Incentives and disincentives for reducing emissions under REDD+ in Indonesia

Abstract

This chapter explores the fiscal incentives and disincentives that contribute either positively or negatively to reducing emissions from deforestation and forest degradation (REDD+) in Indonesia. Indonesia is an important participant in the UN Framework Convention on Climate Change programme on REDD+. The programme is funded through financial contributions from developed to developing countries, which can eventually be part of a country's nationally determined contribution to reducing emissions, either domestically, or via international emissions trading. Our study finds that there are a number of formal charges, fees and taxes that apply on forest-related activities in Indonesia, which are stipulated within regulations promulgated by various government departments. A range of informal subnational charges also apply to forest-related activities, which has often provided a monetary incentive for local government, especially forest-rich districts, to exploit their timber resources. However, this has been proven as a disincentive for REDD+ implementation in Indonesia. We also find that there is a need for improved financial governance in future fiscal policy reform, which should include the removal of perverse incentives for forest conversion, the equitable and accountable distribution of financial incentives, the prevention of corruption and fraud, and the strengthening of economic benefits for smallholders. We recommend that in implementing the REDD+, the Government of Indonesia should consider providing incentives for the nonexploitation of forests by businesses engaged in the provision of environmental services as well as carbon transactions. This could take the form of private investments, private-public partnerships or civil society engagement in forestry and land use change, and may include incentives such as payment for ecosystem services and for forest ecosystem restoration.