Incentive design key to cut Indonesia forest emissions

January 14, 2012
Deforestation in Indonesia

Indonesia has the potential to realize major reductions in national greenhouse gas emissions from deforestation, and simultaneously earn significant new income for national and regional governments, if policies to Reduce Emissions from Deforestation and forest Degradation (REDD+) are developed with strong and specific economic incentives, said scientists in a new paper published in the leading scientific journal Proceedings of the National Academy of Sciences.

These encouraging conclusions were reached following groundbreaking economic modeling performed by scientists who reviewed observed deforestation in Indonesia from 2000 to 2005, as well as variations in the benefits and costs of converting land to agriculture during that same period.
  Scientists then mapped and estimated the impacts that alternate economic policies, such as cap-and-trade, simple voluntary, or well-structured voluntary incentive structures would have had on reducing emissions during that time.

The study, Structuring economic incentives to reduce emissions from deforestation within Indonesia was led by scientists at Conservation International and Environmental Defense Fund, with co-authorship from Padjadjaran University and World Resources Institute.

The authors’ research makes a strong case for Indonesia to design a comprehensive, national-level set of economic incentives for reducing deforestation emissions at broad scales to achieve maximum climate and financial benefits from the UN-supported REDD+ program.

“Our goal with this research was to provide Indonesian leaders a window into a climate-smart future”, said Dr Jonah Busch, lead author and climate and forest economist for Conservation International. “By studying the recent past, and comparing historic economic conditions with deforestation rates, we estimate the likely financial benefits of different policies for slowing deforestation in the country’s future.”

Dr Ruben Lubowski, co-author and chief natural resource economist in the international climate program at Environmental Defense Fund, added: “This is the first time potential emissions reductions from deforestation in Indonesia have been estimated using actual historical data on how deforestation varies with economic factors. Our analysis shows that the way REDD+ policies are designed can make a huge difference in achieving large-scale, cost-effective emissions reductions.”

Scenario one, which reviewed the likely outcome of a cap-and-trade or tax-and-subsidy program with international carbon payments at USD10/ton, revealed the highest potential benefits for Indonesia during the 2000-2005 study period:

  • Reduction in national emissions from deforestation 26 percent below reference levels
  • Avoidance of 211 million metric tons of carbon dioxide from deforestation emissions every year
  • Annual net revenue (national revenue minus expenses) of +USD1 billion per year for Indonesia

A second scenario, which explored the outcome of a payment-for-ecosystem service program on a site-by-site basis would have been less effective in preventing deforestation from shifting within the country and have accomplished significantly less: