* Norway urges rich nations to fork out to save forests
* Indonesia may match Brazil on curbing logging with more aid
* Market-based forest carbon credits scheme a decade away
By Sunanda Creagh
JAKARTA, Oct 25 (Reuters) - Indonesia could match Brazil's success in slowing deforestation but needs far more aid from rich nations such as the United States, Japan and the European Union, Norway's environment minister said on Monday.
Norway has signed a $1 billion climate deal with Indonesia, under which Jakarta has agreed to impose a two-year ban on new permits to clear natural forests.
Norway has already released $30 million of the funds, with the bulk to be paid out later after Indonesia proves greenhouse gas emissions have gone down and an independent audit is done.
But more aid is needed to save Indonesia's forests, said Norwegian environment minister Erik Solheim.
"$1 billion is a huge amount of money but Indonesia needs quite substantially more to be able to conserve and sustainably manage its forests," Solheim told Reuters in an interview in Jakarta, where he is meeting Indonesian officials.
"The United States should come in, Japan, other European nations could come into this scheme to make it robust enough."
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So far, Norway has been the biggest donor to protect tropical forests. At last year's Copenhagen climate summit, the United States, Australia, France, Japan, Britain and Norway agreed to provide a combined $3.5 billion from 2010-12 to help save forests.
Total pledges by rich donor nations rose to $4 billion in May, when members of a forest partnership met in Oslo.
Indonesia's vast tropical forests soak up enormous amounts of greenhouse gases but are threatened by agriculture and biofuel cultivation. Worldwide, deforestation is responsible for up to a fifth of all greenhouse gas emissions from human sources, according to U.N. data.
"The logic in the past was that you can make money from destroying the forest, you cannot make money from protecting the forest. That logic must be changed," said Solheim.
Oil-rich Norway has also allocated $250 million and $1 billion to forest conservation projects in Guyana and Brazil respectively.
"Brazil has reduced its deforestation rate by 80 percent from 2003 until 2010. That's a fantastic result. I think the prospects for Indonesia are of the same magnitude," he said.
Solheim said it was up to Indonesia, not Norway, to define which forests would be saved under the moratorium or whether existing permits to clear valuable forest would be honoured.
"If Indonesia came to Norway to tell us how to do our oil and gas production, Norwegians would laugh," he said.
Palm oil firms such as Wilmar <WLIL.SI>, SMART <SMAR.JK> and Indofood Agri Resources <IFAR.SI> have big expansion plans and vast land banks in Indonesia, the world's biggest producer of the oil used in cosmetics, ice cream and other products.
While Indonesian officials have said they would prefer for the $1 billion to be handled by an internationally reputable Indonesian institution, Solheim said Norway preferred an international institution such as the World Bank.
"This is a matter we have to discuss with the government of Indonesia," he said.
MARKET-BASED OFFSETS DISTANT
Part of Norway's donation will be used to set aside forests for pilot projects under a planned U.N-backed forest carbon offset scheme, called reduced emissions from deforestation and degradation (REDD).
So far, most REDD pilot projects are funded by governments. A market-based REDD scheme -- under which rich polluters could offset their emissions by paying poor countries not to chop down their trees -- was a distant prospect, Solheim said.
"That may come in 10 years time or so. It's much more likely we will get a market-based system in other areas such as energy," he said. "Some who are arguing that it should not be market-based can sleep peacefully because we are very far from a market-based system. Every single cent will come from taxpayers."
(Editing by Alister Doyle and Andrew Marshall)
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