* Local community backing key to saving forests
* Australia backs deforestation project in Borneo
* Peat forests contain vast amount of carbons
SINGAPORE, June 19 (Reuters) - Within a vast deforested area on Borneo island, Australia and Indonesia hope to turn an ecological disaster into a global lesson on how to help local communities save tropical forests and fight climate change.
Borneo, like the Amazon, is at the centre of efforts to fight deforestation that is a major contributor to global warming and many governments are trying to build on a U.N.-backed scheme that aims to reward developing nations for preserving their forests.
Billion of dollars in annual revenues are potentially in the offing but getting the support of local communities is crucial if forests are to remain standing and the scheme is to succeed.
"The major challenge is to change the behaviour of the community. That's the main problem," said Ben Tular of CARE Indonesia.
The NGO is among a number of groups helping Australia and Indonesia develop the Kalimantan Forests and Climate Partnership (KFCP) which aims to preserve and rehabilitate 100,000 hectares (250,000 acres) of carbon-rich peat land in Central Kalimantan.
Half the area has been cleared and half is still forested but under threat unless alternative livelihoods are found for the 20,000 people living in and around the project area. Australia has pledged A$30 million to fund the project until 2012 and a full field team will be on the ground from July.
Tular, CARE's programme manager for the project, said there had been an sharp increase in deforestation in the KFCP area because revenues from rubber, the main source of income for many villagers, had plunged because of the global financial crisis.
"Most of them have tried to developing farming there," he said of the cleared area of 50,000 ha.
"But maybe about 90 percent of activities have failed because the land is very acid. Most of the crops are dead."
KFCP, though, is part of a much wider problem. It represents a fraction of an area of forest cleared in the 1990s on the orders of former president Suharto on the mistaken hopes of growing vast crops of rice.
About one million hectares of forest were cleared, much of it sitting on carbon-rich peat swamps, and more than 4,000 kilometres (2,500 miles) of drainage canals were dug.
Observers who've seen the failed site from the air, say the former mega rice project area looks like a giant scar on the land, and during the dry season it is vulnerable to burning.
But where many see disaster, others see opportunity in the vast amount of carbon locked away in the peat soils.
The sale of carbon credits from stopping the peat land from burning and replanting the denuded areas could provide the incentive to slow the rate of deforestation, particularly in Borneo, which has already lost about half its forests.
Tropical rainforests and particularly peatland forests, soak up vast amounts of carbon-dioxide, locking away carbon in the wood and soil. Peat forests can release more than 2,000 tonnes of carbon dioxide per ha when drained and burned as well as large amounts of methane, a far more powerful greenhouse gas than CO2.
"Degradation of peat is one of the largest sources of greenhouse gas emissions in Indonesia," said Sam Zappia, AusAID's Acting Senior Representative in Indonesia.
AusAID, the Australian government's aid arm, and the Department of Climate Change in Canberra are helping develop the KFCP programme along with the Indonesian government and the Central Kalimantan provincial administration.
The programme is one of the first large-scale demonstration projects under the U.N.-backed forest carbon scheme. Called reduced emissions from deforestation and degradation (REDD), the project aims to use carbon credits from saving forests to reward developing nations.
The United Nations hopes REDD will become part of a broader climate pact to be negotiated at the end of the year and be ready by 2013 once issues such as ensuring protected forests remain standing are worked out.
Zappia said field teams were now collecting socio-economic details in local communities, such as wealth, sources of income, while a panel of experts were developing a way to estimate greenhouse gas emissions from peat in the KFCP site.
"This work will be scaled up from July, leading towards the damming of a network of drainage canals that is driving the process of degradation. Measures to prevent fire will also be put in place," he told Reuters from Jakarta.
He said the team will trial a system of incentive payments for activities at the site that support REDD, such as sustainable land use and forest protection.
"Payments would be funded through KFCP funds (grant aid), not through the sale of carbon credits," he said, since the programme was meant as a learning exercise at this stage.
Payments could, for example, initially be tied to indicators such as a reduced incidence of fire, and later could be tied to measured reductions in greenhouse gas emissions to model market-based approaches to REDD, he said.
Both governments hope to take the lessons learned to help design future REDD projects elsewhere and have already agreed to develop a second site involving a different soil type in Indonesia but have not yet decided on the location.
In the meantime, the Kalimantan partnership aims to tackle the very causes of deforestation.
"There's no point going in to do rehabilitation work if you're not looking at the broad drivers of deforestation," said Clare Walsh of the Department of Climate Change in Canberra.
These drivers included subsistence farming, logging or other uses of the forests and it was crucial to focus on economic development opportunities to tackle them.
Alternative schemes could include fish farming, growing alternative cash crops, such as fruit, as well as sustainable forestry by planting valuable timber species for harvesting. CARE has already introduced some of these into communities elsewhere in the mega-rice area.
Walsh said it was also crucial to help countries build up technical expertise on REDD, with the Australian government funding a separate programme to help Indonesia develop a national carbon accounting system.
"What you to do is get countries to the level that is required to participate in the compliance arrangements, whether it be a market or a fund," said Walsh, Assistant Secretary of the International Negotiations (Forest and Adaptation) Branch.
For now, Zappia and Tular said communities in the KFCP site welcomed the programme.
"Villagers are very enthusiastic," said Tular, adding that building dams across the canals and replanting cleared areas are among the projects that could provide employment.
But a crucial step was to try to get locals to understand the implications of their farming practices and how these might be in conflict with the conservation principles of the programme. (Editing by Megan Goldin)
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