Opportunity Costs of Emissions Caused by Land-Use Changes

Abstract

Amid the euphoria of Reducing Emissions from Deforestation and Forest Degradation (REDD) and REDD+ discussions, the expectations of large financial gains raise the interest of all. A country, however, will only enjoy REDD benefits if the cost of REDD is lower than the benefit. The opportunity cost analysis is an effective tool for assessing the feasibility of REDD+ since the largest portion of costs associated with REDD+ and can help to identify fair compensation for those who change their land use. The opportunity cost analysis has been exercised in Tanjung Jabung Barat (Tanjabar) district-Indonesia to examine the economic-feasibility of carbon emission reduction under different type carbon price scenarios. This study reveals a sharp decline of land-use systems with high carbon-stock and low profitability is obvious. On mineral soil, low carbon-stock and high profitability (mostly oil palm) has increased rapidly, especially in the period 2000-2009. It has become the dominant land-use system. The low-to-medium carbon stock and medium profitability land-use category increased from 1990 to 2005 but declined from 2005 to 2009. The low carbon-stock and low profitability category was constant and the proportion of the area was below 15%. The ex-ante analysis in predicting the potential for future emissions reduction in Tanjabar through REDD+ approaches shows that the cumulative emission of Tanjabar in 2020 is estimated at 61.91 Mg CO2-eq/Ha.Year, while the reduced emission by excluding all land use conversion below $5 threshold is estimated at 51.71 Mg CO2-eq/Ha.Year. This means that there is a potential for 16% emission reduction using $5/ton CO2-eq incentive. Another important finding in this study is that if the price of carbon increases by double to $10, the amount of reduced emission does not change much. This can use as a basis for determining the right amount of incentive for trade-off between economic profitability and climate change mitigation effort in Tanjabar using REDD+ scheme both at seller and buyer perspectives.