The effect of growth, deforestation, forest fires, and volcanoes on Indonesian regional air quality

Abstract

As a rapidly developing country, Indonesia faces a challenge in improving air quality that is made more difficult by frequent forest fires linked to deforestation and volcanic eruptions. This paper analyses the link between development and air pollution in 30 Indonesian cities from 2002 to 2019. Air quality is measured using two novel regional air quality indicators (AQIs) for PM2.5 and PM10 estimated from weather observations and NASA satellite data on Aerosol Optical Depth (AOD). Results from an Environmental Kuznets Curve (EKC) analysis, based on a dynamic panel data model, show that forest fires and volcanic activity have significantly worsened regional air quality in Indonesia. The model also shows that the EKC hypothesis is rejected for Indonesia as cities have followed a monotonically increasing trend in air pollution with respect to economic growth. An additional 1% of economic growth increased long run pollution as measured by AQI PM2.5 and PM10 by 0.35% and 0.46%, and forest fire events by 0.11% and 0.06%. A partial Benefit-Cost Analysis (BCA) of forest fires shows that particulate matter pollution is excessive. Decreasing the frequency of forest fires by 1% would generate a net benefit of between US$17 million to 145 million. The lower estimate of the health benefits exceeds the agricultural benefits of forest fire without accounting for other non-market costs due to forest fires. Our results imply that, as Indonesia grows economically, air quality is likely to continue deteriorating. Further, regions affected by regular volcanic activity and wildfires should apply tighter emission standards to controllable point source emissions from industry and non-point source emissions such as agricultural forest fires.