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Indonesia's moratorium on palm oil expansion from natural forest: Economy-wide impact and the role of international transfers

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Abstract

Palm oil has become increasingly important in Indonesian export. Indonesian economic growth, particularly in forest-rich regions of the country depends on the expansion of palm oil production. On the other hand, the Indonesian government is committed to reduce carbon emissions from land use change to which the conversion from natural forest to palm oil has greatly contributed. Indonesia introduced a moratorium of conversion from natural forest to palm oil land. Using a dynamic, bottom-up inter-regional computable general equilibrium of the Indonesian economy, we assess several scenarios of the moratorium and discuss its impact on the national as well as regional economy. The results suggest that the moratorium reduces Indonesian economic growth, and other macroeconomic indicators, but international transfers ($10/tCO2 emissions avoided) can more than compensate the welfare loss. However, the impact varies across regions. Sumatera which is highly-dependent on oil palm; of which its economy is less broad-based and its carbon stock of its forest is no longer high, receives fewer transfers and suffer a great economic loss. In the meantime, Kalimantan which is relatively less dependent on oil palm than Sumatera and its forest carbon stock is still high, receives more transfers and get greater benefit. This result suggest that additional policy measures anticipating the unbalanced impact of the transfers is required if the trade-off between conservation and reducing inter-regional economic disparity needs to be reconciled.

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  • A.A. Yusuf & E.L. Roos & J.M. Horridge, 2017. "Indonesia's moratorium on palm oil expansion from natural forest: Economy-wide impact and the role of international transfers," Centre of Policy Studies/IMPACT Centre Working Papers g-276, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-276
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    1. V. Bellassen & V. Gitz, 2008. "Reducing Emissions from Deforestation and Degradation in Cameroon - Assessing costs and benefits," Post-Print hal-00716370, HAL.
    2. Mark Horridge, 2011. "The TERM model and its data base," Centre of Policy Studies/IMPACT Centre Working Papers g-219, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Bellassen, Valentin & Gitz, Vincent, 2008. "Reducing Emissions from Deforestation and Degradation in Cameroon -- Assessing costs and benefits," Ecological Economics, Elsevier, vol. 68(1-2), pages 336-344, December.
    4. Richard Dutu, 2015. "Making the Most of Natural Resources in Indonesia," OECD Economics Department Working Papers 1236, OECD Publishing.
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    1. Malahayati, Marissa & Masui, Toshihiko, 2019. "The impact of green house gas mitigation policy for land use and the forestry sector in Indonesia: Applying the computable general equilibrium model," Forest Policy and Economics, Elsevier, vol. 109(C).
    2. Glyn Wittwer, 2022. "Preparing a multi-country, sub-national CGE model: EuroTERM including Ukraine," Centre of Policy Studies/IMPACT Centre Working Papers g-334, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Purnomo, Herry & Okarda, Beni & Dermawan, Ahmad & Ilham, Qori Pebrial & Pacheco, Pablo & Nurfatriani, Fitri & Suhendang, Endang, 2020. "Reconciling oil palm economic development and environmental conservation in Indonesia: A value chain dynamic approach," Forest Policy and Economics, Elsevier, vol. 111(C).
    4. Prija Djatmika & Prischa Listiningrum & Theresia B. Sumarno & Dararida F. Mahira & Corinthias P. M. Sianipar, 2023. "Just Transition in Biofuel Development towards Low-Carbon Economy: Multi-Actor Perspectives on Policies and Practices in Indonesia," Energies, MDPI, vol. 17(1), pages 1-29, December.
    5. Shang Xu & H. Allen Klaiber & Daniela A. Miteva, 2023. "Impacts of forest conservation on local agricultural labor supply: Evidence from the Indonesian forest moratorium," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(3), pages 940-965, May.
    6. Yusuf, Arief A. & Roos, Elizabeth L. & Horridge, J. Mark & Hartono, Djoni, 2023. "Indonesian capital city relocation and regional economy's transition toward less carbon-intensive economy: An inter-regional CGE analysis," Japan and the World Economy, Elsevier, vol. 68(C).
    7. Arief Anshory Yusuf, 2021. "The impact of Industry 4.0 on the Indonesian economy: A general equilibrium assessment," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(6), pages 1805-1824, December.
    8. Leijten, Floris & Sim, Sarah & King, Henry & Verburg, Peter H., 2021. "Local deforestation spillovers induced by forest moratoria: Evidence from Indonesia," Land Use Policy, Elsevier, vol. 109(C).
    9. L. Kiely & D. V. Spracklen & S. R. Arnold & E. Papargyropoulou & L. Conibear & C. Wiedinmyer & C. Knote & H. A. Adrianto, 2021. "Assessing costs of Indonesian fires and the benefits of restoring peatland," Nature Communications, Nature, vol. 12(1), pages 1-11, December.

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    More about this item

    Keywords

    palm oil; carbon emissions; computable general equilibrium; Indonesia;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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