neutral approach. These viability, and ‘patches’ below 10 hectares in size are deemed trials will be designed to inform further discussions about the available for conversion. Otherwise, no forest may be possibilities for further convergence. Discussions are currently converted. underway to make progress towards convergence via such a process. The HCS Approach is only proposed for use in fragmented forest landscapes. There is no guidance provided as yet on There are other important issues that will need to be jointly how to address HCS issues in non-fragmented landscapes and addressed. These include: how to ensure that HCS and densely forested regions. HCV forest is not only identified but effectively protected in cooperation with any affected communities; who should While the HCS Approach focuses more on conserving forests, administer and apply any converged HCS methodology; how and the HCS+ methodology focuses more on sustainable to achieve future integration of HCS, HCV and FPIC; and how development, the recommended practices may be sufficiently to apply no-deforestation commitments in high forest cover complementary to allow convergence between the two. The regions. discussions under way indicate that there is firm common ground:

• in the application of the patch analysis concepts developed by the HCS Approach;

• in the use of LiDAR as an approach for deriving biomass maps and mapping organic soils which are part of HCS+. (As discussed above, application of LiDAR also has considerable co-benefits in improving other assessments and in supporting better plantation design, layout and management.); and

• in urging the rigorous implementation of HCV assessments and the FPIC process, and robust support for the rights and needs of local communities. (HCS+ goes further in proposing the introduction of criteria to track whether FPIC and other relevant rights-based standards have been well implemented, and more proactive and verifiable approaches to ensure that socio-economic benefits accrue to local communities.)

Both the HCS Approach and the HCS+ methodology support the protection of primary forests, as well as forests subjected to previous moderate levels of logging disturbance, and older secondary forests. They also agree that low-carbon scrub landscapes and open land should be priorities for any proposed new development, and the use of degraded land should, wherever economically viable, be prioritised.

Beyond that, the HCS Approach and HCS+ have different approaches for dealing with young regenerating forest. The HCS Approach proposes a lower above-ground carbon threshold than the HCS+ methodology. The HCS Approach threshold is about 40 tonnes per hectare, with a range of 25-70 tonnes per hectare (see Figure 7), with the aim of protecting all young regenerating forest. The HCS+ threshold is designed to protect all regenerating forests with more than 75 tonnes of above-ground carbon per hectare, while also providing opportunities for well-planned development

High Carbon Stock Science Study 49