Locally Appropriate Mitigation Action: Mine Reclamation for Rural Renewable Energy in East Kalimantan (LAMA-MORRE)

Concept Paper Locally Appropriate Mitigation Action: Mine Reclamation for Rural Renewable Energy in East Kalimantan (LAMA-MORRE) Introduction With the vital role of the mining sector for regional economic development in Indonesia, sustainable mitigation initiatives are urgently required to alleviate its severe carbon footprints. Mining contributes approximately five percent of Indonesia s total Gross Domestic Product (GDP) and an even greater share in resource rich regions such as East Kalimantan, West Papua and West Nusa Tenggara. The production value of Indonesia s mining industry is expected to double over the period from 2010-2016. Coal is expected to have the highest annual growth rate among mineral resources at 10.4 percent. Almost 90 percent of national coal resources and reserves are located in the three provinces of East Kalimantan, South Kalimantan and South Sumatera. Most coal mines in Indonesia are operated using open-pit mining. Without proper reclamation and rehabilitation this method leaves degraded and unproductive land in its wake once mining operations have ceased. Regulations and standards oblige mining companies to perform mine reclamation. However, facts show many ex mining sites are not reclaimed. Internationally, Indonesia has pledged its commitment to implementing low-emission development. It has set a target to reduce its emissions by 26 percent unilaterally, or by 41 percent with support from the international community. To achieve its target, Indonesia has developed detailed greenhouse gas emission reduction action plans at the national and provincial levels called RAN GRK and RAD GRK respectively. Mining is among the land-based economic activities targeted for mitigation actions and low-carbon development. Mining sector in East Kalimantan and its carbon footprint The mining sector is the backbone of the economy in East Kalimantan. In 2010, mining contributed 66 percent of the province s GRDP, 65 percent of which came from coal mining, and provided jobs for nine percent of the labour force. 1

LAMA MORRE Project: Summary Responsible Government Potential sites for development Potential area Number of beneficiaries during the innovation phase Estimated emission sequestration and reduction for the project duration Project duration Funding needed from donor Private and commercial investmentt Government financing Implementing partners East Kalimantan Provincial Government East Kutai, Berau, Paser, Kutai Kartanegara and West Kutai districts Innovation Phase - pilot implementation: 1,000 ha; Transformation Phase - scaled-up pilot implementation: 4000 ha; Maturity phase: 20,000 ha Participants in bioenergy crop plantation and power generation: 250 people; Access to rural electrification: 10,000 households 174,000 tco 2 -eq per year, consisting of 146,000 tco 2 -eq per year from sequestration and 28,000 from diesel use avoidance 5 years (2016-2021) EUR 5.1 million EUR 12.9 million EUR 4 million Ministry of Energy and Mineral Resources (ESDM) Ministry of Environment and Forestry (KLHK) PT PLN (State electricity company) District governments Mining companies Local communities Expected Result Climate mitigation Climate adaptation Increase carbon sequestration Carbon saving from diesel use avoidance Improve soil stabilisation Improve water conservation Sustainable development Increase the rural electrification ratio Local economies are strengthened and at the same time local micro watershed are healthy Reduce government fossil fuel subsidies Increase the use of Renewable Energy in the energy mix Reduce local poverty as a result of better livelihood quality 2 2

Coal production in the province more than doubled from 102 to 229 million tonnes between 2007 and 2013. The sector occupies approximately 2.7 million ha of land, or 22 percent of the 12.4 million ha area of East Kalimantan. Around 1.1 million ha of mining land is forested. The Provincial Climate Mitigation Action Plan (RAD GRK) assumes 70 percent of this forested land will be cleared for mining operations (RAD GRK East Kalimantan). The open-pit coal mining operations are sources of GHG emissions, mostly from forest clearing, fossil fuel burning, and coal bed methane. Since 70 percent of the 1.1 million ha of forested land is set for clearing; forest clearance will become the main source of GHG emissions. Particularly as the forested land may only yield less than 5000 tonnes of coal for each hectare cleared, yet emit over 0.1 tco 2 -eq per tonne of coal produced. Emissions from burning fossil fuels for transportation and electricity generation in coal mining operations are around 0.1 tco 2 -eq per tonne of coal produced, while methane emissions from coal beds amount to approxomately 0.02 tco 2 -eq per tonne of coal produced. GHG emissions from forest clearing are estimated to contribute more than a quarter of projected emissions for 2010-2020, equal to 6,114 MtCO2-eq during this period (East Kalimantan RAD GRK). It is estimated that without mitigation actions, less than a quarter of the land cleared for mining will be reclaimed by vegetation. LAMA MORRE Concept The East Kalimantan Provincial Government is developing a mining sector climate mitigation action called Mine Reclamation for Rural Renewable Energy (LAMA-MORRE). This mitigation action integrates land-based and energy sectors to produce wood-based bioenergy for rural electrification. It will increase the revegetation of cleared land inside mining concession areas and the rehabilitation of degraded land surrounding those areas by establishing short-rotation energy crop plantations LAMA MORRE to increase rural electrification The LAMA MORRE is a mitigation action which integrate land based and energy sector to produce wood base bio-energy for rural electrification. mixed with local tree species. The woody biomass from energy crops will be used as fuel for generating power through gasification technologies to electrify rural households. The establishment of energy crop plantations on ex mining land will ensure sustainable energy feedstock as most mining lands and their utilisation after closure come under government control. A market link between bioenergy production from energy crop plantations, power generation and power utilisation will be created in project development areas. Twenty-year contracts can be made with producers along entire production lines, following contracts between independent power producers (IPPs) and PLN. This will create market certainty for all producers along the entire supply chain. 2 3

LAMA-MORRE will create additionality and will permanently increase carbon stock. Additionality will be created, particularly outside the state forest estate. In East Kalimantan, half of the 2.7 million ha of mining concession areas are located outside the forest estate, more than 113,000 ha (22 percent) of which is forested. By law, forest conversion is legal on areas for development outside the forest estate, and is often called planned deforestation. Consequently, even if a mining company reclaims and replants ex concession land, there are no guarantees the vegetation will last, particularly after mining operations cease. The net balance of carbon stock volume in energy crop plantations will remain relatively stable over long periods of time as long as biomass power plants exist. Any loss in stock resulting from harvests will be replaced by new growth within a rotation, thus ensuring a stable balance of carbon stock. This mechanism will be permanent if biomass gasification power plants are sustained. The LAMA-MORRE approach includes three implementation phases: The Innovation Phase aims to develop a small, innovative pilot activity on a 700-1000 ha site with the potential for upscaling. It will test technologies at both upstream and downstream production lines, while identifying policy, government support and capacity building needs for upscaling. The LAMA MORRE creates additionality and will permanently increase carbon stock The Transformation Phase will focus on developing supporting policies and improving stakeholders capacity to create enabling conditions for upscaling the pilot activity to LAMAs. When these enabling conditions are in place, the project will facilitate the development of four bankable scaled-up pilot activities on 2,800-4,000 ha of revegetated degraded land. This will lead to the Maturity Phase where full application of innovative solutions will be rolled out to maximise GHG reduction leverage. Project duration will be five years covering the first two phases, but its impacts will continue beyond the project period in the Maturity Phase. 4

An innovative pilot project will be developed on a coal mining concession outside the state forest estate where rural community electricity needs could be supplied by a power plant with 1 MW installed capacity. Ensuring a sustainable supply of biofuel for a 1 MW power plant will require a 730-ha energy crop plantation. However, a larger, 1,000-ha plot may be necessary to accommodate other crop species mandatory to ex mining area revegetation. Downstream, an independent power producer (IPP) will be established. With the current feed-in-tariff (FIT) rate, generating power from biomass is not commercially viable. It can only be economically feasible if a power plant is (partly) subsidised or if there is additional revenue from environmental services, e.g. carbon credits. This could be implemented through the Ministry of Energy and Mineral Resources (ESDM) bioenergy development program. The IPP company will buy woody biomass to fuel the gasification power plant and directly supply the power it generates to PLN. The FIT policy requires PLN to buy power produced by renewable energy producers. PLN will sell its power to communities at a regulated price. The Transformation Phase will involve upscaling the pilot project to locations in districts with different characteristics. There should be at least one site inside forest estate land where more rules on crop composition apply. The innovation is expected to become fully commercially viable during this phase with the ESDM increasing the FIT rate and revenue being generated from environmental services. This will enable private investment in power generation. 2 5

In addition to lowering GHG emissions and increasing rural electrification rates, the project will benefit both mining companies and local communities. Mining companies will benefit from enhanced social support, better relationships with local communities and a better corporate image from improved sustainability practices, allowing them to access the growing number of green financing sources. Local communities, meanwhile, will benefit both economically from selling biomass to IPPs, and ecologically from improved ecosystem services: carbon storage and water conservation. In addition, project sites have the potential for silvopasture development by utilising energy crop foliage for livestock feed. LAMA-MORRE is fully in line with East Kalimantan s medium-term development plan for 2013-2018. In parallel with its economic growth target of 5.2 percent by 2018, the province is aiming to lower its emissions from 1,584 tco 2 -eq per USD million of provincial GRDP in 2010, to 1,250 tco 2 - eq by 2018. It expects to rehabilitate 200,000 ha of degraded land, reclaim 40 percent of ex mining lands, increase the electrification ratio to 80 percent and raise the share of renewables in the energy mix to 3 percent. LAMA-MORRE will contribute to these development targets, especially the mining sector mitigation target to reduce CO 2 emissions by up to 19 percent of the business as usual baseline by 2020. Technology selection: short rotation coppice Short rotation coppice technology will be transferred to communities and mining companies. It is an enduring system for land restoration; a one-off planting of fast growing trees remaining productive for up to 20-30 years without the need for replanting. Coppice systems can be harvested once every 7-12 months. According to the Bangkalan Madura energy crop plantation project, its Calliandra sp. plantation with 50 x 50 cm to 1 x 1 metre plant spacing can absorb around 40-60 tco 2 -eq/ha/year (or 30-60 tonnes of biomass per hectare) from the atmosphere and store it in tree trunks and branches. After the initial harvest, farmers can produce around 3-6 times the quantity of wood. This is made possible by the significant increase in buds following the first harvest. Two to six buds may emerge from the trunk. Only one or two of these buds will be harvested, thus allowing the vegetation to have a closed canopy, as required by government regulations There are three potential fast growing, high calorie species suitable for degraded land in mining concession areas: Calliandra sp, Gliricidia sepium, and Leucaena sp. Calliandra Sp 6 2

LAMA-MORRE is designed to contribute to rural electrification. Therefore, downstream it will deal with small-scale power generation - less than 5 MW. Experts suggest that gasification technologies are more efficient than combustion technologies (steam turbines) for such small-scale power plants. Gasification is a thermo-chemical process where biomass is converted into fuel gas; a mixture of several combustible gases. It is a highly versatile process because virtually any (dry) biomass feedstock can be converted efficiently to fuel gas. Gasification technologies, which produce electricity via gas driven engines or turbines started being commercialised in 2009 (IEA 2012). Nowadays, such technologies are in common use in countries such as Germany and India. Post mining land LAMA-MORRE institutional framework and financing arrangements LAMA-MORRE will be empowered by public, private, and community sectors. The provincial government, with its mining and energy agency involved in day-to-day operations, will act as a steering entity. It will approve project strategies, coordinate policy development at the provincial level, pursue policy and administrative support from national and district government implementing partners, oversee implementation by the delivery organisation and measure and report project impacts. Implementing partners at the national level are two key ministries: ESDM and KLHK. The former will regulate mining activity and renewable energy development standards, while the latter will regulate mining reclamation standards on forest estate land and designate sites for degraded land rehabilitation. Implementing partners at the district level are district governments, which function to strengthen local communities and, together with the provincial government, have the authority to designate land use on ex mining concession land outside the forest estate. For pilot activities, the delivery organisation will facilitate the establishment of partnerships with local communities, mining companies, forest management units (FMUs) for areas inside the forest estate, independent power producers (IPPs) and PLN. Upstream, mining companies will cover all reclamation costs, including land contouring, topsoil placement and revegetation (inside mining areas) and rehabilitation (outside mining areas) with energy crops in accordance with standards laid out in regulations. Community-based business entities, preferably with support from the CSR fund, will bear the costs for planting additional energy crops. In addition, they will cover maintenance costs for plantations inside and outside mining areas. Depending on the feed-in-tariff rate, downstream capital expenditure may be borne by the IPP or (partly) subsidised by the government. ESDM, PT PLN and the provincial government are expected to cover the costs of developing rural electricity grids. 7

LAMA MORRE SCOPE Project The LAMA-MORRE project will minimise barriers to upscaling innovative mitigation actions. The following five components have been identified: Component 1.. Regulatory and policy framework A need for effective support policies has arisen due to the growing importance of the links between land use and renewable energy. Policy development should focus on the following: (a) Decrees from provincial and district governments on the designation of ex mining concession areas for energy crop plantation land use; (b) Revising feed-in-tariff rates to make innovative mitigation actions commercially viable; (c) Clear guidelines from the ESDM and KLHK ministries on the utilisation of biomass from mine reclamation areas. Component 2. Awareness raising, campaign and promotion to get full support from the stakeholders. The objective is to get the key stakeholders understand the benefit of the LAMA-MORRE. Once the stakeholders are aware about the benefits and impacts from the project, each of them is expected to give support to the pilot implementation and the upscaling. In addition to the policy development, the ESDM is also expected to provide grant/subsidy in the case of low FIT rate to government-owned IPP Company for the first pilot implementation, to build power grid infrastructure in rural areas, and to improve the efficiency of licensing. The KLHK is expected to synergise the bio-energy mine reclamation with FMU management plan as well as with watershed rehabilitation and sosial forestry. LAMA MORRE Project Scope Local communities are expected to participate in community-based business entities and/or develop energy crop plantations on degraded land surrounding mining concession areas, and to contribute to MRV. Expected support from mining companies includes decisions to integrate wood energy plantations into their revegetation activities, to allocate CSR resources for supporting local communities, and to play their role in the MRV system. The development organisation partner is expected to provide technical assistance and capacity building to the provincial government for managing LAMA- MORRE, to develop and implement an MRV system and to integrate LAMA-MORRE into provincial government operations. PT PLN is expected to synchronise potential project sites with the regional electrification plan (RUPTL- PLN), to simplify power purchase agreement (PPA) processes, and to support grid infrastructure development in rural areas. District governments are expected to strengthen community-based business entities, simplify business licensing processes, and develop more transparent and accessible land administration services for rural people. 8

Component 3. Technical support provision - This component will focus on supporting project developers from the initial development stage until the early years of operation. Support during the initial development phase is critical for new innovative businesses. It will help early movers to understand the business concept, commercial viability, as well as the risks involved. Technical support is required for the application of new technologies in the early years of operations to ensure successful adoption. Successful projects during the Innovation and Transformation Phases are central to attracting more investments for more widespread implementation during the Maturity Phase. Technical support provision will cover studies to identify potential sites for development, pre-feasibility studies, project conceptualisation, training and technical support for technology application and business management, and facilitation of business partnerships and access to financing. Component 4. Strengthening local community capacity - Local communities surrounding mining areas have an important role to play in managing energy crop plantations. The project will provide individual and institutional technical training and capacity building, including for community-based organisations. Individual capacity development will include competence in developing and implementing business plans, financial management, managing community credit unions, sustainable bioenergy crop plantation management, silviculture systems, wood energy harvesting techniques and gasification for power generation. Institutional strengthening for community organisations will focus on business entities organising energy crop plantations. Capacity development measures will ensure institutional and financial sustainability for biomass production and supply. Component 5. Developing MRV and evaluation systems - The objective of this component is to provide guidelines for the implementation of an MRV system which can be used for monitoring and evaluating the impacts of the LAMA-MORRE project. These guidelines will help the East Kalimantan Provincial Government to report LAMA-MORRE achievements on a regular basis. The guidelines will be introduced to parties responsible for data collection, to assessors and to data analysts through capacity building measures. LAMA MORRE Coordination Structure Overall, the LAMA MORRE concept and approach will facilitate a transformational change in the development of bioenergy crop plantations on degraded land for rural electrification. Key elements of this transformational change are the three policies listed in Component 1 along with the stakeholder support listed in Component 2. The first two components will create the enabling context for investments in energy crop plantations on degraded land and in biomass power production. However, a tipping point will never be reached without early movers providing living examples of successful implementation on the ground. LAMA-MORRE will cooperate with early movers in five different locations during the Innovation and Transformation Phases over the five-year project period to establish five successful pilot activities. The project will provide capacity development and technical assistance for local communities in managing energy crop plantations, and to power producer companies (see Components 3 and 4). 4 9

With five successful projects and enabling conditions afforded by supporting policies and government support, many local communities and renewable energy companies will become interested in allocating their resources to investing in energy crop plantations on degraded land and in renewable power generation. The success of LAMA-MORRE is highly dependent on national government support. This will be secured through agreements on bioenergy development in East Kalimantan between the provincial government and the two key ministries at the national level (ESDM and KLHK), which are now (November 2015) nearing completion. Upscaling to National Level With the supporting policy framework at the national level partly facilitated by LAMA-MORRE, the concept has the potential for replication in other regions of the country. The early stages of replication are expected to take place during project implementation, particularly in other open-pit coal mining regions in South Kalimantan and South Sumatra. Upscaling to the national level will be integrated into an existing national-level initiative. Called the Sustainable Wood Energy and Enhanced Technology (SWEET) NAMA, this initiative aims to reduce emissions by increasing natural carbon sinks on degraded land. Funding Support The five-year project is expected to require approximately EUR 5.1 million in donor funding. These funds will be used for implementing the project s five components in the Innovation and Transformation Phases, and will leverage community and private sector investments of up to EUR 12.9 million, and government investment of up to EUR 4 million. Community and private investment is to cover capital expenditure for bioenergy crop plantations in five sites: one in the Innovation Phase and four in the Transformation Phase. Assuming the Ministry of Energy and Mineral Resources increases the FIT rate to allow commercially viable implementation private investment will also cover capital expenditure for developing the four power plants in the Transformation Phase. Government investment is to cover power plant development for the first pilot during the Innovation Phase (one site), as well as for developing grid infrastructure in the five pilot sites. Assuming upscaling to 20 plants in the Maturity Phase, leveraged community and private investment will reach EUR 60.8 million. GE-LAMA-I has been facilitating the East Kalimantan Provincial Government in developing the LAMA-MORRE concept since early 2015. GE-LAMA-I is a bilateral Indonesian-German cooperation project, funded by the German Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB). Green Economy and Locally Appropriate Mitigation Actions in Indonesia (GE-LAMA-I ) Wisma Bakrie II 6th floor / Jl. H.R. Rasuna Said Kav B2 Jakarta 12920 - Indonesia / T: +6221 57932687 / F: +6221 57932687 / www.gelamai.org