Abstract
Indonesia has introduced a moratorium on the conversion of natural forests to land used for palm oil production. Using a dynamic, bottom-up, interregional computable general equilibrium model of the Indonesian economy, we assess several scenarios of the moratorium and discuss its impacts on the domestic economy as well as on regional economies within Indonesia. We find the moratorium reduces Indonesian economic growth and other macroeconomic indicators, but international transfers can more than compensate the welfare losses. The impacts also vary across regions. Sumatra, which is highly dependent on palm oil and is home to forests that no longer have a high carbon stock, receives fewer transfers and suffers the greatest economic loss. Kalimantan, which is relatively less dependent on palm oil and has forests with a relatively high carbon stock, receives more transfers and gets greater benefit. This implies that additional policy measures anticipating the unbalanced impacts of the moratorium are required if the trade-off between conservation and reducing interregional economic disparity is to be reconciled.
Highlights
The United Nations Reduction of Emissions from Deforestation and Forest Degradation (REDD) program seeks to reduce carbon emissions resulting from deforestation and enhance carbon stocks in forests, while contributing to national sustainable development (UN-REDD 2015)
We develop and apply a regional dynamic computable general equilibrium (CGE) model for Indonesia to investigate two scenarios regarding the moratorium placed on the conversion of managed and natural forest to oil palm plantations
SIM2: Imposing a Land Moratorium in Return for a REDD Payment In this simulation, we evaluate the impact of a moratorium on the land used for palm oil production, which is similar to SIM1, but it is accompanied with a gift of foreign exchange (REDD payment) in return for lower CO2 emissions
Summary
The United Nations Reduction of Emissions from Deforestation and Forest Degradation (REDD) program seeks to reduce carbon emissions resulting from deforestation and enhance carbon stocks in forests, while contributing to national sustainable development (UN-REDD 2015). Sandker et al (2010) developed a systems dynamics model for a cocoa agroforest landscape in southwestern Ghana to explore whether REDD payments are likely to promote forest conservation and what the economic implications would be. They find that in the short term, REDD payments are likely to be preferred by farmers, especially if there is a large annual up-front payment and when the policy only focuses on payments that end deforestation of old-growth forests. They find that converting a hectare of forest to palm oil production is more profitable to land owners than preserving it for carbon credits They suggest that giving REDD credits price parity.
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