The role of fiscal instruments in encouraging the private sector and smallholders to reduce emissions from deforestation and forest degradation: Evidence from Indonesia

Abstract

While developing countries around the world are preparing to implement REDD+, there is a debate on the possible role of fiscal instruments in encouraging the private sector and smallholder stakeholders in reducing emissions. Drawing on a case of Indonesia, an early leader on REDD+, this paper investigates the role of fiscal instruments in encouraging the private sector to reduce forest-based emissions and the implications for improving the forest sector governance. In particular the study highlights the perspectives of a range of forest sector stakeholders on the role of fiscal instruments that contribute either positively or negatively to reducing emissions from deforestation and forest degradation in Indonesia. The study comprised a review of the existing instruments in Indonesia, as well as surveys and interviews. An online survey and structured face-to-face interviews were conducted with a range of forest sector stakeholders, including government, civil society, academia, and palm oil concession holders. Findings indicate that there is a range of formal and informal fiscal instruments at the various jurisdictional levels, and a variety of incentives and disincentives. More emphasis on cross-sectoral co-ordination, alternatives to commodities such as palm oil, and continued land reform, is required.