Policy Memo
Economic IncenƟve Policies for REDD+ in Indonesia: Findings from the OSIRIS Model
Foreword Climate change is a dening challenge of our Ɵme. The acƟons we take now to resolve the climate crisis will determine the quality of life and security of all future generaƟons. Signicant impacts will be inevitable and will last well beyond our great grandchildren’s lives if we do not scale up eīorts to reduce greenhouse gas emissions and help vulnerable people, species, and ecosystems to cope with the impacts of irreversible change. More than at any point in our history, the global community requires rapid deployment of innovaƟve policies and incenƟves to combat climate change. The most immediate and cost eīecƟve soluƟons must be harnessed to begin our global transformaƟon to low carbon, sustainable development. This eīort for our generaƟon is comparable to the design of the Marshall Plan following World War II, or the Race to the Moon of the 1960s. Our success depends on creaƟve, collecƟve, conƟnuously ambiƟous, yet pracƟcal acƟons. Climate change soluƟons provided by Nature, including REDD+- the reducƟon of emissions from deforestaƟon and conservaƟon of standing forests – are immediate and essenƟal to our collecƟve global goal of climate security. Indonesia’s visionary President Yudhoyono has recognized the importance of developing country leadership in resolving the climate challenge. His commitment to reduce Indonesia’s greenhouse gas emissions by 26% to 41% below projected levels by 2020 establishes Indonesia among a very select group of naƟons in surmounƟng this important challenge. Achieving reducƟons at these scales in Indonesia will depend on creaƟng an eīecƟve system for REDD+, which the government is aggressively pursuing. What is more, Indonesia, along with Brazil, is one of the world’s two highest priority megadiversity countries, and a comprehensive REDD+ system will not only help to miƟgate climate change, but also to help conserve the naƟon’s amazing biological wealth. Indeed, climate and biodiversity go hand in hand, with protected areas playing a fundamental role in ensuring success in both. The enclosed policy brief oīers important recommendaƟons on the framing of naƟonal policies and economic incenƟves for an Indonesian REDD+ program. It is the product of a valuable collaboraƟon that our insƟtuƟons, DNPI and ConservaƟon InternaƟonal, are honored to share. Our commitment to eīecƟve soluƟons for climate, social and environmental security has inspired this work. We hope that you will be inspired to join us in supporƟng the ambiƟous climate eīorts in Indonesia and across our precious Earth.
Rachmat Witoelar, President’s Special Envoy for Climate Change, Republic of Indonesia and ExecuƟve Chair of Dewan Nasional Perubahan Iklim Economic incenƟve policies for REDD+ in Indonesia
Peter A Seligmann, Chairman of the Board and Chief ExecuƟve Oĸcer ConservaƟon InternaƟonal
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Contributors Jonah Busch, Muhammad Farid, Fred Boltz - ConservaƟon InternaƟonal; Farhan Helmy, Doddy Sukadri - Dewan Nasional Perubahan Iklim (DNPI); Ruben Lubowski - Environmental Defense Fund
Acknowledgement The authors are grateful for the acƟve support and guidance provided by many colleagues, most notably the following: Agus Purnomo, Amanda KaƟli Niode, TiƟ Panjaitan (DNPI), Yeƫ Rusli, Nur MasripaƟn and IndarƟk (Ministry of Forestry), Wahyudi Wardojo (TNC), Rizaldi Boer (Bogor Agriculture InsƟtute), Heri Purnomo (CIFOR), Arief Anshory Yusuf (Padjajaran University), Kemen AusƟn (WRI), and Fabiano Godoy, Marc Steininger, Jenny Hewson, Daniel Juhn, Iwan Wijayanto and Jatna Supriatna (CI).
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Economic incenƟve policies for REDD+ in Indonesia
Economic incenƟve policies for REDD+ in Indonesia REDD+ is a promising policy mechanism emerging from global climate negoƟaƟons under the United NaƟons Framework ConvenƟon on Climate Change (UNFCCC) that aims to provide nancial incenƟves for developing countries to Reduce Emissions from DeforestaƟon and forest DegradaƟon, “plus” sustainably manage forests and conserve and enhance forest carbon stocks. ParƟes to the UNFCCC agreed on methodological guidance for REDD+ in Copenhagen COP15, December 2009, and are nearing agreement on policy approaches for REDD+. The central goal of REDD+ policies is to provide payments for maintaining standing forests, thereby creaƟng an opportunity for developing countries to grow economically without sacricing their wealth in natural forest resources and biodiversity. As such, REDD+ provides means of meeƟng mulƟple goals of climate change miƟgaƟon, poverty reducƟon, ecosystem conservaƟon and sustainable development. Since tropical deforestaƟon is responsible for about 15% of global greenhouse gas emissions,1 policies for REDD+ oīer the opportunity to miƟgate a major share of global GHG emissions. REDD+ is expected to do so at low esƟmated costs, while also protecƟng biological diversity and providing a wide range of other environmental and social benets.2 Investments in REDD+ are also potenƟally aƩracƟve as a near-term opƟon for reducing emissions using exisƟng technologies, buying Ɵme to reengineer other sectors of the economy. As a result, there is growing consensus that protecƟng and managing forests will play a key role in addressing the global climate change problem. The crucial role of REDD+ in meeƟng global climate miƟgaƟon goals was noted in the Copenhagen Accord of December 2009. The Accord has sƟmulated pledges of $4.5 billion to date to catalyze the development of REDD+ acƟviƟes. NaƟonal readiness for implementaƟon of REDD+ is underway in more than 40 forest countries, with the support of the World Bank’s Forest Carbon Partnership Facility (FCPF) and the UN-REDD program. REDD+ readiness acƟviƟes includes developing infrastructure for monitoring, reporƟng and verifying deforestaƟon emissions, capacity building, insƟtuƟonal strengthening, demonstraƟon acƟviƟes, and naƟonal strategy development to reduce emissions from deforestaƟon.
A successful system for REDD+ in Indonesia will be criƟcal for meeƟng naƟonal greenhouse gas (GHG) emission reducƟon goals and would provide a key A successful system for REDD+ in Indonesia will be criƟcal for contribuƟon to meeƟng naƟonal greenhouse gas (GHG) emission reducƟon global climate goals and would provide a key contribuƟon to global climate soluƟons soluƟons. According to Indonesia’s NaƟonal Council on Economic incenƟve policies for REDD+ in Indonesia
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At the G20 Summit President Susilo Bambang Yudhoyono commiƩed to a 26% emission reducƟon target by 2020 making Indonesia the rst large developing country to do so Climate Change (DNPI), net emissions from deforestaƟon, forest degradaƟon, and forest growth on non-peat soils were 763 million tons or 37% of total 2005 emissions, while res and decomposiƟon of peat soils added another 850 million tons or 41% of total emissions.3 Responding to the urgency of the climate crisis, President Yudhoyono has commiƩed to a naƟonal goal of reducing emissions by 26% below projected levels in 2020. He has also oīered an upper goal of 41% with suĸcient internaƟonal support. Emissions from deforestaƟon--and from peat lands especially--account for the bulk of Indonesia’s current and projected emissions. DNPI esƟmates that by 2030, the country could contribute as much as 7% of the total reducƟons needed to fulll the global goal of avoiding warming of more than 2 degree Celsius above pre-industrial levels.3 Pledges of support for REDD+ in Indonesia have been received from the World Bank, the United NaƟons-REDD program, and the governments of Norway, Australia, the United States, the UK, France and the EU. In May of 2010, Norway commiƩed $1
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Economic incenƟve policies for REDD+ in Indonesia
billion to support Indonesia’s REDD+ readiness and reducƟon eīorts. A REDD+ mechanism is evolving toward payment for greenhouse gas (GHG) emissions reducƟons accounted for at the naƟonal scale. NaƟonal governments can pursue a wide range of policies and measures to reduce emissions from deforestaƟon. These public intervenƟons include strategic road planning, increased support for forest law enforcement, increased support for protected areas, removal of subsidies for deforestaƟon, and improvement of land tenure security.4,5 But in many forest countries the reach of the naƟonal government is limited. Many site-level land-use decisions are made by actors at regional, provincial, local or household levels. Thus incenƟves at the sub-naƟonal scale are also necessary to achieve and accelerate implementaƟon of REDD+. In this context, the Indonesian government has proposed immediate acƟon on REDD+ under a strategy of “naƟonal accounƟng with sub-naƟonal implementaƟon.” This strategy nests incenƟves for local REDD+ eīorts within accounƟng systems that reward performance against GHG emissions baselines at the naƟonal, province, and district levels. The benet of this system of rules and incenƟves will depend on the overall extent to which it encourages acƟons across the whole of Indonesia. The OSIRIS-Indonesia economic model esƟmates the impacts of alternaƟve naƟonal REDD+ policies on deforestaƟon, emissions and revenue.6,7 OSIRIS-Indonesia was developed to provide quanƟtaƟve support for the design of a naƟonally appropriate system of rules and incenƟves for REDD+ in Indonesia which eīecƟvely miƟgates climate change, eĸciently targets investments, and equitably distributes revenue. OSIRIS-Indonesia currently focuses on incenƟves to reduce emissions from deforestaƟon only. Future research will consider forest management, conservaƟon, enhancement of carbon stocks, and other land-use acƟviƟes, as well as the potenƟal for diīerenƟated incenƟve policies across regions or actors. A study based on the OSIRIS-Indonesia model has produced the ndings and policy recommendaƟons which are outlined below. Where esƟmates of deforestaƟon, CO2 emission reducƟon, and revenue impacts are based on payments to reduce deforestaƟon exclusively, we refer to “REDD.” Where policy recommendaƟons are broadly applicable to all REDD+ acƟviƟes in Indonesia, we refer to “REDD+.”
Economic incenƟve policies for REDD+ in Indonesia
President Yudhoyono has commiƩed to a naƟonal goal of reducing emissions by 26% below projected levels in 2020. He has also oīered an upper goal of 41% with suĸcient internaƟonal support.
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DeforestaƟon emissions have been concentrated in a few provinces
This deforestaƟon was highly concentrated—a few provinces with a relaƟvely small share of total forested land accounted for a large share of the naƟonal deforestaƟon emissions
Based on the data used in OSIRIS-Indonesia, 3.4 million hectares of forest cover were lost in Indonesia from 20002005, or around 3.7% of Indonesia’s forested area in 2000. Other esƟmates of Indonesia forest loss during the same Ɵme period range from 1.6 million ha8 to 3.5 million ha9 to 9.4 million ha.10 The 3.4 million hectares of deforestaƟon in OSIRIS-Indonesia was esƟmated to produce 860 MtCO2e emissions annually from 2000-2005, of which an esƟmated 592 MtCO2e/yr occurred as a result of deforestaƟon on peat soils. This compares to esƟmates of 1.610 MtCO2e emissions annually from land-use change in 2005, of which 770 MtCO2e was from peatland,3 and 1.458 MtCO2e from land use, landuse change and forestry in 2005.3 This deforestaƟon was highly concentrated—a few provinces with a relaƟvely small share of total forested land accounted for a large share of the naƟonal deforestaƟon emissions. Figure 1. The province of Riau contained about 4% of naƟonal forest area and 6% forest carbon but accounted for around 42% of Indonesia’s CO2 emissions from deforestaƟon from 2000-2005. Five provinces—Riau, Papua, Kalimantan Tengah, Kalimantan Barat, and Kalimantan Timur—containing just over half of total forest area accounted for more than two-thirds of Indonesia’s deforestaƟon and around 80% of its deforestaƟon emissions. Over 90% of deforestaƟon emissions originated from just eight provinces—Riau, Papua, Kalimantan Tengah, Kalimantan Barat, Kalimantan Timur, Sumatera Utara, Papua Barat and Jambi.
Figure 1. CumulaƟve forest area, forest carbon, deforestaƟon and emissions across 33 Indonesian provinces.
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Economic incenƟve policies for REDD+ in Indonesia
Target investments where emission reducƟons are most cost-eīecƟve The above provinces oīer the greatest biophysical potenƟal for reducing emissions, based on recent paƩerns of deforestaƟon. However, in terms of reducing emissions at lowest cost of foregone land use, a diīerent set of provinces oīer greater potenƟal net benets. We esƟmate that Papua province has the greatest potenƟal for reducing emissions cost-eīecƟvely. Papua oīers more than twice the potenƟal cost-eīecƟve emission reducƟons of the provinces that follow it (Kalimantan Tengah, Kalimantan Barat and Riau). Other pro-vinces, notably Papua Barat, Kalimantan Timur, Jambi, and Aceh, also have signicant cost-eīecƟve emissions reducƟon potenƟal below $30 per ton.
Figure 2. REDD marginal abatement cost curves for selected provinces. Assumes no leakage of deforestaƟon, business-as-usual district reference levels, 20% benet sharing, no cost sharing.
Broaden parƟcipaƟon to minimize leakage and maximize reducƟons While it makes sense to target iniƟal REDD+ investments where the most emission reducƟons can be achieved costeīecƟvely, REDD+ policy should provide incenƟves for broad parƟcipaƟon to sƟmulate cost-eīecƟve reducƟons in other regions as well and to reduce the shiŌing of deforestaƟon (“leakage”) to new regions, parƟcularly provinces with high forest cover and low deforestaƟon rates, such as Aceh and Sumatera Barat. Greatest emissions reducƟon and revenue gains are possible with a comprehensive naƟonal program. Figure 3.
Economic incenƟve policies for REDD+ in Indonesia
REDD+ policy should provide incenƟves for broad parƟcipaƟon to sƟmulate cost-eīecƟve reducƟons in other regions as well and to reduce the shiŌing of deforestaƟon (“leakage”) to new regions
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Figure 3. Leakage decreases and reducƟons increase as incenƟves for red are broadened to districts in more provinces. Assumes business-as-usual district reference levels, 20% benet sharing, no cost sharing, leakage based on price elasƟcity of demand=2.0.
Figure 4: potenƟal REDD contribuƟon to Indonesia’s emissions reducƟon. Assumes no leakage of deforestaƟon, business-as-usual district reference levels, 20% benet sharing, no cost sharing.
Map 1. EsƟmated probability of deforestaƟon 2000-2005 without REDD+. Assumes business-as-usual district reference levels, 20% benet sharing, no cost sharing, leakage based on price elasƟcity of demand=2.0.
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Economic incenƟve policies for REDD+ in Indonesia
Map 2. EsƟmated probability of deforestaƟon 2000-2005 with REDD ($10/tCO2e). Assumes business-as-usual district reference levels, 20% benet sharing, no cost sharing, leakage based on price elasƟcity of demand=2.0.
Map 3. EsƟmated probability of deforestaƟon 2000-2005 with REDD ($20/tCO2e). Assumes business-as-usual district reference levels, 20% benet sharing, no cost sharing, leakage based on price elasƟcity of demand=2.0.
REDD can contribute signicantly to meeƟng Indonesia climate goals Indonesia could reduce annual emissions from deforestaƟon by 221 million tons of CO2 at a marginal abatement cost under $10 per ton of CO2, and by 396 million tons at a cost under $25 per ton of CO2. Figure 4 and Maps 1-3. This corresponds to a cost-eīecƟve contribuƟon of 21-60% of Indonesia’s goal of a 26-41% reducƟon of GHG emissions, based on projected 2020 emission levels.3 A global market for REDD could provide Indonesia with $1.8-5.1 billion potenƟal revenue annually External factors are criƟcal to the degree of success that can be achieved by REDD+ policies. A higher internaƟonal carbon price would moƟvate greater emission reducƟons from REDD+. Maps 1-3. This carbon price is fundamentally driven by developed countries’ demand for climate change miƟgaƟon, and the extent to which developed countries can meet their climate commitments by purchasing emission reducƟons through a REDD+ mechanism. If developed countries meet the 2050 emission reducƟon targets agreed to at the Major Economic incenƟve policies for REDD+ in Indonesia
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Economies Forum of July 2009, the Environmental Defense Fund’s Global Carbon Market Tool11 esƟmates a global carbon price of $16.50 in 2012, rising by 5% annually. At this price, Indonesia’s potenƟal income from the sale of cost-eīecƟve REDD could be up to $5.1 billion/year. If the US fails to act on climate and Europe, Japan, and other naƟons scale back their climate commitments by 25%, a global carbon price of $9 is predicted.11 At this price, Indonesia’s income from the sale of cost-eīecƟve REDD emission reducƟons could sƟll achieve up to $1.8 billion/year. Indonesia’s revenue from REDD+ will also depend on its naƟonal reference level, determined through UNFCCC negoƟaƟons. The naƟonal reference level does not directly inuence site-level acƟons. However, a higher naƟonal reference level would bring in greater naƟonal revenue for any given level of emission reducƟons. In turn, greater naƟonal revenue would allow the naƟonal government to oīer a higher carbon price or higher sub-naƟonal reference levels to local jurisdicƟons, either of which would incenƟvize these local actors to undertake greater reducƟon in emissions. Thus, a higher naƟonal reference level for Indonesia would expand the ability of the naƟonal government to oīer incenƟves to jurisdicƟons to reduce emissions while maintaining a naƟonal revenue surplus. Favoring agriculture in low-carbon landscapes
The naƟonal reference level does not directly inuence sitelevel acƟons. However, a higher naƟonal reference level would bring in greater naƟonal revenue for any given level of emission reducƟons
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The deforestaƟon rate observed on peatlands from 20002005 (2.16%/yr) was more than four Ɵmes as high as the rate observed in other forests (0.53%). As a result, deforestaƟon in Indonesia from 2000-2005 was concentrated in provinces with a high carbon density relaƟve to their share of forest area. This means that stopping deforestaƟon in parƟcularly high-carbon regions such as peatlands could have a disproporƟonately great impact on reducing emissions. This process can be assisted by complemenƟng REDD+ policies with policies and programs to expand and intensify agricultural producƟon in low-carbon landscapes. A role for protected areas in REDD+ The deforestaƟon rate within naƟonal parks (0.43%/yr) and within other protected areas (0.38%/yr) was far lower than the deforestaƟon rate on land outside of protected areas (1.14%/yr). Figure 5. This diīerence in rates can not be solely aƩributed to the presence of protected areas, since some protected areas may be on land at lower risk of deforestaƟon. However, studies of protected areas in Indonesia have generally concluded that protected areas are eīecƟve at reducing deforestaƟon, relaƟve to comparable lands outside of protecƟon.12,13 This suggests expanding the protected Economic incenƟve policies for REDD+ in Indonesia
Figure 5. DeforestaƟon rates without and with REDD incenƟves in selected landscapes. Assumes leakage of deforestaƟon, business-as-usual district reference levels, 20% benet sharing, no cost sharing.
area network as a potenƟal policy measure for reducing deforestaƟon emissions. REDD+ incenƟves would produce cost-eīecƟve emission reducƟons both within and outside of protected areas, highlighƟng the scope for REDD+ inside of exisƟng protected areas through increased resources for management and enforcement. Figure 5. Rules and incenƟves for REDD+: NaƟonal accounƟng, sub- An eīecƟve framework naƟonal implementaƟon The internaƟonal REDD+ mechanism is evolving to compensate countries for aggregate emission reducƟons accounted for at the naƟonal level. This ensures the environmental integrity of accounƟng, since countries are only paid for emission reducƟons net of any increases that occur due to intra-naƟonal leakage. This system of “naƟonal accounƟng” with the need for “sub-naƟonal implementaƟon” poses a challenge to governments. If the naƟonal government pays sub-naƟonal actors based on gross reducƟons, but is paid by internaƟonal buyers for net reducƟons, then it risks incurring a budgetary shorƞall. Figure 6. Thus, naƟonal governments may seek to develop a framework of rules and incenƟves that distributes resources in a manner that encourages the reducƟon of emissions from deforestaƟon by mulƟple actors. This is parƟcularly true in Indonesia where forest management decisions are made at mulƟple scales, and much of the decision-making authority for forest management has been decentralized to the district level. Economic incenƟve policies for REDD+ in Indonesia
of rules and incenƟves will provide incenƟves for acƟons across geographic scales (from naƟonal to local), across sectors (public and private), and across forest regions (from wilderness areas, to agricultural fronƟers, to mosaic landscapes)
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Indonesia faces the challenge of designing naƟonal rules and policies for REDD+ that eīecƟvely reduce emissions, eĸciently invest resources and equitably distribute benets. These rules and incenƟves include four promising policy levers: sub-naƟonal reference levels; revenue sharing; cost sharing, and accounƟng scale. Broaden parƟcipaƟon through reference levels that approach or exceed BAU Sub-naƟonal reference levels are the level of emissions allocated to a jurisdicƟon (e.g. a district or province) as the benchmark against which to measure its performance. In the policy frameworks that we analyze, a jurisdicƟon that emits less than its reference level is eligible for REDD+ payments. A jurisdicƟon that emits more than its reference level would not necessarily incur any penalty. In this analysis we have assigned sub-naƟonal reference levels to jurisdicƟons based on uniform naƟonwide criteria.
Figure 6. The challenge of naƟonal accounƟng with sub-naƟonal implementaƟon: a simple example of a country with 2 districts
Sub-naƟonal reference levels for emissions reducƟons that approach or exceed business-as-usual (BAU) emissions encourage broadest parƟcipaƟon, highest emission reducƟons and greatest revenue. Figure 7. If district-level reference levels are uniformly reduced below the esƟmated BAU, esƟmated parƟcipaƟon in the REDD+ system drops oī rapidly, as districts whose potenƟal carbon revenue falls below their potenƟal agricultural revenue have liƩle incenƟve to conserve forest. If reference levels are uniformly increased above the esƟmated BAU, there are large gains in parƟcipaƟon and small gains in overall emission reducƟons. However, applying such an increase in reference levels uniformly would result in a shorƞall of funds at the aggregate level. This suggests that a diīerenƟated policy assigning
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Economic incenƟve policies for REDD+ in Indonesia
lower reference levels to some districts and higher reference Sub-naƟonal levels to others could induce greater parƟcipaƟon in REDD+. reference levels
for emissions
Adjust historical rates so that reference levels more closely reducƟons that approximate BAU Signicant gains could result from adjusƟng sub-naƟonal reference levels upwards or downwards from historic levels to beƩer approximate business-as-usual rates of deforestaƟon emissions. Figure 8. Establishing jurisdicƟonal reference levels that average each jurisdicƟon’s historical emission rates with the naƟonal historical emission rate (a “combined incenƟves” approach)14 can produce substanƟally greater naƟonal emission reducƟons and revenue than reference levels equal to jurisdicƟons’ historical rates.
approach or exceed businessas-usual (BAU) emissions encourage broadest parƟcipaƟon, highest emission reducƟons and greatest revenue
Figure 7: reference levels approaching or exceeding business as usual (BAU) increase parƟcipaƟon and reducƟons. Assumes $10 price per ton CO2, leakage of deforestaƟon, 20% benet sharing, no cost sharing. Economic incenƟve policies for REDD+ in Indonesia
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Set accounƟng scale that aggregates local land-use decisions A system of credits based on a higher spaƟal scale of accounƟng produces less leakage of emissions and achieves greater net emission reducƟons. Figure 8. Overall reducƟons are lowest and public shorƞalls greatest when credits are allocated directly based on reference levels set only at the site or project level, since the naƟonal treasury bears implicit liability for emission increases at all sites that choose not to parƟcipate in the program. Assigning credit at the district level greatly miƟgates this problem, as rewards are only
Figure 8. Net emission reducƟons are greater under higher accounƟng scale and reference level design that more closely approximate business-as-usual emission rates. Assumes $10 price per ton CO2, leakage of deforestaƟon, 20% benet sharing, no cost sharing.
A system of credits based on a higher spaƟal scale of accounƟng produces less leakage of emissions and achieves greater net emission reducƟons
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generated if deforestaƟon is reduced on net throughout the jurisdicƟon. Further improvement in addressing leakage occurs as accounƟng is moved to a provincial scale. Figure 8. However, a tradeoī may exist between greater miƟgaƟon and revenue benets at higher accounƟng scales, and greater ease of incenƟvizing local acƟons at more localized accounƟng scales. Share revenues so that all actors benet from reducƟons A revenue-sharing arrangement between the naƟonal government and sub-naƟonal jurisdicƟons determines what porƟon of internaƟonal income from emission reducƟons accrues to jurisdicƟons, and what porƟon remains with the naƟonal government. A moderate amount of revenue sharing is necessary for naƟonal and provincial governments to retain a budget surplus from REDD+ to fund policies and programs at these levels. Figure 9. Unless the naƟonal government retains some share of revenue received through REDD+, a naƟonal Economic incenƟve policies for REDD+ in Indonesia
budget shorƞall can be expected. The shorƞall would occur because the naƟonal REDD+ program would pay districts for gross reducƟons, but would only be compensated by internaƟonal buyers for net reducƟons at the naƟonal scale. REDD+ revenue sharing would ensure both adequate local incenƟves and a naƟonal budgetary surplus. The majority of revenue received from local emission reducƟons should accrue to actors directly responsible for local land-use decisions. However a modest amount of benet sharing with naƟonal and regional governments is necessary to ensure an aggregate budget surplus, with which to fund policies and measures for reducing deforestaƟon naƟonwide. These public policies and measures could include strategic road planning, increased support for forest law enforcement, increased support for protected areas, removal of subsidies for deforestaƟon, and improvement of land tenure security.4,5 Sharing the revenues from emission reducƟons across all levels of land-use decision–making would provide incenƟves to actors at each scale to support emission reducƟons. Local actors could share responsibility in addiƟon to The majority of revenue revenue A cost-sharing arrangement between the naƟonal government and the jurisdicƟons determines what porƟon of lost internaƟonal income from sub-naƟonal emission increases are borne by the naƟonal government, and what porƟon are the responsibility of actors producing the emission increases. If governments are willing to adopt a REDD+ program that includes compliance elements instead of a completely voluntary, ‘no-lose’ system, then sub-naƟonal
received from local emission reducƟons should accrue to actors directly responsible for local land-use decisions
Figure 9: revenue should be shared (about 80/20) between subnaƟonal jurisdicƟons and naƟonal government. Assumes $10 price per ton CO2, leakage of deforestaƟon, businessas-usual district reference levels, no cost sharing. Economic incenƟve policies for REDD+ in Indonesia
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actors could share in both the revenue accruing from their emissions reducƟons and responsibility for the costs resulƟng from emission increases above their reference levels. This would provide incenƟve for these actors’ parƟcipaƟon in REDD+ and reduce the naƟonal government’s potenƟal cost burden. If actors are responsible for paying a price for any increases in carbon emissions above their reference level, in addiƟon to receiving payments for reducƟons below their reference level, then the cost of not parƟcipaƟng in REDD+ rises. Some actors might then choose to reduce emissions rather than expand agricultural producƟon into forests and increase emissions. This could even increase these actors’ REDD+ benets compared to the no-cost-sharing case, which would miƟgate the foregone revenue from not expanding agriculture into forests. If the scal penalƟes for increasing emissions are paid to the naƟonal government, even without any benet sharing, these penalƟes could cut the annual aggregate revenue shorƞall due to emission increases by almost 80%. Figure 10. Integrate REDD+ into low-carbon development planning Regional data collecƟon and analysis can allow provincial and district decision makers to align REDD+ income and climate miƟgaƟon with other local goals. SpaƟal planning for low-carbon, or “green,” economic development provides a basis for more opƟmal land and resource use to meet mulƟple goals, including agricultural development, poverty alleviaƟon, biodiversity conservaƟon, climate resilience and social benets.
Figure 10. Government shorƞall is reduced as sub-naƟonal actors share responsibility for the cost of lost income due to emission increases
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Economic incenƟve policies for REDD+ in Indonesia
Data and Methods This study draws upon peer-reviewed scienƟc data on forest cover and forest cover loss for the period 20002005,15 above- and below-ground forest biomass carbon,16 soil carbon,17 peatland distribuƟon,18 emissions from the conversion of forests on peat soils,19 potenƟal agricultural revenue,20 slope and elevaƟon,21 distance from naƟonal and regional roads and from provincial capitals,22 and protected area status.23 Data was compiled for approximately 200,000 3km x 3km grid cells across all of Indonesia. The staƟsƟcal relaƟonship between potenƟal agricultural revenue and observed forest cover loss (2000-2005) was used to esƟmate by how much land-users would voluntarily decide not to deforest due to increases in the level of carbon payment. The naƟonal government’s policies (district reference levels; scale of accounƟng; benet sharing; cost sharing) produced economic incenƟves to which Indonesia’s 403 districts responded. Districts chose whether or not to parƟcipate in REDD, and where and how much to deforest, in order to maximize total revenue accruing from agriculture and REDD. A general equilibrium model of Indonesia’s economy24 permiƩed our esƟmaƟon of displacement (“leakage”) of deforestaƟon; decreases in deforestaƟon in one region increased the pressure to deforest in other regions. A unique equilibrium produced esƟmates of the spaƟal distribuƟon of deforestaƟon, emissions, and naƟonal and district revenue under alternaƟve naƟonal policies.
Economic incenƟve policies for REDD+ in Indonesia
SpaƟal planning for low-carbon, or “green,” economic development provides a basis for more opƟmal land and resource use to meet mulƟple goals
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Economic incenƟve policies for REDD+ in Indonesia
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Economic incenƟve policies for REDD+ in Indonesia
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Economic incenƟve policies for REDD+ in Indonesia
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Economic incenƟve policies for REDD+ in Indonesia
