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Structuring national and sub-national economic incentives to reduce emissions from deforestation in Indonesia


Author Info

  • Jonah Busch

    (Conservation International, Arlington, VA)

  • Ruben Lubowski

    (Environmental Defense Fund, Washington, DC)

  • Fabiano Godoy

    (Conservation International, Arlington, VA)

  • Marc Steininger

    (Conservation International, Arlington, VA)

  • Arief Anshory Yusuf

    (Department of Economics, Padjadjaran University)

  • Kemen Austin

    (World Resources Institute, Washington, DC)

  • Jenny Hewson

    (Conservation International, Arlington, VA)

  • Daniel Juhn

    (Conservation International, Arlington, VA)

  • Muhammad Farid

    (Conservation International, Jakarta, Indonesia)

  • Frederick Boltz

    (Conservation International, Arlington, VA)


We estimate the impacts that alternative national and sub-national economic incentive structures for reducing emissions from deforestation (REDD+) in Indonesia would have had on greenhouse gas emissions and national and local revenue if they had been in place from 2000-2005. The impact of carbon payments on deforestation is calibrated econometrically from the pattern of observed deforestation and spatial variation in the benefits and costs of converting land to agriculture over that time period. We estimate that at an international carbon price of $10/tCO2e, a “basic voluntary incentive structure” modeled after a traditional payment-for-ecosystem-services (PES) program would have reduced emissions nationally by 62 MtCO2e/yr, or 8% below the without-REDD+ reference scenario (95% CI: 45-76 MtCO2e/yr; 6-9%), while generating a programmatic budget shortfall. By making four policy improvements—paying for net emission reductions at the scale of an entire district rather than site-by-site, paying for reductions relative to estimated business-as-usual levels rather than historical levels, sharing a portion of district-level revenues with the national government, and sharing a portion of the national government’s responsibility for costs with districts—an “improved voluntary incentive structure” would have reduced emissions by 175 MtCO2e/yr, or 22% below the reference scenario (95% CI: 136-207 MtCO2e/yr; 17-26%), while generating a programmatic budget surplus. A “regulatory incentive structure” such as a cap-and-trade or symmetric tax-and-subsidy program would have reduced emissions by 211/yr, or 26% below the reference scenario (95% CI: 163-247 MtCO2e/yr; 20-31%), and would not have required accurate predictions of business-as-usual emissions to guarantee a programmatic budget surplus.

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Bibliographic Info

Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 201105.

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Length: 38 pages
Date of creation: Jun 2011
Date of revision: Jun 2011
Handle: RePEc:unp:wpaper:201105

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Related research

Keywords: Climate change; land-use change; REDD+; reference levels; economic incentives;

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  1. Cattaneo, Andrea, 2011. "Robust design of multiscale programs to reduce deforestation," Environment and Development Economics, Cambridge University Press, vol. 16(04), pages 455-478, August.
  2. Nelson, Gerald & Hellerstein, Daniel, 1997. "Do roads cause deforestation? Using satellite images in econometric analysis of land use," MPRA Paper 25261, University Library of Munich, Germany.
  3. Douglas J. Miller, 1999. "An Econometric Analysis of the Costs of Sequestering Carbon in Forests," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 812-824.
  4. Budy P Resosudarmo & Arief A Yusuf & Djoni Hartono & Ditya A Nurdianto, 2009. "Regional Economic Modelling for Indonesia: Implementation of the IRSA-INDONESIA5," Departmental Working Papers 2009-21, The Australian National University, Arndt-Corden Department of Economics.
  5. van Benthem, Arthur A. & Kerr, Suzi, 2011. "Bigger is Better: Avoided Deforestation Offsets in the Face of Adverse Selection," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 100569, Australian Agricultural and Resource Economics Society.
  6. Montero, Juan-Pablo, 2000. "Optimal design of a phase-in emissions trading program," Journal of Public Economics, Elsevier, vol. 75(2), pages 273-291, February.
  7. Kenneth M. Chomitz & Timothy S. Thomas, 2003. "Determinants of Land Use in Amaz�nia: A Fine-Scale Spatial Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 1016-1028.
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Cited by:
  1. Patrick Doup�, 2014. "Reduced Deforestation and Economic Growth," CCEP Working Papers 1402, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  2. Suzi Kerr & Adam Millard-Ball, 2012. "Cooperation To Reduce Developing Country Emissions," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1250023-1-1.


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